AT&T Wireless 2006 Annual Report Download - page 40

38 : : 2006 AT&T Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
LIQ UIDI T Y AND C APITA L R ESO URCES
We had $2,418 in cash and cash equivalents available at
December 31, 2006. Cash and cash equivalents included cash
of $1,324, money market funds of $357 and other cash
equivalents of $737. The increase in cash and cash equivalents
of nearly $1,200 since December 31, 2005 was primarily
provided by cash receipts from operations and the net cash
received upon our acquisition of BellSouth and cash received
from the sale of non-strategic real estate and other assets.
These inflows were partially offset by cash used to meet the
needs of the business including, but not limited to, payment
of operating expenses, funding capital expenditures, dividends
to stockholders, repayment of debt, repurchase of treasury
shares, net cash provided to AT&T Mobility and increased
cash tax payments. We discuss many of these factors in
detail below.
Cash Provided by or Used in Operating Activities
During 2006, our primary source of funds was cash from
operating activities of $15,615 compared to $12,974 in 2005.
Operating cash flows increased primarily due to an increase in
net income of more than $2,500 and additional cash provided
by the ATTC acquisition, partially offset by increased tax
payments of $739 in 2006. Tax payments were higher primarily
due to increased income before income taxes. Tax payments in
2006 include a refund from the completion of the ATTC federal
income tax audit covering 1997-2001. The 2006 tax payments
include amounts related to prior-year accrued liabilities. The
timing of cash payments for income taxes, which is governed
by the IRS and other taxing jurisdictions, will differ from the
timing of recording tax expense and deferred income taxes,
which are reported in accordance with GAAP.
During 2005, our primary source of funds was cash from
operating activities of $12,974 compared to $10,950 in 2004.
Operating cash flows increased in 2005 compared to 2004
primarily due to retirement benefit funding of $2,232 in 2004,
partially offset by increased tax payments in 2005 of $1,224.
The 2005 increased tax payments were mainly related to
prior-year accrued liabilities. We also made advance tax
payments, which we consider to be a refundable deposit,
to a certain state jurisdiction.
Cash Used in or Provided by Investing Activities
During 2006, cash used for investing activities consisted of:
• $8,320 in construction and capital expenditures.
• $1,089 of net funding for AT&T Mobility’s capital and
operating requirements in accordance with the terms
of our agreement with AT&T Mobility and BellSouth.
• $285 related to the acquisition of USinternetworking,
Inc., which provides managed enterprise software and
on-demand services, net of cash received.
• $130 related to the acquisition of Comergent, Inc., which
provides Internet-based services related to services
offered by our Sterling subsidiary.
• $62 related to an investment in 2Wire Inc., a privately
held company that provides services related to Project
Lightspeed.
• $50 related to the acquisition of Nistevo Corporation,
which provides Internet-based services for our Sterling
subsidiary.
During 2006, cash provided by our investing activities
primarily consisted of:
• $898 in cash received upon closing our acquisition of
BellSouth, net of merger acquisition costs.
• $567 of proceeds from real estate sale-leaseback
transactions.
• $189 related to the sale of securities and other assets.
To provide high-quality communications services to our
customers, we must make significant investments in property,
plant and equipment. The amount of capital investment is
influenced by demand for services and products, continued
growth and regulatory considerations. Our capital expendi-
tures totaled $8,320 for 2006, $5,576 for 2005 and $5,099
for 2004. Capital expenditures in the wireline segment, which
represented substantially all of our capital expenditures,
increased 50.4% in 2006, reflecting the acquisition of ATTC,
and 5.9% in 2005. Our capital expenditures are primarily for
our wireline subsidiaries’ networks, Project Lightspeed,
merger-integration projects and support systems for our
long-distance service.
Because of opportunities made available by the continued
changing regulatory environment and our acquisition of ATTC
and BellSouth, we expect that our capital expenditures for the
next two years, which include wireless network expansion and
Project Lightspeed, will be in the mid-teens as a percentage
of consolidated revenue. We continue to expect spending to
be approximately $4,600 on our Project Lightspeed initiative
for network-related deployment costs and capital expenditures
from 2006 through 2008, as well as additional customer
activation capital expenditures. During 2006 we spent
approximately $1,500 on our Project Lightspeed initiative.
We remain on budget for this overall target and expect to
spend approximately $3,100 during 2007 and 2008. These
expenditures may increase slightly if the programming and
features of the video offering expand or if additional network
conditioning is required. We expect that the business
opportunities made available, specifically in the data/broad-
band area, will allow us to expand our products and services
(see “U-verse Services (Project Lightspeed)” discussed in
“Expected Growth Areas”).
We expect to fund 2007 capital expenditures for our wireline
segment, which includes international operations, using cash
from operations and incremental borrowings, depending on
interest rate levels and overall market conditions.
As of December 31, 2006, our wireless segment (AT&T
Mobility) spent $7,039 primarily for GSM/GPRS/EDGE network
upgrades with their cash from operations, dispositions and, as
needed, advances under the revolving credit agreement with
us and BellSouth (see Note 14). During 2006, we made net
advances to AT&T Mobility of $1,089 under the revolving
credit agreement. Additionally, in November 2006, AT&T
Mobility completed its purchase of 48 licenses of wireless
spectrum from the FCC for $1,335. The upgrade, integration
and expansion of our wireless networks will continue to
require substantial amounts of capital over the next several
years, although we expect these spending levels to decline
since we have completed most of our capital expenditures
for our UMTS/HSDPA upgrade and the integration of our
California network. In 2007, our wireless capital expenditures
should be in the lower double-digit range as a percent of our
wireless revenues for the integration and expansion of its
networks and the installation of UMTS/HSDPA technology