Sprint - Nextel 2011 Annual Report Download - page 45

Table of Contents
Costs of Services and Products
Costs of services and products include access costs paid to local phone companies, other domestic service providers and foreign phone companies to complete
calls made by our domestic subscribers, costs to operate and maintain our networks, and costs of equipment. Costs of services and products decreased $314 million, or
9%, in 2011 from 2010 and $344 million, or 9%, in 2010 from 2009. The decrease in 2011 and 2010 was primarily due to lower access expense as a result of savings
initiatives and migration from data to IP-based technologies in addition to declining voice volumes. Service gross margin percentage decreased from 35% in 2009 to 34%
in 2010 and further decreased to 31% in 2011 as a result of a decrease in net service revenue partially offset by a decrease in costs of services and products.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased $110 million, or 17%, in 2011 as compared to 2010 and $114 million, or 15% in 2010 as compared
2009. The decrease in 2011 was primarily due to a reduction in shared administrative and employee related costs required to support the Wireline segment as a result of
the decline in revenue. The decrease in 2010 was primarily due to a reduction in employee headcount and a decline in the use of outside services and maintenance as part
of our cost cutting initiatives. Total selling, general and administrative expense as a percentage of net services revenue was 12% in 2011 and 13% in 2010 and 2009.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Operating Activities
Net cash provided by operating activities of $3.7 billion in 2011 decreased $1.1 billion from the same period in 2010. The decrease resulted from an increase in
vendor and labor-related payments of $2.6 billion, which primarily related to an increase in the average cost of postpaid and prepaid devices sold and related increases in
inventory, increased roaming due to higher 3G and 4G data usage, as well as $136 million in pension contribution payments. This was offset by $1.2 billion of increased
cash received from customers primarily due to increases in total subscriber net additions and $310 million received for spectrum hosting. In addition, cash paid for interest
decreased by $430 million, of which, $395 million was associated with interest capitalization as a result of Network Vision and was reflected as an investing activity.
Net cash provided by operating activities of $4.8 billion in 2010 decreased by $76 million from 2009, primarily due to a $196 million decrease in cash received
from our subscribers resulting from a decline in our postpaid subscriber customer base, an increase of $217 million in cash paid to our suppliers and employees, and an
increase of $36 million in cash paid for interest. These were partially offset by an increase of $170 million in cash received for income tax refunds. Net cash provided by
operating activities for 2009 also includes a cash payment of $200 million resulting from a contribution to the Company pension plan.
Investing Activities
Net cash used in investing activities for 2011 increased by $887 million from 2010, due to increases of $480 million in purchases of short-term investments
and $1.2 billion in capital expenditures. Increases in capital expenditures are related to the addition of data capacity to our wireless networks and Network Vision and also
include $395 million due to the recognition of capitalized interest on qualifying activities associated with Network Vision primarily related to the carrying value of
spectrum licenses not yet placed in service. These increases in use of cash were offset by increases of $825 million in proceeds from sales and maturities of short-term
investments and a decrease of $201 million in expenditures related to FCC licenses as determined by specific operations requirements of the Report and Order. We also
received $135 million in reimbursements from the mobile satellite service (MSS) entrants for their pro rata portion of our costs of clearing a portion of the 1.9 GHz
spectrum. In
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Year Ended December 31,
2011 2010 2009
(in millions)
Net cash provided by operating activities $ 3,691 $ 4,815 $ 4,891
Net cash used in investing activities (3,443) (2,556) (3,844)
Net cash provided by (used in) financing activities 26 (905) (919)