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Scott FordPresident & Chief Executive Officer
JP Morgan
32nd Annual Technology & Telecom Conference
San Francisco, CA
May 4, 2004
2
This presentation includes certain estimates and other forward-looking
statements, including statements with respect to anticipated operating and
financial performance, growth opportunities and growth rates, acquisition and
divestiture opportunities, and other statements of expectation. Words such as
“expects,” “anticipates,” “intends,” “plans,” “believes,” “assumes,” “seeks,”
“estimates,” and “should,” and variations of these words and similar
expressions, are intended to identify these forward-looking statements.
Forward-looking statements are subject to uncertainties that could cause
actual future performance, outcomes and results to differ materially. These
statements by the Company and its management are based on estimates,
projections, beliefs and assumptions of management and are not guarantees
of future performance. The company disclaims any obligation to update or
revise any forward-looking statement based on the occurrence of future
events, the receipt of new information, or otherwise.
“Safe Harbor” Statement
3
Today’s presentation will include certain non-GAAP financial measures. I refer you to the Investor Relations section of ALLTEL’s Web site where the company has posted additional information regarding these non-GAAP financial measures, including a reconciliation of each such measure to the most directly comparable GAAP measure. The company’s Web site is located at www.alltel.com.
Regulation G Disclaimer
4
Agenda
• Industry Perspective
• Strategic Model
• Track Record of Financial Performance
• Track Record of Shareholder Returns
• Wireless Business – 1Q 04 Results
• Wireline Business – 1Q 04 Results
• Summary – Why Invest in ALLTEL
5
Industry PerspectiveWireless and Broadband are the Growth Drivers in Telecom
0
50
100
150
200
250
300
350
400
450
500
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Wireline access lines CLEC/ UNE lines DSL lines
Cable Modem lines Cable Telephony access lines Wireless subscribers
Cu
sto
me
r L
ine
s (M
)
Sources: FCC, CTIA, NCTA, Telecomweb, UBS, Goldman Sachs, Merrill Lynch.
6
Strategic Model – Access is KeyPositions ALLTEL for Telecom Industry Evolution and Shareholder Value
OPERATIONAL FOCUS
• Point of Sale Experience
• Customer Service Experience
• Network Quality Experience
FINANCIAL DISCIPLINE
• Invest in Businesses Not Products
• Best Customer/Best Price
• Stay Relevant
OPPORTUNISTIC GROWTH
• Focus on Free Cash Flow
• Operational “Fit”
• Think Long-Term (5+ years)
7
• 1998 –360 Communications - $6.1B– Added 2.6M wireless customers
• 1999 – Aliant Communications and Liberty Cellular - $2.4B– Added 300K access lines and 440K wireless customers
• 2000 – Verizon Property Swap and Roaming Deal - $600M– Added 700K net wireless customers
• 2002 – Verizon Kentucky Wireline - $1.9B– Added 600K access lines
• 2002 – CenturyTel Wireless Business - $1.6B– Added 700K wireless customers
