10-K 1 alltel10k032008.htm FORM 10K OF ALLTEL CORPORATION alltel10k032008.htm
 
 

 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.   20549

FORM 10-K

T
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended  
December 31, 2007

or
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
 

Commission file number 1-4996
 
 
Alltel Corporation
(Exact name of registrant as specified in its charter)

Delaware
34-0868285
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

One Allied Drive, Little Rock, Arkansas
72202
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code
(501) 905-8000

Securities registered pursuant to Section 12(b) of the Act:

NONE
(Title of Class)


Securities registered pursuant to Section 12(g) of the Act:

NONE
(Title of Class)

Indicate by check mark if the registrant is a well-known season issuer, as defined in Rule 405 of the Securities Act.
£  YES   T  NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
£  YES   T  NO
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
T  YES   £  NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. T
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  £
Accelerated filer  £
Non-accelerated filer  T
Smaller reporting company  £
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
£  YES   T  NO

The Registrant is a privately-held corporation, and accordingly, none of its voting stock is held by non-affiliates.
As of February 29, 2008, the number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding were 454,000,122.

The Exhibit Index is located on pages 66 to 72.
 


 
 

 

Alltel Corporation
Form 10-K
Table of Contents

 
Page No.
Part I
Item 1.
  1
Item 1A.
12
Item 1B.
18
Item 2.
18
Item 3.
18
Item 4.
18
 
Part II
Item 5.
19
Item 6.
19
Item 7.
19
Item 7A.
19
Item 8.
19
Item 9.
19
Item 9A.
19
Item 9B.
20
 
Part III
Item 10.
20
Item 11.
22
Item 12.
57
Item 13.
58
Item 14.
59
 
Part IV
Item 15.
61


Alltel Corporation
Form 10-K


Forward-Looking Statements

Throughout this Form 10-K, Alltel Corporation and its subsidiaries are referred to as “Alltel”, “the Company”, “we”, “our”, or “us”.

This Form 10-K may include certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements.  These forward-looking statements are based on estimates, projections, beliefs and assumptions and are not guarantees of future events and results.  Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “will”, “projects”, and “should”, and variations of these words and similar expressions, are intended to identify these forward-looking statements.  Alltel disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise.

Actual future events and results may differ materially from those expressed in these forward-looking statements as a result of a number of important factors.  Representative examples of these factors include (without limitation) adverse changes in economic conditions in the markets served by Alltel; the extent, timing, and overall effects of competition in the communications business; material changes in the communications industry generally that could adversely affect vendor relationships with equipment and network suppliers and customer relationships with wholesale customers; 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; the risks associated with the integration of acquired businesses or any potential future acquired businesses; adverse changes in the terms and conditions of the wireless roaming agreements of Alltel; our ability to bid successfully for 700 MHz licenses; 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 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 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; potential challenges to regulatory authorizations and approvals related to the Merger; potential unforeseen failure of the Company’s technical infrastructure and systems; and those additional factors under the caption “Risk Factors” in Item 1A.

In addition to these factors, actual future performance, outcomes and results may differ materially because of other, more general factors including (without limitation) general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes.

Form 10-K, Part I

Item 1.  Business

General

Alltel is incorporated in the state of Delaware and maintains its corporate headquarters in Little Rock, Arkansas.  Alltel provides wireless voice and data communications services to approximately 12.8 million customers in 35 states.  In terms of both the number of customers served and revenues earned, Alltel is the fifth largest provider of wireless services in the United States.  On November 16, 2007, Alltel 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. (“Merger Sub”), 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.  Prior to consummation of the Merger, Alltel’s common stock was publicly traded on the New York Stock Exchange (“NYSE”) under the symbol “AT”.  Through consummation of the merger, Atlantis Holdings acquired all of Alltel’s outstanding equity interests.  On November 30, 2007, Alltel’s $1.00 par value common stock and Alltel’s $2.06 no par cumulative convertible preferred stock were deregistered under the Securities Exchange Act of 1934 (“Exchange Act”) and are no longer listed on any stock exchange or quotation system.


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

General (Continued)

The Company’s web site address is www.alltel.com.  Alltel files with, or furnishes to, the Securities and Exchange Commission (the “SEC”) annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as various other information.  Alltel makes available free of charge through the Investor Relations page of its web site its annual reports, quarterly reports and current reports, and all amendments to any of those reports, as soon as reasonably practicable after providing such reports to the SEC.

Overview of Wireless Operations

Alltel is the owner and operator of the nation’s largest wireless network as measured by square miles of coverage.  Alltel provides a wide array of wireless communication services to individual and business customers, primarily in non-major metropolitan and rural markets.  As of December 31, 2007, Alltel owns a majority interest in wireless operations in 116 Metropolitan Statistical Areas (“MSAs”), representing approximately 48.7 million potential customers or POPs, and a majority interest in 238 Rural Service Areas (“RSAs”), representing approximately 30.7 million POPs.  In addition, Alltel owns a minority interest in 23 other wireless markets, including the Chicago, Illinois and Houston, Texas MSAs.  As of December 31, 2007, Alltel’s penetration rate (number of customers as a percentage of the total population in the Company’s service areas) was 16.1 percent.  Alltel manages its wireless business as a single operating segment, wireless communications services.

During 2007, Alltel continued to upgrade its wireless network infrastructure and invest in state-of-the-art code division multiple access (“CDMA”) technology, including 1xRTT.  The Company ended 2007 with 1xRTT data coverage of approximately 96 percent of its POPs.  In addition, capital expenditures for 2007 included the Company’s additional investment in wireless high-speed Evolution Data Optimized (“EV-DO”) technology.  Through December 31, 2007, Alltel had expanded 1x-EVDO coverage to include approximately 76 percent of its POPs.  The Company also supplements its wireless service coverage area through roaming agreements with other wireless service providers that allow Alltel’s customers to obtain wireless services in those U.S. regions in which Alltel does not maintain a network presence.  We believe we are the leading independent roaming partner for the four national carriers in our markets.  Through these roaming agreements, the Company is able to offer its customers wireless services covering approximately 95 percent of the U.S. population.  Alltel continues to increase its network capacity and coverage area through new network construction, strategic acquisitions and affiliations with other wireless service providers.

Employees

At December 31, 2007, Alltel had 16,104 employees.  None of the Company’s employees are members of collective bargaining units.

Acquisitions Completed During the Past Five Years

On October 3, 2006, Alltel completed the purchase of Midwest Wireless Holdings of Mankato, Minnesota (“Midwest Wireless”) for $1,083.5 million in cash.  In this transaction, Alltel acquired wireless properties, including 850 MHz licenses and PCS spectrum covering approximately 2.0 million POPs, network assets and approximately 433,000 customers in select markets in southern Minnesota, northern and eastern Iowa, and western Wisconsin.  As a condition of receiving approval from the U.S. Department of Justice (“DOJ”) and the Federal Communications Commission (“FCC”) for this acquisition, Alltel agreed to divest certain wireless operations in four rural markets in Minnesota.  On April 3, 2007, Alltel completed the sale of these markets to Rural Cellular Corporation (“Rural Cellular”).

During the second quarter of 2006, Alltel purchased for $218.2 million in cash wireless properties covering approximately 727,000 POPs in Illinois, Texas and Virginia.

On March 16, 2006, Alltel purchased from Palmetto MobileNet, L.P. for $456.3 million in cash the remaining ownership interests in ten wireless partnerships that cover approximately 2.3 million POPs in North and South Carolina.  Prior to this transaction, Alltel owned a 50 percent interest in each of the ten wireless partnerships.


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

Acquisitions Completed During the Past Five Years (Continued)

On August 1, 2005, Alltel and Western Wireless Corporation (“Western Wireless”) completed the merger of Western Wireless with and into a wholly-owned subsidiary of Alltel.  In the merger, each share of Western Wireless common stock was exchanged for 0.535 shares of Alltel common stock and $9.25 in cash unless the shareholder made an all-cash election, in which case the shareholder received $40 in cash.  Western Wireless shareholders making an all-stock election were subject to proration and received approximately 0.539 shares of Alltel common stock and $9.18 in cash.  In the aggregate, Alltel issued approximately 54.3 million shares of stock valued at $3,430.4 million and paid approximately $933.4 million in cash.  Through its wholly-owned subsidiary that merged with Western Wireless, Alltel also assumed debt of approximately $2.1 billion.  As a result of the merger, Alltel added approximately 1.3 million domestic wireless customers in 19 mid-western and western states that were contiguous to the Company’s existing wireless properties. Alltel also added approximately 1.9 million international customers in eight countries.

As a condition of receiving approval for the merger from the DOJ and FCC, Alltel agreed to divest certain wireless operations of Western Wireless in 16 markets in Arkansas, Kansas and Nebraska, as well as the “Cellular One” brand.  On December 19, 2005, Alltel completed an exchange of wireless properties with United States Cellular Corporation (“U.S. Cellular”) that included a substantial portion of the divestiture requirements related to the merger.  Under terms of the agreement with U.S. Cellular, Alltel acquired approximately 89,000 customers in two RSA markets in Idaho that are adjacent to the Company’s existing operations and received $48.2 million in cash in exchange for 15 rural markets in Kansas and Nebraska owned by Western Wireless.  In December 2005, Alltel sold the Cellular One brand to Dobson Cellular Systems, Inc. and in March 2006, Alltel sold the remaining market in Arkansas to AT&T Mobility LLC (formerly known as Cingular Wireless LLC) (“AT&T”).  During the third and fourth quarters of 2005, Alltel completed the sale of Western Wireless’ international operations in the countries of Georgia, Ghana and Ireland for $570.3 million in cash.  During the second quarter of 2006, Alltel completed the sales of Western Wireless’ international operations in the countries of Austria, Bolivia, Côte d’Ivoire, Haiti, and Slovenia for approximately $1.7 billion in cash.

On April 15, 2005, Alltel and AT&T exchanged certain wireless assets.  Under the terms of the agreement, Alltel acquired former AT&T properties, including licenses, network assets and approximately 212,000 customers, in select markets in Kentucky, Oklahoma, Texas, Connecticut and Mississippi representing approximately 2.7 million POPs.  Alltel also acquired 20 MHz of spectrum and network assets in Kansas and wireless spectrum in several counties in Georgia and Texas.  In addition, Alltel and AT&T exchanged partnership interests, with AT&T receiving interests in markets in Kansas, Missouri and Texas, and Alltel receiving more ownership in majority-owned markets it manages in Michigan, Louisiana, and Ohio.  Alltel also paid AT&T approximately $153.0 million in cash.

On February 28, 2005, Alltel completed the purchase of wireless properties, representing approximately 966,000 POPs in Alabama and Georgia for $48.1 million in cash.  Through the completion of this transaction, Alltel added approximately 54,000 customers.

On December 1, 2004, Alltel completed the purchase of certain wireless assets from U.S. Cellular and TDS Telecommunications Corporation (“TDS Telecom”) for $148.2 million in cash, acquiring wireless properties with a potential service area covering approximately 595,000 POPs in Florida and Ohio.  The Company also purchased partnership interests in seven Alltel-operated markets in Georgia, Mississippi, North Carolina, Ohio and Wisconsin.  Prior to this acquisition, Alltel owned an approximate 42 percent interest in the Georgia market, with a potential service area covering approximately 227,000 POPs, and Alltel owned a majority interest in the Mississippi, North Carolina, Ohio and Wisconsin markets.  On November 2, 2004, the Company purchased for $35.6 million in cash wireless properties with a potential service area covering approximately 274,000 POPs in south Louisiana from SJI, a privately-held company.  Through these transactions, Alltel added approximately 92,000 wireless customers.

On August 29, 2003, the Company purchased for $22.8 million in cash a wireless property with a potential service area covering approximately 205,000 POPs in an Arizona RSA.  On February 28, 2003, the Company purchased for $64.6 million in cash wireless properties with a potential service area covering approximately 367,000 POPs in southern Mississippi, from Cellular XL Associates, a privately-held company.  On February 28, 2003, the Company also purchased for $60.0 million in cash the remaining ownership interest in wireless properties with a potential service area covering approximately 355,000 POPs in two Michigan RSAs.  Prior to this acquisition, Alltel owned approximately 49 percent of the Michigan properties.  Through the completion of these transactions, Alltel added approximately 147,000 customers and expanded its wireless operations into new markets in Arizona, Michigan and Mississippi.


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

Dispositions Completed During the Past Five Years

On July 17, 2006, Alltel completed the spin-off of the Company’s wireline telecommunications business to its stockholders and the merger of that wireline business with Valor Communications Group, Inc. (“Valor”).  Pursuant to the plan of distribution and immediately prior to the effective time of the merger with Valor described below, 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 to be distributed pro rata 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 certain Spinco debt securities, consisting of $1,746.0 million aggregate principal amount of 8.625 percent senior notes due 2016 (the “Spinco Securities”).  The Spinco Securities were issued at a discount, and accordingly, at the date of distribution to Alltel, the Spinco Securities had a carrying value of $1,703.2 million (par value of $1,746.0 million less discount of $42.8 million).  In connection with the spin-off, Alltel also transferred to Spinco $260.8 million of long-term debt that had been issued by the Company’s wireline subsidiaries.  Alltel exchanged the Spinco Securities received in the spin-off transaction for certain of its outstanding debt securities.

Immediately after the consummation of the spin off, Alltel Holding merged with and into Valor, with Valor continuing as the surviving corporation.  As a result of the merger, all of the issued and outstanding shares of Spinco common stock were converted into the right to receive an aggregate number of shares of common stock of Valor.  Valor issued in the aggregate approximately 403 million shares of common stock to Alltel stockholders pursuant to the merger, or 1.0339267 shares of Valor common stock for each share of Spinco common stock outstanding as of the effective time of the merger.  Upon completion of the merger, Alltel stockholders owned approximately 85 percent of the outstanding equity interests of the surviving corporation, which is named Windstream, and the stockholders of Valor owned the remaining 15 percent of such equity interests.

In December 2003, Alltel sold to Convergys Information Management Group (“Convergys”) for $37.0 million in cash certain assets and related liabilities, including selected customer contracts and capitalized software development costs, associated with the Company’s telecommunications information services operations.

On April 1, 2003, Alltel completed the sale of the financial services division of its information services subsidiary, ALLTEL Information Services, Inc., to Fidelity National Financial Inc. (“Fidelity National”), for $1.05 billion, received as $775.0 million in cash and $275.0 million in Fidelity National common stock.  As part of this transaction, Fidelity National acquired Alltel’s mortgage servicing, retail and wholesale banking and commercial lending operations, as well as the community/ regional bank division.

In January 2003, Alltel completed the termination of its business venture with Bradford & Bingley Group.  The business venture, ALLTEL Mortgage Solutions, Ltd., a majority-owned consolidated subsidiary of Alltel, was created in 2000 to provide mortgage administration and information technology products in the United Kingdom.

Product Offerings and Pricing

Service revenues are derived primarily from monthly access and airtime charges, roaming and long-distance charges and charges for data services, customer calling and other enhanced service features.  Prices of wireless services are not regulated by the FCC or by state regulatory commissions; however, as more fully discussed under the caption “Regulation” on page 8, states are permitted to regulate the terms and conditions of wireless services unrelated to either rates or market entry.

Alltel strives to address the needs of a variety of customer segments, stimulate usage, increase penetration, and improve customer retention rates through a diverse product offering and pricing strategy.  To accomplish these objectives, the Company offers competitive local, statewide, and national service plans.  These service plans include packages of daytime, night and weekend, and mobile-to-mobile minutes.  Customers can choose lower monthly access plans with fewer minutes, while customers needing more minutes can choose slightly higher access plans with more minutes.  Alltel also offers several family service plans, which give customers the option to share minutes by adding additional lines of service at discounted rates.  These family service plans help target the growing number of families that have integrated wireless into their lives.

Alltel provides several voice features to enhance its wireless calling plans, including call waiting, call forwarding, caller identification, three-way calling, no-answer transfer, directory assistance call completion and voicemail.  Depending on the customer’s selection of rate plan, some or all of these features are included as an extra value to the plan, with the expectation of extending customer life.


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

Product Offerings and Pricing (Continued)

The wireless industry has continued to offer higher recurring revenue plans which provide a large number of packaged minutes, unlimited night and weekend calling, long-distance within the United States, and free mobile-to-mobile calling as integral components of the plan.  Certain of the national carriers recently have begun to offer unlimited rate plans, which for a monthly rate of $99.99 per month, provide customers with the ability to call for free anyone in the United States including landline numbers.  Through reciprocal roaming agreements with other domestic wireless companies, Alltel is able to offer its customers competitively-priced rate plans that provide nationwide coverage.  These roaming agreements provide Alltel’s customers with the capability to use their wireless telephones while traveling outside the Company’s service areas.  In 2000, Alltel and Verizon Wireless signed a reciprocal roaming agreement, which expires in January 2010.  During 2006, Alltel signed a 10-year roaming agreement with Sprint Nextel Corporation (“Sprint”) and extended its Global System for Mobile Communications (“GSM”) roaming agreement with AT&T until 2012.  The Sprint roaming agreement provides for voice, 1xRTT and EV-DO roaming and expands on Alltel’s existing roaming relationship with Sprint, while the AT&T roaming agreement provides for expansion of GSM roaming services into areas outside of Alltel’s GSM footprint that had been acquired in the Western Wireless transaction.  These roaming agreements allow customers of each of the companies to roam on each other’s networks.

During 2006, Alltel launched “My Circle”, an offering that allows customers on select plans to choose ten numbers they want to call for free – any number, any network.  These numbers are shared by other lines on the account and can be changed daily by accessing an online account system.  Calls to and from these numbers, whether to a wireless or landline number, are free for the customer.  My Circle has helped differentiate Alltel in the market while allowing customers to have control over their wireless service.  Additionally, My Circle promotes customer loyalty.  Existing customers were allowed to take advantage of My Circle without having to extend their contracts.  In 2007, Alltel expanded its My Circle offerings to include voice and data bundles which allows customers to add data and email offerings in addition to voice and messaging on their My Circle plan.  Recently, Alltel also introduced different sizes of its My Circle offering that allow customers to choose five, ten or twenty numbers to call for free based on the price point of the rate plan they select.

The creation of voice/data bundle offerings have provided customers with additional choices and have allowed Alltel to increase the number of customers who utilize data services.  During 2007, Alltel continued to see significant growth in data revenues driven primarily by the expansion of its 1xEV-DO data network and wireless Internet services and the introduction of Smart Choice Packs.  Smart Choice Packs provide customers with smart phones (handset devices capable of combining voice functions with calendar, address book, email and Internet access) to choose from five voice and data bundle plans that include unlimited data, email and text messaging.  Alltel’s wireless Internet service provides customers with unlimited broadband access to the Internet using a mobile phone for tethering, a smart phone for Internet access, or a data card.  Alltel also experienced growth in its data revenues as a result of multiple data service offerings launched during 2007 to encourage data use by customers, including Axcess Ringbacks, Celltop, Jump Music, Family Finder, and voicemail-to-text services.  Axcess Ringbacks allows a customer to switch out the usual ringing sound a caller hears with thousands of different song choices.  Celltop offers customers an easier way to access, manage and organize a wide range of information already available via their cell phone.  Celltop is free-of-charge and currently offers 10 cells that come pre-installed and via download.  Each cell is a category-specific half screen comprised of graphics and text that provides shortcuts for users to navigate through information and applications including call log, weather, news, baseball, basketball, football, rodeo, stocks, text messaging inbox and ringtones.  Jump Music allows customers to transfer music files from their personal computers to their wireless phone.  Family Finder gives parents the ability to monitor the location of their children via their mobile phone or home personal computer.  Voicemail-to-text services instantly converts a voicemail message into text messages that are delivered to a customer’s phone and permits the user to retrieve and respond to the message without having to dial into voicemail.

