AT&T Wireless 2006 Annual Report Download - page 42

40 : : 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
Following the acquisition of BellSouth in December 2006,
we agreed:
• To become a co-obligor on the $750 principal amount
7.5% senior notes due May 1, 2007, and on the $2,000
principal amount 8.125% senior notes due May 1, 2012,
originally issued by AWE and on which AT&T Mobility is
also a co-obligor.
• To unconditionally and irrevocably guarantee the payment
of interest and principal for the $1,200 principal amount
of floating rate notes of BellSouth due August 15, 2008.
We do not have plans to materially change the corporate
structures of BellSouth and AT&T Mobility.
• To unconditionally and irrevocably guarantee all obligations
under, including the payment of interest and principal on,
the $1,000 principal amount of annual put reset securities
issued by BellSouth due 2021, which were originally issued
on April 27, 2001 with an annual put option. In addition,
we agreed to assume all of BellSouth’s reporting obliga-
tions under these securities.
In February 2007, we received net proceeds of approxi-
mately $3,150 from the issuance of $1,500 principal amount
of floating-rate notes due in 2010, $1,200 principal amount of
6.375% notes due in 2056 and $500 principal amount of
5.625% notes due in 2016.
Other
Our total capital consists of debt (long-term debt and debt
maturing within one year) and stockholders’ equity. Our
capital structure does not include debt issued by our interna-
tional equity investees. Total capital increased $90,076 in
2006 compared to $17,791 in 2005. The 2006 total capital
increase was primarily due to the purchase of BellSouth
(see Note 2). For 2006, our common stock outstanding and
capital in excess of par value increased by $60,850 and
our current and long-term debt increased by $29,226. The
increase in total debt was primarily due to acquired debt
from BellSouth and AT&T Mobility of $28,321, an increase
in commercial paper and other short-term borrowings of
$3,649, debt issuances of $1,500, partially offset by debt
repayments of $4,244 during 2006. Stockholders’ equity also
increased due to our net income and was partially offset by
dividend payments and our repurchases of common shares
through our stock repurchase program.
For 2005, our common stock outstanding and capital in
excess of par value increased nearly $14,200 and our current
and long-term debt increased by $3,605. The increase in total
debt of $3,605 was primarily due to acquired debt from
ATTC of $8,293 and debt issuances of $2,000, partially offset
by debt repayments of $6,801 during 2005. Stockholders’
equity also increased due to our net income and was partially
offset by dividend payments and our repurchases of common
shares through our stock repurchase program.
Our debt ratio was 34.1%, 35.9% and 40.0% at December
31, 2006, 2005 and 2004. The debt ratio is affected by the
same factors that affect total capital. The primary factor
contributing to the decline in our 2006 debt ratio was the
acquisition of BellSouth, which increased our stockholders’
equity approximately 105% and our total long-term debt by
96%. The primary factor that impacted our 2005 debt ratio
was the acquisition of ATTC, which increased stockholders’
equity and our total long-term debt.
CON TRACTUA L O BLI GAT IONS, COM MITM ENTS A ND CO NTI N GEN CIES
Current accounting standards require us to disclose our
material obligations and commitments to making future
payments under contracts, such as debt and lease agree-
ments, and under contingent commitments, such as debt
guarantees. We occasionally enter into third-party debt
guarantees, but they are not, nor are they reasonably likely
to become material. We disclose our contractual long-term
debt repayment obligations in Note 7 and our operating
lease payments in Note 5. Our contractual obligations do
not include expected pension and postretirement payments
as we maintain pension funds and Voluntary Employee
Beneficiary Association trusts to fully or partially fund these
benefits (see Note 10). In the ordinary course of business we
routinely enter into commercial commitments for various
aspects of our operations, such as plant additions and office
supplies. However, we do not believe that the commitments
will have a material effect on our financial condition, results
of operations or cash flows.
Our contractual obligations as of December 31, 2006, are
in the following table. The purchase obligations that follow
are those for which we have guaranteed funds and will be
funded with cash provided by operations or through incre-
mental borrowings. The minimum commitment for certain
obligations is based on termination penalties that could be
paid to exit the contract. Since termination penalties would
not be paid every year, such penalties are excluded from the
table. Other long-term liabilities were included in the table
based on the year of required payment or an estimate of
the year of payment. Such estimate of payment is based on
a review of past trends for these items, as well as a forecast
of future activities. Certain items were excluded from the
following table as the year of payment is unknown and could
not be reliably estimated since past trends were not deemed
to be an indicator of future payment.
Substantially all of our purchase obligations are in our
wireline and wireless segments. The table does not include
the fair value of our interest rate swaps. Our capital lease
obligations have been excluded from the table due to the
immaterial value at December 31, 2006. Many of our other
noncurrent liabilities have been excluded from the following
table due to the uncertainty of the timing of payments,
combined with the absence of historical trending to be used
as a predictor of such payments. Additionally, certain other
long-term liabilities have been excluded since settlement of
such liabilities will not require the use of cash. However, we
have included in the following table, obligations which
primarily relate to benefit funding and severance due to the
certainty of the timing of these future payments. Our other
long-term liabilities are: deferred income taxes (see Note 9)
of $27,406; postemployment benefit obligations (see Note 10)
of $28,901; unamortized investment tax credits of $181;
and other noncurrent liabilities of $8,061, which included
deferred lease revenue from our agreement with American
Tower of $568 (see Note 5).