UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
 þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 June 30, 2005
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 1-4996
 ALLTEL CORPORATION
 
  Delaware
    
    34-0868285(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)One Allied Drive, Little Rock, Arkansas
    
    72202(Address of principal executive offices)
    
    (Zip Code)Registrants telephone number, including area code (501) 905-8000(Former name, former address and former fiscal year, if changed since last report)
  X
  X
 327,489,268


ALLTEL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 Page No.PART I - FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    2Item 2.
    
    Management's Discussion and Analysis of Financial Conditionand Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    41Item 4.
    
    Controls and Procedures
    
    
    42PART II - OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    *Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3.
    
    Defaults Upon Senior Securities
    
    
    *Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    42Item 5.
    
    Other Information
    
    
    *Item 6.
    
    Exhibits
    
    
    42
 *
    
    No reportable information under this item.
 Forward-Looking Statements
   1


ALLTEL CORPORATION
FORM 10-Q
 
 PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CONSOLIDATED BALANCE SHEETS (UNAUDITED)  (Dollars in millions, except per share amounts)
    
    June 30,
    
    
    December 31,Assets
    
    2005
    
    
    2004Current Assets:Cash and short-term investments
    
    $
    2,027.7
    
    
    $
    484.9Accounts receivable (less allowance for doubtful accounts of $55.0 and $53.6, respectively)
    
    
    929.0
    
    
    
    912.7Inventories
    
    
    159.9
    
    
    
    156.8Prepaid expenses and other
    
    
    89.1
    
    
    
    62.4Total current assets
    
    
    3,205.7
    
    
    
    1,616.8Investments
    
    
    207.1
    
    
    
    804.9Goodwill
    
    
    5,151.9
    
    
    
    4,875.7Other intangibles
    
    
    1,380.8
    
    
    
    1,306.1Property, Plant and Equipment:Land
    
    
    280.4
    
    
    
    278.1Buildings and improvements
    
    
    1,147.1
    
    
    
    1,134.8Wireline
    
    
    6,824.9
    
    
    
    6,735.8Wireless
    
    
    6,057.5
    
    
    
    5,764.0Information processing
    
    
    1,099.1
    
    
    
    1,048.4Other
    
    
    495.4
    
    
    
    489.9Under construction
    
    
    492.5
    
    
    
    385.3Total property, plant and equipment
    
    
    16,396.9
    
    
    
    15,836.3Less accumulated depreciation
    
    
    8,853.5
    
    
    
    8,288.2Net property, plant and equipment
    
    
    7,543.4
    
    
    
    7,548.1Other assets
    
    
    426.0
    
    
    
    452.1Total Assets
    
    $
    17,914.9
    
    
    $
    16,603.7Liabilities and Shareholders EquityCurrent Liabilities:Current maturities of long-term debt
    
    $
    222.8
    
    
    $
    225.0Accounts payable
    
    
    422.4
    
    
    
    448.2Advance payments and customer deposits
    
    
    219.4
    
    
    
    219.3Accrued taxes
    
    
    286.3
    
    
    
    158.2Accrued dividends
    
    
    124.6
    
    
    
    105.9Accrued interest
    
    
    106.2
    
    
    
    120.2Other current liabilities
    
    
    169.3
    
    
    
    183.5Total current liabilities
    
    
    1,551.0
    
    
    
    1,460.3Long-term debt
    
    
    4,954.0
    
    
    
    5,352.4Deferred income taxes
    
    
    1,632.9
    
    
    
    1,715.1Other liabilities
    
    
    922.0
    
    
    
    947.2Shareholders Equity:Preferred stock, Series C, $2.06, no par value, 12,210 and 12,288 shares issued and outstanding,
respectively
    
    
    0.3
    
    
    
    0.3Common stock, par value $1 per share, 1.0 billion shares authorized, 327,323,194 and
302,267,959 shares issued and outstanding, respectively
    
    
    327.3
    
    
    
    302.3Additional paid-in capital
    
    
    1,577.5
    
    
    
    197.9Unrealized holding gain on investments
    
    
    
    
    
    
    153.9Foreign currency translation adjustment
    
    
    0.5
    
    
    
    0.5Retained earnings
    
    
    6,949.4
    
    
    
    6,473.8Total shareholders equity
    
    
    8,855.0
    
    
    
    7,128.7Total Liabilities and Shareholders Equity
    
    $
    17,914.9
    
    
    $
    16,603.7
  2


CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,(Millions, except per share amounts)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues and sales:Service revenues
    
    $
    1,989.2
    
    
    $
    1,825.9
    
    
    $
    3,887.5
    
    
    $
    3,591.5Product sales
    
    
    270.9
    
    
    
    216.2
    
    
    
    498.6
    
    
    
    411.8Total revenues and sales
    
    
    2,260.1
    
    
    
    2,042.1
    
    
    
    4,386.1
    
    
    
    4,003.3Costs and expenses:Cost of services (excluding depreciation of $244.2, $231.7, $486.1
and $463.6, respectively, included below)
    
    
    660.9
    
    
    
    584.2
    
    
    
    1,287.2
    
    
    
    1,145.0Cost of products sold
    
    
    308.1
    
    
    
    256.0
    
    
    
    589.9
    
    
    
    513.3Selling, general, administrative and other
    
    
    420.6
    
    
    
    372.9
    
    
    
    828.0
    
    
    
    748.1Depreciation and amortization
    
    
    348.3
    
    
    
    321.2
    
    
    
    689.5
    
    
    
    642.5Restructuring and other charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51.8Total costs and expenses
    
    
    1,737.9
    
    
    
    1,534.3
    
    
    
    3,394.6
    
    
    
    3,100.7Operating income
    
    
    522.2
    
    
    
    507.8
    
    
    
    991.5
    
    
    
    902.6Equity earnings in unconsolidated partnerships
    
    
    15.2
    
    
    
    15.9
    
    
    
    25.9
    
    
    
    29.2Minority interest in consolidated partnerships
    
    
    (18.9
    )
    
    
    (21.6
    )
    
    
    (37.2
    )
    
    
    (37.2
    )Other income, net
    
    
    8.0
    
    
    
    2.9
    
    
    
    128.7
    
    
    
    7.5Interest expense
    
    
    (76.3
    )
    
    
    (86.6
    )
    
    
    (163.0
    )
    
    
    (178.3
    )Gain on exchange or disposal of assets and other
    
    
    188.3
    
    
    
    
    
    
    
    188.3
    
    
    
    Income before income taxes
    
    
    638.5
    
    
    
    418.4
    
    
    
    1,134.2
    
    
    
    723.8Income taxes
    
    
    236.4
    
    
    
    155.8
    
    
    
    419.1
    
    
    
    271.4Net income
    
    
    402.1
    
    
    
    262.6
    
    
    
    715.1
    
    
    
    452.4Preferred dividends
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Net income applicable to common shares
    
    $
    402.0
    
    
    $
    262.5
    
    
    $
    715.0
    
    
    $
    452.3Earnings per share:Basic
    
    
    $1.28
    
    
    
    $.85
    
    
    
    $2.32
    
    
    
    $1.46Diluted
    
    
    $1.27
    
    
    
    $.85
    
    
    
    $2.31
    
    
    
    $1.46
  3


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
  Six MonthsEnded June 30,(Millions)
    
    2005
    
    
    2004Cash Provided from Operations:Net income
    
    $
    715.1
    
    
    $
    452.4Adjustments to reconcile net income to net cash provided from operations:Depreciation and amortization
    
    
    689.5
    
    
    
    642.5Provision for doubtful accounts
    
    
    90.7
    
    
    
    88.7Non-cash portion of gain on exchange or disposal of assets and other
    
    
    (202.2
    )
    
    
    Non-cash portion of restructuring and other charges
    
    
    
    
    
    
    25.6Increase in deferred income taxes
    
    
    6.3
    
    
    
    145.9Other, net
    
    
    11.1
    
    
    
    (0.2
    )Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:Accounts receivable
    
    
    (105.8
    )
    
    
    (65.6
    )Inventories
    
    
    (2.3
    )
    
    
    25.8Accounts payable
    
    
    (31.3
    )
    
    
    (75.3
    )Other current liabilities
    
    
    100.6
    
    
    
    39.9Other, net
    
    
    (28.1
    )
    
    
    (31.6
    )Net cash provided from operations
    
    
    1,243.6
    
    
    
    1,248.1Cash Flows from Investing Activities:Additions to property, plant and equipment
    
    
    (611.1
    )
    
    
    (480.5
    )Additions to capitalized software development costs
    
    
    (26.9
    )
    
    
    (14.8
    )Additions to investments
    
    
    (0.9
    )
    
    
    (2.5
    )Purchases of property, net of cash acquired
    
    
    (223.7
    )
    
    
    Proceeds from the sale of assets
    
    
    36.2
    
    
    
    Proceeds from the sale of investments
    
    
    353.4
    
    
    
    Proceeds from the return on investments
    
    
    20.4
    
    
    
    36.9Other, net
    
    
    3.1
    
    
    
    (4.2
    )Net cash used in investing activities
    
    
    (449.5
    )
    
    
    (465.1
    )Cash Flows from Financing Activities:Dividends on preferred and common stock
    
