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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549
 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 Commission file number 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)
 Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X       NO Indicate by check mark whether the registrant is an accelerated filer (as defined by
Rule 12b-2 of the Act). YES X       NO Number of common shares outstanding as of April 29, 2005: 302,637,510 The Exhibit Index is
located on page 40.




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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 Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4.
    
    Controls and Procedures
    
    
    38PART II - OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    *Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3.
    
    Defaults Upon Senior Securities
    
    
    *Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    *Item 5.
    
    Other Information
    
    
    *Item 6.
    
    Exhibits
    
    
    38
   *
    No reportable information under this item. Forward-Looking Statements
This Report on Form 10-Q includes, and future filings by the Company on Form 10-K, Form 10-Q and
Form 8-K and future oral and written statements by ALLTEL and its management may include, certain
forward-looking statements within the meaning of 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. Words such as expects, anticipates,
intends, plans, believes, seeks, estimates, and should, and variations of these words
and similar expressions, are intended to identify these forward-looking statements. ALLTEL
disclaims any obligation to update or revise any forward-looking statement based on the occurrence
of future events, the receipt of new information, or otherwise. Actual future events and results may differ materially from those expressed in these
forward-looking statements as a result of a number of important factors. Representative examples
of these factors include (without limitation) adverse changes in economic conditions in the markets
served by ALLTEL; the extent, timing, and overall effects of competition in the communications
business; material changes in the communications industry generally that could adversely affect
vendor relationships with equipment and network suppliers and customer relationships with wholesale
customers; changes in communications technology; the risks associated with pending acquisitions and
the integration of acquired businesses; adverse changes in the terms and conditions of the
Companys wireless roaming agreements; 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. 1




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ALLTEL CORPORATION
FORM 10-Q
PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in millions, except per share amounts)
    
    March 31,
    
    
    December 31,Assets
    
    2005
    
    
    2004Current Assets:Cash and short-term investments
    
    $
    888.4
    
    
    $
    484.9Accounts receivable (less allowance for doubtful
accounts of $46.5 and $53.6, respectively)
    
    
    857.9
    
    
    
    912.7Inventories
    
    
    148.2
    
    
    
    156.8Prepaid expenses and other
    
    
    88.2
    
    
    
    62.4Total current assets
    
    
    1,982.7
    
    
    
    1,616.8Investments
    
    
    668.2
    
    
    
    804.9Goodwill
    
    
    4,912.9
    
    
    
    4,875.7Other intangibles
    
    
    1,295.7
    
    
    
    1,306.1Property, Plant and Equipment:Land
    
    
    282.7
    
    
    
    278.1Buildings and improvements
    
    
    1,159.1
    
    
    
    1,134.8Wireline
    
    
    6,779.2
    
    
    
    6,735.8Wireless
    
    
    5,884.1
    
    
    
    5,764.0Information processing
    
    
    1,072.2
    
    
    
    1,048.4Other
    
    
    492.0
    
    
    
    489.9Under construction
    
    
    406.7
    
    
    
    385.3Total property, plant and equipment
    
    
    16,076.0
    
    
    
    15,836.3Less accumulated depreciation
    
    
    8,575.6
    
    
    
    8,288.2Net property, plant and equipment
    
    
    7,500.4
    
    
    
    7,548.1Other assets
    
    
    413.3
    
    
    
    452.1Total Assets
    
    $
    16,773.2
    
    
    $
    16,603.7Liabilities and Shareholders EquityCurrent Liabilities:Current maturities of long-term debt
    
    $
    673.8
    
    
    $
    225.0Accounts payable
    
    
    467.7
    
    
    
    448.2Advance payments and customer deposits
    
    
    218.9
    
    
    
    219.3Accrued taxes
    
    
    295.7
    
    
    
    158.2Accrued dividends
    
    
    115.1
    
    
    
    105.9Accrued interest
    
    
    82.7
    
    
    
    120.2Other current liabilities
    
    
    172.1
    
    
    
    183.5Total current liabilities
    
    
    2,026.0
    
    
    
    1,460.3Long-term debt
    
    
    4,924.6
    
    
    
    5,352.4Deferred income taxes
    
    
    1,640.9
    
    
    
    1,715.1Other liabilities
    
    
    941.6
    
    
    
    947.2Shareholders Equity:Preferred stock, Series C, $2.06, no par value, 12,260 and 12,288
shares issued and outstanding, respectively
    
    
    0.3
    
    
    
    0.3Common stock, par value $1 per share, 1.0 billion shares
authorized, 302,562,330 and 302,267,959 shares
issued and outstanding, respectively
    
    
    302.6
    
    
    
    302.3Additional paid-in capital
    
    
    203.6
    
    
    
    197.9Unrealized holding gain on investments
    
    
    61.2
    
    
    
    153.9Foreign currency translation adjustment
    
    
    0.5
    
    
    
    0.5Retained earnings
    
    
    6,671.9
    
    
    
    6,473.8Total shareholders equity
    
    
    7,240.1
    
    
    
    7,128.7Total Liabilities and Shareholders Equity
    
    $
    16,773.2
    
    
    $
    16,603.7
 See the accompanying notes to the unaudited interim consolidated financial statements. 2




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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)Three MonthsEnded March 31,(Millions, except per share amounts)
    
    2005
    
    
    2004Revenues and sales:Service revenues
    
    $
    1,898.3
    
    
    $
    1,765.6Product sales
    
    
    227.7
    
    
    
    195.6Total revenues and sales
    
    
    2,126.0
    
    
    
    1,961.2Costs and expenses:Cost of services (excluding depreciation of $241.9 and $231.9, respectively
included below)
    
    
    626.3
    
    
    
    560.8Cost of products sold
    
    
    281.8
    
    
    
    257.3Selling, general, administrative and other
    
    
    407.4
    
    
    
    375.2Depreciation and amortization
    
    
    341.2
    
    
    
    321.3Restructuring and other charges
    
    
    
    
    
    
    51.8Total costs and expenses
    
    
    1,656.7
    
    
    
    1,566.4Operating income
    
    
    469.3
    
    
    
    394.8Equity earnings in unconsolidated partnerships
    
    
    10.7
    
    
    
    13.3Minority interest in consolidated partnerships
    
    
    (18.3
    )
    
    
    (15.6
    )Other income, net
    
    
    120.7
    
    
    
    4.6Interest expense
    
    
    (86.7
    )
    
    
    (91.7
    )Income before income taxes
    
    
    495.7
    
    
    
    305.4Income taxes
    
    
    182.7
    
    
    
    115.6Net income
    
    
    313.0
    
    
    
    189.8Preferred dividends
    
    
    
    
    
    
    Net income applicable to common shares
    
    $
    313.0
    
    
    $
    189.8Earnings per share:Basic
    
    
    $1.04
    
    
    
    $.61Diluted
    
    
    $1.03
    
    
    
    $.61
 See the accompanying notes to the unaudited interim consolidated financial statements. 3




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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)Three MonthsEnded March 31,(Millions)
    
    2005
    
    
    2004Cash Provided from Operations:Net income
    
    $
    313.0
    
    
    $
    189.8Adjustments to reconcile net income to net cash provided from operations:Depreciation and amortization
    
    
    341.2
    
    
    
    321.3Provision for doubtful accounts
    
    
    40.9
    
    
    
    42.6Non-cash portion of restructuring and other charges
    
    
    
    
    
    
    25.6Change in deferred income taxes
    
    
    (19.1
    )
    
    
    72.1Other, net
    
    
    13.6
    
    
    
    (2.9
    )Changes in operating assets and liabilities, net of effects of
acquisitions and dispositions:Accounts receivable
    
    
    16.5
    
    
    
    4.5Inventories
    
    
    8.7
    
    
    
    5.4Accounts payable
    
    
    17.6
    
    
    
    (75.0
    )Other current liabilities
    
    
    86.6
    
    
    
    (15.0
    )Other, net
    
    
    (40.3
    )
    
    
    (16.9
    )Net cash provided from operations
    
    
    778.7
    
    
    
    551.5Cash Flows from Investing Activities:Additions to property, plant and equipment
    
    
    (254.9
    )
    
    
    (207.2
    )Additions to capitalized software development costs
    
    
    (11.1
    )
    
    
    (8.0
    )Additions to investments
    
    
    (0.7
    )
    
    
    (1.1
    )Purchases of property, net of cash acquired
    
    
    (51.8
    )
    
    
    Proceeds from the return on investments
    
    
    7.8
    
    
    
    20.3Other, net
    
    
    3.0
    
    
    
    (5.8
    )Net cash used in investing activities
    
    
    (307.7
    )
    
    
    (201.8
    )Cash Flows from Financing Activities:Dividends on preferred and common stock
    
    
    (105.7
    )
    
    
    (115.5
    )Reductions in long-term debt
    
    
    (1.9
    )
    
    
    (1.5
    )Repurchases of common stock
    
    
    
    
    
    
    (243.0
    )Distributions to minority investors
    
    
    (12.7
    )
    
    
    (16.2
    )Long-term debt issued
    
    
    50.0
    
    
    
    Common stock issued
    
    
    2.8
    
    
    
    5.9Net cash used in financing activities
    
    
    (67.5
    )
    
    
    (370.3
    )Effect of exchange rate changes on cash and short-term investments
    
    
    
    
    
    
    0.2Increase (decrease) in cash and short-term investments
    
    
    403.5
    
    
    
    (20.4
    )Cash and Short-term Investments:Beginning of the period
    
    
    484.9
    
    
    
    657.8End of the period
    
    $
    888.4
    
    
    $
    637.4Non-Cash Investing and Financing Activities:Change in fair value of investments in equity securities
    
    $
    (142.6
    )
    
    $
    49.1Change in fair value of interest rate swap agreements
    
    $
    (27.4
    )
    
    $
    28.5
 See the accompanying notes to the unaudited interim consolidated financial statements. 4




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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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    313.0
    
    
    
    313.0Other comprehensive loss, net of tax: (Note 5)Unrealized holding losses on investments,
net of reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92.7
    )
    
    
    
    
    
    
    
    
    
    
    (92.7
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92.7
    )
    
    
    
    
    
    
    313.0
    
    
    
    220.3Employee plans, net
    
    
    
    
    
    
    0.1
    
    
    
    3.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.3Restricted stock, net of unearned compensation
    
    
    
    
    
    
    0.2
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.1Tax benefit for non-qualified stock options
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.6Dividends:Common
 $.38 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (114.9
    )
    
    
    (114.9
    )Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at March 31, 2005
    
    $
    0.3
    
    
    $
    302.6
    
    
    $
    203.6
    
    
    $
    61.2
    
    
    $
    0.5
    
    
    $
    6,671.9
    
    
    $
    7,240.1
 See the accompanying notes to the unaudited interim consolidated financial statements. 5




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS  1.
    General:Basis of Presentation  The consolidated financial statements as of March 31, 2005
and 2004 and for the three month periods then ended 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 (SEC) 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 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 potential customers (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 $36.1 million was assigned to
customer list ($1.9 million), cellular licenses ($3.5 million) and goodwill ($30.7 million).
The customer list recorded in connection with this transaction is being amortized on a
straight-line basis over its estimated useful life of 4 years. The cellular licenses are
classified as indefinite-lived intangible assets and are not subject to amortization. The
purchase price paid for the wireless properties acquired from PS Cellular was 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
across Alabama and Georgia and added 54,000 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.During the first quarter of 2005, ALLTEL also acquired additional ownership interests in
wireless properties in Wisconsin in which the Company owned a majority interest. In
connection with these acquisitions, the Company paid $3.5 million in cash and assigned the
excess of the aggregate purchase price over the fair market value of the tangible net assets
acquired of $1.8 million to goodwill.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. 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
three months ended March 31, 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
    
    
    32.5
    
    
    
    
    
    
    
    
    
    
    
    32.5Other adjustments
    
    
    4.7
    
    
    
    
    
    
    
    
    
    
    
    4.7Balance at March 31, 2005
    
    $
    3,663.0
    
    
    $
    1,247.6
    
    
    $
    2.3
    
    
    $
    4,912.9
  The carrying value of indefinite-lived intangible assets other than goodwill were as follows: March 31,
    
    
    December 31,(Millions)
    
    2005
    
    
    2004Cellular licenses
    
    $
    779.1
    
    
    $
    775.6Personal Communications Services licenses
    
    
    79.1
    
    
    
    79.1Franchise rights  wireline
    
    
    265.0
    
    
    
    265.0$
    1,123.2
    
    
    $
    1,119.7
 6




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)  3.
    Goodwill and Other Intangible Assets, Continued:
Intangible assets subject to amortization were as follows: March 31, 2005Gross
    
    
    Accumulated
    
    
    Net Carrying(Millions)
    
    Cost
    
    
    Amortization
    
    
    ValueCustomer lists
    
    $
    399.5
    
    
    $
    (234.3
    )
    
    $
    165.2Franchise
rights
    
    
    22.5
    
    
    
    (15.2
    )
    
    
    7.3$
    422.0
    
    
    $
    (249.5
    )
    
    $
    172.5
 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 $15.8 million and
$15.1 million for the three month periods ended March 31, 2005 and 2004, respectively.
Amortization expense for intangible assets subject to amortization is estimated to be $63.9
million in 2005, $45.2 million in 2006, $28.6 million in 2007, $22.1 million in 2008 and
$8.6 million in 2009.4.
    Restructuring and Other Charges:
A summary of the restructuring and other charges recorded during the three months ended March
31, 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 March 31, 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 proposed leasing or sale of those
facilities. The asset write-downs resulted from lower occupancy in the facilities due to
the 2004 organizational changes and the 2003 sale of the Companys financial services
division to Fidelity National Financial, Inc. (Fidelity National). 7




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)  4.
    Restructuring and Other Charges, Continued:
The following is a summary of activity related to the liabilities associated with the
Companys restructuring and other charges for the three months ended March 31, 2005: (Millions)Balance, beginning of period
    
    $
    0.7Cash outlays
    
    
    (0.2
    )Balance, end of period
    
    $
    0.5
  At March 31, 2005, the remaining unpaid liability related to ALLTELs restructuring
activities consisted of severance and employee-related expenses of $0.1 million, relocation
expenses of $0.1 million and lease and contract termination costs of $0.3 million and is
included in other current liabilities in the accompanying consolidated balance sheets.5.
    Comprehensive Income:
Comprehensive income was as follows for the three month periods ended March 31: (Millions)
    
    2005
    
    
    2004Net income
    
    $
    313.0
    
    
    $
    189.8Other comprehensive income (loss):Unrealized holding gains (losses) on investments arising in the period
    
    
    (142.6
    )
    
    
    49.1Income tax expense (benefit)
    
    
    (49.9
    )
    
    
    12.4(92.7
    )
    
    
    36.7Foreign currency translation adjustment
    
    
    
    
    
    
    0.2Other comprehensive income (loss) before tax
    
    
    (142.6
    )
    
    
    49.3Income tax expense (benefit)
    
    
    (49.9
    )
    
    
    12.4Other comprehensive income (loss)
    
    
    (92.7
    )
    
    
    36.9Comprehensive income
    
    $
    220.3
    
    
    $
    226.7
  6.
    Earnings per Share:
Basic earnings per share of common stock 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, restricted stock awards
and outstanding preferred stock. 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 month
periods ended March 31: (Millions, except per share amounts)
    
