e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
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THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
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
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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
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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
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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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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Registrants telephone number,
including area code:
(703) 390-5100
Securities registered pursuant
to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.001 per share
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The Nasdaq Stock Market
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Securities registered pursuant to
Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. 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
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Smaller reporting
company o
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(Do not check if a
smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of
June 30, 2009: $3,157,959,714
Indicate the number of shares outstanding of each of the
registrants 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 February 18, 2010
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Common Stock, $0.001 par value per share
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166,740,066
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Documents
Incorporated by Reference
Portions of the registrants Proxy Statement for the 2010
Annual Meeting of Stockholders are incorporated by reference
into Part III hereof.
NII
HOLDINGS, INC.
TABLE OF
CONTENTS
1
PART I
Overview
We were originally organized in 1995 as a holding company for
the operations of Nextel Communications, Inc. in selected
international markets. The corporation that is currently known
as NII Holdings, Inc. was incorporated in Delaware in 2000 as
Nextel International, Inc. In December 2001, we changed our name
from Nextel International, Inc. to NII Holdings, Inc. Unless the
context requires otherwise, NII Holdings, Inc.,
NII Holdings, we, our,
us and the Company refer to the combined
businesses of NII Holdings, Inc. and its consolidated
subsidiaries. We refer to our operating companies by the
countries in which they operate, such as Nextel Mexico, Nextel
Brazil, Nextel Argentina, Nextel Peru and Nextel Chile. For
financial information about our operating companies, see
Note 11 to our consolidated financial statements included
at the end of this annual report on
Form 10-K.
Except as otherwise indicated, all amounts are expressed in
U.S. dollars and references to dollars and
$ are to U.S. dollars. All historical financial
statements contained in this report are prepared in accordance
with accounting principles generally accepted in the United
States.
Our principal executive office is located at 1875 Explorer
Street, Suite 1000, Reston, Virginia 20190. Our telephone
number at that location is
(703) 390-5100.
Our
Networks, Services and Markets
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 under the
NextelTM
brand through operating companies located in selected Latin
American markets, 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 mobile services on 800 MHz spectrum holdings
in all of our markets. This technology, which is the only
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:
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mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
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Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a
push-to-talk
basis, for private
one-to-one
calls or group calls;
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International Direct
Connect®
service, together with Sprint Nextel 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 subscribers using
compatible handsets in the United States and with TELUS
subscribers using compatible handsets in Canada;
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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
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international roaming services.
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2
We currently provide services in the three largest metropolitan
areas in each of Mexico, Brazil, Argentina, Peru and Chile, as
well as in various other cities in each of these countries.
As illustrated in the table below, as of December 31, 2009,
our operating companies had a total of about 7.39 million
handsets in commercial service, an increase of 1.19 million
from the 6.20 million handsets in commercial service as of
December 31, 2008. For purposes of the table, handsets in
commercial service represent all handsets with active customer
accounts on our mobile networks in each of the listed countries.
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Handsets
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in Commercial
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Service
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As of December 31,
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Country
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2009
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2008
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(in thousands)
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Mexico
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2,987
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2,726
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Brazil
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2,483
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1,812
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Argentina
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1,030
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967
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Peru
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841
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669
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Chile
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44
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26
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Total
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7,385
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6,200
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We have also acquired licenses of spectrum outside the
800 MHz band in Peru and Chile that can be used to support
other wireless technologies in the future. We intend to use that
spectrum to support the deployment of a new third generation
network that utilizes WCDMA technology. Nextel Peru launched
third generation service in December 2009, and Nextel Chile is
currently in the process of constructing its third generation
network. Nextel Chile expects to begin providing third
generation service offerings in 2011.
Strategy
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. Our strategy for
achieving that goal is based on several core principles,
including focusing on major business centers in key Latin
American markets, targeting high value customers, providing
differentiated services and delivering superior customer service.
We intend to operate our business with a focus on generating
growth in operating income and cash flow over the long term and
enhancing our profitability by attracting and retaining high
value wireless subscribers while maintaining appropriate
controls on costs. To support this goal, 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 balancing growth and profitability regardless of the
competitive landscape. We may also explore 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 and other devices offered and
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
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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. To address the competitive
pressures we face in some of our markets, we have:
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added cell sites to improve network performance and expand the
coverage and capacity of our networks, with much of that
coverage expansion focused in Brazil and Mexico;
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launched commercial campaigns offering handsets to new and
existing customers at a lower cost and offering service plans
with prices and terms that are more competitive;
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implemented customer retention programs that are focused on our
high value customers;
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worked with Motorola to develop new handset models and features;
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acquired additional spectrum in some of our markets and have
deployed, or begun work on the development of, enhanced third
generation networks that will allow us to provide new service
capabilities such as high speed internet access, increased
network capacity and reduced costs for voice and data services;
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adjusted our credit policies in certain markets in an effort to
promote subscriber growth while maintaining the overall credit
quality of our customer base; and
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implemented incentives to improve third party sales
distribution, such as increasing commission rates and making
other modifications to the compensation arrangements with our
indirect sales channels in an effort to promote additional sales
through these channels.
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Our overall strategy and the competitive conditions in the
markets where we operate require that we continually improve the
coverage and capacity of our networks and the types and quality
of the services we offer. In order to do so, we must ensure that
we have sufficient radio spectrum in the geographic areas in
which we operate to support the services that we currently offer
and may offer in the future. To enhance our current service
offerings, we plan to launch third generation networks utilizing
WCMDA technology. Third generation technologies provide new
service capabilities such as high speed internet access,
increased network capacity and reduced costs for voice and data
services when compared to second generation and other previous
generation technologies. We expect that although we will
continue to focus on our current high value subscriber base, the
introduction of new handsets, service offerings and pricing
plans made possible by a third generation network may enable us
to further expand our customer base.
We have acquired spectrum in Peru and were recently assigned
preliminary rights to spectrum in Chile that we intend to use to
support the deployment of third generation networks that utilize
WCDMA technology. In addition, we expect to pursue opportunities
to acquire additional spectrum in our other markets in the
future, including through participating in the spectrum auctions
that are expected to be conducted in Brazil, Mexico and
Argentina. We also expect to assess alternate technologies that
may be deployed using this spectrum through an evaluation of the
technical performance, cost and functional capabilities of these
technologies as part of our ongoing assessment of our ability to
meet our business goals and our customers current and
future needs. Our decision whether to acquire rights to use
additional spectrum, as well as our choice of alternative
network technologies to be deployed on any spectrum we acquire,
would likely be affected by a number of factors, including:
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the types of features and services supported by the technology
and our assessment of the demand for those features and services;
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the availability and pricing of related equipment, whether that
equipment is designed to operate or can be modified to operate
on the spectrum bands we are licensed to use or that are
available for purchase in our markets, and whether other
wireless carriers are operating or plan to operate a particular
technology;
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the spectrum bands available for purchase in our markets and the
expected cost of acquiring that spectrum;
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our need to continue to support iDEN-based services for our
existing customer base either on an ongoing or transitional
basis; and
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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.
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Changes
in the Global Environment
During 2009, the global economic environment experienced
significant fluctuations, and we experienced dramatic economic
changes in our local markets. For information on how future
adverse changes in the global economic environments and the
economic environments in our local markets could affect our
business and strategy, see Item 1A. Risk
Factors 2a. Adverse changes in the economic
environment in our markets and a decline in foreign exchange
rates for currencies in our markets may adversely affect our
growth and our operating results.
Our
Products, Services and Solutions
We offer a wide range of wireless communications services and
related subscriber equipment and a variety of service plans with
different rate structures that are designed to meet the needs of
our targeted customer groups. These services and equipment have
been designed to provide innovative features that meet those
customers needs for fast and reliable voice and data
communications that allow them to conduct business quickly and
efficiently. In addition to more traditional mobile telephony
services, we offer the following services that we believe
reflect the significant points of differentiation of our
services from those offered by our competitors:
1. Nextel Direct
Connect®. One
of our key competitive differentiators is Nextel Direct Connect,
the long-range walkie-talkie service that allows communication
at the touch of one button. The Nextel Direct Connect feature
gives customers the ability to instantly set up a
conference either privately
(one-to-one)
or with a group
(one-to-many)
which allows our customers to initiate and complete
communications much more quickly than is possible using a
traditional mobile telephone call. Nextel Direct Connect service
greatly enhances the instant communication abilities of business
users within their organizations and with suppliers, vendors and
customers, and provides individuals the ability to contact
business colleagues, friends and family instantly. This unique
service is enhanced by our International Direct Connect service,
which allows our subscribers to communicate instantly across
national borders. In addition, our agreement with Sprint Nextel
Corporation allows our subscribers in all of our markets to use
Nextel Direct Connect to communicate with subscribers using
compatible handsets in the United States, and our agreement with
TELUS Corporation allows our subscribers in all of our
markets to use Nextel Direct Connect to communicate with
subscribers using compatible handsets in Canada.
In some of our markets, we also offer services that provide our
customers with instant communication capabilities in a variety
of other ways, including a
push-to-email
application that allows a user to send a streaming voice message
from his or her handset to an email recipient using our Direct
Connect feature, Direct
Talksm,
a service available on certain handsets that enables
off-network
walkie-talkie communication, and Desktop Dispatch, a service
that allows users to send Direct Connect messages between Nextel
handsets and any internet connected personal computer. In
addition, we are working with equipment suppliers to develop a
future high performance
push-to-talk
service utilizing WCDMA technology with performance
characteristics that are similar to those provided by our
current Direct Connect service.
Although a number of our competitors have launched or announced
plans to launch services that are designed to compete with
Nextel Direct Connect, we do not believe that the services that
have been deployed by our competitors to date compare favorably
with our service in terms of latency, quality, reliability or
ease of use.
2. Wireless Data Solutions and Mobile Internet
Access. We offer a variety of wireless data
solutions that are designed to help our customers increase their
productivity through the delivery of real-time information to
mobile workers anytime and anywhere, including remote
e-mail
access and mobile messaging
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services using two-way text and multimedia communication
capabilities and location based services from their handsets.
Accessible via our wireless handsets, in addition to laptop
computers and handheld computing devices, wireless data
solutions enable quick response among workers in the field and
streamline operations through faster exchanges of information to
support workforce mobility. We also design wireless business
solutions to meet the needs of specific customers based on their
industry and individualized business needs, including a wide
array of fleet and workforce management services that utilize
the unique capabilities of our data network, such as the ability
to accurately and in near real time, locate handsets using
assisted global positioning system, or A-GPS, technology.
Wireless business services are backed by customer support teams
that help customers build, distribute, and manage wireless
applications. In addition, we offer our customers always-on
connectivity to the Internet directly from their handset through
mobile Internet access, which combines the vast resources of the
Internet with convenient mobile content services. We also offer
a range of messaging services, including email, that are
available using our Blackberry devices, SMS and multimedia
messaging, or MMS, as well as additional mobile data
communications services, including the recent launch of high
speed wireless data services in Peru that are supported by data
air cards utilizing our third generation network there.
