e10vq
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30,
2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 0-32421
NII HOLDINGS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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91-1671412
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1875 Explorer Street, Suite 1000
Reston, Virginia
(Address of Principal
Executive Offices)
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20190
(Zip
Code)
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(703) 390-5100
(Registrants Telephone
Number, Including Area Code)
Not Applicable
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Number of Shares Outstanding
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Title of Class
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on November 2, 2009
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Common Stock, $0.001 par value per share
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166,213,810
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NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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September 30,
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December 31,
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2009
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2008
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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2,001,244
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$
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1,243,251
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Short-term investments
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36,423
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82,002
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Accounts receivable, less allowance for doubtful accounts of
$37,776 and $27,875
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591,094
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454,769
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Handset and accessory inventory
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199,106
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139,285
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Deferred income taxes, net
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124,846
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135,265
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Prepaid expenses and other
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174,512
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130,705
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Total current assets
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3,127,225
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2,185,277
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Property, plant and equipment, net
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2,413,721
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1,892,113
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Intangible assets, net
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321,738
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317,878
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Deferred income taxes, net
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507,098
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429,365
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Other assets
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367,445
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265,440
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Total assets
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$
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6,737,227
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$
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5,090,073
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Accounts payable
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$
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143,298
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$
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136,442
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Accrued expenses and other
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525,069
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446,270
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Deferred revenues
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129,116
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116,267
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Accrued interest
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27,256
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13,166
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Current portion of long-term debt
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577,655
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99,054
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Total current liabilities
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1,402,394
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811,199
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Long-term debt
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2,465,313
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2,034,086
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Deferred revenues
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27,186
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29,616
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Deferred credits
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106,781
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144,397
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Other long-term liabilities
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167,750
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158,652
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Total liabilities
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4,169,424
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3,177,950
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Commitments and contingencies (Note 6)
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Stockholders equity
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Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2009 and 2008, no
shares issued or outstanding 2009 and 2008
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Common stock, par value $0.001, 600,000 shares
authorized 2009 and 2008, 166,166 shares issued
and outstanding 2009, 165,782 shares issued and
outstanding 2008
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166
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166
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Paid-in capital
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1,210,524
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1,158,925
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Retained earnings
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1,615,317
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1,293,407
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Accumulated other comprehensive loss
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(258,204
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)
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(540,375
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)
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Total stockholders equity
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2,567,803
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1,912,123
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Total liabilities and stockholders equity
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$
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6,737,227
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$
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5,090,073
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
NII
HOLDINGS, INC. AND SUBSIDIARIES
AND
COMPREHENSIVE INCOME
(in thousands, except per share
amounts)
Unaudited
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Nine Months Ended
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Three Months Ended
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September 30,
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September 30,
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2009
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2008
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2009
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2008
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Operating revenues
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Service and other revenues
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$
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2,980,833
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$
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3,106,881
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$
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1,078,386
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$
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1,116,101
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Digital handset and accessory revenues
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181,804
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173,015
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64,072
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66,624
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3,162,637
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3,279,896
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1,142,458
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1,182,725
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Operating expenses
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Cost of service (exclusive of depreciation and amortization
included below)
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861,990
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848,557
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316,836
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305,565
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Cost of digital handsets and accessories
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472,666
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455,876
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161,679
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162,478
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Selling, general and administrative
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1,015,935
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1,054,013
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363,904
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384,056
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Depreciation
|
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289,034
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285,944
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106,112
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102,882
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Amortization
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21,357
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25,434
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|
7,630
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|
|
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8,907
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|
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|
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|
|
|
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2,660,982
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|
|
|
2,669,824
|
|
|
|
956,161
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|
|
|
963,888
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|
|
|
|
|
|
|
|
|
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|
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|
|
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Operating income
|
|
|
501,655
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|
|
|
610,072
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|
|
|
186,297
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218,837
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|
|
|
|
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Other income (expense)
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|
|
|
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Interest expense, net
|
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(145,260
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)
|
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(155,978
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)
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|
(58,551
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)
|
|
|
(53,219
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)
|
Interest income
|
|
|
19,748
|
|
|
|
53,324
|
|
|
|
3,326
|
|
|
|
16,796
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Foreign currency transaction gains (losses), net
|
|
|
101,332
|
|
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(16,128
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)
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45,094
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|
|
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(56,434
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)
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Other income (expense), net
|
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4,258
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|
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|
(12,786
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)
|
|
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(1,310
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)
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|
|
(7,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(19,922
|
)
|
|
|
(131,568
|
)
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|
|
(11,441
|
)
|
|
|
(100,468
|
)
|
|
|
|
|
|
|
|
|
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|
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Income before income tax provision
|
|
|
481,733
|
|
|
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478,504
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|
|
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174,856
|
|
|
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118,369
|
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Income tax provision
|
|
|
(159,823
|
)
|
|
|
(138,464
|
)
|
|
|
(57,874
|
)
|
|
|
(33,939
|
)
|
|
|
|
|
|
|
|
|
|
|
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|
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Net income
|
|
$
|
321,910
|
|
|
$
|
340,040
|
|
|
$
|
116,982
|
|
|
$
|
84,430
|
|
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|
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|
|
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Net income, per common share, basic
|
|
$
|
1.94
|
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$
|
2.03
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$
|
0.70
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income, per common share, diluted
|
|
$
|
1.91
|
|
|
$
|
1.99
|
|
|
$
|
0.69
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
165,948
|
|
|
|
167,312
|
|
|
|
166,080
|
|
|
|
165,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
173,295
|
|
|
|
176,054
|
|
|
|
174,195
|
|
|
|
174,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
281,252
|
|
|
$
|
(88,362
|
)
|
|
$
|
79,559
|
|
|
$
|
(290,928
|
)
|
Reclassification for gains on derivatives included in other
income (expense), net
|
|
|
1,408
|
|
|
|
171
|
|
|
|
343
|
|
|
|
25
|
|
Unrealized (losses) gains on derivatives, net
|
|
|
(489
|
)
|
|
|
313
|
|
|
|
(1,184
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of taxes
|
|
|
282,171
|
|
|
|
(87,878
|
)
|
|
|
78,718
|
|
|
|
(290,888
|
)
|
Net income
|
|
|
321,910
|
|
|
|
340,040
|
|
|
|
116,982
|
|
|
|
84,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
604,081
|
|
|
$
|
252,162
|
|
|
$
|
195,700
|
|
|
$
|
(206,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the Nine Months Ended
September 30, 2009
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Equity
|
|
|
Balance, January 1, 2009
|
|
|
165,782
|
|
|
$
|
166
|
|
|
$
|
1,158,925
|
|
|
$
|
1,293,407
|
|
|
$
|
(540,375
|
)
|
|
$
|
1,912,123
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321,910
|
|
|
|
|
|
|
|
321,910
|
|
Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282,171
|
|
|
|
282,171
|
|
Exercise of stock options
|
|
|
384
|
|
|
|
|
|
|
|
2,922
|
|
|
|
|
|
|
|
|
|
|
|
2,922
|
|
Tax deficiency on current period exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(2,880
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,880
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
51,557
|
|
|
|
|
|
|
|
|
|
|
|
51,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2009
|
|
|
166,166
|
|
|
$
|
166
|
|
|
$
|
1,210,524
|
|
|
$
|
1,615,317
|
|
|
$
|
(258,204
|
)
|
|
$
|
2,567,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the Nine Months Ended
September 30, 2009 and 2008
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
321,910
|
|
|
$
|
340,040
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Amortization of debt financing costs
|
|
|
5,903
|
|
|
|
5,991
|
|
Depreciation and amortization
|
|
|
310,391
|
|
|
|
311,378
|
|
Provision for losses on accounts receivable
|
|
|
68,016
|
|
|
|
60,728
|
|
Foreign currency transaction (gains) losses, net
|
|
|
(101,332
|
)
|
|
|
16,128
|
|
Deferred income tax benefit
|
|
|
(4,044
|
)
|
|
|
(53,925
|
)
|
Share-based payment expense
|
|
|
51,678
|
|
|
|
53,288
|
|
Amortization of discount on convertible notes
|
|
|
36,843
|
|
|
|
34,219
|
|
Excess tax benefit from share-based payment
|
|
|
|
|
|
|
(6,707
|
)
|
(Gain) loss on short-term investments
|
|
|
(421
|
)
|
|
|
4,368
|
|
Accretion of asset retirement obligations
|
|
|
6,534
|
|
|
|
5,754
|
|
Contingency reversals, net of charges
|
|
|
(8,278
|
)
|
|
|
|
|
Other, net
|
|
|
(5,834
|
)
|
|
|
2,112
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(153,726
|
)
|
|
|
(170,131
|
)
|
Handset and accessory inventory
|
|
|
(52,447
|
)
|
|
|
(57,136
|
)
|
Prepaid expenses and other
|
|
|
(15,190
|
)
|
|
|
(15,313
|
)
|
Other long-term assets
|
|
|
(2,045
|
)
|
|
|
(51,865
|
)
|
Accounts payable, accrued expenses and other
|
|
|
90,084
|
|
|
|
107,526
|
|
Current deferred revenue
|
|
|
3,452
|
|
|
|
25,234
|
|
Deferred revenue and other long-term liabilities
|
|
|
(5,437
|
)
|
|
|
14,454
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
546,057
|
|
|
|
626,143
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(500,941
|
)
|
|
|
(657,795
|
)
|
Payments for purchases of licenses and other
|
|
|
(13,579
|
)
|
|
|
(7,983
|
)
|
Proceeds from sales of short-term investments
|
|
|
696,543
|
|
|
|
607,950
|
|
Purchase of short-term investments
|
|
|
(625,814
|
)
|
|
|
(455,486
|
)
|
Transfers to restricted cash
|
|
|
(52,955
|
)
|
|
|
(2,826
|
)
|
Other
|
|
|
(924
|
)
|
|
|
1,930
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(497,670
|
)
|
|
|
(514,210
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
762,522
|
|
|
|
|
|
Payments to purchase common stock
|
|
|
|
|
|
|
(242,665
|
)
|
Borrowings under credit paper
|
|
|
41,362
|
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
|
|
|
|
125,000
|
|
Repayments under syndicated loan facilities
|
|
|
(44,307
|
)
|
|
|
(31,922
|
)
|
Payments of short-term notes payable
|
|
|
(18,000
|
)
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
2,922
|
|
|
|
33,764
|
|
Excess tax benefit from share-based payment
|
|
|
|
|
|
|
6,707
|
|
Proceeds from tower financing transactions
|
|
|
|
|
|
|
27,271
|
|
Proceeds from mobile switching office financing
|
|
|
7,102
|
|
|
|
|
|
Payments of debt financing costs
|
|
|
(790
|
)
|
|
|
|
|
Repayments under import financing
|
|
|
(5,535
|
)
|
|
|
|
|
Repayments under capital leases, license financing, tower
financing and other transactions
|
|
|
(6,846
|
)
|
|
|
(7,971
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
738,430
|
|
|
|
(89,816
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
(28,824
|
)
|
|
|
1,232
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
757,993
|
|
|
|
23,349
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,243,251
|
|
|
|
1,370,165
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,001,244
|
|
|
$
|
1,393,514
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
NII
HOLDINGS, INC. AND SUBSIDIARIES
Unaudited
|
|
Note 1.
|
Basis of
Presentation
|
General. Our unaudited condensed
consolidated financial statements have been prepared under the
rules and regulations of the Securities and Exchange Commission,
or the SEC. While they do not include all of the information and
footnotes required by accounting principles generally accepted
in the United States of America for complete financial
statements, they reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation of the results
for interim periods. In addition, the year-end condensed
consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by accounting principles generally accepted in the
United States of America. We have evaluated all subsequent
events through November 4, 2009, which is the date our
condensed consolidated financial statements were issued.
You should read these condensed consolidated financial
statements in conjunction with the consolidated financial
statements and notes contained in our current report on
Form 8-K
dated August 5, 2009 and our quarterly reports on
Form 10-Q
for the quarters ended March 31, 2009 and June 30,
2009. You should not expect results of operations for interim
periods to be an indication of the results for a full year.
Accumulated Other Comprehensive
Loss. The components of our accumulated other
comprehensive loss, net of taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
(257,764
|
)
|
|
$
|
(539,016
|
)
|
Unrealized losses on derivatives and
available-for-sale
securities
|
|
|
(440
|
)
|
|
|
(1,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(258,204
|
)
|
|
$
|
(540,375
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
500,941
|
|
|
$
|
657,795
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
58,804
|
|
|
|
(15,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
559,745
|
|
|
$
|
641,993
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
145,260
|
|
|
$
|
155,978
|
|
Interest capitalized
|
|
|
8,970
|
|
|
|
7,969
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
154,230
|
|
|
$
|
163,947
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
|
$
|
73,044
|
|
|
$
|
83,649
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
159,323
|
|
|
$
|
184,274
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2009, we had
$71.3 million in non-cash financing, primarily related to
the short-term financing of imported handsets and infrastructure
in Brazil, the financing of a mobile switching office in Peru
and co-location capital lease obligations on our communication
towers. For the nine months ended
6
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 30, 2008, we had $4.5 million in non-cash
financing related to co-location capital lease obligations on
our communication towers.
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings, but not securities that are antidilutive, including
stock options with an exercise price greater than the average
market price of our common stock.
As presented for the nine and three months ended
September 30, 2009 and 2008, our calculation of diluted net
income per share includes shares of common stock issuable upon
the potential exercise of stock options under our stock-based
employee compensation plans, shares of restricted common stock
and shares of common stock issuable upon the potential
conversion of our 2.75% convertible notes. We did not include
the shares of common stock issuable upon the potential
conversion of our 3.125% convertible notes in our calculation of
diluted net income per common share because their effect would
have been antidilutive to our net income per common share for
those periods. Further, for the nine and three months ended
September 30, 2009, we did not include 10.9 million
antidilutive stock options, and for the nine and three months
ended September 30, 2008, we did not include
9.2 million antidilutive stock options. Finally, we did not
include an immaterial amount of antidilutive restricted stock in
our calculation of diluted net income per common share for those
periods.
The following tables provide a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our condensed consolidated
statements of operations for the nine and three months ended
September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
321,910
|
|
|
|
165,948
|
|
|
$
|
1.94
|
|
|
$
|
340,040
|
|
|
|
167,312
|
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
1,482
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
270
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
9,758
|
|
|
|
6,989
|
|
|
|
|
|
|
|
9,513
|
|
|
|
6,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
331,668
|
|
|
|
173,295
|
|
|
$
|
1.91
|
|
|
$
|
349,553
|
|
|
|
176,054
|
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
116,982
|
|
|
|
166,080
|
|
|
$
|
0.70
|
|
|
$
|
84,430
|
|
|
|
165,696
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
793
|
|
|
|
|
|
|
|
|
|
|
|
1,412
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
333
|
|
|
|
|
|
|
|
|
|
|
|
318
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
3,164
|
|
|
|
6,989
|
|
|
|
|
|
|
|
3,174
|
|
|
|
6,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
120,146
|
|
|
|
174,195
|
|
|
$
|
0.69
|
|
|
$
|
87,604
|
|
|
|
174,415
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of Common Stock. In January
2008, our Board of Directors authorized a program to purchase
shares of our common stock for cash. The Board approved the
purchase of shares having an aggregate market value of up to
$500.0 million, depending on market conditions and factors.
During the nine months ended September 30, 2008, we
purchased a total of 5,555,033 shares of our common stock
for $242.7 million. We did not purchase any shares of our
common stock under this program during 2009. We treated
purchases under this program as effective retirements of the
purchased shares and therefore reduced our reported shares
issued and outstanding by the number of shares purchased. In
addition, we recorded the excess of the purchase price over the
par value of the common stock as a reduction to paid-in capital.
Adoption of Authoritative Guidance for Convertible Debt
Instruments. On January 1, 2009, we
adopted the Financial Accounting Standards Boards, or
FASBs, newly issued authoritative guidance for convertible
debt instruments, which requires that issuers of certain
convertible debt instruments that may be settled in cash upon
conversion, including partial cash settlement, separately
account for the liability and equity components (i.e. the
embedded conversion option) of those debt instruments and
recognize the accretion of the resulting discount on the debt as
interest expense. This guidance is required to be applied
retrospectively to convertible debt instruments within its scope
that were outstanding during any period presented in financial
statements issued after its adoption. The adoption of this
guidance affected the accounting for:
|
|
|
|
|
our 2.875% convertible notes issued in 2004 and due 2034, of
which 99.99% were converted into shares of our common stock in
June 2007;
|
|
|
|
our 2.75% convertible notes issued in 2005 and due 2025; and
|
|
|
|
our 3.125% convertible notes issued in 2007 and due 2012.
|
The retroactive application of this guidance resulted primarily
in the recognition of additional non-cash interest expense in
the affected prior periods. For the nine and three months ended
September 30, 2008, we recognized additional non-cash
interest expense, net of incremental capitalized interest, of
$31.9 million and $10.8 million, respectively. See
Note 5 for further information.
8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the effect of the retrospective
application of this guidance on certain previously reported line
items (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
|
|
|
As Previously
|
|
|
Effect of
|
|
|
|
|
|
As Previously
|
|
|
Effect of
|
|
Condensed Consolidated Statement of Operations:
|
|
As Adjusted
|
|
|
Reported
|
|
|
Change
|
|
|
As Adjusted
|
|
|
Reported
|
|
|
Change
|
|
|
Operating income
|
|
$
|
610,072
|
|
|
$
|
610,526
|
|
|
$
|
(454
|
)
|
|
$
|
218,837
|
|
|
$
|
219,007
|
|
|
$
|
(170
|
)
|
Net income
|
|
|
340,040
|
|
|
|
360,629
|
|
|
|
(20,589
|
)
|
|
|
84,430
|
|
|
|
91,786
|
|
|
|
(7,356
|
)
|
Net income, per common share, basic
|
|
$
|
2.03
|
|
|
$
|
2.16
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.51
|
|
|
$
|
0.55
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
1.99
|
|
|
$
|
2.06
|
|
|
$
|
(0.07
|
)
|
|
$
|
0.50
|
|
|
$
|
0.54
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Accounting Pronouncements. In
October 2009, the FASB updated its authoritative guidance for
accounting for multiple deliverable revenue arrangements. The
new guidance revises the criteria used to determine the separate
units of accounting in a multiple deliverable arrangement and
requires that total consideration received under the arrangement
be allocated over the separate units of accounting based on
their relative selling prices. This guidance also clarifies the
methodology used in determining our best estimate of the selling
price used in this allocation. The applicable revenue
recognition criteria will be considered separately for the
separate units of accounting. The updated authoritative guidance
will be effective and shall be applied on a prospective basis
for fiscal years beginning after June 15, 2010. Early
adoption is permitted but must be applied on a retroactive
basis. We are currently evaluating the potential impact, if any,
that the adoption of this guidance will have on our condensed
consolidated financial statements.
In September 2009, the FASB issued new authoritative guidance on
estimating the fair value of certain investments that calculate
a net asset value per share or its equivalent. Under certain
circumstances, an entity may measure the fair value of certain
investments based on the calculated net asset value. This
guidance will be effective for reporting periods ending after
December 15, 2009. We do not expect the adoption of this
guidance will have a material impact on our condensed
consolidated financial statements.
In August 2009, the FASB issued new authoritative guidance on
the measurement and disclosure of the fair value of liabilities,
and clarifies the valuation methodologies that may be used when
a quoted market price in an active market for an identical
liability is not available. This guidance will be effective in
the first reporting period beginning after August 26, 2009.
We do not expect the adoption of this guidance to have a
material impact on our condensed consolidated financial
statements.
In June 2009, the FASB updated its authoritative guidance on the
consolidation of variable interest entities, or VIEs, to require
an ongoing qualitative assessment to determine the primary
beneficiary of the variable interest arrangement. This guidance
also amends the circumstances that would require a reassessment
of whether an entity in which we had a variable interest
qualifies as a VIE and would be subject to the consolidation
guidance in this standard. The updated authoritative guidance
will be effective for fiscal years beginning after
November 15, 2009. We are currently evaluating the
potential impact, if any, that the adoption of this guidance
will have on our condensed consolidated financial statements.
|
|
Note 2.
|
Fair
Value Measurements
|
In September 2006, the FASB issued authoritative guidance for
fair value measurements, which defines fair value, establishes a
framework for measuring the fair value of assets and liabilities
when other accounting pronouncements require or permit fair
value measurements and expands related disclosure requirements.
We adopted this guidance on January 1, 2008 for financial
assets and financial liabilities, except for those that are
recognized or disclosed at fair value on a recurring basis (at
least annually). In February 2008, the FASB issued further
authoritative guidance for the fair value measurement of
non-financial assets and non-financial liabilities
9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
which we adopted on January 1, 2009. As of
September 30, 2009, the adoption of this guidance with
respect to our nonfinancial assets and nonfinancial liabilities
has not had a material impact on our condensed consolidated
financial statements.
The FASBs guidance on fair value measurements clarifies
that fair value is an exit price, representing the amount that
would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants.
As such, fair value is a market-based measurement that is
determined based on assumptions that market participants would
use in pricing an asset or liability.
As a basis for considering such assumptions, the guidance
utilizes a three-tier fair value hierarchy, which prioritizes
the inputs used to measure fair value. The three levels in the
fair value hierarchy used are summarized as follows:
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2: Inputs other than quoted prices
in active markets that are observable for the asset or
liability, either directly or indirectly.
Level 3: Unobservable inputs that reflect
the reporting entitys own assumptions.
Considerable judgment is required in interpreting market data to
develop the estimates of fair value. To the extent that the
valuation is based on models or inputs that are less observable
or unobservable in the market, the determination of fair value
requires more judgment. Accordingly, the degree of judgment
exercised in determining fair value is greatest for instruments
categorized in Level 3. The estimates presented below are
not necessarily indicative of the amounts that we could realize
in a current market exchange. The use of different market
assumptions and valuation techniques may have a material effect
on the estimated fair value amounts.
The following is a description of the major categories of assets
and liabilities measured at fair value on a recurring basis.
Available-for-Sale
Securities.
Available-for-sale
securities include short-term investments made by Nextel Brazil
and current and long term classifications of our enhanced cash
fund which is invested primarily in asset-backed securities. The
short-term investments by Nextel Brazil are classified as
Level 1 within the fair value hierarchy as these short-term
investments trade regularly in observable markets. The enhanced
cash fund is classified as Level 3 within the fair value
hierarchy as of September 30, 2009 since certain
significant inputs for the fair value measurement remain
unobservable.
10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the classification within the
fair value hierarchy of our financial instruments measured at
fair value on a recurring basis in the accompanying consolidated
balance sheet as of September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
|
September 30, 2009
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
September 30,
|
|
|
December 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2009
|
|
|
2008
|
|
|
Short-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
26,951
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,951
|
|
|
$
|
48,858
|
|
Available-for-sale
securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
9,472
|
|
|
|
9,472
|
|
|
|
33,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,951
|
|
|
|
|
|
|
|
9,472
|
|
|
|
36,423
|
|
|
|
82,002
|
|
Long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
2,376
|
|
|
|
2,376
|
|
|
|
20,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,951
|
|
|
$
|
|
|
|
$
|
11,848
|
|
|
$
|
38,799
|
|
|
$
|
102,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the changes in fair value of our
Level 3 financial instruments measured at fair value on a
recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
53,160
|
|
|
$
|
34,815
|
|
Principal distributions
|
|
|
(43,727
|
)
|
|
|
(23,355
|
)
|
Unrealized gain, included in other comprehensive income
|
|
|
1,994
|
|
|
|
150
|
|
Realized gain on distributions, included in net income
|
|
|
421
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
11,848
|
|
|
$
|
11,848
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2008, we had no
activity with respect to assets or liabilities measured at fair
value on a recurring basis using Level 3 inputs.
Other
Financial Instruments.