    2005
    
    
    2004Basic earnings per share:Net income
    
    $
    313.0
    
    
    $
    189.8Less preferred dividends
    
    
    
    
    
    
    Net income applicable to common shares
    
    $
    313.0
    
    
    $
    189.8Weighted average common shares outstanding for the period
    
    
    302.2
    
    
    
    311.5Basic earnings per share
    
    $
    1.04
    
    
    $
    .61Diluted earnings per share:Net income applicable to common shares
    
    $
    313.0
    
    
    $
    189.8Adjustment for convertible preferred stock dividends
    
    
    
    
    
    
    Net income applicable to common shares
assuming conversion of preferred stock
    
    $
    313.0
    
    
    $
    189.8Weighted average common shares outstanding for the period
    
    
    302.2
    
    
    
    311.5Increase in shares resulting from:Assumed exercise of stock options
    
    
    1.0
    
    
    
    0.7Assumed conversion of preferred stock
    
    
    0.2
    
    
    
    0.3Non-vested restricted stock awards
    
    
    0.1
    
    
    
    Weighted average common shares assuming conversion
    
    
    303.5
    
    
    
    312.5Diluted earnings per share
    
    $
    1.03
    
    
    $
    .61
 8




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)  7.
    Investments  Special Cash Dividend:
On March 9, 2005, Fidelity National declared a special $10 per share cash dividend to
Fidelity National stockholders. The special cash dividend of $111.0 million was paid to
ALLTEL on March 28, 2005. On April 6, 2005, ALLTEL sold its investment in Fidelity National
common stock and received pretax proceeds of approximately
$350.0 million. (See Note 13).8.
    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 restructuring and
other charges discussed in Note 4. These items are not allocated to the segments and are
included in corporate operations. Segment operating results were as follows for the three
month periods ended March 31: (Millions)
    
    2005
    
    
    2004Revenues and Sales from External Customers:Wireless
    
    $
    1,352.0
    
    
    $
    1,184.5Wireline
    
    
    556.0
    
    
    
    561.4Communications support services
    
    
    172.3
    
    
    
    158.8Total business segments
    
    $
    2,080.3
    
    
    $
    1,904.7Intersegment Revenues and Sales:Wireless
    
    $
    
    
    
    $
    Wireline
    
    
    37.6
    
    
    
    38.1Communications support services
    
    
    52.4
    
    
    
    60.2Total business segments
    
    $
    90.0
    
    
    $
    98.3Total Revenues and Sales:Wireless
    
    $
    1,352.0
    
    
    $
    1,184.5Wireline
    
    
    593.6
    
    
    
    599.5Communications support services
    
    
    224.7
    
    
    
    219.0Total business segments
    
    
    2,170.3
    
    
    
    2,003.0Less intercompany eliminations
    
    
    (44.3
    )
    
    
    (41.8
    )Total revenues and sales
    
    $
    2,126.0
    
    
    $
    1,961.2Segment Income:Wireless
    
    $
    271.6
    
    
    $
    210.9Wireline
    
    
    214.5
    
    
    
    228.2Communications support services
    
    
    11.9
    
    
    
    16.5Total segment income
    
    
    498.0
    
    
    
    455.6Corporate expenses
    
    
    (28.7
    )
    
    
    (9.0
    )Restructuring and other charges
    
    
    
    
    
    
    (51.8
    )Equity earnings in unconsolidated partnerships
    
    
    10.7
    
    
    
    13.3Minority interest in consolidated partnerships
    
    
    (18.3
    )
    
    
    (15.6
    )Other income, net
    
    
    120.7
    
    
    
    4.6Interest expense
    
    
    (86.7
    )
    
    
    (91.7
    )Income before income taxes
    
    $
    495.7
    
    
    $
    305.4
  Segment assets were as follows as of: March 31,
    
    
    December 31,(Millions)
    
    2005
    
    
    2004Wireless
    
    $
    9,915.2
    
    
    $
    9,881.5Wireline
    
    
    4,958.0
    
    
    
    5,042.8Communications support services
    
    
    462.2
    
    
    
    495.8Total business segments
    
    
    15,335.4
    
    
    
    15,420.1Corporate headquarters assets not allocated to segments
    
    
    1,453.9
    
    
    
    1,201.2Less elimination of intersegment receivables
    
    
    (16.1
    )
    
    
    (17.6
    )Total consolidated assets
    
    $
    16,773.2
    
    
    $
    16,603.7
 9




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)  8.
    Business Segment Information, Continued:
Supplemental information pertaining to the communications support services segment was as
follows for the three month periods ended March 31: (Millions)
    
    2005
    
    
    2004Revenues and Sales from External Customers:Product distribution
    
    $
    93.8
    
    
    $
    69.4Long-distance and network management services
    
    
    47.0
    
    
    
    48.5Directory publishing
    
    
    26.3
    
    
    
    26.2Telecommunications information services
    
    
    5.2
    
    
    
    14.7Total
    
    $
    172.3
    
    
    $
    158.8Intersegment Revenues and Sales:Product distribution
    
    $
    26.8
    
    
    $
    29.7Long-distance and network management services
    
    
    25.6
    
    
    
    30.5Directory publishing
    
    
    
    
    
    
    Telecommunications information services
    
    
    
    
    
    
    Total
    
    $
    52.4
    
    
    $
    60.2Total Revenues and Sales:Product distribution
    
    $
    120.6
    
    
    $
    99.1Long-distance and network management services
    
    
    72.6
    
    
    
    79.0Directory publishing
    
    
    26.3
    
    
    
    26.2Telecommunications information services
    
    
    5.2
    
    
    
    14.7Total revenues and sales
    
    $
    224.7
    
    
    $
    219.0
  9.
    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. ALLTEL accounts for these
plans pursuant to the recognition and measurement principles of Accounting Principles Board
(APB) 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 month periods ended March 31, 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 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 $0.7 million for the three months ended March
31, 2005 and 2004, respectively. At March 31, 2005, unrecognized compensation expense for the
restricted shares amounted to $11.1 million 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 Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, to its stock-based employee
compensation plans for the three month periods ended March 31: (Millions, except per share amounts)
    
    
    
    2005
    
    
    2004Net income as reported
    
    
    
    $
    313.0
    
    
    $
    189.8Add stock-based employee compensation expense included in net income,
net of related tax effects
    
    
    1.0
    
    
    
    0.4Deduct stock-based employee compensation expense determined
under fair value method for all awards, net of related tax effects
    
    
    (6.6
    )
    
    
    (6.6
    )Pro forma net income
    
    
    
    $
    307.4
    
    
    $
    183.6Basic earnings per share:
    
    As reported
    
    
    $1.04
    
    
    
    $.61Pro forma
    
    
    $1.02
    
    
    
    $.59Diluted earnings per share:
    
    As reported
    
    
    $1.03
    
    
    
    $.61Pro forma
    
    
    $1.01
    
    
    
    $.59
 10




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)  9.
    Stock-Based Compensation, Continued:
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 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.10.
    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 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
pension expense, including provision for executive retirement agreements, and postretirement
expense were as follows for the three month periods ended March 31: Pension Benefits
    
    
    Postretirement Benefits(Millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Benefits earned during the year
    
    $
    8.4
    
    
    $
    7.7
    
    
    $
    0.1
    
    
    $
    0.2Interest cost on benefit obligation
    
    
    14.6
    
    
    
    13.0
    
    
    
    3.5
    
    
    
    3.9Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.2Amortization of prior service cost
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.5
    
    
    
    0.4Recognized net actuarial loss
    
    
    7.6
    
    
    
    4.9
    
    
    
    1.7
    
    
    
    2.2Expected return on plan assets
    
    
    (20.7
    )
    
    
    (17.6
    )
    
    
    
    
    
    
    Net periodic benefit expense
    
    $
    10.0
    
    
    $
    8.1
    
    
    $
    6.0
    
    
    $
    6.9
  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 $2.4 million for the
three months ended March 31, 2005. ALLTEL does not expect any contribution to the
qualified defined pension plan required under the minimum funding requirements of the
Employee Retirement Income Security Act of 1974 to be necessary 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.Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, (the
Medicare Prescription Drug Act), beginning in 2006, the Medicare Prescription Drug Act
will provide for 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). 11




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NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS-(Continued)  10.
    Employee Benefit Plans and Postretirement Benefits Other Than Pensions, Continued:
FSP No. 106-2 clarified that the federal subsidy provided under the Medicare Prescription
Drug 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 Medicare Prescription Drug Act, ALLTEL determined that a substantial
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.11.
    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 income 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.12.
    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 consists of a
corporate unit, with a $50 stated amount, comprised of a purchase contract and a $50
principal amount senior note. The purchase contract obligates the holder to purchase, and
obligates ALLTEL to sell, on May 17, 2005, for $50, a variable number of newly-issued common
shares of ALLTEL common stock. The number of ALLTEL shares issued will be determined at the
time the purchase contracts are settled based upon the twenty-day average closing stock
price of ALLTELs common stock for the period April 15, 2005 to May 12, 2005. If the
twenty-day average price of ALLTELs common stock is equal to or less than $49.50, then
ALLTEL will deliver 1.0101 shares to the holder of the equity unit. If the twenty-day
average price of ALLTELs common stock is greater than $49.50 but less than $60.39, then
ALLTEL will deliver a fraction of shares equal to $50 divided by the
twenty-day average
price of ALLTELs common stock. Finally, if the twenty-day average price of ALLTELs common
stock is equal to or greater than $60.39, then ALLTEL will deliver 0.8280 shares to the
holder. Accordingly, upon settlement of the purchase contracts on May 17, 2005, ALLTEL will
receive proceeds of $1,385.0 million and will deliver between 22.9 million and 28.0 million
common shares in the aggregate.The $50 principal amount senior notes become payable on May 17, 2007 and accrue 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 have been
pledged to secure the corporate unit holders obligations under the purchase contract
component of the corporate unit. 12




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##### Table of Contents



13.
    Subsequent Events:
On April 6, 2005, ALLTEL announced that it had completed the sale of all of its shares of
Fidelity National common stock to Goldman Sachs for approximately $350.0 million. ALLTEL
had originally acquired the Fidelity National shares as partial consideration for the sale
of ALLTELs financial services business to Fidelity National. The pretax gain from the
stock sale of approximately $75.0 million will be included in ALLTELs consolidated results
of operations for the interim periods ended June 30, 2005. As further discussed below,
proceeds from the stock sale were used to fund a substantial portion of the cost to redeem,
prior to maturity, $450.0 million of long-term debt.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 one of its six, pay
variable/receive fixed, interest rate swap agreements 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 $14.9 million, which will be included in ALLTELs
consolidated results of operations for the interim periods ended June 30, 2005.On April 15, 2005, ALLTEL and Cingular Wireless LLC (Cingular), a joint venture between
SBC Communications, Inc. and BellSouth Corporation, completed the exchange of 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. 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. In connection with this transaction, ALLTEL expects to record a pretax gain of approximately $120.0 million to $140.0 million. 13




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##### Table of Contents



PART I  FINANCIAL INFORMATION ALLTEL CORPORATION
FORM 10-Q
PART I  FINANCIAL INFORMATION 
 Item 2.   Managements Discussion and Analysis of Financial Condition and Results of Operations GENERAL
The following is a discussion and analysis of the historical results of operations and financial
condition of ALLTEL Corporation (ALLTEL or the Company). This discussion should be read in
conjunction with the unaudited consolidated financial statements, including the notes thereto, for
the interim periods ended March 31, 2005 and 2004, and the Companys Annual Report on Form 10-K for
the year ended December 31, 2004. EXECUTIVE SUMMARY
ALLTEL is a customer-focused communications company providing wireless, local telephone,
long-distance, Internet and high-speed data services to more than 13 million residential and
business customers in 27 states. Among the highlights in the first quarter of 2005:  
    Wireless customer growth was strong as ALLTEL added nearly 175,000
net customers during the quarter. Excluding the effects of
acquisitions, net new wireless customers totaled nearly 121,000.
Improved sales of ALLTELs Simple Freedom prepay service offering
also contributed to customer growth in the first quarter of 2005.
Wireless postpay churn decreased 21 basis points from the first
quarter of 2004 to 1.72 percent and total churn, which includes
prepay customer losses, was 2.11 percent for the first quarter of
2005, a 29 basis point improvement from the same period a year
ago.
    Wireless revenues and sales increased 14 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 ETC subsidies. Wireless wholesale
revenues also increased 10 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. Average revenue per customer and
retail revenue per customer both increased 6 percent from a year
ago to $48.80 and $45.31, respectively. Retail minutes of use per
wireless customer per month increased to 547 minutes, a 27 percent
increase from the same period of 2004.
    Wireless segment income increased 29 percent from a year ago,
reflecting the growth in revenues and sales noted above and the
favorable effects on customer acquisition costs due to vendor
rebates and a 9 percent decline in gross customer additions
(excluding acquisitions) from the same period a year ago.
    In its wireline business, ALLTEL added more than 40,000
broadband customers, increasing ALLTELs broadband customer base to
approximately 283,000. During 2005, the Company lost
approximately 26,000 wireline access lines, a year-over-year
decline of approximately 3.5 percent. Average revenue per
wireline customer increased 2 percent from a year ago to $66.08
due primarily to growth in broadband revenues and selling
additional services and features to existing wireline customers.
Wireline segment income decreased 6 percent from a year ago
reflecting a one percent decline in wireline revenues and sales
attributable to the loss of access lines and the effects of
incremental operating expenses. Operating expenses included
additional costs related to the growth in broadband customers,
specifically the costs associated with subsidizing
broadband-capable modems, higher overtime and maintenance costs
incurred due to inclement weather and additional expenses
associated with work force reductions. The Company also launched several operational initiatives during the first quarter of 2005
including (1) offering an industry-first pricing plan for wireless data services which allows
customers to combine video, picture and text messaging services for one flat rate; (2) offering
wireless broadband services in three markets while continuing the expansion of ALLTELs 1XRTT data
footprint and (3) improving the functionality of Touch2Talk, ALLTELs walkie-talkie service, by
adding new features, two handsets and offering customers the same nationwide footprint for
Touch2Talk calls that is available for their standard
wireless voice and data services. ALLTEL also
announced plans to offer DISH network satellite television service to wireline customers later this
summer in its fifteen-state wireline service territory. As further discussed under Acquisitions Pending as of March 31, 2005, ALLTEL positioned its
wireless business for future growth opportunities as a result of the Companys planned merger with
Western Wireless Corporation (Western Wireless). This transaction, which is expected to close by
mid-year 2005, is significant to ALLTEL in several ways. First, it will increase ALLTELs wireless
revenue mix to nearly 70 percent of the Companys total consolidated revenues. Second, the
transaction will increase the Companys retail position in markets where ALLTEL can bring
significant value to customers by offering competitive national rate plans. Third, this
transaction will diversify ALLTELs wireless 14