3. Handsets. We offer our voice
and data communications features and services through handsets
that incorporate Motorolas iDEN technology and offer our
unique 4-in-1 service, which includes mobile telephone service,
Nextel Direct Connect walkie-talkie service, wireless Internet
access and SMS text and multimedia messaging capabilities. We
purchase most of our handsets from Motorola, other than the
Blackberry devices, which are purchased from Research in Motion,
or RIM. Our handsets range from basic models designed to serve
the needs of customers who require basic wireless services
without sacrificing the essential features they depend upon to
do their jobs, to more advanced Blackberry devices, which, in
addition to mobile telephone services and Nextel Direct Connect
features, provide integrated access to one or multiple corporate
and personal email accounts. Our handsets offer a wide range of
features. Many handsets we offer include a built-in
speakerphone, additional line service, conference calling, a
screen that lets customers view caller ID, voice-activated
dialing for hands-free operation, a voice recorder for calls and
memos, an advanced phonebook that manages contacts and date book
tools to manage calendars and alert users of business and
personal meetings. All of our current handset offerings have
subscriber identification module, or SIM, cards, which carry
relevant authentication information and address book
information, thereby greatly easing subscribers abilities
to upgrade their handsets quickly and easily, particularly in
conjunction with our on-line web-based
back-up
tools. Many of our handsets include the ability to run
JavaTM
applications. Java enables users to create and execute a number
of mobile applications and supports a wide range of downloadable
digital media capabilities.
4. International Roaming
Services. In addition to offering subscribers
the ability to roam in areas in other countries served by our
operating companies iDEN networks and those operated by
Sprint Nextel in the United States and TELUS in Canada, we offer
a handset that is capable of roaming on networks in other
countries that operate using the global system for mobile
communications, or GSM, standard. The availability of these
services is subject to reaching agreements with the operators of
those networks. Our customers can roam in about 70 countries in
the world. We market these roaming capabilities as Roaming
International
and/or
Nextel
Worldwidesm
services.
Our
Network and Wireless Technology
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1.
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Our
iDEN Network Technology
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Our networks utilize the iDEN technology developed and designed
by Motorola. iDEN is a digital technology that is able to
operate on non-contiguous spectrum frequencies, which previously
were usable only for two-way radio calls. The iDEN technology
substantially increases the capacity of our existing spectrum
channels and permits us to utilize our current holdings of
specialized mobile radio, or SMR, spectrum more efficiently.
This increase in capacity is accomplished in two ways:
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First, our iDEN networks are capable of simultaneously carrying
up to six voice
and/or
control paths on the same frequency channel without causing
interference. Using this feature of the iDEN technology, our
two-way radio dispatch service achieves about six times
improvement over analog SMR in channel
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utilization capacity and about three times improvement over
analog SMR in channel utilization capacity for channels used for
mobile telephone service.
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Second, our networks reuse each channel many times throughout
the market area in a manner similar to that used in the cellular
industry, further improving channel utilization capacity.
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Most of the iDEN handsets that we offer are not currently
designed to roam onto non-iDEN wireless networks. Although iDEN
offers a number of advantages in relation to other technology
platforms, including the ability to operate on non-contiguous
spectrum like ours and to offer a high performance walkie-talkie
feature, unlike other wireless technologies, it is a proprietary
technology that relies solely on the efforts of Motorola and any
future licensees of this technology for product development and
innovation.
Motorola provides the iDEN infrastructure equipment and handsets
throughout our markets under agreements that set the prices we
must pay to purchase and license this equipment, as well as a
structure to develop new features and make long term
improvements to our networks. We expect Motorola to continue to
be our sole source supplier of iDEN network infrastructure
equipment and most of our handsets with the exception of
Blackberry devices, which are manufactured by RIM, and other
specialized devices, and we expect to continue to rely on
Motorola to provide us with technology improvements designed to
support new features and services and improve the quality of our
services and the efficiency of our networks. Motorola also
provides integration services in connection with the deployment
of our iDEN network elements. See
Item 1A. Risk Factors 7.
Because we rely on one supplier for equipment used in our mobile
networks, any failure of that supplier to perform could
adversely affect our operations.
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2.
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Network
Expansion and Future Technologies
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During 2009, we expanded the geographic coverage of our
networks, as well as their capacity and quality. This expansion,
which was focused primarily in our two largest operating
markets, Mexico and Brazil, was a part of our strategy to expand
our networks geographic coverage and capacity where
necessary to meet the growing demand of our customers. During
2010, we expect to continue to enhance our networks by building
additional transmitter and receiver sites to improve both our
geographic coverage and to meet the capacity needs of our
growing customer base. As we continue to balance our growth
objectives with our plans to deploy new technologies and our
goal of conserving liquidity, we expect that capital
expenditures related to our iDEN network will be at lower levels
in 2010 compared to 2009. We also expect that this reduction in
capital expenditures related to our iDEN network will be
partially offset by an increase in capital expenditures related
to the deployment of our new third generation networks in Peru
and Chile and may be further offset by potential spectrum
acquisitions and the deployment of new networks in our other
markets.
Another key component in our overall strategy to improve the
coverage and capacity of our networks and the types and quality
of the services we offer now and in the future is ensuring that
we have sufficient radio spectrum in the geographic areas in
which we operate. We have acquired spectrum in the 800 MHz
band which will support our iDEN services and have also acquired
spectrum in other bands through auctions and other means that
could be used to support other technologies in the future. The
licenses relating to the newly acquired spectrum outside the
800 MHz band generally provide for nationwide rights to
utilize a significant block of contiguous spectrum that supports
the future deployment of new network technologies and services.
We expect to continue to assess and, if appropriate, pursue
opportunities to acquire additional spectrum in our markets in
the future as part of our ongoing assessment of our ability to
meet our customers current and future needs. In that
regard, we currently plan to participate in spectrum auctions in
our markets, including auctions that are expected to be
conducted in Brazil, Mexico and Argentina. We also regularly
review alternate technologies to assess their technical
performance, cost and functional capabilities as part of our
ongoing assessment of our ability to meet our customers
current and future needs.
Network
Implementation, Design and Construction
After obtaining necessary regulatory authorizations to develop
and deploy our networks, we undertake a careful frequency
planning and system design process. Our transmitter sites are
selected on the basis of their proximity to targeted customers,
the ability to acquire and build the sites, and frequency
propagation
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characteristics. Site procurement efforts include obtaining
leases and permits and, in many cases, zoning approvals. See
Item 1A. Risk Factors 2c.
Our operating companies are subject to local laws and government
regulations in the countries in which they operate, which could
limit our growth and strategic plans and negatively impact our
financial results. The preparation of each site,
including grounding, ventilation, air conditioning and
construction, as well as the installation and optimization of
equipment, typically takes four months. Any scheduled build-out
or expansion may be delayed due to typical permitting,
construction and other delays. These delays can affect the
quality or coverage of our services.
Sales and
Distribution and Customer Care
Our differentiated products and services allow us to target
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.
Our operating companies use a variety of sales channels as part
of our strategy to increase our customer base. These sales
channels may include direct sales representatives, indirect
sales agents, Nextel stores and other customer convenient sales
channels such as web sales. Each of our operating companies is
continuously optimizing the mix of sales channels to take into
consideration the methods that best meet local customer
preferences and facilitate our overall strategy of attracting
and retaining customers in our targeted groups.
Our operating companies employ direct sales representatives who
market our services directly to potential and existing
customers. The focus of our direct sales force is primarily on
businesses that value our industry expertise and differentiated
services, as well as our ability to develop tailored custom
communications capabilities that meet the specific needs of
these customers.
Our operating companies also utilize indirect sales agents,
which mainly consist of local and national non-affiliated
dealers. Dealers are independent contractors that solicit
customers for our service and are generally paid through
commissions. Dealers participate with our operating
companies direct sales forces in varying degrees in
pursuing each of our targeted customer groups.
Our sales channels in some of our markets also include
distribution through customer-convenient channels, including
telesales and sales through our Nextel retail stores, shopping
center kiosks and other locations. In some of our markets, we
utilize our website as a marketing tool that allows customers to
compare our various rate plans and research the suite of our
products and services, including handsets, accessories and
special promotions.
Our customer care organization works to improve our
customers experience, with the goal of retaining
subscribers of our wireless services. We believe that the
customer support provided by our customer care organization has
allowed us to achieve higher customer loyalty rates that are
superior to those of many of our competitors and has provided us
with a key competitive advantage.
Marketing
Our operating companies primarily market their wireless
communications services to targeted customer groups that utilize
our services in their businesses and to individuals that have
medium to high usage patterns, all of whom value our
multi-function handsets and our high level of customer service.
These targeted groups include companies with mobile work forces
that often need to provide their personnel with the ability to
communicate directly with one another. To meet the needs of
these customers, we offer a package of services and features
that combines multiple communications services in one handset,
including Nextel Direct Connect and International Direct Connect
services, which allow our customers to avoid the long distance
and roaming charges that our competitors may charge for long
distance and international long distance communications.
We offer a variety of pricing options and plans, including plans
designed specifically for our targeted base of customers. In
most instances, our services are sold on a postpaid basis
pursuant to a service contract, typically for periods of one to
two years, with services billed on a monthly basis according to
the applicable pricing plan. In some markets, we offer prepaid
services as a means to attract customers within our targeted
base who may not meet our customer credit policies, who prefer
the flexibility of paying for their service in
8
advance, or who want to purchase certain services, such as
wireless data services, on a prepaid basis as an add-on service
to their postpaid contract.
Although we market our services using traditional print and
television advertising, we also provide exposure to our brand
and wireless services through various sponsorships. The goal of
these initiatives, together with our other marketing
initiatives, is to increase brand awareness in our targeted
customer base.
Competition
The Latin American mobile communications industry has undergone
significant growth in recent years. We believe that the wireless
communications industry has been and will continue to be
characterized by intense competition on the basis of price, the
types of services offered, variety, features and pricing of
handsets and quality of service.
In the countries in which we operate, there are principally two
other multinational providers of mobile wireless voice
communications with whom we compete:
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America Movil, which has the largest wireless market share in
Mexico and operates in Brazil, Argentina, Peru and
Chile; and
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Telefonica Moviles, which has wireless operations throughout
Mexico, Argentina, Peru and Chile, and is a joint controlling
shareholder of Vivo, the largest wireless operator in Brazil.
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We also compete with regional or national providers of mobile
wireless voice communications, such as Telemars Oi and
Telecom Italia Mobile, or TIM, in Brazil and Argentina, Entel in
Chile and Iusacell in Mexico.
New licenses for spectrum that will support the deployment of
networks by new wireless competitors, as well as the competitors
listed above, may also be auctioned by governments in markets in
which we operate. For example, the auction of spectrum in Mexico
that is expected to occur in the first half of 2010 is
structured to make spectrum available both to existing wireless
operators and to new entrants to the market. Many of our
existing competitors have a larger spectrum position than ours
and have greater coverage areas
and/or name
recognition than we do, making it easier for them to expand into
new markets and offer new products and services. Our existing
competitors typically have more extensive distribution channels
than ours or are able to acquire subscribers at a lower cost
than we can, and most of them have launched networks that
utilize a third generation technology, which incorporates high
speed internet access and video telephony into an existing
network. We expect that third generation technologies and future
deployments of new or upgraded technology will support
additional services competitive with those available on our
networks including, potentially, services that are competitive
with our Direct Connect service. Additionally, some competitors
operate in the wireline business, which allows them to offer a
bundle of wireline voice, high speed internet and wireless
services to their customers.
