TMCnet News
Alltel Adds One Million Gross Wireless Customers in the Third QuarterLITTLE ROCK, Ark. --(Business Wire)-- Alltel achieved strong customer growth in the third quarter, adding more than 1 million gross customers for the fourth consecutive quarter. Net customer additions increased 63 percent year-over-year. "The Alltel team delivered another terrific quarter, and I continue to admire their ability to execute in a fiercely competitive marketplace," said President and Chief Executive Officer Scott Ford. "Once again we had strong customer additions and record consolidated EBITDA." Alltel announced plans on June 5 to be acquired by Verizon Wireless. The deal is awaiting final regulatory approval and is expected to close before year's end. Among Alltel's highlights for the third quarter: -- Revenues were $2.5 billion, a 10 percent increase from the same period a year ago. The company reported a loss of $55.2 million, due primarily to significant increases in interest costs and depreciation and amortization expense following the completion of the company's November 2007 merger with an affiliate of TPG Capital and GS Capital Partners. -- Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) was $929.8 million, a 13 percent increase from the same period a year ago. -- Alltel added more than 1 million gross customers through internal growth, a 28 percent increase from a year ago. Post-pay net additions were 255,299, up 20 percent year-over-year, and prepay net adds were 52,722. Reseller net adds were 27,131. Total net adds were 335,152. -- Post-pay churn was 1.33 percent, and total churn was 2.02 percent. -- Average revenue per wireless customers (ARPU) was $55.62. Data revenue per wireless customer was $8.99, up 42 percent year-over-year. A table describing consolidated EBITDA and reconciling net income to consolidated EBITDA is included in the schedules accompanying this release. Alltel operates America's largest wireless network, which delivers voice and advanced data services nationwide to nearly 14 million customers. Headquartered in Little Rock, Ark., Alltel is a Forbes 500 company with annual revenues of nearly $9 billion. Alltel claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events and results. Actual future events and results may differ materially from those expressed in these forward-looking statements as a result of a number of important factors. Representative examples of these factors include (without limitation) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement with Cellco Partnership and AirTouch Cellular (both doing business as Verizon Wireless); the inability to complete the merger due to the failure to satisfy conditions to the completion of the merger, including receipt of all regulatory approvals related to the merger; risks that the proposed transaction disrupts current plans and operations; 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; failure of our suppliers, contractors and third-party retailers to provide the agreed upon services; changes in communications technology; the effects of a high rate of customer churn; adverse changes in the terms and conditions of the wireless roaming agreements of Alltel; our withdrawal from the bidding for licenses in the 700 MHz spectrum auction; potential increased costs due to perceived health risks from radio frequency emissions; the effects of declines in operating performance, including impairment of certain assets; risks relating to the renewal and potential revocation of our wireless licenses; potential higher than anticipated inter-carrier costs; potential increased credit risk from first-time wireless customers; the potential for adverse changes in the ratings given to Alltel's debt securities by nationally accredited ratings organizations; risks relating to our substantially increased indebtedness following the private equity merger and related transactions, including a potential inability to generate sufficient cash to service our debt obligations, and potential restrictions on the Company's operations contained in its debt agreements; potential conflicts of interest and other risks relating to the private equity sponsors having control of the Company; loss of the Company's key management and other personnel or inability to attract such management and other personnel; the effects of litigation, including relating to telecommunications technology patents and other intellectual property; the effects of federal and state legislation, rules, and regulations governing the communications industry; and potential unforeseen failure of the Company's technical infrastructure and system. In addition to these factors, actual future performance, outcomes, and results may differ materially because of more general factors including (without limitation) general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes.