    
    (220.7
    )
    
    
    (231.3
    )Reductions in long-term debt
    
    
    (452.9
    )
    
    
    (252.9
    )Repurchases of common stock
    
    
    
    
    
    
    (243.0
    )Distributions to minority investors
    
    
    (27.0
    )
    
    
    (32.7
    )Long-term debt issued
    
    
    50.0
    
    
    
    Preferred stock redemptions
    
    
    
    
    
    
    (0.1
    )Common stock issued
    
    
    1,399.3
    
    
    
    6.7Net cash provided from (used in) financing activities
    
    
    748.7
    
    
    
    (753.3
    )Effect of exchange rate changes on cash and short-term investments
    
    
    
    
    
    
    (0.1
    )Increase in cash and short-term investments
    
    
    1,542.8
    
    
    
    29.6Cash and Short-term Investments:Beginning of the period
    
    
    484.9
    
    
    
    657.8End of period
    
    $
    2,027.7
    
    
    $
    687.4Non-Cash Investing and Financing Activity:Change in fair value of investments in equity securities
    
    $
    (236.8
    )
    
    $
    23.7Change in fair value of interest rate swap agreements
    
    $
    (1.2
    )
    
    $
    (33.4
    )
  4


CONSOLIDATED STATEMENT
OF SHAREHOLDERS EQUITY (UNAUDITED)Unrealized
    
    
    ForeignAdditional
    
    
    Holding
    
    
    CurrencyPreferred
    
    
    Common
    
    
    Paid-In
    
    
    Gain On

    Translation
    Retained(Millions)
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Investments
    
    
    Adjustment
    
    
    Earnings
    
    
    TotalBalance at December 31, 2004
    
    $
    0.3
    
    
    $
    302.3
    
    
    $
    197.9
    
    
    $
    153.9
    
    
    $
    0.5
    
    
    $
    6,473.8
    
    
    $
    7,128.7Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    715.1
    
    
    
    715.1Other comprehensive loss, net of
tax: (See Note 10)Unrealized holding losses on
investments,net of reclassification
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153.9
    )
    
    
    
    
    
    
    
    
    
    
    (153.9
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153.9
    )
    
    
    
    
    
    
    715.1
    
    
    
    561.2Settle purchase obligation related to equity
units (See Note 4)
    
    
    
    
    
    
    24.5
    
    
    
    1,360.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,385.0Employee plans, net
    
    
    
    
    
    
    0.3
    
    
    
    14.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.0Restricted stock, net of unearned compensation
    
    
    
    
    
    
    0.2
    
    
    
    2.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5Tax benefit for non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.0Conversion of preferred stock
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Dividends:Common  $.76 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (239.4
    )
    
    
    (239.4
    )Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )Balance at June 30, 2005
    
    $
    0.3
    
    
    $
    327.3
    
    
    $
    1,577.5
    
    
    $
    
    
    
    $
    0.5
    
    
    $
    6,949.4
    
    
    $
    8,855.0
  5


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    General:Basis of Presentation  The consolidated financial statements at June 30, 2005 and
December 31, 2004 and for the three and six month periods ended June 30, 2005 and 2004 of
ALLTEL Corporation (Alltel or the Company) are unaudited. The consolidated financial
statements have been prepared in accordance with generally accepted accounting principles for
interim financial reporting and Securities and Exchange Commission rules and regulations.
Certain information and footnote disclosures have been condensed or omitted in accordance
with those rules and regulations. The consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and operating results
for the interim periods presented.2.
    
    Acquisitions:
On April 15, 2005, Alltel and Cingular Wireless LLC (Cingular), a joint venture between
SBC Communications, Inc. and BellSouth Corporation, exchanged certain wireless assets.
Under the terms of the agreement, Alltel acquired former AT&T Wireless properties, including
licenses, network assets, and subscribers, in select markets in Kentucky, Oklahoma, Texas,
Connecticut and Mississippi covering approximately 2.7 million potential customers (POPs).
Alltel also acquired 20MHz of spectrum and network assets owned by AT&T Wireless in Kansas
and wireless spectrum in several counties in Georgia and Texas. In addition, Alltel and
Cingular exchanged partnership interests, with Cingular receiving interests in markets in
Kansas, Missouri and Texas, and Alltel receiving more ownership in majority-owned markets it
manages in Michigan, Louisiana and Ohio. Alltel also paid Cingular approximately $165.0
million in cash. The accompanying consolidated financial statements include the accounts
and results of operations of the acquired wireless properties from the date of acquisition.
During the second quarter of 2005, Alltel completed the purchase price allocation for this
exchange based upon a fair value analysis of the tangible and identifiable intangible assets
acquired and the partnership interests relinquished. The excess of the aggregate purchase
price over the fair market value of the tangible net assets acquired of $335.8 million was
assigned to customer list ($10.9 million), cellular licenses ($91.0 million) and goodwill
($233.9 million). The customer list recorded in connection with this transaction is being
amortized on a straight-line basis over its estimated useful life of three years. The
cellular licenses are classified as indefinite-lived intangible assets and are not subject
to amortization. In connection with this transaction, Alltel recorded a pretax gain of
approximately $127.5 million in the second quarter of 2005 (see Note 9) and expects to
record an additional gain of $29.0 million in the third quarter of 2005 (see Note 14).On February 28, 2005, Alltel completed the purchase of certain wireless assets from Public
Service Cellular, Inc. (PS Cellular) for $48.3 million in cash, acquiring wireless properties with a potential
service area covering approximately 900,000 POPs in Alabama and Georgia. The accompanying
consolidated financial statements include the accounts and results of operations of the
acquired wireless properties from the date of acquisition. During the first quarter of
2005, Alltel completed the purchase price allocation for this acquisition based upon a fair
value analysis of the tangible and identifiable intangible assets acquired. The excess of
the aggregate purchase price over the fair market value of the tangible net assets acquired
of $37.9 million was assigned to customer list ($1.9 million), cellular licenses ($3.4
million) and goodwill ($32.6 million). The customer list recorded in connection with this
transaction is being amortized on a straight-line basis over its estimated useful life of
four years. The cellular licenses are classified as indefinite-lived intangible assets and
are not subject to amortization.During the first six months of 2005, Alltel also acquired additional ownership interests in
wireless properties in Michigan, Ohio and Wisconsin in which the Company owned a majority
interest. In connection with these acquisitions, the Company paid $10.4 million in cash and
assigned the excess of the aggregate purchase price over the fair market value of the
tangible net assets acquired of $4.9 million to goodwill.The purchase prices paid for the wireless property acquisitions discussed above were based on
estimates of future cash flows of the properties acquired. Alltel paid a premium (i.e.
goodwill) over the fair value of the net tangible and identifiable intangible assets acquired
because the purchase of wireless properties expanded the Companys wireless footprint into
new markets in Alabama, Georgia, Kentucky, Oklahoma, Texas, Connecticut and Mississippi and
added 266,000 new customers to Alltels communications customer base. Additionally, in the
wireless properties acquired, Alltel should realize, over time, accelerated customer growth
and higher average revenue per customer as a result of the Companys higher revenue national
rate plans.3.
    
    Goodwill and Other Intangible Assets:
Goodwill represents the excess of cost over the fair value of net identifiable tangible and
intangible assets acquired through various business combinations. The Company has acquired
identifiable intangible assets through its acquisitions of interests in various wireless and
wireline properties. The cost of acquired entities at the date of the acquisition is
allocated to identifiable assets, and the excess of the total purchase price over the amounts
assigned to identifiable assets is recorded as goodwill.
 6


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 3.
    
    Goodwill and Other Intangible Assets, Continued:
As of January 1, 2005, Alltel completed the annual impairment reviews of its goodwill and
other indefinite-lived intangible assets and determined that no write-down in the carrying
value of these assets was required. The changes in the carrying amount of goodwill by
business segment for the six months ended June 30, 2005 were as follows:
 CommunicationsSupport(Millions)
    
    Wireless
    
    
    Wireline
    
    
    Services
    
    
    TotalBalance at December 31, 2004
    
    $
    3,625.8
    
    
    $
    1,247.6
    
    
    $
    2.3
    
    
    $
    4,875.7Acquired during the period
    
    
    271.4
    
    
    
    -
    
    
    
    -
    
    
    
    271.4Other adjustments
    
    
    4.8
    
    
    
    -
    
    
    
    -
    
    
    
    4.8Balance at June 30, 2005
    
    $
    3,902.0
    
    
    $
    1,247.6
    
    
    $
    2.3
    
    
    $
    5,151.9
 The carrying values of indefinite-lived intangible assets other than goodwill were as
follows:
 June 30,
    
    
    December 31,(Millions)
    
    2005
    
    
    2004Cellular licenses
    
    $
    870.0
    
    
    $
    775.6Personal Communications Services licenses
    
    
    79.1
    
    
    
    79.1Franchise rights  wireline
    
    
    265.0
    
    
    
    265.0$
    1,214.1
    
    
    $
    1,119.7
 Intangible assets subject to amortization were as follows:
 June 30, 2005Gross
    
    
    Accumulated
    
    
    Net Carrying(Millions)
    
    Cost
    
    
    Amortization
    
    
    ValueCustomer lists
    
    $
    410.4
    
    
    $
    (250.6
    )
    
    $
    159.8Franchise rights
    
    
    22.5
    
    
    
    (15.6
    )
    
    
    6.9$
    432.9
    
    
    $
    (266.2
    )
    
    $
    166.7
 December 31, 2004Gross
    
    
    Accumulated
    
    
    Net Carrying(Millions)
    
    Cost
    
    
    Amortization
    
    
    ValueCustomer lists
    
    $
    397.6
    
    
    $
    (218.8
    )
    
    $
    178.8Franchise rights
    
    
    22.5
    
    
    
    (14.9
    )
    
    
    7.6$
    420.1
    
    
    $
    (233.7
    )
    
    $
    186.4
 Amortization expense for intangible assets subject to amortization was $16.7 million and
$32.5 million for the three and six month periods ended June 30, 2005, compared to $15.1
million and $30.2 million for the same periods of 2004. Amortization expense for
intangible assets subject to amortization is estimated to be $66.5 million in 2005, $48.9
million in 2006, $32.2 million in 2007, $23.1 million in 2008 and $8.6 million in 2009.4.
    