We estimate the fair value of our financial instruments other
than our
available-for-sale
securities, including cash and cash equivalents, accounts
receivable, accounts payable, derivative instruments and debt.
The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and short-term borrowings contained
in the condensed consolidated balance sheets approximate their
fair values due to the short-term nature of these instruments.
The fair values of our derivative instruments are immaterial.
11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The carrying amounts and estimated fair values of our long-term
debt instruments as of September 30, 2009 and
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
Senior notes
|
|
$
|
780,817
|
|
|
$
|
808,040
|
|
|
$
|
|
|
|
$
|
|
|
Convertible notes
|
|
|
1,427,478
|
|
|
|
1,402,894
|
|
|
|
1,390,847
|
|
|
|
1,036,526
|
|
Syndicated loan facilities
|
|
|
461,034
|
|
|
|
448,432
|
|
|
|
505,863
|
|
|
|
456,848
|
|
Tower financing obligations
|
|
|
171,210
|
|
|
|
60,888
|
|
|
|
157,262
|
|
|
|
58,027
|
|
Brazil spectrum license financing
|
|
|
7,185
|
|
|
|
4,926
|
|
|
|
6,660
|
|
|
|
4,649
|
|
Brazil credit paper
|
|
|
44,992
|
|
|
|
46,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,892,716
|
|
|
$
|
2,771,864
|
|
|
$
|
2,060,632
|
|
|
$
|
1,556,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimated the fair values of our senior notes and our
convertible notes using quoted market prices in a broker dealer
market, which may be adjusted for certain factors such as
historical trading levels and market data for our senior notes
and our convertible notes, credit default spreads, stock
volatility assumptions with respect to our convertible notes and
other corroborating market or internally generated data. Because
our fair value measurements include assumptions based on market
data, corroborating market data and some broker internally
generated information, we consider these estimates Level 2 in
the fair value hierarchy.
We estimated the fair values of our syndicated loan facilities,
towers financing obligations and Brazil spectrum license
financing using primarily Level 3 inputs such as
U.S. Treasury yield curves, prices of comparable bonds,
LIBOR and zero-coupon yield curves, Treasury bond rates and
credit spreads on comparable publicly traded bonds.
The Brazil credit paper represents working capital loans from a
Brazilian bank. We borrowed $25.6 million in May 2009, and
we subsequently borrowed an additional $16.9 million in
July 2009 under these agreements. We estimated the fair value of
the loans by discounting the expected cash flows utilizing
primarily Level 3 inputs such as a forward zero-coupon
curve of the U.S. Treasury bonds and an appropriate credit
spread based on comparable publicly traded bonds.
|
|
Note 3.
|
Property,
Plant and Equipment
|
The components of our property, plant and equipment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Land
|
|
$
|
7,133
|
|
|
$
|
6,600
|
|
Leasehold improvements
|
|
|
97,383
|
|
|
|
84,663
|
|
Digital mobile network equipment and network software
|
|
|
2,937,751
|
|
|
|
2,216,212
|
|
Office equipment, furniture and fixtures and other
|
|
|
434,642
|
|
|
|
329,352
|
|
Corporate aircraft capital lease
|
|
|
31,450
|
|
|
|
31,450
|
|
Less: Accumulated depreciation and amortization
|
|
|
(1,314,596
|
)
|
|
|
(928,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,193,763
|
|
|
|
1,739,909
|
|
Construction in progress
|
|
|
219,958
|
|
|
|
152,204
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,413,721
|
|
|
$
|
1,892,113
|
|
|
|
|
|
|
|
|
|
|
12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4.
|
Intangible
Assets
|
Our intangible assets consist of our licenses and trade name,
all of which have finite useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
401,099
|
|
|
$
|
(79,361
|
)
|
|
$
|
321,738
|
|
|
$
|
373,315
|
|
|
$
|
(55,437
|
)
|
|
$
|
317,878
|
|
Trade name and other
|
|
|
1,596
|
|
|
|
(1,596
|
)
|
|
|
|
|
|
|
1,412
|
|
|
|
(1,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
402,695
|
|
|
$
|
(80,957
|
)
|
|
$
|
321,738
|
|
|
$
|
374,727
|
|
|
$
|
(56,849
|
)
|
|
$
|
317,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based solely on the carrying amount of amortizable intangible
assets existing as of September 30, 2009 and current
foreign currency exchange rates, we estimate amortization
expense for each of the next five years ending December 31 to be
as follows (in thousands):
|
|
|
|
|
|
|
Estimated
|
|
|
|
Amortization
|
|
Years
|
|
Expense
|
|
|
2009
|
|
$
|
28,609
|
|
2010
|
|
|
29,007
|
|
2011
|
|
|
29,007
|
|
2012
|
|
|
29,007
|
|
2013
|
|
|
28,962
|
|
Actual amortization expense to be reported in future periods
could differ from these estimates as a result of additional
acquisitions of intangibles, as well as changes in foreign
currency exchange rates and other relevant factors. During the
three months ended September 30, 2009 and 2008, we did not
acquire, dispose of or write down any goodwill or intangible
assets with indefinite useful lives.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
10.0% senior notes due 2016, net
|
|
$
|
780,777
|
|
|
$
|
|
|
3.125% convertible notes due 2012, net
|
|
|
1,088,002
|
|
|
|
1,059,997
|
|
2.75% convertible notes due 2025, net
|
|
|
339,453
|
|
|
|
330,850
|
|
Brazil syndicated loan facility
|
|
|
279,740
|
|
|
|
300,000
|
|
Mexico syndicated loan facility
|
|
|
181,294
|
|
|
|
205,863
|
|
Tower financing obligations
|
|
|
171,210
|
|
|
|
157,262
|
|
Capital lease obligations
|
|
|
74,871
|
|
|
|
68,167
|
|
Brazil import financing
|
|
|
62,325
|
|
|
|
|
|
Brazil credit paper
|
|
|
44,992
|
|
|
|
|
|
Peru mobile switching office financing
|
|
|
13,060
|
|
|
|
4,282
|
|
Brazil spectrum license financing
|
|
|
7,185
|
|
|
|
6,660
|
|
Other
|
|
|
59
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,042,968
|
|
|
|
2,133,140
|
|
Less: current portion
|
|
|
(577,655
|
)
|
|
|
(99,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,465,313
|
|
|
$
|
2,034,086
|
|
|
|
|
|
|
|
|
|
|
13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
10.0% Senior Notes due 2016. In
August 2009, we issued senior notes with $800.0 million
aggregate principal amount due at maturity for total cash
proceeds of about $762.5 million, after deducting original
issue discount and commissions. We also incurred $0.8 million in
offering expenses related to the issuance of the notes, which we
will amortize into interest expense over the term of the notes.
The notes are senior unsecured obligations of NII Capital Corp.,
a domestic subsidiary that we wholly own, and are guaranteed by
us and by our other domestic wholly-owned subsidiaries. These
guarantees are full and unconditional, as well as joint and
several. Subject to certain exceptions, the notes are equal in
right of payment with any future unsecured, unsubordinated
indebtedness of NII Capital Corp. and of the guarantors of the
notes, including, but not limited to, with respect to NII
Holdings guarantee, NII Holdings 3.125% convertible
notes and NII Holdings 2.75% convertible notes. The notes
will also be senior to any of NII Capital Corp.s future
subordinated indebtedness. In addition, the notes are
effectively subordinated to all NII Capital Corp.s
existing and future secured indebtedness, as well as to all
existing and future indebtedness of our subsidiaries that are
not guarantors of the notes, including the foreign subsidiaries
that operate in each of our markets. The notes bear interest at
a rate of 10% per year, which is payable semi-annually in
arrears on February 15 and August 15, beginning on
February 15, 2010. The notes will mature on August 15,
2016 when the entire principal amount of $800.0 million
will be due.
The notes are not entitled to any mandatory redemption or
sinking fund. Prior to August 15, 2013, the notes may be
redeemed in whole or in part, at a redemption price equal to
100% of the principal amount thereof plus a
make-whole premium and accrued and unpaid interest.
At any time on or after August 15, 2013 and prior to
maturity, the notes will be redeemable, in whole or in part, at
the redemption prices presented below (expressed as percentages
of principal amount), plus accrued and unpaid interest to the
redemption date if redeemed during the
12-month
period beginning on August 15 of the applicable year:
|
|
|
|
|
|
|
Redemption
|
|
Year
|
|
Price
|
|
|
2013
|
|
|
105.00
|
%
|
2014
|
|
|
102.50
|
%
|
2015 and thereafter
|
|
|
100.00
|
%
|
Prior to August 15, 2012, up to 35% of the aggregate
principal amount of the notes may be redeemed with the net cash
proceeds from specified equity offerings at a redemption price
of 110% of their principal amount, plus accrued and unpaid
interest. Such a redemption may only be made if, after the
redemption, at least 65% of the aggregate principal amount of
the notes issued remains outstanding.
Upon the occurrence of specified events involving a change of
control, holders of the notes may require us to purchase their
notes at a purchase price equal to 101% of the principal amount
of the notes, plus accrued and unpaid interest.
The indenture governing the notes, among other things, limits
our ability and the ability of some of our subsidiaries to:
|
|
|
|
|
incur additional indebtedness and issue preferred stock;
|
|
|
|
create liens or other encumbrances;
|
|
|
|
place limitations on distributions from some of our subsidiaries;
|
|
|
|
pay dividends, acquire shares of our capital stock or make
investments;
|
|
|
|
prepay subordinated indebtedness or make other restricted
payments;
|
|
|
|
issue or sell capital stock of some of our subsidiaries;
|
|
|
|
issue guarantees;
|
|
|
|
sell or exchange assets;
|
14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
enter into transactions with affiliates; and
|
|
|
|
merge or consolidate with another entity.
|
These covenants are subject to a number of qualifications and
exceptions.
Convertible
Notes.
3.125% Convertible Notes. The
3.125% notes are convertible into shares of our common
stock at a conversion rate of 8.4517 shares per $1,000
principal amount of notes, or 10,142,040 aggregate common
shares, representing a conversion price of about $118.32 per
share. For the fiscal quarter ended September 30, 2009, the
closing sale price of our common stock did not exceed 120% of
the conversion price of $118.32 per share for at least 20
trading days in the 30 consecutive trading days ending on
September 30, 2009. As a result, the conversion contingency
was not met as of September 30, 2009.
2.75% Convertible Notes. In
accordance with the terms of our 2.75% convertible notes, if the
notes are not converted, the noteholders have the right to
require us to repurchase the notes in August 2010 at a
repurchase price equal to 100% of their principal amount plus
accrued and unpaid interest. Based on current market conditions,
as well as the effective conversion price and trading prices of
our 2.75% convertible notes, we believe that the noteholders
will require us to repurchase our 2.75% convertible notes. As a
result, we classified the $350.0 million repayment of the
principal balance of our 2.75% convertible notes due 2025 as
current portion of long-term debt in our condensed consolidated
balance sheet.
The 2.75% notes are convertible, at the option of the
holder, into shares of our common stock at an adjusted
conversion rate of 19.967 shares per $1,000 principal
amount of notes, or 6,988,370 aggregate common shares,
representing a conversion price of about $50.08 per share. For
the fiscal quarter ended September 30, 2009, the closing
sale price of our common stock did not exceed 120% of the
conversion price of $50.08 per share for at least 20 trading
days in the 30 consecutive trading days ending on
September 30, 2009. As a result, the conversion contingency
was not met as of September 30, 2009.
As a result of adopting the FASBs authoritative guidance
on convertible debt instruments on January 1, 2009, we were
required to separately account for the debt and equity
components of our 3.125% convertible notes and our 2.75%
convertible notes in a manner that reflects our nonconvertible
debt (unsecured debt) borrowing rate. The debt and equity
components recognized for our 3.125% convertible notes and our
2.75% convertible notes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Principal amount of convertible notes
|
|
$
|
1,200,000
|
|
|
$
|
349,996
|
|
|
$
|
1,200,000
|
|
|
$
|
349,996
|
|
Unamortized discount on convertible notes
|
|
|
111,998
|
|
|
|
10,543
|
|
|
|
140,003
|
|
|
|
19,146
|
|
Net carrying amount of convertible notes
|
|
|
1,088,002
|
|
|
|
339,453
|
|
|
|
1,059,997
|
|
|
|
330,850
|
|
Carrying amount of equity component
|
|
|
194,557
|
|
|
|
53,253
|
|
|
|
194,557
|
|
|
|
53,253
|
|
As of September 30, 2009, the unamortized discount on our
3.125% convertible notes and our 2.75% convertible notes had
remaining recognition periods of about 32 months and
11 months, respectively.
15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The amount of interest expense recognized on our 3.125%
convertible notes and our 2.75% convertible notes and effective
interest rates for the nine and three months ended
September 30, 2009 and 2008 were as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
28,125
|
|
|
$
|
7,218
|
|
|
$
|
28,125
|
|
|
$
|
7,218
|
|
Amortization of discount on convertible notes
|
|
|
28,005
|
|
|
|
8,604
|
|
|
|
26,136
|
|
|
|
8,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
56,130
|
|
|
$
|
15,822
|
|
|
$
|
54,261
|
|
|
$
|
15,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
9,375
|
|
|
$
|
2,406
|
|
|
$
|
9,375
|
|
|
$
|
2,406
|
|
Amortization of discount on convertible notes
|
|
|
9,514
|
|
|
|
2,913
|
|
|
|
8,880
|
|
|
|
2,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
18,889
|
|
|
$
|
5,319
|
|
|
$
|
18,255
|
|
|
$
|
5,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated Loan Facilities. In
September 2007, Nextel Brazil entered into a $300.0 million
syndicated loan facility. Of the total amount of the facility,
$45.0 million is denominated in U.S. dollars with a
floating interest rate based on LIBOR plus a specified margin
ranging from 2.00% to 2.50% (Tranche A 2.29%
and 3.43% as of September 30, 2009 and December 31,
2008, respectively). The remaining $255.0 million is
denominated in U.S. dollars with a floating interest rate
based on LIBOR plus a specified margin ranging from 1.75% to
2.25% (Tranche B 2.04% and 3.18% as of
September 30, 2009 and December 31, 2008,
respectively). Tranche A matures on September 14,
2014, and Tranche B matures on September 14, 2012.
In addition, a portion of Nextel Mexicos syndicated loan
facility bears a floating interest rate based on LIBOR plus a
specified margin. The interest rate on the portions of both the
Brazil and Mexico syndicated loan facilities that have interest
rates based on LIBOR are reset each quarter.
Brazil Import Financing. In March 2009,
Nextel Brazil began financing certain handset equipment
purchased mainly from Motorola and Research in Motion, or RIM,
that is imported into Brazil through agreements with several
Brazilian banks. Each tranche of these financings matures within
a six to twelve-month period.
Brazil Credit Paper. In May 2009,
Nextel Brazil entered into a $25.6 million working capital
loan with a Brazilian bank. Interest is payable quarterly for
the first twelve months beginning in August 2009 and monthly for
the remaining six months, and the principal matures beginning in
June 2010 through November 2010 with the principal amount
payable in six equal consecutive monthly payments. In July 2009,
Nextel Brazil entered into a second $16.9 million working
capital loan with the same Brazilian bank. Interest on the
second loan is payable quarterly for the first six months
beginning in October 2009 and monthly for the remaining nine
months, and the principal matures beginning in February 2010
through October 2010 with the principal amount payable in nine
equal consecutive monthly payments.
16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6.
|
Commitments
and Contingencies
|
Brazilian
Contingencies.
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on
imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions
disputing these assessments. In some cases, Nextel Brazil has
received favorable decisions, which are currently being appealed
by the respective governmental authority. In other cases, Nextel
Brazils petitions have been denied, and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing various other claims. As a result of a favorable
ruling by the state tax authority in Brazil, during the second
quarter of 2009, Nextel Brazil reversed $10.5 million in
accrued liabilities, of which we recorded $5.8 million as
other income. Nextel Brazil did not reverse any accrued
liabilities related to contingencies during the first quarter or
third quarter of 2009.
As of September 30, 2009 and December 31, 2008, Nextel
Brazil had accrued liabilities of $13.3 million and
$18.3 million, respectively, related to contingencies, all
of which were classified in accrued contingencies reported as a
component of other long-term liabilities. Of the total accrued
liabilities as of September 30, 2009 and December 31,
2008, Nextel Brazil had $0.3 million and $9.2 million
in unasserted claims. We currently estimate the range of
reasonably possible losses related to matters for which Nextel
Brazil has not accrued liabilities, as they are not deemed
probable, to be between $113.9 million and
$117.9 million as of September 30, 2009. We are
continuing to evaluate the likelihood of probable and reasonably
possible losses, if any, related to all known contingencies. As
a result, future increases or decreases to our accrued
liabilities may be necessary and will be recorded in the period
when such amounts are determined to be probable and reasonably
estimable.
Argentine
Contingencies.
As of September 30, 2009 and December 31, 2008, Nextel
Argentina had accrued liabilities of $26.0 million and
$35.0 million, respectively, related primarily to local
turnover taxes, universal service tax and local government
claims, all of which were classified in accrued contingencies
and accrued non-income taxes reported as components of accrued
expenses and other.
In June 2009, one of Argentinas provincial governments
finalized an examination that supported
Nextel Argentinas position that its turnover tax
obligations should be taxed at the 3.5% general turnover tax
rate. Nextel Argentina previously accrued a liability for the
difference between the higher rate and the general turnover tax
rate. As a result of this indirect confirmation, Nextel
Argentina reversed $9.2 million in accrued liabilities
related to this contingency during the second quarter of 2009.
Also, during the nine months ended September 30, 2009,
Nextel Argentina reversed an additional $2.3 million in
accrued liabilities related to the successful negotiation of
various local government claims.
Legal
Proceedings.
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. The earliest years that remain subject to examination by
jurisdiction are: Chile 1993; U.S. 1995;
Mexico 2001; Argentina 2002; Peru and
Brazil 2004. We regularly assess the potential
outcome of current and future examinations in each of the taxing
jurisdictions when determining the adequacy of the provision for
income taxes.
17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows a reconciliation of our unrecognized
tax benefits according to the FASBs authoritative guidance
on accounting for uncertainty in income taxes, for the nine
months ended September 30, 2009 (in thousands):
|
|
|
|
|
Unrecognized tax benefits December 31, 2008
|
|
$
|
85,886
|
|
Additions for current year tax positions
|
|
|
2,431
|
|
Additions for prior year tax positions
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(564
|
)
|
Settlements with taxing authorities
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
156
|
|
|
|
|
|
|
Unrecognized tax benefits September 30, 2009
|
|
$
|
87,909
|
|
|
|
|
|
|
The unrecognized tax benefits as of December 31, 2008 and
September 30, 2009 include $63.2 million and
$62.9 million, respectively, of tax benefits that could
potentially reduce our future effective tax rate, if recognized.
We record interest and penalties associated with uncertain tax
positions as a component of our income tax provision.
We assessed the realizability of our deferred tax assets during
the third quarter of 2009, consistent with the methodology we
employed for 2008, and determined that the realizability of
those deferred assets has not changed for the markets in which
we operate. In that assessment, we considered the reversal of
existing temporary differences associated with deferred tax
assets and liabilities, future taxable income, tax planning
strategies and historical and future pre-tax book income (as
adjusted for permanent differences between financial and tax
accounting items) in order to determine if it is
more-likely-than-not that the deferred tax asset
will be realized. As a result of the retrospective adoption of
the FASBs authoritative guidance related to the accounting
for convertible debt instruments, effective on January 1,
2009, we recorded additional U.S. deferred tax liabilities,
allowing us to record a smaller valuation allowance against our
U.S. deferred tax assets and increase the amount of
recognized U.S. deferred tax benefit. We believe it is
reasonably possible that, within the next year, we will release
some portion of the U.S. valuation allowance. The character
of the valuation allowance that would likely be released would
result in a reduction to the income tax expense.
During 2004, Nextel Mexico amended its Mexican Federal income
tax returns in order to reverse a benefit previously claimed for
a disputed provision of the Federal income tax law covering
deductions and gains from the sale of property. We filed the
amended returns in order to avoid potential penalties, and we
also filed administrative petitions seeking clarification of our
right to the tax benefits claimed on the original income tax
returns. The tax authorities constructively denied our
administrative petitions in January 2005, and in May 2005 we
filed an annulment suit challenging the constructive denial.
Resolution of the annulment suit is pending. We believe it is
probable that we will recover this amount. Our condensed
consolidated balance sheets as of September 30, 2009 and
December 31, 2008 include $12.9 million and
$12.8 million, respectively in income taxes receivable,
which are included as components of other non-current assets.