Alltel offers prepaid voice service under the product name, “U Personalized Prepaid”.  Prepaid service offers an alternative to postpaid service.  Paying in advance for service allows customers to control their payment expenses and avoid overage charges, because prepaid service is only active until the funds on the account are depleted.  “U Personalized Prepaid” is sold in Alltel’s retail stores, authorized agent locations and Wal-Mart and Target stores.  U Personalized Prepaid allows customers to select from a family of customizable rate plans, including options to pay by the minute, the day or the month.  Alltel’s prepaid customers are also able to choose from many Axcess services, including text messaging, picture messaging and content downloads.  As of December 31, 2007, prepaid customers represented approximately 11 percent of Alltel’s wireless customer base.


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

Product Offerings and Pricing (Continued)

Primarily driven by improvements in data revenues and the effects of Universal Service Fund (“USF”) support received by Alltel as an Eligible Telecommunications Carrier (“ETC”), retail revenue per customer per month increased 3 percent to $48.40 in 2007, compared to $47.02 in 2006.  Maintaining low postpay customer churn rates (average monthly rate of customer disconnects) is a primary goal of the Company, particularly as customer growth rates slow due to increased competition and higher penetration levels in the marketplace.  Alltel experienced an average monthly postpay customer churn rate in its wireless service areas of 1.28 percent for the year ended December 31, 2007, compared to 1.57 percent and 1.77 percent for the years ended December 31, 2006 and 2005, respectively.  To improve customer retention, Alltel continues to upgrade its telecommunications network in order to offer expanded network coverage and quality and to provide enhanced service offerings to its customers.

Marketing

Alltel’s marketing strategy is to create and execute products, services and communications that drive growth while optimizing its marketing return on investment and minimizing customer churn rates.  The Company’s marketing campaigns emphasize that Alltel is a customer-focused communications company offering the nation’s largest wireless network—covering more of the country than any other wireless company.  The Company builds consumer awareness and promotes the Alltel brand by strategically advertising and differentiating relevant customer benefits, calling plans, price promotions and new products.  The Alltel brand works to establish an emotional connection with current and prospective customers by focusing on meeting the real needs of the customer.  The Company’s marketing campaigns target customer segments by usage patterns including individuals, families, and businesses.  Alltel uses segmented marketing to target new customers, especially those switching from other carriers, as well as retaining current customers.

Distribution

Alltel distributes its products and services in each of its markets through company-owned retail stores, company-owned retail kiosks, dealers and direct sales representatives.  Alltel also distributes products utilizing direct fulfillment to customers who shop online at Alltel’s web store or by phone through Alltel’s sales action call centers.  Using multiple distribution channels in each of its markets enables the Company to provide effective and extensive marketing of Alltel’s products and services and to reduce its reliance on any single distribution channel.

Alltel currently conducts its retail operations in more than 750 locations strategically located in neighborhood retail centers and shopping malls to capitalize on favorable demographics and retail traffic patterns.  The Company’s retail focus is to attract new customers through competitive phone and service offerings as well as to offer existing customers new and expanded services.

Alltel also contracts with large national retail stores to sell wireless products and services directly through their kiosks.  The Company utilizes retail sales representatives at kiosks in large retailers to take advantage of high traffic generated by the retailers.  Existing customers can purchase wireless telephone accessories, pay bills or inquire about Alltel’s services and features while in retail stores or at kiosks.  Through dedicated customer service at its retail stores and kiosks, the Company’s goal is to build customer loyalty and increase the retention rate of new and existing customers.

Alltel’s direct sales force focuses its efforts on selling and servicing larger business customers who have multiple lines of service.  Direct sales representatives are trained to sell to and service the demands of larger wireless customers who often have special service and equipment requirements.

The Company enters into dealer agreements with national and local retailers and discounters in its markets.  In exchange for a commission payment, these dealers solicit customers for the Company’s wireless services.  The commission payment is subject to charge-back provisions if the customer fails to maintain service for a specified period of time.  Similar to the Company’s retail stores and kiosks, the majority of Alltel’s dealers can also service existing customers by offering additional services, features, accessories, and taking bill payments.  This arrangement increases store traffic and sales volume for the dealers and provides a valuable source of new customers for the Company.  Alltel actively supports its dealers with regular training and promotional support, and dealers provide a valuable source of new customers for the Company.


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

Distribution (Continued)

Alltel provides consumers and business customers with the opportunity to shop for the majority of Alltel’s products and services by phone or the internet via Alltel’s web store, shopalltel.com.  Phones and accessories purchased through these distribution channels are delivered directly to the customer.  These channels provide customers with exclusive pricing where appropriate, and are able to respond quickly to market changes.

Competition

Substantial and increasing competition exists within the wireless communications industry.  Cellular, Personal Communications Services (“PCS”) and Enhanced Specialized Mobile Radio service providers may operate in the same geographic area, along with any number of resellers that buy bulk wireless services from one of the wireless providers and resell it to their customers.  PCS services generally consist of wireless two-way communications services for voice, data and other transmissions employing digital technology.  The entry of multiple competitors, including PCS providers, within the Company’s wireless markets has made it increasingly difficult to attract new customers and retain existing ones.  Competition for customers among wireless service providers is based primarily on the types of services and features offered, call quality, customer service, network coverage, and price.  Pricing competition has lead to the introduction of lower priced plans, unlimited calling plans, plans that allow customers to add additional units at attractive rates, plans that offer a higher number of bundled minutes for a flat monthly fee, or a combination of these features.  Alltel has responded to this growing competitive environment by capitalizing on its position as an incumbent wireless service provider by providing high capacity networks, strong distribution channels and superior customer service and by developing competitive rate plans and offering new products and services.  Alltel’s ability to compete successfully in the future will depend upon the Company’s ability to anticipate and respond to changes in technology, customer preferences, new service offerings, demographic trends, economic conditions, and competitors’ pricing strategies.

In the current wireless market, Alltel’s ability to compete also depends on its ability to offer regional and national calling plans to its customers.  As previously noted, the Company depends on roaming agreements with other wireless carriers to provide roaming capabilities in areas not covered by Alltel’s network.  These agreements are subject to renewal and termination if certain events occur, including if network quality standards are not maintained.  If the Company were unable to maintain or renew these agreements, Alltel’s ability to continue to provide competitive regional and nationwide wireless service to its customers could be impaired, which, in turn, would have an adverse effect on its operations.  (See further discussion regarding the potential effects of competition under “Risk Factors” in Item 1A).

Technology

Since inception, mobile wireless technologies have seen significant improvements in speed, capacity, quality, and reliability.  The first-generation of wireless technology was analog, while second-generation technologies employ digital signal transmission technologies.  Third-generation technologies, which are currently being deployed in the United States, provide even greater data transmission rates and allow the provisioning of enhanced data services.

Alltel has maintained its first-generation analog services as mandated by the FCC, however, that requirement expired on February 18, 2008, and Alltel will begin phasing out analog services on April 1, 2008.  Second-generation digital systems in the United States compress voice and data signals, enabling a single radio channel to simultaneously carry multiple signal transmissions.  Compared to analog, CDMA digital technology provides expanded channel capacity and the ability to offer advanced services and functionality.  In addition, digital technology improves call quality and offers improved customer call privacy.

Third-generation digital wireless technologies increase voice capacity, allow high-speed wireless packet data services, and are capable of supporting more complex data applications.  In 2007, Alltel continued to deploy CDMA 2000 1xRTT data services, bringing this third-generation coverage to 96 percent of Alltel’s POPs, up from 94 percent in 2006.  In addition, during 2007 the Company continued expanding its CDMA 2000 1xEV-DO coverage to include 76 percent of Alltel’s POPs, with approximately 90 percent of Alltel’s POPs covered as a result of EV-DO roaming agreements.  The Company will continue to deploy 1x-EVDO and expects to cover approximately 82 percent of its POPs with 1x-EVDO capability by the end of 2008.  EV-DO technologies provide a broadband wireless environment capable of supporting various leading edge wireless multimedia features and services along with enhanced speed on currently offered applications.  Beginning in 2008, the Company will upgrade selected markets to EV-DO Rev A, the next evolution of EV-DO technologies, which provides additional enhancements in data throughputs and multimedia features.


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

Regulation

Alltel is subject to regulation primarily by the FCC as a provider of Commercial Mobile Radio Services (“CMRS”).  The FCC’s regulatory oversight consists of ensuring that wireless service providers are complying with the Communications Act of 1934, as amended (the “Communications Act”), and the FCC’s regulations governing technical standards, outage reporting, spectrum usage, license requirements, market structure, universal service obligations, and consumer protection, including public safety issues like enhanced 911 emergency service (“E-911”), and the Communications Assistance for Law Enforcement Act (“CALEA”), accessibility requirements (including hearing aid capabilities), and environmental matters governing tower siting.  States are pre-empted under the Communications Act from regulatory oversight of wireless carriers’ market entry and retail rates, but they are entitled to address certain terms and conditions of service offered by wireless service providers.  The nation’s telecommunications laws continue to be reviewed with bills introduced in Congress, rulemaking proceedings pending at the FCC, and state regulatory and legislative initiatives, the effects of which could significantly impact Alltel’s wireless telecommunications business in the future.

Regulation – Wireless Spectrum

Alltel holds FCC authorizations for Cellular Radiotelephone Service (“CRS”), PCS, and paging services, as well as ancillary authorizations in the private radio and microwave services (collectively, the “FCC licenses”).  Generally, FCC licenses are issued initially for 10-year terms and may be renewed for additional 10-year terms upon FCC approval of the renewal application.  The Company has routinely sought and been granted renewal of its FCC licenses without contest and anticipates that future renewals of its FCC licenses will be granted.  Minority, non-controlling interests in an FCC license generally may be transferred or assigned without prior FCC approval, subject to compliance with the restrictions under the 96 Act on ownership interests held by foreign entities.  However, significant changes in ownership or control of an FCC license require prior approval by the FCC, and interested parties are afforded the opportunity to file comments or formal petitions contesting the transaction.  Alltel’s wireless licenses are subject to renewal and potential revocation in the event the Company violates applicable laws.  (See “Item 1A. Risk Factors” for additional information regarding Alltel’s wireless licenses.)

As of December 31, 2007, Alltel held 154 PCS licenses representing approximately 34 million POPs.  All of the Company’s PCS licenses are for 10 MHz-wide broadband PCS systems.  PCS licenses are granted for 10-year terms, and licensees must meet certain network build-out requirements established by the FCC to maintain the license in good standing.  In order to meet the FCC’s build-out requirements, Alltel must construct networks in each licensed market that provide coverage to at least 25 percent of the population in the market within five years after the initial grant of the license or, alternatively, make a showing of “substantial service” within that same five-year period.  Alltel met the FCC’s build out requirements for its PCS licenses.

Cellular systems operate on one of two 25 MHz-wide frequency blocks that the FCC allocates and licenses for CMRS service referred to as the A and B block cellular systems.  The FCC has eliminated the prohibition on the common ownership of both cellular licenses in the same market area, regardless of whether the market is rural or metropolitan.

The FCC has eliminated the categorical limits on the amount of CMRS spectrum that a licensee may hold.  The FCC now evaluates acquisitions and mergers on a case-by-case basis to determine whether such transactions will result in excessive concentration of wireless spectrum in a market.  The FCC has recently increased the spectrum threshold for evaluating excessive concentration of wireless spectrum in the context of acquisitions and mergers to 95 MHz.

The FCC conducts proceedings and auctions through which additional spectrum is made available for the provision of wireless communications services, including broadband services.  In 2003, the FCC issued an order adopting rules that allow CMRS licensees to lease spectrum to others.  The FCC further streamlined its rules to facilitate spectrum leasing in a subsequent order issued in 2004.  The FCC’s spectrum leasing rules revise the standards for transfer of control and provide new options for the lease of spectrum to providers of new and existing wireless technologies.  The FCC decisions provide increased flexibility to wireless companies with regard to obtaining additional spectrum through leases and retaining spectrum acquired in conjunction with wireless company acquisitions.  The FCC completed the auction for Advanced Wireless Services (“AWS”) spectrum and is currently holding the auction of spectrum in the 700 MHz band.  Alltel did not participate in the AWS spectrum auction, but the Company did file an application to participate in the 700 MHz auction.  The FCC also continues to consider various uses of unlicensed spectrum and sharing of currently allocated spectrum between various users.  The FCC has, for example, instituted a rulemaking on the use of “white spaces” in the television spectrum on an unlicensed basis.


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

Regulation – Wireless Spectrum (Continued)

Under FCC and Federal Aviation Administration (“FAA”) regulations, wireless carriers must comply with certain requirements regarding the siting, lighting and construction of transmitter towers and antennas.  In addition, federal, state, and local environmental regulations require carriers to comply with land use and radio frequency standards and require wireless facilities and handsets to comply with radio frequency radiation guidelines.

Regulation – Universal Service

To ensure affordable access to telecommunications services throughout the United States, the FCC and many state commissions administer universal service programs.  CMRS providers are required to contribute to the federal USF and are required to contribute to some state universal service funds.  The rules and methodology under which carriers contribute to the federal fund are the subject of an ongoing FCC rulemaking in which a change from the current interstate revenue-based system to some other system based upon line capacity or utilized numbers is being considered.  The safe-harbor percentage of a wireless carrier’s revenue subject to a federal universal service assessment is presently 37.1 percent.

CMRS providers, like Alltel, also are eligible to receive support from the federal USF if they obtain designation as an ETC.  CMRS provider ETCs receive support based upon the costs of the underlying incumbent local exchange carrier (“ILEC”) pursuant to the identical support rule.  The collection of USF fees and distribution of USF support are under continual review by federal and state legislative and regulatory bodies and are subject to audit by Universal Service Administration Corporation (“USAC”).  Certain of Alltel’s contributions to, and distributions from, the USF are the subject of on-going USAC audits.  The Company does not anticipate any material adverse findings resulting from these audits.

As a condition of the Merger, the FCC imposed an interim cap on the annual amount of USF support Alltel is entitled to receive as an ETC, measured as of June 30, 2007 on an annualized basis.  The interim cap is to remain in place until long-term USF reforms are adopted by the FCC addressing the appropriate distribution of support among ETCs or Alltel files and justifies support based upon its actual costs by providing specific quarterly cost data information that is measured against certain ILEC cost benchmarks.  Alltel would also have to agree to meet certain E-911 standards in advance of the current 2012 deadline in order to be relieved of the interim cap.

In considering long-term reform of the USF, the Federal-State Universal Service Joint Board (“Joint Board”) has recommended, among other things, to cap universal service support for all competitive eligible telecommunications carriers. The FCC is considering this recommendation and/or implementing other changes to the way USF is disbursed to program recipients.  Most recently the FCC issued three separate Notices of Proposed Rulemaking (“NPRM”) seeking comment on (i) the use of reverse auctions to determine the amount of USF support to provide to ETCs; (ii) the amount of support provided to competitive ETCs – tentatively rejecting the continued use of the identical support rule; and (iii) the previous recommendations of the Joint Board regarding support mechanisms for future focus on broadband services, traditional landline voice and mobility offerings under separate capped funds.  It is not possible to predict whether or when any of the NPRMs will be adopted.  It is also not possible at this time to predict the impact of the adoption of one or more of these recommendations on Alltel’s operations; however, implementation of some of the proposals could significantly affect the amount of USF the Company receives.

The Company is designated as an ETC and receives federal USF with respect to the following states: Alabama, Arkansas, California, Colorado, Florida, Georgia, Iowa, Kansas, Louisiana, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, South Dakota, Texas, Virginia, West Virginia, Wisconsin, and Wyoming. The Company also receives state universal service support for certain product offerings in Texas.

The Communications Act and FCC regulations require that universal service receipts be used to provision, maintain and upgrade the networks that provide the supported services.  Additionally, the Company accepted certain federal and state reporting requirements and other obligations as a condition of the ETC designations.  As of December 31, 2007, the Company believes that it is substantially compliant with the FCC regulations and with all of the federal and state reporting requirements and other obligations related to the receipt and collection of universal service support.


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

Regulation – E-911

Wireless service providers are required by the FCC to provide E-911 in a two-phased approach.  In phase one, carriers must, within six months after receiving a request from a phase one enabled Public Safety Answering Point (“PSAP”), deliver both the caller’s number and the location of the cell site to the PSAP serving the geographic territory from which the E-911 call originated.  In phase two, carriers that have opted for a handset-based solution must determine the location of the caller within 50 meters for 67 percent of the originated calls and 150 meters for 95 percent of the originated calls and deploy Automatic Location Identification (“ALI”) capable handsets according to specified thresholds, culminating with a requirement that carriers reach a 95 percent deployment level of ALI capable handsets within their subscriber base by December 31, 2005.  ALI capability permits more accurate identification of the caller’s location by PSAPs.  Furthermore, on April 1, 2005, the FCC issued an order imposing an E-911 obligation to deliver ALI data on carriers providing only roaming services where the carrier maintained no retail presence in that market.  In the acquired Western Wireless properties, Alltel operates a CDMA network with Phase II E-911 capability for its customers and a GSM network without Phase II capability for roamers in the same geographic area.  Alltel believes that its multi-technology operations with Phase II CDMA capability is distinguishable from the carrier providing roaming only services specified in the April 1, 2005 order.

Alltel began selling ALI-capable handsets in June 2002 and had complied with each of the intermediate handset deployment thresholds under the FCC’s order or otherwise obtained short-term relief from the FCC to facilitate certain acquisitions.  On September 30, 2005, due to the slowing pace of customer migration to ALI-capable handsets and lower than FCC forecasted churn, Alltel filed a request with the FCC for a waiver of the December 31, 2005 requirement to achieve 95 percent penetration of ALI-capable phones.  The request included an explanation of the Company’s compliance efforts to date and the expected date when it would meet the 95 percent penetration rate of ALI-capable handsets, June 30, 2007.  A number of other wireless carriers, including large national carriers and CTIA-The Wireless Association (“CTIA”) on behalf of CMRS carriers in general, also sought relief from the 95 percent requirement.  On January 5, 2007, the FCC issued a number of orders denying certain of the waivers of the E-911 handset deployment requirement, including the waiver filed by the Company.  The FCC’s order imposed reporting requirements on the Company and referred the issue of the Company’s compliance with the rules to the FCC’s Enforcement Bureau for consideration of further action.  The Company sought reconsideration of the order denying its waiver and subsequently met the 95 percent standard in May 2007.  However, on August 30, 2007, the FCC’s Enforcement Bureau issued a Notice of Apparent Liability for Forfeiture (“NAL”) against Alltel for its non-compliance with the 95 percent deployment deadline.  The fine proposed against the Company in the NAL of $1.0 million was paid in full by Alltel on October 1, 2007.