    Equity Units
During 2002, Alltel issued and sold 27.7 million equity units in an underwritten public
offering and received net proceeds of $1.34 billion. Each equity unit consisted of a
corporate unit, with a $50 stated amount, comprised of a purchase contract and a $50
principal amount senior note. The purchase contract obligated the holder to purchase, and
obligated Alltel to sell, on May 17, 2005, a variable number of newly-issued common shares
of Alltel common stock for $50. The number of Alltel shares issued to the holders of each
equity unit to settle the purchase contract was calculated by
dividing $50 by the average closing price per share of Alltels common stock for the 20
    consecutive trading days that ended May 12, 2005. Upon settlement of the purchase contract
obligation, Alltel received cash proceeds of approximately $1,385.0 million and delivered
approximately 24.5 million shares of Alltel common stock in the aggregate to the holders of
the equity units. The proceeds from the stock issuance were utilized to finance certain
obligations associated with Alltels merger with Western Wireless Corporation (Western
Wireless), as further discussed in Note 14.
 7


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 4.
    
    Equity Units, Continued:
The $50 principal amount senior notes become payable on May 17, 2007 and accrued interest
through May 17, 2005 at an initial annual rate of 6.25 percent. On February 17, 2005,
Alltel completed a remarketing of the senior notes that reset the annual interest rate on
the notes to 4.656 percent for periods subsequent to May 17, 2005. The proceeds of the
remarketed senior notes were used to purchase a portfolio of U.S. Treasury securities that
were pledged to secure the corporate unit holders obligations under the purchase contract
component of the corporate unit until settlement.5.
    
    Stock-Based Compensation:
Under the Companys stock-based compensation plans, Alltel may grant fixed and
performance-based incentive and non-qualified stock options, restricted stock, and other
equity securities to officers and other management employees. The Company accounts for
these plans under the recognition and measurement principles of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations.
For fixed stock options granted under these plans, the exercise price of the option equals
the market value of Alltels common stock on the date of grant. Accordingly, Alltel does
not record compensation expense for any of the fixed stock options granted, and no
compensation expense related to stock options was recognized in the three and six month
periods ended June 30, 2005 or 2004. In January 2005 and 2004, the Company granted to
certain senior management employees restricted stock of approximately 205,000 and 173,000
shares, respectively. The restricted shares granted in 2005 vest three years from the date
of grant, except that one-third of the restricted shares may vest after each of the first
two-year anniversaries from the grant date if the Company achieves a certain targeted total
stockholder return for its peer group during the three-year period preceding each of those
two years. The restricted shares granted in 2004 will vest in equal increments over a
three-year period following the date of grant. Compensation expense related to the
foregoing shares amounted to $1.6 million and $3.2 million and $0.7 million and $1.4
million for the three and six month periods ended June 30, 2005 and 2004, respectively. At
June 30, 2005 and 2004, unrecognized compensation expense for the restricted shares
amounted to $7.4 million and $7.1 million, respectively, and was included in additional
paid-in capital in the accompanying consolidated balance sheet and statement of
shareholders equity. The following table illustrates the effects on net income and
earnings per share had the Company applied the fair value recognition provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, to its stock-based employee
compensation plans for the three and six months ended June 30:
 Three Months Ended
    
    
    Six Months Ended(Millions, except per share amounts)
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net income as reported
    
    $
    402.1
    
    
    $
    262.6
    
    
    $
    715.1
    
    
    $
    452.4Add stock-based compensation expense included in
net income, net of related tax effects
    
    
    1.0
    
    
    
    0.5
    
    
    
    2.0
    
    
    
    0.9Deduct stock-based employee compensation expense
determined under fair value method for all awards,net of related tax effects
    
    
    (6.4
    )
    
    
    (6.3
    )
    
    
    (13.0
    )
    
    
    (12.9
    )Pro forma net income
    
    $
    396.7
    
    
    $
    256.8
    
    
    $
    704.1
    
    
    $
    440.4Basic earnings per share:
    As reported
    
    
    $1.28
    
    
    
    $.85
    
    
    
    $2.32
    
    
    
    $1.46Pro forma
    
    
    $1.26
    
    
    
    $.83
    
    
    
    $2.28
    
    
    
    $1.42Diluted earnings per share:
    As reported
    
    
    $1.27
    
    
    
    $.85
    
    
    
    $2.31
    
    
    
    $1.46Pro forma
    
    
    $1.26
    
    
    
    $.83
    
    
    
    $2.27
    
    
    
    $1.42
 The pro forma amounts presented above may not be representative of the future effects on
reported net income and earnings per share, since the pro forma compensation expense is
allocated over the periods in which options become exercisable, and new option awards may be
granted each year.On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.
123(R), Share-Based Payment, which is a revision of SFAS No. 123 and supercedes APB
Opinion No. 25. SFAS No. 123(R) requires all share-based payments to employees, including
grants of employee stock options, to be valued at fair value on the date of grant, and to be
expensed over the applicable vesting period. Pro forma disclosure of the income statement
effects of share-based payments is no longer an alternative. SFAS No. 123(R) is effective
for all stock-based awards granted on or after July 1, 2005. In addition, companies must
also recognize compensation expense related to any awards that are not fully vested as of
the effective date. Compensation expense for the unvested awards will be measured based on
the fair value of the awards previously calculated in developing the pro forma disclosures
in accordance with the provisions of SFAS No. 123. On
March 25, 2005, the SEC staff issued Staff Accounting Bulletin (SAB) 107, which summarizes
the staffs views regarding the interaction between SFAS No. 123(R) and certain SEC rules
and regulations and provides additional guidance regarding the valuation of share-based
payment arrangements for public companies. In addition, on April 15, 2005, the SEC amended
 8


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 5.
    
    Stock-Based Compensation, Continued:
Rule 4-01(a) of Regulation S-X regarding the date public companies are required to comply
with the provisions of SFAS No. 123(R), such that calendar year companies will now be
required to comply with the standard beginning January 1, 2006. Alltel is currently
assessing the impact of adopting SFAS No. 123(R), as interpreted by SAB 107, to its
consolidated results of operations.6.
    
    Employee Benefit Plans and Postretirement Benefits Other Than Pensions:
Alltel maintains a qualified defined benefit pension plan, which covers substantially all
employees. Prior to January 1, 2005, employees of the Companys directory publishing
subsidiary did not participate in the plan. Alltel also maintains a supplemental executive
retirement plan that provides unfunded, non-qualified supplemental retirement benefits to a
select group of management employees. In addition, the Company has entered into individual
retirement agreements with certain retired executives providing for unfunded supplemental
pension benefits. The Company funds the accrued costs of the unfunded plans as benefits are
paid. The components of pension expense, including provision for executive retirement
agreements, were as follows for the three and six month periods ended June 30:
 Three Months Ended
    
    
    Six Months Ended(Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Benefits earned during the year
    
    $
    8.3
    
    
    $
    7.7
    
    
    $
    16.7
    
    
    $
    15.4Interest cost on benefit obligation
    
    
    14.6
    
    
    
    12.9
    
    
    
    29.2
    
    
    
    25.9Amortization of prior service cost
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.2Recognized net actuarial loss
    
    
    7.7
    
    
    
    4.9
    
    
    
    15.3
    
    
    
    9.8Expected return on plan assets
    
    
    (20.7
    )
    
    
    (17.6
    )
    
    
    (41.4
    )
    
    
    (35.2
    )Net periodic benefit expense
    
    $
    10.1
    
    
    $
    8.0
    
    
    $
    20.1
    
    
    $
    16.1
 Alltel disclosed in its financial statements for the year ended December 31, 2004 that it
expected to contribute $5.2 million for retirement benefits in 2005 consisting solely of
amounts necessary to fund the expected benefit payments related to the unfunded
supplemental retirement plans. Primarily due to the timing of the required contributions
to fund the supplemental retirement plans, actual contributions were $3.2 million for the
six months ended June 30, 2005. Alltel does not expect that any contribution to the
qualified defined pension plan calculated in accordance with the minimum funding
requirements of the Employee Retirement Income Security Act of 1974 will be required in
2005. Future discretionary contributions to the plan will depend on various factors,
including future investment performance, changes in future discount rates and changes in
the demographics of the population participating in Alltels qualified pension plan.The Company provides postretirement healthcare and life insurance benefits for eligible
employees. Employees share in the cost of these benefits. The Company funds the accrued
costs of these plans as benefits are paid. The components of postretirement expense were
as follows for the three and six month periods ended June 30:
 Three Months Ended
    