• 2003 – Sale of Information Services business to Fidelity National - $1.05B
Strategic ModelDisciplined Approach to Transactions to Better Position the Business
Transaction Strategy Has Improved the Business Mix
8
Strong Balance SheetALLTEL Has One of the Strongest Credit Profiles in the Telecom Industry
• Well capitalized balance sheet– A1 / Prime-1 / F1* Commercial Paper ratings– A / A2 / A* long-term credit ratings
• Net Debt / OIBDA 1.3X(1)
• Net Debt / Total Cap 34%
Source: Wall Street equity research and company filings.Note : Assumes 80% equity credit for AT, CZN and CTL Equity Units*S&P / Moody’s / Fitch, respectively.(1) From current businesses as of 4Q’03 – OIBDA defined as operating income before depreciation and amortization.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
S&P Credit Rating
1Q04 Net Debt/OIBDA
AT
SBC
BLS VZ
TDS
USM
T
CTL
AWE
FON/PCS
CZN
RCCC
NXTL
Q
CCC+ B B+ BBB- BBB A- A A+B- BB- BB BB+ BBB+ AA-
9
Track Record of Results Strategic Model Driving Consistent Growth
$5.6$6.3 $6.6
$7.1$8.0
1999 2000 2001 2002 2003
Revenue ($bn)1
$2.33 $2.44$2.59
$2.94 $3.05
1999 2000 2001 2002 2003
Earnings per Share1
$1.24$1.29 $1.33 $1.37
$1.42
1999 2000 2001 2002 2003
Dividends per Share
1 From Current Businesses
Operating Income Before Depreciation and Amortization ($bn)1
$2.3 $2.5 $2.7 $2.9$3.2
1999 2000 2001 2002 2003
CAGR = 9.3% CAGR = 8.6%
CAGR = 7.0% CAGR = 3.4%
10
0
200
400
600
800
1,000
1,200
1999 2000 2001 2002 20038%
12%
16%
20%
24%
28%
32%
Equity Free Cash Flow CAPEX as a % of Revenues
Millions % of Revenues
$
1
Track Record of Results Strategic Model Driving Strong and Growing Equity Free Cash Flow
CAGR = 17.6%
Over $1B in Equity Free
Cash Flow in 2003
1 From Current Businesses
11
Track Record of Results Strategic Model Generating Leading Total Returns(1)
Rank
5 Year 3 Year 1 Year
1
3
5
4
2
1
4
5
3
2
3
2
5
1
4
ALLTEL
BellSouth
SBC
Sprint
Verizon
Note: (1) Total return based on stock price appreciation and dividendsSource: FactSet database
12
• Quarterly dividends have been raised for 43 consecutive years– ~3% yield
• Recently announced $750MM share buyback program– ~5% of shares outstanding– Authorizes repurchase over period ending 12/31/05– As of March 31, 2004
• Repurchased 4.8M shares ~$243M
• Completed ~1/3 of the Repurchase Plan
Track Record of Results Disciplined Approach to Return of Capital
13
Increased the Mix to 59% WirelessAn Integrated Telecom Company With the Highest Wireless Contribution
2003 ALLTEL
Business is well positioned for growth and free cash flow
OIBDARevenue
2003 Revenue – $8.0B
2003 OIBDA – $3.2B
Integrated Telecom Companies
Company Name
ALLTEL
Sprint
BellSouth(2)
Verizon
SBC(2)
2003 Wireless Rev
as % of Total Rev (1)
58%
48%
36%
33%
32%
(1) Source: Analyst and company reports
(2) Includes prorata share of AWE 2003 revenue assuming no divestitures.
1Q 04 Wireless Rev
as % of Total Rev (1)
59%
51%
39%
36%
32%
14
Wireless BusinessA Closer Look at the Business and 1Q 04 Highlights
As of 3/31/04
• 61 million POPs
• 8.2 million customers