The income tax benefit for this item was related to our income
tax provision for the years ended December 31, 2005, 2004
and 2003.
|
|
Note 8.
|
Segment
Reporting
|
We have determined that our reportable segments are those that
are based on our method of internal reporting, which
disaggregates our business by geographical location. Our
reportable segments are: (1) Mexico, (2) Brazil,
(3) Argentina and (4) Peru. The operations of all
other businesses that fall below the segment reporting
thresholds are included in the Corporate and other
segment below. This segment includes our Chilean operating
companies and our corporate operations in the U.S. We
evaluate performance of these segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element
18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of operational performance, we recognize share-based payment
expense at the corporate level and exclude it when evaluating
the business performance of our segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,328,714
|
|
|
$
|
1,103,382
|
|
|
$
|
361,540
|
|
|
$
|
178,287
|
|
|
$
|
9,712
|
|
|
$
|
(802
|
)
|
|
$
|
2,980,833
|
|
Digital handset and accessory revenues
|
|
|
58,110
|
|
|
|
76,382
|
|
|
|
27,300
|
|
|
|
19,948
|
|
|
|
64
|
|
|
|
|
|
|
|
181,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,386,824
|
|
|
$
|
1,179,764
|
|
|
$
|
388,840
|
|
|
$
|
198,235
|
|
|
$
|
9,776
|
|
|
$
|
(802
|
)
|
|
$
|
3,162,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
498,349
|
|
|
$
|
321,359
|
|
|
$
|
118,006
|
|
|
$
|
19,615
|
|
|
$
|
(145,283
|
)
|
|
$
|
|
|
|
$
|
812,046
|
|
Management fee
|
|
|
(23,850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,850
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(123,855
|
)
|
|
|
(124,319
|
)
|
|
|
(28,936
|
)
|
|
|
(23,132
|
)
|
|
|
(10,149
|
)
|
|
|
|
|
|
|
(310,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
350,644
|
|
|
|
197,040
|
|
|
|
89,070
|
|
|
|
(3,517
|
)
|
|
|
(131,582
|
)
|
|
|
|
|
|
|
501,655
|
|
Interest expense, net
|
|
|
(33,514
|
)
|
|
|
(35,856
|
)
|
|
|
5,349
|
|
|
|
(1,413
|
)
|
|
|
(83,780
|
)
|
|
|
3,954
|
|
|
|
(145,260
|
)
|
Interest income
|
|
|
14,880
|
|
|
|
3,523
|
|
|
|
475
|
|
|
|
223
|
|
|
|
4,601
|
|
|
|
(3,954
|
)
|
|
|
19,748
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(15,031
|
)
|
|
|
108,797
|
|
|
|
5,599
|
|
|
|
(382
|
)
|
|
|
2,349
|
|
|
|
|
|
|
|
101,332
|
|
Other (expense) income, net
|
|
|
(516
|
)
|
|
|
6,826
|
|
|
|
3,749
|
|
|
|
|
|
|
|
(5,801
|
)
|
|
|
|
|
|
|
4,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
316,463
|
|
|
$
|
280,330
|
|
|
$
|
104,242
|
|
|
$
|
(5,089
|
)
|
|
$
|
(214,213
|
)
|
|
$
|
|
|
|
$
|
481,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
77,431
|
|
|
$
|
329,874
|
|
|
$
|
23,967
|
|
|
$
|
110,217
|
|
|
$
|
18,256
|
|
|
$
|
|
|
|
$
|
559,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,583,235
|
|
|
$
|
976,665
|
|
|
$
|
378,379
|
|
|
$
|
163,170
|
|
|
$
|
6,387
|
|
|
$
|
(955
|
)
|
|
$
|
3,106,881
|
|
Digital handset and accessory revenues
|
|
|
67,622
|
|
|
|
54,936
|
|
|
|
36,443
|
|
|
|
13,986
|
|
|
|
28
|
|
|
|
|
|
|
|
173,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,650,857
|
|
|
$
|
1,031,601
|
|
|
$
|
414,822
|
|
|
$
|
177,156
|
|
|
$
|
6,415
|
|
|
$
|
(955
|
)
|
|
$
|
3,279,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
602,513
|
|
|
$
|
282,728
|
|
|
$
|
127,995
|
|
|
$
|
33,371
|
|
|
$
|
(125,157
|
)
|
|
$
|
|
|
|
$
|
921,450
|
|
Management fee
|
|
|
(25,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,200
|
|
|
|
(31
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
(148,692
|
)
|
|
|
(109,570
|
)
|
|
|
(28,895
|
)
|
|
|
(15,219
|
)
|
|
|
(8,882
|
)
|
|
|
(120
|
)
|
|
|
(311,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
428,652
|
|
|
|
173,158
|
|
|
|
99,100
|
|
|
|
18,152
|
|
|
|
(108,839
|
)
|
|
|
(151
|
)
|
|
|
610,072
|
|
Interest expense, net
|
|
|
(47,343
|
)
|
|
|
(40,609
|
)
|
|
|
(2,111
|
)
|
|
|
(104
|
)
|
|
|
(71,643
|
)
|
|
|
5,832
|
|
|
|
(155,978
|
)
|
Interest income
|
|
|
34,710
|
|
|
|
4,297
|
|
|
|
2,246
|
|
|
|
772
|
|
|
|
17,131
|
|
|
|
(5,832
|
)
|
|
|
53,324
|
|
Foreign currency transaction gains (losses), net
|
|
|
9,696
|
|
|
|
(26,280
|
)
|
|
|
86
|
|
|
|
(314
|
)
|
|
|
653
|
|
|
|
31
|
|
|
|
(16,128
|
)
|
Other (expense) income, net
|
|
|
(239
|
)
|
|
|
(7,319
|
)
|
|
|
45
|
|
|
|
|
|
|
|
(5,273
|
)
|
|
|
|
|
|
|
(12,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
425,476
|
|
|
$
|
103,247
|
|
|
$
|
99,366
|
|
|
$
|
18,506
|
|
|
$
|
(167,971
|
)
|
|
$
|
(120
|
)
|
|
$
|
478,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
172,465
|
|
|
$
|
325,142
|
|
|
$
|
63,957
|
|
|
$
|
41,461
|
|
|
$
|
38,968
|
|
|
$
|
|
|
|
$
|
641,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
451,066
|
|
|
$
|
445,884
|
|
|
$
|
117,958
|
|
|
$
|
59,947
|
|
|
$
|
3,744
|
|
|
$
|
(213
|
)
|
|
$
|
1,078,386
|
|
Digital handset and accessory revenues
|
|
|
19,775
|
|
|
|
27,386
|
|
|
|
9,999
|
|
|
|
6,876
|
|
|
|
36
|
|
|
|
|
|
|
|
64,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
470,841
|
|
|
$
|
473,270
|
|
|
$
|
127,957
|
|
|
$
|
66,823
|
|
|
$
|
3,780
|
|
|
$
|
(213
|
)
|
|
$
|
1,142,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
171,432
|
|
|
$
|
137,916
|
|
|
$
|
34,685
|
|
|
$
|
4,351
|
|
|
$
|
(48,345
|
)
|
|
$
|
|
|
|
$
|
300,039
|
|
Management fee
|
|
|
(7,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,950
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(42,953
|
)
|
|
|
(49,664
|
)
|
|
|
(9,456
|
)
|
|
|
(8,279
|
)
|
|
|
(3,390
|
)
|
|
|
|
|
|
|
(113,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
120,529
|
|
|
|
88,252
|
|
|
|
25,229
|
|
|
|
(3,928
|
)
|
|
|
(43,785
|
)
|
|
|
|
|
|
|
186,297
|
|
Interest expense, net
|
|
|
(10,647
|
)
|
|
|
(13,374
|
)
|
|
|
(541
|
)
|
|
|
(1,126
|
)
|
|
|
(34,679
|
)
|
|
|
1,816
|
|
|
|
(58,551
|
)
|
Interest income
|
|
|
1,836
|
|
|
|
1,191
|
|
|
|
107
|
|
|
|
21
|
|
|
|
1,987
|
|
|
|
(1,816
|
)
|
|
|
3,326
|
|
Foreign currency transaction gains (losses), net
|
|
|
5,622
|
|
|
|
39,081
|
|
|
|
259
|
|
|
|
(101
|
)
|
|
|
233
|
|
|
|
|
|
|
|
45,094
|
|
Other (expense) income, net
|
|
|
(248
|
)
|
|
|
924
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(1,987
|
)
|
|
|
|
|
|
|
(1,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
117,092
|
|
|
$
|
116,074
|
|
|
$
|
25,056
|
|
|
$
|
(5,135
|
)
|
|
$
|
(78,231
|
)
|
|
$
|
|
|
|
$
|
174,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
20,031
|
|
|
$
|
83,186
|
|
|
$
|
3,837
|
|
|
$
|
45,245
|
|
|
$
|
6,525
|
|
|
$
|
|
|
|
$
|
158,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
559,134
|
|
|
$
|
360,081
|
|
|
$
|
137,258
|
|
|
$
|
57,531
|
|
|
$
|
2,406
|
|
|
$
|
(309
|
)
|
|
$
|
1,116,101
|
|
Digital handset and accessory revenues
|
|
|
28,391
|
|
|
|
20,049
|
|
|
|
13,048
|
|
|
|
5,131
|
|
|
|
5
|
|
|
|
|
|
|
|
66,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
587,525
|
|
|
$
|
380,130
|
|
|
$
|
150,306
|
|
|
$
|
62,662
|
|
|
$
|
2,411
|
|
|
$
|
(309
|
)
|
|
$
|
1,182,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
211,033
|
|
|
$
|
107,480
|
|
|
$
|
46,178
|
|
|
$
|
10,741
|
|
|
$
|
(44,806
|
)
|
|
$
|
|
|
|
$
|
330,626
|
|
Management fee
|
|
|
(8,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,400
|
|
|
|
17
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(52,524
|
)
|
|
|
(40,523
|
)
|
|
|
(10,388
|
)
|
|
|
(5,264
|
)
|
|
|
(3,090
|
)
|
|
|
|
|
|
|
(111,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
150,092
|
|
|
|
66,957
|
|
|
|
35,790
|
|
|
|
5,477
|
|
|
|
(39,496
|
)
|
|
|
17
|
|
|
|
218,837
|
|
Interest expense, net
|
|
|
(15,611
|
)
|
|
|
(14,534
|
)
|
|
|
(724
|
)
|
|
|
(68
|
)
|
|
|
(23,925
|
)
|
|
|
1,643
|
|
|
|
(53,219
|
)
|
Interest income
|
|
|
12,858
|
|
|
|
1,037
|
|
|
|
379
|
|
|
|
154
|
|
|
|
4,011
|
|
|
|
(1,643
|
)
|
|
|
16,796
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(6,819
|
)
|
|
|
(51,747
|
)
|
|
|
2,759
|
|
|
|
(152
|
)
|
|
|
(458
|
)
|
|
|
(17
|
)
|
|
|
(56,434
|
)
|
Other (expense) income, net
|
|
|
(80
|
)
|
|
|
(5,767
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(1,765
|
)
|
|
|
|
|
|
|
(7,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
140,440
|
|
|
$
|
(4,054
|
)
|
|
$
|
38,205
|
|
|
$
|
5,411
|
|
|
$
|
(61,633
|
)
|
|
$
|
|
|
|
$
|
118,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
45,756
|
|
|
$
|
105,832
|
|
|
$
|
23,169
|
|
|
$
|
18,470
|
|
|
$
|
12,522
|
|
|
$
|
|
|
|
$
|
205,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
660,490
|
|
|
$
|
1,201,441
|
|
|
$
|
186,308
|
|
|
$
|
238,836
|
|
|
$
|
126,933
|
|
|
$
|
(287
|
)
|
|
$
|
2,413,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,116,839
|
|
|
$
|
2,355,027
|
|
|
$
|
374,782
|
|
|
$
|
386,791
|
|
|
$
|
1,504,075
|
|
|
$
|
(287
|
)
|
|
$
|
6,737,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
687,839
|
|
|
$
|
725,892
|
|
|
$
|
212,908
|
|
|
$
|
151,034
|
|
|
$
|
114,727
|
|
|
$
|
(287
|
)
|
|
$
|
1,892,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,122,133
|
|
|
$
|
1,492,260
|
|
|
$
|
450,781
|
|
|
$
|
291,397
|
|
|
$
|
733,789
|
|
|
$
|
(287
|
)
|
|
$
|
5,090,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
INDEX TO
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
23
|
|
|
|
|
23
|
|
|
|
|
28
|
|
|
|
|
28
|
|
|
|
|
29
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
35
|
|
|
|
|
39
|
|
|
|
|
42
|
|
|
|
|
44
|
|
|
|
|
46
|
|
|
|
|
47
|
|
|
|
|
48
|
|
|
|
|
53
|
|
|
|
|
54
|
|
22
Introduction
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition and results of operations
for the nine- and three-month periods ended September 30,
2009 and 2008; and
|
|
|
|
significant factors which we believe could affect our
prospective financial condition and results of operations.
|
You should read this discussion in conjunction with our current
report on
Form 8-K
dated August 5, 2009, our quarterly report on
Form 10-Q
for the quarters ended March 31, 2009 and June 30,
2009 and the discussion regarding our critical accounting
judgments included below and in our current report on
Form 8-K
dated August 5, 2009. Historical results may not indicate
future performance. See Forward Looking Statements
for risks and uncertainties that may impact our future
performance.
Business
Overview
We provide wireless communication services, primarily targeted
at meeting the needs of customers who use our services in their
businesses and individuals that have medium to high usage
patterns, both of whom value our multi-function handsets,
including our Nextel Direct
Connect®
feature, and our high level of customer service. We provide
these services through operating companies located in selected
Latin American markets under the
Nexteltm
brand, with our principal operations located in major business
centers and related transportation corridors of Mexico, Brazil,
Argentina, Peru and Chile. We provide our services in major
urban and suburban centers with high population densities, which
we refer to as major business centers, where we believe there is
a concentration of the countrys business users and
economic activity. We believe that vehicle traffic congestion,
low wireline service penetration and the expanded coverage of
wireless networks in these major business centers encourage the
use of the mobile wireless communications services that we offer.
We use a wireless transmission technology called integrated
digital enhanced network, or iDEN, developed by Motorola, Inc.
to provide our digital mobile services on 800 MHz spectrum
holdings in all of our markets. This technology, which is the
only digital technology currently available that can be used on
non-contiguous spectrum like ours, allows us to use our spectrum
efficiently and offer multiple wireless services integrated into
a variety of handset devices. The services we offer include:
|
|
|
|
|
mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a
push-to-talk
basis, private
one-to-one
call or group call;
|
|
|
|
International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers using compatible handsets in the United
States and with TELUS subscribers using compatible handsets in
Canada;
|
|
|
|
text messaging services, mobile internet services,
e-mail
services including
Blackberrytm
services, location-based services, which include the use of
Global Positioning System, or GPS, technologies, digital media
services and advanced
Javatm
enabled business applications; and
|
|
|
|
international roaming services.
|
Our goal is to generate increased revenues in our Latin American
markets by providing differentiated wireless communications
services that are valued by our customers, while improving our
profitability and cash flow over the long term. We plan to
continue to expand the coverage and capacity of our networks in
our existing markets and increase our existing subscriber base
while managing our costs in a manner designed to support that
growth and improve our operating results. We will seek to add
subscribers at rates and other terms that are competitive with
other offerings in the market, but that are consistent with our
strategy of finding the optimal balance of growth and
profitability regardless of the competitive landscape. See
Forward Looking Statements and
Item 1A. Risk
23
Factors in our current report on
Form 8-K
dated August 5, 2009 for information on risks and
uncertainties that could affect our ability to reach these goals
and the other objectives described below.
We may also explore financially attractive opportunities to
expand our network coverage in areas that we do not currently
serve. Based on market data that continues to show lower
wireless penetration in our markets relative to other regions of
the world and our current market share in those markets, we
believe that we can continue to generate growth in our
subscriber base and revenues while improving our profitability
and cash flow over the long term.
We believe that the wireless communications industry in the
markets in which we operate has been and will continue to be
highly competitive on the basis of price, the types of services
offered, the diversity of handsets offered and the quality of
service. In each of our markets, we compete with at least two
large, well-capitalized competitors with substantial financial
and other resources. Some of these competitors have the ability
to offer bundled telecommunications services that include local,
long distance and data services, and can offer a larger variety
of handsets with a wide range of prices, brands and features.
Although competitive pricing of services and the variety and
pricing of handsets are often important factors in a
customers decision making process, we believe that the
users who primarily make up our targeted customer base are also
likely to base their purchase decisions on quality of service
and customer support, as well as on the availability of
differentiated features and services, like our Direct Connect
services, that make it easier for them to communicate quickly,
efficiently and economically.
We have implemented a strategy that we believe will position us
to achieve our long-term goal of generating profitable growth.
The key components of that strategy are as follows:
Focusing on Major Business Centers in Key Latin American
Markets. We operate primarily in large urban
markets, including five of the six largest cities in Latin
America, which have a concentration of medium to high usage
business customers and consumers. We target these markets
because we believe they have favorable long-term growth
prospects for our wireless communications services while
offering the cost benefits associated with providing services in
more concentrated population centers. In addition, the cities in
which we operate account for a high proportion of total economic
activity in each of their respective countries and provide us
with a large potential market. We believe that there are
significant opportunities for growth in these markets due to the
high demand for wireless communications services and the large
number of potential customers within our targeted customer
groups.
Targeting High Value Customers. Our main focus
is on customers who purchase services under contract and
primarily use our services in their businesses and on
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature and our high level of customer service.
In our current customer base, our typical customer has between 3
and 30 handsets, and some of our largest customers have over 500
handsets; however, new customers that we have recently acquired
generally have a lower number of handsets per customer.
Providing Differentiated Services. We
differentiate ourselves from our competitors by offering unique
services like our
push-to-talk
service, which we refer to as Direct Connect. This service,
which is available throughout our service areas, provides
significant value to our customers by eliminating the long
distance and domestic roaming fees charged by other wireless
service providers, while also providing added functionality due
to the near-instantaneous nature of the communication and the
ability to communicate on a
one-to-many
basis. In addition, we are in the process of developing a high
performance
push-to-talk
service that utilizes wideband CDMA, or WCDMA, technology in an
effort to continually provide differentiated service to our
customers as we acquire spectrum rights and deploy WCDMA-based
networks. Our competitors have introduced competitive
push-to-talk
over cellular products, but we believe that the quality of our
Direct Connect service is superior at this time. We add further
value by customizing data applications that enhance the
productivity of our business customers, such as vehicle and
delivery tracking, order entry processing and workforce
monitoring applications.
Delivering Superior Customer Service. In
addition to our unique service offerings, we seek to further
differentiate ourselves by providing a higher level of customer
service than our competitors. We work proactively with our
customers to match them with service plans that offer greater
value based on the
24
customers usage patterns. After analyzing customer usage
and expense data, we strive to minimize a customers per
minute costs while increasing overall usage of our array of
services, thereby providing higher value to our customers while
increasing our monthly revenues. This goal is also furthered by
our efforts during and after the sales process to educate
customers about our services, multi-function handsets and rate
plans. In addition, we have implemented proactive customer
retention programs to increase customer satisfaction and
retention.
Selectively Expanding our Service Areas. We
believe that we have significant opportunities to grow through
selective expansion of our service into additional areas in some
of the countries in which we currently operate, particularly in
Brazil where our coverage is not as extensive as in our other
markets. Such expansion may involve building out certain areas
in which we already have spectrum, obtaining additional spectrum
in new areas which would enable us to expand our network service
areas, and further developing our business in key urban areas.
In addition, we may consider selectively expanding into other
Latin American countries where we do not currently operate. We
have made significant additional investments in Brazil in order
to expand our service areas, including expansion into the
northeast region of the country, and add more capacity to Nextel
Brazils network to support its growth. See Future
Capital Needs and Resources Capital
Expenditures for a discussion of the factors that drive
our capital spending.
Preserving the iDEN Opportunity. The iDEN
networks that we operate allow us to offer differentiated
services like Direct Connect while offering high quality voice
telephony and other innovative services. The iDEN technology is
unique in that it is the only widespread, commercially available
technology that operates on non-contiguous spectrum, which is
important to us because much of the spectrum that our operating
companies hold in each of the markets we serve is
non-contiguous. Because Motorola is the sole supplier of iDEN
technology, we are dependent on Motorolas support of the
evolution of the iDEN technology and of the development of new
features, functionality and handset models.
Sprint Nextel Corporation is the largest customer of Motorola
with respect to iDEN technology and, in the past, has provided
significant support with respect to new product development for
that technology. In recent years, Sprint Nextel Corporation has
reduced its commitment to the development of new iDEN handsets
and features, and there has been a decline in the number of
handsets purchased by them. In light of the reduction in Sprint
Nextel Corporations development efforts, we have increased
our effort and support of iDEN handset product development and
now lead the majority of that development activity in support of
our customers needs. In addition, we have entered into
arrangements with Motorola that are designed to provide us with
a continued source of iDEN network equipment and handsets in an
environment in which Sprint Nextels purchases and support
of future development of that equipment may decline.
Specifically, in September 2006, we entered into agreements to
extend our relationship with Motorola for the supply of iDEN
handsets and iDEN network infrastructure through
December 31, 2011. Under these agreements, Motorola agreed
to maintain an adequate supply of the iDEN handsets and
equipment used in our business for the term of the agreement and
to continue to invest in the development of new iDEN devices and
infrastructure features. In addition, we agreed to annually
escalating handset volume purchase commitments and certain
pricing parameters for handsets and infrastructure linked to the
volume of our purchases. If we do not meet the specified handset
volume commitments, we would be required to pay an additional
amount based on any shortfall of actual purchased handsets
compared to the related annual volume commitment.
During the first quarter of 2008, Motorola announced plans to
separate its mobile devices division into a separate public
entity through a spin-off of that division; however, in October
2008, Motorola announced its intention to delay this spin-off.
While we cannot determine the impact of Motorolas planned
separation of the mobile devices business on its iDEN business,
Motorolas obligations under our existing agreements,
including the obligation to supply us with iDEN handsets and
network equipment, remain in effect.
Planning for the Future. Another key component
in our overall strategy is to expand and improve the innovative
and differentiated services we offer and evaluate the
technologies necessary to provide those services. One such
initiative is to develop and offer a broader range of data
services on our networks, including evaluating the feasibility
of offering next generation voice and broadband data services in
the future. This focus on offering innovative and differentiated
services makes it important that we continue to invest in,
25
evaluate and, if appropriate, deploy new services and
enhancements to our existing services. In some cases, we will
consider and pursue acquisitions of assets that include spectrum
licenses to deploy these services, including in auctions of
newly available spectrum and through transactions involving
acquisitions of existing spectrum rights. We have successfully
participated in auctions of spectrum that support new
technologies and services in Peru and Chile and are in the
process of deploying a network that utilizes new technologies in
Peru. We also currently plan to participate in auctions and
other transactions of this nature, particularly in Brazil and
Mexico, to the extent new spectrum can be obtained at a
reasonable cost with available financing and consistent with our
overall technology strategy.
As part of our ongoing assessment of our ability to meet our
customers current and future needs, we continually review
alternate technologies to assess their technical performance,
cost and functional capabilities. These reviews may involve the
deployment of the technologies under consideration on a trial
basis in order to evaluate their capabilities and the market
demand for the supported services. We will deploy a new
technology beyond the minimum levels required by the terms of
our spectrum licenses only if it is warranted by expected
customer demand and when the anticipated benefits of services
supported by the new technology outweigh the costs of providing
those services. Our decision whether and how to deploy
alternative technologies, as well as our choice of alternative
technologies, would likely be affected by a number of factors,
including:
|
|
|
|
|
types of features and services supported by the technology and
our assessment of the demand for those features and services;
|
|
|
|
the availability and pricing of related equipment, the spectrum
bands available in our markets and whether other wireless
carriers are operating or plan to operate a particular
technology in those spectrum bands;
|
|
|
|
our need to continue to support iDEN-based services for our
existing customer base either on an ongoing or transitional
basis; and
|
|
|
|
the availability and terms of any financing that we would be
required to raise in order to acquire the spectrum and fund the
deployment of an alternative technology. See Future
Capital Needs and Resources for more information.
|
Consistent with this strategy of pursuing new spectrum and
technology opportunities, in July 2007, we participated in a
spectrum auction and were awarded a nationwide license of
35 MHz of 1.9 GHz spectrum in Peru for a term of
20 years. The license under which the spectrum rights were
granted requires us to deploy new network technology within
specified timeframes throughout Peru, including in areas that we
do not currently serve. We are deploying a third generation
network in Peru that utilizes WCDMA technology and will operate
on this spectrum. Similarly, in September 2009, we participated
in a spectrum auction in Chile in which we were the successful
bidder for 60 MHz of spectrum in the 1.7 GHz and
2.1 GHz bands. We plan to deploy a third generation network
based on WCDMA technology that will operate on this spectrum in
Chile. We believe that the deployment of these next generation
networks will enable us to offer new and differentiated services
to a larger base of potential customers.
During 2008 and continuing through the first nine months of
2009, the global economic environment was characterized by a
significant decline in economic growth rates, a marked increase
in the volatility of foreign currency exchange rates,
disruptions in the capital markets and a reduction in the
availability of financing. Although economic conditions in some
of our markets stabilized to some extent during the third
quarter of 2009, some of these conditions are expected to
continue at least for the remainder of 2009. We have also seen
continued high inflation rates in Argentina. While we believe
that we will be able to continue to expand our business in this
environment, these economic trends could affect our business in
a number of ways by:
|
|
|
|
|
reducing the demand for our services resulting from reduced
discretionary spending;
|
|
|
|
increasing the level of competition among the other wireless
service providers as we compete for a smaller number of
potential customers, which could require us to offer more
competitive service plans that could result in lower average
revenue per subscriber; and
|
26
|
|
|
|
|
increasing the level of voluntary customer turnover due to
increased competition and simultaneously increasing the levels
of involuntary customer turnover and bad debt expense as
customers find it more difficult to pay for services.
|
Historically, the value of the currencies of the countries in
which we do business in relation to the U.S. dollar have
been volatile. Recent weakness in the worldwide economy and in
the economies of some of those countries has led to increased
volatility in these currencies. Because a significant portion of
our outstanding debt is denominated in U.S. dollars and we
report our results in U.S. dollars, significant
fluctuations in foreign currency exchange rates can affect our
reported results. These changes, as well as changes in the
foreign currency exchange rates of the Brazilian real and the
Mexican peso, resulted in foreign currency transaction losses of
$104.4 million during the fourth quarter of 2008. While the
average values of the Brazilian real and the Mexican peso
appreciated relative to the U.S. dollar during the second
and third quarters of 2009 compared to the first quarter of
2009, which contributed to consolidated foreign currency
transaction gains of $101.3 million for the nine months
ended September 30, 2009, those values remained at levels
substantially below those that prevailed during 2008.