We compete with other communications services providers,
including other wireless communications companies and wireline
telephone companies, based primarily on our differentiated
wireless service offerings and products, principally our Direct
Connect service, including International Direct Connect. We also
believe that we differentiate ourselves from our competition by
focusing on the quality of our customer care and service, which
is an important component of our strategy to attract and retain
customers within our targeted customer groups. Historically, our
largest competitors have focused their marketing efforts
primarily on retail customers who purchase prepaid services
largely on the basis of price rather than quality of service,
but recently, those competitors have placed more emphasis on
attracting postpaid customers, which are considered the premium
customer segment in our markets because they typically generate
higher average monthly revenue per subscriber. With this shift
in focus, some of our largest competitors have recently begun to
concentrate on enhancing their customer service and customer
care functions, which may minimize the value of this point of
differentiation and enable those competitors to compete more
effectively with us. Although pricing is an increasingly
important factor in potential customers purchase
decisions, we believe that our targeted customers are also
likely to base their purchase decisions on quality of service
and the availability of differentiated features and services
that make it easier for them to communicate quickly and
efficiently.
9
Increased price competition in the customer segments we target
could require us to decrease prices or increase service and
product offerings, which would lower our revenues, increase our
costs or both.
Many of our competitors are owned by or affiliated with large
multinational communications companies. As a result, these
competitors have substantially greater financial resources than
we do, which allows them to spend substantially more than we do
in their advertising/brand awareness campaigns and may enable
them to reduce prices in an effort to gain market share. These
competitors may also use those resources to deploy new services
that could impact our ability to attract or retain customers.
Because the iDEN technology has been adopted by fewer carriers
worldwide and does not benefit from the scale of other more
widely adopted technologies, the cost of our handsets tends to
be higher relative to the comparable handsets offered by our
competitors. As a result, we must absorb a comparatively larger
part of the cost of offering handsets to new and existing
customers, which can place us at a competitive disadvantage with
respect to the pricing of our handsets and our ability to offer
new handsets at discounted prices as an incentive to retain our
existing customers. In recent years, the prices we have been
able to charge for our handsets and services have declined as a
result of intensified competition in many of our markets,
including as a result of the introduction by our competitors of
aggressive pricing promotions, such as plans that allow shared
minutes between groups of callers. We expect that this trend
will continue in upcoming years. This increased competition may
also affect our ability to attract and retain customers.
For a more detailed description of the competitive factors
affecting each operating company, see the
Competition discussion for each of those operating
companies under Operating Companies.
Regulation
The licensing, construction, ownership and operation of wireless
communications systems are regulated by governmental entities in
the markets in which our operating companies conduct business.
The grant, maintenance, and renewal of applicable licenses and
radio frequency allocations are also subject to regulation. In
addition, these matters and other aspects of wireless
communications system operations, including rates charged to
customers and the resale of wireless communications services,
may be subject to public utility regulation in the jurisdiction
in which service is provided. Further, statutes and regulations
in some of the markets in which our operating companies conduct
business impose limitations on the ownership of
telecommunications companies by foreign entities. Changes in the
current regulatory environments, the interpretation or
application of current regulations, or future judicial
intervention in those countries could impact our business. These
changes may affect interconnection arrangements, requirements
for increased capital investments, prices our operating
companies are able to charge for their services, or foreign
ownership limitations, among other things. For a more detailed
description of the regulatory environment in each of the
countries in which our managed operating companies conduct
business, see the Regulatory and Legal Overview
discussion for each of those operating companies under
Operating Companies.
Foreign
Currency Controls and Dividends
In some of the countries in which we operate, the purchase and
sale of foreign currency is subject to governmental control.
Additionally, local law in some of these countries may limit the
ability of our operating companies to declare and pay dividends.
Local law may also impose a withholding tax in connection with
the payment of dividends. For a more detailed description of the
foreign currency controls and dividend limitations and taxes in
each of the countries in which our managed operating companies
conduct business, see the Foreign Currency Controls,
Dividends and Tax Regulation discussion for each of those
operating companies under Operating
Companies.
Recent
Developments
Managed Services Agreements. We
recently entered into an agreement with Nokia Siemens Networks
to manage our network operations infrastructure and a separate
agreement with Hewlett Packard to manage our information
technology infrastructure throughout Latin America. Through
these agreements, we expect to enhance the superior service
quality and customer experience our customers expect, while
simultaneously
10
reducing costs. In connection with these agreements, about 10%
of our employees are expected to transition to become employees
of these service providers. As a result, our results of
operations for the fourth quarter of 2009 reflect the impact of
$26.9 million in severance costs related to the transition
of these employees. For more information, see Note 1 to our
consolidated statements of operations.
Televisa Agreement. On
February 15, 2010, NII Holdings, Grupo Televisa, S.A.B., a
Mexican corporation, or Televisa, and our wholly-owned
subsidiaries, Nextel Mexico and Nextel International (Uruguay),
LLC, a Delaware limited liability company, entered into an
investment and securities subscription agreement pursuant to
which Televisa will acquire a 30% equity interest in Nextel
Mexico for an aggregate purchase price of $1.44 billion.
Pursuant to this investment agreement, the parties agreed to
form a consortium to participate together in an auction of
licenses authorizing the use of certain frequency bands for
wireless communication services in Mexico expected to be
conducted during the first half of 2010. Completion of the
transactions contemplated by this agreement, including the
acquisition by Televisa of the equity interest, is conditioned
upon, among other things, the consortiums success in
acquiring spectrum in the auction.
Operating
Companies
1. Mexico
Operating Company Overview. We refer to our
wholly-owned Mexican operating company, Comunicaciones Nextel de
Mexico, S.A. de C.V., as Nextel Mexico. Nextel Mexico is
headquartered in Mexico City and has many regional offices
throughout Mexico. As of December 31, 2009, Nextel Mexico
had 5,133 employees.
Nextel Mexico provides wireless services under the trade name
Nextel in major business centers, including Mexico
City, Guadalajara, Puebla, Leon, Monterrey, Toluca, Tijuana,
Torreon, Ciudad Juarez and Cancun, as well as in smaller markets
and along related transportation corridors throughout Mexico. As
of December 31, 2009, Nextel Mexico provided service to
about 2,987,400 handsets, which we estimate to be about 3.6% of
the total mobile handsets in commercial service in Mexico.
Competition. Nextel Mexicos wireless
network competes with cellular and personal communications
services system operators in all of its market areas. Nextel
Mexico competes on a nationwide basis with Radiomovil Dipsa,
S.A. de C.V., known as Telcel, which is a subsidiary of America
Movil, S.A. de C.V., an affiliate of Telefonos de Mexico, S.A.
de C.V., known as Telmex. Telcel holds spectrum and services
licenses throughout Mexico and is the largest provider of
wireless services in Mexico. Nextel Mexico also competes on a
nationwide basis with Telefonica, S.A. de C.V., which is the
second largest wireless operator in the country and offers
wireless services under the Movistar brand, and with Iusacell,
S.A. de C.V., which offers wireless services under the Iusacell
and Unefon brands.
We believe that the most important factors upon which Nextel
Mexico competes are the quality of our customer service and
network, recognition of our brand and our differentiated
services, primarily our Direct Connect service, which is
available throughout all areas where Nextel Mexico provides
service and International Direct
Connect®
service, which allows customers to communicate across national
borders with other NII Holdings customers and with Sprint Nextel
Corporation customers on compatible handsets, an important
service offering in border regions of Mexico where many
customers travel between Mexico and the United States on a
regular basis. Nextel Mexicos competitors compete
aggressively by offering reduced prices for postpaid wireless
services, offering free or significantly discounted handsets,
offering various incentives to our customers to switch service
providers, including reimbursement of cancellation fees, and
offering bundled telecommunications services that include local,
long distance and data services. Some of these offers have been
designed to target business customers, including some of Nextel
Mexicos largest accounts. In addition, all three of Nextel
Mexicos largest competitors now offer services supported
by a third generation network. Nextel Mexico addresses these
competitive actions by, among other things, offering a wider
range of handsets, offering handsets to new and existing
customers on more favorable terms and by offering more
competitive rate plans, which resulted in a decrease in our
average revenue per subscriber in Mexico during 2008 and 2009.
Notwithstanding these actions, the more intense competitive
conditions have made it more difficult for Nextel Mexico to
attract new customers and retain its existing customers.
11
Regulatory and Legal Overview. The Secretary
of Communications and Transportation of Mexico regulates the
telecommunications industry in Mexico. The Mexican
Telecommunications Commission oversees specific aspects of the
telecommunications industry on behalf of the Secretary of
Communications and Transportation.
The existing telecommunications law, which went into effect in
1995, restricts foreign ownership in telecommunications to a
maximum of 49% voting equity interest except for cellular
telephony, which has no such restriction. However, some of the
licenses held by Nextel Mexico prior to 2000 are not subject to
the 49% foreign ownership limitation as these licenses were
originally granted under the old telecommunications law that had
no limitation on foreign ownership. All of the licenses acquired
by Nextel Mexico after January 1, 2000 are held through
Inversiones Nextel de Mexico, S.A. de C.V., or Inversiones
Nextel, a corporation with a capital structure known under
applicable corporate law as neutral stock, and in
which Nextel Mexico owns approximately 99.99% of the economic
interest, but only 49% of the voting shares. The remaining 51%
of the voting shares in Inversiones Nextel, which is held by one
Mexican shareholder, is subject to a voting trust agreement and
a shareholders agreement between Nextel Mexico and this
shareholder that establish governance controls and transfer
restrictions that are designed to protect Nextel Mexicos
interests.
The current telecommunications law requires mandatory
interconnection between all telecommunication networks under
reciprocal terms and conditions when it is technically possible.
Notwithstanding the foregoing, some telecommunications companies
have had difficulty obtaining interconnection services under
reciprocal terms and conditions from other telephone operators.
Because Nextel Mexico has operated under SMR licenses in the
800 MHz band, it was not deemed a telephone operator and
has historically not been granted telephone numbers. As a
result, it was unclear whether Nextel Mexico was entitled to
reciprocal interconnection terms and conditions with wireline
and wireless public telephone networks. To ensure its access to
interconnection, Nextel Mexico entered into commercial
agreements with other local,
point-to-point
and long distance carriers such as Alestra, Avantel, Axtel,
Bestel and Telmex that provide interconnection between Nextel
Mexicos networks and the public switched telephone
network. Nextel Mexico has also executed commercial agreements
to exchange SMS traffic with Telcel, Telefonica, Iusacell and
Unefon. As of December 31, 2009, Nextel Mexico obtained
authorization for 10 of their 40 licenses to provide mobile and
fixed access services in the 800 MHz band.