• Customer Mix– Tier 1 - 36%
– Tier 2 - 34%
– Tier 3 - 30%
1Q 04 Highlights1Q 04 YOY
• Service revenue $1.12B 7%
• Retail service rev. $1.03B 8%
• ARPU $45.96 1%
• RRPU $42.56 2%
• Gross adds 737K 12%
• Post-pay churn 1.93% (11%)
• Net Adds 158K 226%
Wireless
15
45%
41%42%
46%
43%
36%
38%
40%
42%
44%
46%
48%
1Q03 2Q 03 3Q 03 4Q03 1Q04
% of Gross Adds on Total/National Freedom Rate Plans
Wireless BusinessNational Plans and MOU Growth Driving RRPU
334
432
1Q03 1Q04
MOU (Minutes of Use) Per Customer
29% Increase
Retail Revenue Per Unit (RRPU)Year Over Year
$42.56$41.79
$35
$40
$45
1Q03 1Q04
2% Increase
Strong National plan sales and MOU growth driving RRPU
16
Wireless BusinessData Usage Continues to Grow
0.0%
1.0%
2.0%
3.0%
1Q03 1Q04
Wireless Data Revenue as % of ARPU
163% Increase
YOY
Data Revenue Being Driven By:
• Application Downloads
• Ringtones
• Text Messaging
2004 Plans:
• Further expand 1X data footprint
• Launch EV-DO in several markets by year-end
17
Wireless BusinessQuantity and Quality of Gross Adds are Improving
550
600
650
700
750
1Q03 1Q04
Gross Adds Quarter Over Quarterin thousands
1Q03 1Q04
Post Pay as Percentage of Total Gross
The quantity and quality of gross adds continues to improve
14
1211
9 9
6
VerizonWireless
ALLTEL Cingular AT&TWireless
Sprint PCS Nextel
On a relative basis… ALLTEL is capturing its fair share of gross adds
1Q04 Gross Adds Per 1K Pops (1)
(1) Source: Analyst and company reports
12% Increase
YOY
13% Increase
YOY
Best Gross Add quarter in
company history
18
Wireless BusinessRecord Gross Adds and Improving Churn Driving Customer Growth
2.16%
1.93%
2.66%
2.40%
1.50%
2.00%
2.50%
3.00%
1Q03 1Q04
Post Pay Churn Total Churn
Post Pay / Total Churn
26 bp Decline
Net Adds
157,741
48,331
25,000
75,000
125,000
175,000
1Q03 1Q04
226% Increase
Record Gross Adds and Improving Churn Driving Customer Growth
550
600
650
700
750
1Q03 1Q04
Gross Adds Quarter Over Quarterin thousands
12% Increase
YOY
23 bp Decline
• Improving service levels• Competitive pricing plans • Proactive retention efforts
19
37.9%
34.8%
1Q03 OIBDA 1Q04 OIBDA
Wireless BusinessIndustry Leading Cost Structure
• OIBDA Margins1:– Gross Adds up 12% yoy putting pressure
on margins
– Increased retention spending also putting pressure on margins, but significantly improving post pay churn
1OIBDA defined as operating income before depreciation and amortization (measured on service revenues).
Cash Costs per Customer*
*Excludes acquisition costsSource: Analyst and company reports
$21 $21
$23
$26
$30
$32
$0
$5
$10
$15
$20
$25
$30
$35
ALLTEL Verizon Cingular Nextel Sprint PCS AT&TWirless
Quality customer growth and retention putting near-term pressure on margins, but we are still industry leaders in cash costs per customer
20
Cingular/AWE(a)
Verizon
Sprint(b)
T-Mobile
Nextel
ALLTEL
2003 Comparison to Wireless PeersRevenue and Income Metrics Per Customer
Source: Analyst and company reports1 Estimates for Cingular/AWE assuming no divestitures2 Excludes affiliates3 Customers as of 12/31/03 Note: Expense categories exclude one-time charges.