ALLTEL CORPORATION
CONSOLIDATED HIGHLIGHTS AND SUPPLEMENTAL OPERATING INFORMATION
(UNAUDITED)
(Dollars in millions, except per customer amounts)
THREE MONTHS ENDED
----------------------------------------------
Increase
September 30, September 30, (Decrease)
2008 2007 Amount %
------------- ------------- ------------ -----
Service revenues $ 2,279.9 $ 2,071.5 $ 208.4 10
Total revenues and sales $ 2,507.5 $ 2,281.5 $ 226.0 10
Operating income $ 353.1 $ 434.0 $ (80.9) (19)
Income (loss) from
continuing operations $ (55.2) $ 278.7 $ (333.9) (120)
Net income (loss) $ (55.2) $ 282.6 $ (337.8) (120)
Consolidated EBITDA $ 929.8 $ 820.2 $ 109.6 13
Capital expenditures(A) $ 271.8 $ 249.6 $ 22.2 9
Service revenue
operating margin(B) 15.5% 20.9% (5.4%) (26)
Operating margin(C) 14.1% 19.0% (4.9%) (26)
Service revenue
consolidated EBITDA
margin(D) 40.8% 39.6% 1.2% 3
Controlled POPs 79,383,821 79,575,793 (191,972) -
Customers 13,824,973 12,447,085 1,377,888 11
Penetration rate 17.4% 15.6% 1.8% 12
Average customers 13,663,065 12,338,361 1,324,704 11
Average retail customers
(excludes reseller
customers) 12,846,823 11,576,094 1,270,729 11
Gross customer
additions:
Postpay 694,265 644,055 50,210 8
Prepay 367,478 260,746 106,732 41
Reseller 99,775 - 99,775 -
Total internal 1,161,518 904,801 256,717 28
Net customer additions
(losses):
Postpay 255,299 212,791 42,508 20
Prepay 52,722 (7,772) 60,494 778
Reseller 27,131 - 27,131 -
Total internal 335,152 205,019 130,133 63
Cash costs:
Cost of services $ 715.9 $ 682.2 $ 33.7 5
Cost of products sold 343.4 300.0 43.4 14
Selling, general,
administrative and
other 557.6 496.1 61.5 12
Less product sales 227.6 210.0 17.6 8
Total $ 1,389.3 $ 1,268.3 $ 121.0 10
Cash costs per unit per
month(E) $33.89 $34.26 $(.37) (1)
Revenues:
Service revenues $ 2,279.9 $ 2,071.5 $ 208.4 10
Less wholesale roaming
revenues 204.0 196.5 7.5 4
Less wholesale
transport revenues 32.9 38.1 (5.2) (14)
Less reseller revenues 4.8 8.1 (3.3) (41)
Retail revenues $ 2,038.2 $ 1,828.8 $ 209.4 11
Average revenue per
customer per month(F) $55.62 $55.96 $(.34) (1)
Retail revenue per
customer per month(G) $52.88 $52.66 $.22 -
Retail minutes of use
per customer per
month(H) 804 746 58 8
Postpay churn excluding
resellers 1.33% 1.31% .02% 2
Total churn 2.02% 1.90% .12% 6
Note: Since January 1, 2002, the number of reseller customers included
in the customer base has not changed and Alltel has not included the
effects of reseller activity in its reported gross and net customer
additions for any period subsequent to 2001. Revenues earned from
resellers had been classified as retail revenues. Effective January
1, 2008, Alltel changed its classification of reseller activity from
retail to wholesale operations and prospectively has included
reseller customers in its reported gross and net customer additions,
consistent with industry practice. Prior period retail revenue per
unit statistics were adjusted to reflect the reclassification of the
reseller operations. Prior period average and total customer counts
were not adjusted for reseller customers because the effects were
immaterial.
(A) Includes capitalized software development costs.
(B) Service revenue operating margin is calculated by dividing
operating income by service revenues.
(C) Operating margin is calculated by dividing operating income by
total revenues and sales.
(D) Service revenue consolidated EBITDA margin is calculated by
dividing consolidated EBITDA by service revenues.
(E) Cash costs per unit per month is calculated by dividing the sum of
the reported cost of services, cost of products sold, selling,
general, administrative and other expenses less product sales by
average customers for the period.
(F) Average revenue per customer per month is calculated by dividing
service revenues by average customers for the period.
(G) Retail revenue per customer per month is calculated by dividing
retail revenues (service revenues less wholesale and reseller
revenues) by average retail customers for the period.
