AT&T Wireless 2006 Annual Report Download - page 74

72 : : 2006 AT&T Annual Report
Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
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.
As described earlier and in accordance with FAS 106, 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, 2006 and 2005 were $158 and $236, respectively.
2006 2005
Benefit obligations at end of year $(1,016) $(906)
Fair value of plan assets 858 650
(Unfunded) benefit obligation (158) (256)
The following table provides information for certain non-U.S.
defined benefit pension plans with accumulated benefit
obligations in excess of plan assets:
2006 2005
Projected benefit obligation $1,016 $906
Accumulated benefit obligation 874 765
Fair value of plan assets 858 650
We recognized a net loss of $64 in our accumulated other
comprehensive income at December 31, 2006. The estimated
net loss that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the
next fiscal year is $3.
The following table presents the components of net
periodic benefit cost (gains are denoted with parentheses and
losses are not):
2006 2005
Service cost – benefits earned
during the period $ 27 $ 3
Interest cost on projected benefit obligation 45 5
Expected return on assets (43) (4)
Net pension cost $ 29 $ 4
The December 31, 2006, benefit obligations were determined
using a weighted-average discount rate of 4.86% and a
weighted-average rate of compensation increase of 4.36%. Net
periodic pension cost was $29 for the year ended December
31, 2006, and was determined using the following weighted-
average assumptions: discount rate of 4.55%, compensation
increase of 4.25% and expected return on plan assets of 6.09%.
The December 31, 2005, benefit obligations were deter-
mined using a weighted-average discount rate of 4.55% and a
weighted-average rate of compensation increase of 4.25%.
Net periodic pension cost was $4 for the 43 days ended
December 31, 2005, and was determined using the following
weighted-average assumptions: discount rate of 4.90%,
compensation increase of 4.25% and expected return on
plan assets of 6.15%.
Contributory Savings Plans
We maintain contributory savings plans that cover substan-
tially 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.
In December 2006, we completed our acquisition of
BellSouth, thereby acquiring AT&T Mobility; and in November
2005, we acquired ATTC. We currently intend to maintain
coverage of employees in savings plans, which provide for a
match of a percentage of employee contributions up to
certain limits.
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
$412, $334 and $316 for the years ended December 31,
2006, 2005 and 2004.
NOTE 11. STOCK-BASED COMPENSATION
In September 2005, we adopted FAS 123(R), which is a
revision of FAS 123. FAS 123(R) supersedes Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees,” and amends Statement of Financial Accounting
Standards No. 95, “Statement of Cash Flows” using the
modified retrospective method.
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 associ-
ated with compensation expense previously recognized, the
potential future impact on income would be reduced.
In connection with the December 2006 acquisition of
BellSouth, all outstanding BellSouth stock-based compensa-
tion plans were restructured based on the 1.325 per share
conversion rate and subsequently issued in AT&T shares of
stock or stock units. We converted and recorded 83 million
stock options.