UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
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AT&T Inc.
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[LOGO]
[front cover]
[AT&T LOGO]
2007
NOTICE OF
ANNUAL MEETING &
PROXY STATEMENT
AT&T INC.
[LOGO]
Notice of
Annual Meeting of Stockholders
The 2007 Annual Meeting of Stockholders of AT&T Inc., formerly known as SBC
Communications Inc., a Delaware corporation, will be held at 9:00 a.m. Central
time on Friday, April 27, 2007, at the Alzafar Shrine Temple, 901 North Loop
1604 West, San Antonio, Texas. The items of business are:
. Election of 17 Directors
. Ratification of the appointment of Ernst & Young LLP as independent
auditors of AT&T Inc. for 2007
. Approval of the AT&T Severance Policy
. Such other matters, including certain stockholder proposals if
submitted, as may properly come before the meeting.
Holders of AT&T Inc. common stock of record at the close of business on
February 28, 2007, are entitled to vote at the meeting and any adjournment of
the meeting. A list of these stockholders will be available for inspection
during business hours from April 12 through April 26, 2007, at 175 E. Houston,
San Antonio, Texas, and will also be available at the Annual Meeting.
By Order of the Board of Directors.
/s/ Ann Effinger Meuleman
Ann Effinger Meuleman
Senior Vice President and Secretary
March 22, 2007
IMPORTANT NOTICE
If you do not plan to attend the Annual Meeting to vote your shares,
please complete, date, sign and promptly mail the enclosed proxy card in the
return envelope provided. No postage is necessary if mailed in the United
States. Stockholders of record may also give their proxy by telephone or
through the Internet in accordance with the instructions accompanying the
proxy card. Any person giving a proxy has the power to revoke it at any time,
and stockholders who are present at the meeting may withdraw their proxies and
vote in person.
PROXY STATEMENT
Page
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Board of Directors............................................................ 3
Board Committees.......................................................... 4
Independence of Directors................................................. 5
Compensation of Directors................................................. 6
Director Compensation Table........................................... 8
Related Person Transactions............................................... 9
Common Stock Ownership........................................................ 10
Certain Beneficial Owners................................................. 10
Directors and Officers.................................................... 10
Beneficial Ownership Table............................................ 11
Matters To Be Voted Upon...................................................... 12
Voting.................................................................... 12
Election of Directors..................................................... 13
Ratification of Appointment of Ernst & Young LLP as Independent Auditors.. 17
Approval of the AT&T Severance Policy..................................... 17
Stockholder Proposals..................................................... 19
Audit Committee............................................................... 28
Report of the Audit Committee............................................. 28
Principal Accountant Fees and Services.................................... 29
Compensation Committee........................................................ 30
Compensation Discussion and Analysis.......................................... 32
Compensation Committee Report................................................. 39
Compensation Tables........................................................... 42
Summary Compensation Table................................................ 42
Grants of Plan-Based Awards Table......................................... 44
Narrative Disclosure to Summary Compensation Table
and Grants of Plan-Based Awards Table................................. 45
Outstanding Equity Awards at December 31, 2006 Table...................... 50
Option Exercises and Stock Vested Table................................... 55
Pension Benefits Table.................................................... 56
Nonqualified Deferred Compensation Table.................................. 60
Potential Payments upon Termination or Change in Control.................. 62
Section 16(a) Beneficial Ownership Reporting Compliance....................... 64
Other Business................................................................ 64
Your vote is important. Please sign, date and return your proxy card or
submit your proxy and/or voting instructions by telephone or through the
Internet promptly so that a quorum may be represented at the meeting.
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PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of AT&T Inc. ("AT&T," the "Company," or "we")
for use at the 2007 Annual Meeting of Stockholders of AT&T. The meeting will be
held:
9:00 a.m. Central time on Friday, April 27, 2007
Alzafar Shrine Temple
901 North Loop 1604 West
San Antonio, Texas
The purposes of the meeting are set forth in the Notice of Annual Meeting
of Stockholders (preceding the table of contents). This Proxy Statement and the
accompanying proxy card are being mailed beginning March 22, 2007, to
stockholders who were record holders of AT&T's common stock, $1.00 par value
per share, at the close of business on February 28, 2007. Each share entitles
the registered holder to one vote. As of January 31, 2007, there were
6,244,142,361 shares of AT&T common stock outstanding.
All shares represented by proxies will be voted by one or more of the
persons designated on the enclosed proxy card in accordance with the
stockholders' directions. If the proxy card is signed and returned without
specific directions with respect to the matters to be acted upon, the shares
will be voted in accordance with the recommendations of the Board of Directors.
Any stockholder giving a proxy may revoke it at any time before the proxy is
voted at the meeting by giving written notice of revocation to the Senior Vice
President and Secretary of AT&T, by submitting a later-dated proxy, or by
attending the meeting and voting in person. The Chairman of the Board and Chief
Executive Officer will announce the closing of the polls during the Annual
Meeting. Proxies must be received before the closing of the polls in order to
be counted.
Instead of submitting a signed proxy card, stockholders may submit their
proxies by telephone or through the Internet using the instructions
accompanying the proxy card. Telephone and Internet proxies must be used in
conjunction with, and will be subject to, the information and terms contained
on the proxy card. Similar procedures may also be available to stockholders who
hold their shares through a broker, nominee, fiduciary or other custodian.
The proxy card, or a proxy submitted by telephone or through the Internet,
will also serve as voting instructions to the plan administrator or trustee for
any shares held on behalf of a participant under any of the following employee
benefit plans: the AT&T Savings Plan, the AT&T Savings and Security Plan, the
AT&T PAYSOP, the Pacific Telesis Group Employee Stock Ownership Plan, the Tax
Reduction Act Stock Ownership Plan sponsored by The Southern New England
Telephone Company, the AT&T Long Term Savings Plan for Management Employees,
the AT&T Long Term Savings and Security Plan, the AT&T Retirement Savings and
Profit Sharing Plan, the AT&T of Puerto Rico, Inc. Long Term Savings Plan for
Management Employees, the AT&T of Puerto Rico, Inc. Long Term Savings and
Security Plan, the AT&T Employee Stock Ownership Plan, the Cingular Wireless
401(k) Savings Plan, the BellSouth Savings and Security Plan and the BellSouth
Retirement Savings Plan. Shares in each of the above employee benefit plans for
which voting instructions are not received, subject to the trustees' fiduciary
obligations, will be voted by the trustees in the same proportion as the shares
for which voting instructions are received from other participants in each
plan. To allow sufficient time for voting by the trustees and/or administrators
of the plans, your voting instructions must be received by April 24, 2007.
In addition, the proxy card or a proxy submitted by telephone or through
the Internet will constitute voting instructions to the plan administrator
under The DirectSERVICE Investment Program sponsored
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and administered by Computershare Trust Company, N.A. (AT&T's transfer agent)
for shares held on behalf of plan participants.
If a stockholder participates in these plans and/or maintains stockholder
accounts under more than one name (including minor differences in registration,
such as with or without a middle initial), the stockholder may receive more
than one set of proxy materials. To ensure that all shares are voted, please
sign and return every proxy card received or submit a proxy by telephone or
through the Internet for each proxy card.
Only one annual report and one Proxy Statement are being delivered to
multiple stockholders sharing an address, unless AT&T has received contrary
instructions from one or more of the stockholders at that address. Stockholders
may request a separate copy of the most recent annual report and/or the Proxy
Statement by writing the transfer agent at: Computershare Trust Company, N.A.,
P.O. Box 43078, Providence, RI 02940-3078, or by calling (800) 351-7221.
Stockholders calling from outside the United States may call (781) 575-4729.
Requests will be responded to promptly. Stockholders sharing an address who
desire to receive multiple copies, or who wish to receive only a single copy,
of the annual report and/or the Proxy Statement may write or call the transfer
agent at the above address or phone numbers to request a change.
A stockholder may designate a person or persons other than those persons
designated on the proxy card to act as the stockholder's proxy by striking out
the name(s) appearing on the enclosed proxy card, inserting the name(s) of
another person(s) and delivering the signed card to that person(s). The
person(s) designated by the stockholder must present the signed proxy card at
the meeting in order for the shares to be voted.
Where the stockholder is not the record holder, such as where the shares
are held through a broker, nominee, fiduciary or other custodian, the
stockholder must provide voting instructions to the record holder of the shares
in accordance with the record holder's requirements in order to ensure the
shares are properly voted.
The cost of soliciting proxies will be borne by AT&T. Officers, agents and
employees of AT&T and its subsidiaries and other solicitors retained by AT&T
may, by letter, by telephone or in person, make additional requests for the
return of proxies and may receive proxies on behalf of AT&T. Brokers, nominees,
fiduciaries and other custodians will be requested to forward soliciting
material to the beneficial owners of shares and will be reimbursed for their
expenses. AT&T has retained D. F. King & Co., Inc. to aid in the solicitation
of proxies at a fee of $16,000, plus expenses.
Stockholders who together represent 40% of the common stock outstanding and
are entitled to vote must be present or represented by proxy in order to
constitute a quorum to conduct business at the meeting. A list of eligible
voters will be available at the Annual Meeting.
If you plan to attend the meeting in person, please bring the admission
ticket (which is attached to the proxy card) to the Annual Meeting. If you do
not have an admission ticket, you will be admitted upon presentation of
identification at the door.
AT&T's executive offices are located at 175 E. Houston, San Antonio, Texas
78205.
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Board of Directors
The Board of Directors is responsible for our management and direction and
for establishing broad corporate policies. In addition, the Board of Directors
and various committees of the Board regularly meet to receive and discuss
operating and financial reports presented by the Chairman of the Board and
Chief Executive Officer as well as reports by experts and other advisors.
Corporate review sessions are also offered to Directors to help familiarize
them with our businesses, technology, and operations. Members of the Board are
encouraged to attend Board meetings in person, unless the meeting is held by
teleconference. The Board held 11 meetings in 2006. All of the Directors
attended at least 75% of the total number of meetings of the Board and
Committees on which each served. Directors are also expected to attend the
Annual Meeting of Stockholders. All of the Directors were present at the 2006
Annual Meeting.
At least four times a year, the non-employee members of the Board of
Directors meet in executive session, i.e., without employee Directors or
management personnel present. John B. McCoy has been appointed the Lead
Director to preside over these meetings for 2007. Responsibilities of the Lead
Director include:
. Preparing the agenda for the executive session with the non-management
Directors;
. Presiding over each session of the non-management Directors;
. Acting as the principal liaison between the non-management Directors
and the Chairman and Chief Executive Officer and coordinating the
activities of the non-management Directors when acting as a group; and
. Advising the Chairman and Chief Executive Officer as to the quality,
quantity and timeliness of the flow of information from management.
Interested persons may contact the Lead Director or the nonemployee
Directors by sending written comments through the Office of the Secretary of
AT&T Inc. The Office will either forward the original materials as addressed or
provide Directors with summaries of the submissions, with the originals
available for review at the Directors' request.
Under our Bylaws, the Board of Directors has the authority to determine the
size of the Board and to fill vacancies. Currently, the Board comprises 20
Directors, two of whom are executive officers of AT&T. We have included
biographical information about each Director on pages 13-17. Holdings of AT&T
common stock by AT&T Directors are shown on the table on page 11.
The Corporate Governance and Nominating Committee is responsible for
identifying candidates who are eligible under the qualification standards set
forth in our Corporate Governance Guidelines to serve as members of the Board.
The Committee is authorized to retain search firms and other consultants to
assist it in identifying candidates and fulfilling its other duties. The
Committee is not limited to any specific process in identifying candidates and
will consider candidates whom stockholders suggest. Candidates are recommended
to the Board after consultation with the Chairman of the Board. In recommending
Board candidates, the Committee considers a candidate's:
. general understanding of elements relevant to the success of a large
publicly traded company in the current business environment
. understanding of our business, and
. educational and professional background.
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The Committee also gives consideration to a candidate's judgment,
competence, anticipated participation in Board activities, experience,
geographic location and special talents or personal attributes. Stockholders
who wish to suggest qualified candidates should write to the Senior Vice
President and Secretary, AT&T Inc., 175 E. Houston, San Antonio, Texas 78205,
stating in detail the qualifications of the persons proposed for consideration
by the Committee.
In March 2006, AT&T Inc. entered into an agreement to acquire BellSouth
Corporation, which was completed in December 2006. Pursuant to the terms of the
agreement, AT&T Inc. increased the size of the Board to 20 members and upon
recommendation of the Corporate Governance and Nominating Committee elected the
following persons to the Board: Reuben V. Anderson, James H. Blanchard, and
James P. Kelly, each of whom were formerly Directors of BellSouth Corporation.
Their terms end at the 2007 Annual Meeting of Stockholders.
The Board of Directors has nominated the 17 persons listed in this Proxy
Statement, beginning on page 13, for election as Directors. Each of the
nominees is an incumbent Director of AT&T recommended for re-election by the
Corporate Governance and Nominating Committee. Under AT&T's Corporate
Governance Guidelines, a Director will not be nominated for re-election if the
Director has reached age 72. Accordingly, Martin K. Eby, Jr., James A.
Henderson, and S. Donley Ritchey will not be standing for re-election at the
2007 Annual Meeting, and the Board has voted to reduce its size to 17 Directors
immediately before the meeting. There are no vacancies on the Board.
.. Board Committees
From time to time the Board establishes permanent standing committees and
temporary special committees to assist the Board in carrying out its
responsibilities. The Board has established seven standing committees of
Directors, the principal responsibilities of which are described below. The
charters for each of these committees may be found on our web site at
www.att.com. The biographical information included later in this Proxy
Statement identifies committee memberships held by each Director.
Audit Committee--The Committee met 12 times in 2006. It consists of six
nonemployee Directors. The Audit Committee oversees the integrity of our
financial statements, the independent auditor's qualifications and
independence, the performance of the internal audit function and
independent auditors, and our compliance with legal and regulatory matters.
The Committee is responsible for the appointment, compensation, retention
and oversight of the work of the independent auditor. The independent
auditing firm examines the accounting records of AT&T and its subsidiaries.
Corporate Development Committee--The Committee met two times in 2006. It
consists of six nonemployee Directors and one employee Director. The
Committee reviews mergers, acquisitions, dispositions and similar
transactions.
Corporate Governance and Nominating Committee--The Committee met five times in
2006. It consists of six nonemployee Directors. The Committee is
responsible for recommending candidates to be nominated by the Board for
election by the stockholders, or to be appointed by the Board of Directors
to fill vacancies, consistent with the criteria approved by the Board, and
recommending committee assignments and the appointment of the Lead
Director. In addition, the Committee periodically assesses AT&T's Corporate
Governance Guidelines and makes recommendations to the Board for amendments
and also recommends to the Board the compensation of Directors. Finally,
the Committee takes a leadership role in shaping corporate governance and
oversees an annual evaluation of the Board.
4
Executive Committee--The Committee did not meet in 2006. It consists of six
nonemployee Directors, each of whom is the chairperson of a standing
committee, and the Chairman of the Board. The Committee assists the Board
by acting upon matters when the Board is not in session. The Committee has
the full power and authority of the Board to the extent permitted by law,
including the power and authority to declare a dividend or to authorize the
issuance of common stock.
Finance/Pension Committee--The Committee met four times in 2006. It consists of
six nonemployee Directors and one employee Director. The Committee assists
the Board in its oversight of our finances, including recommending the
payment of dividends and reviewing the management of our debt and
investment of our cash reserves.
Human Resources Committee--The Committee met six times in 2006. It consists of
five nonemployee Directors. The Committee oversees the management of human
resources activities of AT&T, including the design of employee benefit
plans. The Committee is also responsible for establishing the compensation
of the Chief Executive Officer and other officers, as determined by the
Committee.
Public Policy and Environmental Affairs Committee--The Committee met three
times in 2006. It consists of seven nonemployee Directors. The Committee
assists the Board in its oversight of corporate policies, including
legislative and environmental matters.
.. Independence of Directors
The New York Stock Exchange ("NYSE") prescribes independence standards for
companies listed on the NYSE, including us. These standards require a majority
of the Board to be independent. They also require every member of the Audit
Committee, Human Resources Committee, and Corporate Governance and Nominating
Committee to be independent. A Director is considered independent only if the
Board of Directors "affirmatively determines that the Director has no material
relationship with the listed company (either directly or as a partner,
stockholder or officer of an organization that has a relationship with the
Company)." In addition, the Board of Directors has adopted certain additional
standards for determining the independence of its members. In accordance with
the following standards of the NYSE, a Director is not independent if:
. The Director is, or has been within the last three years, an employee
of AT&T, or an immediate family member is, or has been within the last
three years, an executive officer of AT&T;
. The Director has received, or has an immediate family member who has
received, during any 12-month period within the last three years, more
than $100,000 in direct compensation from AT&T, other than Director and
committee fees and pension or other forms of deferred compensation for
prior service (provided the compensation is not contingent in any way
on continued service);
. (a) The Director or an immediate family member is a current partner of
a firm that is our internal or external auditor; (b) the Director is a
current employee of such a firm; (c) the Director has an immediate
family member who is a current employee of such a firm and who
participates in the firm's audit, assurance or tax compliance (but not
tax planning) practice; or (d) The Director or an immediate family
member was within the last three years (but is no longer) a partner or
an employee of such a firm and personally worked on our audit within
that time period;
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. The Director or an immediate family member is, or has been within the
last three years, employed as an executive officer of another company
where any of our present executive officers at the same time serves or
served on that company's compensation committee; or
. The Director is a current employee, or an immediate family member is a
current executive officer, of a company that has made payments to, or
received payments from, us for property or services in an amount which,
in any of the last three fiscal years, is more than the greater of
$1 million, or 2% of such other company's consolidated gross revenues.
Additional standards for determining independence of Directors have been
established by our Board and are set forth in our Corporate Governance
Guidelines, which can be found on our web site at www.att.com. These additional
standards are:
. A Director who owns, together with any ownership interests held by
members of the Director's immediate family, 10% of another company that
makes payments to or receives payments from us (together with our
consolidated subsidiaries) for property or services in an amount which,
in any single fiscal year, is more than the greater of $1 million or 2%
of such other company's consolidated gross revenues, is not independent
until three years after falling below such threshold; or
. A Director who is, or whose immediate family member is, a director,
trustee or officer of a charitable organization, or holds a similar
position with such an organization, and we (together with our
consolidated subsidiaries) make contributions to the charitable
organization in an amount which exceeds, in any single fiscal year, the
greater of $1 million per year or at least 5% of such organization's
consolidated gross revenues, is not independent until three years after
falling below such threshold.
The Board of Directors, using these standards for determining the
independence of its members, has determined that the following Directors are
independent: William F. Aldinger III, Gilbert F. Amelio, Reuben V. Anderson,
James H. Blanchard, August A. Busch III, Martin K. Eby, Jr., James A.
Henderson, James P. Kelly, Charles F. Knight, Jon C. Madonna, Lynn M. Martin,
John B. McCoy, Mary S. Metz, Toni Rembe, S. Donley Ritchey, Joyce M. Roche,
Laura D'Andrea Tyson and Patricia P. Upton. In addition, the Board has
determined that every member of the Audit Committee, the Human Resources
Committee and the Corporate Governance and Nominating Committee is independent.
.. Compensation of Directors
The compensation of Directors is determined by the Board in conjunction
with recommendations made by the Corporate Governance and Nominating Committee.
The Corporate Governance and Nominating Committee is composed entirely of
independent Directors. None of our employees serve on this Committee. The
Committee's current members are August A. Busch III (Chairman), James P. Kelly,
John B. McCoy, Mary S. Metz, S. Donley Ritchey, and Joyce M. Roche. Under its
charter (available on our web site at www.att.com), the Committee periodically,
and at least every two years, reviews the compensation and benefits provided to
Directors for their service, and makes recommendations to the Board for
changes. This includes not only Director retainers and fees, but also Director
compensation and benefit plans.
The Committee's charter authorizes the Committee to employ independent
compensation and other consultants to assist in fulfilling its duties. The
Committee may also form and delegate authority to subcommittees. From time to
time, the Committee engages CCA Strategies LLC, an employee benefits
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and compensation consulting firm (which also acts as a consultant to the Human
Resources Committee on executive compensation matters), to provide the
Committee with information regarding director compensation paid by companies
principally in the Fortune 50, Fortune 100 and a special comparator group used
by the Human Resources Committee. In reviewing Director compensation, the
Committee may request CCA Strategies to provide a study of director
compensation disclosed in proxy statements of companies in the comparison
groups. After reviewing the study, the Committee may make recommendations to
the Board for modifying the compensation of Directors. In addition, from time
to time, the Chief Executive Officer may make recommendations to the Committee
or the Board about types and amounts of appropriate compensation and benefits
for directors.
Directors who are also ours or our subsidiaries' employees receive no
separate compensation for serving as Directors or as members of Board
committees. Directors who are not ours or our subsidiaries' employees currently
receive an annual retainer of $85,000 and $2,000 for each Board meeting or
review session attended. Committee members receive $1,700 for each committee
meeting attended, except that members of the Audit and Human Resources
Committees receive $2,000 for each meeting attended in person. The Chairperson
of each committee receives an additional annual retainer of $5,000, except for
the Chairpersons of the Audit and Human Resources Committees, each of whom
receives an additional annual retainer of $20,000. The Lead Director also
receives an additional annual retainer of $20,000.
Directors may choose to take their retainer in the form of our common stock
or cash. Directors may also choose to defer the receipt of their fees and all
or part of their retainers into either deferred stock units or into a cash
deferral account. Each deferred stock unit is equivalent to a share of common
stock and earns dividend equivalents in the form of additional deferred stock
units. Directors purchase deferred stock units at the fair market value of AT&T
common stock. Deferred stock units are converted to common stock and paid out
as chosen by the Director in up to 15 annual installments after the Director
ceases service with the Board.
Deferrals into the cash deferral account earn interest during the calendar
year at a rate equal to the Moody's Long-Term Corporate Bond Yield Average for
September of the preceding year ("Moody's Rate"). This interest rate roughly
approximates the market interest rate used by the Securities and Exchange
Commission ("SEC") for disclosure purposes. Amounts earned above the SEC
interest rate are included in the Director Compensation table on page 8 under
the heading "Non-qualified Deferred Compensation Earnings." Directors may
annually choose to convert their Cash Deferral Accounts into deferred stock
units at the fair market value of our stock at the time of the conversion.
Each Director also receives an annual award of deferred stock units equal
in value to one and one-half times the base annual retainer. Each nonemployee
Director who joined the Board after November 21, 1997, and before September 24,
2004, receives an additional annual grant of deferred stock units equal to
$13,000, limited to 10 annual grants.
AT&T does not offer nonemployee Directors a retirement plan or pension.
However, Directors who joined the Board before 1997 have vested rights in a
former pension plan that we no longer offer. Only benefits that have already
vested are payable under the plan. Each Director who is vested in the former
pension plan, upon retirement, will receive annually 10% of the annual retainer
in effect at the time of his or her retirement multiplied by the number of
years of service, not to exceed 10 years. The payments will continue for the
life of the Director. If the Director dies before receiving 10 years of
payments, the Director's beneficiaries will receive the payments for the
remainder of the 10-year period.
Upon our acquisition of Pacific Telesis Group ("PTG") on April 1, 1997,
certain of the former PTG Directors joined our Board. These Directors were
allowed to continue their prior deferrals of PTG retainers and fees made before
they joined the AT&T Board at the PTG rates. Under the PTG plans,
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deferrals earn a rate of interest equal to Moody's Rate plus 4% for deferrals
from 1985 through 1992, Moody's Rate plus 2% for deferrals from 1993 through
1995, and the 10-year Treasury Note average for the month of September for the
prior year plus 2% for deferrals after 1995.
Similarly, upon our acquisition of BellSouth Corporation on December 29,
2006, certain of the former BellSouth Directors joined our Board. These
Directors had previously made cash and stock based deferrals under plans
offered by BellSouth. These deferrals pay out in accordance with the choices of
the Directors. Cash deferrals earn a rate of interest equal to Moody's Monthly
Average of Yields of Aa Corporate Bonds for the previous July, while earnings
on deferrals in the form of stock units are reinvested in additional deferred
stock units at the fair market value of the underlying stock.