In contrast, entities like Operadora de Comunicaciones, S.A. de
C.V., or Opcom, which is an indirect subsidiary of Nextel Mexico
that hold licenses to provide local fixed/mobile wireless
telephone services, are entitled to reciprocal interconnection
terms and conditions with wireline and wireless public telephone
networks. Opcom also executed
local-to-local
interconnection agreements with a number of local carriers;
local-to-mobile
interconnection agreements with Telmex, which acts as a transit
provider between all of the mobile networks in Mexico, Axtel,
Alestra, Maxcom and others, in which Opcom is considered to be
the mobile carrier; and
local-to-mobile
and
mobile-to-mobile
interconnection agreements with Telcel, Telefonica, Iusacell and
Unefon.
Under these agreements, Nextel Mexico has lowered
interconnection costs as it transitions services from providers
under its existing commercial agreements and has begun offering
new services in major cities, such as calling party pays
services, which allow customers to receive calls without
incurring related charges. Originally, Iusacell refused to allow
its subscribers to call Nextel Mexicos subscribers with an
Opcom mobile number, but since the granting of the authorization
to provide mobile and fixed access services in the 800 MHz
band, this dispute has been settled. Nextel Mexico continues to
have ongoing disputes with Telefonica that are pending before
the Mexican regulatory authorities, because Telefonica refuses
to allow its subscribers to send short messages to Nextel
Mexicos subscribers with an Opcom mobile number.
In March 2009, Inversiones Nextel, which is a direct subsidiary
of Nextel Mexico, obtained authorization from the Secretary of
Communications and Transportation to provide mobile and fixed
access services in the 800 MHz band within the Mexican
Republic, with the exception of Mexico City. Nextel Mexico
expects that authorization to provide these services in Mexico
City will be granted shortly. Inversiones is currently utilizing
Opcoms interconnection with third carriers in order to
provide service.
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As of December 31, 2009, Nextel Mexico has filed
applications to renew 31 of its SMR licenses, all of which
expired prior to their renewal. Although Nextel Mexico
subsequently received renewals of seven of the expired licenses
and expects that the remainder of these renewals will be
granted, there is no guarantee that these renewals will be
granted. If some or all of these renewals are not granted,
Nextel Mexico could experience an adverse effect on its
business. Although renewal fees are governed by Mexican federal
law, the Mexican authorities may impose a one-time renewal fee
in addition to the fees already established under federal law.
On January 6, 2010, rules surrounding the auctions for
1.9 GHz (PCS) spectrum and 1.7/2.1 (AWS) GHz spectrum were
published, and on February 15, 2010, Nextel Mexico filed to
participate in these auctions through a consortium with
Televisa, S.A. de C.V. The consortium intends to use any
spectrum it acquires during the course of these auctions to
offer third generation services. We expect the auction to be
completed during 2010.
Foreign Currency Controls, Dividends and Tax
Regulation. Because there are no foreign currency
controls in place, Mexican currency is convertible into
U.S. dollars and other foreign currency without
restrictions. Mexican companies may distribute dividends and
profits outside of Mexico if the Mexican company meets specified
distribution and legal reserve requirements. Under Mexican
corporate law, approval of a majority of stockholders attending
an ordinary stockholders meeting of a corporation is
required to pay dividends. Dividends paid out of Nextel
Mexicos accumulated taxable income are not subject to
withholding tax; a tax of up to 43% is imposed on Nextel Mexico
if it pays dividends in excess of this amount. This tax may be
creditable against Nextel Mexicos future tax liability. A
15% withholding tax applies to interest paid by Nextel Mexico to
NII or its U.S. affiliates with respect to intercompany
loans made by NII Holdings or its subsidiaries to Nextel Mexico.
On October 1, 2007, the Mexican government enacted
amendments to the Mexican tax law that became effective
January 1, 2008. The amendments established a new minimum
corporate tax, eliminated the previous minimum asset tax and
established a new withholding tax system on cash deposits in
bank accounts. The new minimum corporate tax is a supplemental
tax that superseded the previous asset tax and applies when and
to the extent the tax computed under the new minimum corporate
tax exceeds the amounts that would be payable under the existing
Mexican income tax. The new minimum corporate tax is computed on
a cash basis rather than on an accrual basis, and is calculated
based on gross revenues, with no deductions allowed for cost of
goods sold, non-taxable salaries and wages, interest expense,
depreciation, amortization, foreign currency transaction gains
and losses or existing net income tax operating losses from
prior years. For purposes of the new minimum corporate tax,
Nextel Mexico will generally deduct the value of depreciable
assets and inventory as an expense when these assets are
acquired. Certain tax credits may be available to reduce the
amount of new minimum corporate tax that is payable. Effective
January 1, 2010, the Mexican government modified the
corporate tax rate to 30% for the years 2010 through 2012, 29%
for 2013 and 28% for 2014 and subsequent years. Dividends paid
out in excess of the accumulated taxable income are subject to a
tax of up to 43% for 2010 to 2012, 41% for 2013 and 39% for 2014.
Effective January 1, 2010, the Mexican government imposed a
new tax of 3% of invoiced charges for telecommunications
services. This telecommunications tax is applicable to all
telecommunications services provided by Nextel Mexico, with the
exception of Internet services and interconnection services
between local and foreign carriers. The Mexican government also
approved tax legislation, effective January 1, 2010, which
increases the value added tax rate to 11% in border regions and
to 16% in non-border regions.
2. Brazil
Operating Company Overview. We refer to our
wholly-owned Brazilian operating company, Nextel
Telecomunicacoes Ltda., as Nextel Brazil. Nextel Brazil provides
wireless services under the tradename Nextel in
major business centers, including Rio de Janeiro, Sao Paulo,
Belo Horizonte and Brasilia, along related transportation
corridors and in a number of smaller markets. In 2008 and 2009,
we expanded our network coverage to areas in the northeast
region of Brazil, including Salvador, Fortaleza, Recife and
Vitoria. We believe that this expansion will allow Nextel Brazil
to compete more effectively by offering broader
13
coverage and by meeting the needs of a wider range of customers
who have significant operations in these new areas. As of
December 31, 2009, Nextel Brazil provided service to about
2,482,700 handsets, which we estimate to be about 1.4% of the
total mobile handsets in commercial service in Brazil.
Nextel Brazils operations are headquartered in Sao Paulo,
with branch offices in Rio de Janeiro and various other cities.
As of December 31, 2009, Nextel Brazil had
4,580 employees.
Competition. Nextel Brazil competes with
cellular and personal communications services providers. The
largest competitors are Vivo, a joint venture of Telefonica S.A.
and Portugal Telecom S.A., which has the largest market share in
the Sao Paulo Metropolitan Area and Rio de Janeiro; Telecom
Americas, which owns Claro and is controlled by America Movil;
Telecom Italia Mobile; TNL PCS S.A., a personal communications
services operating subsidiary of Telemar Norte Leste S.A.,
Brazils largest wireline incumbent, and which markets
under the brand name Oi; and Brasil
Telecom GSM, a subsidiary of Brasil Telecom S.A.
Nextel Brazil also competes with other regional cellular and
wireless operators including Telemig Celular S.A. In addition,
some of Nextel Brazils largest competitors have launched
and offer services supported by a third generation network.
We believe that the most important factors upon which Nextel
Brazil competes are the quality of our customer service and
network, our differentiated brand positioning and our
differentiated services, primarily our Direct Connect service,
which is available throughout all areas where Nextel Brazil
provides wireless services. While its competition generally
targets the prepaid market and competes on the basis of price,
Nextel Brazil primarily targets customers who utilize its
services in their businesses and individuals that have medium to
high usage patterns who are more concerned with the quality of
the customer care and service they receive. Nextel Brazils
focus on the quality of its customer service and care is an
important component of our strategy to attract and retain
customers within our targeted customer groups. Substantially all
of our subscribers in Brazil purchase our services pursuant to
contracts that provide for recurring monthly payments for
services for a specified term.
Regulatory and Legal Overview. Prior to 2000,
the Brazilian telecommunications regulations imposed various
restrictions that significantly limited the ability of Nextel
Brazil to provide mobile services to all potential customer
groups. With the changes to the Brazilian regulations enacted by
Brazils telecommunications regulatory agency, Agencia
Nacional de Telecomunicacoes, known as Anatel, in 2000 and in
subsequent years, Brazil began opening its markets to wider
competition in the mobile wireless communications market where
we operate.
Some of the key regulatory changes that have been adopted
include changes to the rules that limit the amount of spectrum
in the 800 MHz band that Nextel Brazil is allowed to hold
in a service area, the adoption of rules relating to the
interconnection of Nextel Brazils networks with those of
other carriers and the calculation of calling party pays
charges. Under the changes to the rules adopted in November
2008, Nextel Brazil may own up to 25 MHz of 800 MHz
spectrum, which allows Nextel Brazil to increase the capacity of
its networks more efficiently. Nextel Brazil does not currently
own a significant amount of spectrum in either of those bands.
Under the rules adopted by Anatel relating to interconnection
charges, we have negotiated agreements with all significant
fixed line and wireless operators in Brazil to reflect the
additional payments between carriers as a result of the calling
party pays charges. The calling party pays structure adopted by
Anatel permits Nextel Brazil to compensate other operators for
calls terminated on their network under a formula that reduces
the amount paid to them by allowing a percentage of these calls
to be treated as bill and keep. Since their
adoption, these regulations have resulted in savings to Nextel
Brazil in relation to interconnect charges made by other
carriers.
Anatel is also responsible for the licensing of spectrum rights
in Brazil, including the SMR spectrum that we use in support of
our services. Any company interested in obtaining new SMR
licenses from Anatel must apply and present documentation
demonstrating certain technical, legal and financial
qualifications. Anatel may communicate its intention to grant
new licenses, as well as the terms and conditions applicable,
such as the relevant price. Before granting any license, Anatel
is required to publish an announcement, and any company willing
to respond to Anatels invitation, or willing to render the
applicable service in a given area claimed by another interested
party, may have the opportunity to obtain a license. Whenever
the number of
14
claimants is larger than the available spectrum, Anatel is
required to conduct competitive bidding to determine which
interested party will be granted the available licenses.
A license for the right to provide SMR services is granted for
an undetermined period of time. While the associated radio
frequencies are licensed for a period of 15 years, they are
renewable only once for an additional
15-year
period. Renewal of the license is subject to rules established
by Anatel. The renewal process must be initiated at least three
years before the expiration of the original term of the license
and the decision by Anatel whether to renew the license must be
made within 12 months of the filing of the request for
renewal. Anatel may deny a request for renewal of the license
only if the applicant is not making rational and adequate use of
the frequency, the applicant has committed repeated breaches in
the performance of its activities, or there is a need to modify
the radio frequency allocation. In 2007, Nextel Brazil renewed
licenses for an additional term of 15 years, which begins
from the respective expiration of each license.
The rules require that Nextel Brazils services comply with
start-up
terms and minimum service availability and quality requirements
detailed in the regulations. Failure to meet Anatels
requirements may result in forfeiture of the channels and
revocation of licenses. We believe that Nextel Brazil is
currently in compliance with the applicable operational
requirements of its licenses in all material respects.