    
    Six Months Ended(Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Benefits earned during the year
    
    $
    0.1
    
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    0.4Interest cost on benefit obligation
    
    
    3.5
    
    
    
    4.0
    
    
    
    7.0
    
    
    
    7.9Amortization of transition obligation
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.4Amortization of prior service cost
    
    
    0.5
    
    
    
    0.4
    
    
    
    1.0
    
    
    
    0.8Recognized net actuarial loss
    
    
    1.7
    
    
    
    2.2
    
    
    
    3.4
    
    
    
    4.4Expected return on plan assets
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Net periodic benefit expense
    
    $
    6.0
    
    
    $
    7.0
    
    
    $
    12.0
    
    
    $
    13.9
 Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, (the
Act) beginning in 2006, the Act will provide a prescription drug benefit under Medicare
Part D, as well as a federal subsidy to plan sponsors of retiree healthcare plans that
provide a prescription drug benefit to their participants that is at least actuarially
equivalent to the benefit that will be available under Medicare. The amount of the federal
subsidy will be based on 28 percent of an individual beneficiarys annual eligible
prescription drug costs ranging between $250 and $5,000. On May 19, 2004, the FASB issued
Staff Position No. 106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (FSP No. 106-2). FSP No.
106-2 clarified that the federal subsidy provided under the Act should be accounted for as
an actuarial gain in calculating the accumulated postretirement benefit obligation and
annual postretirement expense. Based on its understanding of the Act, Alltel determined
that a substantial
 9


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 6.
    
    Employee Benefit Plans and Postretirement Benefits Other Than Pension, Continued:
portion of the prescription drug benefits provided under its postretirement benefit plan
would be deemed actuarially equivalent to the benefits provided under Medicare Part D.
Effective July 1, 2004, Alltel prospectively adopted FSP No. 106-2 and remeasured its
accumulated postretirement benefit obligation as of that date to account for the federal
subsidy, the effects of which resulted in an $18.3 million reduction in the Companys
accumulated postretirement obligation and a $2.9 million reduction in the Companys 2004
postretirement expense. On January 21, 2005, the Department of Health and Human Services
issued final federal regulations related to the federal subsidy. Alltel is currently
evaluating the effects, if any, that these final rules may have on its future benefit costs
and accumulated postretirement benefit obligation.7.
    
    Restructuring and Other Charges:
A summary of the restructuring and other charges recorded during the six months ended June 30,
2004 was as follows:
 CommunicationsSupport
    
    
    Corporate(Millions)
    
    Wireless
    
    
    Wireline
    
    
    Services
    
    
    Operations
    
    
    TotalSeverance and employee benefit costs
    
    $
    8.8
    
    
    $
    11.2
    
    
    
    $  0.5
    
    
    
    $  2.1
    
    
    $
    22.6Relocation costs
    
    
    3.2
    
    
    
    1.4
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    4.8Lease and contract termination costs
    
    
    0.5
    
    
    
    (1.9
    )
    
    
    -
    
    
    
    (0.1
    )
    
    
    (1.5
    )Write-down in carrying value of certain
facilities
    
    
    0.7
    
    
    
    -
    
    
    
    -
    
    
    
    24.1
    
    
    
    24.8Other exit costs
    
    
    0.4
    
    
    
    0.7
    
    
    
    -
    
    
    
    -
    
    
    
    1.1Total restructuring and other charges
    
    $
    13.6
    
    
    $
    11.4
    
    
    
    $  0.6
    
    
    
    $  26.2
    
    
    $
    51.8
 In January 2004, the Company announced its plans to reorganize its operations and support
teams. Also, during February 2004, the Company announced its plans to exit its competitive
local exchange carrier (CLEC) operations in the Jacksonville, Florida market due to the
continued unprofitability of these operations. In connection with these activities, the
Company recorded a restructuring charge of $29.3 million consisting of $22.9 million in
severance and employee benefit costs related to a planned workforce reduction, $4.8 million
of employee relocation expenses, $0.5 million in lease termination costs and $1.1 million
of other exit costs. The severance and employee benefit costs included a $1.2 million
payment to a former employee of the Companys sold financial services division that became
payable in the first quarter of 2004 pursuant to the terms of a change in control agreement
between the employee and Alltel. During the fourth quarter of 2004, the Company recorded a
$0.9 million reduction in the liabilities associated with the restructuring efforts
initiated in the first quarter of 2004, consisting of $0.7 million in employee relocation
expenses and $0.2 million in severance and employee benefit costs. The reductions
primarily reflected differences between estimated and actual costs paid in completing the
employee relocations and terminations. As of June 30, 2005, the Company had paid $22.6
million in severance and employee-related expenses, and all of the employee reductions and
relocations had been completed.During the first quarter of 2004, Alltel also recorded a $2.3 million reduction in the
liabilities associated with various restructuring activities initiated prior to 2003,
consisting of $2.0 million in lease and contract termination costs and $0.3 million in
severance and employee benefit costs. The reductions primarily reflected differences
between estimated and actual costs paid in completing the previous planned workforce
reductions and lease and contract terminations. During the first quarter of 2004, the
Company also recorded a write-down in the carrying value of certain corporate and regional
facilities to fair value in conjunction with the 2004 organizational changes and the 2003
sale of the Companys financial services division to Fidelity National Financial, Inc.
(Fidelity National).At June 30, 2005, the remaining unpaid liability related to Alltels first quarter 2004
restructuring activities was $0.3 million, primarily consisting of lease and contract
termination costs, and is included in other current liabilities in the accompanying
consolidated balance sheets.8.
    
    Investments  Special Cash Dividend:
On March 28, 2005, Alltel received a special $10 per share cash dividend from Fidelity
National totaling $111.0 million, related to the shares of Fidelity National common stock
received as partial consideration for the sale of Alltels financial services business to
Fidelity National on April 1, 2003. As further discussed in Note 9, on April 6, 2005,
Alltel completed the sale of all of its shares of Fidelity National common stock. The
special cash dividend is included in other income, net in the accompanying consolidated
statement of income for the six months ended June 30, 2005.
 10


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 9.
    
    Gain on Exchange or Disposal of Assets and Other
As previously discussed in Note 2, on April 15, 2005, Alltel and Cingular exchanged certain
wireless assets. In connection with this transaction, Alltel recorded a pretax gain of
approximately $127.5 million. On April 6, 2005, Alltel completed the sale of all of its
shares of Fidelity National common stock to Goldman Sachs for approximately $350.8 million
and recognized a pretax gain of approximately $75.8 million. On April 8, 2005, Alltel
redeemed all of the 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
redemption, 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. These
transactions increased net income $118.0 million or $.38 per share in the three and six month
periods ended June 30, 2005.10.
    
    Comprehensive Income:
Comprehensive income was as follows for the three and six month periods ended June 30:
 Three Months Ended
    
    
    Six Months Ended(Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    402.1
    
    
    $
    262.6
    
    
    $
    715.1
    
    
    $
    452.4Other comprehensive income (loss):Unrealized holding gains (losses) on investments:Unrealized holding gains (losses) arising in the period
    
    
    (18.4
    )
    
    
    (25.4
    )
    
    
    (161.0
    )
    
    
    23.7Income tax expense (benefit)
    
    
    (6.5
    )
    
    
    (8.9
    )
    
    
    (56.4
    )
    
    
    3.5(11.9
    )
    
    
    (16.5
    )
    
    
    (104.6
    )
    
    
    20.2Reclassification adjustments for gains included
in net income for the period
    
    
    (75.8
    )
    
    
    -
    
    
    
    (75.8
    )
    
    
    -Income tax expense
    
    
    26.5
    
    
    
    -
    
    
    
    26.5
    
    
    
    -(49.3
    )
    
    
    -
    
    
    
    (49.3
    )
    
    
    -Net unrealized gains (losses) in the period
    
    
    (94.2
    )
    
    
    (25.4
    )
    
    
    (236.8
    )
    
    
    23.7Income tax expense (benefit)
    
    
    (33.0
    )
    
    
    (8.9
    )
    
    
    (82.9
    )
    
    
    3.5(61.2
    )
    
    
    (16.5
    )
    
    
    (153.9
    )
    
    
    20.2Foreign currency translation adjustment
    
    
    -
    
    
    
    (0.3
    )
    
    
    -
    
    
    
    (0.1
    )Other comprehensive income (loss) before tax
    
    
    (94.2
    )
    
    
    (25.7
    )
    
    
    (236.8
    )
    
    
    23.6Income tax expense (benefit)
    
    
    (33.0
    )
    
    
    (8.9
    )
    
    
    (82.9
    )
    
    
    3.5Other comprehensive income (loss)
    
    
    (61.2
    )
    
    
    (16.8
    )
    
    
    (153.9
    )
    
    
    20.1Comprehensive income
    
    $
    340.9
    
    
    $
    245.8
    
    
    $
    561.2
    
    
    $
    472.5
 11.
    
