AT&T Wireless 2010 Annual Report Download - page 94

Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
92 AT&T Inc.
Under our various plans, senior and other management
employees and nonemployee directors have received stock
options, performance stock units, and other nonvested stock
units. Stock options issued through December 31, 2010, carry
exercise prices equal to the market price of our stock at 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.
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. We grant performance stock
units, which are nonvested stock units, to key employees
based upon our stock price at the date of grant and award
them in the form of AT&T common stock and cash at the end
of a three-year period, subject to the achievement of certain
performance goals. We treat the cash portion of these awards
as a liability. 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, 2010, we were authorized to issue up to
97 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:
2010 2009 2008
Performance stock units $421 $289 $151
Stock options 6 8 11
Restricted stock 85 21 9
Other 1 (2) (6)
Total $513 $316 $165
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:
2010 2009 2008
Risk-free interest rate 3.06% 3.17% 3.96%
Dividend yield 6.61% 6.82% 4.36%
Expected volatility factor 15.75% 19.65% 18.76%
Expected option life in years 7.00 7.00 7.00
Deferred compensation expense was $96 in 2010, $95 in
2009 and $54 in 2008. Our deferred compensation liability,
included in “Other noncurrent liabilities,” was $1,021 at
December 31, 2010, and $1,031 at December 31, 2009.
Contributory Savings Plans
We maintain contributory savings plans that cover substantially
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.
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 $607, $586 and $664 for the years ended
December 31, 2010, 2009 and 2008.
NOTE 12. SHARE-BASED PAYMENT
We account for our share-based payment arrangements based
on the fair value of the awards on their respective grant date,
which may affect our ability to fully realize the value shown
on our consolidated balance sheets 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
exercise price plus the fair value of the options at the grant
date. We record a valuation allowance when our future
taxable income is not expected to be sufficient 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 on our
consolidated balance sheets. However, to the extent we
generate excess tax benefits (i.e., that additional tax benefits
in excess of the deferred taxes associated with compensation
expense previously recognized) the potential future impact
on income would be reduced.
At December 31, 2010, we had various share-based payment
arrangements, which we describe in the following discussion.
The compensation cost recognized for those plans was
included in operating expenses in our consolidated statements
of income. The total income tax benefit recognized in the
consolidated statements of income for share-based payment
arrangements was $196 for 2010, compared to $121 for 2009
and $63 for 2008.