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Director Compensation
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Change in
Pension Value
and Non-
Fees qualified
Earned or Deferred All
Paid in Stock Compensation Other
Director Cash /(1)/ Awards/ (2) (3)/ Earnings/ (4)/ Compensation Total
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William F. Aldinger III $133,633/(5)/ $ 97,500 $ 0 $3,458 $234,591
Gilbert F. Amelio 129,600 97,500 984/(6)/ 2,323 230,407
Reuben V. Anderson 7,083 0 0 0 7,083
James H. Blanchard 7,083 0 0 0 7,083
August A. Busch III 118,400 97,500 214,680 6,323 436,903
Martin K. Eby, Jr. 129,600 97,500 165,332 4,643 397,075
James A. Henderson 142,666 110,500 0 3,747 256,913
James P. Kelly 7,083 0 0 0 7,083
Charles F. Knight 114,200 97,500 183,721 3,024 398,445
Jon C. Madonna 133,633/(5)/ 97,500 0 821 231,954
Lynn M. Martin 109,200 110,500 0 2,525 222,225
John B. McCoy 119,300 110,500 0 6,153 235,953
Mary S. Metz 112,600 97,500 5,424/(6)/ 5,172 220,696
Toni Rembe 110,833 97,500 423/(6)/ 2,207 210,963
S. Donley Ritchey 145,400 97,500 10,933/(6)/ 2,865 256,698
Joyce M. Roche 112,600 110,500 55 2,435 225,590
Laura D'Andrea Tyson 107,200 110,500 560 3,139 221,399
Patricia P. Upton 116,800 97,500 215,181 3,614 433,095
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1. The following table shows the number of deferred stock units purchased in
2006 by each Director with deferrals of their retainers and fees. Each year,
Directors may elect to make monthly purchases, during the following calendar
year, of deferred stock units at the fair market value of our stock at the
time of the purchase.
-----------------------------------------------------------
Deferred Deferred
Director Stock Units Director Stock Units
-----------------------------------------------------------
Gilbert F. Amelio 1,288 John B. McCoy 4,087
August A. Busch III 4,072 Mary S. Metz 1,288
James A. Henderson 1,728 Toni Rembe 2,425
Charles F. Knight 3,895 Joyce M. Roche 2,575
-----------------------------------------------------------
8
2. The stock unit grants were vested at issuance and valued using Statement of
Financial Accounting Standard ("FAS") 123R, which also represents the grant
date value.
3. Each of Mr. Aldinger and Mr. Madonna hold 4,070 outstanding restricted stock
units which were received while they were serving on the Board of Directors
of AT&T Corp., before its acquisition by AT&T Inc. (then known as SBC
Communications Inc.). Pursuant to the acquisition agreement, these
restricted stock units were converted into AT&T Inc. units. The units vest
50% in 2007 and 25% in each of 2008 and 2009. At vesting of the units, each
unit is converted into a share of AT&T Inc. stock. Termination of service on
the Board before vesting of these units will result in forfeiture of the
units. Mr. Madonna was also issued options by AT&T Corp., which were
converted into options to acquire 2,496 shares of AT&T Inc. common stock.
Similarly, Mr. Anderson, Mr. Blanchard, and Mr. Kelly hold 61,210 options,
79,055 options, and 41,099 options, respectively, that were originally
granted by BellSouth Corporation while they served on the BellSouth Board
before its 2006 acquisition by AT&T Inc.
4. The amounts shown for Mr. Busch, Mr. Eby, Mr. Knight and Ms. Upton represent
the total change in the actuarial present value of these Directors' pensions
during 2006. This resulted from an increase in the annual retainer from
$65,000 to $85,000 during 2006. (The pension plan was discontinued for new
Directors joining the Board in 1997 and later.) Amounts shown for all other
Directors represent the difference between market interest rates determined
pursuant to SEC rules and actual rates used to determine earnings on
deferred compensation.
5. Includes fees earned in 2006, along with $10,833 earned in 2005 that were
paid in 2006.
6. Includes amounts deferred under Pacific Telesis Group plans before that
company's acquisition by AT&T Inc.
.. Related Person Transactions
Under the rules of the Securities and Exchange Commission, public issuers,
such as AT&T, must disclose certain "Related Person Transactions." These are
transactions in which the Company is a participant where the amount involved
exceeds $120,000, and a Director, executive officer or holder of more than 5%
of our common stock has a direct or indirect material interest.
AT&T has adopted a written policy requiring each Director or executive
officer involved in such a transaction to notify the Corporate Governance and
Nominating Committee of each transaction and seek approval of the committee.
In determining whether to approve a Related Person Transaction, the
Committee will consider the following factors, among others, to the extent
relevant to the Related Person Transaction:
. whether the terms of the Related Person Transaction are fair to the
Company and on the same basis as would apply if the transaction did not
involve a related person;
. whether there are business reasons for the Company to enter into the
Related Person Transaction;
. whether the Related Person Transaction would impair the independence of
an outside director; and
. whether the Related Person Transaction would present an improper
conflict of interest for any of our Directors or executive officers,
taking into account the size of the transaction, the overall financial
position of the Director, executive officer or other related person,
the direct or indirect nature of the Director's, executive officer's or
other related person's interest in the transaction and the ongoing
nature of any proposed relationship, and any other factors the
Committee deems relevant.
9
A Related Person Transaction entered into without the Committee's
pre-approval will not violate this policy, or be invalid or unenforceable, so
long as the transaction is brought to the Committee as promptly as reasonably
practical after it is entered into or after it becomes reasonably apparent that
the transaction is covered by this policy.
A son-in-law of Mr. Whitacre, a brother of Mr. Sigman, and a daughter of
Mr. Callaway, are employed by subsidiaries with approximate rates of pay,
including target incentive awards, between $130,000 and $175,000. This rate of
pay is similar to that paid for comparable positions at the Company. The
employment of each of these persons was approved by the Corporate Governance
and Nominating Committee under the Company's Related Party Transactions Policy,
which was adopted by the Board in January 2007.
--------------------------------------------------------------------------------
Common Stock Ownership
.. Certain Beneficial Owners
The following table lists the beneficial ownership of each person holding
more than 5% of AT&T's outstanding common stock as of December 31, 2006 (as
reported in filings made with the Securities and Exchange Commission on
Schedule 13G by the stockholder listed below).
----------------------------------------------------------------------------
Total AT&T
Name and Address Beneficial Percent
Title of Class of Beneficial Owner Ownership of Class
----------------------------------------------------------------------------
Common stock, Capital Research and Management Company 431,840,575 6.9%
$1.00 par value 333 South Hope Street
Los Angeles, CA 90071
----------------------------------------------------------------------------
.. Directors and Officers
The table on the following page lists the beneficial ownership of AT&T
common stock and non-voting stock units as of December 31, 2006, held by each
Director, nominee and officer named in the Summary Compensation Table on page
42. As of that date, each Director and officer listed below, and all Directors
and executive officers as a group, owned less than 1% of our outstanding common
stock. Except as noted below, the persons listed in the table have sole voting
and investment power with respect to the securities indicated.
10
--------------------------------------------------------------------------------
Beneficial Ownership Table
--------------------------------------------------------------------------------
Total AT&T Total AT&T
Beneficial Beneficial
Ownership Non-Voting Ownership Non-Voting
Name of (including Stock Name of (including Stock
Beneficial Owner options)/(1)/ Units/(2)/ Beneficial Owner options)/(1)/ Units/(2)/
--------------------------------------------------------------------------------------------------------
William F. Aldinger III 13,083 7,867 S. Donley Ritchey 7,862 47,733
Gilbert F. Amelio 5,398 44,128 Joyce M. Roche 2,041 46,370
Reuben V. Anderson 77,107 32,572 Laura D'Andrea Tyson 11,648 33,275
James H. Blanchard 136,815 58,449 Patricia P. Upton 13,429 30,395
August A. Busch III /(3)/ 83,354 94,869 Edward E. Whitacre, Jr. 11,041,975 7,449
Martin K. Eby, Jr. 26,856 44,830 Richard G. Lindner 289,783 23,133
James A. Henderson 13,476 41,104 Stanley T. Sigman 1,015,656 65,842
James P. Kelly 47,066 30,778 Randall L. Stephenson 952,302 171,362
Charles F. Knight 24,978 55,542 James D. Ellis 1,849,605 96,635
Jon C. Madonna 12,999 7,867 David W. Dorman 1,883,340 0
Lynn M. Martin 9,478 29,633 All executive officers and
John B. McCoy 31,584 56,532 Directors as a group
Mary S. Metz 3,900 35,595 (consisting of 31 persons,
Toni Rembe /(4)/ 16,548 43,475 including those named above) 22,525,686 1,329,864
--------------------------------------------------------------------------------
1. The table above includes presently exercisable stock options and stock
options that became exercisable within 60 days of the date of this table.
The following Directors and officers hold the following numbers of options:
Mr. Anderson--61,210, Mr. Blanchard--79,055, Mr. Kelly--41,099,
Mr. Madonna--2,496, Mr. Whitacre--9,187,752, Mr. Lindner--225,780,
Mr. Sigman--971,629, Mr. Stephenson--846,436, Mr. Ellis--1,460,117,
Mr. Dorman--1,483,338, and all executive officers and Directors as a
group--18,774,466.
The table above also includes the following numbers of shares held in an
employee benefit plan for the following persons, who have sole voting power
but no investment power with respect to the shares: Mr. Whitacre--1,154,
Mr. Sigman--219, Mr. Stephenson--63, and Mr. Ellis--1,210. In addition, of
the shares shown in the table above, the following persons share voting and
investment power with other persons with respect to the following numbers
of shares: Dr. Amelio--5,381, Mr. Blanchard--390, Mr. Busch--6,600,
Dr. Metz--797, Ms. Rembe--2,573, Mr. Ritchey--7,859, Dr. Tyson--11,648,
Ms. Upton--5,025, Mr. Whitacre--31,668, Mr. Stephenson--87,133, and
Mr. Ellis--318,432.
2. Represents number of vested stock units held by the Director or officer,
where each stock unit is equal in value to one share of our AT&T stock. The
stock units are paid in stock or cash depending upon the plan and the
election of the Director at times specified by the relevant plan. None of
the stock units listed may be converted into common stock within 60 days of
the date of this table. As noted under "Compensation of Directors," AT&T's
plans permit nonemployee Directors to acquire stock units (also referred to
as deferred stock units) by deferring the receipt of fees and retainers
into stock units and through a yearly grant of stock units. Officers may
acquire stock units by participating in stock-based compensation deferral
plans. Certain of the Directors also hold stock units issued by companies
prior to their acquisition by AT&T that have been converted into AT&T stock
units. Stock units carry no voting rights.
3. Mr. Busch disclaims beneficial ownership of 3,300 shares held in a trust
for a sister.
4. Ms. Rembe disclaims beneficial ownership of 2,145 shares held in a trust
for her spouse and 428 shares held by her spouse's corporation.
11
--------------------------------------------------------------------------------
Matters To Be Voted Upon
.. Voting
Each share of AT&T common stock represented at the Annual Meeting is
entitled to one vote on each matter properly brought before the meeting. All
matters, except as provided below, are determined by a majority of the votes
cast, unless a greater number is required by law or the Certificate of
Incorporation for the action proposed. A majority of votes cast means the
number of shares voted "for" a matter exceeds the number of votes cast
"against" such matter.
In the election of Directors, each Director is elected by the vote of the
majority of the votes cast with respect to that Director's election. Under our
Bylaws, if a nominee for Director is not elected and the nominee is an existing
Director standing for re-election (or "incumbent" Director), the Director must
promptly tender his or her resignation to the Board, subject to the Board's
acceptance. The Corporate Governance and Nominating Committee will make a
recommendation to the Board as to whether to accept or reject the tendered
resignation, or whether other action should be taken. The Board will act on the
tendered resignation, taking into account the Corporate Governance and
Nominating Committee's recommendation, and publicly disclose (by a press
release, a filing with the Securities and Exchange Commission or other broadly
disseminated means of communication) its decision regarding the tendered
resignation and the rationale behind the decision within 90 days from the date
of the certification of the election results. The Corporate Governance and
Nominating Committee in making its recommendation and the Board of Directors in
making its decision may each consider any factors or other information that
they consider appropriate and relevant. Any Director who tenders his or her
resignation as described above will not participate in the recommendation of
the Corporate Governance and Nominating Committee or the decision of the Board
of Directors with respect to his or her resignation.
If the number of persons nominated for election as Directors as of ten days
before the record date for determining stockholders entitled to notice of or to
vote at such meeting shall exceed the number of Directors to be elected, then
the Directors shall be elected by a plurality of the votes cast.
Because no persons other than the incumbent Directors have been nominated
for election at the 2007 Annual Meeting, each nominee must receive a majority
of the votes cast for that nominee to be elected to the Board.
All other matters at the 2007 Annual Meeting will be determined by a
majority of the votes cast. Shares represented by proxies marked "abstain" with
respect to the proposals described on the proxy card, and by proxies marked to
deny discretionary authority on other matters will not be counted in
determining the vote obtained on such matters. If no directions are given and
the signed card is returned, the person or persons designated on the card will
vote the shares for the election of the Board of Directors' nominees and in
accordance with the recommendations of the Board of Directors on the other
subjects listed on the proxy card and at their discretion on any other matter
that may properly come before the meeting.
Under the rules of the New York Stock Exchange, on certain routine matters,
brokers may, at their discretion, vote shares they hold in "street name" on
behalf of beneficial owners who have not returned voting instructions to the
brokers. Routine matters include the election of Directors, the ratification of
the appointment of the independent auditors, and approval of the AT&T Severance
Policy. In instances where brokers are prohibited from exercising discretionary
authority (so-called "broker non-votes"), the shares they hold are not included
in the vote totals. At the 2007 Annual Meeting, brokers will be prohibited from
exercising discretionary authority with respect to each of the stockholder
proposals (Items 4 through 8). Because broker non-votes are not included in the
vote, they will have no effect on the vote for any of the proposals.
12
.. Election of Directors (Item 1 on Proxy Card)
The following persons, each of whom is currently a Director of AT&T, have
been nominated by the Board of Directors on the recommendation of the Corporate
Governance and Nominating Committee for election to one-year terms of office
that would expire at the 2008 Annual Meeting.
[PHOTO] EDWARD E. WHITACRE, JR., age 65, is Chairman of the Board and
Chief Executive Officer of AT&T Inc. and has served in this capacity since January
1990. Mr. Whitacre has been a Director of AT&T since October 1986. He is the
Chairman of the Executive Committee and a member of the Corporate Development
Committee and the Finance/Pension Committee. He is a Director of Anheuser-Busch
Companies, Inc. and Burlington Northern Santa Fe Corporation.
[PHOTO] WILLIAM F. ALDINGER III, age 59, is President and Chief Executive Officer of
Capmark Financial Group Inc. (an international commercial real estate finance
company in Horsham, Pennsylvania) and has served in this capacity since June 2006.
Mr. Aldinger was Chairman and Chief Executive Officer of HSBC North America
Holdings Inc. (a financial services company in Prospect Heights, Illinois) from January
2004 until April 2005. He also served as Chairman from 1996 and Chief Executive
Officer from 1994 of HSBC Finance Corporation (formerly Household International,
Inc.) until April 2005. Mr. Aldinger has been a Director of AT&T since November
2005. He served as a Director of AT&T Corp. from 2003 until the company was
acquired by AT&T Inc. (then known as SBC Communications Inc.) in 2005.
Mr. Aldinger is a member of the Audit Committee and the Public Policy and
Environmental Affairs Committee. He is a Director of Capmark Financial Group Inc.;
Illinois Tool Works Inc.; KKR Financial Corp.; and Charles Schwab Corporation.
[PHOTO] GILBERT F. AMELIO, age 64, is Chairman and Chief Executive Officer of Jazz
Technologies, Inc. (formerly Acquicor Technology Inc.) and has served in this capacity
since August 2005. Jazz Technologies is the parent company of Jazz Semiconductor,
Inc., an independent semiconductor wafer foundry headquartered in Newport Beach,
California. He has also been Senior Partner of Sienna Ventures (a privately-held
venture capital firm in Sausalito, California) since April 2001. Dr. Amelio was
Chairman and Chief Executive Officer of Beneventure Capital, LLC (a full-service
venture capital firm in San Francisco, California) from 1999 to 2005 and was Principal
of Aircraft Ventures, LLC (a consulting firm in Newport Beach, California) from April
1997 to December 2004. In 2003, AmTech, LLC (a high technology investments and
consulting services firm), where Dr. Amelio served as Chairman and Chief Executive
Officer from 1999 to April 2004, declared bankruptcy. Dr. Amelio was elected a
Director of AT&T in February 2001 and had previously served as an Advisory Director
of AT&T from April 1997 to February 2001. He served as a Director of Pacific Telesis
Group from 1995 until the company was acquired by AT&T in 1997. He is a member
of the Audit Committee and the Human Resources Committee. Dr. Amelio is a
Director of Jazz Technologies, Inc.
13
[PHOTO] REUBEN V. ANDERSON, age 64, is a partner in the law firm of Phelps Dunbar,
LLP in Jackson, Mississippi and has served in this capacity since 1991. He served as a
Mississippi Supreme Court Justice from 1985 to 1990. Mr. Anderson was elected a
Director of AT&T in December 2006. He served as a Director of BellSouth
Corporation from 1994 until the company was acquired by AT&T in 2006. He is a
member of the Finance/Pension Committee and the Public Policy and Environmental
Affairs Committee. Mr. Anderson is a Director of The Kroger Co. and Trustmark
Corporation.
[PHOTO] JAMES H. BLANCHARD, age 65, was Chairman of the Board of Synovus Financial
Corp. (a diversified financial services holding company in Columbus, Georgia) and
served in this capacity from July 2005 to October 2006. He served as Chief Executive
Officer of Synovus Financial Corp. from January 1971 to July 2005. Mr. Blanchard
was elected a Director of AT&T in December 2006. He served as a Director of
BellSouth Corporation from 1994 until the company was acquired by AT&T in 2006.
He is a member of the Corporate Development Committee and the Human Resources
Committee. Mr. Blanchard is a Director of Synovus Financial Corp. and Total System
Services, Inc.
[PHOTO] AUGUST A. BUSCH III, age 69, was Chairman of the Board of Anheuser-Busch
Companies, Inc. (a brewing, packaging, and family entertainment holding company in
St. Louis, Missouri) from 1977 until his retirement in December 2006. Mr. Busch also
served as Chief Executive Officer of Anheuser-Busch Companies, Inc. from 1975 until
June 2002. Mr. Busch has been a Director of AT&T since October 1983. He served as
a Director of Southwestern Bell Telephone Company from 1980 to 1983. He is the
Chairman of the Corporate Governance and Nominating Committee and a member of
the Corporate Development Committee and the Executive Committee. Mr. Busch is a
Director of Anheuser-Busch Companies, Inc.; Emerson Electric Co.; Grupo Modelo,
S.A.B. de C.V.; and Diblo, S.A. de C.V.
[PHOTO] JAMES P. KELLY, age 63, was Chairman of the Board and Chief Executive Officer
of United Parcel Service, Inc. (a global express carrier and package distribution
logistics company in Atlanta, Georgia) from 1997 until his retirement in 2002.
Mr. Kelly was elected a Director of AT&T in December 2006. He served as a Director
of BellSouth Corporation from 2000 until the company was acquired by AT&T in
2006. He is a member of the Audit Committee and the Corporate Governance and
Nominating Committee. Mr. Kelly is a Director of Dana Corporation and United Parcel
Service, Inc.
[PHOTO] CHARLES F. KNIGHT, age 71, was Chairman of the Board of Emerson Electric Co.
(manufacturer of electrical and electronic equipment in St. Louis, Missouri) from 1974
until his retirement in September 2004, when he was elected to the honorary position of
Chairman Emeritus. Mr. Knight was also Chief Executive Officer of Emerson Electric
Co. from 1973 to 2000. He has been a Director of AT&T since October 1983. He
served as a Director of Southwestern Bell Telephone Company from 1974 to 1983. He
is the Chairman of the Corporate Development Committee and a member of the
Executive Committee and the Finance/Pension Committee. Mr. Knight is a Director of
Anheuser-Busch Companies, Inc.
14
[PHOTO] JON C. MADONNA, age 63, was Chairman and Chief Executive Officer of KPMG
(an international accounting and consulting firm in New York, New York) from 1990
until his retirement in 1996. He was with KPMG for 28 years where he held numerous
senior leadership positions throughout his career. Subsequent to his retirement from
KPMG, Mr. Madonna served as Vice Chairman of Travelers Group, Inc. from 1997 to
1998 and President and Chief Executive Officer of Carlson Wagonlit Corporate Travel,
Inc. from 1999 to 2000. He was Chief Executive Officer of DigitalThink, Inc. from
2001 to 2002 and was Chairman of DigitalThink, Inc. from April 2002 to May 2004.
Mr. Madonna has been a Director of AT&T since November 2005. He served as a
Director of AT&T Corp. from 2002 until the company was acquired by AT&T Inc.
(then known as SBC Communications Inc.) in 2005. Mr. Madonna is a member of the
Audit Committee and the Corporate Development Committee. He is a Director of
Phelps Dodge Corporation; Tidewater Inc.; and Visa U.S.A. Inc.
[PHOTO] LYNN M. MARTIN, age 67, is President of The Martin Hall Group, LLC (a human
resources consulting firm in Chicago, Illinois) and has served in this capacity since
January 2005. Ms. Martin was Chair of the Council for the Advancement of Women
and Advisor to the firm of Deloitte & Touche LLP (an auditing and management
consulting services firm in Chicago, Illinois) from 1993 until September 2005. She
served as U.S. Secretary of Labor from 1991 to 1993 and as a member of the U.S.
House of Representatives from Illinois from 1981 to 1991. Ms. Martin has been a
Director of AT&T since October 1999. She served as a Director of Ameritech
Corporation from 1993 until the company was acquired by AT&T in 1999. Ms. Martin
is a member of the Finance/Pension Committee and the Public Policy and
Environmental Affairs Committee. She is a Director of Constellation Energy Group,
Inc.; certain Dreyfus Funds; The Procter & Gamble Company; and Ryder System, Inc.
[PHOTO] JOHN B. MCCOY, age 63, was Chairman from November 1999 and Chief Executive
Officer from October 1998 of Bank One Corporation (commercial and consumer bank
based in Chicago, Illinois) until his retirement in December 1999, and Chairman and
Chief Executive Officer of its predecessor, Banc One Corporation, from 1987 to 1998.
Mr. McCoy has been a Director of AT&T since October 1999. He served as a Director
of Ameritech Corporation from 1991 until the company was acquired by AT&T in
1999. He is the Chairman of the Finance/Pension Committee and a member of the
Corporate Governance and Nominating Committee and the Executive Committee. He
is a Director of Cardinal Health, Inc.; ChoicePoint Inc.; and Onex Corporation.
[PHOTO] MARY S. METZ, age 69, is Chair of the Board of Trustees of American Conservatory
Theater (a nonprofit nationally renowned theater and an accredited conservatory in San
Francisco, California) and has served in this capacity since November 2004. Dr. Metz
is also President Emerita of Mills College. She was President of S. H. Cowell
Foundation in San Francisco, California from January 1999 until her retirement in
March 2005, and was Dean of the University Extension of the University of California
at Berkeley from 1991 until 1998. Dr. Metz has been a Director of AT&T since April
1997. She served as a Director of Pacific Telesis Group from 1986 until the company
was acquired by AT&T in 1997. She is a member of the Corporate Governance and
Nominating Committee and the Public Policy and Environmental Affairs Committee.
Dr. Metz is a Director of Longs Drug Stores Corporation; Pacific Gas and Electric
Company; and UnionBanCal Corporation.
15
[PHOTO] TONI REMBE, age 70, was a partner in the law firm of Pillsbury Winthrop LLP (now
known as Pillsbury Winthrop Shaw Pittman LLP in San Francisco, California) from
1971 until her retirement in December 2004. Ms. Rembe was elected a Director of
AT&T in January 1998 and had previously served as an Advisory Director of AT&T
from April 1997 to January 1998. She served as a Director of Pacific Telesis Group
from 1991 until the company was acquired by AT&T in 1997. She is the Chairwoman
of the Public Policy and Environmental Affairs Committee and a member of the
Corporate Development Committee and the Executive Committee. Ms. Rembe is a
Director of AEGON N.V.
[PHOTO] JOYCE M. ROCHE, age 59, is President and Chief Executive Officer of Girls
Incorporated (a national nonprofit research, education, and advocacy organization in
New York, New York) and has served in this capacity since September 2000.
Ms. Roche was an independent marketing consultant from 1998 to 2000. She was
President and Chief Operating Officer of Carson, Inc. from 1996 to 1998, and
Executive Vice President of Global Marketing of Carson, Inc. from 1995 to 1996.
Ms. Roche has been a Director of AT&T since October 1998. She served as a Director
of Southern New England Telecommunications Corporation from 1997 until the
company was acquired by AT&T in 1998. She is a member of the Corporate
Governance and Nominating Committee and the Public Policy and Environmental
Affairs Committee. She is a Director of Anheuser-Busch Companies, Inc.; Federated
Department Stores, Inc.; and Tupperware Corporation.