    Earnings per Share:
Basic earnings per share was computed by dividing net income applicable to common shares by
the weighted average number of common shares outstanding during the period. Diluted earnings
per share reflects the potential dilution that could occur assuming conversion or exercise of
all dilutive unexercised stock options and outstanding preferred stock. For both the three
and six months ended June 30, 2005, stock options totaling 7.1 million shares were not
included in the computation of diluted earnings per share because the exercise price of the
stock options was greater than the average market price of the common stock. The number of
stock options not included in the computation of diluted earnings per share was 11.1 million
for both the three and six months ended June 30, 2004. A reconciliation of the net income
and number of shares used in computing basic and diluted earnings per share was as follows
for the three and six month periods ended June 30:
 Three Months Ended
    
    
    Six Months Ended(Millions, except per share amounts)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Basic earnings per share:Net income
    
    $
    402.1
    
    
    $
    262.6
    
    
    $
    715.1
    
    
    $
    452.4Less preferred dividends
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Net income applicable to common shares
    
    $
    402.0
    
    
    $
    262.5
    
    
    $
    715.0
    
    
    $
    452.3Weighted average common shares outstanding for the period
    
    
    314.5
    
    
    
    308.2
    
    
    
    308.3
    
    
    
    309.8Basic earnings per share
    
    
    $1.28
    
    
    
    $.85
    
    
    
    $2.32
    
    
    
    $1.46
 11


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 11.
    
    Earnings per Share, Continued:
 Three Months Ended
    
    
    Six Months Ended(Millions, except per share amounts)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Diluted earnings per share:Net income applicable to common shares
    
    $
    402.0
    
    
    $
    262.5
    
    
    $
    715.0
    
    
    $
    452.3Adjustment for convertible preferred stock dividends
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Net income applicable to common shares
assuming conversion of preferred stock
    
    $
    402.1
    
    
    $
    262.6
    
    
    $
    715.1
    
    
    $
    452.4Weighted average common shares outstanding for the period
    
    
    314.5
    
    
    
    308.2
    
    
    
    308.3
    
    
    
    309.8Increase in shares resulting from:Assumed exercise of stock options
    
    
    1.0
    
    
    
    0.6
    
    
    
    1.0
    
    
    
    0.6Assumed conversion of preferred stock
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.3Non-vested restricted stock awards
    
    
    0.1
    
    
    
    -
    
    
    
    0.1
    
    
    
    -Weighted average common shares assuming conversion
    
    
    315.8
    
    
    
    309.1
    
    
    
    309.6
    
    
    
    310.7Diluted earnings per share
    
    
    $1.27
    
    
    
    $.85
    
    
    
    $2.31
    
    
    
    $1.46
 12.
    
    Commitments and Contingencies:
The Company currently has outstanding various indemnifications related to the April 1, 2003
sale of the financial services division to Fidelity National. In conjunction with the sale,
Alltel agreed to indemnify Fidelity National for any damages resulting from Alltels breach
of warranty or non-fulfillment of certain covenants under the sales agreement, that exceed
1.5 percent of the purchase price, or $15.75 million, up to a maximum of 15 percent of the
purchase price, or $157.5 million. Because of the low probability of being required to pay
any amount under this indemnification, Alltel determined the fair value of this obligation
to be immaterial to the consolidated results of operations, cash flows and financial
condition of the Company. Accordingly, the Company has not recorded a liability related to
it. Alltel also agreed to indemnify Fidelity National from any future tax liability imposed
on the financial services division related to periods prior to the date of sale. Alltels
obligation to Fidelity National under this indemnification is not subject to a maximum
amount. The Company has recorded a liability for tax contingencies of approximately $8.3
million related to the operations of the financial services division for periods prior to
the date of sale that management has assessed as probable and estimable, which should
adequately cover any obligation under this indemnification.13.
    
    Business Segment Information:
Alltel manages its business operations based on differences in products and services. The
Company evaluates performance of the segments based on segment income, which is computed as
revenues and sales less operating expenses, excluding the effects of the items discussed in
Notes 7, 8 and 9, respectively. These items are not allocated to the segments and are
included in corporate operations. Segment operating results were as follows for the three
and six month periods ended June 30:
 Three Months Ended
    
    
    Six Months Ended(Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues and Sales from External Customers:Wireless
    
    $
    1,455.3
    
    
    $
    1,253.1
    
    
    $
    2,807.3
    
    
    $
    2,437.6Wireline
    
    
    555.9
    
    
    
    564.7
    
    
    
    1,111.9
    
    
    
    1,126.1Communications support services
    
    
    202.8
    
    
    
    179.0
    
    
    
    375.1
    
    
    
    337.8Total business segments
    
    $
    2,214.0
    
    
    $
    1,996.8
    
    
    $
    4,294.3
    
    
    $
    3,901.5Intersegment Revenues and Sales:Wireless
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -Wireline
    
    
    39.2
    
    
    
    44.9
    
    
    
    76.8
    
    
    
    83.0Communications support services
    
    
    58.4
    
    
    
    50.2
    
    
    
    110.8
    
    
    
    110.4Total business segments
    
    $
    97.6
    
    
    $
    95.1
    
    
    $
    187.6
    
    
    $
    193.4Total Revenues and Sales:Wireless
    
    $
    1,455.3
    
    
    $
    1,253.1
    
    
    $
    2,807.3
    
    
    $
    2,437.6Wireline
    
    
    595.1
    
    
    
    609.6
    
    
    
    1,188.7
    
    
    
    1,209.1Communications support services
    
    
    261.2
    
    
    
    229.2
    
    
    
    485.9
    
    
    
    448.2Total business segments
    
    
    2,311.6
    
    
    
    2,091.9
    
    
    
    4,481.9
    
    
    
    4,094.9Less intercompany eliminations
    
    
    (51.5
    )
    
    
    (49.8
    )
    
    
    (95.8
    )
    
    
    (91.6
    )Total revenues and sales
    
    $
    2,260.1
    
    
    $
    2,042.1
    
    
    $
    4,386.1
    
    
    $
    4,003.3
 12


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 13.
    
    Business Segment Information, Continued:
 Three Months Ended
    
    
    Six Months Ended(Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Segment Income:Wireless
    
    $
    306.9
    
    
    $
    261.6
    
    
    $
    578.5
    
    
    $
    472.5Wireline
    
    
    215.3
    
    
    
    234.4
    
    
    
    429.8
    
    
    
    462.6Communications support services
    
    
    11.6
    
    
    
    20.8
    
    
    
    23.5
    
    
    
    37.3Total segment income
    
    
    533.8
    
    
    
    516.8
    
    
    
    1,031.8
    
    
    
    972.4Corporate expenses
    
    
    (11.6
    )
    
    
    (9.0
    )
    
    
    (40.3
    )
    
    
    (18.0
    )Restructuring and other charges
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (51.8
    )Equity earnings in unconsolidated partnerships
    
    
    15.2
    
    
    
    15.9
    
    
    
    25.9
    
    
    
    29.2Minority interest in consolidated partnerships
    
    
    (18.9
    )
    
    
    (21.6
    )
    
    
    (37.2
    )
    
    
    (37.2
    )Other income, net
    
    
    8.0
    
    
    
    2.9
    
    
    
    128.7
    
    
    
    7.5Interest expense
    
    
    (76.3
    )
    
    
    (86.6
    )
    
    
    (163.0
    )
    
    
    (178.3
    )Gain on exchange or disposal of assets and other
    
    
    188.3
    
    
    
    -
    
    
    
    188.3
    
    
    
    -Income before income taxes
    
    $
    638.5
    
    
    $
    418.4
    
    
    $
    1,134.2
    
    
    $
    723.8
 Segment assets were as follows:
 June 30,
    
    
    December 31,(Millions)
    
    2005
    
    
    2004Wireless
    
    $
    10,297.5
    
    
    $
    9,881.5Wireline
    
    
    4,937.7
    
    
    
    5,042.8Communications support services
    
    
    496.4
    
    
    
    495.8Total business segments
    
    
    15,731.6
    
    
    
    15,420.1Corporate headquarters assets not allocated to segments
    
    
    2,212.6
    
    
    
    1,201.2Less elimination of intersegment receivables
    
    
    (29.3
    )
    
    
    (17.6
    )Total consolidated assets
    
    $
    17,914.9
    
    
    $
    16,603.7
 Supplemental information pertaining to the communications support services segment was as
follows for the three and six month periods ended June 30:
 Three Months Ended
    
    
    Six Months Ended(Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues and Sales from External Customers:Product distribution
    
    $
    103.2
    
    
    $
    72.1
    
    
    $
    197.0
    
    
    $
    141.5Long-distance and network management services
    
    
    48.8
    
    
    
    46.5
    
    
    
    95.8
    
    
    
    95.0Directory publishing
    
    
    47.3
    
    
    
    48.7
    
    
    
    73.6
    
    
    