(H) Retail minutes of use per customer per month represents the
average monthly minutes that Alltel's customers use on both the
Company's network and while roaming on other carriers' networks.
Consolidated EBITDA has been reconciled to net income (loss) on page
5.
ALLTEL CORPORATION
CONSOLIDATED HIGHLIGHTS AND SUPPLEMENTAL OPERATING INFORMATION
(UNAUDITED)
(Dollars in millions, except per customer amounts)
NINE MONTHS ENDED
----------------------------------------------
Increase
September 30, September 30, (Decrease)
2008 2007 Amount %
------------- ------------- ------------ -----
Service revenues $ 6,543.7 $ 5,923.2 $ 620.5 10
Total revenues and sales $ 7,216.5 $ 6,535.1 $ 681.4 10
Operating income $ 965.1 $ 1,166.8 $ (201.7) (17)
Income (loss) from
continuing operations $ (249.6) $ 707.5 $ (957.1) (135)
Net income (loss) $ (250.0) $ 708.4 $ (958.4) (135)
Consolidated EBITDA $ 2,675.4 $ 2,323.3 $ 352.1 15
Capital expenditures(A) $ 653.4 $ 744.6 $ (91.2) (12)
Service revenue
operating margin(B) 14.7% 19.7% (5.0%) (25)
Operating margin(C) 13.4% 17.9% (4.5%) (25)
Service revenue
consolidated EBITDA
margin(D) 40.9% 39.2% 1.7% 4
Average customers 13,319,588 12,140,297 1,179,291 10
Average retail customers
(excludes reseller
customers) 12,519,463 11,378,030 1,141,433 10
Gross customer
additions:
Postpay 1,892,956 1,732,101 160,855 9
Prepay 1,156,488 830,134 326,354 39
Reseller 287,633 - 287,633 -
Total internal 3,337,077 2,562,235 774,842 30
Net customer additions
(losses):
Postpay 635,272 502,585 132,687 26
Prepay 334,978 120,562 214,416 178
Reseller 69,530 - 69,530 -
Total internal 1,039,780 623,147 416,633 67
Cash costs:
Cost of services $ 2,052.0 $ 1,933.4 $ 118.6 6
Cost of products sold 1,006.7 876.1 130.6 15
Selling, general,
administrative and
other 1,573.5 1,445.5 128.0 9
Less product sales 672.8 611.9 60.9 10
Total $ 3,959.4 $ 3,643.1 $ 316.3 9
Cash costs per unit per
month(E) $33.03 $33.34 $(.31) (1)
Revenues:
Service revenues $ 6,543.7 $ 5,923.2 $ 620.5 10
Less wholesale roaming
revenues 581.0 520.8 60.2 12
Less wholesale
transport revenues 107.4 127.4 (20.0) (16)
Less reseller revenues 14.3 21.8 (7.5) (34)
Retail revenues $ 5,841.0 $ 5,253.2 $ 587.8 11
Average revenue per
customer per month(F) $54.59 $54.21 $.38 1
Retail revenue per
customer per month(G) $51.84 $51.30 $.54 1
Retail minutes of use
per customer per
month(H) 792 708 84 12
Postpay churn excluding
resellers 1.29% 1.27% .02% 2
Total churn 1.92% 1.78% .14% 8
Note: Since January 1, 2002, the number of reseller customers included
in the customer base has not changed and Alltel has not included the
effects of reseller activity in its reported gross and net customer
additions for any period subsequent to 2001. Revenues earned from
resellers had been classified as retail revenues. Effective January
1, 2008, Alltel changed its classification of reseller activity from
retail to wholesale operations and prospectively has included
reseller customers in its reported gross and net customer additions,
consistent with industry practice. Prior period retail revenue per
unit statistics were adjusted to reflect the reclassification of the
reseller operations. Prior period average and total customer counts
were not adjusted for reseller customers because the effects were
immaterial.
(A) Includes capitalized software development costs.
(B) Service revenue operating margin is calculated by dividing
operating income by service revenues.