The FCC initiated a rulemaking in response to a petition for declaratory ruling seeking to specify the basis upon which CMRS carriers must measure the accuracy and reliability of the location data provided to PSAPs for E-911 Phase II service.  On September 11, 2007, the FCC adopted an order establishing new E-911 accuracy standards that require a carrier to meet the Phase II location accuracy standards within the geographic area served by individual PSAPs, and setting time benchmarks under which carriers must achieve Phase II location accuracy over progressively smaller geographic areas until individual PSAP level testing is met.  The FCC’s order remains subject to reconsideration and judicial appeal, the outcome of which cannot be foreseen by the Company.  Various carriers have sought a stay of the FCC’s order, and the Company has supported those requests.  On March 12, 2008, the FCC issued a six-month stay of the initial E-911 accuracy compliance standards, extending the deadline for compliance to March 11, 2009.  If the FCC’s order is upheld upon judicial appeal, the Company believes that compliance will present significant challenges to the industry as a whole from both a financial and technical perspective.

Regulation – CALEA

CALEA requires wireless and wireline carriers to ensure that their networks are capable of accommodating lawful intercept requests received from law enforcement agencies.  The FCC has imposed various obligations and compliance deadlines, including those for Voice Over Internet Protocol (“VOIP”) and Broadband Internet Access Services, with which Alltel has materially complied.  The FCC has under consideration a petition filed by law enforcement agencies alleging that the standards for packet data transmission for CDMA 2000 providers are deficient under CALEA.

Regulation – Inter-Carrier Compensation

Under the 96 Act and the FCC’s rules, CMRS providers are subject to certain requirements governing the exchange of telecommunications traffic with other carriers.  State public service commissions were granted jurisdiction to arbitrate disputes between CMRS providers and other carriers if they fail to reach agreement with respect to the rates and terms and conditions associated with the interconnection of their networks and exchange of telecommunications traffic.  The Company


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

Regulation – Inter-Carrier Compensation (Continued)

is in negotiation or arbitration with various carriers to establish the rates, terms and conditions of interconnection.  None of these are anticipated to significantly affect Alltel’s costs of providing service.  There is a pending rulemaking at the FCC addressing inter-carrier compensation, which could impact Alltel’s future costs to provide service; however it is not possible to predict whether or when that proceeding will conclude or what the result and impact will be.

Regulation – Telephone Numbers

In an effort to promote more efficient number utilization, the FCC adopted rules requiring CMRS providers to participate in a nationwide number conservation program known as “thousand block number pooling” in accordance with roll out schedules established by the FCC, and to the extent applicable, state-sponsored number pooling trials.  Under number pooling, carriers are required to return unused numbers in their inventory to a centrally administered pool and to accept assignment of new numbers in blocks of 1,000 instead of the 10,000 number blocks previously assigned.  The FCC exempted small and rural CMRS and local exchange carriers from the pooling requirement until such time as they implement local number portability in response to a specific request from another carrier or as otherwise determined by a state that has been granted numbering authority by the FCC.

CMRS providers in the top 100 markets were required by the FCC to implement by November 24, 2003 (and, for all other markets, by May 24, 2004, or six months after the carrier receives its first request to port, whichever is later) wireless local number portability (“WLNP”), which permits customers to retain their existing telephone number when switching to another telecommunications carrier.  The FCC has also required LECs in the top 100 markets, beginning on November 24, 2003 (and beginning on May 24, 2004 for all other markets), to port numbers to wireless carriers where the coverage area of the wireless carrier (i.e., the area in which the wireless carrier provides service) overlaps the geographic location of the rate center in which the wireline number is provisioned, provided that the wireless carrier maintains the rate center designation of the number.  An appeal by the United States Telecommunications Association (“USTA”), along with certain rural telephone companies, of the FCC’s November 10, 2003 decision before the U.S. Court of Appeals for the District of Columbia Circuit was denied, although the FCC's order with respect to the intermodal porting obligations of certain small carriers was stayed and remanded to the FCC for further proceedings to address its regulatory flexibility analysis.  In a recently issued order, the FCC resolved the remand to require small carriers to provide number portability.  Additionally, the FCC also applied local number portability requirements to VOIP providers and limited the number of validation elements that could be required by a carrier before porting out a former subscriber’s telephone number.

Regulation – Customer Billing

The FCC requires CMRS carriers to ensure that the descriptions of line items on customer bills are clear and not misleading, and has declared that any representation of a discretionary item on a bill as a tax or government-mandated charge is misleading.  The Federal Court of Appeals for the Eleventh Circuit (“Eleventh Circuit Court”) has vacated an order of the FCC preempting states from requiring or prohibiting the use of line items on CMRS carriers’ bills and remanded the decision to the FCC for further proceedings.  In February 2007, two CMRS providers filed a petition for a writ of certiorari to the United States Supreme Court (“Supreme Court”), seeking review of the Eleventh Circuit Court’s decision, which has been denied.  The FCC is also considering additional CMRS billing regulations and state preemption issues including whether early termination fees constitute a rate, and consequently, are beyond a state’s regulatory jurisdiction.

Regulation – Regulatory Treatment for Wireless Broadband

The FCC has determined that wireless broadband internet access services are information services under the Communications Act, and, as such, are subject to similar regulatory treatment as other broadband services such as fiber to the home, cable modem, Digital Subscriber Line (“DSL”), and broadband over power line services.  Certain interconnected broadband services, such as VOIP have been made subject to various FCC mandates including E-911, CALEA, Customer Proprietary Network Information (“CPNI”), contributions to the Telecommunications Relay Services, universal service contributions and access for the disabled, and will apply to Alltel to the extent it offers wireless VOIP services or should the FCC extend the various mandates to broadband services generally.  Further, the FCC has instituted an inquiry into whether regulatory intervention is necessary in the broadband market to ensure network neutrality as well as inquiries into various open access requirements on wireless carriers both with regard to devices and applications.  At the same time, various public interest groups are urging the FCC to determine that text messaging services are subject to common carrier regulation, or in the alternative, to impose anti-discrimination regulation should text messaging be found to be an information service.


Alltel Corporation
Form 10-K, Part I


Item 1.  Business

Regulation – CMRS Roaming

The FCC concluded a rulemaking proceeding in which it examined the potential rules to be applied to automatic roaming relationships between carriers. The FCC’s prior rules required only that manual roaming be provided by a carrier to any subscriber in good standing with his/her home market carrier.  Automatic roaming agreements, although common throughout the CMRS industry, are not currently mandated by the FCC.  The FCC’s new rules require automatic roaming agreements between carriers subject to certain limitations, but does not mandate price regulation.  The Company believes the FCC’s rules are generally consistent with its practice.  The new roaming regulations are subject to reconsideration requests which remain pending before the FCC.

Regulation – Customer Proprietary Network Information (“CPNI”)

The FCC concluded its rulemaking governing the protection of customer information and call records, including the adequacy of security measures employed by carriers to protect certain customer information.  New FCC rules, which took effect on December 8, 2007, specify new notice and customer authentication requirements as well as both certification requirements and limitations on the disclosure of CPNI to the carriers joint venture partners and contractors.  The new rules remain subject to judicial appeal and FCC reconsideration as well as Office of Management and Budget (“OMB”) approval under the Paperwork Reduction Act.

Regulation – Analog Sunset

Under current FCC rules, carriers are no longer required to offer analog wireless services after February 2008.  This analog “sunset” rule was the subject of petitions seeking extension of the analog requirement beyond 2008, which were denied by the FCC by order dated June 15, 2007.  Alltel plans to migrate its customers and network in phases to all digital service after the sunset of the rule.

Regulation – Warn Act/Emergency Alerts

On October 13, 2006, the Warn Act was signed into law, which provides that carriers may, within two years, voluntarily choose to provide emergency alerts as part of their service offerings under standards and protocols recommended by an advisory committee and adopted by the FCC.  The FCC convened the industry advisory committee required under the Warn Act to consider technical standards and operating protocols, which were approved by the committee on October 3, 2007.  The FCC has also initiated its formal rulemaking to adopt the technical requirements for the provision of emergency alerts under the Warn Act.  The rulemaking is pending before the FCC.

Regulation – Katrina Panel Recommendations

On June 8, 2007, the FCC released an order directing the Public Safety and Homeland Security Bureau to implement several of the recommendations of the panel convened to study network outages in the wake of Hurricane Katrina.  The FCC also adopted rules requiring wireless communications providers to have emergency back-up power for cell sites as well as to conduct studies and submit reports on the redundancy and resiliency of their E-911 networks.  The rules regarding back-up power were reconsidered by the FCC in an order issued October 4, 2007, and no new rules will go into effect until the OMB approves the information collection requirements.  The back-up power requirement has also been appealed to the U.S. Court of Appeals for the D.C. Circuit (“D.C. Circuit Court”).  On February 28, 2008, the D.C. Circuit Court granted a motion to stay the effectiveness of the FCC’s emergency back-up power rules, pending judicial review.  At this time, the Company is evaluating the impact of the new rules.

Item 1A.  Risk Factors

Alltel faces intense competition in our business that could reduce our market share or adversely affect our business, financial condition or results of operations.

Substantial and increasing competition exists in the wireless communications industry.  Multiple wireless service providers may operate in the same geographic area, along with any number of resellers that buy bulk wireless services from one of the wireless service providers and resell them to their customers.  In January 2003, the FCC lifted its rule imposing limits on the amount of spectrum that can be held by one provider in a specific market.  Competition may continue to increase as a result

Alltel Corporation
Form 10-K, Part I


Item 1A.  Risk Factors (Continued)

of recent consolidation in the communications industry and to the extent that there are other consolidations in the future involving Alltel’s competitors.  The 700 MHz spectrum auction could also provide carriers an opportunity to extend operations into new geographic areas, thereby increasing competition and adversely affecting roaming revenues.
 
A majority of Alltel’s wireless markets have multiple carriers.  The presence of multiple carriers within Alltel’s wireless markets combined with the effects of aggregate penetration of wireless services in all markets has made it increasingly difficult to attract new customers and retain existing ones. While the recent consolidation in the wireless industry may reduce the number of carriers in Alltel’s markets, the carriers resulting from such consolidation will be larger and potentially more effective in their ability to compete with Alltel.  Furthermore, the traditional dividing lines between long-distance, local, wireless, video and Internet services are increasingly becoming blurred as major providers are striving to provide integrated services in many of the markets Alltel serves.  As a result of increased competition, Alltel anticipates that the price per minute for wireless voice services will decline while costs to acquire customers, including, without limitation, handset subsidies and advertising and promotion costs, may increase.  Alltel’s ability to continue to compete effectively will depend upon its ability to anticipate and respond to changes in technology, customer preferences, new service offerings (including bundled offerings), demographic trends, economic conditions and competitors’ pricing strategies.  Failure to successfully market its products and services or to adequately and timely respond to competitive factors could reduce Alltel’s market share or adversely affect its business, financial condition or results of operations.

In the current wireless market, Alltel’s ability to compete also depends on its ability to offer regional and national calling plans to its customers.  Alltel relies on roaming agreements with other wireless carriers to provide roaming capabilities in areas not covered by its network.  These agreements are subject to renewal and termination if certain events occur, including, without limitation, if network standards are not maintained.  Alltel’s roaming agreements with Verizon Wireless, AT&T, T-Mobile USA and Sprint expire in 2010, 2012, 2013 and 2016, respectively.  If Alltel is unable to maintain or renew these agreements, its ability to continue to provide competitive regional and nationwide wireless service to its customers could be impaired, which, in turn, would have an adverse impact on its wireless operations.

Alltel is subject to government regulation of the telecommunications industry.

As a provider of wireless communication services, Alltel is subject to regulation primarily by the FCC.  The FCC’s regulatory oversight consists of ensuring that wireless service providers are complying with the Communications Act and governing technical standards, outage reporting, spectrum usage, license requirements, market structure, universal service obligations, and consumer protection, including public safety issues like E-911, CALEA and accessibility requirements (including hearing aid capabilities) and environmental matters governing tower siting.  The FCC has rules and regulations governing the construction and operation of wireless communications systems and licensing and technical standards for the provision of wireless communication services.  The FCC also regulates the terms under which ancillary services may be provided through wireless facilities.  While the FCC has authority to regulate rates for wireless services, it has so far refrained from doing so.  States are preempted under the Communications Act from regulatory oversight of wireless carriers’ market entry and retail rates, but they are permitted to regulate the terms and conditions of wireless services which are unrelated to either rates or market entry.  The FCC and various state commissions regulate Alltel’s status as an ETC, which qualifies it to receive support from the USF, a fund created by the FCC to, among other goals, promote the availability of quality services in non-urban areas at just, reasonable and affordable rates.  For the year ended December 31, 2007, Alltel received approximately $340 million in ETC revenue.

The rules and methodology under which carriers contribute to the federal fund are the subject of an ongoing FCC rulemaking proceeding in which a change from the current interstate revenue-based system to some other system based upon line capacity or utilized numbers is being considered. The Federal-State Universal Service Joint Board has recommended, among other things, to cap universal service support for competitive ETCs like Alltel, and the FCC is considering whether to adopt this recommendation and/or implement other changes to the way universal service funds are disbursed to program recipients.  Any such change could reduce the amount of ETC payments Alltel receives.  In addition, the FCC and FAA regulate the siting, lighting and construction of transmitter towers and antennae.  Tower siting and construction is also subject to state and local zoning as well as federal statutes regarding environmental and historic preservation.  The future costs to comply with all relevant regulations are to some extent unknown and could result in higher operating expenses in the future.  The nation’s telecommunications laws continue to be reviewed with bills introduced in Congress, rulemaking proceedings at the FCC and state regulatory and legislative initiatives, the effects of which could significantly impact our wireless telecommunications business in the future.  In addition, the adoption of new regulations or changes to existing regulations (such as those relating to the USF or Alltel’s designation as an ETC) could result in higher operating expenses or loss of revenue in the future.


Alltel Corporation
Form 10-K, Part I


Item 1A.  Risk Factors (Continued)

Rapid and significant changes in technology could require Alltel to significantly increase capital investment or could result in reduced demand for its services.

Technologies for wireless communications are rapidly changing as evidenced by the ongoing improvements in the capacity and quality of digital technology, the development and commercial acceptance of wireless data services, shorter development cycles for new products and enhancements and changes in end-user requirements and preferences.  Alltel’s deployment of third-generation digital technologies will require it to make additional capital investments.  Furthermore, in the future, competitors may seek to provide competing wireless telecommunications service through the use of developing technologies such as WiFi, WiMax and VOIP.  The Company cannot predict which of many possible future technologies, products or services will be important to maintain its competitive position or what expenditures the Company will be required to make in order to develop and provide these technologies, products or services.  The cost of implementing or competing against future technological innovations may be prohibitive to the Company, and we may lose customers if we fail to keep up with these changes.

CDMA-based technologies currently serve less than 20 percent of the wireless users worldwide, with GSM-based technologies being the predominant technology globally.  The GSM operators are deploying Universal Mobile Telecommunications System (“UMTS”) technology as they migrate to third-generation networks.  If the global market for CDMA-based technologies decreases further and leads to either higher prices or lower availability of infrastructure equipment or handsets supporting CDMA-based technologies, we could be forced to migrate to either GSM- or UMTS-based technologies to remain competitive.  This would require us to make extensive capital investments and potentially incur asset write-downs, which could adversely affect our business, financial condition or results of operations.

Other wireless service providers have announced their intent to deploy fourth generation network technologies, such as Long Term Evolution, or LTE.  There are risks that current or future versions of the wireless technologies and evolutionary path that Alltel has selected or may select may not be demanded by customers or provide the advantages that we expect.  In addition, there are risks that other wireless carriers on whom our customers roam may change their technology to other technologies that are incompatible with ours.  As a result, the ability of our and such other carriers' customers to roam on our respective wireless networks could be adversely affected.  If these risks materialize, our business, financial condition or results of operation could be materially adversely affected.

There can be no assurance that we will obtain licenses in the 700 MHz spectrum auction; if we do obtain licenses we may have to increase our capital expenditure.

The 700 MHz auction, or Auction 73, was completed by the FCC on March 18, 2008, however, the results of the auction have not been publicly released.  Alltel filed an application to participate in Auction 73; however, there can be no assurance that we will obtain any licenses in Auction 73. If we do not obtain any licenses, we could be placed at a competitive disadvantage or our business, financial condition or results of operations could be adversely affected. If we do obtain any licenses we may have to increase our capital expenditure in order to deploy any technologies that may develop for this spectrum and there can be no assurance that any such deployments will be successful.

We and our suppliers may be subject to claims of infringement regarding telecommunications technologies that are protected by patents and other intellectual property rights.

Telecommunications technologies are protected by a wide array of patents and other intellectual property rights.  As a result, third parties may assert infringement claims against us or our suppliers from time to time based on our or their general business operations, the equipment, software or services that we or they use or provide, or the specific operation of our wireless networks.  We generally have indemnification agreements with the manufacturers, licensors and suppliers who provide us with the equipment, software and technology that we use in our business to protect us against possible infringement claims, but we cannot guarantee that the financial condition of an indemnifying party will be sufficient to protect us against all losses associated with infringement claims.  Our suppliers may be subject to infringement claims that could prevent or make it more expensive for them to supply us with the products and services we require to run our business.  Moreover, we may be subject to claims that products, software and services provided by different vendors that we combine to offer our services may infringe the rights of third parties, and we may not have any indemnification from our vendors for these claims.  Whether or not an infringement claim against us or a supplier is valid or successful, it could adversely affect our business, financial condition or results of operations by diverting management attention, involving us in costly and time-consuming litigation, requiring us to enter into royalty or licensing agreements (which may not be available on acceptable terms, or at all), requiring us to redesign our business operations or systems to avoid claims of infringement or requiring us to purchase products and services at higher prices or from different suppliers.


Alltel Corporation
Form 10-K, Part I


Item 1A.  Risk Factors (Continued)

A high rate of customer churn would negatively impact our business.

Wireless providers, including us, experience varying rates of customer churn.  We believe that customers change wireless providers for many reasons, including call quality, service offerings, price, coverage area and customer service.  We expect to incur significant expenses to improve customer retention and reduce churn by subsidizing product upgrades and/or reducing pricing to match competitors’ initiatives, upgrading our network and providing improved customer service.  There can be no assurance that these efforts will be successful or that these efforts, if successful, will result in a lower rate of customer churn.  A high rate of churn would adversely affect our business, financial condition or results of operations because we would lose revenue and because the cost of adding a new customer, which generally includes a higher commission expense than incurred for retention of a current customer, is a significant factor in income and profitability for participants in the wireless industry.

System failures could result in higher churn, reduced revenue and increased costs and could harm our reputation.