[PHOTO] RANDALL L. STEPHENSON, age 46, is Chief Operating Officer of AT&T Inc. and
has served in this capacity since April 2004. He was Senior Executive Vice President
and Chief Financial Officer of AT&T Inc. from August 2001 through May 2004. Prior
to becoming Chief Financial Officer, Mr. Stephenson held a variety of high-level
finance and marketing positions with AT&T or its subsidiaries since 1996. He first
joined AT&T through its subsidiary, Southwestern Bell Telephone Company, in 1982.
He has been a Director of AT&T since June 2005. Mr. Stephenson is a Director of
Emerson Electric Co.
[PHOTO] LAURA D'ANDREA TYSON, age 59, is Professor of Business Administration and
Economics at the Walter A. Haas School of Business, University of California at
Berkeley, and has served in this capacity since January 2007. She was Dean of London
Business School, London, England, from January 2002 until December 2006.
Dr. Tyson was Dean of the Walter A. Haas School of Business at the University of
California at Berkeley from July 1998 to December 2001. Dr. Tyson served as
Professor of Economics and Business Administration at the University of California at
Berkeley from 1997 to 1998. She served as National Economic Adviser to the
President of the United States from 1995 to 1996 and as Chair of the White House
Council of Economic Advisers from 1993 to 1995. Dr. Tyson has been a Director of
AT&T since October 1999. She served as a Director of Ameritech Corporation from
1997 until the company was acquired by AT&T in 1999. She is a member of the
Corporate Development Committee and the Finance/Pension Committee. Dr. Tyson is
a Director of Eastman Kodak Company and Morgan Stanley.
16
[PHOTO] PATRICIA P. UPTON, age 68, is President and Chief Executive Officer of
Aromatique, Inc. (manufacturer and wholesaler of decorative fragrances in Heber
Springs, Arkansas) and has served in this capacity since 1982. Ms. Upton has been a
Director of AT&T since June 1993. She is a member of the Human Resources
Committee and Public Policy and Environmental Affairs Committee.
Shares represented by the accompanying form of proxy will be voted for the
election of the nominees unless other instructions are shown on the proxy card
or provided through the telephone or Internet proxy. If one or more of the
nominees should at the time of the meeting be unavailable or unable to serve as
a Director, the shares represented by the proxies will be voted to elect the
remaining nominees and any substitute nominee or nominees designated by the
Board. The Board knows of no reason why any of the nominees would be
unavailable or unable to serve.
Your Board of Directors Recommends a Vote "FOR"
Each of the Above Nominees for Election as Directors.
.. Ratification of Appointment of Ernst & Young LLP as Independent Auditors
(Item 2 on Proxy Card)
This proposal would ratify the appointment of the firm of Ernst & Young LLP
to serve as independent auditors of AT&T Inc. by the Audit Committee of the
Board of Directors for the fiscal year ending December 31, 2007. This firm has
audited the accounts of AT&T since 1983. If stockholders do not ratify this
appointment, the Committee will consider other independent auditors. One or
more members of Ernst & Young LLP are expected to be present at the Annual
Meeting, will be able to make a statement if they so desire, and will be
available to respond to appropriate questions.
Your Board of Directors Recommends a Vote "FOR" Approval
of the Ratification of Appointment of Ernst & Young LLP as Independent Auditors.
.. Approval of the AT&T Severance Policy (Item 3 on Proxy Card)
The Board of Directors approved and recommends that the stockholders
consider and approve its policy on employment and severance agreements for
executive officers of AT&T (the "Policy"). The provisions of the Policy are
summarized below, followed by the full text of the Policy.
Summary of Policy
The Policy provides that we will not enter into a future severance
agreement with an executive officer that provides for severance benefits in an
amount that exceeds 2.99 times the executive's annual base salary plus target
bonus, unless the agreement is approved or ratified by our stockholders. The
Policy is prospective only; it will not apply to existing agreements with our
current executive officers.
For purposes of the Policy, severance benefits include cash payments made
by AT&T to the executive officer in connection with his or her termination of
employment and the present value of benefits or perquisites provided for
periods after the termination of employment. Severance benefits do not include
amounts accrued prior to termination, whether or not deferred, and reasonable
consulting fees,
17
among other things. Under the Policy if the Board determines to enter into an
employment agreement with severance provisions that exceed the limits of the
Policy, the Board will seek stockholder approval of the agreement in advance or
ratification within 15 months thereafter. Any agreement that has not been
approved in advance will be subject to stockholder ratification and will be
retroactively modified to the extent necessary to bring it within the limits of
the Policy if it is not ratified.
AT&T Severance Policy
AT&T will not enter into any future severance agreement or future
employment agreement with any executive officer that provides for severance
benefits in an amount that exceeds 2.99 times the executive's annual base
salary plus target bonus, unless such future agreement receives prior
shareholder approval or is ratified by shareholders at a regularly scheduled
annual meeting within the following 15 months. All other future severance
agreements and future employment agreements with executive officers will not be
subject to shareholder approval or ratification under the Policy.
An "executive officer" is any person who, at the time the agreement is
entered into, is identified by the company as an executive officer as that term
is defined in Rule 3b-7 under the Securities Exchange Act of 1934.
"Future employment agreement" means an agreement between AT&T and an
executive officer, entered into after the effective date of the Policy,
pursuant to which such executive renders services to AT&T or one of its
affiliates as an employee. "Future severance agreement" means an agreement
between AT&T and an executive officer, entered into after the effective date of
the Policy, which relates to such executive's termination of employment with
AT&T.
"Severance benefits" means (i) cash payments made by AT&T to the executive
officer in connection with and directly related to his or her termination of
employment and (ii) the present value of benefits or perquisites provided for
periods after the termination of employment. This includes lump-sum payments
and the estimated present value of any periodic payments to be made or benefits
or perquisites provided following the date of termination that are accrued and
paid as a direct result of such termination. "Severance benefits," however,
does not include: (i) payments of salary, bonus or performance award amounts
that had accrued at the time of termination or had been previously earned and
deferred; (ii) payments of accrued compensation or benefits under qualified and
non-qualified deferred compensation plans, savings plans, retirement plans, and
health and welfare plans; (iii) amounts paid to offset excise tax liability to
the extent the excise taxes are incurred because of a prior deferral of income;
(iv) any benefits or perquisites provided under plans or programs applicable to
managers generally; (v) amounts paid as part of any agreement intended to
"make-whole" any loss or forfeiture of benefits from a prior employer;
(vi) amounts paid for post-termination consulting services pursuant to a
reasonable consulting agreement; (vii) amounts paid for post-termination
covenants, such as a covenant not to compete; or (viii) any payment that the
Board of Directors determines in good faith to be a reasonable settlement of
any claim made against AT&T. In the event of termination of employment by the
company following a change in control (as that term is defined in AT&T's Change
in Control Severance Plan, as amended from time to time), "severance benefits"
will not include the cash payments made in lieu of the accelerated vesting of
options or outstanding equity-based awards or to compensate for the
cancellation of such awards.
Your Board of Directors Recommends a Vote "FOR"
Approval of the AT&T Severance Policy
18
.. Stockholder Proposals (Items 4 through 8 on Proxy Card)
Certain stockholders have advised the Company that they intend to introduce
at the 2007 Annual Meeting the proposals set forth below. The names and
addresses of, and the number of shares owned by, each such stockholder will be
provided upon request to the Senior Vice President and Secretary of AT&T.
Stockholder Proposal A (Item 4 on Proxy Card)
Resolved, that the shareholders of AT&T ("the Company") hereby request that the
Company provide a report, updated semi-annually, disclosing the Company's:
Monetary and non-monetary political contributions and expenditures not
deductible under section 162 (e)(1)(B) of the Internal Revenue Code,
including but not limited to contributions to or expenditures on behalf of
political candidates, political parties, political committees and other
political entities organized and operating under 26 USC Sec. 527 of the
Internal Revenue Code and any portion of any dues or similar payments made
to any tax exempt organization that is used for an expenditure or
contribution if made directly by the corporation would not be deductible
under section 162 (e)(1)(B) of the Internal Revenue Code. The report shall
include the following:
a. An accounting of the Company's funds that are used for political
contributions or expenditures as described above;
b. Identification of the person or persons in the Company who participated
in making the decisions to make the political contribution or
expenditure; and
c. The internal guidelines or policies, if any, governing the Company's
political contributions and expenditures.
The report shall be presented to the board of directors' audit committee or
other relevant oversight committee and posted on the company's website to
reduce costs to shareholders.
Supporting Statement
This proposal asks AT&T to disclose its political contributions, and payments
to trade associations and other tax-exempt organizations. Current disclosure is
insufficient to allow shareholders to fully evaluate the political use of
corporate assets.
Company executives exercise wide discretion over the use of corporate resources
for political activities. These decisions involve political contributions,
called "soft money," and payments to trade associations and related groups that
are used for political activities. Most of these expenditures are not
disclosed. In 2003-04, the last fully reported election cycle, AT&T contributed
at least $1,337,575 in soft money. In the 2005-06 election cycle, AT&T
contributed at least $1,210,000 in soft money. (Derived from
PoliticalMoneyLine.com).
Our company's payments to trade associations used for political activities are
undisclosed and unknown. These activities include direct and indirect political
contributions to candidates, political parities or organizations and
electioneering communications on behalf of a federal, state or local candidate.
In many cases, even management does not know how trade associations use their
company's money politically. Absent a system of accountability, corporate
executives are free to use the Company's assets for political objectives that
are not shared by and may be inimical to the interests of the Company and its
shareholders, potentially harming long-term shareholder value.
19
AT&T has posted its political contributions policy on its website, after
receiving a similar resolution last year. However, there is still no single
source of information that provides the information sought by this resolution.
This report could be prepared at minimal cost, as presumably management already
monitors corporate resources used for such purposes. We believe that
transparency and accountability in this area will advance our company's
interests, and help build long-term shareholder value.
YOUR DIRECTORS' POSITION
Political contributions, where permitted, are an important part of the
regulatory and legislative process. AT&T is in a highly regulated industry and
the Company's operations are significantly affected by the actions of elected
officials at the local, state and national levels, including rates it can
charge customers, its profitability and even how it must provide services to
competitors. It is important that your company actively participate in the
electoral and legislative processes in order to protect your interests as
stockholders. We do so by contributing prudently to state and local candidates
and by contributing to political organizations and trade associations when such
contributions advance AT&T's business objectives and the interests of our
stockholders. In making such contributions, AT&T is committed to complying with
campaign finance and lobbying laws, and changes that may be enacted in the
future, including the laws requiring public disclosure of political
contributions and lobbying expenses. The amount of AT&T's expenditures in this
area is de minimis as compared to the total expenditures of the Company in a
year. The adoption of this proposal would add unnecessary costs to the business.
Each year, your Board of Directors authorizes a maximum amount of aggregate
contributions that can be made by your company, as permitted by, and in strict
compliance with, applicable law, for the purposes of supporting or opposing any
party, committee, candidate for public office, or ballot measure, or for any
other political purpose. Except for contributions for ballot measures, no
expenditure over $1,000 may be made unless approved by the Chief Executive
Officer (lesser amounts may be approved by delegates). All expenditures must be
submitted to the Company's attorneys to confirm that each contribution is
lawful. AT&T's policy with respect to political contributions is clearly set
forth on the Company's website, and can be found at
http://www.att.com/gen/investor-relations?pid=7726.
In addition, no company funds, by law, are expended to make Federal
political contributions. Federal law has long prohibited corporate
contributions to Federal candidates or their political committees. With the
enactment of the Bi-Partisan Campaign Finance Reform Act of 2002 (known as the
"McCain Feingold Act"), corporate contributions to Federal political parties
and Leadership Committees are prohibited, effective November 6, 2002.
As to state and local contributions, state laws determine when and under
what circumstances political contributions are permissible. Moreover, a number
of states in which AT&T operates have extensive reporting requirements. These
rules, in general, are equally applicable to all participants in the political
process. This proposal, on the other hand, would impose a set of rules only on
your Company.
This proposal would impose unwarranted expenditures of funds and
administrative burdens on your company and would be uniquely applicable only to
your Company and not to our competitors, unions or any other participants in
the process. Your Directors believe that any reporting requirements that go
beyond those required under existing law should be applicable to all
participants in the process, not just to AT&T.
Your Board of Directors Recommends a
Vote "AGAINST" This Proposal.
20
Stockholder Proposal B (Item 5 on Proxy Card)
5 - Special Shareholder Meetings
RESOLVED, shareholders ask our board of directors to amend our bylaws to give
holders of at least 10% to 25% of the outstanding common stock the power to
call a special shareholder meeting.
Shareholders should have the ability, within reasonable limits, to call a
special meeting when they think a matter is sufficiently important to merit
expeditious consideration. Shareholder control over timing is especially
important in the context of a major acquisition or restructuring, when events
unfold quickly and issues may become moot by the next annual meeting.
Thus this proposal asks our board to amend our bylaws to establish a process by
which holders of 10% to 25% of our outstanding common shares may demand that a
special meeting be called. The corporate laws of many states (though not
Delaware, where our company is incorporated) provide that holders of only 10%
of shares may call a special meeting, absent a contrary provision in the
charter or bylaws. Accordingly, a 10% to 25% threshold strikes a reasonable
balance between enhancing shareholder rights and avoiding excessive distraction
at our company.
Prominent institutional investors and organization support allowing
shareholders to call a special meeting. Fidelity, Vanguard, American Century
and Massachusetts Financial Services are among the mutual fund companies
supporting a shareholder right to call a special meeting. The proxy voting
guidelines of many public employee pension funds, including the Connecticut
Retirement Plans, the New York City Employees Retirement System and the Los
Angeles County Employees Retirement Association, also favor preserving this
right. Governance ratings services, such as The Corporate Library and
Governance Metrics International, take special meeting rights into account when
assigning company ratings.
This topic also won 65% support of JPMorgan Chase & Co. (JPM) shareholders at
the 2006 JPM annual meeting.
YOUR DIRECTORS' POSITION
Under the Company's Bylaws, a special meeting of stockholders may be called
at any time by the Board of Directors or the Chairman of the Board. The Bylaws
also provide that the Chairman of the Board will call a special meeting
whenever requested in writing to do so by stockholders representing two-thirds
of the shares of AT&T then outstanding and entitled to vote at such meeting.
This Bylaw provision conforms to the requirements of the Delaware General
Corporation Law. For a company with as many stockholders as AT&T, a special
meeting of shareholders is a very expensive and time-consuming affair because
of the legal costs in preparing required disclosure documents, printing and
mailing costs, and the time commitment required of the Board and members of
senior management to prepare for and conduct the meeting. Calling special
meetings of stockholders is not a matter to be taken lightly, and should be
extraordinary events that only occur when either fiduciary obligations or
strategic concerns require that the matters to be addressed cannot wait until
the next annual meeting.
Allowing a minority group of stockholders to call special meetings could
impose substantial administrative and financial burdens on the Company, and
significantly disrupt the conduct of the Company's business. The current Bylaw
provision is an appropriate corporate governance provision for a public company
of our size because it allows the directors, according to their fiduciary
obligations, to exercise their business judgment to determine when it is in the
best interests of stockholders to convene a special meeting.
21
For these reasons, your Board of Directors believes that the adoption of
this proposal is not in the best interest of AT&T's stockholders.
Your Board of Directors Recommends a
Vote "AGAINST" This Proposal.
Stockholder Proposal C (Item 6 on Proxy Card)
Resolved: That the shareholders of AT&T ("Company") request that the Board of
Director's Executive Compensation Committee establish a
pay-for-superior-performance standard in the Company's executive compensation
plan for senior executives ("Plan"), by incorporating the following principles
into the Plan:
1. The annual incentive or bonus component of the Plan should utilize
defined financial performance criteria that can be benchmarked against
a disclosed peer group of companies, and provide that an annual bonus
is awarded only when the Company's performance exceeds its peers'
median or mean performance on the selected financial criteria:
2. The long-term compensation component of the Plan should utilize defined
financial and/or stock price performance criteria that can be
benchmarked against a disclosed peer group of companies. Options,
restricted shares, or other equity or non-equity compensation used in
the Plan should be structured so that compensation is received only
when the Company's performance exceeds its peers' median or mean
performance on the selected financial and stock price performance
criteria; and
3. Plan disclosure should be sufficient to allow shareholders to determine
and monitor the pay and performance correlation established in the Plan.
Supporting Statement: We feel it is imperative that compensation plans for
senior executives be designed and implemented to promote long-term corporate
value. A critical design feature of a well-conceived executive compensation
plan is a close correlation between the level of pay and the level of corporate
performance relative to industry peers. We believe the failure to tie executive
compensation to superior corporate performance; that is, performance exceeding
peer group performance, has fueled the escalation of executive compensation and
detracted from the goal of enhancing long-term corporate value.
We believe that common compensation practices have contributed to excessive
executive compensation. Compensation committees typically target senior
executive total compensation at the median level of a selected peer group, then
they design any annual and long-term incentive plan performance criteria and
benchmarks to deliver a significant portion of the total compensation target
regardless of the company's performance relative to its peers. High total
compensation targets combined with less than rigorous performance benchmarks
yield a pattern of superior-pay-for-average-performance. The problem is
exacerbated when companies include annual bonus payments among earnings used to
calculate supplemental executive retirement plan (SERP) benefit levels,
guaranteeing excessive levels of lifetime income through inflated pension
payments.
We believe the Company's Plan fails to promote the pay-for-superior-performance
principle. Our Proposal offers a straightforward solution: The Compensation
Committee should establish and disclose financial and stock price performance
criteria and set peer group-related performance benchmarks that permit awards
or payouts in its annual and long-term incentive compensation plans only when
the Company's performance exceeds the median of its peer group. A senior
executive compensation plan based on sound pay-for-superior-performance
principles will help moderate excessive executive compensation and create
competitive compensation incentives that will focus senior executives on
building sustainable long-term corporate value.
22
YOUR DIRECTORS' POSITION
This proposal calls for the Company to establish an executive compensation
program that is based on a comparison of operating and financial results at
AT&T to the results at other companies. It would require the Company to pick
certain criteria, such as revenues or net income or customer numbers, and base
the bonus and long-term compensation of our senior executives solely on a
comparison of those criteria. The proposal does not take into account the fact
that different companies, although in the same peer group, could be, for
example, in different stages of growth, subject to different regulatory and
legal requirements, or simply in different geographic areas, any of which could
cause a particular company to stress different factors in measuring its
performance. Your Board of Directors believes that the proposal therefore
focuses on the wrong issue by ignoring other more fundamental and important
principles that should be considered in the administration of executive
compensation programs.
The Human Resources Committee does look to peer companies and market data
to determine appropriate market rates and levels of compensation. However, the
determination of the payment for incentive awards is and should be largely tied
directly to goals and objectives established by the Human Resources Committee
consistent with the specific performance goals and objectives of your Company.
Decisions regarding the compensation of AT&T's executive officers are the
responsibility of the Human Resources Committee, which is composed entirely of
independent Directors. As stated in the Compensation Discussion & Analysis
included in this proxy statement, the Committee believes that its current
approach of linking a significant portion of senior executive compensation to
specific AT&T performance measures aligns the interests of the Company's senior
executives with the long-term interests of the Company's stockholders and gives
the Committee the necessary flexibility and discretion to more effectively use
performance-based compensation and equity incentive tools in the administration
of the Company's executive compensation programs. Moreover, as discussed in the
Compensation Discussion & Analysis, a significant portion of the long-term
compensation of the Chief Executive Officer already is based on a comparison of
AT&T's total stockholder return (stock appreciation plus reinvestment of
dividends) to relevant companies in the North American Telecom Index, subject
to adjustments described in the Compensation Discussion & Analysis. The
Committee believes this mix of performance standards tied to your Company's
objectives to a comparison of total stockholder return compared with other
companies strikes an appropriate balance.
Your Board of Directors believes that it is in the best interests of
stockholders to continue to provide the Committee the flexibility and
discretion to use performance-based compensation and equity incentive tools as
appropriate, without being restricted by guidelines that would tie compensation
to the performance objectives and results of other companies as opposed to the
specific objectives of your Company. For these reasons, the Board of Directors
believes that the adoption of the proposal is unnecessary and detrimental to
the long-term interests of the stockholders.
Your Board of Directors Recommends a
Vote "AGAINST" This Proposal.
Stockholder Proposal D (Item 7 on Proxy Card)
RESOLVED, the shareholders of AT&T Inc. hereby request that the Board adopt a
policy that includes, as a voting item in the proxy statement for each annual
meeting, an advisory resolution, proposed by AT&T's management, to approve the
compensation of the named executive officers ("NEOs"), as set forth in the
proxy statement's Summary Compensation Table (the "SCT"), and the accompanying
narrative disclosure of material factors provided to understand the SCT. The
policy should ensure that shareholders fully understand the vote is advisory
and will not abrogate any employment agreement.
23
SUPPORTING STATEMENT
We believe current rules governing senior executive compensation do not give
shareholders sufficient influence over pay practices - nor do they give the
Board adequate feedback from the owners of the company.
The advisory vote proposed here is similar to the nonbinding shareholder vote
required since 2003 at the annual meetings of all U.K.-listed firms and,
beginning in 2005, at Australia-based companies.
AT&T's Board has been criticized for excessive CEO pay relative to performance.
A study by The Corporate Library ("Pay for Failure: The Compensation Committees
responsible," March 31, 2006) singled out AT&T as one of eleven large U.S.
companies "where the disconnect between pay and performance is particularly
stark."
The study notes that over the five fiscal years through 2005, CEO Edward
Whitacre received $85.2 million in compensation, while total shareholder return
was negative 40.3%. The Corporate Library accordingly gave AT&T's Board a "D"
for overall effectiveness.
The Corporate Library's analysis concludes: "Too much of the current and future
compensation at AT&T is either fixed, or based on the wrong performance
metrics, or the wrong performance metrics measured over too short a time
period, which, while achievable, do not necessarily translate into long-term
growth in shareholder value." The study asserts that 100% LTIP payouts to
Whitacre when "shareholder wealth has been diminished by a third over the
period goes against common sense."
In our opinion, AT&T's executive pension and severance agreements also stand
out as unjustifiably costly and contrary to shareholder interests.
Whitacre's parachute is valued at over $25 million - the 17th most costly among
America's 100 largest corporations ("Platinum Promises," BusinessWeek Online,
December 12, 2005).
Whitacre's golden parachute is particularly excessive, in our view, considering
it has a platinum lining: annual pension payments of $5,494,000 for life, plus
an $18,805,000 lump sum. Last year The Corporate Library singled out AT&T for
bestowing on Whitacre the third largest CEO pension payout among large U.S.
companies.
If you add these together, it means that AT&T's shareholders could be paying
our CEO $150 million or more in post-employment severance and pension benefits
combined over the next 20 years (assuming Whitacre's eligible termination and
longevity).
Last year, after just 5 years at AT&T, former CEO David Dorman left with a
yearly pension of $2.1 million and his own $25 million parachute. Compare this
to the freezing of AT&T's rank-and-file pension plan.
An advisory vote would provide useful feedback and encourage stockholders to
scrutinize the new, more extensive disclosures required by the SEC.
Please vote FOR this proposal.
YOUR DIRECTORS' POSITION
Your Board of Directors believes that this proposal is not in the best
interests of AT&T stockholders.
24
The process requested by the proposal is not necessary because AT&T already
has an efficient and meaningful method of communicating with the Board of
Directors. As discussed on page 3 under the heading "Board of Directors,"
stockholders and other interested parties may communicate with members of
AT&T's Board of Directors, including the Lead Director, by writing to the
Board, or a specific Committee Chair or director through the Office of the
Secretary.
We believe that direct communications between stockholders and the Board,
including the Human Resources Committee, is a much more effective and accurate
method of expressing support or criticism of AT&T's executive compensation
practices. Unlike the vote advocated by the proposal, communicating directly
with the Board will allow stockholders to voice any specific observations or
objections to AT&T's executive compensation practices directly to the decision
makers. Moreover, communicating directly with the Board will eliminate the need
for the Human Resources Committee to speculate as to the meaning of stockholder
approval or disapproval of the compensation set forth in the Company's proxy
statement.
In addition, the vote recommended in the proposal would not provide any
useful information to AT&T and members of the Human Resources Committee. If
implemented, the stockholder proposal would require AT&T stockholders to vote
"yes" or "no" on the compensation set forth in the Summary Compensation Table
and the accompanying narrative disclosure. Contrary to the assertions in the
supporting statement for the proposal, the process advocated by the proposal
would not provide "useful feedback" on executive compensation, and it would not
give AT&T stockholders the right to approve or disapprove of AT&T's executive
compensation practices. The executive officers' compensation is composed of
several different elements. Since the vote on the compensation would be either
"yes" or "no" as a whole, the Committee would not have any information
regarding which element the stockholders were voting against and what their
specific objection was. The Committee would be forced to speculate regarding
the stockholders' intent.
