Alltel reports double-digit revenue growth in third quarter

Alltel (NYSE: AT) produced double-digit revenue growth and strong customer additions in the third quarter, its first earnings report as a pure-play wireless provider. Alltel reported fully diluted earnings per share under Generally Accepted Accounting Principles (GAAP) of $1.04, a 6 percent increase that includes one-time expenses, amortization of acquired intangible assets and income from the discontinued operations of Windstream. Excluding these items, fully diluted earnings per share from current businesses was 60 cents, an 11 percent increase from the previous year. "Alltel’s focus on investing in our business paid off this quarter with strong customer growth, a trend our company has enjoyed through the first three quarters of this year,” said Alltel President and CEO Scott Ford. "Our third-quarter growth demonstrates that we are striking the right balance between customer growth and long-term profitability. Our balance sheet also continues to gain strength as our net debt position is now under $1 billion.” Among the highlights for the third quarter: Revenues were $2 billion, a 12 percent increase from a year ago. Net income under GAAP was $402 million, up 11 percent. Net income from current businesses was $230 million, a 17 percent increase from a year ago. Alltel added 829,000 customers, up 14 percent over the same period last year. In addition, the company gained 101,000 net new customers, which includes 75,000 post-pay customers and 26,000 pre-pay customers, an increase of nearly 400 percent over last year. Post-pay churn was 1.67 percent and total churn was 2.18 percent, year-over-year improvements for the third consecutive quarter. Average revenue per wireless customer (ARPU) was $53.76, down 1 percent from last year. Equity free cash flow from current businesses was $214 million, an 11 percent increase. Net cash provided from operations was $340 million. Alltel operates America’s largest wireless network, which delivers voice and advanced data services nationwide to more than 11 million customers. Headquartered in Little Rock, Ark., Alltel is a Forbes 500 company with annual revenues of $8 billion. Alltel claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events and results. Actual future events and results may differ materially from those expressed in these forward-looking statements as a result of a number of important factors. Representative examples of these factors include (without limitation) adverse changes in economic conditions in the markets served by Alltel; the extent, timing, and overall effects of competition in the communications business; material changes in the communications industry generally that could adversely affect vendor relationships with equipment and network suppliers and customer relationships with wholesale customers; changes in communications technology; the risks associated with the integration of acquired businesses; adverse changes in the terms and conditions of the wireless roaming agreements of Alltel; the potential for adverse changes in the ratings given to Alltel's debt securities by nationally accredited ratings organizations; the uncertainties related to Alltel’s strategic investments; the effects of litigation; and the effects of federal and state legislation, rules, and regulations governing the communications industry. In addition to these factors, actual future performance, outcomes, and results may differ materially because of more general factors including (without limitation) general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes. Alltel, NYSE: AT www.alltel.com ALLTEL CORPORATION CONSOLIDATED HIGHLIGHTS AND OTHER FINANCIAL INFORMATION (In thousands, except per share amounts)     THREE MONTHS ENDED Increase September 30, September 30, (Decrease) 2006  2005  Amount % UNDER GAAP: Revenues and sales $ 2,007,319  $ 1,792,979  $ 214,340  12  Operating income $ 358,002  $ 338,695  $ 19,307  6  Operating margin (A) 17.8% 18.9% (1.1%) (6) Net income $ 402,360  $ 361,165  $ 41,195  11  Earnings per share: Basic $1.05  $.99  $.06  6  Diluted $1.04  $.98  $.06  6    Weighted average common shares: Basic 384,637  363,638  20,999  6  Diluted 386,771  367,794  18,977  5    Capital expenditures (B) $ 284,357  $ 238,157  $ 46,200  19  Total assets $ 19,330,223  $ 23,796,704  $ (4,466,481) (19)   FROM CURRENT BUSINESSES (NON-GAAP) (C): Operating income $ 400,819  $ 395,308  $ 5,511  1  Operating margin (A) 20.0% 22.0% (2.0%) (9) Net income $ 230,200  $ 197,329  $ 32,871  17  Earnings per share: Basic $.60  $.55  $.05  9  Diluted $.60  $.54  $.06  11  Equity free cash flow (D) $ 213,788  $ 193,013  $ 20,775  11    PRO FORMA FROM CURRENT BUSINESSES (NON-GAAP) (E):   Revenues and sales $ 2,007,319  $ 1,887,788  $ 119,531  6  Operating income $ 400,819  $ 418,994  $ (18,175) (4)   (A) Operating margin is calculated by dividing operating income by revenues and sales. (B) Includes capitalized software development costs. (C) Current businesses excludes the effects of discontinued operations, amortization expense related to acquired, finite-lived intangible assets, special cash dividend received on the Company's investment in Fidelity National Financial, Inc. common stock, gain (loss) on the exchange or disposal of assets, debt prepayment expenses, costs associated with Hurricane Katrina, a change in accounting for operating leases and integration expenses and other charges. (D) Equity free cash flow is calculated as the sum of net income from current businesses plus depreciation expense less capital expenditures which includes capitalized software development costs as indicated in Note B. (E) Pro forma from current businesses excludes the items listed in Note C above and includes the operating results of Western Wireless as if the acquisition of Western Wireless occurred on January 1, 2005.   ALLTEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME UNDER GAAP-Page 2 (In thousands, except per share amounts)   THREE MONTHS ENDED September 30, September 30,   2006    2005  Revenues and sales: Service revenues $ 1,795,443  $ 1,614,090  Product sales 211,876  178,889  Total revenues and sales 2,007,319  1,792,979  Costs and expenses: Cost of services 610,102  524,388  Cost of products sold 293,754  250,261  Selling, general, administrative and other 438,325  399,095  Depreciation and amortization 307,136  266,214  Integration expenses and other charges -  14,326  Total costs and expenses 1,649,317  1,454,284    Operating income 358,002  338,695    Equity earnings in unconsolidated partnerships 17,281  10,434  Minority interest in consolidated partnerships (11,729) (20,573) Other income, net 37,308  15,203  Interest expense (63,822) (78,993) Gain (loss) on exchange or disposal of assets and other (50,501) 30,557    Income from continuing operations before income taxes 286,539  295,323  Income taxes 121,268  111,109    Income from continuing operations 165,271  184,214  Income from discontinued operations 237,089  176,951    Net income 402,360  361,165  Preferred dividends 21  24  Net income applicable to common shares $ 402,339  $ 361,141    Basic earnings per share: Income from continuing operations $.43  $.51  Income from discontinued operations .62  .48  Net income $1.05  $.99    Diluted earnings per share: Income from continuing operations $.43  $.50  Income from discontinued operations .61  .48  Net income $1.04  $.98  ALLTEL CORPORATION CONSOLIDATED HIGHLIGHTS AND OTHER FINANCIAL INFORMATION (In thousands, except per share amounts)     NINE MONTHS ENDED Increase September 30, September 30, (Decrease) 2006  2005  Amount % UNDER GAAP: Revenues and sales $ 5,795,784  $ 4,735,254  $ 1,060,530  22  Operating income $ 993,787  $ 867,179  $ 126,608  15  Operating margin (A) 17.1% 18.3% (1.2%) (7) Net income $ 1,128,670  $ 1,076,230  $ 52,440  5  Earnings per share: Basic $2.92  $3.29  $(.37) (11) Diluted $2.90  $3.27  $(.37) (11)   Weighted average common shares: Basic 386,714  326,752  59,962  18  Diluted 388,911  329,186  59,725  18    Capital expenditures (B) $ 742,574  $ 716,685  $ 25,889  4    FROM CURRENT BUSINESSES (NON-GAAP) (C): Operating income $ 1,137,627  $ 971,972  $ 165,655  17  Operating margin (A) 19.6% 20.5% (.9%) (4) Net income $ 606,966  $ 472,549  $ 134,417  28  Earnings per share: Basic $1.57  $1.45  $.12  8  Diluted $1.56  $1.44  $.12  8  Equity free cash flow (D) $ 648,745  $ 394,286  $ 254,459  65    PRO FORMA FROM CURRENT BUSINESSES (NON-GAAP) (E): Revenues and sales $ 5,795,784  $ 5,341,281  $ 454,503  9  Operating income $ 1,137,627  $ 1,107,371  $ 30,256  3    (A) Operating margin is calculated by dividing operating income by revenues and sales. (B) Includes capitalized software development costs. (C) Current businesses excludes the effects of discontinued operations, amortization expense related to acquired, finite-lived intangible assets, special cash dividend received on the Company's investment in Fidelity National Financial, Inc. common stock, gain (loss) on the exchange or disposal of assets, debt prepayment expenses, costs associated with Hurricane Katrina, a change in accounting for operating leases and integration expenses and other charges. (D) Equity free cash flow is calculated as the sum of net income from current businesses plus depreciation expense less capital expenditures which includes capitalized software development costs as indicated in Note B. (E) Pro forma from current businesses excludes the items listed in Note C above and includes the operating results of Western Wireless as if the acquisition of Western Wireless occurred on January 1, 2005. ALLTEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME UNDER GAAP-Page 2 (In thousands, except per share amounts)   NINE MONTHS ENDED September 30, September 30,   2006    2005  Revenues and sales: Service revenues $ 5,178,719  $ 4,273,990  Product sales 617,065  461,264  Total revenues and sales 5,795,784  4,735,254  Costs and expenses: Cost of services 1,726,863  1,405,448  Cost of products sold 849,802  660,148  Selling, general, administrative and other 1,298,530  1,088,887  Depreciation and amortization 916,012  699,266  Integration expenses and other charges 10,790  14,326  Total costs and expenses 4,801,997  3,868,075    Operating income 993,787  867,179    Equity earnings in unconsolidated partnerships 45,612  36,391  Minority interest in consolidated partnerships (37,106) (57,838) Other income, net 69,115  144,084  Interest expense (234,976) (232,866) Gain (loss) on exchange or disposal of assets and other 126,138  218,830    Income from continuing operations before income taxes 962,570  975,780  Income taxes 374,686  358,065    Income from continuing operations 587,884  617,715  Income from discontinued operations 540,786  458,515    Net income 1,128,670  1,076,230  Preferred dividends 63  72  Net income applicable to common shares $ 1,128,607  $ 1,076,158    Basic earnings per share: Income from continuing operations $1.52  $1.89  Income from discontinued operations 1.40  1.40  Net income $2.92  $3.29    Diluted earnings per share: Income from continuing operations $1.51  $1.88  Income from discontinued operations 1.39  1.39  Net income $2.90  $3.27  ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 3 for the three months ended September 30, 2006 and 2005 (In thousands, except per share amounts)   THREE MONTHS ENDED September 30, 2006 Results Items Results of of Excluded from Operations Operations Current from Current Under GAAP Businesses Businesses Revenues and sales: Service revenues $ 1,795,443  $ -  $ 1,795,443  Product sales 211,876  -  211,876  Total revenues and sales 2,007,319  -  2,007,319  Costs and expenses: Cost of services 610,102  -  610,102  Cost of products sold 293,754  -  293,754  Selling, general, administrative and other 438,325  (3,626) (A) 434,699  Depreciation and amortization 307,136  (39,191) (B) 267,945  Integration expenses and other charges -  -  -  Total costs and expenses 1,649,317  (42,817) 1,606,500    Operating income 358,002  42,817  400,819    Equity earnings in unconsolidated partnerships 17,281  -  17,281  Minority interest in consolidated partnerships (11,729) -  (11,729) Other income, net 37,308  -  37,308  Interest expense (63,822) -  (63,822) Gain (loss) on exchange or disposal of assets and other (50,501) 50,501  (C) -    Income from continuing operations before income taxes 286,539  93,318  379,857  Income taxes 121,268  28,389  (M) 149,657    Income from continuing operations 165,271  64,929  230,200  Income from discontinued operations 237,089  (237,089) (N) -    Net income 402,360  (172,160) 230,200  Preferred dividends 21  -  21  Net income applicable to common shares $ 402,339  $ (172,160) $ 230,179    Basic earnings per share: Income from continuing operations $.43  $.17  $.60  Income from discontinued operations .62  (.62) -  Net income $1.05  $(.45) $.60    Diluted earnings per share: Income from continuing operations $.43  $.17  $.60  Income from discontinued operations .61  (.61) -  Net income $1.04  $(.44) $.60    See notes on pages 6 and 7 for a description of the line items marked (A) - (N).   ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 3 for the three months ended September 30, 2006 and 2005 (In thousands, except per share amounts)   THREE MONTHS ENDED September 30, 2005 Results Items Results of of Excluded from Operations Operations Current from Current Under GAAP Businesses Businesses Revenues and sales: Service revenues $ 1,614,090  $ -  $ 1,614,090  Product sales 178,889  -  178,889  Total revenues and sales 1,792,979  -  1,792,979  Costs and expenses: Cost of services 524,388  (8,016) (G) 516,372  Cost of products sold 250,261  -  250,261  Selling, general, administrative and other 399,095  (1,898) (G) 397,197  Depreciation and amortization 266,214  (32,373) (B) 233,841  Integration expenses and other charges 14,326  (14,326) (H) -  Total costs and expenses 1,454,284  (56,613) 1,397,671    Operating income 338,695  56,613  395,308    Equity earnings in unconsolidated partnerships 10,434  -  10,434  Minority interest in consolidated partnerships (20,573) -  (20,573) Other income, net 15,203  (5,000) (G) 10,203  Interest expense (78,993) -  (78,993) Gain (loss) on exchange or disposal of assets and other 30,557  (30,557) (I) -    Income from continuing operations before income taxes 295,323  21,056  316,379  Income taxes 111,109  7,941  (M) 119,050    Income from continuing operations 184,214  13,115  197,329  Income from discontinued operations 176,951  (176,951) (N) -    Net income 361,165  (163,836) 197,329  Preferred dividends 24  -  24  Net income applicable to common shares $ 361,141  $ (163,836) $ 197,305    Basic earnings per share: Income from continuing operations $.51  $.04  $.55  Income from discontinued operations .48  (.48) -  Net income $.99  $(.44) $.55    Diluted earnings per share: Income from continuing operations $.50  $.04  $.54  Income from discontinued operations .48  (.48) -  Net income $.98  $(.44) $.54    See notes on pages 6 and 7 for a description of the line items marked (A) - (N).   ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 4 for the nine months ended September 30, 2006 and 2005 (In thousands, except per share amounts)   NINE MONTHS ENDED September 30, 2006 Results Items Results of of Excluded from Operations Operations Current from Current Under GAAP Businesses Businesses Revenues and sales: Service revenues $ 5,178,719  $ -  $ 5,178,719  Product sales 617,065  -  617,065  Total revenues and sales 5,795,784  -  5,795,784  Costs and expenses: Cost of services 1,726,863  2,235  (D) 1,729,098  Cost of products sold 849,802  -  849,802  Selling, general, administrative and other 1,298,530  (3,626) (A) 1,294,904  Depreciation and amortization 916,012  (131,659) (B) 784,353  Integration expenses and other charges 10,790  (10,790) (F) -  Total costs and expenses 4,801,997  (143,840) 4,658,157    Operating income 993,787  143,840  1,137,627    Equity earnings in unconsolidated partnerships 45,612  -  45,612  Minority interest in consolidated partnerships (37,106) -  (37,106) Other income, net 69,115  -  69,115  Interest expense (234,976) -  (234,976) Gain (loss) on exchange or disposal of assets and other 126,138  (126,138) (C)(E) -    Income from continuing operations before income taxes 962,570  17,702  980,272  Income taxes 374,686  (1,380) (M) 373,306    Income from continuing operations 587,884  19,082  606,966  Income from discontinued operations 540,786  (540,786) (N) -    Net income 1,128,670  (521,704) 606,966  Preferred dividends 63  -  63  Net income applicable to common shares $ 1,128,607  $ (521,704) $ 606,903    Basic earnings per share: Income from continuing operations $1.52  $.05  $1.57  Income from discontinued operations 1.40  (1.40) -  Net income $2.92  $(1.35) $1.57    Diluted earnings per share: Income from continuing operations $1.51  $.05  $1.56  Income from discontinued operations 1.39  (1.39) -  Net income $2.90  $(1.34) $1.56    See notes on pages 6 and 7 for a description of the line items marked (A) - (N).   ALLTEL CORPORATION RECONCILIATION OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 4 for the nine months ended September 30, 2006 and 2005 (In thousands, except per share amounts)   NINE MONTHS ENDED September 30, 2005 Results Items Results of of Excluded from Operations Operations Current from Current Under GAAP Businesses Businesses Revenues and sales: Service revenues $ 4,273,990  $ -  $ 4,273,990  Product sales 461,264  -  461,264  Total revenues and sales 4,735,254  -  4,735,254  Costs and expenses: Cost of services 1,405,448  (27,725) (G)(L) 1,377,723  Cost of products sold 660,148  -  660,148  Selling, general, administrative and other 1,088,887  (1,898) (G) 1,086,989  Depreciation and amortization 699,266  (60,844) (B) 638,422  Integration expenses and other charges 14,326  (14,326) (H) -  Total costs and expenses 3,868,075  (104,793) 3,763,282    Operating income 867,179  104,793  971,972    Equity earnings in unconsolidated partnerships 36,391  -  36,391  Minority interest in consolidated partnerships (57,838) -  (57,838) Other income, net 144,084  (116,036) (G)(K) 28,048  Interest expense (232,866) -  (232,866) Gain (loss) on exchange or disposal of assets and other 218,830  (218,830) (I)(J) -    Income from continuing operations before income taxes 975,780  (230,073) 745,707  Income taxes 358,065  (84,907) (M) 273,158    Income from continuing operations 617,715  (145,166) 472,549  Income from discontinued operations 458,515  (458,515) (N) -    Net income 1,076,230  (603,681) 472,549  Preferred dividends 72  -  72  Net income applicable to common shares $ 1,076,158  $ (603,681) $ 472,477    Basic earnings per share: Income from continuing operations $1.89  $(.44) $1.45  Income from discontinued operations 1.40  (1.40) -  Net income $3.29  $(1.84) $1.45    Diluted earnings per share: Income from continuing operations $1.88  $(.44) $1.44  Income from discontinued operations 1.39  (1.39) -  Net income $3.27  $(1.83) $1.44    See notes on pages 6 and 7 for a description of the line items marked (A) - (N).   