Nextel Brazil has, from time to time, been the target of
complaints filed with the Brazilian regulatory authorities by
one or more of our competitors in which our competitors seek to
challenge the manner in which we conduct business, and certain
competitors have also petitioned the Brazilian regulators
seeking changes to the regulations applicable to our operations
in an effort to make it more difficult or costly for us to
operate. In this regard, some of our competitors in Brazil,
through Brazils Associacao Nacional das Operadoras de
Celular, or ACEL, recently filed a petition against Anatel to
challenge the partial bill and keep settlement process that
allows us to retain a portion of the amounts we would otherwise
be obligated to pay to other carriers under the calling party
pays structure in Brazil. Because the current settlement process
results in a significant reduction in our overall
interconnection charges, our competitors have sought changes to
these processes in order to increase our payments for call
terminations. We believe that we are operating in a manner that
is consistent with our license, and that the rationale that
supported the adoption of the partial bill and keep settlement
process applicable to our payment of termination charges
continues to apply. However, if Anatel eliminates the partial
bill and keep settlement process or modifies it to increase the
amounts we pay to terminate calls, those actions could have an
adverse affects on the costs we incur to operate, which could
adversely affect our results of operations.
The Brazilian regulatory authorities recently announced plans to
conduct spectrum auctions, including the auction of spectrum
that could be used to support third generation services. Nextel
Brazil plans to participate in these auctions and intends to use
any spectrum it acquires to offer these third generation
services.
Foreign Currency Controls, Dividends and Tax
Regulation. The purchase and sale of foreign
currency in Brazil continues to be subject to regulation by the
Central Bank of Brazil despite regulatory changes enacted in
2005 that were designed to reduce the level of government
regulation of foreign currency transactions. Exchange rates are
freely negotiated by the parties, but purchase of currency for
repatriation of capital invested in Brazil and for payment of
dividends to foreign stockholders of Brazilian companies may
only be made if the original investment of foreign capital and
capital increases were registered with the Brazilian Central
Bank. There are no significant restrictions on the repatriation
of registered share capital and remittance of dividends. Nextel
Brazil has registered substantially all of its investments with
the Brazilian Central Bank.
The Nextel Brazil subsidiaries through which any dividend is
expected to flow have applied to the Brazilian Central Bank for
registration of its investments in Nextel Brazil. We intend to
structure future capital contributions to Brazilian subsidiaries
to maximize the amount of share capital and dividends that can
be repatriated through the exchange market.
Brazilian law provides that the Brazilian government may, for a
limited period of time, impose restrictions on the remittance by
Brazilian companies to foreign investors of the proceeds of
investments in Brazil. These restrictions may be imposed
whenever there is a material imbalance or a serious risk of a
material imbalance in Brazils balance of payments. The
Brazilian government may also impose restrictions on the
conversion of
15
Brazilian currency into foreign currency. These restrictions may
hinder or prevent us from purchasing equipment required to be
paid for in any currency other than Brazilian reais. Under
current Brazilian law, a company may pay dividends from current
or accumulated earnings. Dividend payments from current earnings
are not subject to withholding tax. Interest on foreign loans is
generally subject to a 15% withholding tax. Interest and
payments including principal amounts on foreign loans are
generally subject to a 0.38% foreign exchange transactions tax,
except for interest and payments made on loan agreements signed
after October 23, 2008, for which the applicable tax rate
is zero.
3. Argentina
Operating Company Overview. We refer to our
wholly-owned Argentine operating company, Nextel Communications
Argentina S.R.L., as Nextel Argentina. Nextel Argentina provides
wireless services under the tradename Nextel in
major business centers including Buenos Aires, Cordoba, Rosario
and Mendoza, along related transportation corridors and in a
number of smaller markets. As of December 31, 2009, Nextel
Argentina provided service to about 1,030,100 handsets, which we
estimate to be about 2.1% of the total mobile handsets in
commercial service in Argentina.
Nextel Argentina is headquartered in Buenos Aires and has
regional offices in Mar del Plata, Rosario, Mendoza and Cordoba,
and 17 branches in the Buenos Aires area. As of
December 31, 2009, Nextel Argentina had
1,732 employees.
Competition. There are three mobile service
providers in Argentina with which Nextel Argentina competes: the
Telefonica Moviles Group, commercially known as Movistar; AMX
Argentina S.A., which is commercially known as Claro and which
is owned by America Movil S.A. de C.V.; and Telecom Personal
S.A., or Personal, which is owned by Telecom Argentina S.A. All
of these companies hold cellular communications services
licenses, personal communications services (PCS licenses), or
both. The cellular and PCS licenses each cover only a specific
geographic area, but a combination of these licenses and the
roaming agreements with other carriers provide each of Nextel
Argentinas competitors with national coverage. The PCS
licenses provide existing cellular companies with increased
spectrum capabilities and the ability to launch a wide range of
wireless products and services, including services supported by
our competitors recently deployed third generation
networks. Affiliated companies of Movistar, Claro and Personal
are also licensed to offer wireline local, long distance and
other telecommunications services.
We believe that the most important factors upon which Nextel
Argentina competes are the quality of our customer service and
network, brand recognition and our differentiated services,
primarily our Direct Connect service, which is available
throughout all areas where Nextel Argentina provides wireless
services. While its competition generally targets the prepaid
market, Nextel Argentina primarily targets small and
medium-sized businesses with mobile workforces and high-end
individuals. Substantially all of our subscribers in Argentina
are on post-paid contracts.
Regulatory and Legal Overview. The Comision
Nacional de Comunicaciones, referred to as the CNC, the
Secretary of Communications, and the Ministry of Federal
Planning, Public Investments and Services are the Argentine
telecommunications authorities responsible for the
administration and regulation of the telecommunications industry.
Licenses enable the rendering of telecommunications services and
are independent of the authorizations to use spectrum. The
regulations establish a single license system that allows the
license holder to offer any and all types of telecommunications
services. The licensee is free to choose the geographic area,
technology and architecture through which its telecommunications
services will be provided. Licenses to provide
telecommunications services and spectrum authorizations may be
revoked for violation of the applicable regulations. Licenses
and spectrum authorizations may not be transferred or assigned,
in whole or in part, without prior written approval of
regulatory authorities. Argentina does not impose any limitation
of foreign ownership of telecom licenses. Under its licenses,
Nextel Argentina is deemed to have registered SMR services,
paging, data transmission and other value added services, as
well as long distance telephony. The tariffs for the services
offered by Nextel Argentina are not subject to regulation and
may be freely established by Nextel Argentina.
16
The use of the SMR spectrum used by Nextel Argentina in support
of its services is subject to the prior granting of an
authorization to use that spectrum in a specified, limited
geographical area. SMR authorizations granted through the year
2000 have an indefinite term, and those granted beginning in
2001 expire after a 10 year-term. Nextel Argentina holds
licenses to use 1,815 channels, including those covering the
major business markets areas, without expiration term, and 1,760
channels with
10-year
terms, mostly in smaller markets. SMR authorizations are subject
to service launch and subscriber loading requirements.
Rules adopted in 2005 under which new SMR spectrum is awarded
also establish a
180-day term
to launch the service in the corresponding geographical area and
require that at least 30% of the infrastructure equipment
deployed to operate on spectrum that is the subject of each new
authorization consist of Argentinean sourced goods. The
regulation is not clear as to the method to be used to compute
this percentage.
SMR service providers are assured interconnection with other
operators networks, including the public switched
telephone network, on a nondiscriminatory basis. Interconnection
terms and prices are freely negotiated between the parties,
although the regulations include guidelines that are generally
followed in practice and can be imposed by the Secretary of
Communications if an agreement between the parties is not
reached. All interconnection agreements entered into must be
registered with the CNC. Additional requirements are imposed or
may be imposed on all dominant carriers to ensure that the
Argentine telecommunications market is open to competition.
Nextel Argentina provides services to its subscribers that allow
calls to be completed on other carriers networks under
interconnection agreements with Telefonica de Argentina S.A. and
Telecom Argentina S.A., as well as other smaller local carriers.
Nextel Argentina has also implemented a calling party pays
program with the fixed line carriers with whom it interconnects
under which Nextel Argentina is compensated at agreed rates for
calls made to its subscribers from those networks for those
subscribers who purchase our services under calling party pays
rate plans. Charges recovered by Nextel Argentina for calling
party pays calls originated in fixed lines depend on a reference
price set periodically by the Minister of Federal Planning,
Public Investments and Services.
Argentina recently announced upcoming nationwide spectrum
auctions. Nextel Argentina plans to participate in these
auctions and intends to use any spectrum it acquires to offer
third generation services.
Foreign Currency Controls, Dividends and Tax
Regulation. On January 6, 2002, an Argentine
emergency law became effective, and the government formally
declared a public emergency in economic, administrative,
financial and exchange control matters. The law empowered the
Federal Executive Power to regulate those areas until
December 10, 2003, subject to overview by the National
Congress. The Emergency Law amended several provisions of the
1991 Convertibility Law No. 23,928, the most significant of
which was to repeal the peg of the Argentine peso to the
U.S. dollar. The effectiveness of the Argentine Emergency
Law has been extended through December 31, 2011 by the
passing of a subsequent law.
On February 3, 2002, the Federal Executive Power issued a
decree that reorganized Argentinas financial system and
converted the economy into Argentine pesos.
Pursuant to another decree, the National Executive Power and the
Argentine Central Bank have placed certain restrictions on the
acquisition of foreign currency by Argentine and non-Argentine
residents and on the inflow and outflow of capital to and from
Argentina, including those for the purposes of repayment of
principal and interest, dividend payments and repatriation of
capital. In addition, there are specific guidelines that must be
complied with in order to make any repayment of principal or
interest to foreign creditors. According to such regulations,
payments of profits and dividends abroad may be carried out as
long as they correspond to financial statements certified by
external auditors.
On June 9, 2005, the Federal Executive Power issued a
decree that introduced restrictions to the transfer of funds to
and from Argentina and created a mandatory deposit of 30% of the
funds transferred to Argentina. This decree provides that, under
certain circumstances, both Argentinean and non-Argentinean
residents transferring funds from abroad to Argentina are
obligated to make a
365-day
registered non-transferable non-interest bearing cash deposit
equal to 30% of the funds transferred by them to Argentina.
Among others,
17
foreign direct investment and subscription of primary issuances
of debt or cash securities with public offering in the capital
or stock markets are exempt from such restricted deposit
requirement.
Under applicable Argentine corporate law, a company may pay
dividends only from liquid and realized profits as reported in
the companys financial statements prepared in accordance
with Argentine generally accepted accounting principles and duly
approved by the shareholders meeting. Of those profits, 5% must
be set aside until a reserve of 20% of the companys
capital stock has been established. Subject to these
requirements, the balance of profits may be declared as
dividends and paid in cash upon a majority vote of the
stockholders. Under current law, dividend payments are not
subject to withholding tax, except when the dividend payments
are the result of profits paid out in excess of the accumulated
profits computed for income tax purposes as of the financial
year preceding the date of the distribution of such dividends.