Our technical infrastructure (including our network infrastructure and ancillary functions supporting our network such as billing and customer care) is vulnerable to damage or interruption from technology failures, power loss, floods, windstorms, fires, human error, terrorism, intentional wrongdoing or similar events.  Unanticipated problems at our facilities, system failures, hardware or software failures, computer viruses or hacker attacks could affect the quality of our services and cause service interruptions.  If any of the above events were to occur, we could experience higher churn, reduced revenues and increased costs, any of which could harm our reputation and have a material adverse effect on our business.

We rely heavily on third parties to provide specialized products and services; a failure by such parties to provide the agreed upon services could materially adversely affect our business, results of operations and financial condition.

We depend heavily on suppliers and contractors with specialized expertise in order for us to efficiently operate our business.  In the past, our suppliers, contractors and third-party retailers have not always performed at the levels we expect or at the levels required by their contracts.  If key suppliers, contractors or third-party retailers fail to comply with their contracts, fail to meet our performance expectations or refuse or are unable to supply us in the future, our business could be severely disrupted.  Generally, there are multiple sources for the types of products we purchase.  However, some suppliers, including software suppliers, are the exclusive sources of their specific products.  Because of the costs and time lags that can be associated with transitioning from one supplier to another, our business could be substantially disrupted if we were required to replace the products or services of one or more major suppliers with products or services from another source, especially if the replacement became necessary on short notice.  Any such disruption could have a material adverse affect on our business, results of operations and financial condition.

Our wireless licenses are subject to renewal and potential revocation in the event that we violate applicable laws.

Our existing wireless licenses are subject to renewal upon the expiration of the 10-year period for which they are granted.  The FCC will award a renewal expectancy to a wireless licensee that has provided substantial service during its past license term and has substantially complied with applicable FCC rules and policies and the Communications Act.  The FCC has routinely renewed our wireless licenses in the past.  However, the Communications Act provides that licenses may be revoked for cause and license renewal applications denied if the FCC determines that a renewal would not serve the public interest.  We have been the subject of recent enforcement actions that may be taken into consideration when the FCC reviews our license renewal applications.  The FCC rules establish the qualifications for competing applications and the standards to be applied in comparative hearings.  The FCC rules provide that a renewal applicant awarded a renewal expectancy is entitled to a significant preference in a comparative hearing against a competing application. Although we believe that our wireless licenses will be renewed in the ordinary course, we cannot provide assurance that the FCC will award us a renewal expectancy or renew our wireless licenses upon their expiration.  If any of our wireless licenses were revoked or not renewed upon expiration, we would not be permitted to provide services under that license, which could have a material adverse affect on our business, results of operations and financial condition.

Our costs could increase and our revenues could decrease due to perceived health risks from radio frequency emissions, especially if these perceived risks are substantiated.

Public perception of possible health risks associated with cellular and other wireless communications media could slow the growth of wireless companies, including us.  In particular, negative public perception of, and regulations regarding, these perceived health risks could slow the market acceptance of wireless communications services.  The potential connection between radio frequency emissions and certain negative health effects has been the subject of substantial study by the scientific community in recent years, and numerous health-related lawsuits have been filed against wireless carriers and


Alltel Corporation
Form 10-K, Part I


Item 1A.  Risk Factors (Continued)

wireless device manufacturers.  If a scientific study or court decision resulted in a finding that radio frequency emissions posed health risks to consumers, it could negatively impact the market for wireless services, which would adversely affect our business, financial conditions or results of operations.  We do not maintain any insurance with respect to these matters.
 
Declines in our operating performance could ultimately result in an impairment of our indefinite-lived assets, including goodwill, or our long-lived assets, including property and equipment.

We assess potential impairments to our long-lived assets, including property and equipment and certain intangible assets, when there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable.  We assess potential impairments on indefinite-lived intangible assets, including goodwill and wireless licenses annually, and when there is evidence that events or changes in circumstances indicate that an impairment condition may exist.  If we do not achieve our planned operating results, this may ultimately result in a non-cash impairment charge related to our long-lived and/or our indefinite-lived intangible assets.  A significant impairment loss could have a material adverse effect on our operating results and on the carrying value of our goodwill or wireless licenses and/or our long-lived assets on our balance sheet.

We may incur higher than anticipated inter-carrier compensation costs.

When our customers use our service to call customers of other carriers, we may be required under the current inter-carrier compensation scheme to pay the carrier that serves the called party.  Similarly, when a customer of another carrier calls one of our customers, that carrier may be required to pay us.  While we have been successful in negotiating agreements with other carriers that impose reasonable reciprocal compensation arrangements, some carriers attempt to unilaterally impose what we believe to be unreasonably high charges on us.  These inter-carrier charges are currently established generally by state commissioners applying FCC rules and orders.  The FCC is considering possible regulatory approaches to address this situation but we cannot provide assurance that any FCC rulings will be beneficial to us.  An adverse FCC or state action could result in carriers successfully collecting higher inter-carrier fees from us, which could adversely affect our business, financial condition or results of operations.

The FCC is considering making significant changes to its inter-carrier compensation scheme.  We cannot predict with any certainty the likely outcome of this FCC proceeding.  Some of the alternatives that are under consideration by the FCC could increase the interconnection costs we pay.  If we are unable to cost-effectively provide our products and services to customers, our competitive position and business prospects could be materially adversely affected.

As the wireless market matures, we must increasingly seek to attract customers from competitors and face increased credit risk from first time wireless customers.

We increasingly must attract a greater proportion of our new customers from our competitors’ existing customer bases rather than from first time purchasers of wireless services.  Any such higher market penetration also means that customers purchasing wireless services for the first time, on average, have a lower credit rating than existing wireless users, which generally results in a higher rate of involuntary churn and increased bad debt expense.

The loss of any of our senior management team or attrition among our buyers or key sales associates could adversely affect our business, financial condition or results of operations.

Our success in the wireless services telecommunications industry will continue to depend to a significant extent on our senior management team, buyers and key sales associates.  We rely on the experience of our senior management, who have specific knowledge relating to us and our industry that would be difficult to replace.  If we were to lose a portion of our buyers or key sales associates, our ability to benefit from long-standing relationships with key vendors or to provide relationship-based customer service may suffer.  We cannot provide any assurance that we will be able to retain our current senior management team, buyers or key sales associates.  The loss of any of these individuals could adversely affect our business, financial condition or results of operations.


Alltel Corporation
Form 10-K, Part I


Item 1A.  Risk Factors (Continued)

We could incur significant costs resulting from compliance with or liability under environmental, health and safety laws and regulations.
 
Our operations are subject to environmental laws and regulations relating to the protection of the environment and health and safety, including those governing the use, management and disposal of, and exposure to, hazardous materials, the cleanup of contamination and the emission of radio frequency. While we believe our current operations are in substantial compliance with such laws and regulations, our operations at owned and operated properties, including the current and historic use of hazardous materials, could require us to incur significant costs resulting from compliance with or violations of such laws and regulations, the imposition of cleanup obligations and third-party suits.

Alltel's substantial amount of debt could adversely affect our cash flow and our ability to operate our business and impair our ability to raise additional capital on favorable terms.
 
As of December 31, 2007, we had approximately $23.5 billion in long-term debt outstanding.  We also may incur additional long-term debt to meet future financing needs or to fund potential acquisitions, subject to certain restrictions under our existing credit facilities and indentures, which would increase our total debt.  Our substantial amount of debt could have negative consequences to our business.  For example, it could:

 
·
increase our vulnerability to general adverse economic, industry and competitive conditions;

 
·
require us to dedicate a substantial portion of cash flows from operations to interest and principal payments on outstanding debt, thereby limiting the availability of cash flow to fund future capital expenditures, working capital and other general corporate requirements;

 
·
limit our flexibility in planning for, or reacting to, changes in our business and the telecommunications industry;

 
·
place us at a competitive disadvantage compared with competitors that have less debt; and

 
·
limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity.

In addition, our ability to borrow funds in the future will depend in part on the satisfaction of the covenants in our credit facilities and other debt agreements.  If we are unable to satisfy the financial covenants contained in those agreements, or are unable to generate cash sufficient to make required debt payments, the lenders and other parties to those arrangements could accelerate the maturity of some or all of our outstanding indebtedness.

The terms of our new senior secured facilities, our new senior unsecured credit facilities, and the indenture governing the senior PIK toggle notes may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions.

The credit agreements governing our new senior secured credit facilities and our new senior unsecured credit facilities and the indenture governing the senior PIK toggle notes contain a number of restrictive covenants that impose significant operating and financial restrictions, including restrictions on our ability to engage in acts that may be in our best long-term interests.  Among other things, these covenants restrict our ability to:

 
·
incur additional debt or issue certain preferred shares;

 
·
pay dividends on or make other distributions in respect of our restricted subsidiaries’ capital stock or redeem, repurchase or retire our restricted subsidiaries’ capital stock or subordinated debt or make certain other restricted payments;

 
·
make certain investments;

 
·
engage in certain transactions with our affiliates;

 
·
sell certain assets, or consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

 
·
create liens on certain assets to secure debt; and

 
·
designate subsidiaries as restricted subsidiaries.


Alltel Corporation
Form 10-K, Part I


Item 1A.  Risk Factors (Continued)

Under the terms of the new senior secured credit facilities, we are required to maintain a specific senior secured leverage ratio.  Our ability to meet such ratio can be affected by events beyond our control, and we cannot assure you that we will meet such ratio.  A breach of any of the restrictive covenants or the senior secured leverage ratio would result in default under the new senior secured facilities.  If any such default occurs, the lenders under the new senior secured credit facilities may elect to declare all outstanding borrowings under such facilities, together with accrued interest and other fees, to be immediately due and payable, or enforce their security interest, any of which would also result in an event of default under the senior PIK toggle notes.  The lenders also have the right in these circumstances to terminate any commitments they have to provide further borrowings.

Item 1B.  Unresolved Staff Comments

No reportable information under this item.

Item 2.  Properties

Alltel’s corporate headquarters are located in Little Rock, Arkansas.  The Company maintains customer care call centers, retail store locations, switching centers, cell tower sites and data centers throughout the United States.  Certain of these facilities are leased.  All of the Company’s property is considered to be in good working condition and suitable for its intended purposes.  A summary of the Company’s gross investment in property, plant and equipment is presented below.
 
   
(Millions)
Land and improvements
  $ 251.1
Buildings and improvements
    836.4
Operating plant and equipment
    3,650.3
Information processing
    368.8
Furniture and fixtures
    99.8
Total
  $ 5,206.4

Operating plant and equipment consists of cell site towers, switching, controllers and other radio frequency equipment. Information processing plant consists of data processing equipment, purchased software and capitalized internal use software costs.

Item 3.  Legal Proceedings

The Company is involved in certain legal matters that are discussed in Note 17 to the audited consolidated financial statements included in this Annual Report on Form 10-K.  In addition to those matters, the Company is also a party to various legal proceedings arising from the ordinary course of business.  Although the ultimate resolution of these various proceedings cannot be determined at this time, management of Alltel does not believe that such proceedings, individually or in the aggregate, will have a material adverse effect on the future consolidated results of operations or financial condition of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted to the security holders for a vote during the fourth quarter of 2007.


Alltel Corporation
Form 10-K, Part II


Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Prior to the Merger, Alltel’s $1.00 par value common stock was listed on the NYSE under the ticker symbol “AT”.  Subsequent to the Merger, the Company’s common stock is privately-held and there is no established public trading market for the stock.  As of December 31, 2007, there were 71 holders of record of Alltel’s common stock.

As a privately-held company, Alltel does not expect to pay any cash dividends.  Prior to the Merger on November 16, 2007, Alltel declared and paid quarterly dividends.  During the first and second quarters of 2006, Alltel declared dividends of $.385 per share.  Following the spin-off of its wireline business on July 17, 2006, Alltel lowered its annual dividend rate from $1.54 to $.50 per share.  As a result, Alltel declared dividends of $.125 per share for the third and fourth quarters of 2006 and the first three quarters of 2007.  In addition, dividends declared for the third quarter of 2006 included a one-time dividend of $.048 per share related to the spin-off.

Item 6.  Selected Financial Data

For information pertaining to Selected Financial Data of Alltel, refer to pages F-33 and F-34 of the Financial Supplement, which is incorporated by reference herein.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

For information pertaining to Management’s Discussion and Analysis of Financial Condition and Results of Operations of Alltel, refer to pages F-2 to F-32 of the Financial Supplement, which is incorporated by reference herein.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

For information pertaining to the Company’s market risk disclosures, refer to pages F-27 and F-28 of the Financial Supplement, which is incorporated by reference herein.

Item 8.  Financial Statements and Supplementary Data

For information pertaining to Financial Statements and Supplementary Data of Alltel, refer to pages F-35 to F-87 of the Financial Supplement, which is incorporated by reference herein.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

No reportable information under this item.

Item 9A.  Controls and Procedures

(a)
Evaluation of disclosure controls and procedures.

The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods and include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including the company’s principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.  Alltel’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this annual report (the “Evaluation Date”).  Based on that evaluation, Alltel’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were effective.

(b)
Management’s report on internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting, which appears on page F-35 of the Financial Supplement, is incorporated by reference herein.


Alltel Corporation
Form 10-K, Part II


Item 9A.  Controls and Procedures (Continued)

(c)
Changes in internal control over financial reporting.

The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Alltel’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, have evaluated any changes in the Company’s internal control over financial reporting that occurred during the period covered by this annual report, and they have concluded that there were no changes to Alltel’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, Alltel’s internal control over financial reporting.

Item 9B.  Other Information

No reportable information under this item.

Form 10-K, Part III

Item 10.  Directors, Executive Officers and Corporate Governance

Directors

Following the Merger, our Board of Directors has seven members.  Our current directors serve for a one year term and until their respective successors are elected or until the earlier of their resignation, death or removal.  During 2007, there was one meeting of Alltel’s Board of Directors and the Board of Directors most recently held a meeting on January 25, 2008.

The following table sets forth information concerning each of our directors, who have served on our Board since November 16, 2007:

Name
Age
Position
Scott T. Ford
45
President, Chief Executive Officer and Director
James Coulter
48
Director
Gene Frantz
41
Director
Joseph H. Gleberman
50
Director
John W. Marren
45
Director
Leo F. Mullin
65
Director
Peter Perrone
40
Director

Scott Ford is Alltel’s President and Chief Executive Officer. Mr. Ford joined Alltel in 1996 as Executive Vice President. He was named President in 1997, assumed the additional duties of Chief Operating Officer in 1998 and was named Chief Executive Officer in 2002.  He previously worked in the investment banking divisions of Merrill Lynch and Stephens Inc. Mr. Ford previously served as the Chairman of the Cellular Telecommunications and Internet Association and as a director of the Little Rock Branch of the Federal Reserve Bank of St. Louis.  He currently serves on the board of directors for Tyson Foods, Inc.  He earned a BSBA in finance from the University of Arkansas.

James Coulter co-founded TPG Capital, L.P. in 1992 and has been Managing General Partner of TPG Capital, L.P. for more than eight years.  From 1986 to 1992, Mr. Coulter was a Vice President of Keystone, Inc.  From 1986 to 1988, Mr. Coulter was also associated with SPO Partners, an investment firm that focuses on public market and private minority investments.  Mr. Coulter also serves on the board of directors of Lenovo Group Limited, Neiman Marcus Inc., J. Crew Group, Inc., and Zhone Technologies, Inc.

Gene Frantz is a Partner at TPG Capital, L.P. specializing in the technology and telecom sectors.  Prior to joining TPG in 1999, Mr. Frantz worked at Oracle Corporation, most recently leading its venture capital effort, where he was responsible for making equity investments in software and internet companies.  Prior to joining Oracle, Mr. Frantz was a Vice President at Morgan Stanley, specializing in technology mergers and acquisitions spanning the semiconductor, data networking, software and internet sectors.  Mr. Frantz received an M.B.A. from Stanford Business School and a B.S. from the University of California, Berkeley.  Mr. Frantz serves on the boards of directors of Freescale Semiconductor, Inc. and SMART Modular Technologies, Inc.


Alltel Corporation
Form 10-K, Part III


Item 10.  Directors, Executive Officers and Corporate Governance (Continued)

Joseph Gleberman has been a Managing Director in Goldman, Sachs & Co.’s Principal Investment Area since 1993.  Prior to joining the Principal Investment Area, he served in a variety of capacities in the Investment Banking Division and the Mergers & Acquisitions Department at Goldman, Sachs & Co., which he joined in 1982.  Mr. Gleberman currently serves on the board of directors of Limelight Networks, Inc. and several private companies.  Mr. Gleberman received a B.A. and an M.A. from Yale University, and an M.B.A. from Stanford University.

John Marren is a Partner at TPG Capital L.P. and leads TPG’s technology team.  From 1996 through April 2000, Mr. Marren was Managing Director and Co-Head of Technology Investment Banking at Morgan Stanley.  From 1992 to 1996, he was Managing Director and Senior Semiconductor Analyst at Alex, Brown and Sons.  Mr. Marren is currently the Chairman of the board of directors of MEMC Electronic Materials, Inc. and serves on the boards of directors of Celerity Group Inc., Conexant Systems, Inc., Freescale Semiconductor Inc., Intergraph Corp, Isola Group S.à.r.l., ON Semiconductor Corporation, and SunGard Data Systems Inc.  Mr. Marren received his B.S. in Electrical Engineering from the University of California in Santa Barbara.

Leo Mullin is a Senior Advisor for Goldman Sachs Capital Partners L.P. on a part-time basis, and serves on the board of several private companies on behalf of Goldman Sachs Capital Partners L.P.  He is the former CEO of Delta Air Lines, having served in that position from 1997 through 2003.  Formerly, he has held the position of Vice Chairman of Commonwealth Edison, President and Chief Operating Officer of First Chicago Corporation, Chairman and CEO of American National Bank and Partner at McKinsey & Co.  He serves on the boards of directors of Johnson and Johnson Inc., and ACE Limited.  He is also a member of The Business Council.  Mr. Mullin received A.B., M.S. and M.B.A. degrees from Harvard University.

Peter Perrone was named Managing Director in Goldman, Sachs & Co.’s Principal Investment Area in 2007.  Prior to joining the Principal Investment Area in 2001, Mr. Perrone worked in the High Technology Group at Goldman, Sachs & Co., where he started as an Associate in 1999.  Mr. Perrone also currently serves on the boards of directors of Limelight Networks, Inc., Teneros, Inc., Tervela, Inc, Veoh Networks, Inc., and Woven Systems, Inc.  Mr. Perrone received a B.S. from Duke University, an M.S. from the Georgia Institute of Technology and an M.B.A. from the Massachusetts Institute of Technology, Sloan School of Management.