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##### Table of Contents



roaming revenue sources, and, as a result of offering multiple technologies, the Company will
become the leading independent roaming partner for the four national carriers in the markets served
by ALLTEL. Finally, ALLTEL will enhance its strategic options as the wireless industry continues
to restructure while preserving the Companys strong financial position. Throughout the remainder of 2005, the Company will continue to face significant challenges
resulting from competition in the telecommunications industry and changes in the regulatory
environment, including the effects of potential changes to the rules governing universal service
and inter-carrier compensation. In addressing these challenges, ALLTEL will continue to focus its
efforts on improving customer service, enhancing the quality of its networks, expanding its product
and service offerings, and conducting vigorous advocacy efforts in favor of governmental policies
that will benefit ALLTELs business and its customers. ACQUISITIONS
Completed During the First Quarter of 2005 and Fourth Quarter of 2004
On February 28, 2005, ALLTEL completed the purchase of wireless properties, representing
approximately 900,000 potential customers (POPs) in Alabama and Georgia, from Public Service
Cellular, Inc. (PS Cellular) for $48.3 million in cash. Through the completion of this transaction,
ALLTEL added approximately 54,000 customers. (See Note 2 to the unaudited interim consolidated
financial statements for additional information regarding this acquisition.) On December 1, 2004, ALLTEL completed the purchase of certain wireless assets from United States
Cellular Corporation (U.S. Cellular) and TDS Telecommunications Corporation (TDS Telecom) for
$148.2 million in cash, acquiring wireless properties with a potential service area covering
approximately 584,000 POPs in Florida and Ohio. The Company also purchased partnership interests
in seven ALLTEL-operated markets in Georgia, Mississippi, North Carolina, Ohio and Wisconsin.
Prior to this acquisition, ALLTEL owned an approximate 42 percent interest in the Georgia market,
with a potential service area covering approximately 229,000 POPs, and ALLTEL owned a majority
interest in the Mississippi, North Carolina, Ohio and Wisconsin markets. On November 2, 2004, the
Company purchased for $35.6 million in cash wireless properties with a potential service area
covering approximately 275,000 POPs in south Louisiana from SJI, a privately held company. During
the fourth quarter of 2004, ALLTEL also acquired additional ownership interests in wireless
properties in Louisiana and Wisconsin in which the Company owned a majority interest in exchange
for $1.4 million in cash and a portion of the Companys ownership interest in a wireless
partnership serving the St. Louis, Missouri market. Through these transactions, ALLTEL added
approximately 92,000 wireless customers. Acquisitions Pending as of March 31, 2005
On April 15, 2005, ALLTEL and Cingular Wireless LLC (Cingular), a joint venture between SBC
Communications, Inc. and BellSouth Corporation, completed the exchange of certain wireless assets.
Under the terms of the agreement, ALLTEL acquired former AT&T Wireless properties, including
licenses, network assets, and subscribers, in selected markets in Kentucky, Oklahoma, Texas,
Connecticut and Mississippi. 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. In connection with this transaction,
ALLTEL expects to record a pretax gain of approximately $120.0 million to $140.0 million. Operating results for the wireless properties acquired from Cingular and the pretax gain from the exchange transaction will
first be included in ALLTELs consolidated results of operations for the interim periods ended June
30, 2005. On January 9, 2005, ALLTEL entered into an Agreement and Plan of Merger (the Merger Agreement)
with Western Wireless providing for the merger of Western Wireless with and into a wholly owned
subsidiary of ALLTEL (the Merger). In the Merger, each share of Western Wireless common stock
will be exchanged for .535 shares of ALLTEL common stock and $9.25 in cash unless the shareholder
makes an all-cash or all-stock election. Western Wireless shareholders making an all-stock or
all-cash election may be subject to proration depending on the number of shareholders making such
elections. In the aggregate, ALLTEL will issue approximately 60 million shares of stock and pay
approximately $1.0 billion in cash. Through its wholly owned subsidiary that merges with Western
Wireless, ALLTEL will also assume debt of approximately $2.1 billion, including $1.2 billion of
term notes issued under Western Wireless credit facility that, as a result of the Merger, will
become due immediately upon the closing of the Merger. The transaction is valued at approximately
$6 billion. As a result of the Merger, ALLTEL will add approximately 1.3 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. ALLTEL also will add wireless operations in nine new states,
including California, Idaho, Minnesota, Montana, Nevada, North Dakota, South Dakota, Utah and
Wyoming, and will also significantly expand its wireless operations in 15




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Arizona, Colorado, New
Mexico and Texas. In addition, ALLTEL will add approximately
1.6 million international wireless customers in six countries. Consummation of the Merger is subject to certain conditions,
including the approval of the Merger by the stockholders of Western Wireless and the receipt of
regulatory approvals, including, without limitation, the approval of the Federal Communications
Commission (FCC) and the expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The transaction is expected to close by mid-year
2005. The Merger Agreement contains certain termination rights for each of ALLTEL and Western
Wireless and further provides that, upon termination of the Merger Agreement under specified
circumstances involving an alternative transaction, Western Wireless may be required to pay ALLTEL
a termination fee of $120.0 million. CONSOLIDATED RESULTS OF OPERATIONSThree Months EndedMarch 31,(Millions, except per share amounts)
    
    2005
    
    
    2004Revenues and sales:Service revenues
    
    $
    1,898.3
    
    
    $
    1,765.6Product sales
    
    
    227.7
    
    
    
    195.6Total revenues and sales
    
    
    2,126.0
    
    
    
    1,961.2Costs and expenses:Cost of services
    
    
    626.3
    
    
    
    560.8Cost of products sold
    
    
    281.8
    
    
    
    257.3Selling, general, administrative and other
    
    
    407.4
    
    
    
    375.2Depreciation and amortization
    
    
    341.2
    
    
    
    321.3Restructuring and other charges
    
    
    
    
    
    
    51.8Total costs and expenses
    
    
    1,656.7
    
    
    
    1,566.4Operating income
    
    
    469.3
    
    
    
    394.8Non-operating income, net
    
    
    113.1
    
    
    
    2.3Interest expense
    
    
    (86.7
    )
    
    
    (91.7
    )Income before income taxes
    
    
    495.7
    
    
    
    305.4Income taxes
    
    
    182.7
    
    
    
    115.6Net income
    
    $
    313.0
    
    
    $
    189.8Basic earnings per share
    
    
    $1.04
    
    
    
    $.61Diluted earnings per share
    
    
    $1.03
    
    
    
    $.61
 Service revenues and total revenues both increased 8 percent, or $132.7 million and $164.8 million,
respectively, in the three month period ended March 31, 2005, as compared to the same prior year
period. The acquisitions of wireless properties in the fourth quarter of 2004 and in February 2005
previously discussed accounted for approximately $17.2 million and $18.4 million of the overall
increases in service revenues and total revenues and sales in 2005, respectively. In addition to
the effects of the acquisitions, service revenues in 2005 reflected an increase of $81.8 million in
wireless access revenues compared to 2004, primarily driven by non-acquisition related growth in
ALLTELs wireless customer base. Service revenues in 2005 also included an increase of $36.3
million compared to 2004 in revenues derived from wireless and wireline data services, reflecting
strong demand for these services and the effects of a large-scale promotion surrounding Super Bowl
XXXIX aimed at increasing text messaging usage. Compared to the same period of 2004, wireless
regulatory and other fees increased $36.6 million in 2005, primarily due to additional Universal
Service Fund (USF) support received by ALLTEL pursuant to its certification in twelve states as
an Eligible Telecommunications Carrier (ETC), which accounted for $21.0 million of the overall
increase in regulatory fees in 2005. The increases in service revenues discussed above were partially offset by lower wireless airtime
revenues, decreases in wireline access and toll revenues and reductions in revenues derived from
telecommunications information services. Compared to the first quarter of 2004, wireless airtime
revenues decreased $8.0 million in the first quarter of 2005, primarily due to the effects of
customers migrating to rate plans with a larger number of packaged minutes. For a flat monthly
service fee, such rate plans provide customers with a specified number of airtime minutes and
include unlimited weekend, nighttime and mobile-to-mobile minutes at no extra charge. Primarily as
a result of the loss of wireline access lines, wireline local service and network access and toll
revenues decreased $14.2 million in the first quarter of 2005 compared to the same period a year
ago. Telecommunications information services revenues decreased $9.5 million in the three months
ended March 31, 2005 compared to the same prior year period due to the loss of one of ALLTELs
remaining unaffiliated wireline services customers during 2004. 16




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Product sales increased $32.1 million, or 16 percent, in the three months ended March 31, 2005, as
compared to the same period in 2004. The increase in product sales in 2005 was primarily driven by
higher retail prices realized on the sale of wireless handsets that include advanced features, such
as picture messaging, and that are capable of downloading games, entertainment content, weather and
office applications. Cost of services increased $65.5 million, or 12 percent, in the three month period ended March 31,
2005, as compared to the same period in 2004. The wireless property acquisitions accounted for
$7.5 million of the overall increase in cost of services in 2005. In addition to the effects of
the acquisitions, cost of services for the first quarter of 2005 reflected increases in
network-related costs of $27.4 million for the wireless operations due to increased network traffic
caused by customer growth, increased customer minutes of use and expansion of network facilities.
In addition, cost of services for the first quarter of 2005 reflected increased wireless customer
service expenses of $10.0 million, primarily due to additional costs associated with ALLTELs
retention efforts focused on improving customer satisfaction and reducing postpay churn. Cost of
services for the 2005 period also included $19.8 million of incremental costs primarily related to
a change in accounting for operating leases. 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. Prior to January 1, 2005, 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. Cost of products sold increased $24.5 million, or 10 percent, in the first quarter of 2005, as
compared to the same period of 2004. The increase was consistent with the growth in product sales
and reflected the sales of higher-priced wireless handsets and increased sales to resellers and
other distributors. In addition, the wireless property acquisitions previously discussed accounted
for $2.5 million of the overall increase in cost of products sold in 2005. Selling, general,
administrative and other expenses increased $32.2 million, or 9 percent, in the three month period
ended March 31, 2005, as compared to the same period in 2004. The acquisitions of wireless
properties accounted for $5.7 million of the overall increase in selling, general, administrative
and other expenses in 2005. Selling, general, administrative and other operating expenses also
reflected increased advertising costs associated with a large-scale promotion surrounding Super
Bowl XXXIX that was aimed at increasing text messaging usage. Increased insurance premiums related
to the Companys employee medical and dental plans, additional costs associated with write-offs
identified as a result of system improvements in the Companys cash processing procedures and
higher audit fees and internal staffing costs incurred to comply with the Section 404 internal
control reporting requirements of the Sarbanes-Oxley Act of 2002 also contributed to the increase
in selling, general, administrative and other operating expenses in 2005. Depreciation and
amortization expense increased $19.9 million, or 6 percent, in the 2005 period as compared to the
same period in 2004, primarily related to the growth in wireless plant in service and the effects
of a third quarter 2004 prospective change in the depreciable lives of certain wireless telecommunications equipment. The
depreciable lives were shortened in response to the rapid pace of technological development and the
increasing demands of ALLTELs customers for new products and services. The effects of the
wireless property acquisitions also accounted for $2.2 million of the overall increase in
depreciation and amortization expense in 2005. Operating income increased $74.5 million, or 19 percent, in the three month period ended March 31,
2005 compared to the same period of 2004, primarily due to growth in wireless segment income
resulting from increased revenues and sales and a reduction in total customer acquisition costs due
to the effects of vendor rebates and a decline in gross customer additions. Operating income
comparisons for the first quarter of 2005 were also favorably affected by the effects of
restructuring and other charges incurred during the first quarter of 2004, as further discussed
below. These increases were partially offset by a reduction in wireline segment income primarily
attributable to a loss in access lines. The changes in wireless and wireline segment income in
2005 are further discussed below under Results of Operations by Business Segment. Restructuring and Other Charges
A summary of the restructuring and other charges recorded during the three months ended March 31,
2004 was as follows: (Millions)Severance 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
 17




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##### Table of Contents



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, ALLTEL 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 March 31, 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. In 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 March 31, 2005, the remaining unpaid liability related to ALLTELs integration and restructuring
activities consisted of severance and employee-related expenses of $0.1 million, relocation
expenses of $0.1 million and lease and contract termination costs of $0.3 million. Cash outlays
for the remaining unpaid liability will be disbursed over the next 12 to 24 months and will be
funded from operating cash flows. (See Note 4 to the unaudited interim consolidated financial
statements for additional information regarding the restructuring and other charges.) Non-Operating Income, NetThree Months EndedMarch 31,(Millions)
    
    2005
    
    
    2004Equity earnings in unconsolidated partnerships
    
    $
    10.7
    
    
    $
    13.3Minority interest in consolidated partnerships
    
    
    (18.3
    )
    
    
    (15.6
    )Other income, net
    
    
    120.7
    
    
    
    4.6Non-operating income, net
    
    $
    113.1
    
    
    $
    2.3
 As indicated in the table above, non-operating income, net increased $110.8 million in the three
months ended March 31, 2005, as compared to the same period in 2004. The decrease in equity
earnings in unconsolidated partnerships of $2.6 million primarily reflected the effects of ALLTELs
December 1, 2004 acquisition of a majority ownership interest in a Georgia market in which the
Company previously owned a minority interest. The increase in minority interest expense of $2.7
million was consistent with the growth in wireless segment income, as further discussed below under
Results of Operations by Business Segment, partially offset by the effects of ALLTELs
acquisitions during the fourth quarter of 2004 and the first quarter of 2005 of additional
ownership interests in wireless properties in Louisiana, Mississippi, North Carolina, Ohio and
Wisconsin in which the Company owned a majority interest. The increase of $116.1 million in other
income, net in the three month period of 2005 primarily reflected increased dividend income earned
on the Companys investment in Fidelity National common stock. On March 9, 2005, Fidelity National
declared a special $10 per share cash dividend to Fidelity National stockholders. The special cash
dividend of $111.0 million was paid to ALLTEL on March 28, 2005. Other income, net for the first
quarter of 2005 also included $1.3 million of additional interest income earned on the Companys
cash and short-term investments due to significant growth in ALLTELs available cash on hand and a
$2.4 million gain on the sale of investments in certain limited partnerships. Interest Expense
Interest expense decreased $5.0 million, or 5 percent, in the three months ended March 31, 2005, as
compared to the same period in 2004. The decrease primarily reflected the effects on interest
expense resulting from the repayment of a $250.0 million, 7.25 percent unsecured note that the
Company repaid on April 1, 2004. Income Taxes
Income tax expense increased $67.1 million, or 58 percent, in the three months ended March 31,
2005, as compared to the same period in 2004. The increase in income tax expense in 2005 was
consistent with the overall increase in the Companys income
before income taxes. The Companys effective income tax rate
decreased to 36.9 percent for the three 18