If dividends are paid in this manner, a 35% withholding tax
applies on the amount of the surplus. A withholding tax of 35%
applies to interest paid by Nextel Argentina to NII Holdings or
any of its U.S. subsidiaries with respect to intercompany
loans made by NII Holdings or its subsidiaries to Nextel
Argentina.
4. Peru
Operating Company Overview. We refer to our
wholly-owned Peruvian operating company, Nextel del Peru S.A.,
as Nextel Peru. Nextel Peru provides wireless services under the
tradename Nextel in major business centers,
including Arequipa, Chiclayo, Chimbote, Cuzco, Ica, Lima, Piura,
Tacna, Trujillo and Puno and along related transportation
corridors.
As of December 31, 2009, Nextel Peru provided service to
about 840,600 handsets, which we estimate to be about 4.0% of
the total mobile handsets in commercial service in Peru.
Nextel Peru is headquartered in Lima. As of December 31,
2009, Nextel Peru had 1,702 employees.
In July 2007, Proinversion, the governmental agency that
promotes investment in Peru, awarded a nationwide license of
35 MHz of 1.9 GHz spectrum to Nextel Peru for
$27.0 million through an auction process carried out by the
Peruvian government, and we recently deployed a network
utilizing third generation technology on this spectrum.
In October 2009, Nextel Peru acquired nine 6 MHz channels
in the 2.5 GHz spectrum band for a total of 54 MHz in
Lima, as well as some additional 2.5 GHz spectrum outside
of Lima, all of which has been incorporated into Nextel
Perus local carrier license. The license commitments for
Nextel Peru include a requirement to start operations before
October 23, 2010, as well as a requirement to comply with
license coverage commitments within the first five years of
operation.
In December 2009, Nextel Peru entered into a $130.0 million
syndicated loan agreement, the proceeds of which will be used
for capital expenditures, general corporate purposes and the
repayment of short-term intercompany debt. As of
December 31, 2009, Nextel Peru had not yet borrowed any
funds under this agreement; however, we expect that Nextel Peru
will begin drawing on this loan in the first quarter of 2010.
Competition. Nextel Peru competes with all
other providers of mobile services in Peru, including Telefonica
Moviles S.A. and America Movil Peru S.A.C., a subsidiary of
Mexicos America Movil. Telefonica Moviles S.A. provides
nationwide coverage and operates under the brand name
Movistar. America Movil provides nationwide coverage
and operates under the brand name Claro.
We believe that the most important factors upon which Nextel
Peru competes are the quality of our customer service and
network, brand recognition and our differentiated services,
primarily our Direct Connect service, which is available
throughout all areas where Nextel Peru provides wireless
services. Nextel Peru primarily targets mobile workforces,
including large, mid-size and small corporations and their
respective business networks.
Regulatory and Legal Overview. The Organismo
Supervisor de Inversion Privada en Telecomunicaciones of Peru,
known as OSIPTEL, and the Ministry of Transportation and
Communications of Peru, referred to as the Peruvian Ministry of
Communications, regulate the telecommunications industry in
Peru. OSIPTEL oversees private investments and competition in
the telecommunications industry. The Peruvian Ministry of
18
Communications grants telecommunications licenses and issues
regulations governing the telecommunications industry. The
Telecommunications Law of Peru, the general regulations under
that law and the regulations issued by OSIPTEL govern the
operation of SMR services in Peru, which are considered public
mobile services in the same category as cellular and personal
communications services.
In Peru, wireless service providers, including SMR service
providers, are granted
20-year
licenses that may be renewed for an additional
20-year
term, subject to compliance with the terms of the license. Peru
imposes no limitation on foreign ownership of wireless
licensees. Licenses may be revoked before their expiration for
material violations of applicable regulatory and license
requirements. Licensees must also comply with a minimum
expansion plan that establishes the minimum loading and coverage
requirements for the licensees, as well as spectrum targets
under the licenses. Nextel Peru has met its loading and coverage
requirements and has reached its spectrum targets. In addition,
we acquired rights to use 1.9 GHz spectrum in Peru that
require us to deploy new network technology within specified
timeframes throughout Peru, including in areas that we do not
currently serve.
Under the general regulations of Perus telecommunications
law, all public telecommunications service providers have the
right to interconnect to the networks of other providers of
public telecommunications services. Furthermore, interconnection
with these networks must be on an equal and nondiscriminatory
basis. The terms and conditions of interconnection agreements
must be negotiated in good faith between the parties in
accordance with the interconnect regulations and procedures
issued by OSIPTEL, which specify the rates to be charged for
these services. Nextel Peru is presently interconnected with all
major telecommunications operators in Peru. In November 2005,
OSIPTEL adopted regulations that resulted in savings in
interconnect rates over a four-year period that ended
December 31, 2009.
Foreign Currency Controls, Dividends and Tax
Regulation. Under current law, Peruvian currency
is freely convertible into U.S. dollars without
restrictions. Peru has a free exchange market for all foreign
currency transactions. On May 31, 2001, Nextel
International (Peru), LLC executed a legal stability agreement
with the Peruvian government, which, among other things,
guaranteed the free conversion in foreign currency of, and free
currency remittances related to, its $100.0 million
investment in Nextel Peru. This agreement has a term of
10 years. In addition, on September 21, 2007, Nextel
International (Peru), LLC entered into a legal stability
agreement, which was modified by an addendum that was executed
on October 23, 2008, under which investments of
$166.5 million to be made by Nextel Peru before
September 20, 2012 will be stabilized under the same
conditions as the aforementioned legal stability agreements for
a period of 20 years. The new legal stability agreement
expires on September 20, 2027.
The payment and amount of dividends on Nextel Perus common
stock is subject to the approval of a majority of the
stockholders at a mandatory meeting of its stockholders.
According to Peruvian corporate law, the stockholders may decide
on the distribution of interim dividends or, alternatively,
delegate the decision to the board of directors. Dividends are
also subject to the availability of profits, determined in
accordance with Peruvian generally accepted accounting
principles. Profits are available for distribution only after
10% of pre-tax profits have been allocated for mandatory
employee profit sharing, and 10% of the net profits have been
set aside to constitute a legal reserve. This reserve is not
available for use except to cover losses in the profit and loss
statement. This reserve obligation remains until the legal
reserve constitutes 20% of the capital stock. Once this legal
reserve is met, the balance of the net profits is available for
distribution. A 4.1% withholding tax applies to dividends paid
by Nextel Peru to its foreign shareholders, and a 30%
withholding tax applies to interest paid by Nextel Peru to NII
Holdings or its non-Peruvian subsidiaries with respect to
intercompany loans made by NII Holdings or its subsidiaries to
Nextel Peru.
In December 2008, Nextel Peru entered into a tax stability
agreement with the Peruvian government under which Nextel Peru
has been granted stability of the income tax regime in effect as
of that date, including the new regime for loss carryforwards.
Under this agreement, net operating losses may be offset
alternatively (i) during the four consecutive years as of
the year in which the loss was incurred, or (ii) without
limitations, provided that only 50% of the taxable income is
offset per year. This agreement expires on September 20,
2027.
19
5. Chile
Operating Companies Overview. We refer to our
wholly-owned Chilean operating companies, Centennial Cayman
Corp. Chile S.A. and Multikom, S.A., as Nextel Chile. Nextel
Chile provides wireless services under the tradename
Nextel. These operating companies provide service in
Santiago, Valparaiso and Vina del Mar, along related
transportation corridors and on a limited basis in
San Antonio, Rancagua, Melipilla, Talagante,
San Felipe, Concepcion and Antofagasta. As of
December 31, 2009, Nextel Chile provided services to about
43,700 handsets.
Nextel Chile is headquartered in Santiago, Chile. As of
December 31, 2009, Nextel Chile had 312 employees.
Competition. The three established mobile
telephone service providers, Entel Chile, Telefonica Moviles de
Chile S.A. and Claro S.A. provide services throughout Chile that
compete with Nextel Chiles wireless services. These
competitors also offer third generation mobile services. In
addition, other providers of SMR services in Chile have recently
sought to amend their telecommunications concessions to allow
these providers to deploy digital networks and offer related
services in the 400 MHz spectrum band. As a result of the
recent Chilean government auctions of licenses related to third
generation spectrum, VTR Movil S.A. entered the Chilean wireless
telecommunications market. Nextel Chile participated in the
recent auctions and was assigned the preliminary rights to
spectrum in the 1.7 GHz and 2.1 GHz bands that we
intend to use to launch a third generation network that utilizes
WCDMA technology. Nextel Chile expects to begin providing third
generation service offerings on this new network in 2011.
Regulatory and Legal Overview. The main
regulatory agency of the Chilean telecommunications sector is
the Ministry of Transportation and Telecommunications (the
Ministry), which acts primarily through the Undersecretary of
Telecommunications (the Undersecretary).
Telecommunications concessions granted by the Chilean regulatory
authorities are not limited as to their number, type of service
or geographical area. Therefore, it is possible to grant two or
more concessions for the provision of the same service on the
same location, except where technical limitations exist.
Concessions for the provision of public telecommunications
services are generally granted for a
30-year
period. These concessions may be renewed for additional
30-year
periods if requested by the concessionaire.
In order to provide digital SMR services in Chile, incorporate
digital technology to the networks of our Chilean operating
companies and obtain the corresponding authorization to
interconnect these networks to the publicly switched telephone
network, we have sought and obtained amendments to a number of
SMR concessions. The regulatory action approving those
amendments required us to build the network within a specified
period for each of the amended concessions. We have subsequently
obtained several amendments and extensions of the build-out
deadline specified in the approved amendments to our SMR
concessions. If these build-out deadlines are not met and we do
not obtain a new extension, we may be sanctioned by the Chilean
authorities unless Nextel Chile decides to forfeit its right to
build out the remaining sites not yet built in accordance with
the build-out commitments.
In Chile, concessionaires of public telecommunications services
and concessionaires of long distance telephony services are
required by law to establish and accept interconnection with
each other in accordance with regulations adopted by the Chilean
regulatory authorities. Additionally, providers of public
telecommunications services of the same type that are authorized
to be interconnected with public telephone networks are also
able to request the assignment of specific numbering blocks for
their subscribers. Our operating companies have been granted
numbering blocks and are currently interconnected to the public
switched telephone network.
SMR concessionaires may freely determine the fees charged to
their subscribers. However, the fees and tariffs charged by a
telecommunications concessionaire to other telecommunications
concessionaires for the services rendered through
interconnection, including the access fees, are determined and
established by the regulatory authorities in accordance with a
tariff-setting procedure based upon, among other things, the
cost structure, including expansion plans, of an efficient
concessionaire, as set forth in the General
20
Telecommunications Law. The regulatory authorities recently
established the tariff for access to the networks of our three
primary competitors in Chile, which became effective in January
2009.
Foreign Currency Controls, Dividends and Tax
Regulation. The purchase and sale of foreign
currency in Chile is not subject to governmental control.