In previous years, our Board utilized director independence standards designed to satisfy the corporate governance requirements of the New York Stock Exchange (“NYSE”) when determining whether or not members of our Board were independent.  In connection with the Merger, the Sponsors agreed that they each would have proportional representation on our Board.  As a result, three of our current directors are affiliates of TPG Partners V, L.P. and three of our current directors are affiliates of GS Capital Partners VI Fund, L.P, while the remaining director is the President and Chief Executive Officer of the Company.  Taking into account the direct affiliation that each member of our Board has with TPG, Goldman Sachs or the Company, no current director of the Company is “independent” under the NYSE independence standards.

Prior to the Merger, the Board of Directors consisted of Scott T. Ford, John R. Belk, Peter A. Bridgman, William H. Crown, Joe Ford, Lawrence L. Gellerstedt, III, Emon A. Mahony, Jr., John P. McConnell, Josie C. Natori, John W. Stanton, Warren Stephens and Ronald Townsend and had four standing committees, each of which, except for the Executive Committee, was required by its charter to consist of no fewer than three directors, satisfying the applicable independence criteria of the NYSE.  The members of the Governance Committee were Lawrence L. Gellerstedt, III (Chairman), John R. Belk, William H. Crown and Josie C. Natori.  The members of the Audit Committee were Peter A. Bridgman (Chairman), William H. Crown, John P. McConnell and Ronald Townsend.  The members of the Compensation Committee were John P. McConnell (Chairman), John R. Belk, Peter A. Bridgman and Josie C. Natori.  On November 16, 2007, each member of these committees resigned such member’s position as a member of the Company’s Board of Directors as part of the Merger.

Currently, and as a result of the Merger, the Company’s Common Stock is held by a small number of stockholders, including the Sponsors and certain members of our senior management.  As noted above, the Sponsors have agreed to maintain proportional representation on the Company’s Board.  Prior to the Merger, our standing Governance Committee was principally responsible for identifying individuals qualified to become members of the Board and recommending to the Board director nominees for election by the Company’s stockholders at annual stockholders meetings.  As the Company is now privately-held and the members of the Board are selected by the Sponsors, the Board has deemed it appropriate for the Company not to have a standing Governance Committee at this time.  For the same reasons stated above, the Board has also rescinded previously adopted procedures by which Alltel’s stockholders were permitted to submit director candidates to the Governance Committee for its consideration.


Alltel Corporation
Form 10-K, Part III


Item 10.  Directors, Executive Officers and Corporate Governance (Continued)

Currently, the Board of Directors has three standing Committees, the Audit, Compensation and Executive Committees.  A brief description of the functions of the Audit, Compensation and Executive Committees is set forth below.

The Audit Committee, which is governed by its charter, did not conduct any meetings during the period November 16, 2007 to December 31, 2007.  The Audit Committee’s first meeting of 2008 was held on January 24, 2008.  The Audit Committee assists the Board of Directors in overseeing Alltel’s financial statements and financial reporting process, disclosure controls and procedures and systems of internal accounting and financial controls, independent auditors’ engagement, performance, independence and qualifications, internal audit function, legal and regulatory compliance and ethics programs established by Alltel management.  Members of the Audit Committee are Peter Perrone (Chairman), Gene Frantz and Joe Gleberman.  In light of our status as a closely held company and the absence of a public trading market for our common stock, the Board has not designated any member of the Audit Committee as an “audit committee financial expert”.

The Compensation Committee, which is also governed by its charter, did not conduct any meetings during the period November 16, 2007 to December 31, 2007.  The Compensation Committee’s first meeting of 2008 was held on January 24, 2008.  The Compensation Committee assists the Board in fulfilling its oversight responsibility related to the compensation programs, plans, and awards for Alltel’s directors and principal officers.  Members of the Compensation Committee are Gene Frantz (Chairman) and Joe Gleberman.

The Executive Committee has the power and authority to transact all business for the Company and on its behalf when the full Board of Directors is not in session and subject to certain limitations set forth in the Company’s bylaws.  Members of the Executive Committee are Scott Ford, Gene Frantz and Joe Gleberman.

Alltel’s code of ethics, referred to as the “Working with Integrity” guidelines, applies to all employees and members of the Board of Directors, and is available on our Internet website at www.alltel.com on the Investor Relations page.  Alltel will disclose in the corporate governance section of the Investor Relations page on its web site amendments and waivers with respect to the code of ethics that would otherwise be required to be disclosed under Item 5.05 of Form 8-K.  Alltel’s code of ethics is available free of charge upon request to Investor Relations, Alltel Corporation, One Allied Drive, Little Rock, Arkansas 72202.

Executive Officers

The executive officers of the Company (other than Mr. Ford who is listed above) are as follows:

Name
Age
Position
Jeffrey H. Fox
46
Chief Operating Officer
C.J. Duvall Jr.
49
Executive Vice President – Human Resources
Sharilyn S. Gasaway
39
Executive Vice President – Chief Financial Officer
Richard N. Massey
51
Chief Strategy Officer and General Counsel
Sue P. Mosley
49
Controller
Holly L. Larkin
35
Treasurer and Secretary

There are no arrangements between any officer and any other person pursuant to which he/she was selected as an officer.  Each of the officers named above has been employed by Alltel or a subsidiary for the last five years, except for Richard N. Massey.  Prior to joining Alltel in January 2006 and since 2000, Mr. Massey was a managing director at Stephens Inc. of Little Rock, Arkansas, heading up that firm’s information and communications practice and assisting clients with mergers and acquisitions.

Item 11.  Executive Compensation

Compensation Discussion and Analysis
 
The purpose of this Compensation Discussion and Analysis (“CD&A”) is to provide information about the philosophy and principles of Alltel Corporation (also referred to as “Alltel”, the “Company”, “we”, “our” and “us”) regarding its compensation program for our Chief Executive Officer, Chief Financial Officer, and the three other executive officers who were the most highly compensated in fiscal year 2007 (we refer to these individuals as our “Named Executive Officers”).


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

The following individuals are our Named Executive Officers for 2007:

 
·
Scott T. Ford, President and Chief Executive Officer

 
·
Sharilyn S. Gasaway, Executive Vice President and Chief Financial Officer

 
·
Jeffrey H. Fox, Chief Operating Officer

 
·
Richard N. Massey, Chief Strategy Officer and General Counsel

 
·
C.J. Duvall, Executive Vice President, Human Resources

Kevin L. Beebe, former Group President of Operations, is also considered a Named Executive Officer even though he was not an executive officer at the end of fiscal year 2007.  Mr. Beebe is included because he would have been among the three most highly compensated executive officers in 2007 had he not terminated employment prior to year end in connection with the acquisition of Alltel as further discussed below.

Background
 
At the beginning of 2007, the Compensation Committee of Alltel established the compensation levels for our Named Executive Officers.  Prior to the Merger, the Committee consisted of John P. McConnell, John R. Belk, Peter A. Bridgman and Josie C. Natori (the “Committee”) all independent directors under New York Stock Exchange listing requirements.  The decisions with respect to 2007 executive compensation were made by this prior Committee as part of Alltel’s annual compensation review and were based on Alltel’s compensation principles at that time.

On May 20, 2007, Alltel entered into a merger agreement providing for the acquisition of Alltel by TPG Partners V, L.P. and GS Capital Partners VI Fund, L.P. (also, the “Sponsors”).  We refer to this transaction as the “Merger.”  The Merger was completed on November 16, 2007.  As a result of the Merger, Alltel became a privately-held company controlled by TPG Partners V, L.P. and GS Capital Partners VI Fund, L.P., and our stock ceased to be listed on the New York Stock Exchange.  In anticipation of the Merger, the Committee approved certain modifications to the executive compensation programs for our Named Executive Officers to be effective on the date of Merger.  These modifications were generally intended to encourage our executives to remain employed with Alltel through and after the Merger. Upon completion of the Merger, our incumbent Board of Directors, including the members of the Committee, resigned, and new members of the Board were elected.  Alltel’s new Board of Directors adopted new equity incentive plans intended to immediately align the interests of the Named Executive Officers with our new stockholders and appointed a new Compensation Committee.  The post-Merger Compensation Committee consists of Gene Frantz and Joe Gleberman (“post-Merger Committee”) neither of which qualify as independent from the Company.  The following discussion provides a summary of our compensation principles and decisions for fiscal year 2007.

Objectives of the Executive Compensation Program

The objectives of Alltel’s executive compensation program both before and after the Merger have been to attract and retain qualified and talented executives, reward and encourage superior performance and effective management and appropriately focus executives on Alltel’s future success. At the Named Executive Officer level, there is greater emphasis on linking pay to performance so as to align the interests of the Named Executive Officers directly with those of our stockholders. Accordingly, a large portion of the compensation paid to our Named Executive Officers is contingent upon achieving specific operating results that are important to our future success.  The pay for performance elements included our cash-based incentives and equity-based compensation programs.

Setting Executive Compensation

Role of the Committee.  The Committee and post-merger Committee administer our executive compensation program.  In this role, they oversee Alltel’s compensation policies, administer its stock plans (including reviewing and approving all equity grants to executive officers) and annually review and approve (or, in the case of base salaries, recommend to the Board for approval) all compensation decisions relating to executive officers, including the Named Executive Officers.  The Committee and post-merger Committee also monitor the competitiveness of our retirement, severance and perquisite programs.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

Interaction Between Management and the Committee.  In making compensation decisions, both the Committee and post-Merger Committee receive input and assistance from our Chief Executive Officer and the Corporate Human Resources Department.  Specifically, the Committee consulted with Scott Ford, our Chief Executive Officer, in reviewing base salary, annual incentive compensation and long-term incentive compensation for each Named Executive Officer, except the Chief Executive Officer.  Mr. Ford advises the Committee on the performance of the other Named Executive Officers and assists the Committee in making annual adjustments to compensation levels and establishing appropriate goals for the executive officers with respect to performance compensation.  The Committee and post-Merger Committee can exercise their discretion in modifying any recommended adjustments or awards to executives.  Compensation decisions for the Chief Executive Officer are made by the Committee without consultation from Company management.

Role of Compensation Consultants.  The Committee was expressly authorized in its charter to retain independent advisors or experts at the Company’s expense.  The Committee retained Hewitt Associates, LLC (“Hewitt”), an independent consulting firm that specializes in gathering and analyzing compensation data for the purpose of structuring executive compensation programs, as its independent compensation consultant to assist the Committee on executive compensation related matters.  Hewitt provided analyses and recommendations that informed the Committee’s decisions, but it did not decide or approve any compensation actions.

Use of Benchmarking

The Committee engaged Hewitt as an outside advisor to the Committee on executive compensation related matters.  To assist the Committee in setting compensation for the Named Executive Officers, Hewitt provided the Committee with a competitive market analysis of Alltel’s executive compensation program.  In this analysis, Hewitt identified companies in the telecommunications industry or a similar industry that comprised an appropriate comparison group against which to benchmark Alltel’s compensation practices.  Hewitt reviewed the compensation data of the comparison group and adjusted its findings where appropriate to mitigate for differences in company size and to reflect the different responsibilities and experience levels of the executives considered in the comparison group.  For each Named Executive Officer, the Committee compared each element of total compensation against the size-adjusted value of the compensation of the executives at the comparison group companies with similar roles and responsibilities.  Generally, the Committee strived to structure compensation at approximately the 60th percentile of the applicable market data.  However, the Committee retained the flexibility to make adjustments in order to respond to market conditions, promotions, individual performance or other circumstances.

For the purposes of establishing 2007 executive compensation levels, Hewitt identified a comparison group in October 2006 which consisted of the following companies (the “Comparison Group”) against which the Committee believed Alltel competes for talent:

Alcatel USA, Inc.
Global Crossing Ltd.
AT& T Inc.
Motorola, Inc.
CenturyTel, Inc.
Qwest Communications International Inc.
Charter Communications, Inc.
Sprint Nextel Corporation
Cingular Wireless, LLC
Telephone & Data Systems, Inc.
Citizens Communications Company
Verizon Communications Inc.
Comcast Corporation
Cellco Partnership d/b/a Verizon Wireless
Embarq Corporation
 

For 2007, the mean total direct compensation (defined as base salary plus annual and long-term incentive compensation) for the Named Executive Officer group, excluding compensation received by them in connection with the Merger, was below the mean of the 60th percentile total direct compensation levels of corresponding officers of the Comparison Group.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

Executive Compensation Components
 
For the fiscal year ended December 31, 2007, the principal components of compensation for the Named Executive Officers were:

 
·
base salary;

 
·
annual incentive compensation;

 
·
long-term incentive compensation;

 
·
retirement and welfare benefits; and

 
·
perquisites.

Base Salary.  Base salary is the fundamental component of Alltel’s executive compensation program.  The Committee believes that providing a competitive base salary is essential to attracting and retaining qualified and valued executives.  Each of Alltel’s non-equity incentive programs for which amounts were earned in 2007 used base salary as a factor upon which it apportioned incentive awards, and the benefits provided through the Company’s qualified and non-qualified retirement programs are based in part on salary.  The Committee reviewed base salaries of Alltel’s executive officers annually and at the time of any promotion or other significant change in responsibilities.  Merit increases normally take place in January of each year.

In establishing officer base salaries in January 2007, the Committee considered the base salaries reported for corresponding officer positions of the Comparison Group, with focus on the company-size adjusted 50th percentile levels of the Comparison Group and the individual performance, experience and skill of each Alltel executive (without assigning a precise weighting to the foregoing components).  The Committee believed targeting the 50th percentile of the Comparison Group for base salary provided Alltel an appropriate level of competitiveness for obtaining and retaining qualified executives while serving stockholder interests by not overcompensating.  In assessing an executive’s individual performance, experience and skill, the Committee consulted with and received recommendations from the Chief Executive Officer.  Attention was also given to maintaining appropriate internal salary relationships among the Company’s executive officers, and to recognizing succession planning goals.  The Committee believed that as an executive progressed in his or her leadership role within the Company, base salary should become a smaller part of an executive’s total compensation.  After considering the evaluations, the recommendations, and the data from the Comparison Group analyses, and after making its own assessment of individual performance, the Committee established base salaries for each Named Executive Officer to recommend to the Board for approval.

For 2007, the mean base salary for the Named Executive Officers was slightly above the mean of the 50th percentile base salary levels of corresponding positions in the Comparison Group provided by Hewitt in their 2006 study.  Mr. Ford’s base salary was higher than the other Named Executive Officers to reflect the greater policy and decision making responsibility of the Chief Executive Officer position and the higher level of responsibility that he bears with respect to the Company’s strategic direction and financial and operating results.  Base salaries were not changed at the time of the Merger.

To maintain competitiveness and reflect changes in responsibility, the Committee increased the base salary of each Named Executive Officer in January 2007.  The salary increases for the Named Executive Officers generally were comparable to the increases for all of Alltel’s executive officers.  The table below discloses base salary percentage increase rates for each Named Executive Officer from fiscal year 2006 to 2007.

Named Executive Officer
 
Base Salary Percentage
Increase Fiscal Year 2007
Scott T. Ford
    28.2%
Sharilyn S. Gasaway
    7.5%
Jeffrey H. Fox
    3.5%
Richard N. Massey
    3.5%
C.J. Duvall
    3.5%
Kevin L. Beebe
    3.5%


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

The Named Executive Officers’ base salary rate increases reflected the Committee’s desire to maintain the competitiveness of compensation provided to senior management responsible for Company performance and who had successfully led the Company through the spin-off of the wireline operations in 2006.  Scott Ford’s salary was increased more than the other Named Executive Officers as the Hewitt analysis showed that his salary was significantly below competitive levels and because of his overall responsibility to the shareholders for the spin-off and successful launch of Windstream Corporation.  Sharilyn Gasaway’s increase also was above that of other Named Executive Officers due to the additional responsibilities she had taken on and successfully carried out following her promotion to Chief Financial Officer in 2006.

Annual Incentive Compensation.  Alltel’s Named Executive Officers had the opportunity to receive annual cash incentive payments based on Alltel’s performance relative to pre-established performance criteria set by the Committee in January 2007 under Alltel’s Performance Incentive Compensation Plan (the “Performance Incentive Compensation Plan”).  Annual incentive compensation has provided the Company important flexibility to reward executive officers for incremental improvement in Alltel’s performance year to year while aligning the interests between Alltel’s executives and its stockholders.

Under the Performance Incentive Compensation Plan, at the beginning of the 2007 fiscal year, the Committee established (i) the executives’ award opportunities as a percentage of base salary, (ii) the performance objectives, and (iii) the threshold, target and maximum performance incentive levels. The Committee established each Named Executive Officer’s target award opportunity level based on the executive’s direct impact on the success of the Company and by considering the total annual compensation (salary plus annual incentive compensation) for corresponding officer positions among Alltel’s Comparison Group, focusing on the 60th percentile of company-size adjusted levels.  By using the 60th percentile, achievement of objectives was encouraged and recognized while reflecting stockholders’ interests.

The Committee set the performance objectives after considering recommendations from the Chief Executive Officer and Alltel’s Corporate Human Resources Department.  Performance measures were recommended to the Committee based on the relative importance of performance on these measures to the overall performance of the Company.  For fiscal year 2007, the Committee selected earnings per share and net subscriber additions as the performance measures upon which annual cash bonuses were based. Earnings per share was chosen because prior to the Merger it was a key metric used by management to direct and measure the Company’s business performance and the basis upon which we communicated forward looking financial information to the investment community.  Net subscriber additions were chosen as a key measure of growth and of competitive success within our markets.  Moreover, both measures were clearly understood by both our executives and stockholders.  Finally, the Committee believed that incremental earnings per share growth accompanied by growth in our customer base would lead to the creation of long-term stockholder value.

After selecting the performance measures, the Committee determined the weight to assign to each measure and set threshold, target and maximum levels for each such measure after reviewing recommendations from the Chief Executive Officer and Alltel’s Corporate Human Resources Department.  In 2007, earnings per share was weighted 67% and net subscriber additions was weighted 33%.  Generally, no bonuses were to be paid under the Performance Incentive Compensation Plan unless the Company achieved the threshold amount for that measure.  The Committee could recommend to the full Board, however, that bonuses be awarded notwithstanding that the Company failed to achieve the threshold amount. Since inception of the Performance Incentive Compensation Plan, no bonuses have been paid for a measure unless the Company achieved the threshold performance measure amount.  If the target for a measure was achieved, participants in the plan received 100% of their target bonus opportunity.  If the Company’s results were greater than the threshold level but less than the target level, participants received a prorated percentage of their target bonus based on where results fell between the threshold and target levels, and if the Company’s results were greater than the target level but less than the maximum level, participants received a prorated percentage of their maximum bonus opportunity based on where actual results fell between the target and maximum levels. If the maximum level was achieved, participants in the plan received 100% of their maximum bonus opportunity.  Once payout levels were determined for each measure, the weights were applied to determine the final payment.  For fiscal year 2007, threshold earnings per share was set at $2.31, target earnings per share was set at $2.42 and maximum earnings per share was set at $2.53.  The respective objectives for net subscriber additions were 704,000, 768,000 and 832,000.  However, as a result of the Merger, awards under the Performance Incentive Compensation Plan were calculated and paid assuming maximum performance as required by the terms of the Named Executive Officers’ change in control agreements.