Depreciation in the values of the local currencies in the
markets where we operate makes it more costly for us to service
our U.S. dollar-denominated debt obligations and affects
our operating results because we generate nearly all of our
revenues in foreign currencies, but we pay for some of our
operating expenses and capital expenditures in
U.S. dollars. Further, because we report our results of
operations in U.S. dollars, changes in relative foreign
currency valuations have resulted in reductions in our reported
revenues, operating income and earnings, as well as a reduction
in the carrying value of our assets, including the value of cash
investments held in local currencies during the fourth quarter
of 2008 and the first three quarters of 2009 compared to the
relevant prior year periods. Accordingly, if the values of local
currencies in the countries in which our operating companies
conduct business depreciate relative to the U.S. dollar in
future periods, we would expect our operating results and the
value of our assets held in local currencies to continue to be
adversely affected.
Deteriorating conditions in the global economy and the capital
markets have also resulted in significant increases in the cost
of capital and have made it more difficult for companies with
operations in emerging markets to obtain debt or equity
financing on acceptable terms. While a number of governments
have taken actions in an effort to address liquidity issues in
the financial markets and have undertaken various other
initiatives designed to help relieve the credit crisis, the
overall effects of these and other efforts on the financial
markets are uncertain, and they may not have the intended
effects. While we believe that our current cash balances,
including the net proceeds from the senior note offering we
completed during the third quarter of 2009, and the funds we
expect to generate in our business are sufficient to support our
existing iDEN business and our current business plans, we have
in the past and likely will in the future depend upon access to
the credit and capital markets to help fund the growth of our
business for the acquisition of additional spectrum and for
capital expenditures in connection with the expansion and
improvement of our wireless networks and the deployment of new
network technologies. If the present economic and financial
market conditions continue, our borrowing costs could increase
to the extent that we incur new debt at comparatively higher
interest rates and as a result of increases in the interest
rates on our variable rate debt obligations, and it may be
difficult for us to obtain funding on terms that are acceptable.
These market conditions may limit our access to funding that may
be needed to pursue our expansion plans and to acquire rights to
use spectrum and deploy networks that use new technologies in
our markets.
We have taken a number of actions to address the potential
impact of these changes in the economic environment and capital
markets, including:
|
|
|
|
|
implementing strategies designed to conserve our liquidity by
increasing the cash generated by our operations;
|
|
|
|
developing and implementing further strategies to target,
capture and retain profitable customers;
|
|
|
|
managing our subscriber and revenue growth consistent with our
long term strategy of expanding our business while improving our
profitability and cash flow generation;
|
|
|
|
improving our efficiency by managing our growth in headcount and
other expenses at levels consistent with our expectations
regarding subscriber and revenue growth; and
|
27
|
|
|
|
|
developing and implementing network expansion plans that target
our capital expenditures in areas with greater growth
opportunities consistent with our long term strategy of meeting
our customers demand for innovative high quality services
while remaining consistent with our goal of preserving liquidity
in light of the uncertain conditions in the capital markets.
|
We expect to continue to pursue these and other strategies as
necessary to adapt our business plans in order to meet our long
term business goals in a manner that takes into account the
uncertainty of the current economic environment.
See Forward Looking Statements for information on
risks and uncertainties that could affect the above objectives.
Handsets
in Commercial Service
The table below provides an overview of our total handsets in
commercial service in the countries indicated as of
September 30, 2009 and December 31, 2008. For purposes
of the table, handsets in commercial service represent all
handsets with active customer accounts on the networks in each
of the listed countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Handsets in commercial service December 31, 2008
|
|
|
2,726
|
|
|
|
1,812
|
|
|
|
967
|
|
|
|
669
|
|
|
|
26
|
|
|
|
6,200
|
|
Net subscriber additions
|
|
|
183
|
|
|
|
479
|
|
|
|
37
|
|
|
|
127
|
|
|
|
12
|
|
|
|
838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handsets in commercial service September 30,
2009
|
|
|
2,909
|
|
|
|
2,291
|
|
|
|
1,004
|
|
|
|
796
|
|
|
|
38
|
|
|
|
7,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies and Estimates
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses and related disclosures of contingent assets and
liabilities in the condensed consolidated financial statements
and accompanying notes. Although we believe that our estimates,
assumptions and judgments are reasonable, they are based upon
presently available information. Due to the inherent uncertainty
involved in making those estimates, actual results reported in
future periods could differ from those estimates.
As described in more detail in our current report on
Form 8-K
dated August 5, 2009 under Managements
Discussion and Analysis of Financial Condition and Results of
Operations, we consider the following accounting policies
to be the most important to our financial position and results
of operations or policies that require us to exercise
significant judgment
and/or
estimates:
|
|
|
|
|
revenue recognition;
|
|
|
|
allowance for doubtful accounts;
|
|
|
|
depreciation of property, plant and equipment;
|
|
|
|
amortization of intangible assets;
|
|
|
|
asset retirement obligations;
|
|
|
|
foreign currency;
|
|
|
|
loss contingencies;
|
|
|
|
stock-based compensation; and
|
|
|
|
income taxes.
|
28
There have been no material changes to our critical accounting
policies and estimates during the nine months ended
September 30, 2009 compared to those discussed in our
current report on
Form 8-K
dated August 5, 2009 under Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Ratio of
Earnings to Fixed Charges
|
|
|
|
|
Three Months
|
Ended
|
September 30,
|
2009
|
|
2008
|
|
3.25x
|
|
|
2.66x
|
|
For the purpose of computing the ratio of earnings to fixed
charges, earnings consist of income from continuing operations
before income taxes plus fixed charges and amortization of
capitalized interest less capitalized interest. Fixed charges
consist of:
|
|
|
|
|
interest on all indebtedness, amortization of debt financing
costs and amortization of original issue discount;
|
|
|
|
interest capitalized; and
|
|
|
|
the portion of rental expense we believe is representative of
interest.
|
Results
of Operations
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of digital
handsets and accessories. Service revenues primarily include
fixed monthly access charges for mobile telephone service and
digital two-way radio and other services, including revenues
from calling party pays programs and variable charges for
airtime and digital two-way radio usage in excess of plan
minutes, long-distance charges and international roaming
revenues derived from calls placed by our customers. Digital
handset and accessory revenues represent revenues we earn on the
sale of digital handsets and accessories to our customers.
In addition, we also have other less significant sources of
revenues. These revenues primarily include revenues generated
from our handset maintenance programs, roaming revenues
generated from other companies customers that roam on our
networks and co-location rental revenues from third-party
tenants that rent space on our towers.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of digital handset and accessory
sales. Cost of providing wireless service consists largely of
costs of interconnection with local exchange carrier facilities
and direct switch and transmitter and receiver site costs,
including property taxes, expenses related to our handset
maintenance programs, insurance costs, utility costs,
maintenance costs, spectrum license fees and rent for the
network switch sites and transmitter sites used to operate our
networks. Interconnection costs have fixed and variable
components. The fixed component of interconnection costs
consists of monthly flat-rate fees for facilities leased from
local exchange carriers, primarily for circuits required to
connect our transmitter sites to our network switches and to
connect our switches to each other. The variable component of
interconnection costs, which fluctuates in relation to the
volume and duration of wireless calls, generally consists of
per-minute use fees charged by wireline and wireless providers
for wireless calls from our digital handsets that terminate on
those providers networks. Cost of digital handset and
accessory sales consists largely of the cost of the handset and
accessories, order fulfillment and installation-related
expenses, as well as write-downs of digital handset and related
accessory inventory for shrinkage or obsolescence.
Our service and other revenues and the variable component of our
cost of service are primarily driven by the number of digital
handsets in service and not necessarily by the number of
customers, as one customer may purchase one or many digital
handsets. Our digital handset and accessory revenues and cost of
digital handset and accessory sales are primarily driven by the
number of new handsets placed into service, as well as handset
upgrades provided to existing customers during the year.
Selling and marketing expenses include all of the expenses
related to acquiring customers. General and administrative
expenses include expenses related to revenue-based taxes,
billing, customer care, collections including bad debt, repairs
and maintenance of management information systems, spectrum
license fees, corporate overhead and share-based payment for
stock options and restricted stock.
29
As further discussed in the notes to our condensed consolidated
financial statements, we adjusted our condensed consolidated
financial statements for the nine and three months ended
September 30, 2008 for the retrospective application of the
Financial Accounting Standards Boards, or FASBs,
newly issued authoritative guidance for convertible debt
instruments.
In accordance with accounting principles generally accepted in
the United States, we translated the results of operations of
our operating segments using the average exchange rates for the
nine and three months ended September 30, 2009 and 2008.
The following table presents the average exchange rates we used
to translate the results of operations of our operating
segments, as well as changes from the average exchange rates
utilized in the prior period. Because the U.S. dollar is
the functional currency in Peru, Nextel Perus results of
operations are not significantly impacted by changes in the
U.S. dollar to Peruvian sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
13.67
|
|
|
|
10.52
|
|
|
|
(29.9
|
)%
|
Brazilian real
|
|
|
2.08
|
|
|
|
1.69
|
|
|
|
(23.1
|
)%
|
Argentine peso
|
|
|
3.70
|
|
|
|
3.11
|
|
|
|
(19.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
13.27
|
|
|
|
10.31
|
|
|
|
(28.7
|
)%
|
Brazilian real
|
|
|
1.87
|
|
|
|
1.67
|
|
|
|
(12.0
|
)%
|
Argentine peso
|
|
|
3.83
|
|
|
|
3.04
|
|
|
|
(26.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
2,980,833
|
|
|
|
94
|
%
|
|
$
|
3,106,881
|
|
|
|
95
|
%
|
|
$
|
(126,048
|
)
|
|
|
(4
|
)%
|
Digital handset and accessory revenues
|
|
|
181,804
|
|
|
|
6
|
%
|
|
|
173,015
|
|
|
|
5
|
%
|
|
|
8,789
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,162,637
|
|
|
|
100
|
%
|
|
|
3,279,896
|
|
|
|
100
|
%
|
|
|
(117,259
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(861,990
|
)
|
|
|
(27
|
)%
|
|
|
(848,557
|
)
|
|
|
(26
|
)%
|
|
|
(13,433
|
)
|
|
|
2
|
%
|
Cost of digital handsets and accessories
|
|
|
(472,666
|
)
|
|
|
(15
|
)%
|
|
|
(455,876
|
)
|
|
|
(14
|
)%
|
|
|
(16,790
|
)
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,334,656
|
)
|
|
|
(42
|
)%
|
|
|
(1,304,433
|
)
|
|
|
(40
|
)%
|
|
|
(30,223
|
)
|
|
|
2
|
%
|
Selling and marketing expenses
|
|
|
(370,598
|
)
|
|
|
(12
|
)%
|
|
|
(435,077
|
)
|
|
|
(13
|
)%
|
|
|
64,479
|
|
|
|
(15
|
)%
|
General and administrative expenses
|
|
|
(645,337
|
)
|
|
|
(20
|
)%
|
|
|
(618,936
|
)
|
|
|
(19
|
)%
|
|
|
(26,401
|
)
|
|
|
4
|
%
|
Depreciation and amortization
|
|
|
(310,391
|
)
|
|
|
(10
|
)%
|
|
|
(311,378
|
)
|
|
|
(9
|
)%
|
|
|
987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
501,655
|
|
|
|
16
|
%
|
|
|
610,072
|
|
|
|
19
|
%
|
|
|
(108,417
|
)
|
|
|
(18
|
)%
|
Interest expense, net
|
|
|
(145,260
|
)
|
|
|
(5
|
)%
|
|
|
(155,978
|
)
|
|
|
(5
|
)%
|
|
|
10,718
|
|
|
|
(7
|
)%
|
Interest income
|
|
|
19,748
|
|
|
|
1
|
%
|
|
|
53,324
|
|
|
|
2
|
%
|
|
|
(33,576
|
)
|
|
|
(63
|
)%
|
Foreign currency transaction gains (losses), net
|
|
|
101,332
|
|
|
|
3
|
%
|
|
|
(16,128
|
)
|
|
|
(1
|
)%
|
|
|
117,460
|
|
|
|
NM
|
|
Other income (expense), net
|
|
|
4,258
|
|
|
|
|
|
|
|
(12,786
|
)
|
|
|
|
|
|
|
17,044
|
|
|
|
(133
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
481,733
|
|
|
|
15
|
%
|
|
|
478,504
|
|
|
|
15
|
%
|
|
|
3,229
|
|
|
|
1
|
%
|
Income tax provision
|
|
|
(159,823
|
)
|
|
|
(5
|
)%
|
|
|
(138,464
|
)
|
|
|
(5
|
)%
|
|
|
(21,359
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
321,910
|
|
|
|
10
|
%
|
|
$
|
340,040
|
|
|
|
10
|
%
|
|
$
|
(18,130
|
)
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,078,386
|
|
|
|
94
|
%
|
|
$
|
1,116,101
|
|
|
|
94
|
%
|
|
$
|
(37,715
|
)
|
|
|
(3
|
)%
|
Digital handset and accessory revenues
|
|
|
64,072
|
|
|
|
6
|
%
|
|
|
66,624
|
|
|
|
6
|
%
|
|
|
(2,552
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,142,458
|
|
|
|
100
|
%
|
|
|
1,182,725
|
|
|
|
100
|
%
|
|
|
(40,267
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(316,836
|
)
|
|
|
(28
|
)%
|
|
|
(305,565
|
)
|
|
|
(26
|
)%
|
|
|
(11,271
|
)
|
|
|
4
|
%
|
Cost of digital handsets and accessories
|
|
|
(161,679
|
)
|
|
|
(14
|
)%
|
|
|
(162,478
|
)
|
|
|
(14
|
)%
|
|
|
799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(478,515
|
)
|
|
|
(42
|
)%
|
|
|
(468,043
|
)
|
|
|
(40
|
)%
|
|
|
(10,472
|
)
|
|
|
2
|
%
|
Selling and marketing expenses
|
|
|
(136,216
|
)
|
|
|
(12
|
)%
|
|
|
(158,103
|
)
|
|
|
(13
|
)%
|
|
|
21,887
|
|
|
|
(14
|
)%
|
General and administrative expenses
|
|
|
(227,688
|
)
|
|
|
(20
|
)%
|
|
|
(225,953
|
)
|
|
|
(19
|
)%
|
|
|
(1,735
|
)
|
|
|
1
|
%
|
Depreciation and amortization
|
|
|
(113,742
|
)
|
|
|
(10
|
)%
|
|
|
(111,789
|
)
|
|
|
(9
|
)%
|
|
|
(1,953
|
)
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
186,297
|
|
|
|
16
|
%
|
|
|
218,837
|
|
|
|
19
|
%
|
|
|
(32,540
|
)
|
|
|
(15
|
)%
|
Interest expense, net
|
|
|
(58,551
|
)
|
|
|
(5
|
)%
|
|
|
(53,219
|
)
|
|
|
(4
|
)%
|
|
|
(5,332
|
)
|
|
|
10
|
%
|
Interest income
|
|
|
3,326
|
|
|
|
|
|
|
|
16,796
|
|
|
|
1
|
%
|
|
|
(13,470
|
)
|
|
|
(80
|
)%
|
Foreign currency transaction gains (losses), net
|
|
|
45,094
|
|
|
|
4
|
%
|
|
|
(56,434
|
)
|
|
|
(5
|
)%
|
|
|
101,528
|
|
|
|
(180
|
)%
|
Other expense, net
|
|
|
(1,310
|
)
|
|
|
|
|
|
|
(7,611
|
)
|
|
|
(1
|
)%
|
|
|
6,301
|
|
|
|
(83
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
174,856
|
|
|
|
15
|
%
|
|
|
118,369
|
|
|
|
10
|
%
|
|
|
56,487
|
|
|
|
48
|
%
|
Income tax provision
|
|
|
(57,874
|
)
|
|
|
(5
|
)%
|
|
|
(33,939
|
)
|
|
|
(3
|
)%
|
|
|
(23,935
|
)
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
116,982
|
|
|
|
10
|
%
|
|
$
|
84,430
|
|
|
|
7
|
%
|
|
$
|
32,552
|
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
During the first nine months of 2009, we continued to expand our
subscriber base across all of our markets with much of this
growth concentrated in Brazil. We also experienced a higher
consolidated customer turnover rate compared to the first nine
months of 2008, which resulted primarily from the combined
impact of weaker economic conditions in Mexico and Argentina
during the first nine months of 2009 and the more competitive
sales environment in Mexico that arose during 2008. While we
have implemented initiatives designed to stabilize customer
turnover rates in our markets, which resulted in improved
customer turnover rates during the third quarter of 2009
compared to the customer turnover levels experienced in the
first two quarters of the year, the economic environment and
competitive conditions we face in our markets have adversely
affected, and may continue to adversely affect, our ability to
retain customers, particularly in Mexico.
We continued to invest in coverage expansion and network
improvements during the first nine months of 2009, resulting in
consolidated capital expenditures of $559.7 million, which
represented an $82.2 million decrease from the first nine
months of 2008. The majority of this investment occurred in
Brazil where we continued to expand our coverage areas and
enhance the quality and capacity of our networks, consistent
with our plans to increase our customer base in that market. We
expect that the amounts invested in Brazil to expand our network
coverage and improve network quality and capacity will continue
to represent the majority of our consolidated capital
expenditure investments for the remainder of 2009 as we focus
more resources on expansion in that market. In addition, our
deployment of a next generation network in Peru has required and
will continue to require significant additional capital
expenditures as will our planned deployment of a next generation
network in Chile. We will also incur significant additional
capital expenditures if we pursue our plans to acquire spectrum
and deploy next generation networks in any of our other markets.
See Future Capital Needs and Resources Capital
Expenditures for more information.
The average values of the local currencies in each of our
markets depreciated relative to the U.S. dollar during the
nine and three months ended September 30, 2009 compared to
the same periods in 2008. Our operating results for the
remainder of 2009 will be adversely affected in comparison to
prior periods if the values of the local
31
currencies relative to the U.S. dollar remain at the
average levels that prevailed during the nine and three months
ended September 30, 2009 or if those values depreciate
further.
The $126.0 million, or 4%, and $37.7 million, or 3%,
decreases in consolidated service and other revenues from the
nine and three months ended September 30, 2008 to the same
periods in 2009 are primarily due to declines in average
consolidated revenues per subscriber resulting from the
depreciation in the average values of the local currencies in
each of our markets relative to the U.S. dollar, continued
competitive pressures in Mexico and an increase in the
percentage of subscribers purchasing prepaid rate plans in Peru.
These decreases were partially offset by 25% and 22% increases
in the average number of total handsets in service from the nine
and three months ended September 30, 2008 to the same
periods in 2009, which resulted from both the continued strong
demand for our services and our balanced growth and expansion
strategy, primarily in Brazil.
The $8.8 million, or 5%, increase in consolidated digital
handset and accessory revenues from the nine months ended
September 30, 2008 to the same period in 2009 is largely
the result of an increase in handset upgrades to existing
subscribers, as well as a slight increase in handset sales to
new subscribers.
The $13.4 million, or 2%, and $11.3 million, or 4%,
increases in consolidated cost of service from the nine and
three months ended September 30, 2008 to the same periods
in 2009 are principally due to increases in consolidated service
and repair costs, primarily in Brazil, due to an increase in the
cost of repair per subscriber related to a change in the mix of
handsets in Brazil toward more mid and high tier handsets, as
well as an increase in the number of our customers participating
in our handset maintenance programs.
The $16.8 million, or 4%, increase in digital handset and
accessory sales from the nine months ended September 30,
2008 to the same period in 2009 is principally due to an
increase in consolidated handset upgrades for existing
subscribers, and, to a lesser extent, an increase in sales of
higher cost handsets to new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $64.5 million, or 15%, and $21.9 million, or 14%,
decreases in consolidated selling and marketing expenses from
the nine and three months ended September 30, 2008 to the
same periods in 2009 are mostly the result of
$50.0 million, or 28%, and $14.3 million, or 23%,
decreases in consolidated indirect commissions caused by lower
gross subscriber additions and lower indirect commission per
gross subscriber addition, primarily in Mexico, as well as
decreases in consolidated advertising expenses, payroll expenses
and direct commissions, primarily in Mexico.
|
|
4.
|
General and
administrative expenses
|
The $26.4 million, or 4%, increase in consolidated general
and administrative expenses from the nine months ended
September 30, 2008 to the same period in 2009 is primarily
due to the following:
|
|
|
|
|
a $10.8 million, or 19%, increase in consolidated
information technology expenses resulting from an increase in
information technology personnel and higher systems maintenance
costs, both of which are related to the deployment of new
billing systems in some of our markets and the development and
deployment of a next generation network in Peru;
|
|
|
|
a $9.3 million, or 56%, increase in consolidated
engineering management expenses related to some of our new
technology and other initiatives; and
|
|
|
|
a $7.3 million, or 12%, increase in consolidated bad debt
expense, primarily related to the growth of our subscriber base
in Brazil.
|
32
The $10.7 million, or 7%, decrease in consolidated interest
expense from the nine months ended September 30, 2008 to
the same period in 2009 is primarily related to a refund of
interest paid on turnover taxes in Argentina, as well as a
decrease in interest incurred under Nextel Mexicos
syndicated loan facility as a result of the repayment of a
portion of the loans under that facility in 2008 and 2009,
partially offset by interest expense incurred in connection with
the issuance of our 10.0% senior notes in August 2009.
See Note 5 to our condensed consolidated financial
statements for further information on the impact of the adoption
of the FASBs authoritative guidance on convertible debt
instruments on our net interest expense.
The $33.6 million, or 63%, and $13.5 million, or 80%,
decreases in consolidated interest income from the nine and
three months ended September 30, 2008 to the same periods
in 2009 are principally due to decreases in short-term
investments, as well as lower average interest rates over the
same periods.
|
|
7.
|
Foreign
currency transaction gains (losses), net
|
Consolidated foreign currency transaction gains of
$101.3 million and $45.1 million for the nine and
three months ended September 30, 2009 are largely the
result of the impact of the appreciation in the value of the
Brazilian real relative to the U.S. dollar during the
second and third quarters of 2009 on Nextel Brazils
U.S. dollar-denominated net liabilities, primarily its
syndicated loan facility.
Consolidated foreign currency transaction losses of
$16.1 million and $56.4 million for the nine and three
months ended September 30, 2008 are primarily the result of
the depreciation in the value of the Brazilian real relative to
the U.S. dollar during the third quarter of 2008 on Nextel
Brazils U.S. dollar-denominated liabilities,
primarily its syndicated loan facility.
|
|
8.
|
Other income
(expense), net
|
Consolidated other expense of $12.8 million and
$7.6 million for the nine and three months ended
September 30, 2008 primarily represents withholding tax
expense on Nextel Brazils intercompany loan.
The $21.4 million, or 15%, increase in the consolidated
income tax provision from the nine months ended
September 30, 2008 to the same period in 2009 is
principally due to a decrease in the tax benefits recognized for
income tax credits and inflationary adjustments.
The $23.9 million, or 71%, increase in the consolidated
income tax provision from the three months ended
September 30, 2008 to the same period in 2009 is primarily
due to an increase in income before taxes in one of our
jurisdictions with a high statutory tax rate.
33
Segment
Results
We evaluate performance of our segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element of operational
performance, we recognize share-based payment expense at the
corporate level and exclude it when evaluating the business
performance of our segments. The tables below provide a summary
of the components of our consolidated segments for the nine and
three months ended September 30, 2009 and 2008. The results
of Nextel Chile are included in Corporate and other.