ALLTEL CORPORATION SUPPLEMENTAL UNAUDITED PRO FORMA SELECTED FINANCIAL INFORMATION FROM CURRENT BUSINESSES-Page 5 (Dollars in thousands)   For the three months ended September 30, 2005   Operating Results from Current Western Businesses Wireless Pro Forma Revenues and sales: Service revenues $ 1,614,090  $ 89,630  $ 1,703,720  Product sales 178,889  5,179  184,068  Total revenues and sales 1,792,979  94,809  1,887,788    Costs and expenses: Cost of services 516,372  28,055  544,427  Cost of products sold 250,261  9,635  259,896  Selling, general, administrative and other 397,197  17,353  414,550  Depreciation and amortization 233,841  16,080  249,921  Total costs and expenses 1,397,671  71,123  1,468,794    Operating income $ 395,308  $ 23,686  $ 418,994      For the nine months ended September 30, 2005   Operating Results from Current Western Businesses Wireless Pro Forma Revenues and sales: Service revenues $ 4,273,990  $ 570,214  $ 4,844,204  Product sales 461,264  35,813  497,077  Total revenues and sales 4,735,254  606,027  5,341,281    Costs and expenses: Cost of services 1,377,723  167,288  1,545,011  Cost of products sold 660,148  63,021  723,169  Selling, general, administrative and other 1,086,989  132,510  1,219,499  Depreciation and amortization 638,422  107,809  746,231  Total costs and expenses 3,763,282  470,628  4,233,910    Operating income $ 971,972  $ 135,399  $ 1,107,371    Operating results from current businesses have been reconciled to operating results under GAAP on pages 3 and 4 of this earnings release.   ALLTEL CORPORATIONNOTES TO RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 6   As disclosed in the ALLTEL Corporation ("Alltel" or the "Company") Form 8-K filed on October 27, 2006, Alltel has presented in this earnings release results of operations from current businesses which exclude the effects of discontinued operations, amortization expense related to acquired, finite-lived intangible assets, a special cash dividend received on the Company's investment in Fidelity National Financial, Inc. ("Fidelity National") common stock, gain (loss) on exchange or disposal of assets, termination fees associated with the early retirement of long-term debt, costs associated with Hurricane Katrina, a change in accounting for certain operating leases and integration expenses and other charges. Alltel’s purpose for excluding items from the current business measures is to focus on Alltel’s true earnings capacity associated with providing wireless communications services. Management believes the items excluded from the current business measures are related to strategic activities or other events, specific to the time and opportunity available, and, accordingly, should be excluded when evaluating the trends of the Company’s operations.   Alltel believes that presenting the current business measures assists investors in assessing the true business performance of the Company by clarifying for investors the effects that certain items such as asset sales, integration expenses and other business consolidation costs arising from past acquisition and integration activities had on the Company’s GAAP consolidated results of operations. The Company uses results from current businesses as management’s primary measure of the performance of its business operations. Alltel's management, including the chief operating decision-maker, uses the current business measures consistently for all purposes, including internal reporting purposes, the evaluation of business objectives, opportunities and performance and the determination of management compensation.   (A) In connection with the spin-off and merger of the Company's wireline telecommunications business, holders of Alltel restricted shares received approximately 1.04 shares of Windstream Corporation ("Windstream") restricted stock for each share of restricted Alltel common stock held at the time of the distribution. The Windstream restricted shares received by Alltel employees became fully vested on August 3, 2006. Compensation expense resulting from the accelerated vesting of the Windstream restricted stock awards amounted to $3.6 million. (See Notes C and N below for additional information regarding the spin-off and merger of Alltel’s wireline telecommunications business).   (B) Eliminates the effects of amortization expense related to acquired, finite-lived intangible assets.   (C) On July 17, 2006, in order to effect the spin-off of its wireline telecommunications business to its stockholders, Alltel contributed all of the assets of its wireline telecommunications business to ALLTEL Holding Corp. ("Alltel Holding" or "Spinco"), a wholly owned subsidiary of the Company, in exchange for: (i) the issuance to Alltel of Spinco common stock that was distributed on a pro rata basis to Alltel’s stockholders as a tax-free stock dividend, (ii) the payment of a special dividend to Alltel in the amount of $2.3 billion and (iii) the distribution by Spinco to Alltel of $1.7 billion of Spinco debt securities. Also on July 17, 2006, Alltel completed a debt exchange in which Alltel transferred to two investment banks the Spinco debt securities received in the spin-off transaction in exchange for certain Alltel debt securities, consisting of $988.5 million of outstanding commercial paper borrowings and $685.1 million of 4.656 percent notes due May 17, 2007. In completing the debt exchange, Alltel incurred a pretax loss of $27.5 million.   On August 25, 2006, Alltel repurchased prior to maturity $1.0 billion of long-term debt, consisting of $664.3 million of 4.656 percent equity unit notes due 2007, $61.0 million of 6.65 percent unsecured notes due 2008, $147.0 million of 7.60 percent unsecured notes due 2009 and $127.7 million of 8.00 percent notes due 2010 pursuant to cash tender offers announced by the Company on July 31, 2006. Concurrent with the debt repurchase, Alltel also terminated the related pay variable/receive fixed, interest rate swap agreement that had been designated as a fair value hedge against the 6.65 percent unsecured notes due 2008. In connection with the early termination of the debt and interest rate swap agreement, Alltel incurred net pretax termination fees of $23.0 million.   (D) The Company recorded a $2.2 million reduction in its allowance for doubtful accounts to reflect lower than expected write-offs from service interruptions and customer displacement attributable to the effects of Hurricane Katrina. The additional bad debt expense was originally recorded in the third quarter of 2005. (See Note G below.)   (E) During 2005, federal legislation was enacted which included provisions to dissolve and liquidate the assets of the Rural Telephone Bank ("RTB"). In connection with the dissolution and liquidation, during April 2006, the RTB redeemed all outstanding shares of its Class C stock. As a result, Alltel received liquidating cash distributions of $198.7 million in exchange for its $22.1 million investment in RTB Class C stock.   (F) The Company incurred $10.8 million of integration expenses related to its acquisition completed on August 1, 2005 of Western Wireless Corporation ("Western Wireless"). These expenses consisted of $8.3 million of rebranding costs and $2.5 million of system conversion costs and other integration costs.   (G) Alltel incurred $9.9 million of incremental costs related to Hurricane Katrina consisting of increased long distance and roaming expenses due to providing these services to affected customers at no charge, system maintenance costs to restore network facilities and additional losses from bad debts. These incremental costs also included Company donations to support the hurricane relief efforts. These incremental expenses were partially offset by $5.0 million of insurance proceeds received to date by Alltel.     ALLTEL CORPORATION NOTES TO RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 7   (H) The Company incurred $2.4 million of integration expenses related to its acquisition of Western Wireless. These expenses primarily consisted of system conversion and relocation costs. In addition, the Company incurred $11.9 million of integration expenses related to the exchange of certain wireless assets with Cingular Wireless LLC ("Cingular") completed during the second and third quarters of 2005. These expenses consisted of handset subsidies incurred to migrate the acquired customer base to CDMA handsets.   (I) Primarily due to certain minority partners' right-of-first-refusal, three of the wireless partnership interests to be exchanged between Alltel and Cingular, as discussed in Note J below, were not completed until July 29, 2005. As a result of completing the exchange transaction, Alltel recorded an additional pretax gain of $30.5 million.   (J) On April 15, 2005, Alltel and Cingular completed the exchange of certain wireless assets. In connection with this transaction, Alltel recorded a pretax gain of $127.5 million. On April 6, 2005, Alltel recorded a pretax gain of $75.8 million from the sale of all of its shares of Fidelity National common stock. In addition, on April 8, 2005, Alltel retired all of its issued and outstanding 7.50 percent senior notes due March 1, 2006, representing an aggregate principal amount of $450.0 million. Concurrent with the debt retirement, Alltel also terminated the related pay variable/receive fixed, interest rate swap agreement that had been designated as a fair value hedge against the $450.0 million senior notes. In connection with the early termination of the debt and interest rate swap agreement, Alltel incurred net pretax termination fees of approximately $15.0 million.   (K) On March 9, 2005, Fidelity National declared a special $10 per share cash dividend to Fidelity National stockholders. The special cash dividend was received by Alltel on March 28, 2005.   (L) Effective January 1, 2005, Alltel changed its accounting for operating leases with scheduled rent increases. Certain of the Company's operating lease agreements for cell sites and for office and retail locations include scheduled rent escalations during the initial lease term and/or during succeeding optional renewal periods. Previously, the Company had not recognized the scheduled increases in rent expense on a straight-line basis in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases" and Financial Accounting Standards Board ("FASB") Technical Bulletin No. 85-3, "Accounting for Operating Leases with Scheduled Rent Increases". The effects of this change, which are included in corporate expenses, were not material to the Company's previously reported consolidated results of operations, financial position or cash flows.   (M) Tax-related effect of the items discussed in Notes A - L above.   (N) Eliminates the effects of discontinued operations. On July 17, 2006, Alltel completed the spin-off of its wireline telecommunications business to its stockholders and the merger of that wireline business with Valor Communications Group, Inc. ("Valor"). The spin-off included the majority of Alltel’s communications support services, including directory publishing, information technology outsourcing services, retail long-distance and the wireline sales portion of communications products. The new wireline company formed in the merger of Alltel’s wireline operations and Valor is named Windstream. As a result, Alltel's historical results of operations have been adjusted to reflect the wireline business as discontinued operations in the accompanying unaudited consolidated financial statements.   As a condition of receiving approval from the Department of Justice ("DOJ") and the Federal Communications Commission ("FCC") for its acquisition of Midwest Wireless Holdings of Mankato, Minnesota ("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 in the accompanying unaudited consolidated financial statements.   In addition, as a condition of receiving approval for the Western Wireless acquisition from the DOJ and the FCC, Alltel agreed to divest certain wireless operations of Western Wireless in 16 markets in Arkansas, Kansas and Nebraska. In December 2005, Alltel completed an exchange of wireless properties with United States Cellular Corporation that included a substantial portion of the divestiture requirements related to the merger. In the first quarter of 2006, Alltel completed the required divestitures with the sale of the remaining property in Arkansas. During 2005, Alltel completed the sales of international operations in Georgia, Ghana and Ireland acquired from Western Wireless. During the second quarter of 2006, Alltel completed the sales of the remaining international operations acquired from Western Wireless in Austria, Bolivia, Côte d’Ivoire, Haiti, and Slovenia. As a result, the acquired international operations and interests of Western Wireless and the 16 markets to be divested in Arkansas, Kansas and Nebraska have been classified as discontinued operations in the accompanying unaudited consolidated financial statements.   