Alltel Corporation
Form 10-K, Part III

Item 11.  Executive Compensation (Continued)

The table below sets forth for each Named Executive Officer his or her respective incentive opportunities at the threshold, target and maximum levels, expressed as a percentage of base salary, for 2007 under the Performance Incentive Compensation Plan.  For the actual amount of annual incentive compensation paid to our Named Executive Officers for 2007, refer to the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 33.  For more information on the annual incentive compensation opportunities granted to the Named Executive Officers during 2007, refer to the Grants of Plan-Based Awards section on page 38.

   
  Annual Incentive Opportunity
As a Percentage of Base Salary
Named Executive Officer
 
Threshold
   
Target
    Maximum
Scott T. Ford
   
65%
     
130%
     
260%
Sharilyn S. Gasaway
   
40%
     
80%
     
160%
Jeffrey H. Fox
   
50%
     
100%
     
200%
Richard N. Massey
   
50%
     
100%
     
200%
C.J. Duvall
   
30%
     
60%
     
120%
Kevin L. Beebe
   
50%
 
   
100%
     
200%

There were no changes to award opportunities in 2007 as expressed as a percentage of salary.  As salaries increase however, this drives proportionate increases in annual incentive opportunities.  Any increase in award opportunity, as expressed as a percentage of salary, generally reflects significant changes in a Named Executive Officer’s responsibilities or a significant change in incentive levels among the Comparison Group.  All changes to incentive opportunities must be approved by the Compensation Committee and are generally recommended by the Chief Executive Officer.

Alltel Special Annual Bonus Plan.  Following completion of the Merger, Alltel established and implemented the Alltel Special Annual Bonus Plan which permits eligible full-time employees, including the Named Executive Officers other than Mr. Beebe, to share in certain payments by Alltel under the management services agreement it entered into on November 16, 2007 with Atlantis Holdings LLC, Alltel’s parent company, and with TPG Capital, L.P. and Goldman Sachs & Company.  Individual payments are determined in an amount subject to the Chief Executive Officer’s discretion and in consultation with the post-Merger Committee.  No compensation was paid to any Named Executive Officer under the Alltel Special Annual Bonus Plan in fiscal year 2007.

Pre-Merger Long-Term Incentive Compensation. Prior to the Merger, Alltel’s long-term incentive compensation program for executive officers included two components: (1) cash payments based on Alltel’s performance relative to pre-established long-term Company performance criteria under Alltel’s Long-Term Performance Incentive Compensation Plan (the “Long-Term Incentive Plan”), and (2) equity-based awards under Alltel’s equity incentive plans.  The Committee believed that Alltel’s long-term incentive compensation program focused the executive’s attention on long-term strategic planning objectives and promoted long-term stockholder value.  The Committee established long-term incentive levels based on the executive’s direct impact on the success of the Company, by considering recommendations by the Chief Executive Officer and Corporate Human Resources, and by considering the total direct compensation levels (defined as base salary plus short-term and long-term incentive compensation) for corresponding officer positions among companies in the Comparison Group, focusing on the 60th percentile of company-size adjusted levels.  The portion of long-term incentive awards delivered as cash was determined by placing approximately equal weight on long-term financial results as placed on short-term financial results through the annual incentive program.  By using the 60th percentile for performance-based pay, the Committee believed the Company encouraged and recognized the achievement of objectives while reflecting stockholder interests.

Cash Incentives

The cash-based portion of a Named Executive Officer’s long-term incentive opportunity prior to the Merger was payable under the Long-Term Incentive Plan. Under the Long-Term Incentive Plan, Alltel’s Named Executive Officers had the opportunity to receive cash incentive payments based on the extent to which the Company attained certain performance goals during a performance period, which the Committee historically defined as a three-year cycle.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

Performance measures were recommended to the Committee based on the relative importance of performance on these measures to the overall performance of the Company.  For the period 2007-2009, the Committee selected earnings per share as the performance measure upon which long-term cash incentives were based.  Earnings per share growth was a critical measure and determinant of both short-term and long-term success of the Company, as well as a key driver of stockholder value.  Together with the annual incentive performance measures, equal weight was given to short-term and long-term performance goals.

After selecting the performance measure, the Committee selected threshold, target and maximum performance levels upon which incentive payments were based after reviewing recommendations from the Chief Executive Officer and Alltel's Corporate Human Resources Department.  Generally, no incentives were paid under the Plan unless the Company achieved the threshold amount.  The Committee could recommend to the full Board, however, that incentives be awarded notwithstanding that the Company failed to achieve the threshold amount.  Since inception of the Plan, no incentives have been paid unless the Company achieved the threshold performance measure amount.  If the Company’s earnings per share was greater than the threshold level but less than the target level, participants received a prorated percentage of their target bonus opportunity based on where the actual earnings per share fell between the threshold and target levels.  If the target earnings per share amount was achieved, participants in the plan received their target bonus opportunity.  If the Company’s earnings per share was greater than the target level but less than the maximum level, participants received a prorated percentage of their maximum incentive opportunity based on where actual earnings per share fell between the target and maximum amounts.  If the maximum earnings per share was achieved, participants in the Plan received 100% of their maximum bonus opportunity.  Normally, these amounts were not subject to individual adjustment.

The Committee believed that the specific earnings per share objectives were consistent with the Committee’s philosophy for establishing performance objectives.  Generally the Committee established performance objectives at levels it believed (i) were attainable but not assured, (ii) will adequately motivate executives to achieve such objectives, and (iii) would reflect increasing value to stockholders over the long-term.  The earnings per share objectives for the 2007 – 2009 performance period for threshold, target and maximum performance levels were average three year earnings per share amounts of $2.43, $2.67 and $2.93, respectively.

The table below sets forth the threshold, target and maximum long-term incentive cash levels, expressed as a percentage of base salary, for awards received by each Named Executive Officer under the Long-Term Incentive Plan in 2007.

 
 
Long-Term Cash Opportunity for 2007 Awards as a Percentage of Base Salary
Named Executive Officer
 
Threshold
   
Target
   
Maximum
Scott T. Ford
    65.0%       130.0%       195.0%
Sharilyn S. Gasaway
    37.5%       75.0%       112.5%
Jeffrey H. Fox
    50.0%       100.0%       150.0%
Richard N. Massey
    50.0%       100.0%       150.0%
C.J. Duvall
    37.5%       75.0%       112.5%
Kevin L. Beebe
    50.0%       100.0%       150.0%

There were no changes to award opportunities in 2007 as expressed as a percentage of salary.  As salaries increase however, this drives proportionate increases in long-term incentive opportunities.  Any increase in award opportunity, as expressed as a percentage of salary, generally reflects significant changes in a Named Executive Officer’s responsibilities or a significant change in incentive levels among the Comparison Group.  All changes to incentive opportunities must be approved by the Compensation Committee and are generally recommended by the Chief Executive Officer.

In connection with the Merger and pursuant to the terms of each Named Executive Officer’s change in control agreement, the long-term incentive cash awards held by our Named Executive Officers for the 2005-2007, 2006-2008 and 2007-2009 performance cycles were paid-out.  These awards were calculated based on maximum performance, as defined in their change in control agreements and the resulting amounts were (i) paid in full for the 2005-2007 performance cycle and (ii) prorated for the 2006-2008 and 2007-2009 performance cycles based on the period of time between the first day of the applicable performance cycle and December 31, 2007.  For Mr. Beebe, proration of all three grants was based on employment through November 16, 2007.  For the amount of long-term incentive compensation paid to our Named Executive Officers during 2007, refer to the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 33.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

Equity Incentives

Prior to the Merger, Alltel maintained certain equity incentive plans that allowed Alltel’s executive officers and other management personnel to receive restricted stock, options to purchase shares of Common Stock and other equity incentives.  Historically, Alltel granted only options and restricted stock under its equity incentive plans.  The Committee believed that stock option and restricted stock awards encouraged and rewarded effective management, assisted in the retention of valued executive officers and aligned stockholder and management interests by focusing executives on creating long-term value.

For administrative reasons, Alltel generally granted equity awards twice a year: in January, to executives and management above a designated employee grade level, including the Named Executive Officers, and in April, to operations personnel.  All stock options were deemed granted on the date the Committee approved the grant, subject to the recipient promptly executing all required documentation, and were granted with a per share exercise price equal to the closing market price of a share of Alltel Common Stock on the date of grant.  Options granted in 2007 were scheduled to vest in five equal annual increments during which the executive officer continued to be employed by Alltel, beginning on the one-year anniversary of the grant date.  All restricted stock awards, which were issued only to executive officers and designated management personnel, including the Named Executive Officers, were deemed issued on the date the Committee approved the award, subject to the recipient promptly executing all required documentation. Alltel’s 2007 restricted stock awards were scheduled to vest in three equal annual installments during which the recipient continued to be employed by Alltel, beginning on the one-year anniversary of the grant date.  Dividends were paid on outstanding restricted shares.

The Committee determined the number of options and restricted stock awards granted to each Named Executive Officer by first considering the overall level of long-term incentive compensation, as described above under the caption “Pre-Merger Long-Term Incentive Compensation”, and then allocating that amount between long-term cash incentives and equity incentives.  For stock options and restricted stock awards, the Committee allocated the awards in a manner that generally provided for approximately equal values of each (for this purpose, options were ascribed value based on the Black Scholes option valuation methodology).  For the number of stock options and restricted shares granted to each Named Executive Officer in 2007, refer to the Grants of Plan-Based Awards Table on page 38.

Pursuant to the terms of the Merger agreement, each Alltel stock option that was outstanding immediately prior to closing of the Merger was canceled (other than the Roll-Over Options described below), with the holder of each option becoming entitled to receive for each share subject to the option, an amount in cash equal to the excess, if any, of $71.50 over the exercise price per share of stock subject to the option.  In addition, the Merger agreement provided that each Alltel restricted share outstanding immediately before closing vested and was converted at closing into the right to receive $71.50 in cash.

Post-Merger Equity Incentives.  Upon closing of the Merger, the post-Merger Board of Directors replaced Alltel’s existing equity incentive plans with the 2007 Stock Option Plan.  This plan provides for the award of stock options with respect to up to 6.5% of our stock on a fully diluted basis.  Following the Merger and the approval of the 2007 Stock Option Plan, Alltel granted time-based and performance-based options to certain executive officers, including the Name Executive Officers, other than Mr. Beebe. Approximately 69% of the equity awards granted to each executive vest based on employment continually through the vesting period by the optionee, and approximately 31% vest through the attainment of company-based performance goals. The time-based options vest over a 5-year period (vesting 20% on each anniversary of the grant date) and are intended to enable greater leverage in retaining seasoned executives critical to the future success of the Company.  The performance-based options seek to align the efforts and interests of the executives with those of the stockholders by rewarding executives if the value of the company measured by investment returns achieved by stockholders increases by certain threshold amounts. The event in which such a return is achieved occurs when control is transferred to new owners.  By requiring that options be held until such a transaction occurs, the options also encourage retention of critical executives until stockholders are able to realize these returns.  Each performance-based option vests and becomes exercisable (i) upon the Sponsors attaining a multiple of their equity investment calculated as cash or liquid securities received, divided by the purchase price and (ii) subject to the optionee’s employment on the date the performance condition is met.  Of the Performance Options granted to each Named Executive Officer in 2007, one-half require a return multiple of at least 1.5 and one-half require a return multiple of at least 2.0.

In addition, at the closing of the Merger, Messrs. Ford, Fox, Duvall, Massey and Ms. Gasaway, along with certain other members of Alltel’s management team, exchanged a portion of their vested stock options for fully vested options to purchase post-Merger shares of Alltel common stock in lieu of receiving the cash-out payments described above.  We refer to these options as the “Roll-Over Options.”  Refer to the Outstanding Equity Awards at Fiscal Year-End table on page 42 for more information about the Roll-Over Options and refer to the Grants of Plan Based Awards table for more information on the stock options granted under the 2007 Stock Option Plan.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

Retirement and Welfare Benefits.  The Company provides qualified and non-qualified retirement plan benefits and welfare benefits to the Named Executive Officers.  The Named Executive Officers participate in the same tax-qualified retirement and welfare plans as the Company’s other employees.  The Named Executive Officers also receive supplemental retirement and welfare benefits through the Company’s non-qualified deferred compensation arrangements.  The Company believes these benefits are a basic component in retaining executives.  Alltel’s retirement and welfare benefits include the following:

 
·
Qualified Retirement Plan Arrangements.  The Alltel 401(k) Plan and Alltel Profit Sharing Plan generally have been available to all employees of the Company.  The Alltel Pension Plan was generally available to all employees prior to the closing of participation on December 31, 2005.  These plans are qualified retirement plans that provide a retirement benefit on a tax-deferred basis and the Named Executive Officers are generally eligible to participate in these plans upon satisfying the plans’ eligibility requirements.  Neither the Alltel 401(k) Plan, Alltel Profit Sharing Plan nor Alltel Pension Plan were impacted as a result of the Merger and all of these plans remain generally available to all employees of the Company, including the Named Executive Officers.  The benefits provided to the Named Executive Officers through the Alltel Pension Plan are described in the Pension Benefits Table on page 45.

 
·
Non-qualified Retirement Plan Arrangements.  Messrs. Ford, Fox, Massey, Beebe and Ms. Gasaway are eligible for non-qualified executive retirement benefits through the Alltel Benefit Restoration Plan and prior to the Merger were eligible for benefits under the Alltel Supplemental Executive Retirement Plan (the “SERP”).  These benefits were intended to provide retirement benefits on a tax-deferred basis in excess of the benefits provided under the Company’s qualified retirement plans and an additional health and welfare benefit, as described on page 47 under the caption “Alltel Corporation Supplemental Executive Retirement Plan.”  The Committee targeted these non-qualified retirement benefits at between 40% and 60% of the executive’s current compensation at retirement when combined with other retirement benefits.  The Committee believed that such an overall retirement benefit was appropriate and necessary to assist in assuring the retention of the Named Executive Officers.  Following the Merger, the Named Executive Officers remain eligible for non-qualified retirement benefits through the Alltel Benefit Restoration Plan.  For a description of these benefits and how they were treated in connection with the Merger, please see the narrative to the Pension Benefits table on page 46.  The SERP was terminated in connection with the Merger and a cash payment was made to participants for consideration of their accrued benefit as if they had terminated employment after the change in control.  This payment was made to encourage executives to remain employed in their current positions and to remove any incentive they might have for greater benefits by terminating after a change in control.

 
·
Deferred Compensation Arrangements.  The Named Executive Officers are eligible to defer a portion of their current compensation under a non-qualified deferred compensation arrangement provided by the Company.  This benefit is provided to the Company’s executive management personnel, including the Named Executive Officers, and is intended to allow participants to defer compensation in excess of Internal Revenue Service (“IRS”) deferral limits under qualified deferred compensation arrangements.  These benefits are provided through the Alltel Benefit Restoration Plan and the Alltel 1998 Management Deferred Compensation Plan, which are further described in the narrative to the Non-Qualified Deferred Compensation table on page 47.  The Chief Executive Officer designates participants for the 1998 Deferred Compensation Plan, while the Chief Executive Officer or the Committee may designate participants for the Benefit Restoration Plan.  Additionally, Mr. Beebe earned interest on frozen accruals credited to the 360 Communications Deferred Compensation Plan and the 360 Communications Retirement Savings Restoration Plan.

 
·
Employee Stock Purchase Plan. Prior to the Merger, the Alltel Employee Stock Purchase Plan was generally available to all employees.  This plan provided employees with an opportunity to acquire an ownership interest in the Company through a payroll deduction program.  The Alltel Employee Stock Purchase Plan was terminated in connection with the Merger.

 
·
Active and Post-Retirement Health Benefits.  While they are active employees, the Company provides the Named Executive Officers a $3,000 annual supplemental health benefit, in addition to the same health and welfare benefits provided generally to all other employees of the Company at the same general premium rates as charged to such employees.  Prior to the Merger, the Company provided a post-retirement health and welfare benefit under the Supplemental Executive Retirement Plan, as described on page 47.  The Supplemental Executive Retirement Plan was terminated in connection with the Merger, and the health and welfare benefit was converted into a right to receive a cash equivalent payment upon termination based on an actuarial calculation described on page 51.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

Perquisites.  Alltel provides executive officers with other benefits, such as physical exam expense reimbursement, and aircraft utilization that the Company believes is reasonable.  Under the Company policy only certain Named Executive Officers are generally permitted to utilize the aircraft.  The Company believes that these personal benefits provide executives with benefits comparable to those they would receive at other companies within the Comparison Group and that are necessary for Alltel to remain competitive in the marketplace.  The Committee periodically reviews the personal benefits provided to the executive officers.  The perquisites offered to Alltel’s Named Executive Officers are described in the “All Other Compensation” column of the Summary Compensation Table on page 33.

Agreements
 
The only Named Executive Officer subject to an individual employment agreement with Alltel, prior to the Merger, was Scott Ford, Alltel’s President and Chief Executive Officer.  Mr. Ford’s agreement would have expired on December 31, 2007, however, it was replaced by a new employment agreement at the time of the Merger.  Each of the other Named Executive Officers, including Mr. Ford and other executives of the Company, were parties to Change in Control Agreements (described below) prior to the Merger.

Change in Control Agreements.  Prior to the Merger, Alltel had entered into change in control agreements with its executive officers and other key employees, including the Named Executive Officers, under which each such officer and employee was entitled to certain payments and benefits if a change in control occurred and the executive’s employment terminated under certain circumstances following such change in control.  The Change in Control Agreements were entered into in May 2006, and were executed prior to the Merger and prior to any discussion of the Merger.  The Change in Control Agreements were designed to encourage the executive’s full attention and dedication to the Company in the event of any threatened or pending change in control.  The Change in Control Agreements for Messrs. Ford, Fox, Massey, Beebe and Ms. Gasaway had ten-year terms, and the Change in Control Agreement for Mr. Duvall had a three-year term, all of which extended for an additional year on each anniversary of the first day of their terms, unless Alltel provided an executive with notice not to extend.  If a change in control occurred during the term of a Change in Control Agreement, then the Agreement became operative for a fixed three-year period and superseded any other employment agreement between the executive and Alltel.  Each Change in Control Agreement provided generally that the executive’s terms and conditions of employment, including position, location, and compensation and benefits, would not be adversely changed during the three-year period after a change in control. If the executive’s employment was terminated by the Company other than for “cause”, death or disability or if the executive resigned for “good reason,” as defined in the Change in Control Agreements, during this three-year period or upon certain terminations in connection with or in anticipation of a change in control or if Messrs. Ford, Fox, Massey, Beebe and Ms. Gasaway resigned for any reason during the 90-day period commencing on the first anniversary of a change in control, the executive generally would be entitled to receive the payments and benefits provided for under the Change in Control Agreements.  The benefit levels generally included a multiple of base salary and incentives, along with continued welfare benefits.  Because base salary and incentives are included in a Named Executive Officer’s severance benefit calculation under the Change in Control Agreements, adjustments to a Named Executive Officer’s base salary and annual incentives had an impact on the amount of his or her severance benefits under the Change in Control Agreements.