Penetration of covered PoPs
16.7%
13.6%
8.3%
5.9%
6.5%
13.3%
Customers(In Millions)(c)
46.0
37.5
17.5
13.1
12.9
8.0
Market Share %(c)
30%
24%
11%
8%
8%
5%
ARPU(Service Rev)
$54
$49
$61
$53
$69
$48
CCPU(Exc Acq Costs)
$28
$21
$31
$26
$26
$21
Acq Cost Per Customer
$10
$9
$12
$16
$14
$9
Depr/AmorPer Customer
$10
$10
$14
$10
$13
$8
Monthly Op. Income
Per Customer
$6
$9
$4
$1
$16
$11
SCALE IS LOCAL
21
Wireless Business ALLTEL Launched Touch2Talk – A Very Competitive “Push-to-Talk” Offering
• Launched in two stages– Half of our markets in late January– Half of our markets in late March
• Added over 50,000 customers in 1Q 04– Most were existing customers– Most purchased $20 unlimited plan
Benefits/Initial Customer Reaction• Broad Coverage (Available on IS-95 Digital Network)
• Minimal Latency – Call setup in 2 to 3 seconds
– Intra-call in as low as 150 milliseconds
• Robust Functionality– Use handset to set up group and add users to group
– Easily toggle between T2T call and wireless call
Pricing$5/month – 100 minutes private T2T
$10/month – 500 minutes private T2T
$20/month – unlimited minutes private T2T
22
Wireline BusinessA Closer Look at the Business and 1Q 04 Highlights
As of 3/31/03
• Approximately 3.1 million customer lines
• Approximately 50% of wireline access lines overlap wireless service areas
WirelessWirelineNational Calling Areas Cover All 50 States
1Q 04 Highlights1Q 04 YOY
• ARPU $64.62 1%
• Segment income $228M 2%
• DSL net adds 21K 22%
23
Wireline BusinessAccess Lines Decline Slightly, But ARPU Increases
Access Lines
3,000,000
3,050,000
3,100,000
3,150,000
3,200,000
1Q03 1Q04
Primary reasons for decline• Wireless substitution• Broadband
But ARPU has increased. . .
1% Increase
YOY
Feature Revenue Per Eligible Line
1Q03 1Q04
7% Increase
YOY
DSL Customers
• 9% penetration of addressable lines• Almost 90% have ALLTEL Internet Service• Almost 70% of ILEC lines DSL capable
0
50,000
100,000
150,000
200,000
1Q03 1Q04
99% Increase
YOY
2% Decline
YOY
24
2003 Comparison to Wireline PeersRevenue and Income Metrics Per Customer
Source: Analyst and company reports
SCALE IS LOCAL
Customers(In Millions) ARPU CCPU
Monthly Op. Income
Per Customer
Verizon 56.8 $58 $34 $11
SBC 55.9 $54 $37 $6
BellSouth 21.7 $71 $38 $19
Qwest 16.6 $68 $39 $18
Sprint 8.0 $64 $34 $19
ALLTEL 3.1 $65 $27 $23
CenturyTel 2.4 $72 $32 $24
25
Summary - Why Invest in ALLTEL?
• Integrated telecom with highest relative contribution from wireless in the industry
• Solid balance sheet
• Strong equity free cash flow– Over $1B in 2003 – 25% increase yoy
– $328M in 1Q 04 – 13% increase yoy
• ~3% dividend yield, 750M share repurchase plan ongoing (1/3 completed)
• Wireless Business – improving quality/ quantity of customer growth, significantly improving retention, and industry leading cash cost per user
• Wireline Business – higher DSL penetration, growing feature revenues, and industry leading cash cost per user
26
Reconciliation of Non-GAAP Financial Measures for the years ended December 31, 2003, 2002, 2001, 2000 and 1999:
Revenues and sales from Current Businesses(Dollars in millions) 2003 2002 2001 2000 1999Revenues and sales under GAAP 7,979.9$ 7,112.4$ 6,615.7$ 6,308.9$ 5,634.9$ Items excluded from measuring results from current businesses: Litigation settlement - - - 11.5 - Revenues and sales from current businesses 7,979.9$ 7,112.4$ 6,615.7$ 6,320.4$ 5,634.9$