Both Nextel Mexico and Nextel Brazils results of
operations were significantly affected by the decline in the
average values of the Mexican peso and the Brazilian real during
the nine and three months ended September 30, 2009 compared
to the average values of those currencies during the same
periods in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Nine Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
September 30, 2009
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,386,824
|
|
|
|
44
|
%
|
|
$
|
(529,444
|
)
|
|
|
40
|
%
|
|
$
|
(359,031
|
)
|
|
|
35
|
%
|
|
$
|
498,349
|
|
Nextel Brazil
|
|
|
1,179,764
|
|
|
|
37
|
%
|
|
|
(513,803
|
)
|
|
|
38
|
%
|
|
|
(344,602
|
)
|
|
|
34
|
%
|
|
|
321,359
|
|
Nextel Argentina
|
|
|
388,840
|
|
|
|
12
|
%
|
|
|
(177,207
|
)
|
|
|
13
|
%
|
|
|
(93,627
|
)
|
|
|
9
|
%
|
|
|
118,006
|
|
Nextel Peru
|
|
|
198,235
|
|
|
|
6
|
%
|
|
|
(106,420
|
)
|
|
|
8
|
%
|
|
|
(72,200
|
)
|
|
|
7
|
%
|
|
|
19,615
|
|
Corporate and other
|
|
|
9,776
|
|
|
|
1
|
%
|
|
|
(8,584
|
)
|
|
|
1
|
%
|
|
|
(146,475
|
)
|
|
|
15
|
%
|
|
|
(145,283
|
)
|
Intercompany eliminations
|
|
|
(802
|
)
|
|
|
|
|
|
|
802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
3,162,637
|
|
|
|
100
|
%
|
|
$
|
(1,334,656
|
)
|
|
|
100
|
%
|
|
$
|
(1,015,935
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Three Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
September 30, 2009
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Nextel Mexico
|
|
$
|
470,841
|
|
|
|
41
|
%
|
|
$
|
(178,083
|
)
|
|
|
37
|
%
|
|
$
|
(121,326
|
)
|
|
|
33
|
%
|
|
$
|
171,432
|
|
Nextel Brazil
|
|
|
473,270
|
|
|
|
42
|
%
|
|
|
(200,220
|
)
|
|
|
42
|
%
|
|
|
(135,134
|
)
|
|
|
37
|
%
|
|
|
137,916
|
|
Nextel Argentina
|
|
|
127,957
|
|
|
|
11
|
%
|
|
|
(60,391
|
)
|
|
|
12
|
%
|
|
|
(32,881
|
)
|
|
|
9
|
%
|
|
|
34,685
|
|
Nextel Peru
|
|
|
66,823
|
|
|
|
6
|
%
|
|
|
(36,732
|
)
|
|
|
8
|
%
|
|
|
(25,740
|
)
|
|
|
7
|
%
|
|
|
4,351
|
|
Corporate and other
|
|
|
3,780
|
|
|
|
|
|
|
|
(3,302
|
)
|
|
|
1
|
%
|
|
|
(48,823
|
)
|
|
|
14
|
%
|
|
|
(48,345
|
)
|
Intercompany eliminations
|
|
|
(213
|
)
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,142,458
|
|
|
|
100
|
%
|
|
$
|
(478,515
|
)
|
|
|
100
|
%
|
|
$
|
(363,904
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Nine Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
September 30, 2008
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nextel Mexico
|
|
$
|
1,650,857
|
|
|
|
50
|
%
|
|
$
|
(588,468
|
)
|
|
|
45
|
%
|
|
$
|
(459,876
|
)
|
|
|
44
|
%
|
|
$
|
602,513
|
|
Nextel Brazil
|
|
|
1,031,601
|
|
|
|
31
|
%
|
|
|
(431,342
|
)
|
|
|
33
|
%
|
|
|
(317,531
|
)
|
|
|
30
|
%
|
|
|
282,728
|
|
Nextel Argentina
|
|
|
414,822
|
|
|
|
13
|
%
|
|
|
(188,239
|
)
|
|
|
14
|
%
|
|
|
(98,588
|
)
|
|
|
9
|
%
|
|
|
127,995
|
|
Nextel Peru
|
|
|
177,156
|
|
|
|
6
|
%
|
|
|
(91,099
|
)
|
|
|
7
|
%
|
|
|
(52,686
|
)
|
|
|
5
|
%
|
|
|
33,371
|
|
Corporate and other
|
|
|
6,415
|
|
|
|
|
|
|
|
(6,240
|
)
|
|
|
1
|
%
|
|
|
(125,332
|
)
|
|
|
12
|
%
|
|
|
(125,157
|
)
|
Intercompany eliminations
|
|
|
(955
|
)
|
|
|
|
|
|
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
3,279,896
|
|
|
|
100
|
%
|
|
$
|
(1,304,433
|
)
|
|
|
100
|
%
|
|
$
|
(1,054,013
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Three Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
September 30, 2008
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nextel Mexico
|
|
$
|
587,525
|
|
|
|
50
|
%
|
|
$
|
(211,838
|
)
|
|
|
45
|
%
|
|
$
|
(164,654
|
)
|
|
|
43
|
%
|
|
$
|
211,033
|
|
Nextel Brazil
|
|
|
380,130
|
|
|
|
32
|
%
|
|
|
(154,032
|
)
|
|
|
33
|
%
|
|
|
(118,618
|
)
|
|
|
31
|
%
|
|
|
107,480
|
|
Nextel Argentina
|
|
|
150,306
|
|
|
|
13
|
%
|
|
|
(67,523
|
)
|
|
|
14
|
%
|
|
|
(36,605
|
)
|
|
|
9
|
%
|
|
|
46,178
|
|
Nextel Peru
|
|
|
62,662
|
|
|
|
5
|
%
|
|
|
(32,604
|
)
|
|
|
7
|
%
|
|
|
(19,317
|
)
|
|
|
5
|
%
|
|
|
10,741
|
|
Corporate and other
|
|
|
2,411
|
|
|
|
|
|
|
|
(2,355
|
)
|
|
|
1
|
%
|
|
|
(44,862
|
)
|
|
|
12
|
%
|
|
|
(44,806
|
)
|
Intercompany eliminations
|
|
|
(309
|
)
|
|
|
|
|
|
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,182,725
|
|
|
|
100
|
%
|
|
$
|
(468,043
|
)
|
|
|
100
|
%
|
|
$
|
(384,056
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A discussion of the results of operations for each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,328,714
|
|
|
|
96
|
%
|
|
$
|
1,583,235
|
|
|
|
96
|
%
|
|
$
|
(254,521
|
)
|
|
|
(16
|
)%
|
|
|
|
|
Digital handset and accessory revenues
|
|
|
58,110
|
|
|
|
4
|
%
|
|
|
67,622
|
|
|
|
4
|
%
|
|
|
(9,512
|
)
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,386,824
|
|
|
|
100
|
%
|
|
|
1,650,857
|
|
|
|
100
|
%
|
|
|
(264,033
|
)
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(262,300
|
)
|
|
|
(19
|
)%
|
|
|
(308,858
|
)
|
|
|
(19
|
)%
|
|
|
46,558
|
|
|
|
(15
|
)%
|
|
|
|
|
Cost of digital handsets and accessories
|
|
|
(267,144
|
)
|
|
|
(19
|
)%
|
|
|
(279,610
|
)
|
|
|
(17
|
)%
|
|
|
12,466
|
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(529,444
|
)
|
|
|
(38
|
)%
|
|
|
(588,468
|
)
|
|
|
(36
|
)%
|
|
|
59,024
|
|
|
|
(10
|
)%
|
|
|
|
|
Selling and marketing expenses
|
|
|
(165,895
|
)
|
|
|
(12
|
)%
|
|
|
(243,927
|
)
|
|
|
(15
|
)%
|
|
|
78,032
|
|
|
|
(32
|
)%
|
|
|
|
|
General and administrative expenses
|
|
|
(193,136
|
)
|
|
|
(14
|
)%
|
|
|
(215,949
|
)
|
|
|
(13
|
)%
|
|
|
22,813
|
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
498,349
|
|
|
|
36
|
%
|
|
|
602,513
|
|
|
|
36
|
%
|
|
|
(104,164
|
)
|
|
|
(17
|
)%
|
|
|
|
|
Management fee
|
|
|
(23,850
|
)
|
|
|
(2
|
)%
|
|
|
(25,169
|
)
|
|
|
(1
|
)%
|
|
|
1,319
|
|
|
|
(5
|
)%
|
|
|
|
|
Depreciation and amortization
|
|
|
(123,855
|
)
|
|
|
(9
|
)%
|
|
|
(148,692
|
)
|
|
|
(9
|
)%
|
|
|
24,837
|
|
|
|
(17
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
350,644
|
|
|
|
25
|
%
|
|
|
428,652
|
|
|
|
26
|
%
|
|
|
(78,008
|
)
|
|
|
(18
|
)%
|
|
|
|
|
Interest expense, net
|
|
|
(33,514
|
)
|
|
|
(2
|
)%
|
|
|
(47,343
|
)
|
|
|
(3
|
)%
|
|
|
13,829
|
|
|
|
(29
|
)%
|
|
|
|
|
Interest income
|
|
|
14,880
|
|
|
|
1
|
%
|
|
|
34,710
|
|
|
|
2
|
%
|
|
|
(19,830
|
)
|
|
|
(57
|
)%
|
|
|
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(15,031
|
)
|
|
|
(1
|
)%
|
|
|
9,696
|
|
|
|
1
|
%
|
|
|
(24,727
|
)
|
|
|
(255
|
)%
|
|
|
|
|
Other expense, net
|
|
|
(516
|
)
|
|
|
|
|
|
|
(239
|
)
|
|
|
|
|
|
|
(277
|
)
|
|
|
116
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
316,463
|
|
|
|
23
|
%
|
|
$
|
425,476
|
|
|
|
26
|
%
|
|
$
|
(109,013
|
)
|
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
451,066
|
|
|
|
96
|
%
|
|
$
|
559,134
|
|
|
|
95
|
%
|
|
$
|
(108,068
|
)
|
|
|
(19
|
)%
|
|
|
|
|
Digital handset and accessory revenues
|
|
|
19,775
|
|
|
|
4
|
%
|
|
|
28,391
|
|
|
|
5
|
%
|
|
|
(8,616
|
)
|
|
|
(30
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470,841
|
|
|
|
100
|
%
|
|
|
587,525
|
|
|
|
100
|
%
|
|
|
(116,684
|
)
|
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(90,170
|
)
|
|
|
(19
|
)%
|
|
|
(109,826
|
)
|
|
|
(19
|
)%
|
|
|
19,656
|
|
|
|
(18
|
)%
|
|
|
|
|
Cost of digital handsets and accessories
|
|
|
(87,913
|
)
|
|
|
(19
|
)%
|
|
|
(102,012
|
)
|
|
|
(17
|
)%
|
|
|
14,099
|
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(178,083
|
)
|
|
|
(38
|
)%
|
|
|
(211,838
|
)
|
|
|
(36
|
)%
|
|
|
33,755
|
|
|
|
(16
|
)%
|
|
|
|
|
Selling and marketing expenses
|
|
|
(59,775
|
)
|
|
|
(13
|
)%
|
|
|
(87,471
|
)
|
|
|
(15
|
)%
|
|
|
27,696
|
|
|
|
(32
|
)%
|
|
|
|
|
General and administrative expenses
|
|
|
(61,551
|
)
|
|
|
(13
|
)%
|
|
|
(77,183
|
)
|
|
|
(13
|
)%
|
|
|
15,632
|
|
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
171,432
|
|
|
|
36
|
%
|
|
|
211,033
|
|
|
|
36
|
%
|
|
|
(39,601
|
)
|
|
|
(19
|
)%
|
|
|
|
|
Management fee
|
|
|
(7,950
|
)
|
|
|
(1
|
)%
|
|
|
(8,417
|
)
|
|
|
(1
|
)%
|
|
|
467
|
|
|
|
(6
|
)%
|
|
|
|
|
Depreciation and amortization
|
|
|
(42,953
|
)
|
|
|
(9
|
)%
|
|
|
(52,524
|
)
|
|
|
(9
|
)%
|
|
|
9,571
|
|
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
120,529
|
|
|
|
26
|
%
|
|
|
150,092
|
|
|
|
26
|
%
|
|
|
(29,563
|
)
|
|
|
(20
|
)%
|
|
|
|
|
Interest expense, net
|
|
|
(10,647
|
)
|
|
|
(2
|
)%
|
|
|
(15,611
|
)
|
|
|
(3
|
)%
|
|
|
4,964
|
|
|
|
(32
|
)%
|
|
|
|
|
Interest income
|
|
|
1,836
|
|
|
|
|
|
|
|
12,858
|
|
|
|
2
|
%
|
|
|
(11,022
|
)
|
|
|
(86
|
)%
|
|
|
|
|
Foreign currency transaction gains (losses), net
|
|
|
5,622
|
|
|
|
1
|
%
|
|
|
(6,819
|
)
|
|
|
(1
|
)%
|
|
|
12,441
|
|
|
|
(182
|
)%
|
|
|
|
|
Other expense, net
|
|
|
(248
|
)
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
(168
|
)
|
|
|
210
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
117,092
|
|
|
|
25
|
%
|
|
$
|
140,440
|
|
|
|
24
|
%
|
|
$
|
(23,348
|
)
|
|
|
(17
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel Mexico continues to be our largest and most profitable
market segment, comprising 44% of our consolidated operating
revenues and generating a 36% segment earnings margin for the
nine months ended September 30, 2009, consistent with the
margin reported for the nine months ended September 30,
2008. During the nine months ended September 30, 2009,
Nextel Mexicos results of operations reflected lower
average revenues per subscriber due to the implementation of
lower cost rate plans in response to the competitive environment
in Mexico, as well as increased costs on a local currency basis.
The average value of the Mexican peso for the nine and three
months ended September 30, 2009 depreciated relative to the
U.S. dollar by 30% and 29%, respectively, compared to the
average rates that prevailed during the nine and three months
ended September 30, 2008. While the average exchange rate
of the Mexican peso continued to decline subsequent to
December 31, 2008, the majority of this depreciation
occurred during the fourth quarter of 2008. As a result, the
components of Nextel Mexicos results of operations for the
nine months ended September 30, 2009 after translation into
U.S. dollars reflect substantially lower
U.S. dollar-denominated revenues and expenses than would
have occurred if it were not for the impact of the depreciation
in the average value of the peso relative to the
U.S. dollar.
During 2008, some of Nextel Mexicos competitors
significantly lowered their prices for postpaid wireless
services, offered free or significantly discounted handsets,
specifically targeted some of Nextel Mexicos largest
corporate customers, offered various incentives to Nextel
Mexicos customers to switch service providers, including
reimbursement of cancellation fees, and offered bundled
telecommunications services that include local, long distance
and data services. These competitive actions and practices
largely remained in place during the first nine months of 2009.
Nextel Mexico is addressing these competitive actions by, among
other things, launching attractive commercial campaigns and
offering both handsets and more competitive rate plans to new
and existing customers.
36
These competitive rate plans are designed to encourage increased
usage of the Direct Connect feature, but have resulted in lower
average revenues per subscriber. In addition, during the second
and third quarters of 2009, Nextel Mexico experienced lower
gross subscriber additions and increased deactivations as a
result of the downturn in economic conditions in Mexico, which
was compounded by the closing of businesses and cancellation of
other activities in response to the outbreak of the H1N1
influenza virus during the second quarter of 2009. In order to
continue to expand and improve its customer base, Nextel Mexico
has implemented more stringent credit requirements for new
customers and has recently entered into negotiations to realign
the commission structure for its indirect dealers so that the
commissions earned by those dealers are more closely linked to
the quantity and quality of the incoming customers. If these
efforts prove unsuccessful, gross subscriber additions in Mexico
could be adversely affected in future periods. The weaker
economic conditions and more competitive environment in Mexico
also resulted in a higher customer turnover rate during 2009
compared to 2008. As Nextel Mexico continues to expand its
customer base and continues to address a more competitive sales
environment, Nextel Mexicos average revenue per subscriber
could continue to decline in future periods on a local currency
basis. In addition, in response to the recent economic and
competitive conditions, we have implemented initiatives designed
to stabilize or improve the customer turnover rate in Mexico.
While these initiatives resulted in some improvement in Nextel
Mexicos customer turnover rate during the third quarter of
2009, the pressures of the weaker economic environment combined
with the competitive conditions we face there may continue to
adversely affect our ability to retain or attract customers.
Coverage expansion and network improvements in Mexico resulted
in capital expenditures totaling $77.4 million for the nine
months ended September 30, 2009, which represents 14% of
our consolidated capital expenditures for the first nine months
of 2009 and which is a decrease from 27% of consolidated capital
expenditures during the first nine months of 2008.
The $254.5 million, or 16%, and $108.1 million, or
19%, decreases in service and other revenues from the nine and
three months ended September 30, 2008 to the same periods
in 2009 are primarily due to decreases in average service
revenue per subscriber resulting from our reduction in plan
rates in response to competitive offerings, the migration of a
portion of Nextel Mexicos subscriber base to lower cost
rate plans and the depreciation of the Mexican peso. These
decreases were partially offset by 20% and 14% increases in the
average number of digital handsets in service resulting from
growth in Nextel Mexicos existing markets and the
expansion of service coverage into new markets.
The $9.5 million, or 14%, and $8.6 million, or 30%,
decreases in digital handset and accessory revenues from the
nine and three months ended September 30, 2008 to the same
periods in 2009 are primarily due to decreases in handset sales
to new subscribers over both periods, decreases in the sale
price of handset upgrades and the depreciation of the Mexican
peso, partially offset by increases in the number of units
upgraded for those periods.
The $46.6 million, or 15%, and $19.7 million, or 18%,
decreases in cost of service from the nine and three months
ended September 30, 2008 to the same periods in 2009 are
principally a result of the following:
|
|
|
|
|
$25.6 million, or 17%, and $11.4 million, or 22%,
decreases in interconnect costs, largely as a result of the
depreciation of the Mexican peso, partially offset by increases
in the proportion of
mobile-to-mobile
minutes of use, which generally have higher costs per
minute; and
|
|
|
|
$15.8 million, or 15%, and $7.0 million, or 19%,
decreases in direct switch and transmitter and receiver site
costs resulting from the depreciation of the Mexican peso,
partially offset by increases in maintenance costs and an
increase in the number of sites in service from
September 30, 2008 to September 30, 2009.
|
The $12.5 million, or 4%, and $14.1 million, or 14%,
decreases in cost of digital handset and accessory sales from
the nine and three months ended September 30, 2008 to the
same periods in 2009 are primarily due to decreases in handset
sales and the depreciation of the Mexican peso, partially offset
by increases in handset upgrade costs.
37
|
|
3.
|
Selling and
marketing expenses
|
The $78.0 million, or 32%, and $27.7 million, or 32%,
decreases in selling and marketing expenses from the nine and
three months ended September 30, 2008 to the same periods
in 2009 are primarily a result of the following:
|
|
|
|
|
$48.0 million, or 39%, and $14.4 million, or 35%,
decreases in indirect commissions, primarily due to 17% and 22%
decreases in gross subscriber additions generated by Nextel
Mexicos external sales channels and the depreciation of
the Mexican peso;
|
|
|
|
$19.1 million, or 27%, and $7.0 million, or 27%,
decreases in direct commissions and payroll expenses,
principally due to 9% decreases in gross subscriber additions
generated by Nextel Mexicos internal sales personnel over
both periods and the depreciation of the Mexican peso; and
|
|
|
|
$9.3 million, or 22%, and $6.1 million, or 32%,
decreases in advertising costs are primarily due to the
depreciation of the Mexican peso.
|
|
|
4.
|
General and
administrative expenses
|
The $22.8 million, or 11%, and $15.6 million, or 20%,
decreases in general and administrative expenses from the nine
and three months ended September 30, 2008 to the same
periods in 2009 are largely a result of the following:
|
|
|
|
|
$13.3 million, or 16%, and $6.9 million, or 23%,
decreases in customer care expenses, primarily due to the
depreciation of the Mexican peso, partially offset by increases
in customer care personnel and facilities expenses necessary to
support a growing customer base;
|
|
|
|
$9.2 million, or 13%, and $2.9 million, or 11%,
decreases in other general and administrative costs resulting
from the depreciation of the Mexican peso, partially offset by
an increase in general and administrative personnel; and
|
|
|
|
a $5.6 million, or 39%, decrease in bad debt expense from
the third quarter of 2008 to the third quarter of 2009, which
decreased as a percentage of revenue from 2.4% for the three
months ended September 30, 2008 to 1.9% for the three
months ended September 30, 2009, primarily due to the
implementation of more stringent customer credit requirements
and improved collections.
|
|
|
5.
|
Depreciation
and amortization
|
The $24.8 million, or 17%, and $9.6 million, or 18%,
decreases in depreciation and amortization from the nine and
three months ended September 30, 2008 to the same periods
in 2009 are primarily due to the depreciation of the Mexican
peso.
The $13.8 million, or 29%, and $5.0 million, or 32%,
decreases in interest expense from the nine and three months
ended September 30, 2008 to the same periods in 2009 are
primarily a result of the repayment of a portion of the loans
under Nextel Mexicos syndicated loan facility in 2008 and
2009 and the depreciation of the Mexican peso.
The $19.8 million, or 57%, and $11.0 million, or 86%,
decreases in interest income from the nine and three months
ended September 30, 2008 to the same periods in 2009 are
primarily the result of lower average cash balances and reduced
interest rates, as well as the depreciation of the Mexican peso.
|
|
8.
|
Foreign
currency transaction (losses) gains, net
|
Foreign currency transaction losses of $15.0 million for
the nine months ended September 30, 2009 are largely the
result of the impact of the depreciation in the value of the
Mexican peso relative to the U.S. dollar during 2009
compared to the levels during 2008 on Nextel Mexicos
U.S. dollar-denominated net assets.
38
Foreign currency transaction gains of $9.7 million for the
nine months ended September 30, 2008 are primarily the
result of the appreciation in the value of the Mexican peso
relative to the U.S. dollar during 2008 compared to the
levels during 2007 on Nextel Mexicos
U.S. dollar-denominated net liabilities, primarily its
syndicated loan facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,103,382
|
|
|
|
94
|
%
|
|
$
|
976,665
|
|
|
|
95
|
%
|
|
$
|
126,717
|
|
|
|
13
|
%
|
Digital handset and accessory revenues
|
|
|
76,382
|
|
|
|
6
|
%
|
|
|
54,936
|
|
|
|
5
|
%
|
|
|
21,446
|
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,179,764
|
|
|
|
100
|
%
|
|
|
1,031,601
|
|
|
|
100
|
%
|
|
|
148,163
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(400,247
|
)
|
|
|
(34
|
)%
|
|
|
(344,258
|
)
|
|
|
(33
|
)%
|
|
|
(55,989
|
)
|
|
|
16
|
%
|
Cost of digital handsets and accessories
|
|
|
(113,556
|
)
|
|
|
(10
|
)%
|
|
|
(87,084
|
)
|
|
|
(9
|
)%
|
|
|
(26,472
|
)
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(513,803
|
)
|
|
|
(44
|
)%
|
|
|
(431,342
|
)
|
|
|
(42
|
)%
|
|
|
(82,461
|
)
|
|
|
19
|
%
|
Selling and marketing expenses
|
|
|
(132,855
|
)
|
|
|
(11
|
)%
|
|
|
(125,633
|
)
|
|
|
(12
|
)%
|
|
|
(7,222
|
)
|
|
|
6
|
%
|
General and administrative expenses
|
|
|
(211,747
|
)
|
|
|
(18
|
)%
|
|
|
(191,898
|
)
|
|
|
(19
|
)%
|
|
|
(19,849
|
)
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
321,359
|
|
|
|
27
|
%
|
|
|
282,728
|
|
|
|
27
|
%
|
|
|
38,631
|
|
|
|
14
|
%
|
Depreciation and amortization
|
|
|
(124,319
|
)
|
|
|
(10
|
)%
|
|
|
(109,570
|
)
|
|
|
(10
|
)%
|
|
|
(14,749
|
)
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
197,040
|
|
|
|
17
|
|
|
|
173,158
|
|
|
|
17
|
%
|
|
|
23,882
|
|
|
|
14
|
%
|
Interest expense, net
|
|
|
(35,856
|
)
|
|
|
(3
|
)%
|
|
|
(40,609
|
)
|
|
|
(4
|
)%
|
|
|
4,753
|
|
|
|
(12
|
)%
|
Interest income
|
|
|
3,523
|
|
|
|
|
|
|
|
4,297
|
|
|
|
1
|
%
|
|
|
(774
|
)
|
|
|
(18
|
)%
|
Foreign currency transaction gains (losses), net
|
|
|
108,797
|
|
|
|
9
|
%
|
|
|
(26,280
|
)
|
|
|
(3
|
)%
|
|
|
135,077
|
|
|
|
NM
|
|
Other income (expense), net
|
|
|
6,826
|
|
|
|
1
|
%
|
|
|
(7,319
|
)
|
|
|
(1
|
)%
|
|
|
14,145
|
|
|
|
(193
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
280,330
|
|
|
|
24
|
%
|
|
$
|
103,247
|
|
|
|
10
|
%
|
|
$
|
177,083
|
|
|
|
172
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
445,884
|
|
|
|
94
|
%
|
|
$
|
360,081
|
|
|
|
95
|
%
|
|
$
|
85,803
|
|
|
|
24
|
%
|
Digital handset and accessory revenues
|
|
|
27,386
|
|
|
|
6
|
%
|
|
|
20,049
|
|
|
|
5
|
%
|
|
|
7,337
|
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
473,270
|
|
|
|
100
|
%
|
|
|
380,130
|
|
|
|
100
|
%
|
|
|
93,140
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(160,404
|
)
|
|
|
(34
|
)%
|
|
|
(125,677
|
)
|
|
|
(33
|
)%
|
|
|
(34,727
|
)
|
|
|
28
|
%
|
Cost of digital handsets and accessories
|
|
|
(39,816
|
)
|
|
|
(8
|
)%
|
|
|
(28,355
|
)
|
|
|
(8
|
)%
|
|
|
(11,461
|
)
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,220
|
)
|
|
|
(42
|
)%
|
|
|
(154,032
|
)
|
|
|
(41
|
)%
|
|
|
(46,188
|
)
|
|
|
30
|
%
|
Selling and marketing expenses
|
|
|
(50,499
|
)
|
|
|
(11
|
)%
|
|
|
(46,703
|
)
|
|
|
(12
|
)%
|
|
|
(3,796
|
)
|
|
|
8
|
%
|
General and administrative expenses
|
|
|
(84,635
|
)
|
|
|
(18
|
)%
|
|
|
(71,915
|
)
|
|
|
(19
|
)%
|
|
|
(12,720
|
)
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
137,916
|
|
|
|
29
|
%
|
|
|
107,480
|
|
|
|
28
|
%
|
|
|
30,436
|
|
|
|
28
|
%
|
Depreciation and amortization
|
|
|
(49,664
|
)
|
|
|
(10
|
)%
|
|
|
(40,523
|
)
|
|
|
(10
|
)%
|
|
|
(9,141
|
)
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
88,252
|
|
|
|
19
|
%
|
|
|
66,957
|
|
|
|
18
|
%
|
|
|
21,295
|
|
|
|
32
|
%
|
Interest expense, net
|
|
|
(13,374
|
)
|
|
|
(3
|
)%
|
|
|
(14,534
|
)
|
|
|
(4
|
)%
|
|
|
1,160
|
|
|
|
(8
|
)%
|
Interest income
|
|
|
1,191
|
|
|
|
|
|
|
|
1,037
|
|
|
|
|
|
|
|
154
|
|
|
|
15
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
39,081
|
|
|
|
9
|
%
|
|
|
(51,747
|
)
|
|
|
(14
|
)%
|
|
|
90,828
|
|
|
|
(176
|
)%
|
Other income (expense), net
|
|
|
924
|
|
|
|
|
|
|
|
(5,767
|
)
|
|
|
(1
|
)%
|
|
|
6,691
|
|
|
|
(116
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
116,074
|
|
|
|
25
|
%
|
|
$
|
(4,054
|
)
|
|
|
(1
|
)%
|
|
$
|
120,128
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
39
Over the last several years, Nextel Brazils subscriber
base has grown as a result of its continued focus on customer
service and the expansion of the geographic coverage of its
network. As a result, Nextel Brazil contributed 37% of
consolidated revenues in the first nine months of 2009 compared
to 31% for the same period in 2008. Nextel Brazil has
continued to experience growth in its existing markets and has
made significant investments in new markets as a result of
increased demand for its services. Consistent with the expansion
plans that we announced in 2007 and 2008, we have recently made
significant investments in Brazil in order to expand the
geographic coverage of Nextel Brazils network and to add
capacity to and improve the quality of the network to support
its growth. Specifically, Nextel Brazil launched several large
markets in its northeast region during the first nine months of
2009. Coverage expansion and network improvements in Brazil
resulted in capital expenditures of $329.9 million for the
first nine months of 2009, which represented 59% of our
consolidated capital expenditure investments during that period,
compared to 51% for the same period in 2008. We believe that
Nextel Brazils quality improvements and network expansion
are contributing factors to its low customer turnover rate and
increased subscriber growth.
The average exchange rates of the Brazilian real for the nine
and three months ended September 30, 2009 depreciated
relative to the U.S. dollar by 23% and 12% compared to the
average rates that prevailed during the nine and three months
ended September 30, 2008. As a result, the components of
Nextel Brazils results of operations for the nine and
three months ended September 30, 2009, after translation
into U.S. dollars, reflect significantly lower
U.S. dollar-denominated revenues and expenses with respect
to revenues that are earned and expenses that are paid in
Brazilian reais than would have occurred if the Brazilian real
had not depreciated relative to the U.S. dollar. The
majority of this currency depreciation occurred during the
fourth quarter of 2008. The average exchange rate of the
Brazilian real during the third quarter of 2009 appreciated
compared to the average exchange rates that prevailed during the
fourth quarter of 2008 and the first two quarters of 2009.
The $126.7 million, or 13%, and $85.8 million, or 24%,
increases in service and other revenues from the nine and three
months ended September 30, 2008 to the same periods in 2009
are primarily a result of the following:
|
|
|
|
|
38% and 37% increases in the average number of digital handsets
in service resulting from growth in Nextel Brazils
existing markets and the expansion of service coverage into new
markets in connection with its balanced growth and expansion
objectives; partially offset by
|
|
|
|
a decline in average revenue per subscriber primarily due to the
depreciation in the Brazilian real.
|
The $21.4 million, or 39%, and $7.3 million, or 37%,
increases in digital handset and accessory revenues from the
nine and three months ended September 30, 2008 to the same
periods in 2009 are primarily due to increases in handset
upgrades for existing subscribers, as well as increases in
handset sales to new subscribers.
The $56.0 million, or 16%, and $34.7 million, or 28%,
increases in cost of service from the nine and three months
ended September 30, 2008 to the same periods in 2009 are
primarily due to the following:
|
|
|
|
|
$32.3 million, or 17%, and $21.4 million, or 30%,
increases in interconnect costs resulting from 50% and 51%
increases in interconnect minutes of use;
|
|
|
|
$12.5 million, or 32%, and $6.0 million, or 40%,
increases in service and repair costs largely due to increases
in the cost of repair per subscriber related to a change in the
mix of handsets toward more mid and high tier handsets, as well
as an increase in the number of customers participating in
Nextel Brazils handset maintenance program; and
|
|
|
|
$11.2 million, or 12%, and $7.9 million, or 23%,
increases in direct switch and transmitter and receiver site
costs resulting from a 30% increase in the number of cell sites
in service from September 30, 2008 to September 30,
2009.
|
The $26.5 million, or 30%, and $11.5 million, or 40%,
increases in cost of digital handset and accessory sales from
the nine and three months ended September 30, 2008 to the
same periods in 2009 are primarily due to Nextel Brazils
launch of the Blackberry in March 2009, increases in handset
upgrades, the average cost of handset
40
upgrades for existing customers and increases in handset sales
to new subscribers, partially offset by decreases in the average
cost of handsets sold to new subscribers as a larger proportion
of these sales were sales of SIM cards.
|
|
3.
|
Selling and
marketing expenses
|
The $7.2 million, or 6%, increase in selling and marketing
expenses from the nine months ended September 30, 2008 to
the same period in 2009 is primarily the result of an increase
in selling and marketing personnel necessary to support Nextel
Brazils growing subscriber base, as well as an increase in
advertising costs.
|
|
4.
|
General and
administrative expenses
|
The $19.8 million, or 10%, and $12.7 million, or 18%,
increases in general and administrative expenses from the nine
and three months ended September 30, 2008 to the same
periods in 2009 are due to increases in customer care personnel
necessary to support a larger customer base, increases in the
number of retail stores, increases in bad debt expense related
to Nextel Brazils subscriber growth and increases in
information technology expenses related to higher consulting
costs.
|
|
5.
|
Depreciation
and amortization
|
The $14.7 million, or 13%, and $9.1 million, or 23%,
increases in depreciation and amortization from the nine and
three months ended September 30, 2008 to the same periods
in 2009 are primarily due to an increase in Nextel Brazils
property, plant and equipment in service for both periods
resulting from the continued build-out of Nextel Brazils
network, partially offset by the depreciation of the Brazilian
real against the U.S. dollar.
|
|
6.
|
Foreign
currency transaction gains (losses), net
|
Foreign currency transaction gains of $108.8 million and
$39.1 million for the nine and three months ended
September 30, 2009 are largely the result of the impact of
the appreciation in the value of the Brazilian real relative to
the U.S. dollar during 2009 compared to the levels during
2008 on Nextel Brazils U.S. dollar-denominated net
liabilities, primarily its syndicated loan facility.
Foreign currency transaction losses of $26.3 million and
$51.7 million for the nine and three months ended
September 30, 2008 are primarily the result of the
depreciation in the value of the Brazilian real relative to the
U.S. dollar during 2008 compared to the levels during 2007
on Nextel Brazils U.S. dollar-denominated net
liabilities, primarily its syndicated loan facility.
|
|
7.
|
Other income
(expense), net
|
Other income, net, of $6.8 million for the nine months
ended September 30, 2009 primarily represents a contingency
reversal in the second quarter of 2009.
Other expense, net of $7.3 million, and $5.8 million
for the nine and three months ended September 30, 2008
primarily represents monetary corrections and withholding taxes.
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
361,540
|
|
|
|
93
|
%
|
|
$
|
378,379
|
|
|
|
91
|
%
|
|
$
|
(16,839
|
)
|
|
|
(4
|
)%
|
Digital handset and accessory revenues
|
|
|
27,300
|
|
|
|
7
|
%
|
|
|
36,443
|
|
|
|
9
|
%
|
|
|
(9,143
|
)
|
|
|
(25
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388,840
|
|
|
|
100
|
%
|
|
|
414,822
|
|
|
|
100
|
%
|
|
|
(25,982
|
)
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(129,776
|
)
|
|
|
(34
|
)%
|
|
|
(132,825
|
)
|
|
|
(32
|
)%
|
|
|
3,049
|
|
|
|
(2
|
)%
|
Cost of digital handsets and accessories
|
|
|
(47,431
|
)
|
|
|
(12
|
)%
|
|
|
(55,414
|
)
|
|
|
(13
|
)%
|
|
|
7,983
|
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177,207
|
)
|
|
|
(46
|
)%
|
|
|
(188,239
|
)
|
|
|
(45
|
)%
|
|
|
11,032
|
|
|
|
(6
|
)%
|
Selling and marketing expenses
|
|
|
(31,744
|
)
|
|
|
(8
|
)%
|
|
|
(34,072
|
)
|
|
|
(8
|
)%
|
|
|
2,328
|
|
|
|
(7
|
)%
|
General and administrative expenses
|
|
|
(61,883
|
)
|
|
|
(16
|
)%
|
|
|
(64,516
|
)
|
|
|
(16
|
)%
|
|
|
2,633
|
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
118,006
|
|
|
|
30
|
%
|
|
|
127,995
|
|
|
|
31
|
%
|
|
|
(9,989
|
)
|
|
|
(8
|
)%
|
Depreciation and amortization
|
|
|
(28,936
|
)
|
|
|
(7
|
)%
|
|
|
(28,895
|
)
|
|
|
(7
|
)%
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
89,070
|
|
|
|
23
|
%
|
|
|
99,100
|
|
|
|
24
|
%
|
|
|
(10,030
|
)
|
|
|
(10
|
)%
|
Interest expense, net
|
|
|
5,349
|
|
|
|
1
|
%
|
|
|
(2,111
|
)
|
|
|
(1
|
)%
|
|
|
7,460
|
|
|
|
NM
|
|
Interest income
|
|
|
475
|
|
|
|
|
|
|
|
2,246
|
|
|
|
1
|
%
|
|
|
(1,771
|
)
|
|
|
(79
|
)%
|
Foreign currency transaction gains, net
|
|
|
5,599
|
|
|
|
2
|
%
|
|
|
86
|
|
|
|
|
|
|
|
5,513
|
|
|
|
NM
|
|
Other income, net
|
|
|
3,749
|
|
|
|
1
|
%
|
|
|
45
|
|
|
|
|
|
|
|
3,704
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
104,242
|
|
|
|
27
|
%
|
|
$
|
99,366
|
|
|
|
24
|
%
|
|
$
|
4,876
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
117,958
|
|
|
|
92
|
%
|
|
$
|
137,258
|
|
|
|
91
|
%
|
|
$
|
(19,300
|
)
|
|
|
(14
|
)%
|
Digital handset and accessory revenues
|
|
|
9,999
|
|
|
|
8
|
%
|
|
|
13,048
|
|
|
|
9
|
%
|
|
|
(3,049
|
)
|
|
|
(23
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,957
|
|
|
|
100
|
%
|
|
|
150,306
|
|
|
|
100
|
%
|
|
|
(22,349
|
)
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(41,981
|
)
|
|
|
(33
|
)%
|
|
|
(47,538
|
)
|
|
|
(32
|
)%
|
|
|
5,557
|
|
|
|
(12
|
)%
|
Cost of digital handsets and accessories
|
|
|
(18,410
|
)
|
|
|
(14
|
)%
|
|
|
(19,985
|
)
|
|
|
(13
|
)%
|
|
|
1,575
|
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,391
|
)
|
|
|
(47
|
)%
|
|
|
(67,523
|
)
|
|
|
(45
|
)%
|
|
|
7,132
|
|
|
|
(11
|
)%
|
Selling and marketing expenses
|
|
|
(11,563
|
)
|
|
|
(9
|
)%
|
|
|
(12,920
|
)
|
|
|
(8
|
)%
|
|
|
1,357
|
|
|
|
(11
|
)%
|
General and administrative expenses
|
|
|
(21,318
|
)
|
|
|
(17
|
)%
|
|
|
(23,685
|
)
|
|
|
(16
|
)%
|
|
|
2,367
|
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
34,685
|
|
|
|
27
|
%
|
|
|
46,178
|
|
|
|
31
|
%
|
|
|
(11,493
|
)
|
|
|
(25
|
)%
|
Depreciation and amortization
|
|
|
(9,456
|
)
|
|
|
(7
|
)%
|
|
|
(10,388
|
)
|
|
|
(7
|
)%
|
|
|
932
|
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
25,229
|
|
|
|
20
|
%
|
|
|
35,790
|
|
|
|
24
|
%
|
|
|
(10,561
|
)
|
|
|
(30
|
)%
|
Interest expense, net
|
|
|
(541
|
)
|
|
|
|
|
|
|
(724
|
)
|
|
|
(1
|
)%
|
|
|
183
|
|
|
|
(25
|
)%
|
Interest income
|
|
|
107
|
|
|
|
|
|
|
|
379
|
|
|
|
|
|
|
|
(272
|
)
|
|
|
(72
|
)%
|
Foreign currency transaction gains, net
|
|
|
259
|
|
|
|
|
|
|
|
2,759
|
|
|
|
2
|
%
|
|
|
(2,500
|
)
|
|
|
(91
|
)%
|
Other income, net
|
|
|
2
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
25,056
|
|
|
|
20
|
%
|
|
$
|
38,205
|
|
|
|
25
|
%
|
|
$
|
(13,149
|
)
|
|
|
(34
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
42
Over the course of the last two years, the inflation rate in
Argentina has risen significantly, and we expect that it may
continue to remain elevated over the next several years. The
higher inflation rate has affected costs that are incurred in
Argentine pesos, including personnel costs in particular. In
addition, Nextel Argentinas customer turnover rate
increased in 2009 compared to the customer turnover
levels Nextel Argentina experienced in 2008 because of the
adverse changes in the economic environment in Argentina. If the
weaker economic conditions in Argentina continue or worsen,
Nextel Argentinas results of operations may be adversely
affected.
The average values of the Argentine peso for the nine and three
months ended September 30, 2009 depreciated relative to the
U.S. dollar by 19% and 26% from the nine and three months
ended September 30, 2008. As a result, the components of
Nextel Argentinas results of operations for the nine and
three months ended September 30, 2009 after translation
into U.S. dollars reflect significantly lower
U.S. dollar-denominated revenues and expenses than would
have occurred if the Argentine peso had not depreciated relative
to the U.S. dollar.
The $16.8 million, or 4%, and $19.3 million, or 14%,
decreases in service and other revenues from the nine and the
three months ended September 30, 2008 to the same period in
2009 is primarily a result of the following:
|
|
|
|
|
decreases in average revenue per subscriber mainly due to the
depreciation in the value of the Argentine peso relative to the
U.S. dollar, partially offset by
|
|
|
|
12% and 8% increases in the average number of digital handsets
in service, resulting mostly from growth in Nextel
Argentinas existing markets.
|
The $9.1 million, or 25%, and $3.0 million, or 23%,
decreases in digital handset and accessory revenues from the
nine and three months ended September 30, 2008 to the same
periods in 2009 are primarily a result of decreases in handset
upgrades to existing subscribers, decreases in handset sales to
new subscribers, decreases in the average sale price of new
handsets and the depreciation of the Argentine peso relative to
the U.S. dollar.
The $5.6 million, or 12%, decrease in cost of service from
the three months ended September 30, 2008 to the same
period in 2009 is primarily a result of a decrease in
interconnect costs stemming from the depreciation of the
Argentine peso relative to the U.S. dollar, which is partially
offset by an increase in service and repair costs due to an
increase in average price per handset repaired and an increase
in direct switch and transmitter and receiver site costs due to
an increase in the number of cell sites in service.
The $8.0 million, or 14%, decrease in cost of digital
handset and accessory sales from the nine months ended
September 30, 2008 to the same period in 2009 is primarily
the result of a decrease in handset upgrades to existing
subscribers, a slight decrease in handset sales to new
subscribers and the depreciation of the Argentine peso relative
to the U.S. dollar.
The $7.5 million decrease in interest expense from the nine
months ended September 30, 2008 to the same period in 2009
is primarily due to a refund of the interest portion of turnover
taxes paid to the city of Buenos Aires in the second quarter of
2009.
|
|
4.
|
Foreign
currency transaction gains, net
|
Consolidated foreign currency transaction gains of
$5.6 million for the nine months ended September 30,
2009 are largely the result of the strengthening in the value of
the U.S. dollar relative to the Argentine peso during 2009
compared to the levels during 2008 on Nextel Argentinas
U.S. dollar-denominated net assets.
43
Other income, net, of $3.7 million for the nine months
ended September 30, 2009 primarily represents a gain we
recorded in connection with the turnover tax refund agreement
with the city of Buenos Aires during the second quarter of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
178,287
|
|
|
|
90
|
%
|
|
$
|
163,170
|
|
|
|
92
|
%
|
|
$
|
15,117
|
|
|
|
9
|
%
|
Digital handset and accessory revenues
|
|
|
19,948
|
|
|
|
10
|
%
|
|
|
13,986
|
|
|
|
8
|
%
|
|
|
5,962
|
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,235
|
|
|
|
100
|
%
|
|
|
177,156
|
|
|
|
100
|
%
|
|
|
21,079
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(64,533
|
)
|
|
|
(33
|
)%
|
|
|
(58,919
|
)
|
|
|
(33
|
)%
|
|
|
(5,614
|
)
|
|
|
10
|
%
|
Cost of digital handsets and accessories
|
|
|
(41,887
|
)
|
|
|
(21
|
)%
|
|
|
(32,180
|
)
|
|
|
(18
|
)%
|
|
|
(9,707
|
)
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(106,420
|
)
|
|
|
(54
|
)%
|
|
|
(91,099
|
)
|
|
|
(51
|
)%
|
|
|
(15,321
|
)
|
|
|
17
|
%
|
Selling and marketing expenses
|
|
|
(27,591
|
)
|
|
|
(14
|
)%
|
|
|
(22,093
|
)
|
|
|
(13
|
)%
|
|
|
(5,498
|
)
|
|
|
25
|
%
|
General and administrative expenses
|
|
|
(44,609
|
)
|
|
|
(22
|
)%
|
|
|
(30,593
|
)
|
|
|
(17
|
)%
|
|
|
(14,016
|
)
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
19,615
|
|
|
|
10
|
%
|
|
|
33,371
|
|
|
|
19
|
%
|
|
|
(13,756
|
)
|
|
|
(41
|
)%
|
Depreciation and amortization
|
|
|
(23,132
|
)
|
|
|
(12
|
)%
|
|
|
(15,219
|
)
|
|
|
(9
|
)%
|
|
|
(7,913
|
)
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(3,517
|
)
|
|
|
(2
|
)%
|
|
|
18,152
|
|
|
|
10
|
%
|
|
|
(21,669
|
)
|
|
|
(119
|
)%
|
Interest expense, net
|
|
|
(1,413
|
)
|
|
|
(1
|
)%
|
|
|
(104
|
)
|
|
|
|
|
|
|
(1,309
|
)
|
|
|
NM
|
|
Interest income
|
|
|
223
|
|
|
|
|
|
|
|
772
|
|
|
|
|
|
|
|
(549
|
)
|
|
|
(71
|
)%
|
Foreign currency transaction losses, net
|
|
|
(382
|
)
|
|
|
|
|
|
|
(314
|
)
|
|
|
|
|
|
|
(68
|
)
|
|
|
22
|
%
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax
|
|
$
|
(5,089
|
)
|
|
|
(3
|
)%
|
|
$
|
18,506
|
|
|
|
10
|
%
|
|
$
|
(23,595
|
)
|
|
|
(127
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
59,947
|
|
|
|
90
|
%
|
|
$
|
57,531
|
|
|
|
92
|
%
|
|
$
|
2,416
|
|
|
|
4
|
%
|
Digital handset and accessory revenues
|
|
|
6,876
|
|
|
|
10
|
%
|
|
|
5,131
|
|
|
|
8
|
%
|
|
|
1,745
|
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,823
|
|
|
|
100
|
%
|
|
|
62,662
|
|
|
|
100
|
%
|
|
|
4,161
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(22,182
|
)
|
|
|
(33
|
)%
|
|
|
(21,040
|
)
|
|
|
(34
|
)%
|
|
|
(1,142
|
)
|
|
|
5
|
%
|
Cost of digital handsets and accessories
|
|
|
(14,550
|
)
|
|
|
(22
|
)%
|
|
|
(11,564
|
)
|
|
|
(18
|
)%
|
|
|
(2,986
|
)
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36,732
|
)
|
|
|
(55
|
)%
|
|
|
(32,604
|
)
|
|
|
(52
|
)%
|
|
|
(4,128
|
)
|
|
|
13
|
%
|
Selling and marketing expenses
|
|
|
(9,764
|
)
|
|
|
(15
|
)%
|
|
|
(8,264
|
)
|
|
|
(13
|
)%
|
|
|
(1,500
|
)
|
|
|
18
|
%
|
General and administrative expenses
|
|
|
(15,976
|
)
|
|
|
(24
|
)%
|
|
|
(11,053
|
)
|
|
|
(18
|
)%
|
|
|
(4,923
|
)
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
4,351
|
|
|
|
6
|
%
|
|
|
10,741
|
|
|
|
17
|
%
|
|
|
(6,390
|
)
|
|
|
(59
|
)%
|
Depreciation and amortization
|
|
|
(8,279
|
)
|
|
|
(12
|
)%
|
|
|
(5,264
|
)
|
|
|
(8
|
)%
|
|
|
(3,015
|
)
|
|
|
57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(3,928
|
)
|
|
|
(6
|
)%
|
|
|
5,477
|
|
|
|
9
|
%
|
|
|
(9,405
|
)
|
|
|
(172
|
)%
|
Interest expense, net
|
|
|
(1,126
|
)
|
|
|
(2
|
)%
|
|
|
(68
|
)
|
|
|
|
|
|
|
(1,058
|
)
|
|
|
NM
|
|
Interest income
|
|
|
21
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
(133
|
)
|
|
|
(86
|
)%
|
Foreign currency transaction losses, net
|
|
|
(101
|
)
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
|
|
51
|
|
|
|
(34
|
)%
|
Other expense, net
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax
|
|
$
|
(5,135
|
)
|
|
|
(8
|
)%
|
|
$
|
5,411
|
|
|
|
9
|
%
|
|
$
|
(10,546
|
)
|
|
|
(195
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
44
We are developing and deploying a third generation network in
Peru in 2009 using 1.9 GHz spectrum we acquired in 2007. We
believe that the deployment of this next generation network will
enable us to offer new and differentiated services to a larger
base of potential customers in Peru. We expect to continue to
incur significant expenses associated with the deployment phase
of the next generation network in Peru, particularly general and
administrative expenses; however, we do not expect a
corresponding increase in operating revenues during this
deployment phase.