Moreover, the vote advocated by the proposal fails to recognize that AT&T
already has in place a thoughtful, performance-based executive compensation
program. AT&T's executive compensation program emphasizes the retention of key
executives and the practice of appropriately rewarding key executives for
positive results. The Human Resources Committee, which is composed entirely of
independent directors, none of whom has an interest in the compensation
decisions the Committee makes, oversees AT&T's executive compensation program.
The Committee continually monitors the executive compensation program and
adopts changes to reflect the dynamic, global marketplace in which AT&T
competes for talent. AT&T will continue to emphasize pay-for-performance and
equity-based incentive programs that reward executives for results that are
consistent with stockholder interests.
Your Board of Directors does not believe the advisory vote called for by
the stockholder proposal will enhance AT&T's compensation program. Instead of
encouraging stockholders to take advantage of AT&T's current policies and
procedures, the proposal advocates substituting a narrower and less effective
mechanism.
Your Board of Directors Recommends a
Vote "AGAINST" This Proposal.
Stockholder Proposal E (Item 8 on Proxy Card)
Be it Resolved: That the shareholders of the AT&T Inc. ("Company") hereby urge
that the Board of Director's executive compensation committee establish a
policy limiting the benefits provided under the Company's supplemental
executive retirement plan ("SERP Policy"). The SERP Policy should provide
25
for the following: (1) a limitation of covered compensation to a senior
executive's annual salary, and (2) the exclusion of all incentive or bonus pay
from inclusion in the plan's definition of covered compensation used to
establish benefits. The SERP Policy should be implemented in a manner so as not
to interfere with existing contractual rights of any supplemental plan
participant.
Supporting Statement: We believe that one of the most troubling aspects of the
sharp rise in executive compensation is the excessive pension benefits provided
to senior corporate executives through the use of supplemental executive plans
("SERPs"). Our Company has established a SERP, called the 2005 Supplemental
Employee Retirement Plan. The Supplemental Employee Retirement Plan provides
the Company's chief executive officer ("CEO") and other senior executives
retirement benefits far greater than those permitted under the Company's
tax-qualified pension plan. Our proposal seeks to limit excessive pension
benefits by limiting the type of compensation used to calculate pension
benefits under the SERP plan.
At present, U.S. tax law maintains a $220,000 limit on the level of
compensation used to determine a participant's retirement benefit under a
tax-qualified pension plan. Our Company has established a SERP as a complement
to its tax-qualified plan in order to provide senior executives increased
retirement benefits. This is accomplished by raising the level of compensation
used in the pension formula to calculate retirement benefits. The SERP
establishes a higher compensation level on which to calculate senior
executives' pension benefits by including the executive's full salary and
annual bonus in the compensation figure. The Company's 2006 proxy statement
indicates that the combined salary and bonus figure was $9,249,000 for the CEO,
approximately 42 times the $220,000 compensation limit in the Company's
tax-qualified pension plan.
Our position is that the inclusion of an executive's annual bonus along with
his or her full salary in the pension calculation is overly generous and
unjustifiable. The only type of compensation used in the SERP for establishing
the level of additional pension benefits should be an executive's annual
salary. No variable incentive pay should be included in a senior executive's
pension calculation under the SERP. The inclusion of annual bonus or incentive
payments in determining increased pension benefits can dramatically increase
the pension benefit afforded senior executives and has the additional
undesirable effect of converting one-time incentive compensation into
guaranteed lifetime pension income.
The proposal's limitation on the type of compensation that can be considered in
determining senior executives' retirement benefits to only the executive's
salary is a necessary and reasonable restriction on the excessiveness of
supplemental retirement benefits. We urge your support for this important
executive compensation reform.
YOUR DIRECTORS' POSITION
SERP retirement benefits are part of a comprehensive compensation package
used to attract and retain selected senior executives. SERPs are utilized by
many large public companies, including many which compete with us for qualified
senior executives. The Human Resources Committee, which is comprised entirely
of independent directors, is responsible for ensuring that executive
compensation is sufficient to attract, retain and reward executives in a
competitive business environment.
The Company limits participation in the SERP, and finds the SERP Plan to be
a useful component of executive compensation. Any benefit provided under our
SERP is offset by amounts payable under any other Company qualified or
nonqualified defined benefit pension plan.
The Board recognizes that it must perform its responsibilities in a manner
that it believes to be in the best interests of the Company and its
stockholders. In order to fulfill those obligations, the Board and the
26
Human Resources Committee must be able to design and approve executive
compensation packages that address the facts and circumstances of an individual
executive's situation. Requiring the Board to adopt an arbitrary policy
limiting executive retirement benefits would substantially hamper and undermine
its ability to attract and retain desirable candidates.
The Human Resources Committee continuously reviews the compensation and
benefits for executives. As one of many recent changes, the Human Resources
Committee reduced the target SERP percentage to 50% for all new participants.
The Human Resources Committee has engaged an independent consultant to
assist it with periodic benchmarking within the Company's compensation peer
group to ensure that our executive compensation and benefits programs are
competitive with the marketplace. We believe that our SERP and other retirement
benefits are consistent with market practice.
For these reasons, your Board of Directors believes it is in the best
interests of the Company and its stockholders for the Company to retain the
flexibility to consider making SERP benefits part of the compensation package
for any or all of its senior executives without being limited by a policy that
could put the Company at a significant competitive disadvantage.
Your Board of Directors Recommends a
Vote "AGAINST" This Proposal.
27
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Audit Committee
The Audit Committee oversees the integrity of AT&T's financial statements,
the independent auditors' qualifications and independence, the performance of
the internal audit function and independent auditors, and AT&T's compliance
with legal and regulatory matters. The members of the Audit Committee are
Mr. Ritchey (Chairman), Mr. Aldinger, Dr. Amelio, Mr. Eby, Mr. Kelly, and
Mr. Madonna; each of whom was appointed by the Board of Directors. Mr. Kelly
was appointed to the Committee in January 2007. The Board has adopted a written
charter for the Audit Committee, which may be viewed on the Company's web site
at www.att.com. The Audit Committee is composed entirely of independent
Directors in accordance with the applicable independence standards of the New
York Stock Exchange and AT&T. The Board of Directors has determined that the
simultaneous service of Mr. Aldinger on the Audit Committee and the three other
public company audit committees on which he now serves would not impair his
ability to effectively serve on AT&T's Audit Committee.
The Board of Directors has determined that Mr. Ritchey, Mr. Madonna, and
Mr. Kelly are "audit committee financial experts" and are independent as
defined in the listing standards of the New York Stock Exchange and in
accordance with AT&T's additional standards. Although the Board of Directors
has determined that these individuals have the requisite attributes defined
under the rules of the Securities and Exchange Commission, their
responsibilities are the same as those of the other Audit Committee members.
They are not AT&T's auditors or accountants, do not perform "field work" and
are not full-time employees. The Commission has determined that an audit
committee member who is designated as an audit committee financial expert will
not be deemed to be an "expert" for any purpose as a result of being identified
as an audit committee financial expert. The Audit Committee is responsible for
oversight of management in the preparation of AT&T's financial statements and
financial disclosures. The Audit Committee relies on the information provided
by management and the independent auditors. The Audit Committee does not have
the duty to plan or conduct audits or to determine that AT&T's financial
statements and disclosures are complete and accurate. AT&T's Audit Committee
charter provides that these are the responsibility of management and the
independent auditors.
.. Report of the Audit Committee
The Audit Committee: (1) reviewed and discussed with management AT&T's
audited financial statements for the year ended December 31, 2006;
(2) discussed with the independent auditors the matters required by Statement
on Auditing Standards No. 61, Communication with Audit Committees, as amended
by Statement on Auditing Standards No. 90, Audit Committee Communications;
(3) received the written disclosures and the letter from the independent
auditors required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees; and (4) discussed with the auditors the
auditors' independence.
Based on the review and discussions, the Audit Committee recommended to the
Board of Directors that the audited financial statements for the year ended
December 31, 2006, be included in AT&T's Annual Report on Form 10-K for filing
with the Securities and Exchange Commission.
February 15, 2007
The Audit Committee:
S. Donley Ritchey, Chairman Martin K. Eby, Jr.
William F. Aldinger III James P. Kelly
Gilbert F. Amelio Jon C. Madonna
28
.. Principal Accountant Fees and Services
Ernst & Young LLP acts as AT&T's principal auditor and also provides
certain audit-related, tax and other services. The Audit Committee has
established a pre-approval policy for services to be performed by Ernst &
Young. Under this policy, the Audit Committee approves specific engagements
when the engagements have been presented in reasonable detail to the Audit
Committee before services are undertaken.
This policy also allows for the approval of certain services in advance of
the Audit Committee being presented details concerning the specific service to
be undertaken. These services must meet service definitions and fee limitations
previously established by the Audit Committee. Additionally, engagements
exceeding $500,000 must receive advance concurrence from the Audit Committee
Chairman. After an auditor is engaged under this authority, the services must
be described in reasonable detail to the Audit Committee at the next meeting.
All pre-approved services must commence, if at all, within 14 months of the
approval.
The fees for services provided by Ernst & Young (all of which were
pre-approved by the Audit Committee) to AT&T in 2006 and 2005 were as follows
(dollars in millions):
. Audit Fees were $20.0 and $16.7 for 2006 and 2005, respectively.
Included in this category are fees for the annual financial statement
audit, quarterly financial statement reviews, audits required by
Federal and state regulatory bodies, statutory audits, and comfort
letters.
. Audit-Related Fees were $0.9 and $3.1 for 2006 and 2005, respectively.
These fees, which are for assurance and related services other than
those included in Audit Fees, include charges for employee benefit plan
audits, SAS 70 attestations, consultations concerning financial
accounting and reporting standards, and audits and due diligence in
conjunction with proposed or consummated acquisitions and dispositions.
. Tax Fees were $4.4 and $1.9 for 2006 and 2005, respectively. These fees
include charges for various Federal, state, local and international tax
compliance and research projects, as well as tax services for AT&T
employees working in foreign countries.
. All Other Fees were less than $0.1 and $0 for 2006 and 2005,
respectively. The 2006 fees were paid to assist in producing tax
records for a government request.
29
--------------------------------------------------------------------------------
Compensation Committee
The Human Resources Committee, composed entirely of independent,
nonemployee Directors, is responsible for the compensation of our executives,
including the Named Executive Officers, and overseeing our compensation
practices. Its charter is available on our web site at www.att.com. None of our
employees serve on this Committee. The current members of the Committee are:
Mr. Henderson (Chairman), Dr. Amelio, Mr. Blanchard, Mr. Eby, Jr., and
Ms. Upton. Mr. Blanchard joined the Committee in January 2007.
The Committee is responsible for determining the compensation of the Chief
Executive Officer and other executive officers as well as for certain other
employees. It is also responsible for the administration of certain benefit
plans and recommending new benefit plans to the Board when Board approval is
required.
The Committee is authorized by its charter to employ independent
compensation and other consultants. It may also form and delegate authority to
subcommittees of the Committee. Presently, the Committee employs CCA
Strategies, an employee benefits and compensation consulting firm, to assist
the Committee in evaluating executive compensation and benefits on an ongoing
basis. A consultant from CCA Strategies attends all Committee meetings and
provides information, research and analysis pertaining to executive
compensation and benefits as requested by the Committee. CCA Strategies
regularly updates the Committee on market trends and makes recommendations for
establishing the market values of the top positions at our Company. Recently,
CCA Strategies was acquired by JP Morgan Retirement Plan Services.
The Committee sets compensation levels based on the skills, experience and
achievements of each executive officer, taking into account the market rates
recommended by CCA Strategies and the compensation recommendations by the Chief
Executive Officer, except with respect to his own position. The Committee
believes that input from both management and the consultant provides useful
information and points of view to assist the Committee in determining
compensation.
Role of Compensation Consultant The Committee with the assistance of CCA
Strategies conducts an annual analysis of historic executive compensation and
financial performance and establishes annual market rates. This analysis
considers market data from four separate groups of companies as set forth below:
1. a comparator group of 20 companies in the technology,
telecommunications and entertainment industries selected by CCA
Strategies in consultation with the Committee (in 2005, the Committee
used a comparator group of 26 companies in diverse industries);
2. the Fortune 50, excluding financial or privately held institutions;
3. Fortune 25 companies, excluding financial and privately held
institutions; and
4. companies in the telecommunications and cable industries.
This analysis includes the removal of outliers where actual compensation
practice is not consistent with financial performance or is in the top quartile.
30
The current comparator group is comprised as follows:
Boeing IBM Qwest Communications
Cisco Systems Intel Sprint Nextel
Comcast Johnson Controls Time Warner
Dell Lockheed Martin United Technologies
General Electric Microsoft Verizon Communications
Hewlett-Packard Motorola Walt Disney
Honeywell News Corp
The analysis reviews historic compensation rates and realized compensation
compared to actual and comparative financial and equity performance.
Actual company performance with respect to growth in revenue and net
operating income and total shareholder return was compared to total
compensation over a five year period.
Relative company performance was compared to the comparator group, Fortune
50, Fortune 25 and telecommunication and cable companies with respect to total
compensation among these respective companies over a 5 year period to test the
overall reasonableness of each separate group comparison.
As part of the Committee's process for setting compensation each year, CCA
Strategies reviews and summarizes compensation data from the annual analysis
and makes recommendations for the Committee to use in determining a market rate
for each element of compensation (salary, bonus, and long term compensation)
for each executive officer position.
Once the market data is collected, the consultant confers with the Chief
Executive Officer as to the Company's views on the relative value of each
executive officer position at the Company. The consultant then develops final
market rate recommendations for the Committee for each position.
In 2006 the Committee also reviewed a sensitivity analysis prepared by CCA
Strategies that analyzed the total value of current compensation and future
compensation, including:
. Salary
. Annual incentives
. Long term incentives
. Benefits and perquisites
. Change in control
. Severance
Forecasts were developed of the value of current and future incentive plans
projected under threshold, target and optimal company performance including:
. Stock appreciation/depreciation
. Revenue increase/decrease
. Net operating income increase/decrease
. Performance metrics used in incentive plans (threshold, target, maximum)
These forecasts provide the range of potential compensation that executives
could receive and permit the Compensation Committee to assess the appropriate
level of incentive compensation to be awarded annually.
The consultant presents these market rate recommendations and various
studies of executive officer compensation to the Committee.
31
--------------------------------------------------------------------------------
Compensation Discussion and Analysis
The Human Resources Committee's objective is to develop and maintain
compensation packages most likely to attract, retain, motivate, and reward
executives. Compensation programs should be sound and consistent with those of
other firms of similar size with which we are likely to compete for talent to
enable AT&T to employ and retain a high-quality management team.
The Human Resources Committee has adopted the following principles for
establishing the amount and form of executive compensation:
. Maximize the alignment of executive compensation with the long-term
interests of stockholders;
. Provide competitive compensation to attract, retain and motivate
executives;
. Base both short-term bonuses and long-term compensation on performance
measures;
. Balance equity-based compensation awarded to executives with the
interests of stockholders concerning dilution;
. Establish short-term incentives with a view toward achievement of
long-term corporate goals; and
. Provide opportunities for executives to acquire and hold AT&T stock and
establish minimum ownership requirements.
The Committee believes that a competitive compensation package should offer:
. A competitive salary
. An annual incentive bonus opportunity
. Long-term compensation tied to company and stock performance
. Tax advantaged opportunities to defer compensation, and
. Pension and other retirement plans.
Compensation
Summary of Compensation The Committee sets compensation levels based on the
skills, experience and achievements of each executive officer, taking into
account the market rates recommended by CCA Strategies and the compensation
recommendations by the Chief Executive Officer, except with respect to his own
position. Under this process, we establish compensation for our officers using
a combination of salary, annual incentive bonus and long-term incentives. In
addition, as other companies do, we provide health and pension plans and other
benefits.
Annual Base Salaries Base salaries are designed to attract, retain,
motivate and reward competent, experienced executives to operate the business.
We emphasize performance based compensation for executive officers, so base
salaries are typically less than either target annual bonuses or long term
awards. Our executive officers' salaries (other than the Chief Executive
Officer) are generally targeted to the 50th percentile of the market, as
adjusted for the relative value of the jobs within our Company.
Executives with significant experience and responsibility, who consistently
demonstrate exemplary performance, are typically paid more than the market
rates set for their position, while less experienced executives may be paid
salaries less than the market rates.
The Committee sets Mr. Whitacre's compensation based on his employment
contract, discussed on page 46, which requires his total target compensation to
be at least what it was in 2001. Mr. Whitacre has been instrumental in
reshaping the Company and transforming it into a market-leading global
competitor,
32
and the Committee believes he should be rewarded accordingly. At the time the
employment contract was executed, the Committee determined that Mr. Whitacre
should be compensated at the then 75th percentile of the market. Because of his
long, sustained superior performance, the Committee still believes it is
appropriate to pay Mr. Whitacre in accordance with the contract. Mr. Whitacre's
salary for 2006 did not change.
Mr. Sigman is the chief executive officer of AT&T Mobility LLC (our
wireless subsidiary, formerly known as Cingular Wireless), and his salary and
other 2006 compensation was set by the Cingular (now AT&T Mobility)
compensation committee pursuant to his employment contract, discussed on page
47.
Short-Term Incentives In 2006, the Committee used annual short-term
incentives in the form of performance based annual cash bonuses to compensate
the Named Executive Officers as well as other officers. The Committee
established performance targets for executive officers using financial and/or
operational goals linking compensation to our overall performance. The
Committee establishes performance targets after reviewing our business plan and
determining the short-term business metrics managers should focus on most in
order to drive results. Because of the broad responsibilities of the Named
Executive Officers, their targets are tied to Company-wide measures.
Target bonuses for executive officers (except the Chief Executive Officer)
were established by generally targeting the 62nd percentile of market for cash
compensation (salary plus annual bonus) and then adjusting for the relative
value of each position to determine the market rate used by the Committee. By
using the 50th percentile for salaries, but the 62nd percentile for total cash
compensation (salary and bonus), the Committee emphasizes performance-based
compensation over salary.
In determining target bonus amounts, the Committee also considers
individual performance, level of responsibility and experience. Bonuses are
paid at the Committee's discretion based on the accomplishment of company
and/or business unit performance targets set at the beginning of the year and
individual performance. As with his base salary, Mr. Whitacre's target bonus is
set based on his contract. While his target bonus increased approximately 6% in
total from the time of his contract through 2003, it has not increased since
that date.
For 2006, the financial and operational targets for short-term awards for
the Named Executive Officers, except for Mr. Sigman and Mr. Dorman, were based
on net income, free cash flow, customer satisfaction and customer churn
(weighted 50%, 30%, 10% and 10%, respectively). Similar targets were
established for non-executive officers. If the objectives are not completely
met, the bonuses are reduced, or if certain minimum targets are not met,
bonuses are eliminated. The Committee also provided for an extraordinary bonus
payment of up to 10% of the short-term award if we achieved aggressive
year-over-year revenue targets. The total payout based on financial performance
is capped at 125% of the target opportunity.
For the 2006 short-term incentive awards, the Committee determined that the
Named Executive Officers had exceeded the net income target of $5,608 million.
After excluding earnings resulting from the acquisition of BellSouth for the
last two days of the year, we had net income of $7,332 million. Our Free Cash
Flow target was $6,956 million, and after adjusting for BellSouth, our actual
result was $8,013 million. We did not meet our customer satisfaction targets
nor did we meet certain of the customer churn targets as a result of
re-branding our businesses under the AT&T name. Under a predetermined formula
for the awards, the bonuses were paid at 119% of the target for the Named
Executive Officers, together with discretionary awards based on individual
performance for certain officers other than the Chief Executive Officer.
Because Mr. Dorman was with the Company for only one month in 2006, he received
a pro-rated portion of his target award under his employment agreement.
Mr. Sigman's bonus was determined in accordance with his AT&T Mobility grant,
described under his employment contract on page 47.
33
While the Committee is not limited in its ability to make discretionary
bonus payments, it attempts to do so in accordance with Section 162(m) of the
Internal Revenue Code, which permits a company to deduct compensation over $1
million paid to the five most highly paid Named Executive Officers only if the
payment is made pursuant to a performance-based award under a stockholder
approved plan. At the time the Committee sets performance objectives and payout
targets for short-term incentives, it also sets the maximum discretionary
payment that may be made if the same performance objectives are achieved. This
limit is subject to the same conditions as the target payout: if the targets
are not met, then the limit is reduced or eliminated. The Committee is not
obligated to make discretionary bonuses, and it uses these bonuses to reward
exceptional performance. For 2006 the Committee set discretionary target limits
of $15 million for Mr. Whitacre, $3.8 million for Mr. Stephenson, and $2
million for Mr. Lindner and Mr. Ellis. The actual discretionary bonuses for
2006 for these officers were well within these limits (as noted above,
Mr. Whitacre received no discretionary bonus) and are set out under "Bonuses"
in the Summary Compensation Table.
Long-Term Incentives - Introduction In 2002 and before, the Company granted
long-term incentives in the form of 40% performance shares and 60% stock
options. A performance share is equal in value to one share of our stock and is
paid out at the end of the performance period (typically three years) based on
the extent to which the performance goals are met. Officers also receive
dividend equivalents on the performance shares equal to the dividends on our
common stock. In 2003, the previous Committee modified the mix of those
elements to one-third performance shares, one-third stock options and one-third
restricted stock. The performance objectives for performance shares granted in
2002 and 2003 were based on a net income target for each year in the three-year
performance cycle.
Beginning in 2004, the Committee decided to use performance shares instead
of stock options or restricted stock to tie the incentive pay of executives
more directly to performance and to minimize the dilution of stockholder
interests to which equity-based compensation programs may contribute. The
Committee continued that policy in subsequent annual grants. While stock
options and time-based restricted stock link an executive's interests to those
of stockholders, they do not have a performance component or measure. In
addition, current accounting rules cause stock options to be dilutive in
calculating earnings per share. Therefore, since 2004 the Committee has
exclusively used performance shares as long-term compensation for executive
officers. The value of performance shares fluctuates directly with changes in
the price of our stock, which ties managers' interests directly to those of
stockholders. Performance shares are paid out only to the extent that specific
internal financial and/or operational objectives are achieved. No payout is
made if minimum objectives are not met. Depending on the terms of the grant,
payouts are made in a combination of cash and stock or in cash alone; payouts
made in whole or in part in cash reduce dilution caused by the payout of stock
alone.
--------------------------------------------------------------------------------
Comparison of the Compensation Elements Used for
Delivering Value in Long-Term Compensation Plans
--------------------------------------------------------------------------------
2002 Long-Term 2003 Long-Term 2004 and Later
Compensation Compensation Long-Term Compensation
-----------------------------------------------------------------------------------------------
.. Performance . .
Shares (2002-2004 Performance Shares (2003-2005 Performance Shares (2004-2006
performance period) performance period) and later performance
.. Stock Options . Stock Options periods)
.
Restricted Stock (vested in 2006)
--------------------------------------------------------------------------------
Long-Term Compensation - Awards in 2006 In 2006, the Committee granted
executive officers long-term incentives in the form of performance shares for
the 2006-2008 performance period. The Committee determined the total amount of
long-term incentives to grant each executive officer (except the Chief
Executive Officer) by generally targeting the 50th percentile of the long-term
market rates and
34
then adjusting for the relative value of each position within our Company.
Mr. Whitacre's long-term compensation was again set based on his contract.
The Committee also decided to use return on invested capital instead of net
income as the long-term performance measure for target awards for grants
beginning in 2004. This performance measure is calculated by averaging over the
three-year performance period (1) our annual net income before extraordinary
items plus after-tax interest expense, divided by (2) the total of the average
debt and average stockholder equity for the relevant year. We exclude the
effects of mergers over $5 billion. Return on invested capital encourages
managers to focus not only on net income, but also to ensure that the company's
capital is invested effectively. We believe our targets are reasonable and in
the interests of stockholders. While we expect our officers to attain these
targets, there can be no assurance of their success.
Another change made by the Committee reduced the potential payout by
reducing the cap to 150% from the previous cap of 200%, beginning with the 2004
performance share grants. The chart below shows the performance share grants
made by the Committee in 2006.
------------------------------------------------
2006 Long-Term Incentive Grants by the Committee
------------------------------------------------
Grant Value of
Officer Performance Shares
------------------------------------------------
Edward E. Whitacre, Jr. $22,103,216
Richard G. Lindner 2,866,304
Randall L. Stephenson 4,913,634
James D. Ellis 3,992,341
------------------------------------------------
In setting Mr. Whitacre's long-term compensation, the Committee decided
that 75% of his performance shares would be tied to return on invested capital
(as described above), and the remaining 25% of the award would be based on the
comparison of AT&T's total stockholder return (stock appreciation plus
reinvestment of dividends) to relevant companies in the North American Telecom
Index. We exclude from this index equipment manufacturers and companies with a
market capitalization of under $5 billion, and add several cable and, beginning
with the 2006 grants, satellite companies not already in the Index. The
following chart shows the potential payouts based on total stockholder return:
------------------------------------------------------------------------------------------
AT&T Total Stockholder Return compared to the Payout
adjusted North American Telecom Index Percentage
------------------------------------------------------------------------------------------
AT&T is the top company 200%
AT&T in 75 - 99th percentile of the Index 150%
AT&T in 50 - 74.99th percentile of the Index 100%
AT&T in 25 - 49.99th percentile of the Index 50%
AT&T below the 25th percentile of the Index 0% (if results exceed a 20%
return, then 10% payout)
------------------------------------------------------------------------------------------
In each case, the payout is reduced by 10% if AT&T's total stockholder return is negative.