OIBDA from Current Businesses(Dollars in millions) 2003 2002 2001 2000 1999Operating income under GAAP 1,898.0$ 1,719.6$ 1,548.7$ 1,536.2$ 1,386.6$ Items excluded from measuring results from current businesses: Write-down of receivables due to interexchange carrier's bankruptcy filing - 14.0 - - - Litigation settlement - - - 11.5 - Merger and integration expenses and other charges 19.0 69.9 76.3 15.3 90.5 Operating income from current businesses 1,917.0 1,803.5 1,625.0 1,563.0 1,477.1 Depreciation and amortization expense 1,247.7 1,095.5 1,082.0 903.7 777.5 OIBDA from current businesses 3,164.7$ 2,899.0$ 2,707.0$ 2,466.7$ 2,254.6$
Diluted Earnings per Share from Current Businesses2003 2002 2001 2000 1999
Diluted earnings per share under GAAP $4.25 $2.96 $3.40 $6.08 $2.47Items excluded from measuring results from current businesses, net of tax: Write-down of receivables due to interexchange carrier's bankruptcy filing - .03 - - - Net financing costs related to prefunding the Company's wireline and wireless acquisitions - .05 - - - Litigation settlement - - - .02 - Merger and integration expenses and other charges .04 .14 .14 .02 .20 Provision to reduce carrying value of certain assets - - - - - Gain on disposal of assets (.06) (.03) (.68) (3.57) (.08) Write-down of investments .01 .03 - .03 - Termination fees on early retirement of long-term debt .01 - .01 - - Discontinued operations (1.15) (.24) (.22) (.26) (.26) Cumulative effect of accounting change (.05) - (.06) .12 - Diluted earnings per share from current businesses $3.05 $2.94 $2.59 $2.44 $2.33
For the years ended December 31
For the years ended December 31
For the years ended December 31
27
Reconciliation of Non-GAAP Financial Measures for the years ended December 31, 2003, 2002, 2001, 2000 and 1999:
Equity Free Cash Flow(Dollars in millions) 2003 2002 2001 2000 1999Net cash provided from operations 2,474.7$ 2,392.2$ 1,882.1$ 1,428.9$ 1,378.5$ Adjustments to reconcile to net income under GAAP: Income from discontinued operations 361.0 74.2 69.5 82.7 83.9 Cumulative effect of accounting change 15.6 - 19.5 (36.6) - Depreciation and amortization expense (1,247.7) (1,095.5) (1,082.0) (903.7) (777.5) Provision for doubtful accounts (184.7) (265.9) (138.4) (110.7) (90.3) Non-cash portion of integration expenses and other charges (13.2) (12.6) (37.7) (1.6) (9.8) Gain on disposal of assets 31.0 17.4 357.6 1,943.5 43.1 Write-down of investments (6.0) (16.4) - (15.0) - Increase in deferred income taxes (225.0) (357.6) (190.4) (131.0) (27.5) Other non-cash changes, net 11.4 25.6 8.7 35.8 1.5 Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions 113.0 162.9 178.1 (363.5) 181.7 Net income under GAAP 1,330.1 924.3 1,067.0 1,928.8 783.6 Adjustments to reconcile to net income from current businesses: Write-down of receivables due to interexchange carrier's bankruptcy filing, net of tax - 8.7 - - - Net financing costs related to prefunding the Company's wireline and wireless acquisitions, net of tax - 16.3 - - - Litigation settlement, net of tax - - - 7.0 - Merger and integration expenses and other charges, net of tax 11.5 42.3 45.3 9.1 66.1 Gain on disposal of assets, net of tax (18.9) (10.6) (214.4) (1,133.5) (27.2) Write-down of investments, net of tax 3.9 10.1 - 9.2 - Termination fees on early retirement of long-term debt, net of tax 4.4 - 1.7 - - Income from discontinued operations, net of tax (361.0) (74.2) (69.5) (82.7) (83.9) Cumulative effect of accounting change, net of tax (15.6) - (19.5) 36.6 - Net income from current businesses 954.4$ 916.9$ 810.6$ 774.5$ 738.6$ Adjustments to reconcile to equity free cash flow from current businesses: Depreciation and amortization expense 1,247.7 1,095.5 1,082.0 903.7 777.5 Capital expenditures (1,137.7) (1,154.8) (1,170.1) (1,120.2) (968.0) Capitalized software development costs (56.7) (58.4) (80.5) (47.6) (20.9) Equity free cash flow from current businesses 1,007.7$ 799.2$ 642.0$ 510.4$ 527.2$
