The Southern New England Telephone Company

Tax Reduction Act Stock Ownership Plan

 

Financial Statements, Supplemental Schedules and Exhibit

 

Table of Contents

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

AT&T Teleholdings, Inc., and

Plan Administrator for The Southern New England Telephone Company

Tax Reduction Act Stock Ownership Plan

 

We have audited the accompanying statements of net assets available for benefits of The Southern New England Telephone Company Tax Reduction Act Stock Ownership Plan as of December 31, 2006 and 2005, and the related statement of changes in net assets available for benefits for the year ended December 31, 2006. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Plan’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2006 and 2005, and the changes in its net assets available for benefits for the year ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

 

Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of assets (held at end of year) as of December 31, 2006, and reportable transactions for the year then ended, are presented for purposes of additional analysis and are not a required part of the financial statements but are supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan’s management. The supplemental schedules have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole.

 

June 20, 2007

 

 

 

 

The Southern New England Telephone Company

Tax Reduction Act Stock Ownership Plan

Statements of Net Assets Available for Benefits

(Dollars in Thousands)

 

 

 

 

 

See accompanying notes.

 

2

 

 

The Southern New England Telephone Company

Tax Reduction Act Stock Ownership Plan

Statement of Changes in Net Assets Available for Benefits

Year Ended December 31, 2006

(Dollars in Thousands)

 

 

 

 

 

See accompanying notes.

 

3

The Southern New England Telephone Company

Tax Reduction Act Stock Ownership Plan

Notes to Financial Statements

 

December 31, 2006

(Dollars in Thousands)

 

 

The following description of the Plan provides only general information. The Plan text and prospectus include complete descriptions of Plan provisions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Teleholdings has the right under the Plan to terminate the Plan subject to the provisions of ERISA.

 

The Plan permitted an employer to claim a credit against its federal income tax liability if an amount equivalent to the credit claimed was applied to the purchase of its common shares to be held in trust for the benefit of employees. Contributions to the Plan were based upon amounts allowed by law, and were allocated to eligible employees based upon a ratio of employee compensation to total compensation.

 

The Tax Reform Act of 1986 repealed the income tax credit on employee stock ownership plan contributions for compensation paid or accrued after December 31, 1986. No contributions were made to the Plan beginning with the 1987 plan year. Employees with a balance in the Plan on December 31, 1986 and whose accounts have not been totally distributed in accordance with the terms of the Plan are eligible for participation in the Plan and continue to maintain a balance in the Plan. Employees who did not have a balance in the Plan at that time are not eligible to participate.

 

 

The Plan provides for investments in investment securities, which in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits and participant account balances.

 

All administrative expenses of the Plan are paid by AT&T.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

 

4

The Southern New England Telephone Company

Tax Reduction Act Stock Ownership Plan

Notes to Financial Statements (continued)

 

December 31, 2006

(Dollars in Thousands)

 

 

All quarterly dividends for a year earned on shares in participants’ accounts are held in an interest-bearing account until paid to participants on an annual basis in November of each year. Effective January 1, 2002, the Plan was amended to allow participants the option to reinvest dividends on AT&T common stock held in their accounts. Reinvested dividends are used to purchase AT&T common stock. Interest earned on the dividends is allocated to participant accounts as cash and paid to the participant or beneficiary at distribution of the account.

 

 

 

 

The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500 for the year ended December 31, 2006:

 

 

Distributions payable to participants are recorded on the Form 5500 for benefit claims that have been processed and approved for payment prior to December 31, but not yet paid as of that date.

 

 

5

The Southern New England Telephone Company

Tax Reduction Act Stock Ownership Plan

 

Schedule H, Line 4(i) – Schedule of Assets (Held at End of Year)

EIN: 06-0542646 Plan No.: 003

 

December 31, 2006

(Dollars in Thousands)

 

 

 

*      Party-in-Interest.

6

The Southern New England Telephone Company

Tax Reduction Act Stock Ownership Plan

 

Schedule H, Line 4(j) – Schedule of Reportable Transactions

EIN: 06-0542646 Plan No.: 003

 

Year Ended December 31, 2006

(Dollars in Thousands)

 

 

 

 

 

There were no Category (1), (2) or (4) reportable transactions during the year ended December 31, 2006.

 

7

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator for the Plan has duly caused this annual report to be signed by the undersigned thereunto duly authorized.

 

 

 

 

 

 

 

 

Date: June 25 2007

 

EXHIBIT INDEX

 

Exhibit identified below, Exhibit 23 is filed herein as an exhibit hereto.

 

 

        23 Consent of Independent Registered Public Accounting Firm