------------------------------------------------------------------------------------------
Long-Term Compensation - The Results for the 2004-2006 Performance Period
As a preliminary matter, it is important to note that the many strategic
acquisitions made over the past decade have reshaped the Company and
transformed it into a premier global telecom competitor, creating value for our
stockholders. These acquisitions are now coming together, and stockholders are
benefiting from our dividends and recent stock price appreciation. In 2006, our
stock price increased by 46% and had a total return (including the reinvestment
of dividends) of 53%. The wealth of our stockholders increased by over $40
billion in market price and the payment of over $5 billion in dividends from
January 1, 2006, through December 29, 2006, immediately before the closing of
the BellSouth acquisition.
35
With respect to the 2004-2006 performance period, the performance goals
(return on invested capital) were slightly exceeded by the Named Executive
Officers. In accordance with a predetermined formula, 104% of the target
performance shares were distributed. The Committee also determined that for
awards for the 2004-2006 performance period using the AT&T Total Stockholder
Return measurement, the Company was in the top half of the index, surpassing
59% of the other companies. Mr. Whitacre received a payout of 100% of the
target performance shares tied to this measurement, representing 25% of his
target shares. See Total Stockholder Return chart above.
In addition, in 2005 the Committee made two special long-term incentive
grants to Mr. Whitacre in connection with two "transforming" acquisitions that
were led by him: the acquisition of AT&T Wireless in late 2004 by our AT&T
Mobility LLC subsidiary (owned 60% by AT&T Inc. before AT&T Inc. acquired
BellSouth in 2006, making AT&T Inc. the sole owner of AT&T Mobility) and the
2005 acquisition of AT&T Corp., the former parent of the Company, allowing the
Company to become an end-to-end provider for major companies in the United
States and expand its global reach.
In connection with the acquisition of AT&T Wireless, the Committee granted
an incentive award to Mr. Whitacre that would be directly tied to the
anticipated benefits of the acquisition. The award provided that unless our
share of the cumulative pre-tax income for the 2005-2006 performance period met
or exceeded the projections upon which the Board voted to proceed with the
transaction, there would be no payout on the incentive award. If the results
met the original projections, Mr. Whitacre would receive 50% of the target
award. If the results exceeded the original projections by up to approximately
$1.5 billion (representing our then 60% ownership of AT&T Mobility), he could
receive up to 100% of the award. The award was capped at 100%. The achieved
results, which included significant operational improvements and synergies,
exceeded the amount required to realize the 100% payout.
In addition, in connection with the acquisition of our former parent, AT&T
Corp, the Committee granted Mr. Whitacre and Mr. Ellis incentive awards tied to
anticipated benefits of that acquisition. The grants are for the 2006-2007
performance period. Under the awards, Mr. Whitacre and Mr. Ellis will receive
no payout unless the cumulative pre-tax income of our wireline and parent
operations over the performance period reach the original projections used by
the Board in approving the transaction. If the original projections are met,
they will receive 50% of the award. If they exceed the original projections by
up to approximately $1.45 billion, they could receive up to 100% of the award.
The award is capped at 100%. We are currently on track to exceed the amount
required for 100% payout.
Payouts for Mr. Sigman and a portion of the payouts for Mr. Lindner for the
2004-2006 performance period were made pursuant to awards granted by the AT&T
Mobility Board in 2004. Mr. Lindner was Chief Financial Officer until mid-2004
and Mr. Sigman has been Chief Executive Officer of AT&T Mobility since 2002.
Based on meeting their performance targets, they received a payout of 100% of
their performance units. Because the performance units are not tied to equity,
the full payout amount is shown under "Non-Equity Incentive Award Compensation"
in the Summary Compensation Table. The awards are described in the Narrative
Disclosure to the Summary Compensation Table and Grants Of Plan-Based Awards
Table under the description of Mr. Sigman's employment contract. In addition,
Mr. Sigman's 2004 grant of restricted stock units vested at the end of 2006 and
was paid in cash based on the closing price of AT&T stock in February 2007.
Mr. Lindner's 2003 and 2004 grants of restricted stock units by AT&T Mobility
were converted into AT&T restricted stock when he rejoined AT&T; the 2003 grant
vested in 2006 and the 2004 grant will vest in 2007.
Because Mr. Dorman was an executive officer of AT&T Corp at the time of its
acquisition, his long-term incentive awards were pro-rated and paid out and his
restricted stock was vested immediately after the acquisition in accordance
with the acquired company's change in control plans. As a result, he earned no
long-term payouts in 2006.
36
Post-Retirement Benefits As with other large companies, we offer
post-retirement benefits to substantially all of our employees, including each
of the Named Executive Officers. AT&T also offers supplemental retirement
benefits under non-qualified pension plans to officers as a retention tool.
Additional information on post-retirement benefits can be found on page 56, in
the narrative following the Pension Benefits table.
Deferral Opportunities and Other Benefits We believe in order to remain
competitive in the employment market, it is appropriate to offer deferral plans
and other benefits. Our deferral plans provide managers with tax advantaged
opportunities for savings. In addition, we use our deferral plans as a way to
encourage our managers to invest in and hold AT&T stock. Our tax-qualified
401(k) plan offers substantially all employees the opportunity to defer income
through a tax advantaged program, including investing in AT&T stock. We match
80% of the employee contributions with a matching contribution, limited to the
first 6% of compensation.
Our principal non-tax qualified deferral program is the Stock Purchase and
Deferral Plan. Under that plan, mid-level managers and above may annually elect
to defer up to 30% of their salary and annual bonus (officer level managers,
including the Named Executive Officers, may contribute up to 100% of their
annual bonus) into monthly purchases of AT&T stock at fair market value on a
deferred basis. For each share purchased, the participant receives two stock
options with a grant price equal to the fair market value of the stock when the
options are issued. In addition, participants receive matching shares in AT&T
stock at substantially the same matching rate as that in the 401(k) plan,
unless they elect to receive their match in the 401(k) plan. Officer level
employees do not receive matching shares on the contribution of their bonuses
to either plan. Managers may also defer the receipt of stock awards under the
Stock Purchase and Deferral Plan, but they do not receive stock options or
matching contributions in connection with these deferrals.
Managers may also defer cash compensation through the Cash Deferral Plan.
Base compensation (salary and bonus) may be contributed only if a 15%
contribution is made to the Stock Purchase and Deferral Plan. The Cash Deferral
Plan pays interest at the Moody's Long Term Corporate Bond Yield Average, which
is a common index used by companies for deferral plans. The Securities and
Exchange Commission requires disclosure in the Summary Compensation Table of
earnings on deferred compensation that exceed an amount set by the SEC. Our
interest rate, over time, approximates the SEC rate.
These plans as well as previous plans are described under the "Nonqualified
Deferred Compensation" table.
As a provider of telecommunications and entertainment services, we want all
our employees to use our services. As a result we offer these services at
reduced or at no cost to employees. Services provided to the Named Executive
Officers are at no cost. We also provide various benefits to our officers that
are often offered by other companies, such as financial counseling, estate
planning, and the use of a car or an equivalent benefit. We pay income and
employment taxes that result from these programs, other than car allowances.
We use private aircraft in our business. It provides security to our
officers and facilitates doing business while traveling. For the same reasons,
we also permit limited occasional use of the aircraft for personal use with
approval of the Chief Executive Officer. The officers are responsible for any
applicable taxes incurred from the personal use of the aircraft. These personal
and other benefits are described in the notes to the Summary Compensation
Table, on page 43.
37
Stock Ownership Guidelines
The Committee has established stock ownership guidelines for the Chief
Executive Officer, other executive officers, and all other officer level
employees. The guidelines were increased in 2005 to a minimum level of
ownership of five times base salary for the Chief Executive Officer and were
continued at the lesser of three times base salary or 50,000 shares for other
executive officers and the lesser of one times base salary or 25,000 shares for
all other officers. Newly appointed officers are expected to be in compliance
with the ownership guidelines within five years of their appointments. We
believe all officers subject to these guidelines are in compliance.
Limit on Deductibility of Certain Compensation
Federal income tax law prohibits publicly held companies, such as AT&T,
from deducting certain compensation paid to a Named Executive Officer that
exceeds $1 million during the tax year. To the extent that compensation is
based upon the attainment of performance goals set by the Committee pursuant to
plans approved by the stockholders, the compensation is not included in the
limit. The Committee intends, to the extent feasible and where it believes it
is in the best interests of AT&T and its stockholders, to attempt to qualify
executive compensation as tax deductible where it does not adversely affect the
Committee's development and execution of effective compensation plans. For
example, to enable bonuses and long-term compensation to be deductible, the
Committee makes these awards under incentive plans approved by stockholders as
much as possible. Similarly, gains on stock option exercises may be deductible
if granted under a stockholder approved plan since they are tied to the
performance of the Company's stock price. Salaries and other compensation not
tied to performance are not deductible to the extent they exceed the $1 million
limit.
Policy on Restitution
AT&T's Code of Business Conduct reaffirms the importance of high standards
of business ethics. Adherence to these standards by all employees is the best
way to ensure compliance and secure public confidence and support. All
employees are responsible for their actions and for conducting themselves with
integrity. Any failure on the part of any employee to meet any of the standards
embodied in this Code of Business Conduct will be subject to disciplinary
action, including dismissal.
We reserve the right and, if appropriate, will seek restitution of any
bonus, commission, or other compensation received by any employee as a result
of the employee's intentional or knowing fraudulent or illegal conduct,
including the making of a material misrepresentation contained in the Company's
financial statements.
Employment Contracts
We have entered into employment contracts with certain Named Executive
Officers. The material provisions of these contracts are discussed in the
narrative following the Grants of Plan-Based Awards Table, on page 46.
38
--------------------------------------------------------------------------------
Compensation Committee Report
Although recent changes by the Securities and Exchange Commission in the
proxy statement rules have substantially reduced the requirement of a report
from the Human Resources Committee, the Committee continues to believe it is
important to take this opportunity to express our thoughts on compensation
directly to stockholders.
In 2003, the Board of Directors adopted a number of corporate governance
initiatives, including a new Code of Ethics, new Corporate Governance
Guidelines and a new committee devoted to corporate governance matters and
Director nominations. Previously, the Human Resources Committee had carried out
many of the new committee's functions, and the Board determined to move all the
members of the then Human Resources Committee to the new Corporate Governance
and Nominating Committee. As a result, new members were appointed to the Human
Resources Committee in March 2003.
Upon assuming office in 2003, the current Committee undertook a
comprehensive review of the executive compensation program, including the use
of salaries, short-term bonuses and long-term incentive awards. The Committee,
assisted by consultants, analyzed current compensation trends, studied
published recommendations of respected business organizations on the subject of
executive compensation, reviewed proxy statements of other companies, and
compared our program to those of other leading companies. The Committee also
solicited input from former members of the Committee and the Board of
Directors. Because annual compensation had been set the preceding January, the
new Committee first was able to affect annual compensation in January 2004.
In 2001, the previous Committee initiated and approved an Employment
Contract to retain Mr. Whitacre as the Chief Executive Officer of AT&T for a
period of five years which coincided with his reaching the normal retirement
age of 65. The Employment Contract was subsequently reviewed and approved by
the Board of Directors, effective November 16, 2001.
During 2004, the Committee conducted a review of the Employment Contract
with the assistance of independent outside consultants. The target compensation
established in 2001 was analyzed based on 2001 market data, CEO employment
agreements for other telecommunication companies and then current market data.
Based on this review and the competitive demand for CEOs in the
telecommunications industry, the Committee determined that the 2001 target
compensation levels were appropriate.
The contract was entered into at a time when telecommunications and
technology companies were, in general, performing well and in favor with
investors. Equity markets were at an all-time high, which drove compensation
packages. Compensation for experienced CEOs was at especially high levels. It
was not clear which companies were going to emerge as "winners." Several major
companies were searching for new CEOs. The Committee at the time was facing an
extraordinarily competitive environment for executives with proven track
records in telecommunications and technology.
The provisions of the contract, including the post-retirement benefits and
the stipulation that salary and incentive targets not be reduced, were
consistent with compensation practice for long-serving and successful CEOs at
the time.
In March 2006, this Committee determined it was in the best interest of the
stockholders to extend the contract to April 2008, without change, to allow the
successful integration of the then completed AT&T Corp acquisition and the then
pending BellSouth acquisition. Mr. Whitacre has served as CEO since 1990, an
unusually long and successful tenure during which he accumulated benefits over
this entire time period. The increase in his compensation for 2006 is directly
a result of the increase in the stock
39
price which rose 46% in 2006. The Committee believes that the continued
employment of Mr. Whitacre was a major factor in the Company's success. We
believe the Company's current position as the industry leader demonstrates that
our confidence in his leadership was justified.
The Committee also found that our compensation programs were sound and
consistent with those of other companies of similar size. Our programs enabled
us to attract and retain a high quality management team. An individual and
business unit performance evaluation system based upon financial and
non-financial objectives was in place and rigorously followed. The Committee
also determined that there were opportunities to tie the incentive pay of
executives more directly to performance and to minimize dilution from
equity-based compensation programs.
To make our compensation programs even more beneficial to our stockholders,
the Committee implemented certain changes in the compensation program,
including:
. Replaced stock options and restricted stock with performance shares as
long term compensation. Unlike options and restricted stock,
performance shares are not only tied in value to the price of the
stock, but allow the Committee to require attainment of performance
standards as a condition of payment of the award.
. Adopted return on invested capital as the principal long-term
performance measure in lieu of net income. This change is designed to
encourage managers to focus not only on net income, but also on
ensuring capital is invested effectively. For the CEO, the Committee
used total stockholder return as a performance measure for 25% of his
award in order to measure our performance against that of other
companies in the industry.
. Replaced the Change in Control agreements with a plan that provides,
among other things:
- Payment of 2.99 times salary and target bonus upon termination of
employment for officers. This change removed long term compensation
from the calculation and made the 2.99 multiplier applicable to all
officers, where some officers previously had a multiple of three times
compensation and others had a multiple of two times compensation.
- Provided that in a merger of the Company, the change in control is
deemed to occur at closing of the transaction, not upon a stockholder
vote.
- Provided that we would only pay excise taxes (and all taxes resulting
from the payment of the excise taxes) to the extent the excise taxes
were incurred because of prior deferrals of income by an officer.
. Reduced the target supplemental retirement percentage to 50% for all
new participants.
The Committee has also established a set of principles, set forth in the
Compensation Discussion and Analysis on page 32, that the Committee uses in
setting compensation.
The Committee also notes that it is aware of allegations at other companies
about back-dating of stock options. The Committee disapproves of such conduct
and has not found any such impropriety at AT&T. The Company has strong ethical
requirements of its employees, including pre-clearance of trading in AT&T stock
by officers.
40
The Human Resources Committee has reviewed and discussed the Compensation
Discussion and Analysis with management. Based on such review and discussions,
the Human Resources Committee has recommended to the Board of Directors that
the Compensation Discussion and Analysis be included in AT&T's Annual Report on
Form 10-K and Proxy Statement for filing with the Securities and Exchange
Commission.
February 13, 2007
The Human Resources Committee:
James A. Henderson, Chairman Martin K. Eby, Jr.
Gilbert F. Amelio Patricia P. Upton
James H. Blanchard
41
--------------------------------------------------------------------------------
Compensation Tables
Summary Compensation Table
The table below contains information concerning the compensation provided to
the Chairman of the Board and Chief Executive Officer, the Senior Executive
Vice President and Chief Financial Officer, and the other most highly
compensated executive officers of AT&T (the "Named Executive Officers").
-------------------------------------------------------------------------------------------------------------------------
Change in
Pension Value
and
Nonqualified
Non-Equity Deferred
Name and Stock Option Incentive Plan Compensation
Principal Position Year Salary Bonus Awards/(1)/ Awards/(2)( 3)/ Compensation Earnings/(4)/
-------------------------------------------------------------------------------------------------------------------------
Edward E. Whitacre, Jr. /(6)/ 2006 $2,100,000 $ 0 $46,790,044 $ 62,801 $6,783,000 $ 4,529,134
Chairman and
Chief Executive Officer
Richard G. Lindner /(6)/ 2006 677,833 300,000 2,932,824 141,119 1,914,050 1,656,860
Senior Executive Vice President
and Chief Financial Officer
Stanley T. Sigman 2006 1,152,500 360,000/(7)/ 14,325,408 4,190,186 5,085,000 2,275,189
President and Chief
Executive Officer-Wireless
Randall L. Stephenson /(6)/ 2006 946,167 400,000 6,440,549 509,395 2,023,000 4,071,367
Chief Operating Officer
James D. Ellis /(6)/ 2006 819,000 1,000,000 6,767,792 398,129 1,103,130 1,028,399
Senior Executive Vice President
and General Counsel
David W. Dorman 2006 114,167 174,534/(7)/ 0 0 0 18,812,442
Retired - President
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------
Name and All Other
Principal Position Compensation/(5)/ Total
-------------------------------------------------------------
Edward E. Whitacre, Jr. /(6)/ $ 461,945 $60,726,924
Chairman and
Chief Executive Officer
Richard G. Lindner /(6)/ 125,681 7,748,367
Senior Executive Vice President
and Chief Financial Officer
Stanley T. Sigman 1,173,247 28,561,530
President and Chief
Executive Officer-Wireless
Randall L. Stephenson /(6)/ 192,151 14,582,629
Chief Operating Officer
James D. Ellis /(6)/ 201,357 11,317,807
Senior Executive Vice President
and General Counsel
David W. Dorman 25,608,987 44,710,130
Retired - President
-------------------------------------------------------------
1. The amounts in this column do not necessarily represent the value of the
awards granted, nor are they a prediction of what will be paid to the
employee. The amounts in this column represent the expense taken by the
Company in 2006 for portions of stock-based awards granted in 2004, 2005 and
2006 that mature in 2006 or later. Under generally accepted accounting
principles, we are required to accrue the expense of the award ratably over
the period the award is earned. Under Securities and Exchange Commission
rules, if the award is payable in stock, we are required to use the grant
date value, which may be adjusted for performance in the case of performance
shares, without including dividends or any increase in the value of the
stock. In contrast, if the award is payable in cash but based on the price
of AT&T stock, we are required by these rules to include in the calculation
any increase in the price of AT&T stock during 2006 with respect to the
accrued portion of the award as well as any dividend equivalents. Simply
paying an award in the form of cash creates a significant difference in the
amount included in the column for an officer. Because of the 46% increase in
the price of AT&T stock during 2006, the amounts reported for awards under
this column increased significantly. If the amounts related to the increase
in the stock price and the dividend equivalents are excluded, the reported
amounts under this column would be as follows: Mr. Whitacre--$26,638,972,
Mr. Lindner--$2,094,990, Mr. Sigman--$7,629,320, Mr. Stephenson--$4,339,375,
and Mr. Ellis--$4,606,634.
42
2. Assumptions used for determining the value of the option awards reported in
these columns are set forth in the 2006 AT&T Annual Report to Stockholders
in footnote 11, "Stock-Based Compensation," on pages 72-74. Because
Mr. Sigman's awards were granted by AT&T Mobility, which as a partnership
was required to use FAS 133 to value its awards, we have used the same value
for Mr. Sigman in this column.
3. The values included in this column, except for Mr. Sigman, represent stock
options acquired under the Stock Purchase and Deferral Plan, described in
the narrative following the Nonqualified Deferred Compensation table.
Mr. Sigman's amount represents the increase in value of his stock
appreciation rights determined under FAS 133. The amounts were determined by
AT&T Mobility, which as a partnership was required to use FAS 133.
4. Under this column, we are required to report deferred compensation earnings
on salary and other incentive awards that the individual elects to defer
where the earnings exceed a market rate specified by Securities and Exchange
Commission rules. For the Named Executive Officers, these amounts are as
follows: Mr. Whitacre--$268,019, Mr. Lindner--$88,757, Mr. Sigman--$66,009,
Mr. Stephenson--$560, and Mr. Ellis--$124,353. All other amounts reported
under this heading represent the increase in pension actuarial value.
5. This column includes personal benefits and other items shown in the table
below. In valuing personal benefits, AT&T uses the incremental cost to the
Company of the benefit. To determine the incremental cost of aircraft usage,
we multiply the number of hours of personal flight usage by the average
hourly cost of fuel, oil, maintenance and line service and add per flight
fees, such as landing, ramp and hangar fees, catering, and crew travel
costs. With respect to Mr. Sigman, the incremental cost of aircraft usage
was determined by AT&T Mobility by multiplying the number of hours of
personal flight usage by the average hourly cost of fuel, oil, maintenance
and miscellaneous aircraft expenses.
---------------------------------------------------------------------------------------------------------------------------------
Whitacre Lindner Sigman Stephenson Ellis Dorman
-------- -------- ---------- ---------- -------- -----------
Personal Benefits
Financial counseling (including tax preparation) $ 14,000 $ 14,000 $ 10,380 $ 14,000 $ 14,000 $ 55,680
Estate planning 0 0 492 0 11,711 0
Auto benefits 26,889 18,248 14,642 14,932 14,210 6,260
Personal use of company aircraft 38,214 0 213,406 45,958 39,069 76,649
Supplemental health insurance premiums 10,548 9,816 10,548 9,816 9,938 6,461
Payment of health insurance premiums for family members 0 0 0 0 0 4,419
Club membership 24,505 7,494 0 8,355 6,141 0
Relocation 0 23,387 0 0 0 0
Other (communications and security) 7,923 7,619 3,384 7,002 2,011 0
-------- -------- ---------- -------- -------- -----------
Total Personal Benefits $122,079 $ 80,564 $ 252,852 $100,063 $ 97,080 $ 149,469
Tax reimbursements $ 25,384 $ 12,847 $ 731,000 $ 9,359 $ 10,867 $14,228,673
Company matching contributions to deferral plans 100,800 32,270 125,748 45,370 39,264 0
Life insurance premiums applicable to the employees' death benefit * 213,682 0 63,647 37,359 54,146 65,362
Severance payments 0 0 0 0 0 11,165,483
-------- -------- ---------- -------- -------- -----------
Total $461,945 $125,681 $1,173,247 $192,151 $201,357 $25,608,987
======== ======== ========== ======== ======== ===========
*We pay recoverable premiums on company-owned split dollar life insurance
that provides a specified death benefit to the named executive officer
equal to a multiple of his salary as follows: Mr. Whitacre--4, Mr.
Ellis--3, all other named executive officers--2, less $50,000 that is
provided under the group life insurance plan. We also pay a portion of the
premium for optional additional coverage equal to two times salary, except
for Mr. Lindner. The policies also provide a benefit to the Company that
equals or exceeds all of the premiums paid, thereby allowing the Company
to recoup all of the premiums. If the policies are not fully funded upon
the retirement of the officer, we continue to pay premiums until they are
fully funded. Mr. Dorman did not participate in this program, but had
officer-owned insurance provided by AT&T Corp.
-----------------------------------------------------------------------------
43
6. Consistent with Company policy to encourage ownership of Company stock,
certain of the Named Executive Officers deferred portions of their 2006
salary and/or bonus (non-equity incentive awards) into the Stock Purchase
and Deferral Plan, described under "Deferral Opportunities and Other
Benefits" on page 37, to make monthly purchases of Company stock in the form
of stock units based on the price of the underlying AT&T stock as follows:
Mr. Whitacre--$126,000, Mr. Lindner--$737,188, Mr. Stephenson--$1,983,563,
and Mr. Ellis--$1,172,401. Each unit that the employee purchases is paid out
in the form of a share of AT&T stock at the times elected by the employee.
In addition, the officers received matching contributions and stock options
based on the number of share units purchased; the value of the matching
contributions is included under "All Other Compensation" and the stock
option valuations are included under "Option Awards."
7. All of Mr. Dorman's bonus and $160,000 of Mr. Sigman's bonus were paid
solely pursuant to their respective employment agreements.