(C) Operating margin is calculated by dividing operating income by
total revenues and sales.
(D) Service revenue consolidated EBITDA margin is calculated by
dividing consolidated EBITDA by service revenues.
(E) Cash costs per unit per month is calculated by dividing the sum of
the reported cost of services, cost of products sold, selling,
general, administrative and other expenses less product sales by
average customers for the period.
(F) Average revenue per customer per month is calculated by dividing
service revenues by average customers for the period.
(G) Retail revenue per customer per month is calculated by dividing
retail revenues (service revenues less wholesale and reseller
revenues) by average retail customers for the period.
(H) Retail minutes of use per customer per month represents the
average monthly minutes that Alltel's customers use on both the
Company's network and while roaming on other carriers' networks.
Consolidated EBITDA has been reconciled to net income (loss) on page
5.
ALLTEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS-Page 2
(Millions)
THREE MONTHS ENDED
---------------------------
September 30, September 30,
2008 2007
(Successor) (Predecessor)
------------- -------------
Revenues and sales:
Service revenues $ 2,279.9 $ 2,071.5
Product sales 227.6 210.0
Total revenues and sales 2,507.5 2,281.5
Costs and expenses:
Cost of services 715.9 682.2
Cost of products sold 343.4 300.0
Selling, general, administrative and
other 557.6 496.1
Depreciation and amortization 535.4 358.2
Integration expenses, restructuring and
other charges 2.1 11.0
Total costs and expenses 2,154.4 1,847.5
Operating income 353.1 434.0
Equity earnings in unconsolidated
partnerships 19.6 17.1
Minority interest in consolidated
partnerships (14.5) (8.8)
Other income, net 7.2 5.9
Interest expense (449.1) (46.2)
Gain on disposal of assets - -
Income (loss) from continuing operations
before income taxes (83.7) 402.0
Income tax expense (benefit) (28.5) 123.3
Income (loss) from continuing operations (55.2) 278.7
Income (loss) from discontinued operations - 3.9
Net income (loss) $ (55.2) $ 282.6
ALLTEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS-Page 2
(Millions)
NINE MONTHS ENDED
---------------------------
September 30, September 30,
2008 2007
(Successor) (Predecessor)
------------- -------------
Revenues and sales:
Service revenues $ 6,543.7 $ 5,923.2
Product sales 672.8 611.9
Total revenues and sales 7,216.5 6,535.1
Costs and expenses:
Cost of services 2,052.0 1,933.4
Cost of products sold 1,006.7 876.1
Selling, general, administrative and
other 1,573.5 1,445.5
Depreciation and amortization 1,594.5 1,060.0
Integration expenses, restructuring and
other charges 24.7 53.3
Total costs and expenses 6,251.4 5,368.3
Operating income 965.1 1,166.8
Equity earnings in unconsolidated
partnerships 53.9 48.5
Minority interest in consolidated
partnerships (37.5) (27.4)
Other income, net 29.3 19.2
Interest expense (1,399.1) (140.3)
Gain on disposal of assets - 56.5
Income (loss) from continuing operations
before income taxes (388.3) 1,123.3
Income tax expense (benefit) (138.7) 415.8
Income (loss) from continuing operations (249.6) 707.5
Income (loss) from discontinued operations (0.4) 0.9
Net income (loss) $ (250.0) $ 708.4
ALLTEL CORPORATION
CONSOLIDATED BALANCE SHEETS-Page 3
(Millions)
ASSETS
September 30, December 31,
2008 2007
------------- -------------
CURRENT ASSETS:
Cash and short-term investments $ 1,297.6 $ 833.3
Accounts receivable (less allowance for
doubtful accounts of $52.6 and $32.6,
respectively) 852.8 831.1
Inventories 206.8 196.0
Prepaid expenses and other 86.1 142.8
Assets related to discontinued
operations - 0.3
Total current assets 2,443.3 2,003.5
Investments 540.0 536.1
Goodwill 16,941.2 16,917.4
Other intangibles 6,227.3 6,784.6
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements 264.7 251.1
Buildings and improvements 895.0 836.4
