AT&T Uverse 2007 Annual Report Download - page 79

2007 AT&T Annual Report
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At December 31, 2007, we had various stock-based
compensation plans, which are described below. The
compensation cost recognized for those plans for the years
ended December 31 was $720 in 2007, $301 in 2006 and
$143 in 2005 and is included in “Selling, general and
administrative” in our consolidated statements of income.
The total income tax benefit recognized in the consolidated
statements of income for stock-based compensation
arrangements for the years ended December 31, 2007,
2006 and 2005 was $275, $116 and $54.
Under our various plans, senior and other management
and nonmanagement employees and nonemployee directors
have received stock options, performance stock units and
other nonvested stock units. Stock options issued through
December 31, 2007 carry exercise prices equal to the market
price of our stock at the date of grant. Beginning in 1994 and
ending in 1999, certain employees of AT&T Teleholdings, Inc.
(formerly known as Ameritech) were awarded grants of
nonqualified stock options with dividend equivalents. During
2006, we amended our stock option plan to vest upon the
date of grant. Prior to 2006, depending on the grant, stock
options vesting could occur up to five years from the date of
grant, with most options vesting ratably over three years.
Performance stock units, which are nonvested stock units, are
granted to key employees based upon the stock price at the
date of grant and are awarded in the form of common stock
and cash at the end of a three-year period, subject to the
achievement of certain performance goals. Other nonvested
stock units are valued at the market price of our stock at the
date of grant and vest over a three- to five-year period.
As of December 31, 2007, we were authorized to issue up
to 133 million shares of stock (in addition to shares that may
be issued upon exercise of outstanding options or upon
vesting of performance stock units or other nonvested stock
units) to officers, employees and directors pursuant to these
various plans.
The compensation cost that has been charged against
income for our stock-based compensation plans is as follows:
2007 2006 2005
Performance stock units $620 $282 $116
Restricted stock 68 6 6
Stock option expense 14 13 19
Other 18 — 2
Total $720 $301 $143
The estimated fair value of the options when granted is
amortized to expense over the options’ vesting or required
service period. The fair value for these options was estimated
at the date of grant based on the expected life of the option
and historical exercise experience, using a Black-Scholes
option pricing model with the following weighted-average
assumptions:
2007 2006 2005
Risk-free interest rate 5.01% 4.94% 4.15%
Dividend yield 3.65% 4.75% 5.38%
Expected volatility factor 20.75% 21.79% 22.47%
Expected option life in years 7.00 8.00 8.00
A summary of option activity as of December 31, 2007, and
changes during the period then ended, is presented below
(shares in millions):
Weighted-Average
Weighted-Average Remaining Contractual Aggregate
Options Shares Exercise Price Term (Years) Intrinsic Value1
Outstanding at January 1, 2007 309 $37.96
Granted 2 38.99
Exercised (68) 29.76
Forfeited or expired (12) 45.00
Outstanding at December 31, 2007 231 $40.03 3.10 $1,266
Exercisable at December 31, 2007 229 $40.04 3.05 $1,261
1 Aggregate intrinsic value includes only those options with intrinsic value (options where the exercise price is below the market price).
The weighted-average fair value of each option granted during
the year ended December 31 was $7.71 in 2007, $4.78 in
2006 and $3.39 in 2005. The total intrinsic value of options
exercised during the year was $667 in 2007, $134 in 2006
and $24 in 2005.
It is our policy to satisfy share option exercises using our
treasury shares. The actual tax benefit realized for the tax
deductions from option exercises from these arrangements for
the years ended December 31, 2007, 2006 and 2005 totaled
$77, $28 and $9.
A summary of the status of our nonvested stock units, which
includes performance stock units as of December 31, 2007, and
changes during the year then ended is presented as follows
(shares in millions):
Weighted-Average
Nonvested Stock Units Shares Grant-Date Fair Value
Nonvested at January 1, 2007 25 $24.03
Granted 17 36.78
Vested (14) 25.00
Forfeited (1) 30.17
Other 9 24.68
Nonvested at December 31, 2007 36 $29.49
As of December 31, 2007, there was $422 of total
unrecognized compensation cost related to nonvested
stock-based compensation arrangements granted. That
cost is expected to be recognized over a weighted-average
period of 1.58 years. The total fair value of shares vested
during the years ended December 31, 2007, 2006 and
2005 was $345, $246 and $38.