    74.9Telecommunications information services
    
    
    3.5
    
    
    
    11.7
    
    
    
    8.7
    
    
    
    26.4Total
    
    $
    202.8
    
    
    $
    179.0
    
    
    $
    375.1
    
    
    $
    337.8Intersegment Revenues and Sales:Product distribution
    
    $
    32.9
    
    
    $
    23.8
    
    
    $
    59.7
    
    
    $
    53.5Long-distance and network management services
    
    
    25.5
    
    
    
    26.4
    
    
    
    51.1
    
    
    
    56.9Directory publishing
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Telecommunications information services
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Total
    
    $
    58.4
    
    
    $
    50.2
    
    
    $
    110.8
    
    
    $
    110.4Total Revenues and Sales:Product distribution
    
    $
    136.1
    
    
    $
    95.9
    
    
    $
    256.7
    
    
    $
    195.0Long-distance and network management services
    
    
    74.3
    
    
    
    72.9
    
    
    
    146.9
    
    
    
    151.9Directory publishing
    
    
    47.3
    
    
    
    48.7
    
    
    
    73.6
    
    
    
    74.9Telecommunications information services
    
    
    3.5
    
    
    
    11.7
    
    
    
    8.7
    
    
    
    26.4Total revenues and sales
    
    $
    261.2
    
    
    $
    229.2
    
    
    $
    485.9
    
    
    $
    448.2
 13


NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
 14.
    
    Subsequent Events:
On July 29, 2005, Alltel and Cingular completed the exchange of wireless partnership
interests. Primarily due to certain minority partners rights-of-first-refusal, three of
the wireless partnership interests to be exchanged between Alltel and Cingular were not
completed by June 30, 2005. As a result of completing the exchange transactions, Alltel
expects to record an additional pretax gain of approximately $29.0 million during the
third quarter of 2005.On August 1, 2005, Alltel and Western Wireless completed the merger of Western Wireless
with and into a wholly-owned subsidiary of Alltel (the Merger). As a result of the
Merger, Alltel added approximately 1.2 million domestic wireless customers (excluding
reseller customers) in 19 midwestern and western states that are contiguous to the
Companys existing wireless properties, increasing the number of wireless customers served
by Alltel to more than 10 million customers in 34 states. Through this transaction, Alltel
added wireless operations in nine new states, including California, Idaho, Minnesota,
Montana, Nevada, North Dakota, South Dakota, Utah and Wyoming, and expanded its wireless
operations in Arizona, Colorado, New Mexico and Texas.In the Merger, each share of Western Wireless common stock was exchanged for 0.535 shares
of Alltel common stock and $9.25 in cash unless the shareholder made an all-cash election,
in which case the shareholder received $40 in cash. Western Wireless shareholders making
an all-stock election were subject to proration and received approximately 0.539 shares of
Alltel common stock and $9.18 in cash. In the aggregate, Alltel issued approximately 54.3
million shares of stock valued at $3.4 billion and paid approximately $933.4 million in
cash. Through its wholly-owned subsidiary that merged with Western Wireless, Alltel also
assumed debt of approximately $2.1 billion. As a condition of receiving approval for the
Merger from the U.S. Department of Justice and Federal Communications Commission, Alltel
agreed to divest certain wireless operations of Western Wireless in 16 markets in Arkansas,
Kansas and Nebraska, as well as the Cellular One brand used in those markets.On July 25, 2005, Western Wireless announced a definitive agreement to sell its
international operations in Ireland to a subsidiary of eircom Group plc, the Irish
fixed-line telecommunications operator (eircom), for approximately $500 million at
current exchange rates and also stated it had received conditional and
    non-binding bids to sell its Austrian business. Completion of the sale of
    the Irish operations is conditioned, among other things,
on approval by eircoms shareholders of the transaction and of an eircom
    share issuance pursuant to a rights offering; closing of the rights
    offering, the proceeds of which would be used to pay the purchase price; and
    approval from Irish regulatory authorities. Assuming receipt of these
    approvals and completion of the rights offering, the transaction is expected
    to close in October 2005. Alltel is pursuing the disposition of the
    Austrian business and intends to pursue the disposition of all remaining international
operations and interests acquired from Western Wireless.On the date of closing, Alltel repaid approximately $1.3 billion of term loans
representing all borrowings outstanding under Western Wireless credit facility that, as a
result of a change in control, became due and payable immediately upon the closing of the
merger. Alltel utilized available cash on hand and commercial paper borrowings to fund
the cash portion of the merger consideration paid to Western Wireless shareholders and to
finance the repayment of the term loans outstanding under the Western Wireless credit
facility. On August 1, 2005, Alltel also announced a tender offer to purchase all of the
issued and outstanding 9.25 percent senior notes due July 15, 2013 of Western Wireless,
representing an aggregate principal amount of $600.0 million, as well as a related consent
solicitation to amend the indenture governing the senior notes.On August 1, 2005, Alltel entered into an additional $700.0 million, 364-day revolving
credit agreement that expires on July 31, 2006, if not extended at the option of the
Company, and allows Alltel to convert any outstanding borrowings under this agreement into
term loans maturing in 2007.
 14


ALLTEL CORPORATION
FORM 10-Q
PART I  FINANCIAL INFORMATION
 
 Item 2 . Managements Discussion and Analysis of Financial Condition and Results of Operations
 GENERAL
 EXECUTIVE SUMMARY
 
    
    Wireless revenues and sales increased 16 percent over 2004 driven
by a 15 percent increase in retail service revenues, reflecting
Alltels continued focus on quality customer growth, improvements
in data revenues and additional Eligible Telecommunications
Carrier (ETC) subsidies. Wireless wholesale revenues also
increased 22 percent year-over-year due to solid growth in CDMA
minutes of use and stability in the volumes of TDMA and analog
minutes of use by other carriers customers roaming on Alltels
wireless network. The exchange of wireless properties with
Cingular Wireless LLC (Cingular) also contributed to the overall
growth in both retail and wholesale revenues during the second
quarter of 2005. Average revenue per customer increased 6 percent
from a year ago to $50.55, the highest quarterly amount in 5
years, while retail revenue per customer increased to $46.42, a 5
percent increase from a year ago. Retail minutes of use per
wireless customer per month increased to 593 minutes, a 21 percent
increase from the same period of 2004.
    
    Excluding the effects of the Cingular transaction, wireless gross
customer additions were 593,000 for the quarter, a 9 percent
decrease from the same period a year ago, primarily due to the
Company focusing its advertising efforts on rebranding and less on
sales promotions in an effort to strengthen Alltels brand
position in the wireless marketplace, as well as lower than
expected sales of prepay plans. Excluding the effects of
acquisitions, Alltel added 105,000 net postpay wireless customers
during the second quarter of 2005. As a result of approximate net
losses of 24,000 prepay customers and 27,000 customers in the
acquired markets, mostly in those properties acquired from Cingular, net
customer additions for the quarter were 54,000. Wireless postpay
churn was 1.58 percent and total churn, which includes prepay
customer losses, was 1.99 percent, both flat from a year ago
despite an increase in contract expirations.
    
    Wireless segment income increased 17 percent from a year ago,
reflecting the growth in revenues and sales noted above, solid
expense management and, to a lesser extent, the decline in gross
customer additions (excluding acquisitions) from the same period a
year ago.
    
    In its wireline business, Alltel added more than 36,000 broadband
customers, increasing Alltels broadband customer base to more
than 319,000. During the quarter, the Company lost approximately
30,000 wireline access lines, a year-over-year decline of
approximately 3.7 percent. Average revenue per wireline customer
increased 1 percent from a year ago to $66.83 due primarily to
growth in broadband revenues and selling additional services and
features to existing wireline customers. Wireline segment income
decreased 8 percent from a year ago reflecting a 2 percent decline
in wireline revenues and sales attributable to the loss of access
lines and additional costs related to the growth in broadband
customers, specifically the costs associated with subsidizing
broadband-capable modems.
    