ALLTEL CORPORATION SUPPLEMENTAL OPERATING INFORMATION-Page 8 (Dollars in thousands, except per customer amounts)   THREE MONTHS ENDED Increase September 30, September 30, (Decrease) 2006  2005  Amount %   Controlled POPs 76,974,746  75,410,320  1,564,426  2  Customers 11,162,300  10,424,710  737,590  7  Penetration rate 14.5% 13.8% .7% 5  Average customers 11,133,165  9,956,726  1,176,439  12  Gross customer additions: Internal 829,304  729,618  99,686  14  Acquired (23,904) 1,336,315  (1,360,219) (102) Total 805,400  2,065,933  (1,260,533) (61) Net customer additions: Internal 101,059  20,887  80,172  384  Acquired (23,904) 1,336,315  (1,360,219) (102) Total 77,155  1,357,202  (1,280,047) (94) Customer acquisition costs: Cost of products sold $ 173,544  $ 154,251  $ 19,293  13  Selling and marketing expenses 256,005  232,060  23,945  10  Less product sales 150,186  138,624  11,562  8  Total $ 279,363  $ 247,687  $ 31,676  13  Cost to acquire a new customer (A) $337  $339  $(2) (1) Cash costs from current businesses: Cost of services $ 610,102  $ 516,372  $ 93,730  18  Cost of products sold 293,754  250,261  43,493  17  Selling, general, administrative and other 434,699  397,197  37,502  9  Less product sales 211,876  178,889  32,987  18  Total 1,126,679  984,941  141,738  14  Less customer acquisition costs 279,363  247,687  31,676  13  Total $ 847,316  $ 737,254  $ 110,062  15  Cash costs from current businesses per unit per month, excluding customer acquisition costs (B) $25.37  $24.68  $.69  3  Revenues: Service revenues $ 1,795,443  $ 1,614,090  $ 181,353  11  Less wholesale roaming revenues 171,459  170,221  1,238  1  Less wholesale transport revenues 32,245  7,609  24,636  324  Retail revenues $ 1,591,739  $ 1,436,260  $ 155,479  11  Average revenue per customer per month (C) $53.76  $54.04  $(.28) (1) Retail revenue per customer per month (D) $47.66  $48.08  $(.42) (1) Retail minutes of use per customer per month (E) 645  614  31  5  Postpay churn 1.67% 1.92% (.25%) (13) Total churn 2.18% 2.37% (.19%) (8) Service revenue operating margin (F) From current businesses 22.3% 24.5% (2.2%) (9) Under GAAP 19.9% 21.0% (1.1%) (5)   (A) Cost to acquire a new customer is calculated by dividing the sum of the GAAP reported cost of products sold and sales and marketing expenses (included within "Selling, general, administrative and other") less product sales, as reported in the Consolidated Statements of Income, by the number of internal gross customer additions in the period. Customer acquisition costs exclude amounts related to the Company's customer retention efforts. (B) Cash costs from current businesses per unit per month, excluding customer acquisition costs, is calculated by dividing the sum of the current businesses reported cost of services, cost of products sold, selling, general, administrative and other expenses less product sales, as reported in the Consolidated Statements of Income, less customer acquisition costs, by the number of average customers for the period. Measured on a GAAP basis, cash costs per unit per month, excluding customer acquisition costs, were $25.48 and $24.62 for the three and nine months ended September 30, 2006, respectively, and $29.43 and $24.55 for the same periods of 2005, respectively. (C) Average revenue per customer per month is calculated by dividing service revenues by average customers for the period. (D) Retail revenue per customer per month is calculated by dividing retail revenues (service revenues less wholesale revenues) by average customers for the period. (E) Retail minutes of use per customer per month represents the average monthly minutes that Alltel's customers use on both the Company's network and while roaming on other carriers' networks. (F) Service revenue operating margin is calculated by dividing operating income by service revenues.   Operating results from current businesses have been reconciled to operating results under GAAP on pages 3 and 4 of this earnings release.   ALLTEL CORPORATION SUPPLEMENTAL OPERATING INFORMATION-Page 8 (Dollars in thousands, except per customer amounts)   NINE MONTHS ENDED Increase September 30, September 30, (Decrease) 2006  2005  Amount %   Average customers 10,933,578  9,229,636  1,703,942  18  Gross customer additions: Internal 2,405,347  1,992,367  412,980  21  Acquired 88,191  1,602,806  (1,514,615) (94) Total 2,493,538  3,595,173  (1,101,635) (31) Net customer additions: Internal 411,785  195,417  216,368  111  Acquired 88,191  1,602,806  (1,514,615) (94) Total 499,976  1,798,223  (1,298,247) (72) Customer acquisition costs: Cost of products sold $ 503,410  $ 397,268  $ 106,142  27  Selling and marketing expenses 774,093  616,411  157,682  26  Less product sales 441,792  360,049  81,743  23  Total $ 835,711  $ 653,630  $ 182,081  28  Cost to acquire a new customer (A) $347  $328  $19  6  Cash costs from current businesses: Cost of services $ 1,729,098  $ 1,377,723  $ 351,375  26  Cost of products sold 849,802  660,148  189,654  29  Selling, general administrative and other 1,294,904  1,086,989  207,915  19  Less product sales 617,065  461,264  155,801  34  Total 3,256,739  2,663,596  593,143  22  Less customer acquisition costs 835,711  653,630  182,081  28  Total $ 2,421,028  $ 2,009,966  $ 411,062  20  Cash costs from current businesses per unit per month, excluding customer acquisition costs (B) $24.60  $24.20  $.40  2  Revenues: Service revenues $ 5,178,719  $ 4,273,990  $ 904,729  21  Less wholesale roaming revenues 486,052  373,514  112,538  30  Less wholesale transport revenues 50,439  22,043  28,396  129  Retail revenues $ 4,642,228  $ 3,878,433  $ 763,795  20  Average revenue per customer per month (C) $52.63  $51.45  $1.18  2  Retail revenue per customer per month (D) $47.18  $46.69  $.49  1  Retail minutes of use per customer per month (E) 629  586  43  7  Postpay churn 1.60% 1.75% (.15%) (9) Total churn 2.03% 2.17% (.14%) (6) Service