Operating plant and equipment 4,158.6 3,650.3
Information processing 456.7 368.8
Furniture and fixtures 110.5 99.8
Under construction 316.0 360.1
Total property, plant and equipment 6,201.5 5,566.5
Less accumulated depreciation 1,211.5 164.9
Net property, plant and equipment 4,990.0 5,401.6
Other assets 410.4 485.3
Assets related to discontinued operations - 7.0
TOTAL ASSETS $ 31,552.2 $ 32,135.5
ALLTEL CORPORATION
CONSOLIDATED BALANCE SHEETS-Page 3
(Millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
2008 2007
------------- -------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 140.1 $ 140.1
Accounts payable 544.7 603.6
Advance payments and customer deposits 226.9 195.9
Accrued taxes 157.4 120.4
Accrued interest 168.8 187.1
Other current liabilities 275.6 271.9
Liabilities related to discontinued
operations - 0.2
Total current liabilities 1,513.5 1,519.2
Long-term debt 23,292.2 23,374.7
Deferred income taxes 2,286.0 2,542.7
Other liabilities 277.2 266.4
Total liabilities 27,368.9 27,703.0
SHAREHOLDERS' EQUITY:
Common stock 4.5 4.5
Additional paid-in capital 4,543.8 4,536.7
Accumulated other comprehensive loss (11.6) (5.3)
Retained deficit (353.4) (103.4)
Total shareholders' equity 4,183.3 4,432.5
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 31,552.2 $ 32,135.5
ALLTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS-Page 4
(Millions)
THREE MONTHS ENDED
---------------------------
September 30, September 30,
2008 2007
(Successor) (Predecessor)
------------- -------------
Cash Flows from Operating Activities:
Net income (loss) $ (55.2) $ 282.6
Adjustments to reconcile net income
(loss) to net cash provided from
operating activities:
Loss (income) from discontinued
operations - (3.9)
Depreciation and amortization 535.4 358.2
Provision for doubtful accounts 38.9 54.1
Amortization of deferred financing
costs 45.5 0.7
Non-cash portion of gain on disposal
of assets - -
Change in deferred income taxes (70.2) (16.7)
Adjustment to income tax liabilities,
including contingency reserves - (33.8)
Other, net 2.2 (9.2)
Changes in operating assets and
liabilities, net of effects of
acquisitions and dispositions:
Accounts receivable (41.1) (86.7)
Inventories (32.8) 39.6
Accounts payable 55.3 27.3
Other current liabilities 58.9 101.8
Other, net 5.7 12.1
Net cash provided from operating
activities 542.6 726.1
Cash Flows from Investing Activities:
Additions to property, plant and
equipment (265.2) (242.5)
Additions to capitalized software
development costs (6.6) (7.1)
Purchases of property, net of cash
acquired - -
Proceeds from the sale of assets - -
Proceeds from the sale of investments - -
Proceeds from the return on investments 21.8 15.4
Other, net 2.3 0.3
Net cash used in investing
activities (247.7) (233.9)
Cash Flows from Financing Activities:
Dividends paid on common and preferred
stock - (43.0)
Repayments of long-term debt (35.0) (100.6)
Repurchases of common stock - -
Distributions to minority investors (15.0) (10.7)
Excess tax benefits from stock option
exercises - 20.5
Long-term debt issued - -
Common stock issued - 6.0
Net cash used in financing
activities (50.0) (127.8)
Cash Flows from Discontinued Operations:
Cash provided from (used in) operating
activities - 4.0
Cash provided from (used in) investing
activities - (0.1)
Cash provided from (used in) financing
activities - -
Net cash provided from
discontinued operations - 3.9
Increase (decrease) in cash and short-term
investments 244.9 368.3
Cash and Short-term Investments:
Beginning of the period 1,052.7 456.3
End of the period $ 1,297.6 $ 824.6
ALLTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS-Page 4
(Millions)
NINE MONTHS ENDED
---------------------------
September 30, September 30,
2008 2007
(Successor) (Predecessor)
------------- -------------
Cash Flows from Operating Activities:
Net income (loss) $ (250.0) $ 708.4
Adjustments to reconcile net income
(loss) to net cash provided from