The Change in Control Agreements allowed a Named Executive Officer to receive all payments and benefits under the Agreement if a qualifying termination occurred within three years, including a voluntary termination for Good Reason (or, generally, for any reason within the 90 day period following the first anniversary of the change in control).  However, the Committee determined that the continued leadership of these executives was deemed critical to the future success of the Company.  Accordingly, the Committee decided to encourage each Named Executive Officer to remain employed by the Company by paying each of them an amount similar to, but less than, the full value they would have received if his or her employment had terminated.  These payments were made in exchange for cancellation of the Change in Control Agreements and adoption of new employment agreements (described below) which contain fewer entitlements and require new contractual provisions such as non-compete clauses.  The amount paid to each executive is reported under the “Total Payments in Connection with Merger” column of the Merger Related Payments Table and in the Summary Compensation Table under the “All Other Compensation” column.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

Employment Agreements. In connection with the Merger, Alltel entered into employment agreements with certain executives, including Messrs. Ford, Fox, Massey and Duvall and Ms. Gasaway.  These agreements were intended to provide the Named Executive Officers with certain protections regarding the terms of their employment while maintaining the Company’s interest in utilizing confidentiality, non-compete and non-solicitation covenants.  Pursuant to these employment agreements, each Named Executive Officer will continue to act in positions of equal or greater responsibility than he or she held during the six months preceding the closing date of the Merger for a three-year employment term renewable annually unless terminated by either party in accordance with the terms of their respective employment agreement. Each Named Executive Officer is entitled to the same annual base salary as that in effect during the six months preceding the closing date of the Merger, together with annual salary reviews.  The Named Executive Officers also will be eligible to participate in the Alltel Performance Incentive Compensation Plan which entitles each executive to a cash bonus based on achievement of performance targets in a given year and will participate in the Alltel Special Annual Bonus Plan, which permits the executives to share in certain payments by Alltel under the management agreement with the sponsors. Executives will also be eligible to receive grants under the 2007 Stock Option Plan.  The employment agreements contain non-compete and confidentiality covenants.  The non-compete period is two years.

If, after November 16, 2010, an executive is terminated by Alltel without “cause” or if any of the executives terminate his or her employment for “good reason,” each as defined in the relevant employment agreement, the executive will be entitled to a lump-sum payment equal to his or her base salary for the remainder of the employment term (or one year if greater) and a pro rata portion of any bonuses he or she has earned. “Cause” is defined generally as a willful failure of the executive to perform their duties or as engaging in illegal or gross misconduct that damages the Company.  “Good reason” generally means a material reduction in the executive’s duties, failure by the Company to compensate or provide benefits for the executive, moving the executive’s primary work location more than 50 miles from their immediate work location or resignation for any reason during the 90 day period following the first anniversary of a change in control for Messrs. Ford, Fox, Massey and Ms. Gasaway.  The employment agreements and 2007 Stock Option Plan also include provisions triggered by a qualifying change in control, including accelerated vesting of options in certain circumstances.  A qualifying change in control generally means the acquisition of 50% of the combined voting power of the Company, a merger where 50% of the combined voting power changes hands or a stockholder vote approving the liquidation or dissolution of the Company.  Employment Agreements are further described in the “Employment Agreements” section on page 49.

Management Stockholder Agreements. The Named Executive Officers are also party to management stockholder agreements containing the agreements among the parties with respect to restrictions on the transfer of shares, including tag-along and drag-along rights and registration rights.  Alltel has a right allowing the Company, upon termination of a Named Executive Officer for any reason, to purchase shares from the Named Executive Officer at fair market value or, if such executive is terminated for Cause or violates the non-compete provision of the agreement following a voluntary resignation with Good Reason, at the lesser of fair market value and the price paid, if any, by such executive for all shares acquired through the exercise of options, with the exception of shares received upon the exercise of Roll-Over Options.  In addition to the foregoing and in certain circumstances, which are in the Company’s control, Mr. Scott Ford has a put right which allows him, upon termination due to death or disability, termination without Cause or termination for Good Reason, to sell his shares and vested equity options to Alltel at fair market value.

The Named Executive Officers have the right to request a re-determination of the fair market value of the Company’s shares with respect to the exercise of call rights and put rights if the otherwise applicable determination of fair market value was more than six months prior to the date upon which such right is exercised.

Section 162(m) Philosophy

Prior to the Merger, Alltel was subject to Section 162(m) of the Internal Revenue Code.  Section 162(m) generally does not allow a deduction for annual compensation in excess of $1,000,000 paid to certain officers.  This limitation on deductibility does not apply to certain compensation, including compensation that is payable solely on account of the attainment of one or more performance goals.  Accordingly, prior to the Merger, the Committee’s policy was generally to preserve the federal income tax deductibility of compensation and to qualify eligible compensation for the performance-based exception in order for compensation not to be subject to the limitation on deductibility imposed by Section 162(m) of the Internal Revenue Code.  As a result, the Committee structured the annual cash-based incentive, the long-term cash-based incentive and the stock options to comply with the performance-based compensation exception.  Because Section 162(m) no longer applies to the Company as a result of the Merger, all compensation attributable to 2007 is fully deductible for federal income tax purposes.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

Compensation of Named Executive Officers
Summary Compensation

The following table shows the compensation earned in 2006 and 2007 by Alltel’s Chief Executive Officer and Chief Financial Officer, Alltel’s other three most highly compensated executive officers who were serving as executive officers on December 31, 2007, and Mr. Beebe, who would have been among the three most highly compensated executive officers in 2007 had he not terminated employment in connection with the Merger.  These individuals are referred to collectively in this Annual Report on Form 10-K as our Named Executive Officers.
 
 
Summary Compensation Table
 
Name and
Principal Position
 
Year
 
Salary
   
Bonus (1)
   
Stock
Awards (2)
   
Option Awards (3)
   
Non-Equity Incentive Plan Compensation
(4)
   
Change in Pension Value and Non-Qualified Deferred Compensation Earnings (5)
   
All Other Compensation
(6)
   
Total
Scott T. Ford  
2007
  $ 1,228,846       --     $ 2,981,063     $ 6,628,073     $ 7,488,975     $ 758,082     $ 108,638,494     $ 127,723,533
President and Chief Executive Officer  
2006
  $ 971,154       --     $ 1,770,188     $ 2,549,885     $ 4,427,692     $ 3,036,720     $ 1,360,131     $ 14,115,770
Sharilyn S. Gasaway  
2007
  $ 395,615     $ 1,000,000     $ 1,478,475     $ 2,407,663     $ 1,408,666     $ 4,715     $ 29,990,600     $ 36,685,734
Executive Vice President – Chief Financial Officer  
2006
  $ 362,693       --     $ 588,125     $ 404,898     $ 743,677     $ 415,117     $ 358,390     $ 2,872,900
Jeffrey H. Fox  
2007
  $ 696,808       --     $ 2,168,046     $ 4,181,201     $ 3,168,381     $ 722,703     $ 48,416,546     $ 59,353,685
Chief Operating Officer  
2006
  $ 673,077       --     $ 1,296,754     $ 1,492,383     $ 2,151,441     $ 2,528,683     $ 912,580     $ 9,054,918
Richard N. Massey  
2007
  $ 516,154     $ 1,000,000     $ 1,591,988     $ 2,114,110     $ 2,343,338     $ 20,490     $ 43,276,363     $ 50,862,443
Chief Strategy Officer and General Counsel  
2006
  $ 490,384       ---     $ 474,872     $ 218,222     $ 1,625,913     $ 9,852     $ 280,430     $ 3,099,673
 C. J. Duvall,
Executive Vice President, Human Resources
 
2007
  $ 325,177     $ 1,000,000     $ 1,035,481     $ 1,035,384     $ 1,011,613     $ 171,887     $ 4,999,280     $ 9,578,822
Kevin L. Beebe  
2007
  $ 629,632       --     $ 2,168,046     $ 3,944,371     $ 2,797,057     $ 90,932     $ 51,411,004     $ 61,041,042
Group President  
2006
      $ 673,077       --     $ 1,296,754     $ 1,492,383     $ 2,151,441     $ 2,186,557     $ 942,961     $ 8,743,173

(1)
This column shows bonuses awarded to Ms. Gasaway, Mr. Massey, and Mr. Duvall at the discretion of the Chief Executive Officer for the officers’ efforts in connection with the Merger.

(2)
This column shows the aggregate dollar amount of compensation cost recognized for financial statement reporting purposes for the fiscal years ending December 31, 2007 and 2006, in accordance with Statement of Financial Accounting Standards No. 123 Revised, “Share-Based Payment” (“FAS 123R”), for outstanding restricted stock awards (whether or not granted during the year), except that the amount presented for 2006 differs from the actual amount of compensation expense recognized for financial statement purposes in that it has not been reduced for estimated pre-vest forfeitures. Because the awards have vesting conditions, compensation costs are recognized over multiple years.  As a result, the amount in this column reflects the FAS 123R compensation costs of awards granted in years prior to 2007 and in 2007.  Additional assumptions made in the valuation and expensing of these awards are set forth in footnote 9 to Alltel’s Consolidated Financial Statements for the fiscal year ended December 31, 2007, included in this Annual Report on Form 10-K.

For information on the restricted stock awards granted to the Named Executive Officers in 2007, refer to the Grants of Plan-Based Awards table on page 38. For information on restricted stock awards held by the Named Executive Officers that were cashed-out in connection with the Merger, refer to the Option Exercises and Stock Vested table on page 43.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

(3)
This column shows the aggregate dollar amount of compensation cost recognized for financial statement reporting purposes for the fiscal years ending December 31, 2007 and 2006, in accordance with FAS 123R, for outstanding stock option awards (whether or not granted during the year), except that the amount presented for 2006 differs from the actual amount of compensation expense recognized for financial statement purposes in that it has not been reduced for estimated pre-vest forfeitures. Because the awards have vesting conditions, compensation costs are recognized over multiple years.   As a result, the amount in this column reflects the FAS 123R compensation cost of awards granted in years prior to 2007 and in 2007.  Additional assumptions made in the valuation and expensing of these awards are set forth in footnote 9 to Alltel’s Consolidated Financial Statements for the fiscal year ended December 31, 2007, included in this Annual Report on Form 10-K.

For information on options granted to the Named Executive Officers in 2007, refer to the Grants of Plan-Based Awards table on page 38.  For information on the number of outstanding options held by the Named Executive Officers as of December 31, 2007, refer to the Outstanding Equity Awards at Fiscal Year-End table on page 42.  For information on options held by the Named Executive Officers that were cashed-out in connection with the Merger, refer to the Option Exercises and Stock Vested table on page 43.

(4)
This column shows the sum of the awards earned by our Named Executive Officers during 2007 and 2006 under the Performance Incentive Compensation Plan and the Long-Term Performance Incentive Compensation Plan.  The separate values for each award for 2007 are set forth in the table below.  For information on the structure of Alltel’s Performance Incentive Compensation Plan and Long-Term Performance Incentive Compensation Plan, refer to the Compensation Discussion and Analysis portion of this report, beginning on page 22.

Name
 
Annual Incentive Cash Award (i)
   
Long-Term Incentive Cash Award for the 2005-2007 Cycle (ii)
   
Long-Term Incentive Cash Award for the 2006-2008 Cycle (ii)
   
Long-Term Incentive Cash Award for the 2007-2009 Cycle (ii)
   
Total
Scott T. Ford
  $ 3,250,000     $ 1,720,225     $ 1,679,167     $ 839,583     $ 7,488,975
Sharilyn S. Gasaway
  $ 636,400     $ 309,882     $ 308,256     $ 154,128     $ 1,408,666
Jeffrey H. Fox
  $ 1,397,250     $ 688,262     $ 721,913     $ 360,956     $ 3,168,381
Richard N. Massey
  $ 1,035,000     $ 506,213     $ 534,750     $ 267,375     $ 2,343,338
C. J. Duvall
  $ 391,230     $ 241,379     $ 252,669     $ 126,335     $ 1,011,613
Kevin L. Beebe
  $ 1,224,986     $ 610,265     $ 655,559     $ 306,247     $ 2,797,057

 
(i)
This column reflects the annual incentive cash award earned by our Named Executive Officers under the Performance Incentive Compensation Plan for 2007.  As a result of the Merger, these awards were calculated and paid assuming maximum performance.

 
(ii)
These columns reflect the long-term incentive cash awards earned by our Named Executive Officers under the Long-Term Performance Incentive Compensation Plan for the 2005-2007, 2006-2008 and 2007-2009 performance cycles.  As a result of the Merger, these awards were calculated based on maximum performance, as required and defined under the pre-Merger Change in Control Agreements and the resulting amounts were (i) paid in full for the 2005-2007 performance cycle and (ii) prorated for the 2006-2008 and 2007-2009 performance cycles based on the period of time between the first day of the applicable performance cycle and December 31, 2007.  With respect to Mr. Beebe, his long-term cash incentive awards were prorated through his termination date.

(5)
 
This column shows the sum of the following:

 
(i)
The increase from December 31, 2006 through December 31, 2007 (the measurement date used for reporting purposes in Alltel’s Annual Report on Form 10-K for the year ended December 31, 2007) in the present value of the accumulated benefits under the Pension Plan and Benefit Restoration Plan (assumptions are based upon (A) 1994 Group Annuity Mortality for males and females as of December 31, 2006 and the RP-2000 Combined Healthy Lives table (projected to 2008) as of December 31, 2007; (B) a 5.94% discount rate at December 31, 2006 and a 6.55% discount rate at December 31, 2007; (C) the Named Executive Officer working until his or her retirement age as explained in the narrative under Pension Benefits on page 46; and (D) each Named Executive Officer being married). See the “Pension Benefit” section for information regarding the supplemental retirement portion of the SERP, which was cashed-out as a result of the Merger; and

 
(ii)
The above-market earnings on compensation deferred under Alltel’s deferred compensation arrangements.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

The separate values for each Named Executive Officer are set forth in the table below. For information on Alltel’s defined benefit plans, refer to the “Pension Benefits” section on page 45. For information on Alltel’s deferred compensation arrangements, refer to the “Non-Qualified Deferred Compensation” section on page 47.

Name
 
Change in
Pension Value (a)
   
Above-Market Earnings under the
1998 Management Deferred
Compensation Plan (b)
   
Total
Scott T. Ford
  $ 667,578      
$  90,504
    $ 758,082
Sharilyn S. Gasaway
  $ 0      
$    4,715
    $ 4,715
Jeffrey H. Fox
  $ 343,726      
$378,977
    $ 722,703
Richard N. Massey
  $ 0      
$  20,490
    $ 20,490
C. J. Duvall
  $ 135,996      
$  35,891
    $ 171,887
Kevin L. Beebe
  $ 0      
     $  90,932(c)
    $ 90,932

 
(a)
A negative Change in Pension Value is reported as a $0 amount in this column.  Ms. Gasaway and Mr. Beebe had decreases in pension value of $10,437 and $306,259, respectively.  Mr. Massey is not a participant in either the Pension Plan or the pension portion of the Benefit Restoration Plan and therefore there is no change to report.

 
(b)
The amount in this column represents the excess of (a) earnings on compensation deferred under the 1998 Management Deferred Compensation Plan at a rate of 10.25% pre-Merger and 9.25% post-Merger, compounded annually, over (b) 120% of the applicable federal long-term rate, compounded annually.

 
(c)
Mr. Beebe also has above-market earnings on compensation deferred under the 360° Communications Company Benefit Restoration Plan and the 360° Communications Company Deferred Compensation Plan, adopted by Alltel upon its merger with 360° Communications Company on July 1, 1998.  Mr. Beebe’s above market earnings for these plans is $9,829 which is included in this amount.

(6)
The following is a summary of the separate components included in the All Other Compensation column.  The components are set forth in three separate tables, based on the nature of the payment.  The first table shows the perquisites for each Named Executive Officer, the second table shows the financial and defined contribution retirement benefits provided to each Named Executive Officer, and the third table shows the payments received by each Named Executive Officer in connection with the Merger.

Perquisites.  The following table shows the perquisites provided to each Named Executive Officer.

Perquisites
Name
 
Aircraft (i)
   
Executive Physical (ii)
   
Total
Perquisites
Scott T. Ford
  $ 119,670      
*
    $ 120,571
Sharilyn S. Gasaway
  $ 16,901      
--
    $ 16,901
Jeffrey H. Fox
  $ 58,958      
--
    $ 58,958
Richard N. Massey
  $ 92,941      
*
    $ 93,934
C. J. Duvall (iii)
    --      
--
      --
Kevin L. Beebe
  $ 175,063      
*
    $ 176,026

 
*
Value attributable to executive is less than the greater of $25,000 or 10% of total perquisites.

 
(i)
This column shows the estimated incremental cost to Alltel in 2007 of providing personal use of company-owned aircraft under Alltel’s policy. Amounts reflect an hourly rate that is based upon the 2007 direct and incremental expenses (including fuel, maintenance, landing fees, other associated fees and charter fees), multiplied by the number of flight hours the executive used during the year on the respective aircraft. Each officer pays the required taxes on the taxable income imputed for personal usage of corporate aircraft.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

 
(ii)
This column reflects amounts paid for executive physicals, which are not specifically stated because the amount is less than the greater of $25,000 or 10% of total perquisites.

 
(iii)
The aggregate value of all perquisites attributable to Mr. Duvall is less than $10,000.

Financial and Defined Contribution Retirement Benefits.  The following table shows the financial and defined contribution retirement benefits provided to each Named Executive Officer.

Name
 
Company Contribution to the Profit Sharing Plan (i)
   
Company Contribution to the 401(k)
Plan (ii)
   
Benefit Restoration Plan Profit Sharing Credit (iii)
   
Benefit Restoration Plan Matching Credit (iv)
   
Restricted Stock Dividends for Unvested Shares (v)
   
Total Financial and Defined Contribution Retirement Benefits
Scott T. Ford
  $ 4,500     $ 9,000     $ 245,625     $ 491,250     $ 35,417     $ 785,792
Sharilyn S. Gasaway
  $ 4,500     $ 9,000     $ 43,499     $ 86,998     $ 13,906     $ 157,903
Jeffrey H. Fox
  $ 4,500     $ 9,000     $ 109,083     $ 218,165     $ 25,781     $ 366,529
Richard N. Massey
  $ 4,500     $ 9,000     $ 80,208     $ 160,416     $ 12,750     $ 266,874
C. J. Duvall
  $ 4,500     $ 9,000     $ 32,210     $ 64,419     $ 12,406     $ 122,535
Kevin L. Beebe
    --     $ 9,000       --     $ 126,433     $ 25,781     $ 161,214

 
(i)
This column shows the amount of all profit sharing contributions made for 2007 under the Alltel Corporation Profit Sharing Plan on behalf of each of the Named Executive Officers.

 
(ii)
This column shows the amount of all matching contributions made for 2007 under the Alltel Corporation 401(k) Plan on behalf of each of the Named Executive Officers.

 
(iii)
Each of the Named Executive Officers is eligible to participate in the profit sharing component of the Benefit Restoration Plan. This column shows the annual credit to each Named Executive Officer’s profit sharing account under the Benefit Restoration Plan for 2007.