revenue operating margin (F) From current businesses 22.0% 22.7% (0.7%) (3) Under GAAP 19.2% 20.3% (1.1%) (5)   (A) Cost to acquire a new customer is calculated by dividing the sum of the GAAP reported cost of products sold and sales and marketing expenses (included within "Selling, general, administrative and other") less product sales, as reported in the Consolidated Statements of Income, by the number of internal gross customer additions in the period. Customer acquisition costs exclude amounts related to the Company's customer retention efforts. (B) Cash costs from current businesses per unit per month, excluding customer acquisition costs, is calculated by dividing the sum of the current businesses reported cost of services, cost of products sold, selling, general, administrative and other expenses less product sales, as reported in the Consolidated Statements of Income, less customer acquisition costs, by the number of average customers for the period. Measured on a GAAP basis, cash costs per unit per month, excluding customer acquisition costs, were $25.48 and $24.62 for the three and nine months ended September 30, 2006, respectively, and $29.43 and $24.55 for the same periods of 2005, respectively. (C) Average revenue per customer per month is calculated by dividing service revenues by average customers for the period. (D) Retail revenue per customer per month is calculated by dividing retail revenues (service revenues less wholesale revenues) by average customers for the period. (E) Retail minutes of use per customer per month represents the average monthly minutes that Alltel's customers use on both the Company's network and while roaming on other carriers' networks. (F) Service revenue operating margin is calculated by dividing operating income by service revenues.   Operating results from current businesses have been reconciled to operating results under GAAP on pages 3 and 4 of this earnings release.   ALLTEL CORPORATION CONSOLIDATED BALANCE SHEETS UNDER GAAP-Page 9 (In thousands)     ASSETS   September 30, December 31,   2006    2005    CURRENT ASSETS: Cash and short-term investments $ 3,085,999  $ 982,407  Accounts receivable (less allowance for doubtful accounts of $63,973 and $70,607, respectively) 835,121  761,841  Inventories 156,153  195,183  Prepaid expenses and other 86,127  92,096  Assets related to discontinued operations 71,509  6,983,565    Total current assets 4,234,909  9,015,092    Investments 367,367  356,397  Goodwill 7,805,643  7,117,778  Other intangibles 1,858,805  2,172,974      PROPERTY, PLANT AND EQUIPMENT: Land 294,443  280,334  Buildings and improvements 906,088  901,116  Operating plant and equipment 7,577,004  7,362,841  Information processing 1,025,244  1,126,458  Furniture and fixtures 165,567  143,618  Under construction 417,652  344,341    Total property, plant and equipment 10,385,998  10,158,708  Less accumulated depreciation 5,435,965  5,055,999    Net property, plant and equipment 4,950,033  5,102,709    Other assets 113,466  248,151        TOTAL ASSETS $ 19,330,223  $ 24,013,101    ALLTEL CORPORATION CONSOLIDATED BALANCE SHEETS UNDER GAAP-Page 9 (In thousands)     LIABILITIES AND SHAREHOLDERS' EQUITY   September 30, December 31,   2006    2005    CURRENT LIABILITIES: Current maturities of long-term debt $ 222,602  $ 182,984  Accounts payable 464,478  499,997  Advance payments and customer deposits 186,812  170,820  Accrued taxes 276,318  141,241  Accrued dividends 66,114  147,841  Accrued interest 56,140  98,307  Current deferred income taxes -  349,565  Other current liabilities 165,268  206,724  Liabilities related to discontinued operations 2,454  1,716,789    Total current liabilities 1,440,186  3,514,268          Long-term debt 2,711,554  5,544,145  Deferred income taxes 1,114,505  1,142,311  Other liabilities 706,352  796,940      SHAREHOLDERS' EQUITY: Preferred stock 258  278  Common stock 378,914  383,613  Additional paid-in capital 4,904,350  5,339,321  Unrealized holding gain on investments 38,028  22,297  Foreign currency translation adjustment -  (2,841) Retained earnings 8,036,076  7,272,769    Total shareholders' equity 13,357,626  13,015,437      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 19,330,223  $ 24,013,101    ALLTEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS UNDER GAAP-Page 10 (In thousands)   THREE MONTHS ENDED September 30, September 30,   2006    2005  Net Cash Provided from Operations: Net income $ 402,360  $ 361,165  Adjustments to reconcile net income to net cash provided from operations: Income from discontinued operations (237,089) (176,951) Depreciation and amortization expense 307,136  266,214  Provision for doubtful accounts 66,480  54,830  Non-cash portion of (gain) loss on exchange or disposal of assets and other 27,547  (30,557) Non-cash portion of integration expenses and other charges -  10,000  Change in deferred income taxes (14,050) 15,003  Other, net (1,985) 392  Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions: Accounts receivable (109,788) (107,710) Inventories (31,417) 12,407  Accounts payable 32,845  53,006  Other current liabilities (100,634) (118,246) Other, net (1,332) 33,129  Net cash provided from operations 340,073  372,682    Cash Flows from Investing Activities: Additions to property, plant and equipment (277,373) (227,120) Additions to capitalized software development costs (6,984) (11,037) Additions to investments (167) (75) Purchases of property, net of cash acquired (130) (912,067) Proceeds from the sale of assets -  -  Proceeds from the sale of investments 560  436  Proceeds from the return on investments 14,471  10,579  Other, net (1,429) 7,918  Net cash used in investing activities (271,052) (1,131,366)   Cash Flows from Financing Activities: Dividends on common and preferred stock (149,943) (124,449) Repayments of long-term debt (1,011,496) (2,202,811) Distributions to minority investors (7,415) (17,799) Repurchases of common stock (709,001) -  Excess tax benefits from stock option exercises 2,199  -  Long-term debt issued -  877,700  Conversion of convertible debt -  -  Common stock issued 102,895  43,477  Net cash used in financing activities (1,772,761) (1,423,882)   Net cash provided from discontinued operations 2,263,278  232,037    Effect of exchange rate changes on cash and short-term investments -  (1,492)   