operating activities:
Loss (income) from discontinued
operations 0.4 (0.9)
Depreciation and amortization 1,594.5 1,060.0
Provision for doubtful accounts 93.0 140.9
Amortization of deferred financing
costs 136.6 2.1
Non-cash portion of gain on disposal
of assets - (56.5)
Change in deferred income taxes (186.6) 30.4
Adjustment to income tax liabilities,
including contingency reserves - (33.8)
Other, net 1.7 (26.8)
Changes in operating assets and
liabilities, net of effects of
acquisitions and dispositions:
Accounts receivable (112.9) (207.5)
Inventories (10.9) 51.8
Accounts payable (58.9) (54.4)
Other current liabilities (30.1) 235.6
Other, net (2.9) (10.5)
Net cash provided from operating
activities 1,173.9 1,838.8
Cash Flows from Investing Activities:
Additions to property, plant and
equipment (629.6) (720.3)
Additions to capitalized software
development costs (23.8) (24.3)
Purchases of property, net of cash
acquired - (6.2)
Proceeds from the sale of assets 18.0 -
Proceeds from the sale of investments - 188.7
Proceeds from the return on investments 49.2 40.2
Other, net 12.3 0.9
Net cash used in investing
activities (573.9) (521.0)
Cash Flows from Financing Activities:
Dividends paid on common and preferred
stock - (133.5)
Repayments of long-term debt (255.0) (36.9)
Repurchases of common stock - (1,360.3)
Distributions to minority investors (37.4) (31.8)
Excess tax benefits from stock option
exercises - 25.7
Long-term debt issued 150.0 -
Common stock issued - 59.0
Net cash used in financing
activities (142.4) (1,477.8)
Cash Flows from Discontinued Operations:
Cash provided from (used in) operating
activities (0.2) 2.8
Cash provided from (used in) investing
activities 6.9 47.6
Cash provided from (used in) financing
activities - -
Net cash provided from
discontinued operations 6.7 50.4
Increase (decrease) in cash and short-term
investments 464.3 (109.6)
Cash and Short-term Investments:
Beginning of the period 833.3 934.2
End of the period $ 1,297.6 $ 824.6
ALLTEL CORPORATION
RECONCILIATION OF NET INCOME (LOSS) TO CONSOLIDATED EBITDA
(UNAUDITED)-Page 5
(Millions)
THREE MONTHS ENDED
---------------------------
September 30, September 30,
2008 2007
(Successor) (Predecessor)
------------- -------------
Net income (loss) $ (55.2) $ 282.6
Loss (income) from discontinued
operations (A) - (3.9)
Income tax expense (benefit) (28.5) 123.3
Interest expense, net of interest income 442.1 40.2
Depreciation and amortization 535.4 358.2
EBITDA 893.8 800.4
Minority interest in consolidated
partnerships 14.5 8.8
Equity earnings in unconsolidated
partnerships, net of cash distributions
received 2.3 (1.6)
Gain on disposal of assets (B) - -
Stock-based compensation expense, net of
restricted shares surrendered for tax
(C) 2.4 9.1
Integration expenses, restructuring and
other charges (D) 2.1 11.0
Non-cash rental income, net of
amortization of related deferred leasing
costs (E) - (8.4)
Management fee payable to Sponsors (F) 9.1 -
Other non-cash items 5.6 0.9
Consolidated EBITDA $ 929.8 $ 820.2
ALLTEL CORPORATION
RECONCILIATION OF NET INCOME (LOSS) TO CONSOLIDATED EBITDA
(UNAUDITED)-Page 5
(Millions)
NINE MONTHS ENDED
---------------------------
September 30, September 30,
2008 2007
(Successor) (Predecessor)
------------- -------------
Net income (loss) $ (250.0) $ 708.4
Loss (income) from discontinued
operations (A) 0.4 (0.9)
Income tax expense (benefit) (138.7) 415.8
Interest expense, net of interest income 1,372.5 122.6
Depreciation and amortization 1,594.5 1,060.0
EBITDA 2,578.7 2,305.9
Minority interest in consolidated
partnerships 37.5 27.4
Equity earnings in unconsolidated
partnerships, net of cash distributions
received (5.1) (8.6)
Gain on disposal of assets (B) - (56.5)
Stock-based compensation expense, net of
restricted shares surrendered for tax
(C) 7.1 22.3
Integration expenses, restructuring and
other charges (D) 24.7 53.3
Non-cash rental income, net of
amortization of related deferred leasing
