AT&T Uverse 2007 Annual Report Download - page 78

Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
76
| 2007 AT&T Annual Report
Net Periodic Benefit Cost 2007 2006
Service cost – benefits earned
during the period $ 25 $ 27
Interest cost on projected
benefit obligation 52 45
Expected return on assets (54) (43)
Amortization of prior service cost (1) —
Net pension cost $ 22 $ 29
Other Changes Recognized in
Other Comprehensive Income1 2007 2006
Net loss (gain) $(105) $ 40
Amortization of net loss (gain) (2) —
Amortization of prior service cost — —
Total recognized in net pension cost
and other comprehensive income $(107) $ 40
1 FAS 158 required prospective application for fiscal years ending after December 15, 2006.
The estimated net gain that will be amortized from accumu-
lated other comprehensive income into net periodic benefit
cost over the next fiscal year is $3.
Contributory Savings Plans
We maintain contributory savings plans that cover substantially
all employees. Under the savings plans, we match in cash
or company stock a stated percentage of eligible employee
contributions, subject to a specified ceiling. There are no
debt-financed shares held by the Employee Stock Ownership
Plans, allocated or unallocated.
Our match of employee contributions to the savings
plans is fulfilled with purchases of our stock on the open
market or company cash. Benefit cost is based on the cost
of shares or units allocated to participating employees’
accounts and was $633, $412 and $334 for the years
ended December 31, 2007, 2006 and 2005.
NOTE 12. STOCK-BASED COMPENSATION
We account for stock-based compensation using FAS 123(R).
By using the modified retrospective method to adopt
FAS 123(R), we increased the amount of excess tax benefits
we had previously recorded on our consolidated balance
sheets. Our accounting under FAS 123(R) may affect our
ability to fully realize the value shown on our balance sheet
of deferred tax assets associated with compensation expense.
Full realization of these deferred tax assets requires stock
options to be exercised at a price equaling or exceeding the
sum of the strike price plus the fair value of the option at
the grant date. The provisions of FAS 123(R) do not allow a
valuation allowance to be recorded unless the company’s
future taxable income is expected to be insufficient to recover
the asset. Accordingly, there can be no assurance that the
current stock price of our common shares will rise to levels
sufficient to realize the entire tax benefit currently reflected
in our balance sheet. However, to the extent that additional
tax benefits are generated in excess of the deferred taxes
associated with compensation expense previously recognized,
the potential future impact on income would be reduced.
Deferred compensation expense was $106 in 2007, $39 in
2006 and $46 in 2005. Our deferred compensation liability,
included in “Other noncurrent liabilities,” was $1,116 at
December 31, 2007 and $996 at December 31, 2006.
Non-U.S. Plans
As part of our ATTC acquisition, we acquired certain non-U.S.
operations that have varying types of pension programs
providing benefits for substantially all of their employees and,
to a limited group, postemployment benefits. As described
earlier and in accordance with FAS 87, we eliminated previously-
existing unrecognized net gains or losses, unrecognized prior
service costs and unrecognized net transition obligations.
The following table provides the plans’ benefit obligations
and fair value of assets and a statement of the funded status
at December 31.
The net amounts recorded as “Postemployment benefit
obligation” on our consolidated balance sheets at December
31, 2007 and 2006 were $(48) and $158, respectively.
2007 2006
Benefit obligations at end of year $(1,016) $(1,016)
Fair value of plan assets 1,064 858
(Unfunded) benefit obligation $ 48 $ (158)
The following table provides information for certain non-U.S.
defined-benefit pension plans with accumulated benefit
obligations in excess of plan assets:
2007 2006
Projected benefit obligation $1,015 $1,016
Accumulated benefit obligation 892 874
Fair value of plan assets 1,064 858
In determining the projected benefit obligation for certain
non-U.S. defined-benefit pension plans, we used the following
significant weighted-average assumptions:
2007 2006
Discount rate for determining projected
benefit obligation at December 31 5.57% 4.86%
Discount rate in effect for determining
net cost (benefit) 4.86% 4.55%
Long-term rate of return on plan assets 6.15% 6.09%
Composite rate of compensation increase
for determining projected benefit
obligation at December 31 4.25% 4.36%
Composite rate of compensation increase
for determining net pension cost 4.36% 4.25%
The following tables present the components of net periodic
benefit cost and other changes in plan assets and benefit
obligations recognized in other comprehensive income: