AT&T Wireless 2008 Annual Report Download - page 69

AT&T Annual Report 2008
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A reconciliation of income tax expense and the amount
computed by applying the statutory federal income tax rate
(35%) to income before income taxes, income from
discontinued operations, extraordinary items and cumulative
effect of accounting changes is as follows:
2008 2007 2006
Taxes computed at federal
statutory rate $6,966 $6,371 $3,809
Increases (decreases) in
income taxes resulting from:
State and local income taxes –
net of federal income tax benefit 497 549 234
Effects of international operations (157) (178) (200)
Medicare reimbursements (90) (120) (123)
Equity in net income of affiliates — — (218)
Other – net (180) (369) 23
Total $7,036 $6,253 $3,525
Effective Tax Rate 35.4% 34.4% 32.4%
Effects of international operations include items such as
foreign tax credits, sales of foreign investments and the effects
of undistributed earnings from international operations.
We do not provide deferred taxes on the undistributed
earnings of subsidiaries operating outside the United States
that have been or are intended to be permanently reinvested.
The amount of undistributed earnings for which we have not
recorded deferred taxes is not material.
NOTE 11. PENSION AND POSTRETIREMENT BENEFITS
Pension Benefits
Substantially all of our U.S. employees are covered by one of
our noncontributory pension and death benefit plans. Many of
our management employees participate in pension plans that
have a traditional pension formula (i.e., a stated percentage of
employees’ adjusted career income) and a frozen cash balance
or defined lump sum formula. In 2005, the management
pension plan for those employees was amended to freeze
benefit accruals previously earned under a cash balance
formula. Each employee’s existing cash balance continues to
earn interest at a variable annual rate. After this change, those
management employees, at retirement, may elect to receive
the portion of their pension benefit derived under the cash
balance or defined lump sum as a lump sum or an annuity.
The remaining pension benefit, if any, will be paid as an annuity
if its value exceeds a stated monthly amount. Management
employees of former ATTC, BellSouth and AT&T Mobility
participate in cash balance pension plans. Nonmanagement
employees’ pension benefits are generally calculated using
one of two formulas: benefits are based on a flat dollar
amount per year according to job classification or are
calculated under a cash balance plan that is based on
an initial cash balance amount and a negotiated annual
pension band and interest credits. Most nonmanagement
employees can elect to receive their pension benefits in
either a lump sum payment or an annuity.
At November 1, 2008, BellSouth pension plans and
U.S. Domestic Participant T bargained were merged in the
AT&T Pension Benefit Plan. At December 31, 2007, defined
pension plans formerly sponsored by Ameritech Publishing
Ventures and AT&T Mobility were merged in the AT&T Pension
Benefit Plan. At December 31, 2006, certain defined pension
plans formerly sponsored by ATTC and AT&T Mobility were
also merged into the AT&T Pension Benefit Plan.
Postretirement Benefits
We provide a variety of medical, dental and life insurance
benefits to certain retired employees under various plans
and accrue actuarially-determined postretirement benefit
costs as active employees earn these benefits.
Obligations and Funded Status
For defined benefit pension plans, the benefit obligation
is the “projected benefit obligation,” the actuarial present
value, as of our December 31 measurement date, of all
benefits attributed by the pension benefit formula to
employee service rendered to that date. The amount of
benefit to be paid depends on a number of future events
incorporated into the pension benefit formula, including
estimates of the average life of employees/survivors and
average years of service rendered. It is measured based
on assumptions concerning future interest rates and future
employee compensation levels.
For postretirement benefit plans, the benefit obligation
is the “accumulated postretirement benefit obligation,” the
actuarial present value as of a date of all future benefits
attributed under the terms of the postretirement benefit
plan to employee service rendered to that date.
The following table presents this reconciliation and shows the change in the projected benefit obligation for the years ended
December 31:
Pension Benefits Postretirement Benefits
2008 2007 2008 2007
Benefit obligation at beginning of year $53,522 $55,949 $40,385 $44,137
Service cost – benefits earned during the period 1,173 1,257 429 511
Interest cost on projected benefit obligation 3,319 3,220 2,550 2,588
Amendments (15) 246 (4) —
Actuarial loss (gain) (1,450) (2,044) (3,406) (4,752)
Special termination benefits 70 56 5 7
Settlements — (15) — —
Benefits paid (5,795) (5,312) (2,548) (2,316)
Other (2) 165 120 210
Benefit obligation at end of year $50,822 $53,522 $37,531 $40,385