 
(iv)
Each of the Named Executive Officers is eligible to participate in the 401(k) plan component of the Benefit Restoration Plan. This column shows the annual credit to each Named Executive Officer’s 401(k) plan account under the Benefit Restoration Plan for 2007.

 
(v)
This column reflects cash dividends paid on shares of Alltel restricted stock during 2007.

Merger Related Payments.  The following chart shows certain cash payments received by or paid on behalf of each Named Executive Officer in connection with the Merger.

Merger Related Payments
     
Name
 
Payout Subject
to Change in
Control
Agreement (i)
   
Attributable
Tax
Payment (ii)
   
Payout of
SERP (iii)
   
Vesting of SERP
Health and
Dental Benefits (iv)
   
Total Payments
in Connection
with Merger (v)
   
All
Other
Compensation (vi)
Scott T. Ford
  $ 25,203,223     $ 30,863,052     $ 51,665,856       --     $ 107,732,131     $ 108,638,494
Sharilyn S. Gasaway
  $ 5,299,980     $ 10,695,754     $ 12,242,829     $ 1,577,233     $ 29,815,796     $ 29,990,600
Jeffrey H. Fox
  $ 11,419,301     $ 12,998,343     $ 23,573,415       --     $ 47,991,059     $ 48,416,546
Richard N. Massey
  $ 8,881,076     $ 15,229,657     $ 17,671,522     $ 1,133,300     $ 42,915,555     $ 43,276,363
C. J. Duvall
  $ 2,501,796     $ 2,374,949       --       --     $ 4,876,745     $ 4,999,280
Kevin L. Beebe
  $ 11,787,604     $ 13,153,473     $ 26,132,687       --     $ 51,073,764     $ 51,411,004


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

(i)
This column shows the amount of payments made to Messrs. Ford, Fox, Massey, Beebe and Ms. Gasaway for their change in control agreements, which consisted of a payment equal to three (3) times the sum of their  annual base salary at the time of the Merger plus their maximum short-term incentive plus their maximum long-term incentive bonus both as defined and required by their Change in Control Agreements, and reflects the enhanced value of the SERP and pension due to 3 years additional service credit, as well as payment equivalent to 3 years of Company contributions to defined contribution plans.  For Mr. Duvall, this column reflects payments equal to two (2) times the sum of his annual base salary at the time of Merger plus his maximum short-term incentive plus his maximum long-term incentive bonus both as defined and required by his change in control agreement, and reflects enhanced value of his pension due to 2 years additional service credit, as well as payment equivalent to 2 years of Company contributions to defined contribution plans.

(ii)
This column shows the amount of the tax gross-up paid by the Company on behalf of the Named Executive Officer to federal, state and local taxing entities to cover the executive’s cost of taxes related to Internal Revenue Code provisions 280G and 4999 as well as income taxes related to this gross up.  The tax gross-up was provided pursuant to the terms of the pre-Merger Change in Control Agreements.

(iii)
In connection with the Merger, each of Messrs. Ford, Fox, Massey, Beebe and Ms. Gasaway elected to receive a lump sum payment of his or her accrued SERP benefit, as agreed on November 15, 2007, and payable on January 2, 2008.  These payments completely discharged Alltel’s obligation with respect to SERP benefits (other than lifetime health and dental benefits) that accrued during their tenure with the Company.  Of the total amount listed above, the following amounts were earned and accrued prior to 2007, and therefore represent compensation for prior years:   Mr. Ford - $16,847,270, Ms. Gasaway - $1,960,896, Mr. Fox – $10,238,536, and Mr. Beebe - $11,218,949.  For Mr. Beebe, the amount in the above column includes an additional payment to cash-out the lifetime health and dental benefits available under the SERP.

(iv)
This column shows the value realized from vesting of SERP health and dental benefits for Ms. Gasaway and Mr. Massey (assuming a termination on December 31, 2007).  This amount is calculated using a discount rate of 6.51%, the Sex-distinct 1994 Group Annuity Mortality Table, medical and dental trend increase of 9% in 2008 and decreasing to 5% in 2014.  Costs include spouse for life and dependent children to age 23.   The amount shown also includes an income tax gross up, as provided for under the terms of the SERP, of $685,308 for Ms. Gasaway and $492,419 for Mr. Massey, based on a tax rate of 43.45%.

(v)
In connection with the Merger, but not included in this table, all outstanding stock options (other than Roll-Over options held by select management employees) became fully vested and converted into the right to receive a cash payment equal to the number of shares underlying the option, multiplied by the amount, if any, by which the Merger consideration of $71.50 per share exceeded the option exercise price.  In addition, all unvested restricted stock awards became fully vested and were converted into the right to receive a cash payment equal to $71.50 per share.  Pursuant to the applicable disclosure rules, we are required to report equity awards in the Stock Awards and Option Awards columns of the Summary Compensation Table based on the dollar amount recognized for financial accounting purposes in 2007.  In order to avoid “double counting” of payments and benefits received by our Named Executive Officers, this Merger Related Payments table does not reflect the amounts paid to cash-out these equity awards.  Accordingly, refer to the Option Exercises and Stock Vested at Fiscal Year End table on page 43 for a complete summary of the amount received by each Named Executive Officer in connection with the cash-out of equity awards.

(vi)
This column reflects the total amount entered in the “All Other Compensation” column of the Summary Compensation Table and reflects the sum of the three previous tables.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

Grants of Plan-Based Awards

The following table sets forth for each Named Executive Officer (i) the annual cash incentive award opportunities granted under the Performance Incentive Compensation Plan during 2007, (ii) the long-term cash incentive opportunities granted under the Long-Term Performance Incentive Compensation Plan during 2007, (iii) restricted stock awards granted in 2007, and (iv) stock options granted in 2007.

 
Grants of Plan-Based Awards
 
        Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards
         
 
             
Name
 
Grant Date
 
Threshold
   
Target
   
Maximum
   
Estimated Future Payouts Under Equity Incentive Plan Awards Target (#)
   
 All Other
Stock Awards:
Number of Shares of Stock or Units (#)
   
All Other Option Awards:  Number of Securities Underlying Options (#)
    Exercise or Base Price of Option Awards
($/Sh)
    Grant Date
Fair Value of Stock  and Option Awards (7)
Scott T. Ford
                                                 
Annual Incentive (1)
      $ 812,500     $ 1,625,000     $ 3,250,000                              
Long-Term Incentive (2007-2009) (2)
      $ 812,500     $ 1,625,000     $ 2,437,500                              
Stock options (pre-Merger) (3)
 
1/17/07
                                        120,000     $ 61.51     $ 2,221,728
Restricted Shares (4)
 
1/17/07
                                  27,500                     $ 1,664,025
Time-Based Stock Options (post-Merger) (5)
 
11/16/07
                                          5,637,116     $ 10.00     $ 15,866,227
Performance-Based Stock Options (post-Merger) 1.5x (6)
 
11/16/07
                            1,252,693                     $ 10.00     $ 2,831,086
Performance-Based Stock Options (post-Merger) 2.0x (6)
 
11/16/07
                            1,252,693                     $ 10.00     $ 1,778,824
Sharilyn S. Gasaway
                                                                 
Annual Incentive (1)
      $ 159,100     $ 318,200     $ 636,400                                        
Long-Term Incentive (2007-2009) (2)
      $ 149,156     $ 298,313     $ 447,469                                        
Stock options (pre-Merger) (3)
 
1/17/07
                                            60,000     $ 61.51     $ 1,110,864
Restricted Shares (4)
 
1/17/07
                                    15,000                     $ 907,650
Time-Based Stock Options (post-Merger) (5)
 
11/16/07
                                            1,038,462     $ 10.00     $ 2,922,855
Performance-Based Stock Options (post-Merger) 1.5x (6)
 
11/16/07
                            230,770                     $ 10.00     $ 521,540
Performance-Based Stock Options (post-Merger) 2.0x (6)
 
11/16/07
                            230,770                     $ 10.00     $ 327,693
Jeffrey H. Fox
                                                                 
Annual Incentive (1)
      $ 349,313     $ 698,625     $ 1,397,250                                        
Long-Term Incentive (2007-2009) (2)
      $ 349,313     $ 698,625     $ 1,047,938                                        
Stock options (pre-Merger) (3)
 
1/17/07
                                            75,000     $ 61.51     $ 1,388,580
Restricted Shares (4)
 
1/17/07
                                    20,000                     $ 1,210,200
Time-Based Stock Options (post-Merger) (5)
 
11/16/07
                                            3,478,846     $ 10.00     $ 9,791,560
Performance-Based Stock Options (post-Merger) 1.5x (6)
 
11/16/07
                            773,077                     $ 10.00     $ 1,747,154
Performance-Based Stock Options (post-Merger) 2.0x (6)
 
11/16/07
                            773,077                     $ 10.00     $ 1,097,769


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

 
Grants of Plan-Based Awards Table Cont.
 
       
Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards
                   
 
 
Name
 
Grant Date
 
Threshold
   
Target
   
Maximum
   
Estimated Future Payouts Under Equity Incentive Plan Awards Target (#)
   
All Other Stock Awards: Number
of Shares of Stock or Units
 (#)
   
All Other Option Awards: Number of Securities Underlying Options (#)
   
Exercise or Base Price of Option Awards
($/Sh)
   
Grant Date Fair Value of Stock and Option Awards (7)
Richard N. Massey
                                                 
Annual Incentive (1)
      $ 258,750     $ 517,500     $ 1,035,000                              
Long-Term Incentive (2007-2009) (2)
      $ 258,750     $ 517,500     $ 776,250                              
Stock options (pre-Merger) (3)
 
1/17/07
                                        60,000     $ 61.51     $ 1,110,864
Restricted Shares (4)
 
1/17/07
                                  17,000                     $ 1,028,670
Time-Based Stock Options (post-Merger) (5)
 
11/16/07
                                          1,730,769     $ 10.00     $ 4,871,422
Performance-Based Stock Options (post-Merger)
1.5x (6)
 
11/16/07
                            384,616                     $ 10.00     $ 869,232
Performance-Based Stock Options (post-Merger)
2.0x (6)
 
11/16/07
                            384,616                     $ 10.00     $ 546,155
C. J. Duvall
                                                                 
Annual Incentive (1)
      $ 97,808     $ 195,615     $ 391,230                                        
Long-Term Incentive (2007-2009) (2)
      $ 122,259     $ 244,519     $ 366,778                                        
Stock options (pre-Merger) (3)
 
1/17/07
                                            20,000     $ 61.51     $ 370,288
Restricted Shares (4)
 
1/17/07
                                    5,000                     $ 302,550
Time-Based Stock Options (post-Merger) (5)
 
11/16/07
                                            432,692     $ 10.00     $ 1,217,855
Performance-Based Stock Options (post-Merger)
1.5x (6)
 
11/16/07
                            96,154                     $ 10.00     $ 217,308
Performance-Based Stock Options (post-Merger)
2.0x (6)
 
11/16/07
                            96,154                     $ 10.00     $ 136,539
Kevin L. Beebe
                                                                 
Annual Incentive (1)
      $ 349,313     $ 698,625     $ 1,397,250                                        
Long-Term Incentive (2007-2009) (2)
      $ 349,313     $ 698,625     $ 1,047,938                                        
Stock options (pre-Merger) (3)
 
1/17/07
                                            75,000     $ 61.51     $ 1,388,580
Restricted Shares (4)
 
1/17/07
                                    20,000                     $ 1,210,200

(1)
The amounts included in the “Annual Incentive” row provide information about the annual cash incentive opportunities granted under the Performance Incentive Compensation Plan during 2007 to our Named Executive Officers. The information included in the “Threshold”, “Target” and “Maximum” columns reflect the range of potential payouts for each award granted under the Performance Incentive Compensation Plan during 2007.  In connection with the Merger, these awards were calculated and paid based on maximum performance through the end of December as defined and required by the Change in Control Agreements.  The actual amounts paid to each Named Executive Officer under the Performance Incentive Compensation Plan are included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. For more information about the Performance Incentive Compensation Plan, refer to the “Compensation Discussion and Analysis” beginning on page 22.

(2)
The amounts included in the “Long-Term Incentive (2007-2009)” row provide information about the long-term cash incentive opportunities granted under the Long-Term Performance Incentive Compensation Plan during 2007 to our Named Executive Officers for the 2007 - 2009 performance cycle. The information included in the “Threshold”, “Target” and “Maximum” columns reflect the range of potential payouts for each award granted under the Long-Term Performance Incentive Compensation Plan during 2007. In connection with the Merger, these awards were calculated and paid based on maximum target performance as defined and required by the Change in Control Agreements.  The actual amount paid to each Named Executive Officer under these awards is included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.  For more information about the “Long-Term Performance Incentive Compensation Plan”, refer to the Compensation Discussion and Analysis beginning on page 22.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

(3)
The amounts in the “Stock Options (pre-Merger)” row show the number of shares that were issuable to the Named Executive Officer on exercise of stock options granted in January 2007.  One fifth of the options vest on each of the first five anniversaries of the grant if the executive continues to be employed by Alltel on the applicable vesting date.  In connection with the Merger, the stock options listed above for Mr. Beebe became fully vested and were converted into the right to receive a cash payment equal to the number of shares underlying the option, multiplied by the amount by which the Merger consideration of $71.50 per share exceeded the option exercise price.  Refer to the Option Exercises and Stock Vested at Fiscal Year End table for a summary of the total amount received by Mr. Beebe in connection with the cash-out of these stock options.  The stock options listed above for each of our other Named Executive Officers were converted into options to purchase Alltel Shares, in lieu of receiving the cash-out payments described above.   We refer to these options, as well as others treated in the same manner, as the “Roll-Over Options.”  See the Outstanding Equity Awards at Fiscal Year-End table for a summary of the methodology used for converting stock options into Roll-Over Options.

(4)
The amounts included in the “Restricted Shares” row show the number of restricted shares awarded to the Named Executive Officers in 2007.  Shares vested on a time-based three-year vesting schedule with one-third of the grant vesting each year.  Dividends on the restricted shares were paid to the Named Executive Officers on a quarterly basis.  In connection with the Merger, each outstanding restricted share became fully vested and was converted into the right to receive a cash payment equal to $71.50, which was the per-share Merger consideration.

(5)
The amounts in the “Time-Based Stock Options (post-Merger)” row show the number of shares that may be issued to the Named Executive Officers on exercise of time-based stock options granted in 2007 after the Merger.  One fifth of the options vest on each of the first five anniversaries of the grant if the executive continues to be employed by Alltel on the applicable vesting date.

(6)
The amounts in the “Performance-Based Stock Options (post-Merger)” rows show the number of shares that may be issued to the Named Executive Officers on exercise of performance-based stock options granted in 2007 after the Merger.   See description under Outstanding Equity Awards at Fiscal Year-End for a description of these options.

(7)
This column shows the grant date fair value of stock options and restricted stock awards granted to each Named Executive Officer in 2007, as determined in accordance with FAS 123R.

Outstanding Equity Awards at Fiscal Year-End

Except as provided below with respect to Roll-Over Options, in connection with the Merger, each outstanding stock option granted prior to the Merger (whether or not vested) became fully vested and was converted into the right to receive a cash payment equal to the product of (1) the number of shares underlying the option, multiplied by (2) the excess of (x) $71.50, which was the per-share Merger consideration, over (y) the per share exercise price of the stock option.  In addition, each outstanding restricted share became fully vested and was converted into the right to receive a cash payment equal to $71.50 per share.  As a result, none of the equity awards outstanding before the Merger remained outstanding as of the end of 2007, other than the Roll-Over Options described below.  Refer to the Option Exercises and Stock Vested at Fiscal Year End table for a summary of the total amount received by our Named Executive Officers in connection with the cash-out of these equity awards.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

Roll-Over Options

Each Named Executive Officer, other than Mr. Beebe, had the opportunity to exchange a portion of their stock options for fully vested options to purchase Alltel shares in lieu of receiving the cash-out payments under the Merger agreement described above.   We refer to these options as the "Roll-Over Options."  All Roll-Over Options are options that became fully vested upon the Merger and retain the life of the original issue.  In most cases, the most recently issued options were used for the Roll-Over Options.  The Roll-Over Options provide a long-term equity position in the Company and serve as an incentive for increasing the value of the Company.

The aggregate value of each grant of options was maintained in the conversion by determining its aggregate value based on a $71.50 share price and its exercise price, and granting new Roll-Over Options with an exercise price of $2.50 in a sufficient number of shares to provide an equal value based on the fair market price of the new shares of $10.00.  The Roll-Over Options were exchanged on a tax-free basis and we did not record additional compensation expense related to the rollover of these options in 2007.

Following is a summary of the aggregate “spread” of the Roll-Over Options for each of our Named Executive Officers both immediately before and after the Merger.  Additional information for the Roll-Over Options, including the number of shares underlying each option and the option expiration date, can be found in the Outstanding Equity Awards at Fiscal Year-End section of this Annual Report.

     
Name
 
Aggregate Spread
Scott T. Ford
  $ 21,950,018
Sharilyn S. Gasaway
  $ 3,999,997
Jeffrey H. Fox
  $ 9,999,997
Richard N. Massey
  $ 1,999,995
C. J. Duvall
  $ 1,999,995

Time-Based and Performance-Based Options

Each of our Named Executive Officers, other than Mr. Beebe, also received grants of time-based and performance-based stock options immediately following the Merger.  The options issued to each individual were issued as follows:  (a) 69.2% of the new options granted to an individual are time-based options with a 5-year vesting schedule which allow 20% of the award to vest annually; (b) 15.4% of the new options issued are performance-based options that vest and become exercisable (i) upon the Sponsors attaining a multiple of their equity investment calculated as cash or liquid securities received, divided by the purchase price and (ii) subject to the optionee’s employment on the date the performance condition is met.  Of the Performance Options granted to each Named Executive Officer in 2007, one-half require a return multiple of at least 1.5 and one-half require a return multiple of at least 2.0.


Alltel Corporation
Form 10-K, Part III


Item 11.  Executive Compensation (Continued)

The following table sets forth information for each Named Executive Officer with respect to the Roll-Over Options that were outstanding as of December 31, 2007, and reflects the adjustments to the number of shares and exercise price that were made to preserve their intrinsic value in connection with the Merger.  It also reflects the time-based and performance-based stock options that were granted in connection with the Merger.

 
Outstanding Equity Awards at Fiscal Year-End
Option Awards
Name
Grant Date
 
Number of Securities Underlying Unexercised Options (#) Exercisable (1)
   
Number of Securities Underlying Unexercised Options (#) Unexercisable (2)
   
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (3)
   
Option Exercise Price (4)
 
Option Expiration Date
Scott T. Ford
                           
Roll-Over Options
1/17/2007
    159,840       -       -       $2.50  
1/17/2017
 
1/21/2004
    494,502       -       -       $2.50  
1/21/2014
 
1/19/2005
    513,826       -       -       $2.50  
1/19/2015
 
1/18/2006
    404,922       -       -       $2.50  
1/18/2016
 
1/22/2003
    990,635