Accordingly, any person may freely engage in foreign exchange
transactions. There are two foreign exchange markets in Chile.
The first is the formal exchange market, which is subject to
regulations of the Chilean Central Bank and consists of banks
and other entities authorized to participate in the formal
market by the Central Bank. This market is generally used for
trade-related transactions, such as import and export
transactions, regulated foreign currency investments and other
transactions, such as remittances abroad and operates at
floating rates freely negotiated between the participants.
Foreign investments are subject to regulations in Chile that
impose certain requirements that affect the repatriation of
those investments. The investment of capital exceeding $10,000
in Chile and the repatriation of the investment and its profits
must be carried out under either Decree Law No. 600 or
under Chapter XIV of the Compendium of Foreign Exchange
Regulations issued by the Central Bank of Chile under the
Central Bank Act. Foreign funds registered under Decree Law
No. 600 provide specified guarantees with respect to the
ability to repatriate funds and the stability of the applicable
tax regime. Decree Law No. 600 permits foreign investors to
access the formal exchange market to repatriate their
investments and profits. Although the foreign investment
regulations may permit foreign investors to access the formal
exchange market to repatriate their investments and profits,
they do not guarantee that foreign currency will be available in
the market.
Under Chilean corporate law, corporations, such as our Chilean
companies, may distribute dividends among their stockholders
only from the net profits of a specific fiscal year or from
retained profits recognized by balance sheets approved by the
stockholders meeting. However, if the company has
accumulated losses, profits of that corporation must first be
allocated to cover the losses. Losses in a specific fiscal year
must be offset with retained profits, if any.
Unless otherwise agreed at a stockholders meeting by the
unanimous vote of all issued shares, publicly traded
corporations must annually distribute at least 30% of the net
profits of each fiscal year. This distribution must be in the
form of a cash dividend to their stockholders in proportion to
their ownership or as otherwise stated in the bylaws. Privately
held corporations, such as our Chilean operating companies, must
follow the provisions of their bylaws; if the bylaws do not
contain these provisions, the rules described above for the
distribution of profits by publicly traded stock corporations
apply. In any event, the board of directors may distribute
provisional dividends if the corporation has no accumulated
losses, subject to the personal responsibility of the directors
approving the distributions. As a general rule, any dividend
paid by Nextel Chile to its foreign shareholders will be subject
to a 35% withholding tax rate, reduced by a tax credit to
recognize the 17% corporate tax paid by Nextel Chile on the
income distributed or remitted abroad. As a general rule, a 35%
withholding tax applies to interest paid by Nextel Chile to NII
Holdings or its U.S. affiliates with respect to
intercompany loans made by NII Holdings or its subsidiaries to
Nextel Chile.
Employees
As of December 31, 2009, we had 13,673 employees.
Nextel Brazil is a party to a collective bargaining agreement
that covers all of its employees and expires on April 30,
2010. Although Nextel Mexico is a party to certain collective
bargaining agreements, as of December 31, 2009, none of
Nextel Mexicos employees have chosen to participate under
these agreements. Except for these agreements with our
subsidiaries in Brazil and Mexico, neither we nor any of our
other operating companies is a party to any collective
bargaining agreement although certain of our operating companies
are subject to employment statutes and regulations that
establish collective bargaining arrangements that are similar in
substance to collective bargaining agreements. We believe that
the relationship between us and our employees, and between each
of our operating companies and its employees, is good.
21
Access to
Public Filings and Board Committee Charters
We maintain an internet website at www.nii.com. Information
contained on our website is not part of this annual report on
Form 10-K.
Stockholders of the Company and the public may access our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to these reports filed with or furnished to the
Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended, through the investor
relations section of our website. This information is
provided by a third party link to the SECs online EDGAR
database, is free of charge and may be reviewed, downloaded and
printed from our website at any time.
We also provide public access to our code of ethics, entitled
the NII Holdings, Inc. Code of Business Conduct and Ethics, and
the charters of the following committees of our Board of
Directors: the Audit Committee, the Compensation Committee and
the Corporate Governance and Nominating Committee. The Code of
Business Conduct and Ethics and committee charters may be viewed
free of charge on the Investor Relations link of our website at
the following address: www.nii.com. You may obtain copies of any
of these documents free of charge by writing to: NII Holdings
Investor Relations, 1875 Explorer Street, Suite 1000,
Reston, Virginia 20190. If a provision of our Code of Business
Conduct and Ethics required under the Nasdaq Global Select
Market corporate governance standards is materially modified, or
if a waiver of our Code of Business Conduct and Ethics is
granted to a director or executive officer, we will post a
notice of such action on the Investor Relations link of our
website at the following address: www.nii.com. Only the Board of
Directors or the Audit Committee may consider a waiver of the
Code of Business Conduct and Ethics for an executive officer or
director.
Investors should be aware that we and our business are subject
to various risks, including the risks described below. Our
business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading
price of our common stock could decline due to any of these
risks, and investors may lose all or part of any investment. Our
actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors,
including the risks faced by us described below and included
elsewhere. Please note that additional risks not presently known
to us or that we currently deem immaterial may also impair our
business and operations.
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1.
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If we
are not able to compete effectively in the highly competitive
wireless communications industry, our future growth and
operating results will suffer.
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Our success will depend on the ability of our operating
companies to compete effectively with other telecommunications
services providers, including wireline companies and other
wireless telecommunications companies, in the markets in which
they operate. Our ability to compete successfully will depend on
our ability to anticipate and respond to various competitive
factors affecting the telecommunications industry, including new
services and technologies, changes in consumer preferences,
demographic trends, economic conditions and discount pricing
strategies by competitors.
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a.
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Competition
in our markets has recently intensified making it more difficult
for us to attract and retain customers.
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Competition in our markets has intensified in recent periods,
and we expect that it will continue to intensify in the future
as a result of the entry of new competitors; the development of
new technologies, products and services; and the auction of
additional spectrum. We also expect the current consolidation
trend in the wireless industry to continue as companies respond
to the need for cost reduction and additional spectrum. This
trend may result in larger competitors with greater financial,
technical, promotional and other resources to compete with our
businesses.
Among other things, our competitors have:
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provided increased handset subsidies;
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offered higher commissions to distributors;
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provided discounted or free airtime or other services;
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expanded their networks to provide more extensive network
coverage;
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developed and deployed networks that use new technologies and
support new or improved services;
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offered incentives to larger customers to switch service
providers, including reimbursement of cancellation fees; and
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offered bundled telecommunications services that include local,
long distance and data services.
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We anticipate that competition will lead to continued
significant advertising and promotional spending as well as
continued pressure on prices for voice services and handsets. In
addition, portability requirements, which enable customers to
switch wireless providers without changing their wireless
numbers, have been introduced in some of our markets, including
Mexico, Brazil and Peru, and may be introduced in other markets
in the future. These developments and actions by our competitors
could negatively impact our operating results and our ability to
attract and retain customers. The cost of adding new customers
may increase, reducing profitability even if customer growth
continues. If we are unable to respond to competition and
compensate for declining prices by adding new customers,
increasing usage and offering new services, our revenues and
profitability could decline.
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b.
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Some of
our competitors are financially stronger than we are, which may
limit our ability to compete based on price.
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Because of their size and resources, and in some cases ownership
by larger companies, some of our competitors may be able to
offer services to customers at prices that are below the prices
that our operating companies can offer for comparable services.
Many of our competitors are well-established companies that have:
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substantially greater financial and marketing resources;
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larger customer bases;
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larger spectrum positions; and
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larger coverage areas than those of our operating companies.
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If we cannot compete effectively based on the price of our
service offerings and related cost structure, our results of
operations may be adversely affected.
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c.
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Our
equipment is more expensive than that of our competitors, which
may limit our ability to compete with other companies that rely
on more prevalent technologies and less expensive
equipment.
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Our current networks primarily utilize iDEN technology developed
and designed by Motorola. iDEN is a proprietary technology that
relies solely on the efforts of Motorola and any current or
future licensees of this technology for product development and
innovation. Additionally, Motorola and RIM are the sole
suppliers of all of our handsets. In contrast, our competitors
use infrastructure and customer equipment that are based on
standard technologies like the global system for mobile
communications standard, or GSM, and wideband code division
multiple access, or WCDMA, which are substantially more widely
used technologies than iDEN and are available from a significant
number of suppliers. As a result, our competitors benefit from
economies of scale and lower costs for handsets and
infrastructure equipment. These factors, as well as the higher
cost of our handsets and other equipment may make it more
difficult for us to attract or retain customers, and may require
us to absorb a comparatively larger cost of offering handsets to
new and existing customers. The combination of these factors may
place us at a competitive disadvantage and may reduce our growth
and profitability.
23
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d.
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Our
operating companies may face disadvantages when competing
against formerly government-owned incumbent wireline operators
or wireless operators affiliated with them.
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In some markets, our operating companies may not be able to
compete effectively against a formerly government-owned monopoly
telecommunications operator, which today enjoys a near monopoly
on the provision of wireline telecommunications services and may
have a wireless affiliate or may be controlled by shareholders
who also control a wireless operator. For example, Telcel, which
is one of our largest competitors in Mexico, is an affiliate of
Telefonos de Mexico, S.A.B. de C.V., which provides wireline
services in Mexico and was formerly a government-owned monopoly.
Similarly, in Peru, we compete with Telefonica Moviles, which is
an affiliate of the Telefonica del Peru, S.A.A., which operates
wireline services in Peru and was formerly a government-owned
monopoly. Our operating companies may be at a competitive
disadvantage in these markets because formerly government-owned
incumbents or affiliated competitors may have:
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close ties with national regulatory authorities;
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control over connections to local telephone lines; or
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the ability to subsidize competitive services with revenues
generated from services they provide on a monopoly or
near-monopoly basis.
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Our operating companies may encounter obstacles and setbacks if
local governments adopt policies favoring these competitors or
otherwise afford them preferential treatment. As a result, our
operating companies may be at a competitive disadvantage to
incumbent providers, particularly as our operating companies
seek to offer new telecommunications services.
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e.
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Our
coverage is not as extensive as those of other wireless service
providers in our markets, which may limit our ability to attract
and retain customers.
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We have recently expanded the coverage of our networks,
particularly in Mexico and Brazil, but our networks do not offer
nationwide coverage in the countries in which we operate and our
current technology limits our potential roaming partners. As a
result, we may not be able to compete effectively with cellular
and personal communications services providers, many of whom
operate cellular and personal communications networks with more
extensive areas of service. Additionally, many of these
providers have entered into roaming agreements with each other,
which permit these providers to offer coverage to their
customers in each others markets. The iDEN technology that
we currently use in our networks is not compatible with other
wireless technologies such as the digital cellular or personal
communications services technologies used by our competitors or
with other iDEN networks not operating in the 800 MHz
spectrum. Although some of the handset models that we sell are
compatible with both iDEN 800 MHz and GSM 900/1800 MHz
systems, we offer very few of these models and, as such, we are
more limited in our ability to offer the breadth of roaming
capabilities of our competitors. In addition, our customers are
not able to roam on other carriers networks where we do
not have roaming agreements. These factors may limit our ability
to attract and retain certain customers.
