AT&T Wireless 2009 Annual Report Download - page 91

AT&T 09 AR 89
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.
At December 31, 2009, we had various share-based
payment arrangements, which we describe in the following
discussion. The compensation cost recognized for those plans
was $317 for 2009, compared to $166 for 2008 and $720 for
2007, 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 share-based payment arrangements was $121 for
2009, compared to $63 for 2008 and $275 for 2007.
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, 2009, 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. 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. Stock options
granted as part of a deferred compensation plan do not have
a vesting period; since 2006, these are the only options
issued by AT&T. Performance stock units, which are nonvested
stock units, are granted to key employees based upon our
stock price at the date of grant and are awarded in the form
of AT&T common stock and cash at the end of a two- to
three-year period, subject to the achievement of certain
performance goals. Other nonvested stock units are valued
at the market price of our common stock at the date of
grant and vest typically over a two- to five-year period.
As of December 31, 2009, we were authorized to issue up to
110 million shares of common 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 we have charged against
income for our share-based payment arrangements was
as follows:
2009 2008 2007
Performance stock units $290 $152 $620
Stock options 8 11 14
Restricted stock 21 9 68
Other (2) (6) 18
Total $317 $166 $720
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, for the
indicated years ended, 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:
2009 2008 2007
Risk-free interest rate 3.17% 3.96% 5.01%
Dividend yield 6.82% 4.36% 3.65%
Expected volatility factor 19.65% 18.76% 20.75%
Expected option life in years 7.00 7.00 7.00
A summary of option activity as of December 31, 2009, and
changes during the year 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, 2009 204 $39.41
Granted 3 24.06
Exercised (1) 23.41
Forfeited or expired (28) 54.86
Outstanding at December 31, 2009 178 36.79 1.86 $115
Exercisable at December 31, 2009 175 $37.01 1.73 $103
1Aggregate 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 period was $1.84 for 2009, compared to $5.04 for 2008
and $7.71 for 2007. The total intrinsic value of options
exercised during 2009 was $5, compared to $78 for 2008 and
$667 for 2007.
It is our policy to satisfy share option exercises using our
treasury shares. The actual excess tax benefit realized for the
tax deductions from option exercises from these arrangements
was less than $1 in 2009, compared to $10 for 2008 and $77
for 2007.