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months ended March 31, 2005, compared to 37.9 percent for the corresponding period of
2004. The favorable income tax treatment of the special cash dividend
received from Fidelity National contributed to the overall decrease in
the effective income tax rate in the first quarter of 2005. In determining its quarterly provision for income taxes, ALLTEL uses an estimated annual
effective tax rate, which is based on the Companys expected annual income, statutory rates and tax
planning opportunities and reflects ALLTELs best estimate of the ultimate outcome of tax
examinations and assessments. Significant or unusual items, such as the taxes related to the
special cash dividend received from Fidelity National discussed above, are separately recognized in
the quarter in which they occur. Net Income and Earnings per Share
Net income increased $123.2 million, or 65 percent, and basic earnings per share and diluted
earnings per share increased 70 percent and 69 percent, respectively, in the first quarter of 2005
compared to the same period of 2004. The increases in net income and earnings per share primarily
reflected the special cash dividend received from Fidelity National and the favorable comparative
effects of the restructuring and other charges incurred during the first quarter of 2004. Growth
in wireless segment income attributable to an increase in revenues and sales and a reduction in
total customer acquisition costs due to the effects of vendor rebates and a decline in gross
customer additions also contributed to the growth in net income and earnings per share in the first
quarter of 2005. These increases were partially offset by a reduction in wireline segment income
primarily attributable to a loss in access lines. The changes in wireless and wireline segment
income in 2005 are further discussed below under Results of Operations by Business Segment. Average Common Shares Outstanding
The average number of common shares outstanding decreased 3 percent in the three month period ended
March 31, 2005 compared to the same period of 2004. The decrease primarily reflected the effects
of the Companys repurchase of approximately 11.2 million of its common shares during 2004, as
further discussed below under Cash Flows-Financing Activities, partially offset by additional
shares issued upon the exercise of options granted under ALLTELs employee stock-based compensation
plans. RESULTS OF OPERATIONS BY BUSINESS SEGMENTCommunications-Wireless OperationsThree Months EndedMarch 31,(Millions, customers in thousands)
    
    2005
    
    
    2004Revenues and sales:Service revenues
    
    $
    1,274.4
    
    
    $
    1,115.5Product sales
    
    
    77.6
    
    
    
    69.0Total revenues and sales
    
    
    1,352.0
    
    
    
    1,184.5Costs and expenses:Cost of services
    
    
    405.7
    
    
    
    355.7Cost of products sold
    
    
    148.8
    
    
    
    144.6Selling, general, administrative and other
    
    
    322.4
    
    
    
    295.8Depreciation and amortization
    
    
    203.5
    
    
    
    177.5Total costs and expenses
    
    
    1,080.4
    
    
    
    973.6Segment income
    
    $
    271.6
    
    
    $
    210.9Customers
    
    
    8,801.3
    
    
    
    8,181.2Average customers
    
    
    8,704.6
    
    
    
    8,089.9Gross customer additions (a)
    
    
    723.7
    
    
    
    737.4Net customer additions (a)
    
    
    174.8
    
    
    
    157.7Market penetration
    
    
    13.8
    %
    
    
    13.3
    %Postpay customer churn
    
    
    1.72
    %
    
    
    1.93
    %Total churn
    
    
    2.11
    %
    
    
    2.40
    %Retail minutes of use per customer per month (b)
    
    
    547
    
    
    
    432Retail revenue per customer per month (c)
    
    
    $45.31
    
    
    
    $42.56Average revenue per customer per month (d)
    
    
    $48.80
    
    
    
    45.96Cost to acquire a new customer (e)
    
    
    $306
    
    
    
    $299
 Notes:  (a)
    Includes the effects of acquisitions and dispositions. 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. 19




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Notes to Communications-Wireless Operations Table, Continued:  (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 month periods ended March 31: (Millions)
    
    2005
    
    
    2004Service revenues
    
    $
    1,274.4
    
    
    $
    1,115.5Less wholesale revenues
    
    
    (91.1
    )
    
    
    (82.7
    )Total retail revenues
    
    $
    1,183.3
    
    
    $
    1,032.8
  (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 month
periods ended March 31: (Millions, except customers in thousands)
    
    2005
    
    
    2004Product sales
    
    $
    (49.9
    )
    
    $
    (52.3
    )Cost of products sold
    
    
    69.7
    
    
    
    86.8Selling and marketing expense
    
    
    185.0
    
    
    
    185.9Total costs incurred to acquire new customers
    
    $
    204.8
    
    
    $
    220.4Gross customer additions, excluding acquisitions
    
    
    669.7
    
    
    
    737.4Cost to acquire a new customer
    
    
    $306
    
    
    
    $299
 During the twelve months ended March 31, 2005, the total number of wireless customers served
by ALLTEL increased by more than 620,000 customers, or 8 percent. As previously discussed, on
February 28, 2005, the Company completed the purchase of
wireless properties from PS Cellular, and during
the fourth quarter of 2004, ALLTEL purchased wireless properties in Florida, Georgia, Louisiana,
Mississippi, North Carolina, Ohio and Wisconsin. The acquired properties accounted for
approximately 146,000 of the overall increase in wireless customers during the twelve month period
ended March 31, 2005. Excluding the effects of acquisitions, net wireless customer additions were
approximately 121,000 in the first quarter of 2005. Improved
sales of ALLTELs Simple Freedom prepay service offering also contributed to customer growth in
2005. In addition, sales of ALLTELs higher-yield Total and National Freedom rate plans accounted
for approximately 33 percent of the gross additions during the first quarter of 2005. At March 31,
2005, customers on the Companys Total and National Freedom rate plans represented approximately 39
percent of ALLTELs wireless customer base. Overall, the Companys wireless market penetration
rate (number of customers as a percent of the total population in ALLTELs service areas) increased
to 13.8 percent as of March 31, 2005. The level of customer growth for the remainder of 2005 will be dependent upon the Companys ability
to attract new customers and retain existing customers in a competitive marketplace, which is
currently supporting up to seven competitors in each market. The Company will continue to focus
its efforts on sustaining value-added customer growth by improving service quality and customer
satisfaction, managing its distribution channels and customer segments, offering attractively
priced rate plans and new or enhanced services and other features, selling additional services to
existing customers and pursuing strategic acquisitions, such as the pending merger with Western
Wireless and the exchange of wireless properties with Cingular previously discussed. The Company continues to focus its efforts on lowering postpay customer churn (average monthly rate
of customer disconnects). To improve customer retention, ALLTEL continues to upgrade its
telecommunications network in order to offer expanded network coverage and quality and to provide
enhanced service offerings to its customers. In addition, the Company has increased the number of
its customers under contract through the offering of competitively priced rate plans, proactively
analyzing customer usage patterns and migrating customers to newer digital handsets. The Company
believes that its improvements in customer service levels, digital network expansion and proactive
retention efforts contributed to the decrease in postpay customer churn in the first quarter of
2005. Primarily due to the decline in postpay churn, total churn also decreased in the first
quarter of 2005 compared to the same period of 2004. Wireless revenues and sales increased $167.5 million, or 14 percent, and service revenues also
increased 14 percent, or $158.9 million, for the three month period ended March 31, 2005 compared
to the same period of 2004. The acquisitions of wireless properties previously discussed accounted
for approximately $17.2 million and $18.4 million of the overall 20




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increases in service revenues and total revenues and sales in 2005, respectively. In addition to
the effects of the acquisitions, access revenues increased $81.8 million in the three months ended
March 31, 2005, as compared to 2004, primarily driven by nonacquisition-related customer growth and
increased revenues derived from the Companys Simple Freedom prepay and Touch2Talk walkie-talkie
services. During the first quarter of 2005, ALLTEL enhanced its Touch2Talk service by adding new
features and two handsets to the product mix and offering customers the same nationwide footprint
for Touch2Talk calls that is available for their standard wireless voice and data services.
Service revenues in 2005 also reflected increases in revenues earned from wireless data services,
including text and picture messaging and downloadable applications, such as games, ringtones,
wallpaper and office applications. Revenues from data services increased $30.3 million, or nearly
200 percent, in the first three months of 2005, as compared to same period of 2004, reflecting
strong demand for these services and the effects of a large-scale promotion
surrounding Super Bowl XXXIX aimed at increasing text messaging usage. The Company also launched
several operational initiatives during the first quarter of 2005 including offering an
industry-first pricing plan for wireless data services which allows customers to combine video,
picture and text messaging services for one flat rate. In addition, ALLTEL expanded its 1XRTT data
footprint and deployed EV-DO services in three markets. Service revenues in the first quarter of 2005 also reflected increased regulatory and other fees of
$36.6 million, as compared to the same period a year ago. The increase in fees in 2005 reflected
additional amounts billed to customers to offset costs related to certain regulatory mandates,
which have increased consistent with the overall growth in customers and also reflected an increase
in the contribution factor applicable to universal service funding. In addition, regulatory fees
in 2005 also included additional USF support of $21.0 million received by ALLTEL pursuant to its
certification in twelve states as an ETC. After deducting the portion of USF subsidies distributed
to its partners in wireless markets operated in partnership with other companies, ALLTEL expects to
receive on a quarterly basis in 2005 net USF subsidies in its wireless business of approximately
$25.0 million to $30.0 million. Growth in revenues from the sale of wireless equipment protection
plans and automotive roadside assistance services also contributed to the growth in service
revenues during the first quarter of 2005. Revenues from these services increased $8.2 million
compared to the prior year, reflecting continued demand for these services. Wholesale wireless
revenues also increased $6.5 million in the first quarter of 2005 from 2004, primarily due to
strong 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 increase in service revenues in 2005 attributable to increased access revenues from customer
growth including the effects of acquisitions, additional revenues earned from data services,
increased regulatory and other fees, and growth in wholesale revenues was partially offset by a
decline of $8.0 million in airtime and retail roaming revenues. In addition, revenues derived from
sales of enhanced features, including caller identification, call waiting, and voice mail,
decreased by $9.3 million in the first quarter of 2005, as compared to the same period in 2004.
The decreases in airtime, retail roaming and feature revenues primarily reflected the effects of
customers migrating to rate plans with a larger number of packaged minutes that, for a flat monthly
service fee, provide customers with a specified number of airtime minutes and include at no extra
charge unlimited weekend, nighttime and mobile-to-mobile minutes and certain enhanced features. Primarily due to ALLTELs continued focus on quality customer growth, improvements in data revenues
and additional ETC subsidies, average revenue per customer per month and retail revenue per customer per month both
increased 6 percent from a year ago to $48.80 and $45.31, respectively. Growth in service revenues
and average revenue per customer per month in 2005 will depend upon ALLTELs ability to effectively
integrate acquired operations and maintain market share in an increasingly competitive marketplace
by adding new customers, retaining existing customers, increasing customer usage, and continuing to
sell data services. Product sales increased $8.6 million, or 12 percent, in the three month period ended March 31,
2005, as compared to the same period a year ago. The wireless property acquisitions accounted for
$1.2 million of the overall increase in product sales in 2005. In addition to the effects of the
acquisitions, product sales increased in 2005 primarily due to higher retail prices for wireless
handsets that include advanced features, such as picture messaging, and that are capable of
downloading games, entertainment content, weather and office applications. Cost of services increased $50.0 million, or 14 percent, in the first quarter of 2005, as compared
to the same period of 2004. The wireless property acquisitions accounted for approximately $7.5
million of the overall increase in cost of services in 2005. In addition to the effects of the
acquisitions, cost of services for 2005 also reflected higher network-related costs of $27.4
million, resulting from increased network traffic due to non-acquisition related customer growth,
increased minutes of use and expansion of network facilities. Cost of services in 2005 also
included increased regulatory fees of $5.8 million related to various regulatory mandates,
including USF, consistent with the growth in revenues derived from regulatory fees discussed above.
In addition, cost of services in 2005 also reflected increased wireless customer service expenses
of $10.0 million, primarily reflecting additional costs associated with ALLTELs retention efforts
focused on improving customer satisfaction and reducing postpay churn. 21




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Cost of products sold increased $4.2 million, or 3 percent, for the three month period ended March
31, 2005, as compared to the same period in 2004. The wireless property acquisitions accounted for
$2.5 million of the overall increase in cost of products sold in 2005. In addition to the effects
of the acquisitions, cost of products sold increased primarily due to increased sales of
higher-priced wireless handsets and the Companys continuing customer retention efforts, which
include subsidizing the cost of new handsets provided to existing customers before the expiration
of their service contracts. These increases were partially offset by the effects of additional
vendor rebates earned by ALLTEL for attaining specified purchase volumes with the Companys
wireless handset vendors. Selling, general, administrative and other operating expenses increased $26.6 million, or 9
percent, in the first quarter of 2005, as compared to the same period of 2004. The wireless
property acquisitions accounted for $5.7 million of the overall increase in these expenses in 2005.
In addition to the effects of the acquisitions, selling, general, administrative and other
operating expenses reflected increased advertising costs associated with a large-scale promotion
surrounding Super Bowl XXXIX that was aimed at increasing text messaging usage. Increased
insurance premiums related to the Companys employee medical and dental plans and additional costs
associated with write-offs identified as a result of system improvements in the Companys cash
processing procedures and higher audit fees and internal staffing costs incurred in complying with
the Section 404 internal control reporting requirements of the Sarbanes-Oxley Act of 2002 also
contributed to the increase in selling, general, administrative and other operating expenses in
2005. Depreciation and amortization expense increased $26.0 million, or 15 percent, for the three month
period ended March 31, 2005 compared to the same period of 2004. Depreciation and amortization
expense increased in 2005 primarily due to growth in wireless plant in service and the effects of
a third quarter 2004 prospective change in the depreciable lives of
certain wireless telecommunications equipment. The depreciable lives
were shortened in response to the rapid pace of technological
development and the increasing demands of ALLTELs customers for
new products and services. Additionally, the wireless property acquisitions accounted for $2.2
million of the overall increase in depreciation and amortization expense in 2005. Primarily as a result of growth in revenues and sales discussed above, wireless segment income
increased $60.7 million, or 29 percent, for the three month period ended March 31, 2005, as
compared to the same period in 2004. In addition, wireless segment income comparisons for 2005
also reflected the favorable effects on customer acquisition costs due to vendor rebates and a 9
percent decline in gross customer additions (excluding acquisitions) from the same period a year
ago, as further discussed below. The cost to acquire a new wireless customer represents sales, marketing and advertising costs and
the net equipment cost, if any, for each new customer added. The increase in cost to acquire a new
customer in the first quarter of 2005 primarily reflected the unfavorable effects of allocating the
total customer acquisition costs over a lower number of gross customer additions as compared to the
same period of 2004. The increase in cost to acquire a new customer resulting from proportionately
lower gross customer additions was partially offset by improved margins on the sales of wireless
handsets primarily attributable to the effects of vendor rebates. For the three months ended March
31, 2005 and 2004, approximately 62 percent and 67 percent, respectively, of the gross customer
additions came through ALLTELs internal distribution channels. ALLTELs internal sales
distribution channels include Company retail stores and kiosks located in shopping malls, other
retail outlets and mass merchandisers. Incremental sales costs at a Company retail store or kiosk
are significantly lower than commissions paid to dealers. Although ALLTEL intends to manage the
costs of acquiring new customers throughout the remainder of 2005 by continuing to enhance its
internal distribution channels, the Company will also continue to utilize its large dealer network. A summary of the restructuring and other charges related to the wireless operations that were not
included in the determination of segment income were as follows for the three months ended March
31, 2004: (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
 22




