AT&T Wireless 2013 Annual Report Download - page 30

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
28 | AT&T Inc.
exclusive rights to lease and operate 9,048 and purchase
627 of our wireless towers for $4,827 in cash. Under the
terms of the leases, Crown Castle will have exclusive rights
to lease and operate the towers over various terms with
an average length of approximately 28 years. As the leases
expire, Crown Castle will have fixed price purchase options
for these towers totaling approximately $4,200, based on
their estimated fair market values at the end of the lease
terms. We will sublease space on the towers from Crown
Castle for a minimum of 10 years at current market rates,
with options to renew. We accounted for the proceeds
as a financing obligation.
Connecticut Wireline Disposition In December 2013,
we agreed to sell our incumbent local exchange operations
in Connecticut to Frontier Communications Corporation for
$2,000 in cash. These Connecticut operations represent
approximately $1,200 in annual revenues as of 2013.
The transaction is subject to review by the U.S. Department
of Justice, the FCC and the Connecticut Public Utilities
Regulatory Authority and other state regulatory authorities.
We expect the transaction to close in the second half of
2014, subject to customary closing conditions.
Environmental We are subject from time to time to
judicial and administrative proceedings brought by various
governmental authorities under federal, state or local
environmental laws. We reference in our Forms 10-Q and
10-K certain environmental proceedings that could result
in monetary sanctions (exclusive of interest and costs) of
one hundred thousand dollars or more. However, we do
not believe that any of those currently pending will have
a material adverse effect on our results of operations.
LIQUIDITY AND CAPITAL RESOURCES
We had $3,339 in cash and cash equivalents available at
December 31, 2013. Cash and cash equivalents included
cash of $697 and money market funds and other cash
equivalents of $2,642. Cash and cash equivalents decreased
$1,529 since December 31, 2012. During 2013, cash inflows
were primarily provided by cash receipts from operations,
a net increase in our debt and cash received from our
tower leasing arrangement with Crown Castle and other
asset sales. These inflows were largely 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, stock repurchases
and the acquisition of wireless spectrum and operations.
We discuss many of these factors in detail below.
Cash Provided by or Used in Operating Activities
During 2013, cash provided by operating activities was
$34,796, compared to $39,176 in 2012. Lower operating
cash flows in 2013 were due to higher cash tax payments
and the timing of working capital payments and wireless
device financing related to our AT&T Next program.
Leap Acquisition In July 2013, we announced an
agreement to acquire Leap Wireless International, Inc.
(Leap), a provider of prepaid wireless service under the
Cricket brand name, for fifteen dollars per outstanding
share of Leap’s common stock, or approximately $1,260,
plus one nontransferable contingent value right (CVR)
per share. The CVR will entitle each Leap stockholder
to a pro rata share of the net proceeds of the future sale
of the Chicago 700 MHz A-band FCC license held by Leap.
As of September 30, 2013, Leap had approximately $3,100
of debt, net of cash. Under the terms of the agreement,
we will acquire all of Leap’s stock and, thereby, acquire
all of its wireless properties, including spectrum licenses,
network assets, retail stores and approximately 4.6 million
subscribers. Leap’s spectrum licenses include Personal
Communications Services (PCS) and AWS bands and are
largely complementary to our licenses. Leap’s network
covers approximately 96 million people in 35 states and
consists of a 3G CDMA network and an LTE network
covering approximately 21 million people.
The agreement was approved by more than 99 percent
of votes cast by Leap’s stockholders on October 30, 2013.
The transaction is subject to review by the FCC and
Department of Justice (DOJ). The review process is
underway at both agencies. The transaction is expected
to close in the first quarter of 2014. The agreement
provides both parties with certain termination rights if the
transaction does not close by July 11, 2014, which can be
extended until January 11, 2015 if certain conditions have
not been met by that date. Under certain circumstances,
Leap may be required to pay a termination fee or AT&T
may be required to provide Leap with a three-year roaming
agreement for LTE data coverage in certain Leap markets
lacking LTE coverage, if the transaction does not close.
If Leap enters into the roaming agreement, AT&T will then
have the option within 30 days after entry into the roaming
agreement to purchase certain specified Leap spectrum
assets. If AT&T does not exercise its right to purchase all
of the specified Leap spectrum assets, Leap can then within
60 days after expiration of AT&T’s option require AT&T to
purchase all of the specified spectrum assets.
Spectrum Acquisitions In September 2013, we acquired
spectrum in the 700 MHz B band from Verizon Wireless
for $1,900 in cash and an assignment of AWS spectrum
licenses in five markets. The 700 MHz licenses acquired by
AT&T cover 42 million people in 18 states. In January 2014,
we announced an agreement to purchase 49 AWS spectrum
licenses, covering nearly 50 million people in 14 states,
from Aloha Partners II, L.P. The transaction is subject to
regulatory approval and we expect to close the transaction
in the second half of 2014.
Tower Transaction On December 16, 2013, we closed
our transaction with Crown Castle International Corp.
(Crown Castle) in which Crown Castle will have the