--------------------------------------------------------------------------------
Grants of Plan-Based Awards
-------------------------------------------------------------------------------------------------------------------------------
All Other
Stock
Estimated Possible Payouts Under Estimated Future Payouts Under Awards: All Other Option
Non-Equity Incentive Plan Awards Equity Incentive Plan Awards Number of Awards: Number
-----------------------------------------------------------------Shares of of Securities
Thres- Thres- Stock or Underlying
Name Grant Date hold ($) Target ($) Maximum ($) hold (#) Target (#) Maximum (#) Units (#) Options/(1)/ (#)
-------------------------------------------------------------------------------------------------------------------------------
Edward E. Whitacre, Jr. 1/26/06 0 5,700,000 7,125,000 0 866,453 1,407,986 - -
2/15/06 - - - - - - - 6,841
6/15/06 - - - - - - - 3,550
Richard G. Lindner 1/26/06 0 900,000 1,125,000 0 112,360 168,540 - -
2/15/06 - - - - - - - 9,892
6/15/06 - - - - - - - 25,867
Stanley T. Sigman 2/15/06 0 1,462,500 2,193,750 - - - - -
4/1/06 - - - 0 139,429 209,144 - -
4/1/06 - - - - - - 69,924 -
Randall L. Stephenson 1/26/06 0 1,700,000 2,125,000 0 192,616 288,924 - -
2/15/06 - - - - - - - 19,405
6/15/06 - - - - - - - 105,081
James D. Ellis 1/26/06 0 927,000 1,158,750 0 156,501 234,752 - -
2/15/06 - - - - - - - 17,060
6/15/06 - - - - - - - 72,109
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------
Exercise or Grant Date
Base Price Fair Value of
of Option Stock and
Awards Option
Name ($/Share) Awards ($)
-------------------------------------------------
Edward E. Whitacre, Jr. - 22,103,216
28.32 32,488
27.73 17,093
Richard G. Lindner - 2,866,304
28.32 46,977
27.73 124,550
Stanley T. Sigman - -
- 3,707,035
- 1,859,092
Randall L. Stephenson - 4,913,634
28.32 92,154
27.73 505,965
James D. Ellis - 3,992,341
28.32 81,018
27.73 347,205
-------------------------------------------------
1. Represents options granted under the Stock Purchase and Deferral Plan, which
is described under the Nonqualified Deferred Compensation table. Company
matching shares issued under that plan are reported under the Nonqualified
Deferred Compensation table and in "All Other Compensation" in the Summary
Compensation Table.
44
Narrative Disclosure to Summary Compensation Table
and Grants of Plan-Based Awards Table
Material Factors Affecting 2006 Compensation
The Human Resources Committee uses incentive pay to focus executives on key
business objectives and reward officers accordingly. Because of the importance
of achieving these objectives, performance-based pay represents a larger
portion of compensation compared to salary and discretionary bonuses. An
executive's annual bonus and long-term performance share awards are each based
on the achievement of business targets chosen by the Committee. In addition,
the Committee further ties compensation to the Company's performance through
stock based deferral plans offered to mid-level and above managers.
For 2006, financial and operational targets for short-term awards
("Non-Equity Incentive Plan Awards") for the Named Executive Officers were
based on net income, free cash flow, customer satisfaction and customer churn,
weighted 50%, 30%, 10% and 10%, respectively. The Committee established similar
targets for non-executive officers. If we did not completely meet established
Company objectives, then bonuses would be reduced from the target amount, and
could be eliminated if certain minimum performance targets were not met. In
addition, the Committee provided for an extraordinary bonus payment of up to
10% of the short-term award if we achieved certain aggressive year-over-year
revenue targets, which we did not do. The total payout based on financial
performance was capped at 125% of the target opportunity.
Performance shares, shown under "Estimated Future Payouts Under Equity
Incentive Plan Awards" in the Grants of Plan-Based Awards table, above, are
granted under the 2001 Incentive Plan or, beginning in 2007, under the 2006
Incentive Plan. Each performance share is equivalent in value to one share of
AT&T common stock and is entitled to dividend equivalents equal to dividends on
common stock. Payout of the performance shares granted to the Named Executive
Officers is subject to achieving certain performance targets, based on return
on invested capital, over the 2006-2008 performance period. In prior years, we
have typically met the target. At the end of the performance period, the number
of performance shares is adjusted for actual performance, resulting in a payout
as determined by the Committee ranging from 0% to 150%, depending on the
achievement of targets. At payout, the performance shares are converted into
AT&T common stock and/or cash, depending on the terms of the grant. The
performance shares converted to cash are each valued at the price of a share of
AT&T common stock at the date of the approval of the award. The Committee also
grants awards having the same terms as performance shares granted under the
above plans, including in circumstances where there would be insufficient
performance shares under the relevant plan available for such a grant, except
that only awards granted under the above plans may be settled in stock. For all
other purposes, we do not differentiate between these types of performance
share awards.
In the event of the termination of employment of a performance share
recipient, unless the recipient is retirement eligible under the Pension
Benefit Plan, described under the Pension Benefits table (or is age 55 or older
with at least five years of service for officer level recipients), the
recipient may receive no more than a pro-rata portion of the award. Payouts to
retirees are not affected by a termination of employment.
In setting Mr. Whitacre's long-term compensation, the Committee provided
that 75% of his performance shares would be tied to return on invested capital
as noted above, and the remaining 25% would be based on the comparison of
AT&T's total stockholder return (stock appreciation plus reinvestment of
dividends) to that of companies in the North American Telecom Index, excluding
equipment manufacturers and companies with a market capitalization of under $5
billion, but adding
45
several cable company competitors not in the Index. The Compensation Discussion
and Analysis provides a chart, on page 35, presenting potential payouts based
on total stockholder return.
Employment Contracts for Certain Executives
Mr. Whitacre's and Mr. Sigman's compensation is determined based on their
respective employment contracts, as discussed below. Pension benefits and
certain other benefits the Named Executive Officers would receive upon
termination of employment are described following the Pension Benefits table.
Similarly, deferred amounts available to the Named Executive Officers if they
terminate employment are described in the Nonqualified Deferred Compensation
table.
Mr. Whitacre's Employment Contract To retain Mr. Whitacre's availability
during the integration of acquisitions of Pacific Telesis and Ameritech
completed in 1997 and 1999, respectively, we entered into an employment
contract with Mr. Whitacre in 2001 to act as our Chairman of the Board and
Chief Executive Officer. The contract was for a five-year term ending
November 15, 2006. In March 2006, the contract's termination date was extended
to April 2008 in order to allow Mr. Whitacre to oversee the integration of AT&T
Corp. and BellSouth. The contract may be terminated during Mr. Whitacre's
employment only upon (a) the expiration of the term of the contract, (b) his
death, (c) his resignation, or (d) his termination of employment for cause.
During the term of the employment contract, Mr. Whitacre's base salary,
target bonus, and target value of long-term awards will not be less than those
values in effect for calendar year 2001. The compensation at that time was set
using the 75th percentile of the market, determined as described in the
Compensation Discussion and Analysis on page 33. Mr. Whitacre's bonus and
long-term award are not guaranteed, but are subject to attainment of
performance objectives. We granted Mr. Whitacre options under the contract to
acquire 2,500,000 of AT&T common shares at $39.13 per share. These options
expire in 2011. Three-fifths of the options vested on the third anniversary of
the contract, and the rest vested on the fifth anniversary. Following
termination of employment, under his employment contract Mr. Whitacre will be
entitled to receive for life (except as otherwise noted):
. Automobile benefits (estimated at $24,000 annually)
. Access to our corporate aircraft, up to 10 hours of usage per month
(estimated incremental monthly cost of $20,000)
. Use of office facilities and support staff (we do not expect to incur
any additional incremental cost)
. Home security (estimated at $6,500 annually)
. Payment of applicable taxes resulting from these benefits, except for
use of the aircraft (estimated at $19,000 annually), and
. During his life and that of his spouse, health and welfare benefits
equal to those which he received while employed. Included in these
benefits are those described under "Other Post-Retirement Benefits".
46
Under the contract, after he leaves our Company, Mr. Whitacre will provide
consulting services and advice to us for three years in exchange for an annual
fee equal to 50% of his annual salary at retirement ($1,050,000). If
Mr. Whitacre receives a change in control payment under the Change in Control
Severance Plan on page 62, his employment term will immediately expire, and the
consulting term will be extended by the same period the employment term was
reduced. We also agreed to provide to Mr. Whitacre, during his consulting
service, the same benefits he received as an employee. These benefits are the
same benefits he would receive as a retiree as well as the following:
. Club memberships (estimated at $25,000 annually) and
. Payment of applicable taxes resulting from these benefits (estimated at
$15,600 annually).
If we terminate Mr. Whitacre's employment without cause before the end of
the term or if he is unable to perform his duties because of disability or
accident, his contract entitles him to continue to receive his salary, target
bonus, long-term target award, and other benefits through the end of the
contract's term, as if he were still employed with us.
Mr. Sigman's Employment Contract Mr. Sigman is Chief Executive Officer of
AT&T Mobility LLC, our cellular service provider. Before the acquisition of
BellSouth in 2006, AT&T Mobility, then known as Cingular Wireless LLC, was a
joint venture of AT&T and BellSouth, each of which appointed half of the
Directors and managers of AT&T Mobility. Each of the members of AT&T Mobility's
Board of Directors was a manager of either AT&T or BellSouth. To secure
Mr. Sigman's services, AT&T Mobility entered into contracts with Mr. Sigman for
his compensation, the most recent of which was entered in June 2005. His
compensation was set by the Cingular Board (now AT&T Mobility Board) based upon
market rates for Mr. Sigman's position, as established from market studies for
similar positions at other comparable companies, discounted to take into
account that AT&T Mobility was not a public company.
Mr. Sigman's contract provides for a retention benefit in the form of a
grant of restricted stock units valued at $5 million at the time of grant. Each
unit was equal in value to either a share of AT&T stock (representing 60% of
the units in value) or a share of BellSouth stock (representing 40% of the
units in value). The units provide for dividend equivalent payments in cash.
The restricted stock units vest on December 31, 2007, and are payable in cash
based on the closing price of the stock on December 31, 2007. The grant is
forfeited if Mr. Sigman's employment terminates prior to December 31, 2007, for
any reason other than his death, disability or in the event of termination by
AT&T Mobility other than for cause. If Mr. Sigman's employment had terminated
due to death or disability or been terminated by AT&T Mobility other than for
cause at the end of 2006, he would have been entitled to receive the retention
benefit in a lump sum amount of $8,132,696. The contract also provides for an
annual salary of at least $1,105,000, with a target bonus of 125% of salary and
a long-term target equal to 475% of Mr. Sigman's salary. Mr. Sigman is also
entitled to receive incentive payments of $675,000 in June 2005, and $160,000
in November of each of 2005, 2006 and 2007. Because he was required to move to
Georgia to take the position, AT&T Mobility pays Mr. Sigman an amount equal to
the Georgia state income tax and all state and Federal taxes resulting from the
Georgia state tax payments, calculated at the highest marginal rate, on all
Mr. Sigman's compensation subject to Georgia tax, except for the retention
grant. AT&T Mobility also agreed to pay Mr. Sigman's Federal income tax on
$60,000 of his annual $160,000 incentive payments. Other information regarding
the contract's post-retirement provisions is discussed in connection with
Pension Benefits on page 57.
Mr. Sigman's 2006 target bonus was determined by the AT&T Mobility Board
and was based on AT&T Mobility's rate of penetration (25%), average revenue per
unit (25%), operating income per potential customer (25%) and branded churn
(25%). AT&T Mobility met each of these targets except for average revenue per
unit. He was paid a bonus of 120% of his target award based on a predetermined
47
formula. Under his contract, he also received an incentive payment of $160,000
that is shown in the bonus column. In addition, the Committee awarded him a
discretionary bonus of $200,000.
In 2006, AT&T Mobility's Board of Directors approved long-term grants under
the AT&T Mobility Long Term Compensation Plan. Mr. Sigman received AT&T and
BellSouth performance stock units and restricted stock units. Each unit is
equal in value to either a share of AT&T stock (representing 50% of the units
in value) or a share of BellSouth stock (representing 50% of the units in
value). All BellSouth units have been converted to AT&T units as a result of
the acquisition of BellSouth. The units provide for dividend equivalent
payments in cash. The total value of Mr. Sigman's long-term grant was based on
market value as determined by market surveys of other comparable companies.
Like other elements of AT&T Mobility's compensation program, the market values
are targeted to the 50th percentile of comparable rates, discounted to consider
that AT&T Mobility is not a public company. Payout of the performance stock
units is subject to attainment of AT&T Mobility's earnings before interest and
taxes return on capital ("EBIT ROC"). We believe these targets are reasonable,
and expect our officers to achieve these targets although no assurance of
success can be given. Payouts range from 0% to 150%, based on performance. At
payout, the number of units are adjusted for performance and the resulting
number of units are converted to cash based on the price of AT&T stock at
payout. Restricted stock units vest on December 31, 2008, and payment is made
in cash based on the closing stock prices in February 2009. Should Mr. Sigman
retire, or should his employment terminate due to death or disability prior to
the end of 2008, the restricted stock units and the performance stock units are
pro-rated for the period of time worked during the 2006-2008 calendar years. If
Mr. Sigman had retired, or his employment had terminated due to death or
disability, at the end of 2006, he would have been entitled to a lump sum
payment of $11,234,935, representing the pro-rated amounts of his outstanding
restricted stock units and performance stock units (assuming payout at 100%).
In 2006, Mr. Sigman, as well as Mr. Lindner, completed the performance
period for performance units granted by AT&T Mobility in 2004 for the 2004 to
2006 performance period. As with the performance units granted in 2006, the
performance measure for the performance units was AT&T Mobility's EBIT ROC,
with a potential payout ranging from 0% to 150%. The Company met the
performance measures and paid out at 100%. Mr. Sigman's 2004 grant of
restricted stock units vested at the end of 2006 and was paid in cash based on
the closing prices of AT&T stock in February 2007.
Mr. Dorman's Employment Agreement Before our acquisition of AT&T Corp ("Old
AT&T") in November 2005 (at that time, we were known as SBC Communications
Inc.), Mr. Dorman's compensation was set by Old AT&T. At the time of the
January 30, 2005, agreement to acquire Old AT&T, we also entered into an
employment agreement with Mr. Dorman, then the Chairman and Chief Executive
Officer of Old AT&T. Pursuant to the agreement, Mr. Dorman was elected as a
Director and President of our Company at the November 18, 2005, closing of our
acquisition of Old AT&T. He resigned as a Director and President in January
2006. Mr. Dorman received no compensation as a Director, but under the
agreement he was entitled to an annual base salary equal to at least the amount
of his annual base salary for 2005. Because of his short tenure with the
Company in 2006, he received a pro-rata portion of his target bonus under his
agreement. He continued to receive his annual salary of $1,370,000 until the
termination of his employment.
Upon the merger's completion, all of Mr. Dorman's options to purchase
shares of Old AT&T common stock were converted into vested AT&T Inc. options,
and as provided by the Old AT&T plans, will each remain exercisable for the
remainder of its full term as provided by the option's terms at grant. In
addition, all other Old AT&T equity-based or other long or short-term incentive
awards held by Mr. Dorman were vested or paid out, as the case may be, and any
performance awards were pro-rated and distributed as provided by their terms.
Mr. Dorman was also eligible to participate on the same terms as
48
peer executives of our Company and our affiliates in all of our long-term
incentive plans. Because of the termination of his employment, however, no
further awards were granted. Mr. Dorman was also entitled to participate in
employee benefit and perquisite arrangements no less favorable than those
generally applicable or made available to peer executives of our Company and,
during the first six months of the term, those generally applicable or made
available to Mr. Dorman before completion of the acquisition.
Per Mr. Dorman's agreement, because he terminated his employment with us
during the first six months of the agreement's term, he received payments of
approximately $11,165,483. These payments represented amounts that Mr. Dorman
would have been entitled to receive under any plan, agreement or program of Old
AT&T (other than his Old AT&T pensions) had his employment been terminated
without cause immediately after completion of the merger. The agreement also
provided that he would receive:
. Vesting and full-term exercisability (as provided by their terms) for
all AT&T equity-based awards;
. Payment of an annual annuity calculated as 60% of his final three-year
average total cash compensation, less offsets from other Old AT&T
pension benefit plans, which annuity equals $2,247,978 under his
amended supplemental retirement arrangement with Old AT&T, with a 50%
survivor annuity payable to Mr. Dorman's spouse;
. Lifetime medical and dental benefits for him and his family on the same
terms and at the same cost as such benefits would have been provided
had Mr. Dorman terminated employment immediately before completion of
the merger (estimated to cost $14,385 per year);
. Health coverage that would be available under our group plans, but
which is not available under the AT&T Corp. plans (estimated to cost
$7,070 per year through 2007);
. Company paid premiums for life under our supplemental health care plan
(estimated cost to the Company, above required contributions from the
employee, is $6,461 annually);
. Secretarial support and office space for five years. (We lease space
and provide a secretary as part of his 3-year consulting arrangement,
described below. After that, we consider the space and the salary and
bonus of the secretary to be personal benefits with an incremental cost
to the Company estimated to be $145,000 per year).
Pursuant to his agreement, Mr. Dorman entered into a consulting agreement
with us whereby Mr. Dorman will provide consulting services, as our Board of
Directors or Chief Executive Officer may reasonably request, during the three
years after Mr. Dorman's termination. In consideration for providing those
services, Mr. Dorman was granted 400,000 shares of our restricted stock that
will vest in three equal annual installments on the first three anniversaries
of the grant date. If Mr. Dorman's consulting services are terminated during
the term of the consulting agreement because of his death, disability or by us
other than for cause, the restrictions on the then remaining shares of
restricted stock, if any, will immediately lapse. If Mr. Dorman voluntarily
terminates the consulting agreement or we terminate the agreement for cause,
then Mr. Dorman will forfeit any unvested shares of restricted stock.
Mr. Dorman's agreement provides for certain post-employment obligations.
Under the agreement, Mr. Dorman is restricted, during his employment and
consultancy, from revealing any of our confidential information and, if we
terminate Mr. Dorman's employment or consultancy for cause, for one year after
such termination. In addition, for one year after termination, Mr. Dorman may
not solicit for employment any of our employees and may not compete with us.
Mr. Dorman also received $14,166,969 under the agreement to offset certain
excise taxes under Section 4999 of the Internal Revenue Code, so that he would
remain in the same after-tax position he would have been in had the excise tax
not been imposed.
49
-----------------------------------------------------------------------------------------------------------------
Outstanding Equity Awards at December 31, 2006
-----------------------------------------------------------------------------------------------------------------
Option Awards/ (1)/
----------------------------------------------------------------------------
Equity Incentive
Plan Awards:
Number of Number of Number of Number of
Securities Securities Securities Shares or
Underlying Underlying Underlying Units of
Unexercised Unexercised Unexercised Option Option Stock That
Options Options Unearned Exercise Expiration Have Not
Name Exercisable Unexercisable Options Price ($) Date Vested /(2)/
-----------------------------------------------------------------------------------------------------------------
Edward E. Whitacre, Jr.
2005-2007 Performance Share Grant - - - - - -
2006-2007 Performance Share Grant - - - - - -
2006-2008 Performance Share Grant - - - - - -
11,250 - - 27.1875 2/3/07 -
304,500 - - 27.5000 5/1/07 -
363,640 - - 27.8125 5/2/07 -
10,450 - - 29.1875 8/1/07 -
9,458 - - 39.3125 2/2/08 -
350,000 - - 43.0000 4/1/08 -
67,334 - - 41.3750 8/3/08 -
8,752 - - 52.5625 2/1/09 -
316,500 - - 49.7500 4/1/09 -
87,731 - - 58.8750 8/2/09 -
650,000 - - 39.2500 1/28/10 -
9,883 - - 42.1875 2/1/10 -
135,605 - - 43.6875 8/1/10 -
900,000 - - 46.6875 1/26/11 -
13,173 - - 50.5500 2/1/11 -
192,641 - - 42.0500 6/1/11 -
1,200,000 - - 39.1300 11/16/11 -
1,300,000 - - 39.1300 11/16/11 -
1,200,000 - - 35.5200 1/25/12 -
25,621 - - 36.9600 2/1/12 -
208,621 - - 33.1500 6/3/12 -
1,028,143 - - 24.4400 1/31/13 -
40,487 - - 25.2800 2/1/13 -
283,498 - - 25.8000 5/31/13 -
52,935 - - 26.4600 1/31/14 -
347,065 - - 23.7400 5/30/14 -
59,199 - - 23.9200 1/30/15 -
4,425 - - 24.0100 6/15/15
- 6,841 - 28.3200 2/15/16 -
- 3,550 - 27.7300 6/15/16 -
-----------------------------------------------------------------------------------------------------------------
Richard G. Lindner
2005-2007 Performance Share Grant - - - - - -
2006-2008 Performance Share Grant - - - - - -
Restricted Stock Grant vesting 2007 - - - - - 17,377
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Stock Awards
------------------------------------------------------
Equity
Incentive Equity Incentive
Plans Awards: Plans Awards:
Number of Market or Payout
Unearned Value of
Market Value Shares, Units Unearned
of Shares or or Other Shares, Units or
Units of Stock Rights That Other Rights
That Have Not Have Not That Have Not
Name Vested/ (2)/ ($) Vested /(3) (4)/ Vested /(3) /($)
-----------------------------------------------------------------------------------------
Edward E. Whitacre, Jr.