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Regulatory Matters-Wireless Operations Regulatory Oversight
ALLTEL is subject to regulation by the FCC as a provider of Commercial Mobile Radio Services
(CMRS). The FCCs regulatory oversight consists of ensuring that wireless service providers are
complying with the Communications Act of 1934, as amended (the Communications Act), and the FCCs
regulations governing technical standards, spectrum usage, license requirements, market structure,
consumer protection, including public safety issues like enhanced 911 emergency service (E-911)
and the Communications Assistance for Law Enforcement Act (CALEA), and environmental matters
governing tower siting. State public service commissions are pre-empted under the Communications
Act from regulatory oversight of wireless carriers market entry and retail rates, but, they are
entitled to address certain consumer protection matters concerning wireless service providers.
Recently, various state public service commissions have attempted to expand their role in
regulating wireless service beyond basic consumer protection. At this time, the Company cannot
estimate the impact that increased state regulatory oversight would have on its operations in the
event state public service commissions were successful. Telecommunications Law Modernization
In 1996, Congress passed the Telecommunications Act of 1996 (the 96 Act), which significantly
changed the existing laws and regulations governing the telecommunications industry. The primary
goal of the 96 Act was to create competition in the wireline market by requiring incumbent local
exchange carriers (ILECs) to sell portions of their networks to competitors at reduced
wholesale rates. The 96 Act also established rules for interconnecting wireline and wireless
service providers networks. Unfortunately, the 96 Act failed to contemplate the rapid evolution
of technology and the associated consumer demand for wireless services, the Internet and
voice-over-Internet-protocol (VoIP). Today, providers of communications services are regulated
differently depending primarily upon the network technology used to deliver service. This
patchwork regulatory approach unfairly advantages certain companies and disadvantages others,
which impedes market-based competition where service providers, regardless of technology, exchange
telecommunications traffic between their networks and are competing for the same customers. A Federal legislative telecommunications modernization effort is currently underway. The
alternatives under consideration range from rewriting the 96 Act in its entirety to addressing only
broadband services and VoIP. The Company strongly supports telecommunications modernization but,
at this time, cannot predict the outcome of this effort. Universal Service
To ensure affordable access to telecommunications services throughout the United States, the FCC
and many state commissions administer universal service programs. CMRS providers are required to
contribute to the federal universal service fund (USF) and are required to contribute to some
state universal service funds. Under FCC rules, CMRS providers also are eligible to receive
support from the federal USF if they obtain certification as an Eligible Telecommunications Carrier
(ETC). In 2004, the Company received ETC approval for certain of its properties in Alabama, Arkansas,
Florida, Georgia, Kansas, Louisiana, Michigan, Mississippi, North Carolina, Virginia, West Virginia
and Wisconsin. The Company began receiving USF support associated with ETC certifications in
Arkansas, Michigan, Mississippi, West Virginia and Wisconsin in the first quarter of 2004, and for
Alabama, Florida, Georgia, Kansas, Louisiana, North Carolina and Virginia in the fourth quarter of
2004. The Communications Act and FCC regulations require that universal service receipts be used
for the provision, maintenance and improvement of the networks used to provide the services
supported by the fund. Additionally, the Company accepted certain federal and state reporting
requirements as a condition of the ETC certifications. As of March 31, 2005, the Company is
compliant with the FCC regulations and all of the federal and state reporting requirements. ALLTEL
received approximately $25.5 million of gross USF subsidies in the first quarter of 2005 related to
the ETC certifications and net USF subsidies of approximately $24.0 million after deducting the
portion of USF subsidies distributed to its unaffiliated partners in certain markets. ALLTEL
expects to receive net USF subsidies of between $25.0 million and $30.0 million for each of the
remaining quarters in 2005. ALLTEL is currently evaluating seeking ETC certification in additional
markets. The federal universal service program is under legislative, regulatory and industry scrutiny as a
result of growth in the fund and structural changes within the telecommunications industry. The
structural changes include an increase in the number of ETCs receiving money from the USF and a
migration of customers from wireline service providers to providers using alternative technologies,
like VoIP that, today, are not required to contribute to the universal service program. There are
several FCC proceedings underway that are likely to change the way universal service programs are
funded and the way these funds are disbursed to program recipients. The specific proceedings are
discussed in greater detail below. 23




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On March 17, 2005, the FCC issued an Order strengthening the conditions for telecommunications
carriers to receive and maintain ETC designation. The new standards are mandatory in all cases
where the FCC is responsible for determining if a requesting telecommunications carrier is granted
ETC status. The FCC encouraged state regulatory agencies responsible for evaluating ETC
applications to follow the new standards when reviewing ETC applications. Effective October 1,
2006, the new standards require ETCs to: (1) provide five-year network construction plans including
annual progress reports; (2) demonstrate how their networks will function in emergencies; (3)
explain how they will satisfy consumer and quality standards; (4) offer local-usage comparable to
the ILEC; and (5) acknowledge that they may be required to provide equal access to interexchange
carriers in the event they become the sole ETC within a market. The new standards are not expected
to affect the Companys universal service receipts. The FCC mandated that, effective October 1, 2004, the Universal Service Administrative Company
(USAC) must begin accounting for the USF program in accordance with generally accepted accounting
principles for federal agencies, rather than the accounting rules that USAC formerly used. This
change in accounting method subjected USAC to the Anti-Deficiency Act (the ADA), the effect of
which could have caused delays in payments to USF program recipients and significantly increased
the amount of USF regulatory fees charged to wireline and wireless consumers. In December 2004,
Congress passed legislation to exempt USAC from the ADA for one year to allow for a more thorough
review of the impact the ADA would have on the universal service program. Congress is currently
contemplating a permanent solution to the ADA issues without harming the universal service program
participants. E-911
Wireless service providers are required by the FCC to provide E-911 in a two-phased approach. In
phase one, carriers must, within six months after receiving a request from a phase one enabled
Public Safety Answering Point (PSAP), deliver both the callers number and the location of the
cell site to the PSAP serving the geographic territory from which the E-911 call originated. A
phase one-enabled PSAP is generally one that is capable of receiving and utilizing the number and
cell site location data transmitted by the carrier. ALLTEL has generally complied with the phase
one requirements and provides service to phase one capable PSAPs. As a result of certain
technology and deployment issues, the six month window in which service is to be provided under the
FCC rules has, in certain instances and in accordance with the rules, been extended by mutual
agreement between ALLTEL and the particular PSAPs involved. In phase two, CMRS carriers like ALLTEL that have opted for a handset-based solution must determine
the location of the caller within fifty meters for 67 percent of the originated calls and 150
meters for 95 percent of the originated calls. The phase two requirements were set to begin by
October 1, 2001, but, because of certain technology and other factors, the Company requested a
limited waiver of these requirements, as did virtually every other carrier. On July 26, 2002, the
FCC released an order granting a temporary stay of the E-911 emergency implementation rules as they
applied to the Company (the FCC Order). The FCC Order provides for a phased-in deployment of
Automatic Location Identification (ALI) capable network or handset-based technology that began on
March 1, 2003. ALI capability permits more accurate identification of the callers location by
PSAPs. Under the FCC Order, the Company was required to: (1) begin selling and activating
ALI-capable handsets prior to March 1, 2003; (2) ensure that, as of May 31, 2003, at least 25
percent of all new handsets activated were ALI-capable; (3) ensure that, as of November 30, 2003,
at least 50 percent of all new handsets activated were ALI-capable; (4) ensure that, as of May 31,
2004, 100 percent of its digital handsets activated were ALI-capable; and (5) ensure that
penetration of ALI-capable handsets among its customers would reach 95 percent no later than
December 31, 2005. ALLTEL began selling ALI-capable handsets in June 2002 and, to date, has
complied with the handset deployment thresholds under the FCCs Order or otherwise obtained
short-term relief from the FCC to facilitate certain recent acquisitions. Based on the current
pace of customer migration to ALI-capable handsets, including the additional subscribers acquired
through recent acquisitions, ALLTEL may have difficulty complying with the December 31, 2005
requirement to be 95 percent penetrated without incurring a significant increase in its operating
costs. On April 1, 2005, the FCC released an order disposing of numerous E-911 waiver requests that had
been filed by Tier III wireless carriers. While stressing the importance of E-911 compliance, the
FCC provided certain of these carriers with greater latitude to comply with handset deployment
dates and to accommodate transitions to alternative digital technologies. While it is uncertain how
the April 1, 2005 order may affect the FCCs consideration of a waiver request filed by a larger
carrier, the order indicates FCC flexibility on E-911 compliance matters where the requesting
carrier has made a detailed showing of special circumstances and provided a detailed proposal with
a realistic path to future compliance. Local Number Portability
CMRS providers in the top 100 markets were required by the FCC to implement wireless local number
portability (WLNP), which permits customers to retain their existing telephone number when
switching to another telecommunications carrier, by November 24, 2003 (and, for all other markets,
by May 24, 2004, or six months after the carrier receives its first request to port, whichever is
later). Additionally, on November 10, 2003, the FCC released a decision providing guidance on
number porting between wireline and wireless carriers, referred to as intermodal porting. 24




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The FCC required local exchange carriers (LECs) in the top 100 markets, beginning on November 24,
2003 (and beginning on May 24, 2004 for all other markets), to port numbers to wireless carriers
where the coverage area of the wireless carrier (i.e., the area in which the wireless carrier
provides service) overlaps the geographic location of the rate center in which the wireline number
resides. The Commissions November 10, 2003 order was appealed by the United States Telecom
Association (USTA), along with certain rural telephone companies to the U.S. Court of Appeals for
the District of Columbia Circuit (the D.C. Circuit Court). The D.C. Circuit Court subsequently
upheld the FCCs decision as to the validity of the intermodal porting obligation, but remanded and
stayed the effectiveness of the November 2003 order with regard to the smallest LECs as the FCC had
not conducted a proper assessment of the orders impact to small businesses under the Regulatory
Flexibility Act. To date, the volume of intermodal porting requests processed by the Company for
wireless customers has not been significant. In addition, various state public service commissions
have granted the requests of rural LECs to suspend their obligations to port numbers to wireless
carriers. CALEA
The Communications Assistance for Law Enforcement Act (CALEA) requires wireless and wireline
carriers to ensure that their networks have the capability and capacity to accommodate law
enforcement agencies lawful intercept requests. The FCC has imposed various obligations and
compliance deadlines, with which ALLTEL has either complied or, in accordance with CALEA, filed a
request for an extension of time. On August 18, 2004, the U.S. Department of Justice (DOJ)
objected to ALLTELs pending extension request relating to the Companys packet-mode services
insofar as that extension request relates to ALLTELs Touch2Talk walkie-talkie service. While
the Companys Touch2Talk service is compliant with CALEA standards, ALLTEL is scheduling
additional testing with the Federal Bureau of Investigation to demonstrate compliance and to
identify any further concerns respecting ALLTELs CALEA compliance. In response to a petition
filed by the DOJ and other federal agencies, the FCC initiated a rulemaking in August 2004 to adopt
new rules under CALEA pertaining to wireless and wireline carriers packet mode communications
services, including Internet protocol (IP) based services. The FCC concurrently issued a
declaratory ruling concerning the appropriate treatment of push-to-talk services under CALEA.
Rules or precedents adopted as a result of these proceedings could impose new costs and obligations
on ALLTEL and other carriers. The Companys packet services network requires a modest upgrade to
be fully compliant with CALEA standards for packet requests from Law Enforcement. The cost of the
upgrade is immaterial and will not adversely affect the Companys operations. Inter-carrier Compensation
Under the Act and the FCCs rules, wireless telecommunications carriers are entitled to receive
reciprocal compensation from LECs for calls transmitted from the LECs networks and terminated on
the wireless carriers networks. Additionally, wireless carriers are not precluded from receiving
access charges from interexchange carriers for CMRS originated interexchange traffic pursuant to
contract. Presently, the Companys wireless operations do not bill access charges to interexchange
carriers. In April 2001, the FCC released a notice of proposed rulemaking addressing inter-carrier
compensation issues. Under this rulemaking, the FCC proposed a bill and keep compensation method
that would overhaul the existing rules governing reciprocal compensation and access charges. On
March 3, 2005, the FCC issued a further notice of proposed rulemaking on inter-carrier compensation
matters in which the FCC solicited comment on a number of alternative compensation proposals
submitted by various industry participants. Various LECs have initiated a number of state
proceedings to address inter-carrier compensation for traffic that originates or terminates on
wireless carriers networks. Finally, on February 4, 2005, the FCC issued a declaratory ruling and
order in response to petitions from various wireless carriers seeking a determination as to the
validity of wireless traffic termination tariffs filed by some LECs as a method for establishing
compensation obligations for wireless carriers. The FCC prohibited the use of wireless traffic
termination tariffs on a prospective basis, amended its rules accordingly, and provided that both
LEC and CMRS carriers are entitled to initiate interconnection negotiations pursuant to the Act.
The outcome of the FCC and state proceedings could change the way ALLTEL receives compensation
from, and remits compensation to, other carriers as well as its wireless customers. At this time,
ALLTEL cannot determine the extent and timing of the changes and the related financial impact the
changes would have on its wireless revenues and expenses. Wireless Spectrum
The FCC conducts proceedings through which additional spectrum is made available for the provision
of wireless communications services, including auctions. In October 2003, the FCC issued an order
adopting rules that allow CMRS licensees to lease spectrum to others. The FCC further streamlined
its rules to facilitate spectrum leasing in a subsequent order issued in September 2004. The FCCs
spectrum leasing rules revise the standards for transfer of control and provide new options for the
lease of spectrum to providers of new and existing wireless technologies. The FCC also deleted the
rule prohibiting ownership of both A and B block cellular systems in the same rural service area.
The FCC decisions provide increased flexibility to wireless companies with regard to obtaining
additional spectrum through leases and retaining spectrum acquired in conjunction with wireless
company acquisitions. The Companys evaluation of opportunities as a result of these proceedings
and decisions is ongoing. 25




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##### Table of Contents



Customer Billing
In response to a petition filed by the National Association of State Utility Consumer Advocates,
the FCC issued an order and further rulemaking on its truth in billing and billing format
proceeding. In the order, the FCC applied to CMRS carriers the obligation to ensure that the
descriptions of line items on customer bills are clear and not misleading and to reiterate that the
representation of a discretionary item on a bill as a tax or government-mandated charge is
misleading. The FCC also made a declaratory ruling that state regulations requiring or prohibiting
the use of line items on CMRS carriers bills were preempted in favor of federal authority pursuant
to Section 332 (c) of the Communications Act. In the further rulemaking, the FCC will consider
additional CMRS billing regulations that would require: (1) government-mandated charges to be
segregated from discretionary charges; (2) the combination of certain charges into single
categories; and (3) that carriers must disclose the full rate for service, including discretionary
charges and charges imposed by government mandates, to consumers at the point of sale prior to the
execution of any service contract. The Company expects the outcome of the FCCs further rulemaking
to have a minimal impact on its billing and marketing efforts. Communications-Wireline OperationsThree Months EndedMarch 31,(Dollars in millions, except per customer amounts, access lines in thousands)
    
    2005
    
    
    2004Revenues and sales:Local service
    
    $
    272.7
    
    
    $
    280.0Network access and long-distance
    
    
    260.9
    
    
    
    260.7Miscellaneous
    
    
    60.0
    
    
    
    58.8Total revenues and sales
    
    
    593.6
    
    
    
    599.5Costs and expenses:Cost of services
    
    
    181.0
    
    
    
    172.9Cost of products sold
    
    
    7.0
    
    
    
    5.2Selling, general, administrative and other
    
    
    63.8
    
    
    
    60.9Depreciation and amortization
    
    
    127.3
    
    
    
    132.3Total costs and expenses
    
    
    379.1
    
    
    
    371.3Segment income
    
    $
    214.5
    
    
    $
    228.2Access lines in service (excludes broadband lines)
    
    
    2,983.3
    
    
    