costs (E) - (25.4)
Management fee payable to Sponsors (F) 27.1 -
Other non-cash items 5.4 4.9
Consolidated EBITDA $ 2,675.4 $ 2,323.3
ALLTEL CORPORATION
NOTES TO RECONCILIATION OF NET INCOME (LOSS) TO CONSOLIDATED EBITDA
(UNAUDITED)-Page 6
On November 16, 2007, Alltel Corporation ("Alltel" or the "Company")
was acquired by Atlantis Holdings LLC, a Delaware limited liability
company ("Atlantis Holdings" or "Parent") and an affiliate of private
investment funds TPG Partners V, L.P. and GS Capital Partners VI
Fund, L.P. (together the "Sponsors"). The acquisition was completed
through the merger of Atlantis Merger Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of Parent, with and into
Alltel (the "Merger"), with Alltel surviving the Merger as a
privately-held, majority-owned subsidiary of Parent. Although Alltel
continues as the same legal entity after the Merger, Atlantis
Holdings' cost of acquiring Alltel has been pushed-down to establish
a new accounting basis for Alltel. Accordingly, the accompanying
consolidated financial statements are presented for two periods,
Predecessor and Successor, which relate to the accounting periods
preceding and succeeding the consummation of the Merger.
Alltel also has presented calculations of earnings before interest,
taxes and depreciation and amortization expense ("EBITDA") and
Consolidated EBITDA. Alltel has included this presentation of
Consolidated EBITDA because covenants in Alltel Communications, LLC's
senior secured credit facilities contain ratios based on this
measure. Measurements of Consolidated EBITDA are based on the
Company's calculation of EBITDA (net income (loss), excluding the
effects of discontinued operations, and before net interest expense,
provision for income taxes and depreciation and amortization)
adjusted to exclude unusual items, certain non-cash charges and other
items permitted in calculating covenant compliance under the
indenture and the credit facilities. Alltel believes that the
application of these supplementary adjustments to EBITDA in
determining Consolidated EBITDA are appropriate to provide additional
information to investors to demonstrate compliance with its financing
covenants. If the Company's Consolidated EBITDA were to decline below
certain levels, covenants in the senior secured credit facilities
that are based on Consolidated EBITDA, including the maximum senior
secured leverage ratio covenant, may be violated and could cause,
among other things, an inability to incur further indebtedness and in
certain circumstances a default or mandatory prepayment of amounts
outstanding under the senior secured term loan facility.
EBITDA and Consolidated EBITDA are not measures calculated in
accordance with GAAP and should not be considered a substitute for
operating income, net income (loss) or any other measure of financial
performance reported in accordance with GAAP or as measures of
operating cash flows or liquidity. The presentation of EBITDA has
limitations as an analytical tool, and should not be considered in
isolation, or as a substitute for analysis of the Company's results
of operations or cash flows as reported under GAAP. In particular,
EBITDA and Consolidated EBITDA should not be viewed as a reliable
indicator of Alltel's ability to generate cash to service its debt
obligations because certain of the items added to net income (loss)
to determine EBITDA and Consolidated EBITDA involve outlays of cash.
As a result, actual cash available to service the Company's debt
obligations will be different from Consolidated EBITDA. In addition
to demonstrating compliance with its financing covenants, Alltel
believes that the presentation of EBITDA and Consolidated EBITDA is
helpful in highlighting operational trends because these measures
exclude certain non-cash charges and other non-operating items that
are not representative of the Company's core business operations.