    Alltel strengthened its financial position through (1) the sale of
its investment in Fidelity National Financial Inc. (Fidelity
National) common stock for $350.8 million in cash, (2) the early
retirement of $450.0 million of long-term debt scheduled to mature
in 2006 and (3) the issuance of approximately 24.5 million of its
common shares to settle the purchase contract obligation related
to the Companys equity units. Alltel received approximately $1.4
billion in cash from the stock issuance and had more than $2.0
billion of available cash on hand at June 30, 2005.
  15
     ACQUISITIONS  Completed During the Twelve Months Ended June 30, 2005
  Completion of Western Wireless Merger
 16
     CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(Millions, except per share amounts)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues and sales:Service revenues
    
    $
    1,989.2
    
    
    $
    1,825.9
    
    
    $
    3,887.5
    
    
    $
    3,591.5Product sales
    
    
    270.9
    
    
    
    216.2
    
    
    
    498.6
    
    
    
    411.8Total revenues and sales
    
    
    2,260.1
    
    
    
    2,042.1
    
    
    
    4,386.1
    
    
    
    4,003.3Costs and expenses:Cost of services
    
    
    660.9
    
    
    
    584.2
    
    
    
    1,287.2
    
    
    
    1,145.0Cost of products sold
    
    
    308.1
    
    
    
    256.0
    
    
    
    589.9
    
    
    
    513.3Selling, general, administrative and other
    
    
    420.6
    
    
    
    372.9
    
    
    
    828.0
    
    
    
    748.1Depreciation and amortization
    
    
    348.3
    
    
    
    321.2
    
    
    
    689.5
    
    
    
    642.5Restructuring and other charges
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    51.8Total costs and expenses
    
    
    1,737.9
    
    
    
    1,534.3
    
    
    
    3,394.6
    
    
    
    3,100.7Operating income
    
    
    522.2
    
    
    
    507.8
    
    
    
    991.5
    
    
    
    902.6Non-operating income, net
    
    
    4.3
    
    
    
    (2.8
    )
    
    
    117.4
    
    
    
    (0.5
    )Interest expense
    
    
    (76.3
    )
    
    
    (86.6
    )
    
    
    (163.0
    )
    
    
    (178.3
    )Gain on exchange or disposal of assets and other
    
    
    188.3
    
    
    
    -
    
    
    
    188.3
    
    
    
    -Income before income taxes
    
    
    638.5
    
    
    
    418.4
    
    
    
    1,134.2
    
    
    
    723.8Income taxes
    
    
    236.4
    
    
    
    155.8
    
    
    
    419.1
    
    
    
    271.4Net income
    
    $
    402.1
    
    
    $
    262.6
    
    
    $
    715.1
    
    
    $
    452.4Earnings per share:Basic
    
    
    $1.28
    
    
    
    $.85
    
    
    
    $2.32
    
    
    
    $1.46Diluted
    
    
    $1.27
    
    
    
    $.85
    
    
    
    $2.31
    
    
    
    $1.46 17
        18










Restructuring and Other Charges


(Millions)
    
    2004Severance and employee benefit costs
    
    $
    22.6Relocation costs
    
    
    4.8Lease and contract termination costs
    
    
    (1.5
    )Write-down in carrying value of certain facilities
    
    
    24.8Other exit costs
    
    
    1.1Total restructuring and other charges
    
    $
    51.8


19








Non-Operating Income, NetThree Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,(Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Equity earnings in unconsolidated partnerships
    
    $
    15.2
    
    
    $
    15.9
    
    
    $
    25.9
    
    
    $
    29.2Minority interest in consolidated partnerships
    
    
    (18.9
    )
    
    
    (21.6
    )
    
    
    (37.2
    )
    
    
    (37.2
    )Other income, net
    
    
    8.0
    
    
    
    2.9
    
    
    
    128.7
    
    
    
    7.5Non-operating income, net
    
    $
    4.3
    
    
    $
    (2.8
    )
    
    $
    117.4
    
    
    $
    (0.5
    )




Interest Expense


Gain on Exchange or Disposal of Assets and Other  20






Income Taxes


Net Income and Earnings per Share


Weighted Average Common Shares Outstanding


21

RESULTS OF OPERATIONS BY BUSINESS SEGMENT
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(Millions, customers in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues and sales:Service revenues
    
    $
    1,371.1
    
    
    $
    1,183.6
    
    
    $
    2,645.5
    
    
    $
    2,299.1Product sales
    
    
    84.2
    
    
    
    69.5
    
    
    
    161.8
    
    
    
    138.5Total revenues and sales
    
    
    1,455.3
    
    
    
    1,253.1
    
    
    
    2,807.3
    
    
    
    2,437.6Costs and expenses:Cost of services
    
    
    453.8
    
    
    
    382.1
    
    
    
    859.5
    
    
    
    737.8Cost of products sold
    
    
    150.3
    
    
    
    135.0
    
    
    
    299.1
    
    
    
    279.6Selling, general, administrative and other
    
    
    331.8
    
    
    
    293.0
    
    
    
    654.2
    
    
    
    588.8Depreciation and amortization
    
    
    212.5
    
    
    
    181.4
    
    
    
    416.0
    
    
    
    358.9Total costs and expenses
    
    
    1,148.4
    
    
    
    991.5
    
    
    
    2,228.8
    
    
    
    1,965.1Segment income
    
    $
    306.9
    
    
    $
    261.6
    
    
    $
    578.5
    
    
    $
    472.5Customers
    
    
    9,067.5
    
    
    
    8,336.5
    
    
    
    -
    
    
    
    -Average customers
    
    
    9,040.3
    
    
    
    8,256.0
    
    
    
    8,869.9
    
    
    
    8,171.8Gross customer additions (a)
    
    
    805.6
    
    
    
    650.1
    
    
    
    1,529.3
    
    
    
    1,387.5Net customer additions (a)
    
    
    266.2
    
    
    
    155.3
    
    
    
    441.0
    
    
    
    313.0Market penetration
    
    
    13.7
    %
    
    
    13.6
    %
    
    
    -
    
    
    
    -Postpay customer churn
    
    
    1.58
    %
    
    
    1.57
    %
    
    
    1.65
    %
    
    
    1.75
    %Total churn
    
    
    1.99
    %
    
    
    2.00
    %
    
    
    2.05
    %
    
    
    2.20
    %Retail minutes of use per customer per month (b)
    
    
    593
    
    
    
    490
    
    
    
    571
    
    
    
    461Retail revenue per customer per month (c)
    
    
    $46.42
    
    
    
    $44.08
    
    
    
    $45.89
    
    
    
    $43.33Average revenue per customer per month (d)
    
    
    $50.55
    
    
    
    $47.79
    
    
    
    $49.71
    
    
    
    $46.89Cost to acquire a new customer (e)
    
    
    $355
    
    
    
    $313
    
    
    
    $329
    
    
    
    $305
 Notes:
 (a)
    
    Includes the effects of acquisitions. Excludes reseller customers for all periods
presented.
 (b)
    
    Represents the average monthly minutes that Alltels customers use on both the Companys
network and while roaming on other carriers networks.
 (c)
    
    Retail revenue per customer is calculated by dividing wireless retail revenues by average
customers for the period. A reconciliation of the revenues used in computing retail revenue
per customer per month was as follows for the three and six month periods ended June 30:
 Three Months Ended
    
    
    Six Months Ended(Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Service revenues
    
    $
    1,371.1
    
    
    $
    1,183.6
    
    
    $
    2,645.5
    
    
    $
    2,299.1Less wholesale revenues
    
    
    (112.2
    )
    
    
    (91.7
    )
    
    
    (203.3
    )
    
    
    (174.4
    )Total retail revenues
    
    $
    1,258.9
    
    
    $
    1,091.9
    
    
    $
    2,442.2
    
    
    $
    2,124.7
 (d)
    
    Average revenue per customer per month is calculated by dividing wireless service revenues
by average customers for the period.(e)
    
    Cost to acquire a new customer is calculated by dividing the sum of product sales, cost of
products sold and sales and marketing expenses (included within Selling, general,
administrative and other), as reported above, by the number of internal gross customer
additions in the period. Customer acquisition costs exclude amounts related to the Companys
customer retention efforts. A reconciliation of the revenues, expenses and customer
additions used in computing cost to acquire a new customer was as follows for the three and
six month periods ended June 30:
 Three Months Ended
    
    
    Six Months Ended(Millions, customers in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Product sales
    
    $
    (51.0
    )
    
    $
    (51.8
    )
    
    $
    (100.9
    )
    
    $
    (104.1
    )Cost of products sold
    
    
    62.5
    
    
    
    77.4
    
    
    
    132.2
    
    
    
    164.2Sales and marketing expense
    
    
    198.9
    
    
    
    177.9
    
    
    
    383.9
    
    
    
    363.8Total costs incurred to acquire new customers
    
    $
    210.4
    
    
    $
    203.5
    
    
    $
    415.2
    
    
    $
    423.9Gross customer additions, excluding acquisitions
    
    
    593.0
    
    
    
    650.1
    
    
    
    1,262.7
    
    
    
    1,387.5Cost to acquire a new customer
    
    
    $355
    
    
    
    $313
    
    
    
    $329
    
    
    
    $305
 22


24


25


(Millions)Severance and employee benefit costs
    
    $
    8.8Relocation costs
    
    
    3.2Lease and contract termination costs
    
    
    0.5Write-down in carrying value of certain facilities
    
    
    0.7Other exit costs
    
    
    0.4Total restructuring and other charges
    
    $
    13.6
 Regulatory Matters-Wireless Operations
 Regulatory Oversight
 Telecommunications Law Modernization
  Universal Service
  26
       E-911
 27
      CALEA
   28


Inter-carrier Compensation
 Wireless Spectrum
 Customer Billing
 Communications-Wireline OperationsThree Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues and sales:Local service
    
    $
    272.8
    
    
    $
    280.7
    
    
    $
    545.5
    
    
    $
    560.7Network access and long-distance
    
    
    257.1
    
    
    
    262.8
    
    
    
    518.0
    
    
    
    523.5Miscellaneous
    
    
    65.2
    
    
    
    66.1
    
    
    
    125.2
    
    
    
    124.9Total revenues and sales
    
    
    595.1
    
    
    
    609.6
    
    
    
    1,188.7
    
    
    