    3,089.7Average access lines in service
    
    
    2,994.7
    
    
    
    3,092.3Average revenue per customer per month (a)
    
    
    $66.08
    
    
    
    $64.62
 Notes:  (a)
    
    Average revenue per customer per month is calculated by dividing total wireline revenues by
average access lines in service for the period. Wireline operations consist of the Companys ILEC, CLEC and Internet operations. Wireline revenues
and sales decreased $5.9 million, or 1 percent, for the three months ended March 31, 2005 compared
to the same period of 2004. Customer access lines decreased more than 3 percent during the twelve
month period ended March 31, 2005, reflecting declines in both primary and secondary access lines.
During the first quarter of 2005, the Company lost approximately 26,000 access lines, primarily due
to the effects of wireless and broadband substitution for ALLTELs wireline services. The Company
expects the number of access lines served by its wireline operations to continue to be adversely
affected by wireless and broadband substitution throughout the remainder of 2005. To slow the decline of revenue in 2005, the Company will continue to emphasize sales of enhanced
services and bundling of its various product offerings including Internet, long-distance and
broadband data transport services. Deployment of broadband service is an important strategic
initiative for ALLTEL. During the three month period ended March 31, 2005, ALLTEL added 40,000
broadband customers, increasing the Companys broadband customer base to 283,000 customers, or 14
percent of the Companys addressable access lines. The growth in the Companys broadband customers
more than offset the decline in customer access lines discussed above. Local service revenues decreased $7.3 million, or 3 percent, for the three months ended March 31,
2005, as compared to the same period in 2004. Local service revenues in the first quarter of 2005
reflected reductions in basic service access line revenues of $7.9 million as compared to 2004,
consistent with the overall decline in access lines discussed above. The decline in local service
revenues attributable to access line loss was partially offset by growth in revenues derived from
the sales of enhanced features and equipment protection plans, which increased $1.6 million in the
first quarter of 2005, as compared to the same period in 2004, reflecting continued demand for
these products and services. 26




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Network access and long-distance revenues increased slightly in the first quarter of 2005, as
compared to the same period a year ago. Primarily due to the overall decline in access lines
discussed above, network access usage and toll revenues decreased by $6.3 million in 2005, as
compared to 2004. The decline in network access and long-distance revenues attributable to access
line loss was offset by a slight increase in federal USF funding and growth in revenues derived
from data services, which increased $6.0 million in 2005, as compared to 2004, reflecting increased
demand for high-speed data transport services. Miscellaneous revenues primarily consist of charges for Internet services, directory advertising,
customer premise equipment sales and rentals, and billing and collection services provided to
long-distance customers. Miscellaneous revenues increased $1.2 million, or 2 percent, in the three
month period ended March 31, 2005, as compared to the same period in 2004. Primarily driven by
growth in broadband customers, revenues from the Companys Internet operations increased $3.9
million in the first quarter of 2005, as compared to the first quarter of 2004. Increased sales
and rentals of customer premise equipment of $1.9 million, reflecting continued customer demand for
these products, also contributed to the growth in miscellaneous revenues in 2005. The increases in
miscellaneous revenues attributable to growth in the Companys Internet operations and customer
premise equipment sales and rentals were partially offset by a decline in directory advertising
revenues of $4.1 million, primarily due to a change in the number and mix of directories published. Primarily due to broadband customer growth and increased sales of enhanced features, average
revenue per customer per month increased 2 percent in the first quarter of 2005, as compared to the
same period in 2004. Future growth in average revenue per customer per month will depend on the
Companys success in sustaining growth in sales of broadband and enhanced features to new and
existing customers. Cost of services increased $8.1 million, or 5 percent, in the three months ended March 31, 2005, as
compared to the same period of 2004. During the first quarter of 2005, ALLTEL incurred approximately
$3.2 million of incremental costs related to work force reductions in the Companys wireline
business. Cost of services in 2005 also included additional customer service expenses attributable
to the growth in broadband customers, specifically the costs associated with subsidizing
broadband-capable modems, and higher overtime and maintenance costs incurred due to inclement
weather. These increases in cost of services were partially offset by a decline in interconnection
expenses of $2.1 million in 2005 compared to 2004 consistent with the decreases in toll revenues
and access lines discussed above. Cost of products sold increased $1.8 million, or 35 percent, in the three months ended March 31,
2005, as compared to the same period in 2004, consistent with the increase in sales and rentals of
customer premise equipment discussed above. Selling, general, administrative and other expenses
increased $2.9 million, or 5 percent, in the first quarter of 2005, as compared to the same period
of 2004, primarily due to higher audit fees and internal staffing costs incurred incomplying with the Section 404 internal control reporting requirements of the Sarbanes-Oxley
Act of 2002 and higher insurance premiums related to the Companys employee medical and dental
plans. Depreciation and amortization expense decreased $5.0 million, or 4 percent, in the three
month period ended March 31, 2005, as compared to the same period a year ago. The decrease in
depreciation and amortization expense in 2005 primarily resulted from a reduction in depreciation
rates for the Companys Nebraska operations, reflecting the results of a triennial study of
depreciable lives completed by ALLTEL in the second quarter of 2004 as required by the Nebraska
Public Service Commission. Wireline segment income decreased $13.7 million, or 6 percent, for the three months ended March 31,
2005 compared to the same period of 2004. The decrease in segment income primarily resulted from
the decline in revenues and sales due to the loss of access lines and the adverse effects of
increased operating expenses related to the growth in broadband customers, higher overtime and
employee benefit costs and the incremental expenses associated with work force reductions discussed
above. A summary of the restructuring and other charges related to the wireline operations that were not
included in the determination of segment income were as follows for the three months ended March
31, 2004: (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
 27




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Accounting for Regulated Entities
Except for the Kentucky properties acquired in 2002 and the Nebraska operations acquired in 1999,
ALLTELs ILEC operations follow the accounting for regulated enterprises prescribed by SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation. Criteria that would give rise to the
discontinuance of SFAS No. 71 include (1) increasing competition restricting the regulated ILEC
subsidiaries ability to establish prices to recover specific costs and (2) significant changes in
the manner in which rates are set by regulators from cost-based regulation to another form of
regulation. On a quarterly basis, ALLTEL reviews the criteria to determine whether the continuing
application of SFAS No. 71 is appropriate. Many of the Companys ILEC operations have begun to
experience competition in their local service areas. Sources of competition to ALLTELs local
exchange business include, but are not limited to, resellers of local exchange services,
interexchange carriers, satellite transmission services, wireless communications providers, cable
television companies, and competitive access service providers including those utilizing Unbundled
Network Elements-Platform (UNE-P), VoIP providers and providers using other emerging
technologies. Through March 31, 2005, this competition has not had a material adverse effect on
the results of operations of ALLTELs ILEC operations. Although the Company believes that the application of SFAS No. 71 continues to be appropriate, it
is possible that changes in regulation, legislation or competition could result in the Companys
ILEC operations no longer qualifying for the application of SFAS No. 71 in the near future. If
ALLTELs ILEC operations no longer qualified for the application of SFAS No. 71, the accounting
impact to the Company would be an extraordinary non-cash credit to operations. The non-cash credit
would consist primarily of the reversal of the regulatory liability for cost of removal included in
accumulated depreciation, which amounted to $174.7 million as of March 31, 2005. At this time,
ALLTEL does not expect to record any impairment charge related to the carrying value of its ILEC
plant. Under SFAS No. 71, ALLTEL currently depreciates its ILEC plant based upon asset lives
approved by regulatory agencies or as otherwise allowed by law. Upon discontinuance of SFAS No.
71, ALLTEL would be required to revise the lives of its property, plant and equipment to reflect
the estimated useful lives of the assets. The Company does not expect any revisions in asset lives
to have a material adverse effect on its ILEC operations. Regulatory Matters-Wireline Operations
With the exception of the acquired Nebraska and Kentucky operations, ALLTELs ILEC operations are
subject to an authorized rate-of-return at the federal jurisdictional level. The acquired Nebraska
and Kentucky operations are subject to price-cap regulation that allows a greater degree of pricing
flexibility than is afforded to ALLTELs rate-of-return operations. Companies meeting certain
criteria had the option to elect price-cap regulation as part of a FCC order issued in May 2000
(the CALLS plan). The CALLS plan is set to expire in July 2005, and as of March 31, 2005, the
FCC had not established a successor mechanism for regulating price-cap regulated companies
following the expiration of the CALLS plan. At this time, ALLTEL believes that the FCC will likely
extend the CALLS plan beyond the prescribed July 2005 expiration date. Telecommunications Law Modernization
In 1996, Congress passed the 96 Act, which significantly changed the existing laws and regulations
governing the telecommunications industry. The primary goal of the 96 Act was to create
competition in the wireline market by requiring ILECs to sell portions of their networks to
competitors at reduced wholesale rates. The 96 Act also established rules for interconnecting
wireline and wireless service providers networks. Unfortunately, the 96 Act failed to contemplate
the rapid evolution of technology and the associated consumer demand for wireless services, the
Internet and VoIP. Today, providers of communications services are regulated differently depending
primarily upon the network technology used to deliver service. This patchwork regulatory
approach unfairly advantages certain companies and disadvantages others, which impedes market-based
competition where service providers, regardless of technology, exchange telecommunications traffic
between their networks and are competing for the same customers. A Federal legislative telecommunications modernization effort is currently underway. The
alternatives under consideration range from rewriting the 96 Act in its entirety to addressing only
broadband services and VoIP. The Company strongly supports telecommunications modernization but,
at this time, cannot predict the outcome of this effort. State Regulation
Most states in which ALLTELs ILEC subsidiaries operate have alternatives to rate-of-return
regulation, either through legislative or state public service commission (PSC) rules. The
Company utilizes alternative regulation for certain of its ILEC subsidiaries in Alabama, Arkansas,
Florida, Georgia, Kentucky, Nebraska, North Carolina, Ohio, Pennsylvania, South Carolina, and
Texas. The staff of the Kentucky PSC challenged the small company alternative regulation plan
under which a subsidiary of the Companys presently operates. On April 28, 2005, the Kentucky PSC
issued an order finding that the subsidiary would remain regulated under the small company
alternative regulation plan. The Missouri PSC has ruled that the Company is not eligible for
alternative regulation. However on May 5, 2005, the Missouri legislature passed 28




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an alternative regulation plan that would allow the Company to elect alternative regulation without
Missouri PSC approval. The legislation is awaiting the Governors signature and will become law in
August 2005. The Company had appealed the Missouri PSCs previous decision and will likely
withdraw its appeal once the legislation becomes law. Missouri commissions action does
not affect the Companys local service and intrastate access rates. ALLTEL continues to evaluate
alternative regulation options in markets where its ILEC subsidiaries remain subject to
rate-of-return regulation. Inter-carrier Compensation
On October 8, 2004, the FCC granted in part and denied in part a petition filed by Core
Communications requesting that the FCC forbear from enforcing provisions of the FCCs 2001 Internet
Service Provider (ISP) Remand Order. The FCC granted forbearance from the ISP Remand Orders
growth caps and new market rule finding they were no longer in the public interest. The FCC denied
forbearance from the ISP Remand Orders rate cap and mirroring rules. Various parties have filed
for reconsideration with the FCC and have appealed the decision to the D.C. Circuit Court. If the
FCCs decision in this Order is upheld, the Company is likely to incur additional costs for
delivering ISP-bound traffic to competitive wireline service providers. Although ALLTEL has not
fully quantified the effects of this Order, the Company believes that the additional expense would
not likely exceed $10.0 million annually. On March 3, 2005, the FCC released a further notice of proposed rulemaking addressing inter-carrier
compensation. Under this proposed rulemaking, the FCC requested comment on several alternative
inter-carrier compensation proposals. Although the further notice draws no tentative conclusion,
both the original rulemaking and views of the FCC staff favor a bill and keep compensation
methodology under which each telecommunications carrier would be required to recover all of its
costs to originate and terminate telecommunications traffic from its end-user customers rather than
charging other carriers. The outcome of this proceeding is likely to change the way ALLTEL
receives compensation from, and remits compensation to, other carriers and its end user customers.
Until this proceeding concludes and the changes to the existing rules are established, if any,
ALLTEL cannot estimate the impact of the changes on its ILEC revenues and expenses or when the
changes would occur. Universal Service
The federal universal service program is under legislative, regulatory and industry scrutiny as a
result of growth in the fund and structural changes within the telecommunications industry. The
structural changes include the increase in the number of ETCs receiving money from the USF and a
migration of customers from wireline service providers to providers using alternative technologies
like VoIP that, today, are not required to contribute to the universal service program. There are
several FCC proceedings underway that are likely to change the way universal service programs are
funded and the way these funds are disbursed to program recipients. The specific proceedings are
discussed in greater detail below. In May 2001, the FCC adopted the Rural Task Force Order that established an interim universal
service mechanism governing compensation for rural telephone companies for the ensuing five years.
The interim mechanism has allowed rural carriers to continue receiving high-cost funding based on
their embedded costs. On June 2, 2004, the FCC asked the Federal/State Joint Board on Universal
Service (the Joint Board) to review the FCCs rules as they pertain to rural telephone companies
and to determine what changes, if any, should be made to the existing high-cost support mechanism
when the interim funding program expires in June 2006. The Joint Board sought comment on such a
mechanism on August 16, 2004, but has taken no further action. In the event a new mechanism is not
established for rural carriers prior to the expiration of the plan, the FCC will likely extend the
interim mechanism currently in place. In addition, the Joint Board sought comment on whether
companies operating multiple distinct geographic market areas within a state should consolidate
them for purposes of calculating universal service support. If the FCC implements this proposal,
ALLTELs universal service revenues would be reduced from their current level by approximately
$15.0 million annually. The Company cannot estimate the impact of the potential change from
embedded cost to another methodology until a specific alternative methodology is determined. On March 17, 2005, the FCC issued an Order strengthening the standards required for
telecommunications carriers to receive and maintain ETC designation. The new standards are
mandatory in all cases where the FCC is responsible for determining if a requesting
telecommunications carrier is granted ETC status. The FCC encouraged state regulatory agencies
responsible for evaluating ETC applications to follow the new standards when reviewing ETC
applications. Effective October 1, 2006, the new standards require ETCs to: (1) provide five-year
network construction plans including annual progress reports; (2) demonstrate how their networks
will function in emergencies; (3) explain how they will satisfy consumer and quality standards; (4)
offer local-usage comparable to the ILEC; and (5) acknowledge that they may be required to
provide equal access to interexchange carriers in the event they become the sole ETC within a
market. The new standards will not have any financial impact on ALLTELs wireline universal
service funding. 29




