Sprint - Nextel 2011 Annual Report Download - page 47

Table of Contents
operating income in the earlier years of the contract until such time as we may recover the acquisition costs through subscriber revenue.
Additionally, in October 2011, we announced our intention to accelerate the timeline associated with Network Vision, our network modernization plan. In
addition to Network Vision, we are currently experiencing rapid growth in data usage which requires additional capital for data capacity to meet our customers needs and
to maintain customer satisfaction. Our accelerated timeline coupled with our capital needs to maintain and operate our existing infrastructure are expected to require
approximately $10 billion in total capital expenditures over the two year period ending December 31, 2013. In addition to our expectation of increased capital
expenditures, we also expect network operating expenditures to increase during the deployment period.
To meet our short- and long-term liquidity requirements, we look to a variety of funding sources. Our existing liquidity balance and cash generated from
operating activities is our primary source of funding. In addition to cash flows from operating activities, we rely on the borrowing capacity available under our credit
facility, the ability to issue debt and equity securities, and other forms of financing to support our short- and long-term liquidity requirements. In November 2011, Sprint
N
extel Corporation issued $1.0 billion of 11.5% senior notes due 2021 and $3.0 billion of 9% guaranteed notes due 2018. We believe these issuances, in addition to our
existing available liquidity and cash flows from operations, will be sufficient to meet our funding requirements through at least 2012 including debt service requirements,
and other significant future contractual obligations. To maintain an adequate amount of available liquidity and execute according to the timeline of our current business
plan, which includes Network Vision, subscriber growth and the expected achievement of a cost structure intended to achieve more competitive margins, we expect we
will need to raise additional funds from external resources of approximately $1.0 billion to $3.0 billion through 2013, dependent, in part, on our ability to maintain
adequate cash balances and the ongoing availability of our existing unutilized borrowing capacity under our existing credit facilities. If we are unable to fund our
remaining capital needs from external resources on terms acceptable to us, we would need to modify our existing business plan, which could adversely affect our
expectation of long-term benefits to results from operations and cash flows from operations.
In determining our expectation of future funding needs in the next 12 months and beyond, we have considered:
As of December 31, 2011, we had working capital of $3.8 billion compared to $2.0 billion as of December 31, 2010. The increase in working capital is
primarily due to the net cash proceeds of approximately $3.9 billion from the issuance of notes, increases in device and accessory inventory, and decreases in the current
portion of long-term debt related to the repayment of $1.65 billion of Sprint Capital Corporation 7.625% senior notes due January 2011. The remaining change is
primarily related to other activity in current assets during 2011.
Capital Resources
Our ability to fund our capital needs from external sources is ultimately affected by the overall capacity and terms of the banking and securities markets, as
well as our performance and our credit ratings. Given our recent financial performance as well as the volatility in these markets, we continue to monitor them closely and
to take steps to maintain financial flexibility and a reasonable cost of capital.
As of December 31, 2011, Moody's Investor Service, Standard & Poor's Ratings Services, and Fitch Ratings had assigned the following credit ratings to certain
of our outstanding obligations:
45
•
p
rojected revenues and expenses relating to our operations;
• anticipated levels and timing of capital expenditures, including the capacity and upgrading of our networks and the deployment of new technologies in our
networks, and FCC license acquisitions;
• anticipated payments under the Report and Order, as supplemented;
• any additional contributions we may make to our pension plan;
• scheduled debt service requirements;
• additional investments, if any, we may choose to make in Clearwire; and
• other future contractual obligations and general corporate expenditures.