Capital Expenditures as a Percent of Total Revenues and Sales:(Dollars in millions) 2003 2002 2001 2000 1999Capital expenditures 1,194.4$ 1,213.2$ 1,250.6$ 1,167.8$ 988.9$ Total revenues and sales from current businesses 7,979.9 7,112.4 6,615.7 6,320.4 5,634.9 Capital expenditures as a percent of total revenues and sales 15.0% 17.1% 18.9% 18.5% 17.5%
For the years ended December 31
For the years ended December 31
28
Reconciliation of Non-GAAP Financial Measures for the three months ended March 31, 2004 and 2003:
Wireless Service Revenue Margin(Dollars in millions) 2004 2003Wireless segment income under GAAP (A) 210.9$ 236.0$ Wireless service revenues (B) 1,115.5$ 1,047.0$ Wireless service revenue margin (A) / (B) 18.9% 22.5%
Wireless OIBDA Service Revenue Margin(Dollars in millions) 2004 2003Wireless segment income under GAAP 210.9$ 236.0$ Depreciation and amortization expense 177.5 161.1 Wireless OIBDA (A) 388.4$ 397.1$
Wireless service revenues (B) 1,115.5$ 1,047.0$ Wireless OIBDA service revenue margin (A) / (B) 34.8% 37.9%
29
Reconciliation of Non-GAAP Financial Measures for the three months ended March 31, 2004 and 2003:
Equity Free Cash Flow(Dollars in millions) 2004 2003Net cash provided from operations 551.5$ 546.8$ Adjustments to reconcile to net income under GAAP: Income from discontinued operations - 37.1 Cumulative effect of accounting change - 15.6 Depreciation and amortization expense (321.3) (303.5) Provision for doubtful accounts (42.6) (52.8) Non-cash portion of integration expenses and other charges (25.6) - Increase in deferred income taxes (72.1) (78.0) Other non-cash changes, net 2.9 1.8 Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions 97.0 113.3 Net income under GAAP 189.8 280.3 Restructuring and other charges, net of tax 31.7 - Income from discontinued operations, net of tax - (37.1) Cumulative effect of accounting change, net of tax - (15.6) Net income from current businesses 221.5 227.6 Adjustments to reconcile to equity free cash flow from current businesses: Depreciation and amortization expense 321.3 303.5 Capital expenditures (215.2) (241.3) Equity free cash flow from current businesses 327.6$ 289.8$
30
Other Reconciliations of Non-GAAP Financial Measures
Net Debt to Operating Incomefor the year ended December 31, 2003(Dollars in millions)Long-term debt, including current maturities 5,858.4$ Cash and short-term investments (657.8) Net debt 5,200.6$ Assumed conversion of equity units (80% of $1,385.0) (1,108.0) Adjusted net debt (A) 4,092.6$
Operating income under GAAP (B) 1,898.0$ Net debt to operating income (A) / (B) 2.2
Net Debt to OIBDA from Current Businessesfor the year ended December 31, 2003(Dollars in millions)Adjusted net debt (see above) (A) 4,092.6$
OIBDA from current businesses (B) 3,164.7$ Net debt to OIBDA from current businesses (A) / (B) 1.3
Debt to Equity Ratio Under GAAP as of December 31, 2003(Dollars in millions)Long-term debt, including current maturities (A) 5,858.4$ Total shareholders equity (A) 7,022.2 Total debt and equity (B) 12,880.6$ Debt to equity ratio under GAAP (A) / (B) 45%
Net Debt to Total Capitalization as of December 31, 2003(Dollars in millions)Long-term debt, including current maturities 5,858.4$ Cash and short-term investments (657.8) Net debt 5,200.6$ Assumed conversion of equity units (80% of $1,385.0) (1,108.0) Adjusted net debt (A) 4,092.6$
Net debt 5,200.6$ Total shareholders' equity (A) 7,022.2 Total capitalization (B) 12,222.8$ Net debt to total capitalization (A) / (B) 33%