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As previously discussed under Regulatory Matters  Wireless Operations, the FCC mandated that,
effective October 1, 2004, USAC must begin accounting for the USF program in accordance with
generally accepted accounting principles for federal agencies, rather than the accounting rules
that USAC formerly used. This change in accounting method subjected USAC to the ADA, the effect of
which could have caused delays in payments to USF program recipients and significantly increased
the amount of USF regulatory fees charged to wireline and wireless consumers. In December 2004,
Congress passed legislation to exempt USAC from the ADA for one year to allow for a more thorough
review of the impact the ADA would have on the universal service program. Emerging Competitive
Technologies - VoIP
A number of carriers have begun offering voice telecommunications services utilizing Internet
protocol as the underlying means for transmitting those calls. This service, commonly known as
VoIP, is challenging existing regulatory definitions and raising questions concerning how such
services should be regulated, if at all. Several state commissions have attempted to assert
jurisdiction over VoIP services, but federal courts in New York and Minnesota have indicated that
the FCC preempts the states with respect to jurisdiction. On March 10, 2004, the FCC released a
notice of proposed rulemaking seeking comment on the appropriate regulatory treatment of IP-enabled
communications services. The FCC indicated that the cost of the public switched telephone network
should be borne equitably by the users and requested comment on the specific regulatory
requirements that should be extended to IP-enabled service providers, including requirements
relating to E-911, disability accessibility, inter-carrier compensation and universal service.
Although the FCCs rulemaking regarding IP-enabled services remains pending, the FCC has adopted a
series of related orders establishing broad parameters for the regulation of those services.
Specifically, on February 12, 2004, the FCC released an order declaring Pulver.coms free
IP-based, peer-to-peer service that requires specialized telephone equipment or software for
computers was not a telecommunications service, but rather was an unregulated information service
subject to federal jurisdiction. On April 21, 2004, the FCC denied a waiver petition filed by AT&T
requesting that its IP telephony service be exempt from access charges. The FCC ruled that AT&Ts
IP telephony service, which converted voice calls to IP format for some portion of the routing over
the public switched telephone network prior to converting the calls back to their original format,
was a regulated telecommunications service subject to payment of interstate access charges to LECs.
On November 12, 2004, the FCC ruled that Internet-based service provided by Vonage Holdings
Corporation should be subject to federal rather than state jurisdiction. Several state commissions
have filed appeals of the FCCs Vonage decision to various federal appellate courts. Other aspects
of the Vonage petition for declaratory ruling, including how the service should be classified for
regulatory purposes, remain pending and are likely to be addressed in the IP-enabled services
proceeding. In 2004, the FCC initiated a rulemaking regarding the regulatory framework for implementing CALEA
and tentatively concluded that CALEA should apply to VoIP services. If the FCC determines that
IP-enabled services are not subject to similar levels of regulatory requirements compared to
existing interexchange and local exchange carriers, including contributions to federal and state
universal service programs, inter-carrier compensation, federal and state tax obligations and
quality of service metrics, the Companys regulated local exchange operations will be at a
competitive disadvantage. Until the FCC issues its decision in these proceedings, the Company
cannot determine the impact on its operations. Broadband
During the first quarter of 2002, the FCC initiated a rulemaking to evaluate the appropriate
framework for broadband access to the Internet over wireline facilities. In the notice of proposed
rulemaking, the FCC tentatively concluded that wireline broadband Internet access should be
classified as an information service rather than a telecommunications service and, therefore,
should not be subject to common carrier regulation. The FCC sought comments on this tentative
conclusion, but has not reached a final order. In a related proceeding released March 15, 2002,
the FCC issued a declaratory ruling concluding that cable modem service was an interstate
information service and not a cable service or a telecommunications service. The FCC sought
comment on whether there are legal or policy reasons why it should reach different conclusions with
respect to wireline broadband Internet access and cable modem service, but has not reached a final
order. On October 6, 2003, the U.S. Court of Appeals for the Ninth Circuit (the Ninth Circuit
Court) rejected the FCCs classification of cable modem service as solely an unregulated
information service, finding a portion of the service to be a telecommunications service. The
FCC appealed, and the case is presently before the Supreme Court. A decision by the Supreme Court
is expected in the summer of 2005. It is uncertain whether cable modem service will ultimately
fall under common carrier regulation of the 96 Act, similar to wireline broadband services and
whether cable companies will be required to provide nondiscriminatory access to their networks. At
this time, ALLTEL cannot estimate what impact, if any, these broadband proceedings may have on its
ILEC operations. Unbundled Network Elements
On August 21, 2003, the FCC released its Triennial Review Order whereby the FCC adopted new rules
governing the obligations of ILECs to unbundle certain elements of their local networks (UNEs)
for use by competitors. The 96 Act entitles CLECs to purchase UNEs from ILECs at discounted rates
in order to offer competitive telecommunications 30




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service using a portion, or all, of the ILECs existing network. On March 2, 2004, the D.C. Circuit
Court overturned key portions of the FCCs August 2003 Triennial Review Order. The D.C. Circuit
Courts decision vacated a nationwide impairment standard, which determines the markets where ILECs
must offer UNEs to CLECs, as well as the FCCs delegation of authority to the states, while
generally upholding ILEC broadband relief. The D.C. Circuit Courts decision was to become
effective on May 3, 2004. On March 31, 2004, the FCC commissioners urged carriers to begin private
commercial negotiations to resolve issues surrounding competitors access to unbundled network
elements. To provide additional time for these negotiations, the FCC requested and the court
granted a 45-day extension to June 15, 2004 of the May 3, 2004 effective date of the D.C. Circuit
Courts decision to vacate the UNE rules. The Supreme Court denied all petitions for review. On
February 4, 2005, the FCC released the Triennial Review Remand Order in response to the D.C.
Circuit Courts vacature of the FCCs previous August 2003 Order. The FCCs February 2005 Order
establishes permanent rules related to ILECs obligations to offer UNEs to its competitors. The
Order is not expected to have a material financial impact to the Companys wireline operations. On September 15, 2003, the FCC launched its first comprehensive review of the rules that establish
wholesale pricing of UNEs. The notice of proposed rulemaking sought comment on a variety of UNE
and resale pricing-related issues and on a proposal to make total element long-run incremental cost
methodology (TELRIC) rules more closely account for the real-world attributes of the incumbent
carriers network. The FCC has not issued an Order in this proceeding, but if this proposal were
adopted, the result would likely be increased UNE prices. The Company cannot estimate the impact,
if any, this proceeding will have on its wireline operations. Local Number Portability
Section 251(b) of the Communications Act, as amended, requires that LECs provide local number
portability to any requesting telecommunications carrier. Wireless carriers are generally defined
as telecommunications carriers and are eligible to port numbers with wireline carriers, which is
referred to as intermodal porting. As previously discussed under Regulatory Matters  Wireless
Operations, on November 10, 2003, the FCC released a decision providing guidance on intermodal
porting issues which was subsequently appealed to the D.C. Circuit Court. The intermodal porting
requirement took effect on November 24, 2003 for wireline carriers in the top 100 MSAs and on May
24, 2004 for wireline carriers operating in markets below the top 100 MSAs. The majority of the
Companys wireline operations are conducted in markets below the top 100 MSAs and were subject to
the later May 24, 2004 implementation date for intermodal porting. The appeals have been disposed
of by the D.C. Circuit Court in a manner that does not affect ALLTELs obligations as an ILEC and,
to date, intermodal porting has not had a significant impact on the Companys wireline operations. Because certain of the regulatory matters discussed above are under FCC or judicial review,
resolution of these matters continues to be uncertain, and ALLTEL cannot predict at this time the
specific effects, if any, that the 96 Act, regulatory decisions and rulemakings, and future
competition will ultimately have on its ILEC operations. Communications Support Services OperationsThree Months EndedMarch 31,(Millions, except customers in thousands)
    
    2005
    
    
    2004Revenues and sales:Product distribution
    
    $
    120.6
    
    
    $
    99.1Long-distance and network management services
    
    
    72.6
    
    
    
    79.0Directory publishing
    
    
    26.3
    
    
    
    26.2Telecommunications information services
    
    
    5.2
    
    
    
    14.7Total revenues and sales
    
    
    224.7
    
    
    
    219.0Costs and expenses:Cost of services
    
    
    56.3
    
    
    
    66.0Cost of products sold
    
    
    133.1
    
    
    
    114.8Selling, general, administrative and other
    
    
    14.9
    
    
    
    13.2Depreciation and amortization
    
    
    8.5
    
    
    
    8.5Total costs and expenses
    
    
    212.8
    
    
    
    202.5Segment income
    
    $
    11.9
    
    
    $
    16.5Long-distance customers
    
    
    1,793.1
    
    
    
    1,707.7
 Communications support services revenues and sales increased $5.7 million, or 3 percent, for the
three months ended March 31, 2005, as compared to the same period a year ago. As noted in the
table above, the increase in revenues and sales in 2005 reflected growth in sales of
telecommunications and data products, partially offset by declines in revenues earned 31




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from long-distance and network management services and telecommunications information services.
Sales of telecommunications and data products increased $21.5 million in the first quarter of 2005,
as compared to the same period in 2004 driven by increased sales to non-affiliates of $24.4
million, primarily reflecting increased sales of higher priced wireless handsets that include
advanced features and that are capable of various data applications to retailers and other
distributors. The increase in sales to non-affiliates was partially offset by a decrease in sales
to affiliated customers of $2.9 million, primarily due to a reduction in capital expenditures by
the Companys wireline operations. Revenues attributable to long-distance and network management services declined $6.4 million in the
three month period in 2005, as compared to the same period in 2004. Although the number of
long-distance customers served increased during the twelve month period ended March 31, 2005,
revenues derived from external customers decreased $1.5 million, primarily due to the effects of
customers migrating to packaged rate plans. In response to competitive pressures, ALLTEL has
introduced in its long-distance markets packaged rate plans that provide customers with unlimited
calling for one flat monthly rate. Revenues earned from affiliates for network management services
also decreased $4.9 million, primarily due to a reduction in intercompany billing rates effective
January 1, 2005. Telecommunications information services revenues decreased $9.5 million in the
three months ended March 31, 2005, as compared to the same period in 2004 due to the loss of one of
ALLTELs remaining unaffiliated wireline services customers during 2004. Although revenues and sales increased in the first quarter of 2005 compared to the same period in
2004, communications support services segment income decreased primarily due to lower profit
margins realized by the product distribution and telecommunications information services
operations. Profit margins for the product distribution operations decreased in 2005 compared to
2004 due to a shift in the mix of products sold to non-affiliates, as a proportionately higher
percentage of these sales consisted of lower margin wireless handsets. Profit margins for the
telecommunications information services operations were adversely affected by the loss of a
customer during 2004, as the associated revenue decline outpaced the corresponding reduction in
operating expenses due to the continuance of overhead and other fixed operating costs. A summary of the restructuring and other charges related to the communications support services
operations that were not included in the determination of segment income were as follows for the
three months ended March 31, 2004: (Millions)Severance and employee benefit costs
    
    $
    0.5Relocation costs
    
    
    0.1Total restructuring and other charges
    
    $
    0.6
 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCESThree MonthsEnded March 31,(Millions, except per share amounts)
    
    2005
    
    
    2004Cash flows from (used in):Operating activities
    
    $
    778.7
    
    
    $
    551.5Investing activities
    
    
    (307.7
    )
    
    
    (201.8
    )Financing activities
    
    
    (67.5
    )
    
    
    (370.3
    )Effect of exchange rate changes
    
    
    
    
    
    
    0.2Change in cash and short-term investments
    
    $
    403.5
    
    
    $
    (20.4
    )Total capital structure (a)
    
    $
    12,839.4
    
    
    $
    12,785.0Percent of equity to total capital (b)
    
    
    56.4
    %
    
    
    54.0
    %Book value per share (c)
    
    $
    23.93
    
    
    $
    22.38
 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
Cash provided from operations continued to be ALLTELs primary source of liquidity. Cash provided
from operations for the three months ended March 31, 2005 increased $227.2 million, or 41 percent,
compared to the same period of 2004. The increase in cash provided from operations reflected the
overall increase in the Companys earnings from continuing operations, receipt of the $111.0
million special cash dividend on the Companys investment in Fidelity National common 32




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stock previously discussed and favorable changes in working capital requirements. The favorable
changes in working capital requirements primarily resulted from timing differences in the payment
of accounts payable and income taxes, including amounts attributable to the special cash dividend. Cash Flows-Investing Activities
Capital expenditures continued to be ALLTELs primary use of capital resources. Capital
expenditures for the three months ended March 31, 2005 were $254.9 million compared to $207.2
million for the same period in 2004. Capital expenditures in both years were incurred to construct
additional network facilities, to deploy 1XRTT data technology in the Companys existing and
acquired wireless markets and to expand ALLTELs network coverage of its Internet, broadband, and
Touch-2-Talk communications service offerings. Capital expenditures for the three months ended
March 31, 2005 also included the Companys investment in wireless EV-DO technology. During the
first quarter of 2005, ALLTEL launched EV-DO service in three markets, and the Company expects to
deploy EV-DO technology in 6 to 10 additional markets in 2005. The Company funded substantially
all of its capital expenditures through internally generated funds. Investing activities also
included outlays for capitalized software development costs. Additions to capitalized software for
the three months ended March 31, 2005 were $11.1 million compared to $8.0 million for the same
period in 2004. The Company expects capital expenditures, including capitalized software
development costs, to be approximately $1.3 to $1.4 billion for 2005, which will be funded
primarily from internally generated funds. Cash outlays for the purchase of property for the three months ended March 31, 2005 were $51.8
million, of which $48.3 million related to the purchase of wireless properties in Alabama and
Georgia from PS Cellular, as previously discussed. During the first quarter of 2005, ALLTEL also
acquired for $3.5 million in cash additional ownership interests in wireless properties in
Wisconsin in which the Company owned a majority interest. There were no cash outlays for the
purchase of property during the three months ended March 31, 2004. Investing activities for the three month periods ended March 31, 2005 and 2004 also included
proceeds from the return on investments of $7.8 million and $20.3 million, respectively. These
amounts primarily consisted of cash distributions received from ALLTELs wireless minority
investments. Cash Flows-Financing Activities
Dividend payments remain a significant use of capital resources for ALLTEL. Common and preferred
dividend payments were $105.7 million and $115.5 million for the three months ended March 31, 2005
and 2004, respectively. The decrease in dividend payments in 2005 primarily reflected ALLTELs
prefunding of $9.2 million of the first quarter 2005 dividend payments on December 30, 2004. The
remaining portion of the first quarter 2005 dividend payments of $105.7 million was funded by
ALLTEL on January 3, 2005. In October 2004, the Companys Board of Directors approved an increase
in the quarterly common stock dividend rate from $.37 to $.38 per share, raising the annual
dividend rate to $1.52 per share. The Company expects to continue the payment of cash dividends
during the balance of 2005. The Company has a five-year $1.5 billion unsecured line of credit under a revolving credit
agreement with an expiration date of July 28, 2009. The Company incurred no borrowings under the
revolving credit agreement during either the first quarter of 2005 or 2004. The Company also has
established a commercial paper program with a maximum borrowing capacity of $1.5 billion. ALLTEL
classifies commercial paper borrowings as long-term debt, because they are intended to be
maintained on a long-term basis and are supported by the Companys revolving credit agreement.
Under the commercial paper program, commercial paper borrowings are fully supported by the
available borrowings under the revolving credit agreement. Accordingly, the total amount
outstanding under the commercial paper program and the indebtedness incurred under the revolving
credit agreement may not exceed $1.5 billion. During the first quarter of 2005, the maximum amount
of borrowings outstanding under the commercial paper program was $100.0 million, of which $50.0
million remained outstanding at March 31, 2005. Conversely, ALLTEL incurred no borrowings under
the commercial paper program during the first quarter of 2004, and there were no commercial paper
borrowings outstanding at either December 31, 2004 or 2003. Commercial paper borrowings were
incurred during the first quarter of 2005 to fund general corporate requirements. The net increase
in commercial paper borrowings from December 31, 2004 of $50.0 million represented all of the
long-term debt issued during the first quarter of 2005. Retirements of long-term debt were $1.9 million and $1.5 million for the three months ended March
31, 2005 and 2004, respectively. Cash flows from financing activities also included distributions
to minority investors, which amounted to $12.7 million and $16.2 million for the three months ended
March 31, 2005 and 2004, respectively. On January 22, 2004, ALLTELs Board of Directors adopted a stock repurchase plan authorizing the
Company to repurchase up to $750.0 million of its outstanding common stock over a two year period
ending December 31, 2005. Under the repurchase plan, ALLTEL may repurchase shares, from time to
time, on the open market or in negotiated transactions, as circumstances warrant, depending upon
market conditions and other factors. Sources of funding the stock buyback 33