2005-2007 Performance Share Grant - 1,404,603/(4)/ 50,214,553/(4)/
2006-2007 Performance Share Grant - 160,000 5,720,000
2006-2008 Performance Share Grant - 1,407,986/(4)/ 50,335,504/(4)/
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
-----------------------------------------------------------------------------------------
Richard G. Lindner
2005-2007 Performance Share Grant - 134,508/(4)/ 4,808,661/(4)/
2006-2008 Performance Share Grant - 168,540/(4)/ 6,025,305/(4)/
Restricted Stock Grant vesting 2007 621,228 - -
-----------------------------------------------------------------------------------------
50
---------------------------------------------------------------------------------------------------------------
Outstanding Equity Awards at December 31, 2006
---------------------------------------------------------------------------------------------------------------
Option Awards/ (1)/
----------------------------------------------------------------------------
Equity Incentive
Plan Awards:
Number of Number of Number of Number of
Securities Securities Securities Shares or
Underlying Underlying Underlying Units of
Unexercised Unexercised Unexercised Option Option Stock That
Options Options Unearned Exercise Expiration Have Not
Name Exercisable Unexercisable Options Price ($) Date Vested /(2)/
---------------------------------------------------------------------------------------------------------------
Richard G. Lindner (cont'd) 1,726 - - 27.1875 2/3/07 -
21,000 - - 27.5000 5/1/07 -
26,000 - - 27.8125 5/2/07 -
5,964 - - 29.1875 8/1/07 -
1,408 - - 39.3125 2/2/08 -
18,700 - - 43.0000 4/1/08 -
4,991 - - 41.3750 8/3/08 -
1,232 - - 52.5625 2/1/09 -
12,727 - - 49.7500 4/1/09 -
4,929 - - 58.8750 8/2/09 -
23,885 - - 39.2500 1/28/10 -
1,306 - - 42.1875 2/1/10 -
8,541 - - 43.6875 8/1/10 -
50,000 - - 46.6875 1/26/11 -
2,119 - - 50.5500 2/1/11 -
10,186 - - 42.0500 6/1/11 -
3,051 - - 36.9600 2/1/12 -
18,123 - - 24.0100 6/15/15 -
- 9,892 - 28.3200 2/15/16 -
- 25,867 - 27.7300 6/15/16 -
---------------------------------------------------------------------------------------------------------------
Stanley T. Sigman
2005-2007 Performance Stock Units - - - - - -
2005-2007 Performance Stock Units - - - - - -
2005-2007 Restricted Stock Units - - - - - 82,967
2005-2007 Restricted Stock Units - - - - - 227,488
2006-2008 Performance Stock Units - - - - - -
2006-2008 Restricted Stock Units - - - - - 69,924
90,900 - - 27.8125 5/2/07 -
18,958 - - 43.0000 4/1/08 -
1,879 - - 52.5625 2/1/09 -
42,667 - - 49.7500 4/1/09 -
1,856 - - 58.8750 8/2/09 -
120,000 - - 39.2500 1/28/10 -
2,447 - - 42.1875 2/1/10 -
3,819 - - 43.6875 8/1/10 -
---------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Stock Awards
----------------------------------------------------
Equity
Incentive Equity Incentive
Plans Awards: Plans Awards:
Number of Market or Payout
Unearned Value of
Market Value Shares, Units Unearned
of Shares or or Other Shares, Units or
Units of Stock Rights That Other Rights
That Have Not Have Not That Have Not
Name Vested/ (2)/ ($) Vested /(3) (4)/ Vested /(3) /($)
-------------------------------------------------------------------------------------
Richard G. Lindner (cont'd) - - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
-------------------------------------------------------------------------------------
Stanley T. Sigman
2005-2007 Performance Stock Units - 248,154/(4)/ 8,871,506/(4)/
2005-2007 Performance Stock Units - 118,316 4,229,797
2005-2007 Restricted Stock Units 2,966,070 - -
2005-2007 Restricted Stock Units 8,132,710 - -
2006-2008 Performance Stock Units - 139,429 4,984,587
2006-2008 Restricted Stock Units 2,499,796
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
-------------------------------------------------------------------------------------
51
---------------------------------------------------------------------------------------------------------------
Outstanding Equity Awards at December 31, 2006
---------------------------------------------------------------------------------------------------------------
Option Awards/ (1)/
----------------------------------------------------------------------------
Equity Incentive
Plan Awards:
Number of Number of Number of Number of
Securities Securities Securities Shares or
Underlying Underlying Underlying Units of
Unexercised Unexercised Unexercised Option Option Stock That
Options Options Unearned Exercise Expiration Have Not
Name Exercisable Unexercisable Options Price ($) Date Vested /(2)/
---------------------------------------------------------------------------------------------------------------
Stanley T. Sigman (cont'd) 112,500 - - 46.6875 1/26/11 -
3,975 - - 50.5500 2/1/11 -
58,333 - - 41.9000 4/27/11 -
23,130 - - 42.0500 6/1/11 -
170,833 - - 39.8900 11/19/11 -
250,000 - - 35.5200 1/25/12 -
9,455 - - 36.9600 2/1/12 -
42,288 - - 33.1500 6/1/12 -
14,179 - - 25.2800 2/1/13 -
---------------------------------------------------------------------------------------------------------------
Randall L. Stephenson
2005-2007 Performance Share Grant - - - - - -
2006-2008 Performance Share Grant - - - - - -
486 - - 27.1875 2/3/07 -
15,840 - - 27.5000 5/1/07 -
884 - - 29.1875 8/1/07 -
472 - - 39.3125 2/2/08 -
15,000 - - 43.0000 4/1/08 -
2,296 - - 41.3750 8/3/08 -
1,206 - - 52.5625 2/1/09 -
11,467 - - 49.7500 4/1/09 -
4,471 - - 58.8750 8/2/09 -
22,846 - - 39.2500 1/28/10 -
1,233 - - 42.1875 2/1/10 -
7,519 - - 43.6875 8/1/10 -
20,313 - - 46.6875 1/26/11 -
1,541 - - 50.5500 2/1/11 -
4,877 - - 42.0500 6/1/11 -
45,560 - - 40.6000 7/2/11 -
112,500 - - 39.8900 11/16/11 -
160,000 - - 35.5200 1/25/12 -
4,413 - - 36.9600 2/1/12 -
16,748 - - 33.1500 6/3/12 -
171,429 - - 24.4400 1/31/13 -
8,842 - - 25.2800 2/1/13 -
47,083 - - 25.8000 5/31/13 -
12,400 - - 26.4600 1/31/14 -
---------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Stock Awards
-----------------------------------------------------
Equity
Incentive Equity Incentive
Plans Awards: Plans Awards:
Number of Market or Payout
Unearned Value of
Market Value Shares, Units Unearned
of Shares or or Other Shares, Units or
Units of Stock Rights That Other Rights
That Have Not Have Not That Have Not
Name Vested/ (2)/ ($) Vested /(3) (4)/ Vested /(3) /($)
--------------------------------------------------------------------------------------
Stanley T. Sigman (cont'd) - - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
--------------------------------------------------------------------------------------
Randall L. Stephenson
2005-2007 Performance Share Grant - 240,192/(4)/ 8,586,864/(4)/
2006-2008 Performance Share Grant - 288,924/(4)/ 10,329,033/(4)/
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
--------------------------------------------------------------------------------------
52
---------------------------------------------------------------------------------------------------------------
Outstanding Equity Awards at December 31, 2006
---------------------------------------------------------------------------------------------------------------
Option Awards/ (1)/
----------------------------------------------------------------------------
Equity Incentive
Plan Awards:
Number of Number of Number of Number of
Securities Securities Securities Shares or
Underlying Underlying Underlying Units of
Unexercised Unexercised Unexercised Option Option Stock That
Options Options Unearned Exercise Expiration Have Not
Name Exercisable Unexercisable Options Price ($) Date Vested /(2)/
---------------------------------------------------------------------------------------------------------------
Randall L. Stephenson (cont'd) 32,200 - - 23.7400 5/30/14 -
16,085 - - 23.9200 1/30/15 -
89,320 - - 24.0100 6/15/15 -
- 19,405 - 28.3200 2/15/16 -
- 105,081 - 27.7300 6/15/16 -
---------------------------------------------------------------------------------------------------------------
James D. Ellis
2005-2007 Performance Share Grant - - - - - -
2006-2007 Performance Share Grant - - - - - -
2006-2008 Performance Share Grant - - - - - -
4,138 - - 27.1875 2/3/07 -
60,000 - - 27.5000 5/1/07 -
90,900 - - 27.8125 5/2/07 -
20,288 - - 29.1875 8/1/07 -
3,454 - - 39.3125 2/2/08 -
57,663 - - 43.0000 4/1/08 -
16,639 - - 41.3750 8/3/08 -
3,201 - - 52.5625 2/1/09 -
57,333 - - 49.7500 4/1/09 -
16,208 - - 58.8750 8/2/09 -
114,000 - - 39.2500 1/28/10 -
3,393 - - 42.1875 2/1/10 -
27,458 - - 43.6875 8/1/10 -
112,500 - - 46.6875 1/26/11 -
4,542 - - 50.5500 2/1/11 -
22,641 - - 42.0500 6/1/11 -
150,000 - - 39.8900 11/16/11 -
175,000 - - 35.5200 1/25/12 -
7,620 - - 36.9600 2/1/12 -
33,017 - - 33.1500 6/3/12 -
190,429 - - 24.4400 1/31/13 -
12,241 - - 25.2800 2/1/13 -
63,042 - - 25.8000 5/31/13 -
16,428 - - 26.4600 1/31/14 -
80,949 - - 23.7400 5/30/14 -
16,832 - - 23.9200 1/30/15 -
83,141 - - 24.0100 6/15/15 -
---------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Stock Awards
----------------------------------------------------
Equity
Incentive Equity Incentive
Plans Awards: Plans Awards:
Number of Market or Payout
Unearned Value of
Market Value Shares, Units Unearned
of Shares or or Other Shares, Units or
Units of Stock Rights That Other Rights
That Have Not Have Not That Have Not
Name Vested/ (2)/ ($) Vested /(3) (4)/ Vested /(3) /($)
-------------------------------------------------------------------------------------
Randall L. Stephenson (cont'd) - - -
- - -
- - -
- - -
- - -
-------------------------------------------------------------------------------------
James D. Ellis
2005-2007 Performance Share Grant - 228,183/(4)/ 8,157,542/(4)/
2006-2007 Performance Share Grant - 40,000 1,430,000
2006-2008 Performance Share Grant - 234,752/(4)/ 8,392,366/(4)/
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
- - -
-------------------------------------------------------------------------------------
53
-----------------------------------------------------------------------------------------------------
Outstanding Equity Awards at December 31, 2006
-----------------------------------------------------------------------------------------------------
Option Awards/ (1)/
----------------------------------------------------------------------------
Equity Incentive
Plan Awards:
Number of Number of Number of Number of
Securities Securities Securities Shares or
Underlying Underlying Underlying Units of
Unexercised Unexercised Unexercised Option Option Stock That
Options Options Unearned Exercise Expiration Have Not
Name Exercisable Unexercisable Options Price ($) Date Vested /(2)/
-----------------------------------------------------------------------------------------------------
James D. Ellis (cont'd) - 17,060 - 28.3200 2/15/16 -
- 72,109 - 27.7300 6/15/16 -
-----------------------------------------------------------------------------------------------------
David W. Dorman 153,356 - - 34.7260 12/1/10 -
174,844 - - 40.4468 3/15/11 -
116,570 - - 39.1911 7/2/11 -
451,551 - - 33.6709 2/19/12 -
587,017 - - 28.6828 9/19/12 -
-----------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Stock Awards
---------------------------------------------------
Equity
Incentive Equity Incentive
Plans Awards: Plans Awards:
Number of Market or Payout
Unearned Value of
Market Value Shares, Units Unearned
of Shares or or Other Shares, Units or
Units of Stock Rights That Other Rights
That Have Not Have Not That Have Not
Name Vested/ (2)/ ($) Vested /(3) (4)/ Vested /(3) /($)
--------------------------------------------------------------------------
James D. Ellis (cont'd) - - -
- - -
--------------------------------------------------------------------------
David W. Dorman - - -
- - -
- - -
- - -
- - -
--------------------------------------------------------------------------
54
1. Options in the table vest as follows (except for Mr. Dorman's):
---------------------------------------------------------------------------------------------------------
Option Expiration Date Vesting
---------------------------------------------------------------------------------------------------------
2/3/2007, 8/1/2007, 2/2/2008, These options are vested at issuance, but may not be exercised until
8/3/2008, 2/1/2009, 8/2/2009, the earlier of the first anniversary of the grant or the termination of
2/1/2010, 8/1/2010, 2/1/2011, employment of the option holder. These options are granted based upon
6/1/2011, 7/2/2011, 2/1/2012, the amount of participation by mid level and above managers in the
6/3/2012, 2/1/2013, 5/31/2013, Stock Purchase and Deferral Plan, described in the Narrative to the
1/31/2014, 5/30/2014, 1/30/2015, Summary Compensation Table and the Grant of Plan-Based Awards
6/15/2015, 2/15/2016, 6/15/2016 Table. These options each expire 10 years after the grant date (unless
shortened by the prior termination of employment of the holder).
---------------------------------------------------------------------------------------------------------
5/1/2007, 4/1/2008, 4/1/2009, One-third of the options in each grant vested on the yearly anniversary
1/28/2010, 1/26/2011, of the grant. These options each expire 10 years after the grant date
11/16/2011, 1/25/2012, 1/31/2013 (unless shortened by the prior termination of employment of the holder).
---------------------------------------------------------------------------------------------------------
5/2/2007 Options vested May 2, 2001.
---------------------------------------------------------------------------------------------------------
11/16/2011 Three-fifths of these options vested 11/16/2004, and two-fifths vested
11/16/2006.
---------------------------------------------------------------------------------------------------------
Mr. Dorman's options each expire 10 years after the grant date. One-fourth
of the options in each grant vested on the yearly anniversary of the grant,
except for the options that expire 9/19/12, one-fourth of which vested on
each of the first two anniversaries of the grant and the remaining one-half
vested on the third anniversary.
2. Shares and values in the unvested awards columns represent restricted stock
units (Mr. Sigman) or restricted stock (Mr. Lindner). Mr. Sigman's award
vests on December 31 of the last year of the respective restriction period.
Mr. Lindner's award vests on April 1, 2007. Any payment of restricted stock
units is subject to the discretion of AT&T Mobility to cancel or reduce an
award prior to payout.
3. Performance shares (including Mr. Sigman's performance stock units) in these
columns are earned as of December 31 of the respective performance period
set forth opposite the respective shares and values. Performance shares are
paid out the following January upon approval of the Human Resources
Committee.
4. The number of performance shares (and one grant of performance stock units
in the case of Mr. Sigman) and related values as of December 31, 2006,
represent the maximum possible award payout, not the award that was granted.
We are required by SEC rules to report these amounts in this manner if the
previous fiscal year's performance exceeded the target performance, even if
it is by a small amount and it is highly unlikely that we will pay the
maximum amount. AT&T Mobility's previous fiscal year performance did not
exceed the target amounts, so we are reporting Mr. Sigman's award at target.
--------------------------------------------------------------------------------
Option Exercises and Stock Vested
--------------------------------------------------------------------------------
Option Awards Stock Awards
--------------------- -------------------------
Number of
Shares Number of
Acquired Value Shares
on Realized Acquired Value Realized
Name Exercise on Exercise on Vesting on Vesting
-----------------------------------------------------------------------
Edward E. Whitacre, Jr. 310,520 $1,289,155 1,043,162 $38,377,920
Richard G. Lindner - - 42,555 1,436,281
Stanley T. Sigman 358,132 5,918,414 75,437 2,798,713
Randall L. Stephenson 8,600 34,508 203,709 6,959,594
James D. Ellis 78,114 211,722 167,600 6,166,010
David W. Dorman 874,205 5,383,600 - -
-----------------------------------------------------------------------
55
--------------------------------------------------------------------------------
Pension Benefits
--------------------------------------------------------------------------------
Number of Present
Years Value of
Credited Accumulated Payments
Name Plan Name Service Benefits/(1)/ During 2006
-----------------------------------------------------------------------------------------------------
Edward E. Whitacre, Jr. Pension Benefit Plan 43 $ 1,371,368 -
SRIP 43 61,030,051 -
SERP 43 22,265,772 -
Richard G. Lindner /(2)/ AT&T Mobility Qualified Pension 18 375,697 -
Pension Benefit Plan 2 112,718 -
SRIP 21 1,743,446 -
SERP 21 2,864,788 -
Stanley T. Sigman/(3)/ AT&T Mobility Qualified Pension 4 55,873 -
SRIP 41 16,298,121 -
SERP 41 9,702,492 -
Randall L. Stephenson Pension Benefit Plan 24 528,312 -
SRIP 24 4,945,604 -
SERP 24 8,850,468 -
James D. Ellis Pension Benefit Plan 34 1,092,220 -
SRIP 34 11,481,630 -
SERP 34 3,349,328 -
David W. Dorman AT&T Corp ("Old AT&T") Qualified Pension 6 278,140 $ 15,622
Old AT&T Excess Plan 6 1,398,655 78,198
Old AT&T Non-Qualified Pension 6 2,125,539 125,602
Old AT&T SERP 6 31,470,251 1,873,315
--------------------------------------------------------------------------------
1. Pension benefits reflected in the above table were determined using the
methodology and material assumptions set forth in the 2006 AT&T Annual
Report to Stockholders in footnote 10, "Pension and Postretirement
Benefits," on pages 66-72, except that, as required by SEC regulations, the
assumed retirement age is the specified normal retirement age in the plan
unless the plan provides a younger age at which benefits may be received
without a discount based on age, in which case the younger age is used. For
the Pension Benefit Plan, the assumed retirement age is the date a
participant is at least age 55 and meets the "modified rule of 75," which
requires certain combinations of age and service that total at least 75. For
the AT&T Mobility and Old AT&T cash balance plans the assumed retirement age
is 65. For the other plans, the assumed retirement age is the date they
reach age 60 or have 30 years of service (the age at which an employee may
retire without discounts for age). If they have already surpassed the
earlier of these dates, then the assumed retirement age is December 31, 2006.
2. Before Mr. Lindner became Chief Financial Officer of AT&T Mobility, he was
employed by AT&T and accrued a benefit under the Pension Benefit Plan. This
benefit was transferred to the AT&T Mobility plan when he joined AT&T
Mobility in 2001, with service credited back to his original start date at
AT&T. When he transferred back to AT&T in 2004, his AT&T Mobility benefit
ceased accruing pay credits, and he again participated in the Pension
Benefit Plan. For the purpose of retirement eligibility, Mr. Lindner
immediately received credit in the Pension Benefit Plan for all prior
service upon returning to AT&T in 2004. For purposes of SERP/SRIP, all his
service with AT&T Mobility and AT&T will be counted.
3. Mr. Sigman took a total distribution of his benefit in the Pension Benefit
Plan when he transferred to AT&T Mobility in 2002. The distributed amount
will count as an offset to his SRIP/SERP benefit.
Pension Benefits and Other Post Employment Compensation
Qualified Pension Plan Like other large companies, we offer post-retirement
benefits, in various forms, to nearly all our managers. Our Pension Benefit
Plan, a "qualified pension plan" under the Internal Revenue Code, covers each
of the Named Executive Officers, except for Mr. Sigman, who receives benefits
under the AT&T Mobility plan. The plan's current accrual formula for
individuals hired before January 1, 2007, which is referred to as the "Career
Average Minimum" or "CAM" benefit, provides an
56
annual benefit equal to the participant's average compensation (generally, base
pay, commissions, and annual bonuses, but not bonuses paid to officers) for the
five years ended December 31, 1999, multiplied by the number of years of
service through the end of the averaging period, plus 1.6% of the participant's
pension-eligible compensation thereafter. The plan includes a cash balance
formula that was frozen on January 14, 2005. The cash balance formula provided
an accrual equal to 5% of pension-eligible compensation plus monthly interest
credits on the participant's cash balance account. The interest rate is equal
to the published average annual yield for the 30-year Treasury Bond, reset
quarterly as of the middle of the preceding quarter. Participants receive the
greater of the benefit determined under the CAM formula or the frozen cash
balance formula. The plan also permits participants to take the benefit in
various actuarially equivalent forms, including a regular annuity or, to a
limited extent, a lump sum calculated as the present value of the annuity. For
individuals hired on or after January 1, 2007, the pension benefit described in
the preceding sentences has been replaced by an age-graded cash balance formula.
As an employee of AT&T Mobility, Mr. Sigman is covered by a qualified
pension plan offered by AT&T Mobility. Participants in the plan are generally
entitled to receive a cash balance benefit equal to the monthly basic benefit
credits of 5% of the participant's compensation (generally, base pay,
commissions and group incentive awards, but not individual awards) plus monthly
interest credits on the participant's cash balance account. The interest rate
for cash balance credits is equal to the published average annual yield for the
30-year Treasury Bond, reset quarterly as of the middle of the preceding
quarter. Mr. Lindner, who was Chief Financial Officer for AT&T Mobility until
2004, has a balance in the AT&T Mobility plan but is no longer accruing
benefits, although his pension benefit continues to receive monthly interest
credits.
Nonqualified Pension Plans Highly paid employees are limited by tax law in
the amount of benefit they may receive under a qualified pension plan. As is
customary with other large companies, we offer our officers supplemental
retirement benefits as an additional retention tool. Benefits under these
nonqualified pension plans are reduced by any benefits due under a qualified
pension plan. These supplemental benefits are neither funded by nor are a part
of the qualified pension plan. Each of the Named Executive Officers is eligible
to receive these benefits. Mr. Dorman's pension is described below under
"Pensions Applicable to Mr. Dorman."
As a result of changes in the tax laws, beginning December 31, 2004,
participants ceased accruing benefits based on service or compensation under
the original supplemental plan, known as the Supplemental Retirement Income
Plan ("SRIP"). Future benefits are earned under the 2005 Supplemental Employee
Retirement Plan ("SERP"). Participants make separate distribution elections
(annuity or lump sum) for benefits accrued before 2005 (under the SRIP) and for
benefits accrued during and after 2005 (under the SERP). Elections for the
portion of the pension that accrues in and after 2005, however, must be made
when the officer first participates in the plan.
Under the nonqualified pension plan, a target annual retirement benefit is
established, stated as a percentage of a participant's annual salary and annual
incentive bonus averaged over a specified averaging period described below. The
percentage is increased by 0.715% for each year of actual service in excess of,
or decreased by 1.43% (0.715% for midcareer hires) for each year of actual
service below, 30 years of service for executive and other officers and 35
years of service for eligible senior managers. In the event the participant
retires before reaching age 60, a discount of 0.5% for each month remaining
until the participant attains age 60 is applied to reduce the amount payable
under this plan, except for officers who have 30 years or more of service at
the time of retirement.
Currently, Mr. Whitacre, Mr. Sigman and Mr. Ellis are eligible to retire
without the age discount. Benefits are reduced for any amounts they receive
under the qualified pension plan. The salary and bonus
57
used to determine their nonqualified pension amount is the average of their
salaries and actual annual incentive bonuses earned during the
36-consecutive-month period, during the prior 120 months preceding retirement,
that results in the highest average earnings. For Mr. Sigman and Mr. Lindner,
this average includes compensation earned while at AT&T Mobility. In some cases
the Human Resources Committee may require the use of the target bonus, or a
portion of the actual or target bonus, if it believes the actual bonus is not
appropriate. The target percentage for the Chief Executive Officer is 75%, and
for other Named Executive Officers the target percentage ranges from 55% to
70%. Beginning in 2006, the target percentage is limited to 50% for all new
participants.
Participants may receive benefits as an annuity payable for the greater of
the life of the participant or 10 years. In the latter case, if the participant
dies within 10 years after leaving the Company, then payments for the balance
of the 10 years will be paid to the participant's beneficiary. Alternatively,
the participant may elect to have the annuity payable for life with 100% or 50%
payable upon his death to his beneficiary for the beneficiary's life. The
amounts paid under each alternative (and the lump sum alternative described
below) are actuarially equivalent. As noted above, separate distribution
elections are made for pre-2005 benefits and 2005 and later benefits.
If they are at least age 55 upon termination of employment, participants
may elect to receive the actuarially determined net present value of the
benefit as a lump sum, rather than in the form of an annuity. Participants may
also elect to defer distribution of a portion or all of their lump sum benefit.
Those who elect to defer any portion must also elect the time period, not to
exceed 20 years after they leave the Company, and the manner in which the lump
sum will be paid. The participant is not permitted to receive more than 30% of
the lump sum benefit before the third anniversary of the termination of
employment, unless he or she is at least 60 years old at termination, in which
case the participant may receive 100% of the lump sum benefit as early as six
months after the termination of employment. Participants receiving their entire
lump sum after six months from their termination must enter into a written
noncompetition agreement with us and agree to forfeit and repay the lump sum if
they breach that agreement. Regardless of the payment form, no benefits under
the SERP are payable until six months after termination of employment.
The nonqualified pension pays only the difference, if any, between the
target amount and the total amounts payable under the Pension Benefit Plan and
the AT&T Mobility qualified plan calculated as if the benefits under these
plans were paid in the form of an immediate annuity for life.
Pensions Applicable to Mr. Dorman Mr. Dorman is covered by the AT&T Corp.
("Old AT&T") Management Pension Plan, a non-contributory, cash balance pension
plan. Each year Mr. Dorman's cash balance account was credited with (a) a pay
credit based on his age and base pay for that year, which for Mr. Dorman was 8%
for an amount up to the social security wage base and 16% thereafter, and
(b) an interest credit based on the participant's account balance as of the end
of the prior year. The interest rate was 7% for 1999 and 2000, 5.5% for 2001
and 2002, and 4% thereafter. As a result of our acquisition of Old AT&T,
Mr. Dorman received additional credits to his cash balance plan equal to 5% of
his 2004 eligible pay multiplied by the number of whole years of service (five
years for Mr. Dorman) as of the last day of the month in which the change in
control occurred, plus interest until termination of employment. This
additional credit will not count against payments under his SERP.
Pension amounts that exceed Federal limitations that would otherwise be
paid under the cash balance plan are restored from the general funds of Old
AT&T under the terms of the Old AT&T Excess Compensation and Benefits Plan.
58
Mr. Dorman is also covered by the Old AT&T Non-Qualified Pension Plan, a
supplement to the Management Pension Plan. Under this plan, annual pensions for
officers are computed under the preceding cash balance design, but are based on
actual annual bonus awards.
Finally, Mr. Dorman receives an annuity of $2,247,978 per year under his
amended supplemental retirement arrangement with Old AT&T. Under his employment
agreement with AT&T, his annuity equals 60% of his final three-year average
total cash compensation, with a 50% survivor annuity payable to Mr. Dorman's
spouse, reduced by payments under the other pension plans described above.
Other Post-Retirement Benefits Named Executive Officers who retire after
age 55 with at least five years of service or who are retirement eligible under
the qualified pension plan using the "modified rule of 75," which permits
retirement if certain combinations of age and service exceed 75, receive the
following for life, subject to amendment. Benefits applicable to managers
generally are omitted. Mr. Whitacre, Mr. Sigman and Mr. Ellis are currently
eligible to receive these benefits at retirement (under Mr. Whitacre's
contract, he will receive these benefits for life):
---------------------------------------------------------------------------------
Personal Benefits Payments (valued at our incremental cost)
---------------------------------------------------------------------------------
Financial counseling Maximum of $14,000 per year
Financial counseling provided in
connection with retirement Up to $20,000
Estate planning Maximum of $25,000 over a 3 year rolling
period
Other (communications) Estimated $1,500 annually
Supplemental health insurance premiums Estimated $10,548 annually, above
required contributions from employee
---------------------------------------------------------------------------------
We will pay applicable taxes resulting from the provisions of the personal
benefits, except for Company paid supplemental health insurance premiums, for
each retired Named Executive Officer. If the executive had retired on December
31, 2006, we would have made annual tax reimbursements for benefits paid after
retirement estimated to be $15,000 for each of Mr. Whitacre, Mr. Sigman and
Mr. Ellis.
In the event of the death or termination of employment of a manager, the
manager's restricted stock vests and all performance shares pay out at 100%.
These are the same amounts a manager would receive in a change in control as
noted on page 63.
