AT&T Wireless 2006 Annual Report Download - page 68

66 : : 2006 AT&T Annual Report
Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
In December 2005, we reached an agreement with the IRS to
settle certain claims, principally related to the utilization of
capital losses and tax credits for years 1997-1999. Included in
the settlement was relief from previous assessments and
agreement on multiple items challenged by the IRS in the
course of routine audits. As we had previously paid the
assessments in full and filed refund claims with the IRS, the
settlement resulted in our recognition of approximately $902
of reduced income tax expense in 2005.
Effects of international operations include items such as
foreign tax credits, sales of foreign investments and the
effects of undistributed earnings from international operations.
Deferred taxes are not provided on the undistributed earnings
of subsidiaries operating outside the United States that have
been or are intended to be permanently reinvested.
NOTE 10. PENSION AND POSTRETIREMENT BENEFITS
We acquired BellSouth on December 29, 2006, and ATTC on
November 18, 2005. In conjunction with the BellSouth merger,
AT&T Mobility became a wholly-owned subsidiary and its
pension plan was combined with AT&T’s. BellSouth, AT&T
Mobility and ATTC sponsored noncontributory defined benefit
pension plans covering the majority of their U.S. employees. In
accordance with Statement of Financial Accounting Standards
No. 87, “Employers’ Accounting for Pensions” (FAS 87) and
Statement of Financial Accounting Standards No. 106,
“Employers’ Accounting for Postretirement Benefits Other
Than Pensions” (FAS 106), when an employer is acquired as
part of a merger, any excess of projected benefit obligation
over the plan assets is recognized as a liability and any excess
of plan assets over the projected benefit obligation is recog-
nized as a plan asset. The recognition of a new liability or a
new asset by the acquirer, at the date of the merger, results in
the elimination of any (a) previously existing unrecognized net
gain or loss, (b) unrecognized prior service cost and (c)
unrecognized net transition obligation. In addition, the
accumulated postretirement benefit obligations are to be
measured using actuarial assumptions and terms of the
substantive plans, as determined by the purchaser. As such,
and consistent with our practice, we did not account for the
annual dollar value cap of medical and dental benefits in the
value of the accumulated postretirement benefit obligation for
the ATTC, BellSouth or AT&T Mobility postretirement benefit
plans (i.e., we assumed the cap would be waived in the
future). All other significant weighted-average assumptions
used were determined based on our policies that are dis-
cussed below in “Assumptions.”
Due to the proximity of the BellSouth transaction to the
end of the year, we have presented below the reconciliation
of the December 31, 2006 expected funded status of Bell-
South’s plans, excluding supplemental retirement plans and
excluding the acquisition by AT&T, and status of those plans
subsequent to the acquisition.
Pension Benefits Postretirement Benefits
Pre-merger Post-merger Pre-merger Post-merger
Benefit obligations $(11,622) $(11,013) $(10,803) $(11,461)
Fair value of plan assets 17,628 17,628 5,269 5,269
Funded (unfunded)
benefit obligation 6,006 6,615 (5,534) (6,192)
Unrecognized net
(gain) loss (661) — 1,377 —
Unrecognized net
obligation — — 49 —
Unrecognized prior
service cost (benefit) (280) — 2,535 —
Net amount recorded $ 5,065 $ 6,615 $ (1,573) $ (6,192)
The acquisition of BellSouth’s portion of AT&T Mobility will be
accounted for as a step acquisition. In accordance with
purchase accounting rules, BellSouth’s investment in AT&T
Mobility will be adjusted to its fair value through purchase
accounting adjustments. Accordingly, we have recognized a
new liability for 40% of AT&T Mobility’s pension and postretire-
ment benefit plans. Prior to the merger, we recorded our
investment in AT&T Mobility as an equity investment and did
not account for our 60% economic interest of AT&T Mobility’s
pension and postretirement plans. We have included our
historical 60% ownership interest in the table below.
We have presented below the reconciliation of the
December 31, 2006 expected funded status of AT&T Mobility’s
plans, excluding supplemental retirement plans and excluding
the acquisition by AT&T, and status of those plans subsequent
to the acquisition.
Pension Benefits Postretirement Benefits
Pre-merger Post-merger Pre-merger Post-merger
Benefit obligations $(679) $(635) $(153) $(209)
Fair value of plan assets 548 548 — —
Funded (unfunded)
benefit obligation (131) (87) (153) (209)
Unrecognized net
(gain) loss (20) (38) 26 —
Unrecognized prior
service cost (benefit) 8 4 (6) 45
Net amount recorded $(143) $(121) $(133) $(164)
The reconciliation of the December 31, 2004 funded status
of ATTC’s U.S. plans, excluding supplemental retirement
plans, and status of those plans subsequent to the merger
are as follows:
Pension Benefits Postretirement Benefits
Pre-merger Post-merger Pre-merger Post-merger
Benefit obligations $(16,178) $(16,942) $(5,813) $(9,129)
Fair value of plan assets 18,510 18,917 2,313 2,429
Funded (unfunded)
benefit obligation 2,332 1,975 (3,500) (6,700)
Unrecognized net loss 949 — 1,298 —
Unrecognized prior
service cost 356 — 53 —
Net amount recorded $ 3,637 $ 1,975 $(2,149) $(6,700)