(A) The following are included in discontinued operations:
On November 7, 2007, Alltel signed a definitive agreement to sell one
of its wireless markets for cash. Accordingly, this market has been
classified from that date as discontinued operations. The sale of
this property was completed on May 30, 2008.
As a condition of receiving approval from the Department of Justice
("DOJ") and the Federal Communications Commission ("FCC") for the
Company's acquisition of Midwest Wireless Holdings ("Midwest
Wireless"), on September 7, 2006, Alltel agreed to divest certain
wireless operations in four rural markets in Minnesota. Accordingly,
the four markets to be divested in Minnesota have been classified as
discontinued operations. On April 3, 2007, Alltel completed the sale
of these properties.
(B) Through its merger with Western Wireless Corporation completed on
August 1, 2005, Alltel acquired marketable equity securities. On
January 24, 2007, Alltel completed the sale of these securities for
$188.7 million in cash and recorded a pretax gain from the sale of
$56.5 million which is included in gain on disposal of assets.
(C) Compensation expense recognized by Alltel related to stock option
and restricted stock awards.
(D) The following are included in integration expenses, restructuring
and other charges:
On June 5, 2008, Verizon Wireless, a joint venture of Verizon
Communications and Vodafone, entered into an agreement with Alltel
and Atlantis Holdings to acquire Alltel in a cash merger.
Consummation of the merger is subject to certain conditions,
including the receipt of regulatory approvals. The transaction is
currently expected to close by the end of 2008, subject to obtaining
the required regulatory approvals. In connection with this pending
transaction, Alltel incurred $1.7 million and $3.1 million of
incremental costs during the three and nine months ended September
30, 2008, respectively, principally consisting of financial advisory,
legal and regulatory filing fees.
For the nine months ended September 30, 2008, Alltel incurred $12.9
million of incremental expenses related to its participation in the
700 MHz auction conducted by the FCC that was completed on March 18,
2008. Alltel did not obtain any licenses in the 700 MHz auction. The
auction-related expenses primarily consisted of consulting fees and
estimated bid withdrawal payments to be remitted to the FCC as a
result of the Company withdrawing certain bids made during the course
of its participation in the auction. In connection with the Merger,
Alltel incurred $6.6 million of incremental costs, primarily
consisting of $3.8 million in employee retention bonuses and
additional legal and accounting fees of $2.4 million. Alltel also
recorded severance and employee benefit costs of $2.1 million related
to various planned workforce reductions. Of the total expenses
incurred related to these activities, $0.4 million were recorded
during the third quarter of 2008.
ALLTEL CORPORATION
NOTES TO RECONCILIATION OF NET INCOME (LOSS) TO CONSOLIDATED EBITDA
(UNAUDITED)-Page 7
In connection with the Merger transaction, Alltel incurred $2.5
million and $35.6 million during the three and nine months ended
September 30, 2007, respectively, principally consisting of financial
advisory, legal and regulatory filing fees.
For the nine months ended September 30, 2007, Alltel incurred $10.4
million of integration expenses related to its 2006 acquisitions of
Midwest Wireless and properties in Illinois, Texas and Virginia. The
system conversion and other integration expenses primarily consisted
of internal payroll, contracted services and other programming costs
incurred in converting the acquired properties to Alltel's customer
billing and operational support systems, a process that the Company
completed during the fourth quarter of 2007. Alltel also recorded
severance and employee benefit costs of $4.7 million and lease
termination costs of $2.6 million. Of the total expenses incurred
related to these activities, $8.5 million were recorded during the
third quarter of 2007.
(E) Represents non-cash rental income and amortization of deferred
leasing costs related to Alltel's agreement to lease cell site towers
to American Tower Corporation. The deferred rental income was
received in advance by Alltel under the terms of the leasing
agreement. The remaining deferred rental income and deferred leasing
costs were written-off in connection with the Merger.
(F) Represents the annual management fee and out-of-pocket expenses
payable in each case to affiliates of the Sponsors in exchange for
consulting and management advisory services. The annual management
fee is equal to one percent of Alltel's Consolidated EBITDA.
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