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Financial highlights
In 2004, we achieved fully diluted earnings per share of $3.39 under Generally Accepted Accounting Principles (GAAP) and $3.37 from current businesses, a 10 percent increase. This exceeded our earnings estimates established in early 2004 and is a tribute to the hard work and dedication of all our employees. We also generated net cash from operations of $2.5 billion and achieved an annual return on equity of 15 percent.
The ALLTEL board of directors increased our dividend for the 44th consecutive year, resulting in dividend payments of more than $450 million. We repurchased 11.2 million shares of our common stock for approximately $600 million. Collectively, we returned more than $1 billion of cash to our shareholders in 2004, while also maintaining one of the strongest balance sheets in our industry. Continuing our history of growth through strategic acquisitions, we completed two wireless transactions in 2004 and recently announced three transactions that are scheduled for completion in 2005, including our $6 billion merger with Western Wireless.
Operating highlights
In our wireless business we added slightly more than half a million net new customers, almost double the number we added in 2003. Including acquisitions, we added 603,000 wireless customers for an 8 percent increase in our overall customer base. We also increased our monthly average revenue per user (ARPU) by 1 percent to $48.13, while lowering our retail price per minute approximately 20 percent. The result of our strategy to lower prices and increase our customer base under contract, along with our efforts to improve service, was a 35 basis point reduction in post-pay churn to 1.74 percent, our lowest annual churn rate in six years.
In our wireline business we added more than 90,000 new broadband customers, bringing our total broadband customer base to nearly 250,000 by year-end — a penetration rate of 12 percent of addressable lines. This growth more than offset the loss of 86,000 traditional access lines and, combined with improved feature revenue and expense management, allowed us to increase operating income 5 percent year-over-year.
staying focused
While we remain committed to our strategy of delivering shareholder value by focusing on the access needs of our customers, we are keenly aware of the disrupting effects technology has had on all three elements of the telecommunications industry around us. In both the transport and switching sectors, these changes have exerted tremendous deflationary pressure on the incumbents and spawned new forms of competition and substitution. The same is now true for our core businesses, the wireless and wireline access businesses. Consequently, the recent merger of Cingular and AT&T Wireless and the proposed mergers of Sprint and Nextel, and SBC and AT&T are, in our view, rational responses by incumbent operators and likely not the last mergers in our industry. We expect the battle for the access relationship to continue as wireless, satellite, wireline and cable companies all pursue the same customers with increasingly similar offerings.
In this environment, we believe focusing on the customer is the best way to deliver tangible value. Our strength as a company lies in our passion to get it right or make it right for the people who choose to do business with us. In the near term, we will continue to improve and expand the services we provide to our customers while simultaneously maintaining our historical focus on the cost and effectiveness of our operations. Our goal is to produce industry-leading growth in earnings per share and cash flow generation, while maintaining the conservative balance sheet needed to maximize our strategic flexibility.
On course for growth
By focusing on the needs of our customers, we can maximize shareholder value from both our wireless and wireline businesses. In our wireless operations, we intend to grow our customer base and expand the type and quality of services they purchase from ALLTEL. Following completion of pending mergers in the wireless industry, including our merger with Western Wireless, ALLTEL will be the nation’s fifth-largest wireless service provider. We will have licenses covering approximately one quarter of the U.S. population and about half of the land mass. We will introduce our customer-centric retail model into several newly acquired markets during 2005 and anticipate that wireless will represent about 70 percent of our consolidated revenues by year-end, with about 90 percent to be derived from our retail operations. Given our commitment to continue investing in each of the major wireless technologies across our extended footprint, we will also be the leading independent roaming partner for each of the four largest wireless carriers in America.
From our wireline operations, we expect continued contributions to our operating cash flow and a further strengthening of our role as a broadband access provider. We will also maintain our financial and operational discipline as we continue to invest capital in the communities we have proudly served for many decades. Like all other local phone companies, we will face increasing challenges in growing operating income in the years ahead due to rapid competitive and technological change. Accordingly, in 2005 we will conduct a thorough evaluation of the operations and capital structure of this business. Our goal, as always, is to balance the needs of our customers and employees with value creation for our shareholders.
In addressing these future opportunities and challenges, we remain committed to our core principles. Our top priority is serving as responsible stewards of our shareholders’ investment in ALLTEL. We will continue investing your money wisely for long-term benefit and return the excess cash we generate through dividends and stock repurchases. In 2005, as always, we plan to invest in and improve our operations in order to expand and strengthen our relationship with our customers.
A stronger alliance
To this end, 2005 will see the continuation of our efforts to examine every process and policy from our customers’ perspective. Encompassing almost every aspect of our operations, this ongoing project has a very simple mission statement: “To treat customers with fairness and respect.” Its founding principle is to move ALLTEL from being an expert who knows what is best for the customer to being an ally who wants what is best for the customer. This gives us a real opportunity to achieve a brand position that I believe will form the strongest possible foundation for future profitability and growth.
In pursuing these goals, I am fortunate to be working with an outstanding team of senior officers and an exemplary Board of Directors who have steered ALLTEL through some of the toughest years this industry has seen, and who in 2004 were honored when Forbes Magazine selected ALLTEL as one of America’s 25 best-run companies. They, in turn, are supported by thousands of employees who have demonstrated they cannot only cope with the natural storms that swept through our markets in 2004, but also cope, and indeed thrive, in the storms of rapid change that are sweeping through our industry. To them, as always, I extend my heartfelt thanks and congratulations for a job well done in 2004.
Sincerely,  Scott T. Ford President and Chief Executive Officer January 24, 2005 |
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