Increase (decrease) in cash and short-term investments 559,538  (1,952,021)   Cash and Short-term Investments: Beginning of the period 2,526,461  2,018,346  End of the period $ 3,085,999  $ 66,325    ALLTEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS UNDER GAAP-Page 10 (In thousands)   NINE MONTHS ENDED September 30, September 30,   2006    2005  Net Cash Provided from Operations: Net income $ 1,128,670  $ 1,076,230  Adjustments to reconcile net income to net cash provided from operations: Income from discontinued operations (540,786) (458,515) Depreciation and amortization expenses 916,012  699,266  Provision for doubtful accounts 179,873  131,098  Non-cash portion of (gain) loss on exchange or disposal of assets and other (80,026) (232,742) Non-cash portion of integration expenses and other charges -  10,000  Change in deferred income taxes 7,217  19,052  Other, net (6,318) 9,493  Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions: Accounts receivable (245,903) (217,567) Inventories 39,583  9,982  Accounts payable (35,312) (6,333) Other current liabilities (323,166) (44,727) Other, net (55,015) 7,378  Net cash provided from operations 984,829  1,002,615    Cash Flows from Investing Activities: Additions to property, plant and equipment (718,574) (681,310) Additions to capitalized software development costs (24,000) (35,375) Additions to investments (686) (950) Purchases of property, net of cash acquired (676,548) (1,135,799) Proceeds from the sale of assets -  36,162  Proceeds from the sale of investments 200,481  353,881  Proceeds from the return on investments 36,748  30,907  Other, net 10,466  19,640  Net cash used in investing activities (1,172,113) (1,412,844)   Cash Flows from Financing Activities: Dividends on common and preferred stock (447,095) (345,169) Repayments of long-term debt (1,012,226) (2,655,621) Distributions to minority investors (27,708) (44,808) Repurchases of common stock (709,001) -  Excess tax benefits from stock option exercises 5,408  -  Long-term debt issued -  927,700  Conversion of convertible debt (59,848) -  Common stock issued 191,479  1,442,790  Net cash used in financing activities (2,058,991) (675,108)   Net cash provided from discontinued operations 4,355,746  675,906    Effect of exchange rate changes on cash and short-term investments (5,879) (1,492)   Increase (decrease) in cash and short-term investments 2,103,592  (410,923)   Cash and Short-term Investments: Beginning of the period 982,407  477,248  End of the period $ 3,085,999  $ 66,325    ALLTEL CORPORATION RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 11 (In thousands)   THREE MONTHS ENDED September 30, September 30, 2006  2005    Net cash provided from operations $ 340,073  $ 372,682  Adjustments to reconcile to net income under GAAP: Income from discontinued operations 237,089  176,951  Depreciation and amortization expense (307,136) (266,214) Provision for doubtful accounts (66,480) (54,830) Non-cash portion of (loss) gain on exchange or disposal of assets and other (27,547) 30,557  Non-cash portion of integration expenses and other charges -  (10,000) Change in deferred income taxes 14,050  (15,003) Other non-cash changes, net 1,985  (392) Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions 210,326  127,414  Net income under GAAP 402,360  361,165  Adjustments to reconcile to net income from current businesses: Amortization expense related to acquired, finite-lived intangible assets, net of tax 23,941  20,021  Hurricane-related costs, net of insurance recoveries and tax -  3,002  Reversal of excess bad debt reserve related to Hurricane Katrina, net of tax -  -  Integration expenses and other charges, net of tax -  8,773  Loss (gain) on exchange or disposal of assets and other, net of tax 38,775  (18,681) Special dividend received on Fidelity National common stock, net of tax -  -  Compensation expense due to accelerated vesting of restricted stock, net of tax 2,213  -  Change in accounting for operating leases, net of tax -  -  Income from discontinued operations (237,089) (176,951) Net income from current businesses 230,200  197,329  Adjustments to reconcile to equity free cash flow from current businesses: Depreciation expense from current businesses 267,945  233,841  Capital expenditures (284,357) (238,157) Equity free cash flow from current businesses $ 213,788  $ 193,013    ALLTEL CORPORATION RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER GAAP TO RESULTS OF OPERATIONS FROM CURRENT BUSINESSES (NON-GAAP)-Page 11 (In thousands)     NINE MONTHS ENDED September 30, September 30,   2006    2005    Net cash provided from operations $ 984,829  $ 1,002,615  Adjustments to reconcile to net income under GAAP: Income from discontinued operations 540,786  458,515  Depreciation and amortization expense (916,012) (699,266) Provision for doubtful accounts (179,873) (131,098) Non-cash portion of (loss) gain on exchange or disposal of assets and other 80,026  232,742  Non-cash portion of integration expenses and other charges -  (10,000) Change in deferred income taxes (7,217) (19,052) Other non-cash changes, net 6,318  (9,493) Changes in operating assets and liabilities, net of the effects of acquisitions and dispositions 619,813  251,267  Net income under GAAP 1,128,670  1,076,230  Adjustments to reconcile to net income from current businesses: Amortization expense related to acquired, finite-lived intangible assets, net of tax 80,444  37,582  Hurricane-related costs, net of insurance recoveries and tax -  3,002  Reversal of excess bad debt reserve related to Hurricane Katrina, net of tax (1,366) -  Integration expenses and other charges, net of tax 6,589  8,773  Loss (gain) on exchange or disposal of assets and other, net of tax (68,798) (136,720) Special dividend received on Fidelity National common stock, net of tax -  (69,812) Compensation expense due to accelerated vesting of restricted stock, net of tax 2,213  -  Change in accounting for operating leases, net of tax -  12,009  Income from discontinued operations (540,786) (458,515) Net income from current businesses 606,966  472,549  Adjustments to reconcile to equity free cash flow from current businesses: Depreciation expense from current businesses 784,353  638,422  Capital expenditures (742,574) (716,685) Equity free cash flow from current businesses $ 648,745  $ 394,286