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program include available cash on hand, operating cash flows and borrowings under ALLTELs
commercial paper program. During 2004, ALLTEL repurchased 11.2 million of its common shares at a
total cost of $595.3 million under this plan, of which 4.8 million shares were repurchased during
the three months ended March 31, 2004 at a cost of $243.0 million. ALLTEL did not repurchase any
of its common shares during the first quarter of 2005. Liquidity and Capital Resources
ALLTEL believes it has sufficient cash and short-term investments on hand ($888.4 million at March
31, 2005) and has adequate operating cash flows to finance its ongoing operating requirements,
including capital expenditures, repayment of long-term debt, payment of dividends, and funding the
stock repurchase program. Sources of funding available to the Company to finance the $1.0 billion
cash portion of the pending merger transaction with Western Wireless and the $1.2 billion of term
loans outstanding under the Western Wireless credit facility that become due immediately upon the
closing of the merger would include: (1) cash proceeds of $1.4 billion to be received by ALLTEL on
May 17, 2005 from the sale of ALLTEL common stock to holders of the Companys equity units, as
further discussed below under Obligation to Sell Shares of ALLTEL Common Stock and (2) borrowings
under the Companys commercial paper program, of which $1.45 billion was available for issuance at
March 31, 2005. Additional sources of funding available to ALLTEL include: (1) additional debt or
equity securities under the Companys March 28, 2002, $5.0 billion shelf registration statement, of
which approximately $730 million remained available for issuance at March 31, 2005 and (2)
additional debt securities issued in the private placement market. ALLTELs commercial paper and long-term credit ratings with Moodys Investors Service (Moodys),
Standard & Poors Corporation (Standard & Poors) and Fitch Ratings (Fitch) were unchanged from
December 31, 2004 and were as follows: StandardDescription
    
    Moodys
    
    & Poors
    
    FitchCommercial paper credit rating
    
    Prime-1
    
    A-1
    
    F1Long-term debt credit rating
    
    A2
    
    A
    
    AOutlook
    
    Stable
    
    Negative
    
    Stable
 Factors that could affect ALLTELs short and long-term credit ratings would include, but not be
limited to, a material decline in the Companys operating results and increased debt levels
relative to operating cash flows resulting from future acquisitions or increased capital
expenditure requirements. If ALLTELs credit ratings were to be downgraded from current levels,
the Company would incur higher interest costs on new borrowings, and the Companys access to the
public capital markets could be adversely affected. A downgrade in ALLTELs current short or
long-term credit ratings would not accelerate scheduled principal payments of ALLTELs existing
long-term debt. The revolving credit agreement contains various covenants and restrictions including a requirement
that, as of the end of each calendar quarter, ALLTEL maintain a total debt-to-capitalization ratio
of less than 65 percent. For purposes of calculating this ratio under the revolving credit
agreement, total debt would include amounts classified as long-term debt (excluding mark-to-market
adjustments for interest rate swaps), current maturities of long-term debt outstanding, short-term
debt and any letters of credit or other guarantee obligations. As of March 31, 2005, the Companys
total debt to capitalization ratio was 43.5 percent. In addition, the indentures and borrowing
agreements, as amended, provide, among other things, for various restrictions on the payment of
dividends by the Company. Retained earnings unrestricted as to the payment of dividends by the
Company amounted to $6,340.2 million at March 31, 2005. There are no restrictions on the payment
of dividends among members of ALLTELs consolidated group. At March 31, 2005, current maturities of long-term debt were $673.8 million and included a $200.0
million, 6.75 percent senior unsecured note due September 15, 2005 and 7.50 percent senior notes
representing an aggregate principal amount of $450.0 million due March 1, 2006. The Company
expects to fund the payment of the $200.0 million note at maturity through either available cash on
hand, operating cash flows or commercial paper borrowings. On March 3, 2005, the Company notified
the trustee of the 7.50 percent senior notes of its intention to redeem all of the issued and
outstanding senior notes on April 8, 2005 at a redemption price equal to the greater of (a) 100
percent of the principal amount of the senior notes and (b) the sum of the present values of the
remaining scheduled payments of principal and interest on the senior notes discounted to April 8,
2005 on a semiannual basis at the comparable U.S. Treasury rate (the 1.625 percent U.S. Treasury
due February 28, 2006), plus 30 basis points, plus, in each case, accrued and unpaid interest
thereon to April 8, 2005. On April 8, 2005, the Company redeemed the 7.50 percent senior notes at
a total cost of $468.4 million. ALLTEL funded the redemption using available cash on hand, which
included $350.0 million of proceeds from the sale of ALLTELs investment in Fidelity National
common stock completed on April 6, 2005, as further discussed in Note 13 to the unaudited interim
consolidated financial statements. 34




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Under the Companys long-term debt borrowing agreements, acceleration of principal payments would
occur upon payment default, violation of debt covenants not cured within 30 days or breach of
certain other conditions set forth in the borrowing agreements. At March 31, 2005, the Company was
in compliance with all of its debt covenants. There are no provisions within the Companys leasing
agreements that would trigger acceleration of future lease payments. ALLTEL does not use securitization of trade receivables, affiliation with special purpose entities,
variable interest entities or synthetic leases to finance its operations. Additionally, the
Company has not entered into any material arrangement requiring ALLTEL to guarantee payment of
third party debt or to fund losses of an unconsolidated special purpose entity. Obligation to Sell Shares of ALLTEL Common Stock
In August 2002, ALLTEL sold 27.7 million equity units in an underwritten public offering. Each
equity unit consists of a corporate unit, with a $50 stated amount comprised of a purchase contract
and a $50 principal amount senior note. The purchase contract obligates the holder to purchase,
and obligates ALLTEL to sell, on May 17, 2005, for $50, a variable number of newly-issued common
shares of ALLTEL common stock. The number of ALLTEL shares issued will be determined at the time
the purchase contracts are settled based upon the twenty-day average closing stock price of
ALLTELs common stock for the period April 15, 2005 to May 12, 2005. If the twenty-day average
price of ALLTELs common stock is equal to or less than $49.50, then ALLTEL will deliver 1.0101
shares to the holder of the equity unit. If the twenty-day average price of ALLTELs common stock
is greater than $49.50 but less than $60.39, then ALLTEL will deliver a fraction of shares equal to
$50 divided by the twenty-day average price of ALLTELs common stock. Finally, if the twenty-day
average price of ALLTELs common stock is equal to or greater than $60.39, then ALLTEL will deliver
0.8280 shares to the holder. Accordingly, upon settlement of the purchase contracts on May 17,
2005, ALLTEL will receive proceeds of $1,385.0 million and will deliver between 22.9 million and
28.0 million common shares in the aggregate. The $50 principal amount senior notes become payable on May 17, 2007 and accrue 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 have been pledged to secure the corporate
unit holders obligations under the purchase contract component of the corporate unit. Critical Accounting Policies
ALLTEL prepares its consolidated financial statements in accordance with accounting principles
generally accepted in the United States. In its Annual Report on Form 10-K for the year ended
December 31, 2004, ALLTEL identified the critical accounting policies which affect its more
significant estimates and assumptions used in preparing the Companys consolidated financial
statements. These critical accounting policies include accounting for service revenues, evaluating
the collectibility of trade receivables, accounting for pension and other postretirement benefits,
calculating depreciation and amortization expense, determining the fair values of goodwill and
other indefinite-lived intangible assets and accounting for current and deferred income taxes.
There have been no material changes to ALLTELs critical accounting policies during the three month
period ended March 31, 2005. Legal Proceedings
ALLTEL is party to various legal proceedings arising in the ordinary course of business. Although
the ultimate resolution of these various proceedings cannot be determined at this time, management
of the Company does not believe that such proceedings, individually or in the aggregate, will have
a material adverse effect on the future results of operations or financial condition of ALLTEL. In
addition, management of the Company is currently not aware of any environmental matters that,
individually or in the aggregate, would have a material adverse effect on the consolidated
financial condition or results of operations of the Company. Recently Issued Accounting Pronouncements
On December 16, 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which is a revision
of SFAS No. 123 and supercedes Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related Interpretations. 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 Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin (SAB) 107, which summarizes the staffs views regarding
the interaction between SFAS 35




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No. 123(R) and certain SEC rules and regulations and provides additional guidance regarding the
valuation of share-based payment arrangements for public companies. On April 15, 2005, the SEC
amended 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. On March 31, 2005, the FASB issued Interpretation No. (FIN) 47, Accounting for Conditional Asset
Retirement Obligations, which is an interpretation of SFAS No. 143, Accounting for Asset
Retirement Obligations. FIN 47 clarifies that the recognition and measurement provisions of SFAS
No. 143 apply to asset retirement obligations in which the timing and/or method of settlement may
be conditional on a future event, including obligations to remediate asbestos at the end of a
buildings useful life and obligations to dispose of chemically-treated telephone poles at the end
of their useful lives. FIN 47 is effective for fiscal years ending after December 15, 2005.
ALLTEL is currently assessing the impact of adopting FIN 47 to its consolidated results of
operations. 36




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ALLTEL CORPORATION
FORM 10-Q
PART I  FINANCIAL INFORMATION 
 Item 3.Quantitative and Qualitative Disclosures About Market Risk
The Companys market risks at March 31, 2005 are similar to the market risks discussed in ALLTELs
Annual Report on Form 10-K for the year ended December 31, 2004. The Company is exposed to market
risk from changes in marketable equity security prices, interest rates, and foreign exchange rates.
ALLTEL has estimated its market risk using sensitivity analysis. For marketable equity
securities, market risk is defined as the potential change in fair value attributable to a
hypothetical adverse change in market prices. For all other financial instruments, market risk is
defined as the potential change in earnings resulting from a hypothetical adverse change in market
prices or interest rates. The results of the sensitivity analysis used to estimate market risk are
presented below. Actual results may differ from these estimates. Equity Price Risk
Changes in equity prices primarily affect the fair value of ALLTELs investments in marketable
equity securities. Fair value for investments was determined using quoted market prices, if
available, or the carrying amount of the investment, if no quoted market price was available. At
March 31, 2005, investments of the Company were recorded at fair value of $668.2 million, compared
to $804.9 million at December 31, 2004. The decrease in fair value primarily reflected the
decreased market value of the Fidelity National common stock acquired by ALLTEL in connection with
the April 1, 2003 sale of its financial services division. As
previously discussed, on March 9, 2005, Fidelity National
declared a special $10 per share cash dividend payable to Fidelity
National stockholders on March 28, 2005. Following payment of this special dividend, the fair market value of the
Fidelity National common stock declined by an amount approximately equal to the value of the
special dividend. At March 31, 2005, the fair market value of the marketable equity securities
held by ALLTEL, consisting solely of the Fidelity National common shares, amounted to $369.1
million and included unrealized holding gains of $61.2 million. Comparatively, investments in
marketable equity securities at December 31, 2004 and March 31, 2004 were $511.8 million and $444.9
million, respectively, and included unrealized holding gains of $153.9 million and $110.3 million,
respectively. A hypothetical 10 percent decrease in quoted market prices would result in a $36.9
million decrease in the fair value of the Companys marketable equity securities at March 31, 2005.
As further discussed in Note 13 to the unaudited interim consolidated financial statements, on
April 6, 2005, ALLTEL sold its investment in Fidelity National common stock and received proceeds
of approximately $350.0 million. Interest Rate Risk
The Companys earnings are affected by changes in variable interest rates related to ALLTELs
issuance of short-term commercial paper and interest rate swap agreements. The Company enters into
interest rate swap agreements to obtain a targeted mixture of variable and fixed-interest-rate debt
such that the portion of debt subject to variable rates does not exceed 30 percent of ALLTELs
total debt outstanding. The Company has established policies and procedures for risk assessment
and the approval, reporting, and monitoring of interest rate swap activity. ALLTEL does not enter
into interest rate swap agreements, or other derivative financial instruments, for trading or
speculative purposes. Management periodically reviews ALLTELs exposure to interest rate
fluctuations and implements strategies to manage the exposure. As of March 31, 2005, the Company had entered into six, pay variable/receive fixed, interest rate
swap agreements on notional amounts totaling $1.0 billion to convert fixed interest rate payments
to variable. The maturities of the six interest rate swaps range from March 1, 2006 to November 1,
2013. The weighted average fixed rate received by ALLTEL on these swaps is 5.5 percent, and the
variable rate paid by ALLTEL is the three month LIBOR (London-Interbank Offered Rate). The
weighted average variable rate paid by ALLTEL was 2.7 percent at March 31, 2005. A hypothetical
increase of 100 basis points in variable interest rates would reduce annual pretax earnings by
approximately $10.5 million. Conversely, a hypothetical decrease of 100 basis points in variable
interest rates would increase annual pretax earnings by approximately $10.5 million. As further
discussed in Note 13 to the unaudited interim consolidated financial statements, on April 8, 2005,
concurrent with the early redemption of $450.0 million 7.50 percent senior notes, ALLTEL also
terminated the interest rates swap agreement that was scheduled to mature on March 1, 2006. Foreign Exchange Risk
The Companys business operations in foreign countries are not material to the Companys
consolidated operations, financial condition and liquidity. Foreign currency translation gains and
losses were not material to the Companys consolidated results of operations for the three months
ended March 31, 2005 and 2004. Additionally, the Company is not currently subject to material
foreign currency exchange rate risk from the effects that exchange rate movements of foreign
currency would have on the Companys future costs or on future cash flows it would receive from its
foreign subsidiaries. The Company has not entered into any significant foreign currency forward
exchange contracts or other derivative financial instruments to hedge the effects of adverse
fluctuations in foreign currency exchange rates. 37




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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. 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, the Company announced a $750.0 million stock repurchase plan which
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 this plan during the first quarter of 2005. As of March 31,
2005, remaining amounts that may be repurchased under this plan were $154.7 million. 
 Item 6. Exhibits and Reports on Form 8-K  See the exhibits specified on the Index of Exhibits located at Page 40. 38




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SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLTEL CORPORATION 
   /s/ Jeffery R. Gardner 
 
 39




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ALLTEL CORPORATION
FORM 10-Q
INDEX OF EXHIBITS Form 10-QExhibit No.
    
    Description of Exhibits4(a)(1)
    
    Amendment No. 1 to January 30, 1997 Rights
Agreement dated as of February 2, 2005
between Computershare Investor Services, LLC
and ALLTEL Corporation.
    
    (a)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)
 (a) Filed herewith. 40