59
--------------------------------------------------------------------------------
Nonqualified Deferred Compensation
--------------------------------------------------------------------------------
Executive Registrant Aggregate Aggregate Aggregate
Contributions Contributions Earnings in Withdrawals/ Balance at
Name in 2006 /(1)/ in 2006 /(2)/ 2006/(3)/ Distributions 12/31/06
--------------------------------------------------------------------------------------------
Edward E. Whitacre, Jr. $ 126,000 $100,800 $4,336,913 $ 4,394,540 $73,802,329
Richard G. Lindner 1,091,165 32,270 70,621 1,082,028 1,650,550
Stanley T. Sigman 843,000 125,748 523,552 0 8,080,094
Randall L. Stephenson 1,623,563 45,370 228,232 1,480,261 6,408,624
James D. Ellis 1,145,400 39,264 1,417,370 21,008,207 18,519,021
David W. Dorman 0 0 0 0 0
--------------------------------------------------------------------------------------------
1. The amounts represent the compensation the employee earned but elected to
defer. This may include the deferral of salary, discretionary bonus, short-
and/or long-term incentive compensation. Of the compensation shown in the
2006 Summary Compensation Table, only salary paid in 2006 is included in
the "Executive Contributions" column above. Because annual bonus (including
incentive award) amounts in the Summary Compensation Table are not paid
until 2007, they may not be contributed to a deferral plan before that time
and are not included in the above table. Deferrals of incentive
compensation include bonuses and incentives payable in 2006, but earned in
prior years. The following amounts were deferred from salary in 2006:
Mr. Whitacre--$126,000, Mr. Lindner--$201,688, Mr. Sigman--$345,750, Mr.
Stephenson--$283,563, and Mr. Ellis--$245,401.
2. Registrant (AT&T) Contributions that were made in 2006 are also reported
under the "All Other Compensation" column of the Summary Compensation Table.
3. Aggregate Earnings, which include interest, dividends and dividend
equivalents, are included under the "Change in Pension Value and
Nonqualified Deferred Compensation Earnings" column of the Summary
Compensation Table only to the extent they exceed the SEC market rate, as
shown in Footnote 4 to the Summary Compensation Table.
Stock Purchase and Deferral Plan ("SPDP") Under the SPDP and its
predecessor plan, mid-level and above managers may annually elect to defer up
to 30% of their salary and annual bonus. Officer level managers, including the
Named Executive Officers, may contribute up to 100% of their annual bonus. In
addition, the Human Resources Committee may approve other contributions to the
plan. These deferrals are used to make monthly purchases of AT&T stock at fair
market value on a deferred basis. For each share purchased, the participant
receives two stock options with an exercise price equal to the fair market
value of the stock when the options are issued. For officers, options are
issued on bonus contributions only up to their target bonuses. In addition,
unless they receive Company matching contributions in our 401(k) plan, SPDP
participants receive matching shares in AT&T stock at substantially the same
matching rate as that in the 401(k) plan: 80% match for the first 6% of salary
and bonus. Officer level employees do not receive matching shares on the
contribution of their bonuses. Managers may also defer the receipt of stock
awards in the plan, but they do not receive stock options or matching
contributions in connection with these deferrals.
Cash Deferral Plan Managers who elect at least a 15% contribution in the
SPDP may also defer up to 50% (25% in the case of mid-level managers) of their
salary and bonus through the Cash Deferral Plan. Officer level managers may
defer 100% of their bonus. Managers may also defer any part of a distribution
of performance shares paid in cash, regardless of any contribution to the SPDP.
In addition, the Human Resources Committee may approve other contributions to
the plan. We pay interest at the Moody's Long Term Corporate Bond Yield Average
for the preceding September (the "Moody's rate"), a common index used by
companies. Pursuant to the rules of the Securities and Exchange Commission, we
include in the Summary Compensation Table under "Change in Pension Value and
Nonqualified Deferred Compensation Earnings" any earnings on deferred
compensation that exceed a rate determined in accordance with Securities and
Exchange Commission rules. The Moody's Rate, over time, approximates the SEC
rate.
60
AT&T Mobility Cash Deferral Plan Mr. Sigman participates in the AT&T
Mobility Cash Deferral Plan, a non-qualified, executive deferred compensation
plan. The plan permits officers and senior managers to defer between 6% and 50%
of their base pay and between 6% and 75% of their annual bonus and long-term
compensation awards into the plan. The Company provides a match equal to 80% of
6% of the amount deferred by the participant. The plan also provides an
additional match when participants' compensation exceeds Internal Revenue
Service qualified plan limits. Benefits under the plan are unfunded. "Account
balances" earn an interest rate of return based on Moody's Corporate Bond Yield
Average as reported by Moody's for the month ending two months prior to the
month in which participants make their annual deferral elections under the
plan. This rate is reset each year. Distributions occur according to employee
elections. AT&T Mobility adopted a successor plan, known as the 2005 Cash
Deferral Plan, having substantially the same terms as the original plan except
with respect to the timing of deferral and distribution elections. Because of
the identical nature of the plans, they are treated as one plan in the table.
Certain Named Executive Officers have also participated in deferred
compensation plans that are now closed to additional contributions and are
described below.
Senior Management Deferred Compensation Plan of 1988 Eligible managers were
permitted to make elections under this plan and a related plan for mid-level
managers (both nonqualified plans) to defer, over four year deferral periods,
between 6% and 30% of their eligible compensation. No new deferral periods
could be started after 1990. Participant contributions were matched in this
plan or the company's 401(k) plan at the same rate that applied under the
401(k) plan. Account balances are credited with interest at a rate, determined
annually by the Company, that shall not be less than the Moody's rate.
Distributions occur according to employee elections.
Senior Management Deferred Compensation Plan Eligible managers were
permitted to make elections to defer, over eight year deferral periods, between
6% and 30% of their eligible compensation to a nonqualified deferred
compensation plan. This plan was started in 1984 and no new deferral periods
could be started after 1987. Participant contributions were matched in this
plan or the Company's 401(k) plan at the same rate that applied under the
401(k) plan. This plan provides a defined benefit, equivalent to between 14%
and 15% interest, at termination of employment if the participant terminates
employment after reaching age 55. If the age and service conditions are not
satisfied at termination of employment, the participant's benefit is the amount
contributed (including Company match) plus interest at 8%, compounded annually.
Under the Senior Management Deferred Compensation Plan of 1988 and the
Senior Management Deferred Compensation Plan, after the participant dies, an
additional benefit is payable to the surviving spouse for the duration of his
or her life in an amount equal to two-thirds of the participant's standard
retirement benefit, beginning once the standard retirement benefit payments
have ended. If the Named Executive Officers had died at the end of 2006, their
surviving spouses would have been entitled to monthly benefits as follows
(beginning in December 2021 or, for Mr. Lindner, in December 2024):
Mr. Whitacre--$57,171, Mr. Sigman--$24,621, Mr. Ellis--$43,093 and Mr.
Lindner--$11,165.
Salary and Incentive Award Deferral Plan Eligible managers were permitted
to make elections to participate in a nonqualified deferred compensation plan
that allowed annual deferrals of up to 50% of base pay (conditioned upon
deferring at least 30% of their base pay to the Company's nonqualified stock
deferral plan) and up to 100% of an incentive award and any other award
approved by the Human Resources Committee. No deferrals were permitted to be
made after 2004. Account balances are credited with interest at a rate,
determined annually by the Company, that shall not be less than the Moody's
rate. Distributions occur according to employee elections.
61
Potential Payments upon Termination or Change in Control
Change in Control An acquisition in our industry can take a year or more to
complete, and during that time it is critical that the Company have access to
its leadership. If we are in the process of being acquired, our officers may
have concerns about their employment with the new company. Our Change in
Control Severance Plan offers benefits so that our officers may focus on the
Company's business without the distraction of searching for new employment. The
Change in Control Severance Plan covers our officers, including each of the
Named Executive Officers, other than Mr. Dorman. The plan became effective
January 1, 2007, but for purposes of this discussion will be treated as if it
was in effect on December 31, 2006. The plan replaced individual severance
agreements that expired December 31, 2006.
The Change in Control Severance Plan offers benefits to an officer who is
terminated or otherwise leaves our Company for "good reason" after a change in
control. These benefits include a payment equal to 2.99 times the sum of the
executive's most recent salary and target bonus. Each covered officer will also
be provided, at no cost to him or her, with life and health benefits, including
supplemental medical, vision and dental benefits, substantially similar to
those benefits provided prior to termination, for a period of three years after
the executive's employment ends or until the end of the year he or she turns
65, whichever is earlier. Each covered officer will also be treated as retired
for purposes of receiving financial counseling benefits. We believe that these
benefits are competitive with the benefits offered by comparable companies.
Retirement eligible officers are eligible for certain of these benefits as part
of their post-employment benefits (see "Other Post-Retirement Benefits"
following the Pension Benefits table for more information). The estimated
annual incremental costs of these benefits that would have been provided if the
Named Executive Officers had left for "good reason" under the plan at the end
of 2006, above amounts that would have been incurred as post-retirement
benefits outside of the plan, are outlined in the table below (no amounts are
shown for Mr. Whitacre since he has already attained age 65):
--------------------------------------------------------------------------
Additional Costs of Benefits Under the Change in Control Severance Plan
--------------------------------------------------------------------------
Health Benefits Life Insurance Financial Counseling
--------------------------------------------------------------------------
Richard G. Lindner $27,242 $ 0 $22,300
Stanley T. Sigman 6,525 45,683 0
Randall L. Stephenson 27,242 45,575 22,300
James D. Ellis 6,525 40,910 0
--------------------------------------------------------------------------
"Good reason" means, in general, assignment of duties inconsistent with the
executive's title or status; a substantial adverse change in the nature or
status of the executive's responsibilities; a reduction in pay; or failure to
pay compensation or continue benefits. The employment of our Chief Executive
Officer and General Counsel is unlikely to be continued at the new company if
we are acquired. For each of these executives, "good reason" also means a good
faith determination by the executive within 90 days of the change in control
that he or she is not able to discharge his or her duties effectively.
Under the plan, a change in control occurs if: (a) anyone (other than one
of our employee benefit plans) acquires more than 20% of AT&T's common stock,
(b) within a two-year period, the Directors at the beginning of the period
(together with any new Directors elected or nominated for election by a
two-thirds majority of Directors then in office who were Directors at the
beginning of the period or whose election or nomination for election was
previously so approved) cease to constitute a majority of the Board, (c) upon
consummation of a merger where AT&T Inc. is one of the merging entities and
where persons other than the AT&T stockholders immediately before the merger
hold more than 50% of the voting power of the surviving entity, or (d) upon our
stockholders' approval of a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially
all the Company's assets.
62
In addition, under the terms of performance share awards granted in 2005
and 2006 (and Mr. Lindner's restricted stock grant), if a change in control
occurs under the terms of the 2001 Incentive Plan, the grants would immediately
vest and become payable to the executive at 100% of their target amounts,
whether or not the executive's employment was terminated. A change in control
under the 2001 Incentive Plan occurs under substantially the same circumstances
as those under the Change in Control Severance Plan, described in (a) through
(d) of the preceding paragraph, except that with respect to (c), a change in
control is deemed to occur upon stockholder approval of a merger where AT&T
Inc. is one of the merging entities and where persons other than the AT&T
stockholders immediately before the merger hold more than 20% of the voting
power of the surviving entity. Had a change in control occurred under the 2001
Incentive Plan at the end of 2006, the Named Executive Officers would be
entitled to the following payout of the forgoing awards at the regular
distribution times: Mr. Whitacre--$67,596,958, Mr. Lindner--$7,843,872
(includes the value of Mr. Lindner's restricted stock grant that would vest in
the form of shares), Mr. Stephenson--$12,610,598 and Mr. Ellis--$12,463,272.
If a change in control and termination of employment of the Named Executive
Officers had occurred at the end of 2006 in accordance with the Change in
Control Severance Plan, the following estimated severance payments and tax
reimbursements would have been paid in a lump sum:
-------------------------------------------------------
Change in Control Severance Payments
-------------------------------------------------------
Name Severance Tax Reimbursements
-------------------------------------------------------
Edward E. Whitacre, Jr. $23,322,000 $20,066,404
Richard G. Lindner 4,784,000 152,985
Stanley T. Sigman 7,871,175 0
Randall L. Stephenson 7,923,500 309,767
James D. Ellis 5,232,500 4,728,907
-------------------------------------------------------
Other Termination Payments Upon termination of employment our officers are
entitled to their accrued pensions and the distribution of their prior
deferrals of earned compensation along with any earnings and appreciation on
the deferred compensation. Other post retirement benefits that would be paid to
the Named Executive Officers are described in the narrative following the
Pension Benefits table and in the description of Mr. Whitacre's and
Mr. Sigman's compensation in the Narrative Disclosure to Summary Compensation
Table and Grants of Plan Based Awards Table. Death benefits are described in
the narratives for the respective plans throughout this document.
63
--------------------------------------------------------------------------------
Section 16(a) Beneficial Ownership Reporting Compliance
AT&T's executive officers and Directors are required under the Securities
Exchange Act of 1934 to file reports of transactions and holdings in AT&T
common stock with the Securities and Exchange Commission and the New York Stock
Exchange, and to file a copy of such reports with AT&T. Based solely on a
review of the filed reports and written representations that no other reports
are required, AT&T believes that during the preceding year all executive
officers and Directors were in compliance with all filing requirements
applicable to such executive officers and Directors, except for one report
covering one transaction filed late by Forrest E. Miller relating to 45 shares
that were inadvertently purchased by an investment manager.
--------------------------------------------------------------------------------
Other Business
The Board of Directors is not aware of any matters that will be presented
at the meeting for action on the part of stockholders other than those
described in this proxy statement.
A copy of AT&T's Annual Report to the Securities and Exchange Commission on
Form 10-K for the year 2006 may be obtained without charge upon written request
to AT&T Stockholder Services, 175 E. Houston, Room 7-F-8, San Antonio, Texas
78205.
AT&T's Corporate Governance Guidelines, Code of Ethics, and Committee
Charters may be viewed online at www.att.com and are also available in print to
anyone who requests them.
Stockholder Proposals
Proposals of stockholders intended for presentation at the 2008 Annual
Meeting must be received by AT&T for inclusion in its Proxy Statement and form
of proxy relating to that meeting by November 23, 2007. Such proposals should
be sent in writing by certified mail to the Senior Vice President and Secretary
of AT&T at 175 E. Houston, San Antonio, Texas 78205.
Stockholders whose proposals are not included in the Proxy Statement but
who still intend to submit a proposal at an Annual Meeting and stockholders who
intend to submit nominations for Directors at an Annual Meeting are required to
notify the Senior Vice President and Secretary of AT&T of their proposal or
nominations and to provide certain other information not less than 90 days, nor
more than 120 days, before the anniversary of the prior Annual Meeting of
Stockholders, in accordance with AT&T's Bylaws. Special notice provisions apply
under the Bylaws if the date of the Annual Meeting is more than 30 days before
or 70 days after the anniversary date.
64
[back cover]
[AT&T LOGO]
AT&T INC.
175 E. Houston
P.O. Box 2933
San Antonio, TX 78299-2933
www.att.com
[recycle logo]
AT&T Inc. 2007 Annual Meeting of Stockholders Admission Ticket
Friday, April 27, 2007
Doors open at 8:00 a.m. Central Time
Meeting begins at 9:00 a.m. Central Time
Upon arrival, please present this admission ticket and
photo identification at the registration desk.
Alzafar Shrine Temple
901 North Loop 1604 West, San Antonio, TX
* The Alzafar Shrine Temple is located in San Antonio on the westbound
frontage road of North Loop 1604 between the Stone Oak Parkway and Blanco
Road exits.
[MAP] [MAP]
+ IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +
--------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors for the Annual
Meeting on April 27, 2007.
The undersigned hereby appoints Edward E. Whitacre, Jr. and Richard G. Lindner,
and each of them, proxies, with full power of substitution, to vote all common
shares of the undersigned in AT&T Inc. at the Annual Meeting of Stockholders to
be held on April 27, 2007, and at any adjournment thereof, upon all subjects
that may properly come before the meeting, including the matters described in
the proxy statement furnished herewith, in accordance with the directions
indicated on the reverse side of this card or provided through the telephone or
Internet proxy procedures, and at the discretion of the proxies on any other
matters that may properly come before the meeting. If specific voting
directions are not given with respect to the matters to be acted upon and the
signed card is returned, the proxies will vote such shares (except for shares
held in the employee benefit plans noted below) in accordance with the
Directors' recommendations on the matters listed on the reverse side of this
card and at the discretion of the proxies on any other matters that may
properly come before the meeting.
The Board of Directors recommends a vote FOR each of the Director proposals
(Items 1 - 3) and AGAINST each of the stockholder proposals (Items 4 - 8)
listed on the reverse side of this card (each of which is described in the
proxy statement). The Board of Directors knows of no other matters that are to
be presented at the meeting.
Please sign below and return promptly in the enclosed envelope or, if you
choose, you can submit your proxy by telephone or through the Internet.
This proxy card, when signed and returned, or your telephone or Internet proxy,
will also constitute voting instructions to the (a) plan administrator for any
shares held on your behalf pursuant to The DirectSERVICE Investment Program
(dividend reinvestment plan) and (b) plan administrator or trustee for any
shares held on your behalf under any of the following employee benefit plans:
the AT&T Savings Plan, the AT&T Savings and Security Plan, the AT&T PAYSOP, the
Pacific Telesis Group Employee Stock Ownership Plan, the Tax Reduction Act
Stock Ownership Plan sponsored by The Southern New England Telephone Company,
the AT&T Long Term Savings Plan for Management Employees, the AT&T Long Term
Savings and Security Plan, the AT&T Retirement Savings and Profit Sharing Plan,
the AT&T of Puerto Rico, Inc. Long Term Savings Plan for Management Employees,
the AT&T of Puerto Rico, Inc. Long Term Savings and Security Plan, the AT&T
Stock Ownership Plan, Cingular Wireless 401(k) Savings Plan, BellSouth
Retirement Savings Plan, and the BellSouth Savings and Security Plan. Shares in
each of the foregoing employee benefit plans for which voting instructions are
not received, subject to the trustees' fiduciary obligations, will be voted by
the trustees in the same proportion as the shares for which voting instructions
are received from other participants in each such plan. To allow sufficient
time for voting by the trustees and/or administrators of the plans, your voting
instructions must be received by April 24, 2007.
D Non-Voting Items
Annual Report Yes Change of Address - Please print new address below.
Discontinue mailing Annual Reports [ ]
for this account because I already
receive multiple copies at this
address. __________________________________________________
E Authorized Signatures - This section must be completed for your instructions
to be executed.
Please sign exactly as name(s) appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, corporate officer, trustee,
guardian, or custodian, please give full title.
Date (mm/dd/yyyy) Signature 1 Signature 2
Please print date below. Please keep signature within the box. Please keep signature within the box.
[ / / ] _____________________________________ _____________________________________
IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - E ON BOTH SIDES OF THIS CARD.
[back of card]
[AT&T logo] 2007 Annual Meeting Admission Ticket
Electronic Voting Instructions
Instead of mailing your proxy, you
can vote by Internet or telephone.
Available 24 hours a day, 7 days a
week.
VALIDATION DETAILS ARE LOCATED BELOW
IN THE TITLE BAR.
Vote by Internet
. Log on to the Internet and go to
www.computershare.com/expressvote
. Follow the steps outlined on the
secured website.
Vote by telephone
. Call toll free 1-800-652-VOTE
(8683) within the United States,
Canada & Puerto Rico any time on
a touch tone telephone. There is
NO CHARGE to you for the call.
. Follow the instructions provided
by the recorded message.
Using a black ink pen, mark
your votes with an X as shown
in this example. Please do
not write outside the
designated areas. [X]
--------------------------------------------------------------------------------
Annual Meeting Proxy Card
________________________________________________________________________________
+ IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE
PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. +
A Election of Directors - The Board of Directors recommends a vote FOR the
listed nominees.
1. Nominees: For Against Abstain For Against Abstain
------------ --- ------- ------- --- ------- -------
01 - William F. Aldinger III [ ] [ ] [ ] 10 - John B. McCoy [ ] [ ] [ ]
02 - Gilbert F. Amelio [ ] [ ] [ ] 11 - Mary S. Metz [ ] [ ] [ ]
03 - Reuben V. Anderson [ ] [ ] [ ] 12 - Toni Rembe [ ] [ ] [ ]
04 - James H. Blanchard [ ] [ ] [ ] 13 - Joyce M. Roche [ ] [ ] [ ]
05 - August A. Busch III [ ] [ ] [ ] 14 - Randall L. Stephenson [ ] [ ] [ ]
06 - James P. Kelly [ ] [ ] [ ] 15 - Laura D'Andrea Tyson [ ] [ ] [ ]
07 - Charles F. Knight [ ] [ ] [ ] 16 - Patricia P. Upton [ ] [ ] [ ]
08 - Jon C. Madonna [ ] [ ] [ ] 17 - Edward E. Whitacre, Jr. [ ] [ ] [ ]
09 - Lynn M. Martin [ ] [ ] [ ]
B Director Proposals - The Board of Directors recommends a vote FOR Items 2 and
3.
For Against Abstain For Against Abstain
--- ------- ------- --- ------- -------
2. Ratification of [ ] [ ] [ ] 3. Approval of the AT&T [ ] [ ] [ ]
appointment of Severance Policy
independent auditors
C Stockholder Proposals - The Board of Directors recommends a vote AGAINST
Items 4 - 8.
For Against Abstain For Against Abstain
--- ------- ------- --- ------- -------
4. Stockholder Proposal A [ ] [ ] [ ] 7. Stockholder Proposal D [ ] [ ] [ ]
5. Stockholder Proposal B [ ] [ ] [ ] 8. Stockholder Proposal E [ ] [ ] [ ]
6. Stockholder Proposal C [ ] [ ] [ ]
[Broker Voter Instruction Form]
AT&T INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, APRIL 27, 2007
Your vote is important. Thank you for
voting.
To vote by internet
1) Read the Proxy Statement and have
the voting instruction form below
at hand.
2) Go to Website www.proxyvote.com
3) Follow the instructions provided on
the website.
To vote by Telephone
1) Read the Proxy Statement and have
the voting instruction form below
at hand.
2) Call 1-800-454-8683
3) Follow the instructions.
To vote by Mail
1) Read the Proxy Statement.
2) Check the appropriate boxes on the
voting instruction form below.
3) Sign and date the voting
instruction form.
4) Return the voting instruction form
in the envelope provided.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
THIS VOTING INSTRUCTION FORM IS VALID ONLY WHEN SIGNED AND DATED.
A Election of Directors - The Board of PLEASE "X" HERE ONLY IF YOU PLAN TO
Directors recommends a vote FOR the ATTEND THE MEETING AND VOTE THESE
listed nominees. SHARES IN PERSON. [ ]
1. Nominees: For Against Abstain For Against Abstain
------------ --- ------- ------- --- ------- -------
01 - William F. Aldinger III [ ] [ ] [ ] 10 - John B. McCoy [ ] [ ] [ ]
02 - Gilbert F. Amelio [ ] [ ] [ ] 11 - Mary S. Metz [ ] [ ] [ ]
03 - Reuben V. Anderson [ ] [ ] [ ] 12 - Toni Rembe [ ] [ ] [ ]
04 - James H. Blanchard [ ] [ ] [ ] 13 - Joyce M. Roche [ ] [ ] [ ]
05 - August A. Busch III [ ] [ ] [ ] 14 - Randall L. Stephenson [ ] [ ] [ ]
06 - James P. Kelly [ ] [ ] [ ] 15 - Laura D'Andrea Tyson [ ] [ ] [ ]
07 - Charles F. Knight [ ] [ ] [ ] 16 - Patricia P. Upton [ ] [ ] [ ]
08 - Jon C. Madonna [ ] [ ] [ ] 17 - Edward E. Whitacre, Jr. [ ] [ ] [ ]
09 - Lynn M. Martin [ ] [ ] [ ]
B Director Proposals - The Board of Directors recommends a vote FOR Items 2 and 3.
For Against Abstain For Against Abstain
--- ------- ------- --- ------- -------
2. Ratify appointment of independent [ ] [ ] [ ] 3. Approve the AT&T [ ] [ ] [ ]
auditors Severance Policy
C Stockholder Proposals - The Board of Directors recommends a vote AGAINST Items 4 - 8.
For Against Abstain For Against Abstain
--- ------- ------- --- ------- -------
4. Stockholder Proposal A [ ] [ ] [ ] 7. Stockholder Proposal D [ ] [ ] [ ]
5. Stockholder Proposal B [ ] [ ] [ ] 8. Stockholder Proposal E [ ] [ ] [ ]
6. Stockholder Proposal C [ ] [ ] [ ]
Please sign exactly as name(s) appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, corporate officer, trustee,
guardian, or custodian, please give full title.
-------------------------------------- -------------------------------------
(Signature [PLEASE SIGN ON LINE] Date) (Signature [Joint Owners] Date)