Because the U.S. dollar is Nextel Perus functional
currency, results of operations are not significantly impacted
by changes in the U.S. dollar to Peruvian sol exchange rate.
The $15.1 million, or 9%, and $2.4 million, or 4%,
increases in service and other revenues from the nine and three
months ended September 30, 2008 to the same periods in 2009
are primarily due to 33% and 30% increases in the average number
of digital handsets in service, partially offset by decreases in
average revenue per subscriber mainly resulting from an increase
in sales of prepaid rate plans, which have lower average monthly
revenues per subscriber.
The $6.0 million, or 43%, increase in digital handset and
accessory revenues from the nine months ended September 30,
2008 to the same period in 2009 is primarily due to an increase
in handset upgrades to existing subscribers, as well as an
increase in handset sales to new subscribers.
The $5.6 million, or 10%, increase in cost of service from
the nine months ended September 30, 2008 to the same period
in 2009 is largely the result of an increase in service and
repair costs mainly resulting from an increase in the number of
subscribers participating in Nextel Perus handset
maintenance program, a change in the mix of handsets repaired
toward higher cost handsets and an increase in direct switch and
transmitter and receiver site costs due to a 17% increase in the
number of sites in service from September 30, 2008 to
September 30, 2009. These increases were partially offset
by a decrease in interconnect costs due to lower rates charged
for interconnect minutes of use.
The $9.7 million, or 30%, and $3.0 million, or 26%,
increases in cost of digital handset and accessory sales from
the nine and three months ended September 30, 2008 to the
same periods in 2009 are primarily due to increases in handset
upgrades for existing subscribers, as well as increases in
handset sales to new customers.
|
|
3.
|
Selling and
marketing expenses
|
The $5.5 million, or 25%, increase in selling and marketing
expenses from the nine months ended September 30, 2008 to
the same period in 2009 is largely the result of an increase in
direct commissions and payroll expenses, principally due to
higher advertising costs and an increase in sales and marketing
personnel.
|
|
4.
|
General and
administrative expenses
|
The $14.0 million, or 46%, and $4.9 million, or 45%,
increases in general and administrative expenses from the nine
and three months ended September 30, 2008 to the same
periods in 2009 are primarily due to $7.7 million, or 157%,
and $3.4 million, or 206%, increases in costs related to
our new technology initiatives and increases in customer care
personnel and facilities expenses necessary to support a growing
customer base.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
and other
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
9,712
|
|
|
|
99
|
%
|
|
$
|
6,387
|
|
|
|
100
|
%
|
|
$
|
3,325
|
|
|
|
52
|
%
|
Digital handset and accessory revenues
|
|
|
64
|
|
|
|
1
|
%
|
|
|
28
|
|
|
|
|
|
|
|
36
|
|
|
|
129
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,776
|
|
|
|
100
|
%
|
|
|
6,415
|
|
|
|
100
|
%
|
|
|
3,361
|
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(5,936
|
)
|
|
|
(61
|
)%
|
|
|
(4,652
|
)
|
|
|
(72
|
)%
|
|
|
(1,284
|
)
|
|
|
28
|
%
|
Cost of digital handsets and accessories
|
|
|
(2,648
|
)
|
|
|
(27
|
)%
|
|
|
(1,588
|
)
|
|
|
(25
|
)%
|
|
|
(1,060
|
)
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,584
|
)
|
|
|
(88
|
)%
|
|
|
(6,240
|
)
|
|
|
(97
|
)%
|
|
|
(2,344
|
)
|
|
|
38
|
%
|
Selling and marketing expenses
|
|
|
(12,513
|
)
|
|
|
(128
|
)%
|
|
|
(9,352
|
)
|
|
|
(146
|
)%
|
|
|
(3,161
|
)
|
|
|
34
|
%
|
General and administrative expenses
|
|
|
(133,962
|
)
|
|
|
NM
|
|
|
|
(115,980
|
)
|
|
|
NM
|
|
|
|
(17,982
|
)
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(145,283
|
)
|
|
|
NM
|
|
|
|
(125,157
|
)
|
|
|
NM
|
|
|
|
(20,126
|
)
|
|
|
16
|
%
|
Management fee
|
|
|
23,850
|
|
|
|
244
|
%
|
|
|
25,200
|
|
|
|
NM
|
|
|
|
(1,350
|
)
|
|
|
(5
|
)%
|
Depreciation and amortization
|
|
|
(10,149
|
)
|
|
|
(104
|
)%
|
|
|
(8,882
|
)
|
|
|
(138
|
)%
|
|
|
(1,267
|
)
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(131,582
|
)
|
|
|
NM
|
|
|
|
(108,839
|
)
|
|
|
NM
|
|
|
|
(22,743
|
)
|
|
|
21
|
%
|
Interest expense, net
|
|
|
(83,780
|
)
|
|
|
NM
|
|
|
|
(71,643
|
)
|
|
|
NM
|
|
|
|
(12,137
|
)
|
|
|
17
|
%
|
Interest income
|
|
|
4,601
|
|
|
|
47
|
%
|
|
|
17,131
|
|
|
|
267
|
%
|
|
|
(12,530
|
)
|
|
|
(73
|
)%
|
Foreign currency transaction gains, net
|
|
|
2,349
|
|
|
|
24
|
%
|
|
|
653
|
|
|
|
10
|
%
|
|
|
1,696
|
|
|
|
260
|
%
|
Other expense, net
|
|
|
(5,801
|
)
|
|
|
(59
|
)%
|
|
|
(5,273
|
)
|
|
|
(82
|
)%
|
|
|
(528
|
)
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(214,213
|
)
|
|
|
NM
|
|
|
$
|
(167,971
|
)
|
|
|
NM
|
|
|
$
|
(46,242
|
)
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,744
|
|
|
|
99
|
%
|
|
$
|
2,406
|
|
|
|
100
|
%
|
|
$
|
1,338
|
|
|
|
56
|
%
|
Digital handset and accessory revenues
|
|
|
36
|
|
|
|
1
|
%
|
|
|
5
|
|
|
|
|
|
|
|
31
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,780
|
|
|
|
100
|
%
|
|
|
2,411
|
|
|
|
100
|
%
|
|
|
1,369
|
|
|
|
57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(2,312
|
)
|
|
|
(61
|
)%
|
|
|
(1,793
|
)
|
|
|
(75
|
)%
|
|
|
(519
|
)
|
|
|
29
|
%
|
Cost of digital handsets and accessories
|
|
|
(990
|
)
|
|
|
(26
|
)%
|
|
|
(562
|
)
|
|
|
(23
|
)%
|
|
|
(428
|
)
|
|
|
76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,302
|
)
|
|
|
(87
|
)%
|
|
|
(2,355
|
)
|
|
|
(98
|
)%
|
|
|
(947
|
)
|
|
|
40
|
%
|
Selling and marketing expenses
|
|
|
(4,615
|
)
|
|
|
(122
|
)%
|
|
|
(2,745
|
)
|
|
|
(114
|
)%
|
|
|
(1,870
|
)
|
|
|
68
|
%
|
General and administrative expenses
|
|
|
(44,208
|
)
|
|
|
NM
|
|
|
|
(42,117
|
)
|
|
|
NM
|
|
|
|
(2,091
|
)
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(48,345
|
)
|
|
|
NM
|
|
|
|
(44,806
|
)
|
|
|
NM
|
|
|
|
(3,539
|
)
|
|
|
8
|
%
|
Management fee
|
|
|
7,950
|
|
|
|
210
|
%
|
|
|
8,400
|
|
|
|
NM
|
|
|
|
(450
|
)
|
|
|
(5
|
)%
|
Depreciation and amortization
|
|
|
(3,390
|
)
|
|
|
(90
|
)%
|
|
|
(3,090
|
)
|
|
|
(128
|
)%
|
|
|
(300
|
)
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(43,785
|
)
|
|
|
NM
|
|
|
|
(39,496
|
)
|
|
|
NM
|
|
|
|
(4,289
|
)
|
|
|
11
|
%
|
Interest expense, net
|
|
|
(34,679
|
)
|
|
|
NM
|
|
|
|
(23,925
|
)
|
|
|
NM
|
|
|
|
(10,754
|
)
|
|
|
45
|
%
|
Interest income
|
|
|
1,987
|
|
|
|
53
|
%
|
|
|
4,011
|
|
|
|
166
|
%
|
|
|
(2,024
|
)
|
|
|
(50
|
)%
|
Foreign currency transaction gains (losses), net
|
|
|
233
|
|
|
|
6
|
%
|
|
|
(458
|
)
|
|
|
(19
|
)%
|
|
|
691
|
|
|
|
(151
|
)%
|
Other expense, net
|
|
|
(1,987
|
)
|
|
|
(53
|
)%
|
|
|
(1,765
|
)
|
|
|
(73
|
)%
|
|
|
(222
|
)
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(78,231
|
)
|
|
|
NM
|
|
|
$
|
(61,633
|
)
|
|
|
NM
|
|
|
$
|
(16,598
|
)
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
46
For the nine and three months ended September 30, 2009 and
2008, corporate and other operating revenues and cost of
revenues primarily represent the results of operations reported
by Nextel Chile. In September 2009, we participated in a
spectrum auction in Chile in which we were the successful bidder
for 60 MHz of spectrum in the 1.7 GHz and 2.1 GHz
spectrum bands. We plan to deploy a third generation network
based on WCDMA technology that will operate on this spectrum. We
believe that the deployment of this next generation network will
enable us to offer new and differentiated services to a larger
base of potential customers in Chile. As a result, our planned
network expansion over the next several years will require
significant investments in capital expenditures in Chile.
|
|
1.
|
General and
administrative expenses
|
The $18.0 million, or 16%, increase in general and
administrative expenses from the nine months ended
September 30, 2008 to the same period in 2009 is primarily
due to an increase in corporate personnel expenses and increased
consulting costs, both of which are largely related to the
commencement of some of our new technology and other initiatives.
The $12.1 million, or 17%, and $10.8 million, or 45%,
increases in net interest expense from the nine and three months
ended September 30, 2008 to the same periods in 2009 are
mostly related to interest expense we incurred related to the
issuance of our 10.0% senior notes in August 2009.
The $12.5 million, or 73%, decrease in interest income from
the nine months ended September 30, 2008 to the same period
in 2009 is the result of a decrease in short-term investments.
Liquidity
and Capital Resources
We derive our liquidity and capital resources primarily from
cash flows from our operations. As of September 30, 2009,
we had working capital, which is defined as total current assets
less total current liabilities, of $1,724.8 million, a
$350.7 million increase compared to working capital of
$1,374.1 million as of December 31, 2008, primarily
due to cash we received in connection with the issuance of our
10.0% senior notes in August 2009. Our working capital
includes $2,001.2 million in cash and cash equivalents as
of September 30, 2009, of which about 11% was held in
currencies other than U.S. dollars, primarily Mexican
pesos, and $36.4 million of short-term investments. A
substantial portion of our cash and cash equivalents held in
U.S. dollars is maintained in U.S. treasury security
funds, and our cash and cash equivalents held in local
currencies is typically maintained in highly liquid overnight
securities and certificates of deposit.
We recognized net income of $321.9 million for the nine
months ended September 30, 2009 compared to
$340.0 million for the nine months ended September 30,
2008. During the nine months ended September 30, 2009 and
2008, our operating revenues more than offset our operating
expenses, excluding depreciation and amortization, and our cash
capital expenditures.
Because we report our results of operations in
U.S. dollars, the declines in relative currency valuations
that occurred during the nine months ended September 30,
2009 compared to the valuations as of December 31, 2008
resulted in reductions in some of the reported values of our
assets, including the values of cash and cash equivalents held
in local currencies. The effect of exchange rate changes on
consolidated cash and cash equivalents for the nine months ended
September 30, 2009 was a $28.8 million loss in the
value of those assets. If the values of the currencies in the
countries in which our operating companies conduct business
relative to the U.S. dollar depreciate, we would expect the
reported value of these assets held in local currencies to
decrease.
We believe our current working capital and anticipated future
cash flows will be adequate to meet our cash needs for ongoing
operations and capital expenditures, but our funding needs could
be affected by a number of factors. Specifically, our liquidity
could be negatively affected by a decrease in operating revenues
resulting from a decline in demand for our products and services
due to the significant downturn in the global economy or from a
47
decline in the values of the currencies in the countries in
which we conduct our business relative to the U.S. dollar
among other factors. See Future Capital Needs and
Resources Future Outlook.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents, beginning of year
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
|
$
|
(126,914
|
)
|
Net cash provided by operating activities
|
|
|
546,057
|
|
|
|
626,143
|
|
|
|
(80,086
|
)
|
Net cash used in investing activities
|
|
|
(497,670
|
)
|
|
|
(514,210
|
)
|
|
|
16,540
|
|
Net cash provided by (used in) financing activities
|
|
|
738,430
|
|
|
|
(89,816
|
)
|
|
|
828,246
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(28,824
|
)
|
|
|
1,232
|
|
|
|
(30,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
2,001,244
|
|
|
$
|
1,393,514
|
|
|
$
|
607,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed above, one of the primary sources of our liquidity
is our ability to generate positive cash flows from operations.
The following is a discussion of the primary sources and uses of
cash in our operating, investing and financing activities:
Our operating activities provided us with $546.1 million of
cash during the nine months ended September 30, 2009, an
$80.1 million, or 13%, decrease from the same period in
2008. The decrease in cash generated from operating activities
was primarily due to the effect of depreciating foreign
currencies in the markets where we do business on the value of
our cash balances reported in U.S. dollars and increased
cash used for working capital primarily due to growth in our
operations.
We used $497.7 million of cash in our investing activities
during the nine months ended September 30, 2009, a
$16.5 million decrease from the same period in 2008,
primarily due to a $156.9 million decrease in cash capital
expenditures and a $43.7 million increase in distributions
we received in connection with our investment in an enhanced
cash fund, partially offset by a $170.3 million increase in
short-term investments purchased in Brazil. Cash capital
expenditures decreased from $657.8 million during the nine
months ended September 30, 2008, to $500.9 million in
the same period in 2009 as a result of our decision to limit our
investments in some of our markets in response to the economic
conditions in those markets. For the nine months ended
September 30, 2009, about 59% of our total capital
expenditures were focused in Brazil in connection with the
implementation of our expansion plans. In addition, during the
nine months ended September 30, 2009, our total capital
expenditures included $78.0 million related to investments
in our new network in Peru.
Our financing activities provided us with $738.4 million
during the nine months ended September 30, 2009, primarily
due to $762.5 million in cash we received in connection
with the issuance of our 10.0% senior notes and
$41.4 million in short-term borrowings in Brazil, partially
offset by $44.3 million in repayments under
Nextel Mexico and Nextel Brazils syndicated loan
facilities and $18.0 million in repayments under short-term
notes payable in Peru. We used $89.8 million of cash in our
financing activities during the nine months ended September 30
2008, primarily due to $242.7 million in cash we used to
purchase our common stock and $31.9 million in repayments
under Nextel Mexicos syndicated loan facility, partially
offset by $125.0 million in borrowings under Nextel
Brazils syndicated loan facility, $33.8 million in
proceeds we received from the exercise of stock options by our
employees and $27.3 million in proceeds from our towers
financing transactions in Mexico and Brazil.
Future
Capital Needs and Resources
Capital Resources. Our ongoing capital
resources depend on a variety of factors, including our existing
cash and cash equivalents balances, the value of our short-term
investments, cash flows generated by our operating companies and
external financing sources that may be available.
48
Our ability to generate net cash from our operating activities
is dependent upon, among other things:
|
|
|
|
|
the amount of revenue we are able to generate and collect from
our customers;
|
|
|
|
the amount of operating expenses required to provide our
services;
|
|
|
|
the cost of acquiring and retaining customers, including the
commissions we pay in connection with the acquisition of new
customers and the subsidies we incur to provide handsets to both
our new and existing customers;
|
|
|
|
our ability to continue to increase the size of our subscriber
base; and
|
|
|
|
fluctuations in foreign currency exchange rates.
|
Capital Needs and Contractual
Obligations. We currently anticipate that our
future capital needs will principally consist of funds required
for:
|
|
|
|
|
operating expenses relating to our business;
|
|
|
|
capital expenditures to expand and enhance our networks, as
discussed below under Capital Expenditures;
|
|
|
|
operating and capital expenditures related to the deployment of
next generation networks in Peru and Chile;
|
|
|
|
the costs relating to any future spectrum purchases;
|
|
|
|
operating expenses and capital expenditures related to the
deployment of next generation networks in our other markets if
we are successful in acquiring spectrum;
|
|
|
|
debt service requirements, including tower financing and capital
lease obligations;
|
|
|
|
cash taxes; and
|
|
|
|
other general corporate expenditures.
|
The following table sets forth the amounts and timing of
contractual payments for our most significant contractual
obligations determined as of September 30, 2009. The
information in the table reflects future unconditional payments
and is based upon, among other things, the current terms of the
relevant agreements, appropriate classification of items under
accounting principles generally accepted in the United States
that are currently in effect and certain assumptions, such as
future interest rates. Future events could cause actual payments
to differ significantly from these amounts. See Forward
Looking Statements. Except as required by law, we disclaim
any obligation to modify or update the information contained in
the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
Contractual Obligations
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Convertible notes(1)
|
|
$
|
397,125
|
|
|
$
|
1,275,000
|
|
|
$
|
|
|
|
$
|
23
|
|
|
$
|
1,672,148
|
|
Senior notes(1)
|
|
|
80,040
|
|
|
|
160,000
|
|
|
|
160,000
|
|
|
|
960,000
|
|
|
|
1,360,040
|
|
Tower financing obligations(1)
|
|
|
56,324
|
|
|
|
112,631
|
|
|
|
112,602
|
|
|
|
270,839
|
|
|
|
552,396
|
|
Syndicated loan facilities(2)
|
|
|
117,119
|
|
|
|
329,937
|
|
|
|
35,320
|
|
|
|
2,060
|
|
|
|
484,436
|
|
Capital lease obligations(3)
|
|
|
37,349
|
|
|
|
23,818
|
|
|
|
23,818
|
|
|
|
84,592
|
|
|
|
169,577
|
|
Spectrum fees(4)
|
|
|
17,458
|
|
|
|
34,916
|
|
|
|
34,916
|
|
|
|
192,926
|
|
|
|
280,216
|
|
Operating leases(5)
|
|
|
235,896
|
|
|
|
426,299
|
|
|
|
360,876
|
|
|
|
589,206
|
|
|
|
1,612,277
|
|
Purchase obligations(6)
|
|
|
561,292
|
|
|
|
63,214
|
|
|
|
10,384
|
|
|
|
11,893
|
|
|
|
646,783
|
|
Brazil import financing(7)
|
|
|
65,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,934
|
|
Brazil credit paper(8)
|
|
|
38,701
|
|
|
|
11,401
|
|
|
|
|
|
|
|
|
|
|
|
50,102
|
|
Other long-term obligations(9)
|
|
|
26,106
|
|
|
|
24,980
|
|
|
|
38,919
|
|
|
|
193,373
|
|
|
|
283,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual commitments
|
|
$
|
1,633,344
|
|
|
$
|
2,462,196
|
|
|
$
|
776,835
|
|
|
$
|
2,304,912
|
|
|
$
|
7,177,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts include estimated principal and interest payments
over the full term of the obligation based on our expectations
as to future interest rates, assuming the current payment
schedule. In accordance with the |
49
|
|
|
|
|
terms of our 2.75% convertible notes, if the notes are not
converted, the noteholders have the right to require us to
repurchase the notes in August 2010 at a repurchase price equal
to 100% of their principal amount plus accrued and unpaid
interest. Based on current market conditions, as well as the
effective conversion price and trading prices of our 2.75%
convertible notes, we believe that the noteholders will require
us to repurchase our 2.75% convertible notes. As a result, the
$350.0 million repayment of the principal balance of our
2.75% convertible notes due 2025 is included in the table above
in the column labeled Less than 1 Year. |
|
(2) |
|
These amounts include principal and interest payments associated
with Nextel Mexico and Nextel Brazils syndicated loan
facilities. |
|
(3) |
|
These amounts represent principal and interest payments due
under our co-location agreements, including with American Tower,
and our existing corporate aircraft lease. The amounts related
to our existing aircraft lease exclude amounts that are
contingently due in the event of our default under the lease,
but do include remaining amounts due under the letter of credit
provided for our new corporate aircraft. |
|
(4) |
|
These amounts do not include variable fees based on certain
operating revenues and are subject to increases in the Mexican
Consumer Pricing Index. |
|
(5) |
|
These amounts principally include future lease costs related to
our transmitter and receiver sites and switches and office
facilities. |
|
(6) |
|
These amounts include maximum contractual purchase obligations
under various agreements with our vendors, as well as estimated
amounts related to interconnection agreements in Mexico. |
|
(7) |
|
This amount represents principal and interest payments due under
our import financing agreements with several Brazilian banks. |
|
(8) |
|
These amounts represent principal and interest payments due
under our working capital loans with a Brazilian bank. |
|
(9) |
|
These amounts include our current estimates of asset retirement
obligations based on our expectations as to future retirement
costs, inflation rates and timing of retirements, as well as
amounts related to our uncertain income tax positions. |
We entered into an agreement with Motorola during 2006, which
requires us to purchase a certain amount of handsets each year
through December 31, 2011. Prices for handsets that will be
purchased in years subsequent to 2009 were not stipulated in the
agreement as they will be negotiated annually. As a result, we
are not able to quantify the dollar amount of minimum purchases
required under this agreement for years subsequent to 2009, and
therefore, they are not included in the table above.
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$559.7 million for the nine months ended September 30,
2009 and $642.0 million for the nine months ended
September 30, 2008. In each of these years, a substantial
portion of our capital expenditures was invested in the
expansion of the coverage and capacity of our networks in Mexico
and Brazil. In addition, our total capital expenditures for the
nine months ended September 30, 2009 included
$78.0 million related to investments in our new network in
Peru. We expect to continue to focus our capital spending in
these markets, particularly in Brazil, as we significantly
expand the geographic coverage of Nextel Brazils network,
including expansion into the northeast region of the country,
and as we expand that networks capacity to support Nextel
Brazils growth. We also expect our capital expenditures in
future periods will include further investments in our new
networks being deployed in Peru and Chile.