    1,209.1Costs and expenses:Cost of services
    
    
    182.7
    
    
    
    178.6
    
    
    
    363.7
    
    
    
    351.5Cost of products sold
    
    
    9.0
    
    
    
    7.1
    
    
    
    16.0
    
    
    
    12.3Selling, general, administrative and other
    
    
    62.7
    
    
    
    60.9
    
    
    
    126.5
    
    
    
    121.8Depreciation and amortization
    
    
    125.4
    
    
    
    128.6
    
    
    
    252.7
    
    
    
    260.9Total costs and expenses
    
    
    379.8
    
    
    
    375.2
    
    
    
    758.9
    
    
    
    746.5Segment income
    
    $
    215.3
    
    
    $
    234.4
    
    
    $
    429.8
    
    
    $
    462.6
 29


Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(Access lines in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Access lines in services (excludes broadband lines)
    
    
    2,953.0
    
    
    
    3,066.1
    
    
    
    -
    
    
    
    -Average access lines in service
    
    
    2,968.0
    
    
    
    3,079.6
    
    
    
    2,981.1
    
    
    
    3,085.4Average revenue per customer per month (a)
    
    
    $66.83
    
    
    
    $65.99
    
    
    
    $66.46
    
    
    
    $65.31
 Notes:
 (a)
    
    Average revenue per customer per month is calculated by dividing total wireline revenues by
average access lines in service for the period.
      30


(Millions)Severance and employee benefit costs
    
    $
    11.2Relocation costs
    
    
    1.4Lease and contract termination costs
    
    
    (1.9
    )Other exit costs
    
    
    0.7Total restructuring and other charges
    
    $
    11.4
 Accounting for Regulated Entities
 31


Regulatory Matters-Wireline Operations
 Telecommunications Law Modernization
  State Regulation
 32


Inter-carrier Compensation
   Universal Service
   33
     Emerging Competitive Technologies - VoIP
  34
  Broadband
  Communications Support ServicesThree Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(Millions, except customers in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues and sales:Product distribution
    
    $
    136.1
    
    
    $
    95.9
    
    
    $
    256.7
    
    
    $
    195.0Long-distance and network management services
    
    
    74.3
    
    
    
    72.9
    
    
    
    146.9
    
    
    
    151.9Directory publishing
    
    
    47.3
    
    
    
    48.7
    
    
    
    73.6
    
    
    
    74.9Telecommunications information services
    
    
    3.5
    
    
    
    11.7
    
    
    
    8.7
    
    
    
    26.4Total revenues and sales
    
    
    261.2
    
    
    
    229.2
    
    
    
    485.9
    
    
    
    448.2Costs and expenses:Cost of services
    
    
    62.8
    
    
    
    58.6
    
    
    
    119.1
    
    
    
    124.6Cost of products sold
    
    
    161.3
    
    
    
    127.9
    
    
    
    294.4
    
    
    
    242.7Selling, general, administrative and other
    
    
    17.0
    
    
    
    13.1
    
    
    
    31.9
    
    
    
    26.3Depreciation and amortization
    
    
    8.5
    
    
    
    8.8
    
    
    
    17.0
    
    
    
    17.3Total costs and expenses
    
    
    249.6
    
    
    
    208.4
    
    
    
    462.4
    
    
    
    410.9Segment income
    
    $
    11.6
    
    
    $
    20.8
    
    
    $
    23.5
    
    
    $
    37.3Long-distance customers
    
    
    1,779.8
    
    
    
    1,717.6
    
    
    
    -
    
    
    
    -
  35
     (Millions)Severance and employee benefit costs
    
    $
    0.5Relocation costs
    
    
    0.1Total restructuring and other charges
    
    $
    0.6
 FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCESSix Months EndedJune 30,(Millions, except per share amounts)
    
    2005
    
    
    2004Cash flows from (used in):Operating activities
    
    $
    1,243.6
    
    
    $
    1,248.1Investing activities
    
    
    (449.5
    )
    
    
    (465.1
    )Financing activities
    
    
    748.7
    
    
    
    (753.3
    )Effect of exchange rate changes
    
    
    -
    
    
    
    (0.1
    )Increase in cash and short-term investments
    
    $
    1,542.8
    
    
    $
    29.6Total capital structure (a)
    
    $
    14,032.6
    
    
    $
    12,608.4Percent of equity to total capital (b)
    
    
    63.1
    %
    
    
    55.8
    %Book value per share (c)
    
    
    $27.05
    
    
    
    $22.81
 Notes:
 (a)
    
    Computed as the sum of long-term debt including current maturities, redeemable preferred
stock and total shareholders equity.(b)
    
    Computed by dividing total shareholders equity by total capital structure as computed in
(a) above.(c)
    
    Computed by dividing total shareholders equity less preferred stock by the total number of
common shares outstanding at the end of the period.
 Cash Flows-Operating Activities  36
  Cash Flows-Investing Activities
   Cash Flows-Financing Activities
  37


Liquidity and Capital Resources
  StandardDescription
    
    Moody's
    
    & Poor's
    
    FitchCommercial paper credit rating
    
    Prime-1
    
    A-1
    
    F1Long-term debt credit rating
    
    A2
    
    A
    
    AOutlook
    
    Stable
    
    Negative
    
    Stable
 38


Critical Accounting Policies
 Legal Proceedings
 Other Matters
 39
   Recently Issued Accounting Pronouncements
  40
  ALLTEL
CORPORATION  FORM 10-Q  PART I  FINANCIAL INFORMATION
 
 Item 3 . Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
  Foreign Exchange Risk
 41
 ALLTEL CORPORATION
 FORM 10-Q
 PART I  FINANCIAL INFORMATION
 
 Item 4. Controls and Procedures
 (a)
    
    Evaluation of disclosure controls and procedures.The term disclosure controls and procedures (defined in SEC Rule 13a-15(e)) refers to the
controls and other procedures of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it files under the Securities
Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported
within required time periods. Disclosure controls and procedures (as defined in SEC Rule
13a-15(e)) include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the companys management,
including the companys principal executive and financial officers, as appropriate to allow
timely decisions regarding required disclosure. Alltels management, with the
participation of the Chief Executive Officer and Chief Financial Officer, have evaluated
the effectiveness of the Companys disclosure controls and procedures as of the end of the
period covered by this quarterly report
(the Evaluation Date). Based on that evaluation, Alltels Chief Executive Officer and
Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and
procedures were effective.(b)
    
    Changes in internal controls.The term internal control over financial reporting (defined in SEC Rule 13a-15(f)) refers
to the process of a company that is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Alltels management,
with the participation of the Chief Executive Officer and Chief Financial Officer, have
evaluated any changes in the Companys internal control over financial reporting that
occurred during the period covered by this quarterly report, and they have concluded that
there was no change to Alltels internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, Alltels internal
control over financial reporting.
 
 PART II  OTHER INFORMATION
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (c)
    
    On January 23, 2004, Alltel announced a $750.0 million stock repurchase plan that expires
on December 31, 2005. During 2004, the Company repurchased 11.2 million shares of its common
stock at a total cost of $595.3 million, or an average cost of $52.93 per share. No
repurchases were made under the stock repurchase plan during the first six months of 2005.
As of June 30, 2005, remaining amounts that may be purchased under this plan were $154.7
million.
 Item 4. Submission of Matters to a Vote of Security HoldersThe Companys 2005 Annual Meeting of Stockholders was held on April 21, 2005. At the meeting, the
following items were submitted to a vote of stockholders:
 (1)
    
    The election of three directors, constituting the class of the Board of Directors who will
serve a three-year term expiring at the 2008 Annual Meeting of Stockholders:
 Nominee
    
    Votes For
    
    Votes WithheldJohn R. Belk
    
    
    261,459,369
    
    
    
    2,909,820Gregory W. Penske
    
    
    258,719,742
    
    
    
    5,649,447Warren A. Stephens
    
    
    254,126,864
    
    
    
    10,242,325
 (2)
    
    The appointment of PricewaterhouseCoopers LLP to audit Alltels consolidated financial
statements for the year ending December 31, 2005 was ratified with 261,501,796 votes for,
951,765 votes against and 1,899,653 abstentions.
 Item 6. ExhibitsSee the exhibits specified on the Index of Exhibits located at Page 44.
 42
 SIGNATURE
  ALLTEL CORPORATION
  /s/ Jeffery R. Gardner
 
 43
 ALLTEL
CORPORATION  FORM 10-Q  INDEX OF EXHIBITS
 Form 10-QExhibit No.
    
    Description of Exhibits(10)(a)(1)
    
    364-Day Revolving Credit Agreement dated as of August
1, 2005 between ALLTEL Corporation and Bank of
America, N.A., JPMorgan Chase Bank, N.A., Banc of
America Securities LLC and
J.P. Morgan Securities Inc., Citicorp USA, Inc.,
KeyBank National Association, Wachovia Bank, National
Association, and Barclays Bank PLC. (incorporated
herein by reference to Exhibit 10.1 to Current Report
on Form 8-K dated August 1, 2005).
    
    *31(a)
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
    
    (a)31(b)
    
    Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
    
    (a)32(a)
    
    Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
    
    (a)32(b)
    
    Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
    
    (a)
   44