In addition, we have participated in and plan to participate in
spectrum auctions and similar processes in our markets,
including the recently completed spectrum licensing process in
Chile and the auctions that are expected to be conducted in
Brazil and Mexico. If we are successful in acquiring spectrum in
those auctions, we plan to deploy next generation networks in
those markets consistent with applicable regulatory requirements
and our business strategy. The purchase of spectrum in these
auctions and deployment of new next generation networks would
result in a significant increase in our capital expenditures in
the applicable markets although the amount and timing of those
additional capital expenditures is dependent on, among other
things, the timing of the auctions and the nature and extent of
any regulatory requirements that may be imposed regarding the
timing and scope of the deployment of the new networks.
50
We expect to finance our capital spending for our existing and
future network needs using the most effective combination of
cash from operations, cash on hand, cash from the sale or
maturity of our short-term investments and proceeds from
external financing sources that are or may become available. Our
capital spending is expected to be driven by several factors,
including:
|
|
|
|
|
the extent to which we expand the coverage of our networks in
new or existing market areas;
|
|
|
|
the number of additional transmitter and receiver sites we build
in order to increase system capacity and maintain system quality
and the costs associated with the installation of related
switching equipment in some of our existing market areas;
|
|
|
|
the amount we spend to deploy the next generation networks in
Peru and Chile;
|
|
|
|
the costs we incur in connection with future spectrum
acquisitions and the development and deployment of any future
next generation networks in our other markets; and
|
|
|
|
the costs we incur in connection with
non-network
related information technology projects.
|
Our future capital expenditures may be affected by future
technology improvements and technology choices. For example, we
have experienced voice quality problems related to certain types
of calls made using the 6:1 voice coder technology, an upgrade
to the iDEN technology used in our mobile network, and in some
markets, we have adjusted the network software to reduce the
number of calls completed using the 6:1 voice coder technology
in order to balance our network capacity needs with the need to
maintain voice quality. Because we have not used the 6:1 voice
coder technology to its full capacity, we have invested more
capital in our infrastructure to satisfy our network capacity
needs than would have been necessary if we had been able to
complete a higher percentage of calls using the technology, and
we may make similar investments in the future as we optimize our
network to meet our capacity and voice quality requirements. If
we were to decide to significantly curtail the use of the 6:1
voice coder technology in all of our markets, these investments
could be significant. See Forward Looking Statements.
Future Outlook. We believe that our
current business plans, which contemplate significant expansion
of our iDEN network in Brazil, continued coverage and capacity
expansion of our iDEN networks in Mexico and Argentina, and the
construction of new, complementary next generation networks in
Peru and Chile, do not require us to raise additional external
funding to enable us to operate and grow our business while
servicing our debt obligations and that our current working
capital and anticipated cash flows will be adequate to meet our
cash needs to support our existing business.
Our funding needs could, however, be significantly affected by
our participation in auctions of spectrum rights and other
spectrum licensing processes in our markets including our plans
to participate in the auctions that are expected to be conducted
in Brazil and Mexico and by our plans to deploy next generation
networks in those markets if we are successful in acquiring
those spectrum rights. These plans, which are consistent with
our business strategy of providing differentiated services to
our customers, would require us to raise significant additional
funding. The amounts and timing of those additional funding
requirements would be affected by, among other things:
|
|
|
|
|
the timing of the auctions and other spectrum licensing
processes, whether we are successful in acquiring spectrum in
those auctions or processes, and the amounts paid for the
spectrum rights if we are successful;
|
|
|
|
the nature and extent of any regulatory requirements that may be
imposed regarding the timing and scope of the deployment of new
networks; and
|
|
|
|
our assessment of market conditions and their impact on both the
business opportunities supported by the new networks and the
availability of funding to support their construction.
|
We will continue to assess opportunities to raise additional
funding as market conditions permit that could be used, among
other purposes, to meet those requirements or to refinance our
existing obligations. The indebtedness that we may incur in
connection with these business expansion activities and for
refinancing may be significant.
51
In making this assessment of our funding needs under our current
plans and under our plans that contemplate the acquisition of
spectrum and the deployment of next generation networks, we have
considered:
|
|
|
|
|
cash and cash equivalents on hand and short-term-investments
available to fund our operations;
|
|
|
|
expected cash flows from operations;
|
|
|
|
the anticipated level of capital expenditures, including minimum
build-out requirements, relating to the deployment of the next
generation networks in Peru and Chile;
|
|
|
|
our expectation of the values of the currencies in the countries
in which we conduct business relative to the U.S. dollar;
|
|
|
|
our scheduled debt service; and
|
|
|
|
income taxes.
|
In addition to the factors described above, the anticipated cash
needs of our business, as well as the conclusions presented
herein as to the adequacy of the available sources of cash and
timing on our ability to generate net income, could change
significantly:
|
|
|
|
|
if our plans change;
|
|
|
|
if we decide to expand into new markets or expand our geographic
coverage or network capacity in our existing markets beyond our
current plans, as a result of the construction of additional
portions of our networks or the acquisition of competitors or
others;
|
|
|
|
if currency values in our markets depreciate further relative to
the U.S. dollar;
|
|
|
|
if economic conditions in any of our markets change generally;
|
|
|
|
if competitive practices in the mobile wireless
telecommunications industry in certain of our markets change
materially from those currently prevailing or from those now
anticipated; or
|
|
|
|
if other presently unexpected circumstances arise that have a
material effect on the cash flow or profitability of our mobile
wireless business.
|
Any of these events or circumstances could result in significant
funding needs beyond those contemplated by our current plans as
described above, and those funding needs could exceed our
currently available funding sources, which could require us to
raise additional capital to meet those needs. Our ability to
seek additional capital, if necessary, is subject to a variety
of additional factors that we cannot presently predict with
certainty, including:
|
|
|
|
|
the commercial success of our operations;
|
|
|
|
the volatility and demand of the capital markets; and
|
|
|
|
the future market prices of our securities.
|
Recent financial market conditions in debt and equity markets in
the United States and worldwide have resulted in a substantial
decline in the amount of funding available to corporate
borrowers. As a result, available funding is both more costly
and provided on terms that are less favorable to borrowers than
were previously available. If these conditions continue or
worsen, it could be difficult or more costly for us to raise
additional capital in order to meet our cash needs that result
from the factors identified above, including those that may
result from our acquisition of spectrum and deployment of next
generation networks, and the related additional costs and terms
of any financing we raise could impose restrictions that limit
our flexibility in responding to business conditions and our
ability to obtain additional financing. If new indebtedness is
added to our current levels of indebtedness, the related risks
that we now face could intensify. For more information, see
Item 1A. Risk Factors 4. Our funding needs and
debt service requirements could make us more dependent on
external financing. If we are unable to obtain financing, our
business may be adversely affected. and 5.
Our current and future debt may limit our flexibility and
increase our risk of default. in our current report on
Form 8-K
dated August 5, 2009.
52
Forward
Looking Statements
Safe Harbor Statement under the Private
Securities Litigation Reform Act of
1995. Certain statements made in this
quarterly report on
Form 10-Q
are not historical or current facts, but deal with potential
future circumstances and developments. They can be identified by
the use of forward-looking words such as believes,
expects, intends, plans,
may, will, would,
could, should or anticipates
or other comparable words, or by discussions of strategy that
involve risks and uncertainties. We caution you that these
forward-looking statements are only predictions, which are
subject to risks and uncertainties, including technical
uncertainties, financial variations and changes in the
regulatory environment, industry growth and trend predictions.
We have attempted to identify, in context, some of the factors
that we currently believe may cause actual future experience and
results to differ from our current expectations regarding the
relevant matter or subject area. The operation and results of
our wireless communications business also may be subject to the
effects of other risks and uncertainties in addition to the
other qualifying factors identified in this Item, including, but
not limited to:
|
|
|
|
|
our ability to meet the operating goals established by our
business plan;
|
|
|
|
general economic conditions in the United States or in Latin
America and in the market segments that we are targeting for our
services, including the impact of the current uncertainties in
global economic conditions;
|
|
|
|
the political and social conditions in the countries in which we
operate, including political instability, which may affect the
economies of our markets and the regulatory schemes in these
countries;
|
|
|
|
the impact of foreign exchange volatility in our markets as
compared to the U.S. dollar and related currency
depreciation in countries in which our operating companies
conduct business;
|
|
|
|
our ability to access sufficient debt or equity capital to meet
any future operating and financial needs, including the impact
of the recent disruption in global capital markets that have
made it more difficult or costly to obtain funding on acceptable
terms;
|
|
|
|
reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of digital two-way mobile data or Internet
connectivity services in our markets;
|
|
|
|
the availability of adequate quantities of system infrastructure
and subscriber equipment and components at reasonable pricing to
meet our service deployment and marketing plans and customer
demand;
|
|
|
|
Motorolas ability and willingness to provide handsets and
related equipment and software applications or to develop new
technologies or features for us, including the timely
development and availability of new handsets with expanded
applications and features;
|
|
|
|
the risk of deploying new technologies, including the potential
need for additional funding to support that deployment, the risk
that new services supported by the new technology will not
attract enough subscribers to support the related costs of
deploying or operating the new technology, the need to
significantly increase our employee base and the potential
distraction of management;
|
|
|
|
our ability to successfully scale our billing, collection,
customer care and similar back-office operations to keep pace
with customer growth, increased system usage rates and growth or
to successfully deploy new systems that support those functions;
|
|
|
|
the success of efforts to improve and satisfactorily address any
issues relating to our network performance;
|
|
|
|
future legislation or regulatory actions relating to our
specialized mobile radio, or SMR, services, other wireless
communication services or telecommunications generally;
|
|
|
|
the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our network business;
|
|
|
|
the quality and price of similar or comparable wireless
communications services offered or to be offered by our
competitors, including providers of cellular services and
personal communications services;
|
|
|
|
market acceptance of our new service offerings; and
|
|
|
|
other risks and uncertainties described in our current report on
Form 8-K
dated August 5, 2009 and from time to time in our other
reports filed with the Securities and Exchange Commission.
|
53
Effect of
New Accounting Standards
In October 2009, the FASB updated its authoritative guidance for
accounting for multiple deliverable revenue arrangements. The
new guidance revises the criteria used to determine the separate
units of accounting in a multiple deliverable arrangement and
requires that total consideration received under the arrangement
be allocated over the separate units of accounting based on
their relative selling prices. This guidance also clarifies the
methodology used in determining our best estimate of the selling
price used in this allocation. The applicable revenue
recognition criteria will be considered separately for the
separate units of accounting. The updated authoritative guidance
will be effective and shall be applied on a prospective basis
for fiscal years beginning after June 15, 2010. Early
adoption is permitted but must be applied on a retroactive
basis. We are currently evaluating the potential impact, if any,
that the adoption of this guidance will have on our condensed
consolidated financial statements.
In September 2009, the FASB issued new authoritative guidance on
estimating the fair value of certain investments that calculate
a net asset value per share or its equivalent. Under certain
circumstances, an entity may measure the fair value of certain
investments based on the calculated net asset value. This
guidance will be effective for reporting periods ending after
December 15, 2009. We do not expect the adoption of this
guidance will have a material impact on our condensed
consolidated financial statements.
In August 2009, the FASB issued new authoritative guidance on
the measurement and disclosure of the fair value of liabilities,
and clarifies the valuation methodologies that may be used when
a quoted market price in an active market for an identical
liability is not available. This guidance will be effective in
the first reporting period beginning after August 26, 2009.
We do not expect the adoption of this guidance to have a
material impact on our condensed consolidated financial
statements.
In June 2009, the FASB updated its authoritative guidance on the
consolidation of variable interest entities, or VIEs, to require
an ongoing qualitative assessment to determine the primary
beneficiary of the variable interest arrangement. This guidance
also amends the circumstances that would require a reassessment
of whether an entity in which we had a variable interest
qualifies as a VIE and would be subject to the consolidation
guidance in this standard. The updated authoritative guidance
will be effective for fiscal years beginning after
November 15, 2009. We are currently evaluating the
potential impact, if any, that the adoption of this guidance
will have on our condensed consolidated financial statements.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Our revenues are primarily denominated in foreign currencies,
while a significant portion of our operations are financed in
U.S. dollars through our convertible notes, our senior
notes, a portion of our syndicated loan facility in Mexico and
our syndicated loan facility in Brazil. As a result,
fluctuations in exchange rates relative to the U.S. dollar
expose us to foreign currency exchange risks. These risks
include the impact of translating our local currency reported
earnings into U.S. dollars when the U.S. dollar
strengthens against the local currencies of our foreign
operations. In addition, Nextel Mexico, Nextel Brazil, Nextel
Argentina and Nextel Chile pay the purchase price for some
capital assets and the majority of handsets in
U.S. dollars, but generate revenue from their operations in
local currency.
We occasionally enter into derivative transactions for hedging
or risk management purposes. We have not and will not enter into
any derivative transactions for speculative or profit generating
purposes. During 2009, Nextel Mexico entered into a hedge
agreement to manage foreign currency risk on certain forecasted
transactions. The value of this instrument is not material.
Interest rate changes expose our fixed rate long-term borrowings
to changes in fair value and expose our variable rate long-term
borrowings to changes in future cash flows. Nextel Mexico has
entered into interest rate swap agreements to hedge its exposure
to interest rate risk. The values of these instruments are not
material. As of September 30, 2009, $2,738.3 million,
or 86%, of our total consolidated debt was fixed rate debt, and
the remaining $446.4 million, or 14%, of our total
consolidated debt was variable rate debt, $161.9 million of
which is hedged through interest rate swap agreements.
54
The table below presents principal amounts, related interest
rates by year of maturity and aggregate amounts as of
September 30, 2009 for our fixed rate debt obligations,
including our convertible notes, our senior notes, our
syndicated loan facilities in Mexico and Brazil, our tower
financing obligations and our interest rate swap, as well as the
notional amounts of our purchased call options and written put
options, all of which have been determined at their fair values.
In accordance with the terms of our 2.75% convertible notes, if
the notes are not converted, the noteholders have the right to
require us to repurchase the notes in August 2010 at a
repurchase price equal to 100% of their principal amount plus
accrued and unpaid interest. As a result, the
$350.0 million repayment of the principal balance of our
2.75% convertible notes due 2025 is included in the table below
in the column labeled 1 Year.
The changes in the fair values of our consolidated debt compared
to their fair values as of December 31, 2008 reflect
changes in applicable market conditions during the first nine
months of 2009. All of the information in the table is presented
in U.S. dollar equivalents, which is our reporting
currency. The actual cash flows associated with our consolidated
long-term debt are denominated in U.S. dollars (US$),
Mexican pesos (MP) and Brazilian reais (BR).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
1 Year
|
|
|
2 Years
|
|
|
3 Years
|
|
|
4 Years
|
|
|
5 Years
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate (US$)
|
|
$
|
439,498
|
|
|
$
|
2,612
|
|
|
$
|
1,202,612
|
|
|
$
|
2,612
|
|
|
$
|
2,612
|
|
|
$
|
800,023
|
|
|
$
|
2,449,969
|
|
|
$
|
2,310,844
|
|
|
$
|
1,579,600
|
|
|
$
|
1,066,131
|
|
Average Interest Rate
|
|
|
3.7
|
%
|
|
|
7.3
|
%
|
|
|
3.1
|
%
|
|
|
7.3
|
%
|
|
|
7.3
|
%
|
|
|
10.0
|
%
|
|
|
5.5
|
%
|
|
|
|
|
|
|
3.2
|
%
|
|
|
|
|
Fixed Rate (MP)
|
|
$
|
19,861
|
|
|
$
|
6,025
|
|
|
$
|
7,098
|
|
|
$
|
8,373
|
|
|
$
|
9,889
|
|
|
$
|
89,961
|
|
|
$
|
141,207
|
|
|
$
|
84,190
|
|
|
$
|
158,104
|
|
|
$
|
95,870
|
|
Average Interest Rate
|
|
|
12.5
|
%
|
|
|
15.8
|
%
|
|
|
15.8
|
%
|
|
|
15.8
|
%
|
|
|
15.8
|
%
|
|
|
15.7
|
%
|
|
|
15.4
|
%
|
|
|
|
|
|
|
14.7
|
%
|
|
|
|
|
Fixed Rate (BR)
|
|
$
|
37,880
|
|
|
$
|
16,259
|
|
|
$
|
5,954
|
|
|
$
|
7,214
|
|
|
$
|
7,288
|
|
|
$
|
72,566
|
|
|
$
|
147,161
|
|
|
$
|
93,313
|
|
|
$
|
77,924
|
|
|
$
|
38,414
|
|
Average Interest Rate
|
|
|
14.2
|
%
|
|
|
15.6
|
%
|
|
|
20.9
|
%
|
|
|
21.5
|
%
|
|
|
24.2
|
%
|
|
|
23.5
|
%
|
|
|
20.1
|
%
|
|
|
|
|
|
|
23.2
|
%
|
|
|
|
|
Variable Rate (US$)
|
|
$
|
81,039
|
|
|
$
|
237,639
|
|
|
$
|
81,039
|
|
|
$
|
26,396
|
|
|
$
|
8,182
|
|
|
$
|
2,045
|
|
|
$
|
436,340
|
|
|
$
|
423,738
|
|
|
$
|
456,600
|
|
|
$
|
408,776
|
|
Average Interest Rate
|
|
|
2.1
|
%
|
|
|
2.3
|
%
|
|
|
2.1
|
%
|
|
|
2.1
|
%
|
|
|
2.1
|
%
|
|
|
2.1
|
%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
2.9
|
%
|
|
|
|
|
Variable Rate (MP)
|
|
$
|
10,058
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,058
|
|
|
$
|
10,034
|
|
|
$
|
20,066
|
|
|
$
|
19,372
|
|
Average Interest Rate
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
9.0
|
%
|
|
|
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
|
|
$
|
5,315
|
|
|
$
|
156,600
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
161,915
|
|
|
$
|
(1,567
|
)
|
|
$
|
13,301
|
|
|
$
|
(124
|
)
|
Average Pay Rate
|
|
|
10.8
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
10.8
|
%
|
|
|
|
|
Average Receive Rate
|
|
|
7.0
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
9.0
|
%
|
|
|
|
|
Foreign Currency Exchange Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
$
|
86,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
86,000
|
|
|
$
|
679
|
|
|
$
|
|
|
|
$
|
|
|
Average Strike Price
|
|
$
|
0.07 0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.07 -- 0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 4.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods required by the Securities and
Exchange Commission and that such information is accumulated and
communicated to the Companys management, including our
chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
As of September 30, 2009, an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures was carried out under the supervision
and with the participation of our management teams in the United
States and in our operating companies, including our chief
executive officer and chief financial officer. Based on and as
of the date of such evaluation, our chief executive officer and
chief financial officer concluded that the design and operation
of our disclosure controls and procedures were effective.
Changes
in Internal Control over Financial Reporting
During the third quarter of 2009, we completed an upgrade of the
customer billing system in our Mexican subsidiary. There have
been no other changes in the Companys internal control
over financial reporting during the most recently completed
fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Companys internal control
over financial reporting.
55
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings.
|
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
For information on our various loss contingencies, see
Note 6 to our condensed consolidated financial statements
above.
There have been no material changes in our risk factors from
those disclosed in our current report on
Form 8-K
dated August 5, 2009.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
4
|
.1
|
|
Indenture, dated August 18, 2009, among NII Capital Corp.,
NII Holdings, Inc., Airfone Holdings, Inc., McCaw International
(Brazil), Ltd., Nextel International (Services), Ltd., Nextel
International (Uruguay), Inc., NII Aviation, Inc., NII Mercosur,
LLC, and NII Funding Corp., and Wilmington Trust Company
(incorporated by reference to Exhibit 4.1 to NII
Holdings
Form 8-K,
filed August 18, 2009).
|
|
4
|
.2
|
|
Registration Rights Agreement, dated August 18, 2009, among
NII Capital Corp., NII Holdings, Inc., Airfone Holdings, Inc.,
McCaw International (Brazil), Ltd., Nextel International
(Services), Ltd., Nextel International (Uruguay), Inc., NII
Aviation, Inc., NII Mercosur, LLC, and NII Funding Corp., and
Morgan Stanley & Co. Incorporated and J.P. Morgan
Securities, Inc. (incorporated by reference to Exhibit 4.2
to NII Holdings
Form 8-K,
filed August 18, 2009).
|
|
10
|
.1
|
|
Purchase Agreement, dated August 13, 2009, among NII
Capital Corp., NII Holdings, Inc., Airfone Holdings, Inc., McCaw
International (Brazil), Ltd., Nextel International (Services),
Ltd., Nextel International (Uruguay), Inc., NII Aviation,
Inc., NII Mercosur, LLC, and NII Funding Corp., and Morgan
Stanley & Co. Incorporated and J.P. Morgan
Securities, Inc. (incorporated by reference to Exhibit 10.1
to NII Holdings
Form 8-K,
filed August 18, 2009).
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
101
|
|
|
The following materials from the NII Holdings, Inc. Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2009 formatted in
eXtensible Business Reporting Language (XBRL):
(i) Condensed Consolidated Balance Sheets,
(ii) Condensed Consolidated Statements of Operations and
Comprehensive Income, (iii) Condensed Consolidated
Statement of Changes in Stockholders Equity,
(iv) Condensed Consolidated Statements of Cash Flows and
(v) Notes to Condensed Consolidated Financial Statements.*
|
|
|
|
* |
|
Submitted electronically herewith. |
56
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
By:
|
/s/ CATHERINE
E. NEEL
|
Catherine E. Neel
Vice President and Controller
(on behalf of the registrant and as
chief accounting officer)
Date: November 4, 2009
57
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
4
|
.1
|
|
Indenture, dated August 18, 2009, among NII Capital Corp.,
NII Holdings, Inc., Airfone Holdings, Inc., McCaw International
(Brazil), Ltd., Nextel International (Services), Ltd., Nextel
International (Uruguay), Inc., NII Aviation, Inc., NII Mercosur,
LLC, and NII Funding Corp., and Wilmington Trust Company
(incorporated by reference to Exhibit 4.1 to NII
Holdings
Form 8-K,
filed August 18, 2009).
|
|
4
|
.2
|
|
Registration Rights Agreement, dated August 18, 2009, among
NII Capital Corp., NII Holdings, Inc., Airfone Holdings, Inc.,
McCaw International (Brazil), Ltd., Nextel International
(Services), Ltd., Nextel International (Uruguay), Inc., NII
Aviation, Inc., NII Mercosur, LLC, and NII Funding Corp., and
Morgan Stanley & Co. Incorporated and J.P. Morgan
Securities, Inc. (incorporated by reference to Exhibit 4.2
to NII Holdings
Form 8-K,
filed August 18, 2009).
|
|
10
|
.1
|
|
Purchase Agreement, dated August 13, 2009, among NII
Capital Corp., NII Holdings, Inc., Airfone Holdings, Inc., McCaw
International (Brazil), Ltd., Nextel International (Services),
Ltd., Nextel International (Uruguay), Inc., NII Aviation,
Inc., NII Mercosur, LLC, and NII Funding Corp., and Morgan
Stanley & Co. Incorporated and J.P. Morgan
Securities, Inc. (incorporated by reference to Exhibit 10.1
to NII Holdings
Form 8-K,
filed August 18, 2009).
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
101
|
|
|
The following materials from the NII Holdings, Inc. Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2009 formatted in
eXtensible Business Reporting Language (XBRL):
(i) Condensed Consolidated Balance Sheets,
(ii) Condensed Consolidated Statements of Operations and
Comprehensive Income, (iii) Condensed Consolidated
Statement of Changes in Stockholders Equity,
(iv) Condensed Consolidated Statements of Cash Flows and
(v) Notes to Condensed Consolidated Financial Statements.*
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Submitted electronically herewith. |
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