To date, we have not entered into roaming agreements with
respect to GSM services offered in the countries in which our
operating companies conduct business, but have entered into
agreements that allow our customers to utilize roaming services
in other countries using the handsets that are compatible with
both iDEN and GSM systems and using other GSM handsets.
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f.
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If we do
not keep pace with rapid technological changes, we may not be
able to attract and retain customers.
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The wireless telecommunications industry is experiencing
significant technological change. For example, competitors in
each of our markets have launched upgraded WCDMA network
technology, often referred to as third generation technology,
which is designed to support services that use high speed data
transmission capabilities, including internet access and video
telephony. These and other future technological advancements may
enable competitors who use other wireless technologies to offer
features or services we cannot provide or exceed the quality of
our current level of service, thereby making the services we
offer less competitive.
24
In addition, much of the 800 MHz spectrum that our
operating companies are licensed to use is non-contiguous while
the third generation technology platforms that are currently
available operate only on contiguous spectrum, and, except in
Peru, where we hold spectrum rights in the 1.9 GHz band,
and Chile, where we expect to be granted a license to use
additional spectrum in the 1.7 GHz and the 2.1 GHz
bands as a result of a recently completed auction, we do not
hold rights to use additional spectrum in bands that would
facilitate a transition to a new network technology. These
factors may make it more difficult or impossible for us to
migrate to a new technology if we choose to do so unless we
acquire spectrum that supports these new technologies. Acquiring
the spectrum and deploying the related network equipment
requires a significant amount of time and capital. If we are
unable to acquire additional spectrum or deploy new technologies
using that spectrum, or if we are unable to raise sufficient
capital to do so, we will continue to be heavily reliant on
Motorola, as the sole supplier of iDEN technology, to maintain
the competitiveness of our services and customer equipment. If
Motorola is unwilling or unable to upgrade or improve iDEN
technology or develop other technology solutions to meet future
advances in competing technologies on a timely basis, or at an
acceptable cost, we will be less able to compete effectively and
could lose customers to our competitors. In addition, if we
decide to pursue the deployment of networks based on a new
technology that operates on a different spectrum band, we will
incur significant additional capital and other costs to acquire
this new spectrum and to acquire and deploy the new networks.
For more information, see 8. Costs and other aspects of
a future deployment of advanced technology could adversely
affect our operations. The deployment of new technology and
service offerings could result in network degradation or the
loss of customers.
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g.
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If our
wireless communications technology does not perform in a manner
that meets customer expectations, we will be unable to attract
and retain customers.
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Customer acceptance of the services we offer is and will
continue to be affected by technology-based differences and by
the operational performance and reliability of our networks. We
may have difficulty attracting and retaining customers if we are
unable to address and resolve satisfactorily performance or
other transmission quality issues as they arise or if these
issues:
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limit our ability to expand our network coverage or capacity as
currently planned; or
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place us at a competitive disadvantage to other wireless service
providers in our markets.
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h.
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If our
current customer turnover rate increases, our business could be
negatively affected.
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During 2008 and 2009, we experienced a higher consolidated
customer turnover rate compared to earlier periods, which
resulted primarily from the combined impact of weaker economic
conditions in Mexico and Argentina and the more competitive
sales environment in Mexico that arose during 2008 and continued
through 2009. In addition, portability requirements, which
enable customers to switch wireless providers without changing
their wireless numbers, have been introduced in some of our
markets, including Mexico, Brazil and Peru, and may be
introduced in other markets in the future, which could make it
more difficult for us to retain our customers. The cost of
acquiring a new customer is much higher than the cost of
maintaining an existing customer. Accordingly, an increase in
customer deactivations could have a negative impact on our
operating income, even if we are able to obtain one new customer
for each lost customer. If we experience an increase in our
customer turnover rate, due to these factors or to the recent
decline in general economic conditions, our ability to achieve
revenue growth could be impaired.
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i.
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We may be
limited in our ability to grow unless we expand network capacity
and coverage and address increased demands on our business
systems and processes as needed.
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Our customer base continues to grow rapidly. To continue to
successfully increase our number of customers and pursue our
business plan, we must economically:
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expand the capacity and coverage of our networks;
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secure sufficient transmitter and receiver sites at appropriate
locations to meet planned system coverage and capacity targets;
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25
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obtain adequate quantities of base radios and other system
infrastructure equipment; and
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obtain an adequate volume and mix of handsets to meet customer
demand.
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In the past, we have experienced difficulty in obtaining
sufficient volumes and types of handsets from Motorola; delays
in the development and availability of new handset models; and
handset manufacturing quality problems, particularly with
respect to new handset models. Our operating performance and
ability to retain new customers may be adversely affected if
these problems arise and we are not able to timely and
efficiently address them, or if we are unable to meet the
demands for our services and address any increased demands on
our customer service, billing and other back-office functions.
In the next few years, we plan to deploy new systems that are
designed to support the expected demands on our customer care
and billing functions, but the transition to these new systems
could heighten these risks. If we encounter problems in this
transition, it could have a material adverse effect on our
business.
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2.
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We
operate exclusively in foreign markets, and our assets,
customers and cash flows are concentrated in Latin America,
which presents risks to our operating plans.
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a.
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Adverse
changes in the economic environment in our markets and a decline
in foreign exchange rates for currencies in our markets may
adversely affect our growth and our operating results.
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During 2008 and 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. These conditions have adversely
affected economic growth both globally and in the markets in
which we operate. There has also been an increase in the
inflation rates in some of the markets in which we operate,
particularly in Argentina. While we believe that we will be able
to continue to successfully implement our current business plan,
these economic trends could affect our business in a number of
ways, including by:
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reducing the demand for our services resulting from reduced
discretionary spending;
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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 customer or increase our costs to provide the
related services; and
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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.
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Historically, the values of the currencies of the countries in
which we do business in relation to the U.S. dollar have
been volatile, and the unstable global economic environment and
recent weakness in the economies of some of the countries where
we operate has led to increased volatility in these currencies
during 2008 and 2009. Nearly all of our revenues are earned in
non U.S. currencies, but we report our results in
U.S. dollars. As a result, fluctuations in foreign currency
exchange rates can have a significant impact on our reported
results that are unrelated to the operating trends in our
business. In addition, a significant portion of our outstanding
debt is denominated in U.S. dollars. Depreciation in the
values of the local currencies in the markets in which 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, declines in the value of local currencies in
our markets relative to the U.S. dollar during 2009 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, compared to 2008. The depreciation of
the local currencies also results in increased costs to us for
imported equipment. Accordingly, if the values of local
currencies in the countries in which our operating companies
conduct business depreciate further relative to the
U.S. dollar, we would expect our operating results in
future periods, and the value of our assets held in local
currencies, to continue to be adversely affected.
26
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b.
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We face
economic and political risks in our markets, which may limit our
ability to implement our strategy and our financial flexibility
and may disrupt our operations or hurt our
performance.
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Our operations depend on the economies of the markets in which
our operating companies conduct business, all of which are
considered to be emerging markets. These markets are in
countries with economies in various stages of development or
structural reform, some of which are subject to volatile
economic cycles and significant, rapid fluctuations in terms of
commodity prices, local consumer prices, employment levels,
gross domestic product, interest rates and inflation rates,
which have been generally higher, and in prior years,
significantly higher than the inflation rate in the United
States. Specifically, in the last three years, the inflation
rate in Argentina has risen significantly, and we expect that it
may continue to remain elevated in the next several years, which
will increase our costs and could reduce our profitability in
Argentina. If these economic fluctuations and higher inflation
rates make it more difficult for customers to pay for our
products and services, we may experience lower demand for our
products and services and a decline in the growth of their
customer base and in revenues.
In recent years, the economies in some of the markets in which
we operate have also been negatively affected by volatile
political conditions and, in some instances, by significant
intervention by the relevant government authorities relating to
economic and currency exchange policies. We are unable to
predict the impact that local or national elections and the
associated transfer of power from incumbent officials or
political parties to newly elected officials or parties may have
on the local economy or the growth and development of the local
telecommunications industry. Changes in leadership or in the
ruling party in the countries in which we operate may affect the
economic programs developed under the prior administration,
which in turn, may adversely affect the economies in the
countries in which we operate. Other risks associated with
political instability could include the risk of expropriation or
nationalization of our assets by the governments in the markets
where we operate. Although political, economic and social
conditions differ in each country in which we currently operate,
political and economic developments in one country or in the
United States may affect our business as a whole, including our
access to international capital markets.
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c.
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Our
operating companies are subject to local laws and government
regulations in the countries in which they operate, which could
limit our growth and strategic plans and negatively impact our
financial results.
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Our operations are subject to local laws and regulations in the
countries in which we operate, which may differ from those in
the United States. We could become subject to legal penalties in
foreign countries if we do not comply with local laws and
regulations, which may be substantially different from those in
the United States. In some foreign countries, particularly
in those with developing economies, persons may engage in
business practices that are prohibited by United States
regulations applicable to us such as the Foreign Corrupt
Practices Act. Although we have implemented policies and
procedures designed to ensure compliance with these laws, there
can be no assurance that all of our employees, consultants,
contractors and agents will not take actions in violations of
our policies. Any such violation, even if prohibited by our
policies, could have a material adverse effect on our business.
In addition, in each market in which we operate, one or more
regulatory entities regulate the licensing, construction,
acquisition, ownership and operation of our wireless
communications systems. Adoption of new regulations, changes in
the current telecommunications laws or regulations or changes in
the manner in which they are interpreted or applied could
adversely affect our operations. In some markets, we are unable,
or have limitations on our ability, to provide some types of
services we have planned to offer. These limitations, or similar
regulatory prohibitions or limitations on our services that may
arise in the future could increase our costs, reduce our
revenues or make it more difficult for us to compete.
The regulatory schemes in the countries in which we operate
allow third parties, including our competitors, to challenge our
actions. If our competitors are successful in pursuing claims
such as these, or if the regulators in our markets take actions
against us in response to actions initiated by our competitors,
our ability to pursue our business plans and our results of
operations could be adversely affected. In addition, if our
competitors were to challenge the results of auctions in which
we are a participant, it could adversely
27
affect our ability to acquire the rights to use spectrum that
would provide us with the ability to deploy new technologies
that support new services that would position us to compete more
effectively.
Finally, rules and regulations affecting tower placement and
construction affect our ability to operate in each of our
markets, and therefore impact our business strategies. In some
of our markets, local governments have adopted very stringent
rules and regulations related to the placement and construction
of wireless towers, or have placed embargoes on some of the cell
sites owned by our operating companies, which can significantly
impede the planned expansion of our service coverage area,
eliminate existing towers, result in unplanned costs, negatively
impact network performance and impose new and onerous taxes and
fees. Our licenses to use spectrum in some of our markets
require us to build our networks within proscribed time periods,
and rules and regulations affecting tower placement and
construction could make it difficult to meet our build
requirements in a timely manner or at all, which could lead us
to incur unplanned costs or result in the loss of spectrum
licenses.
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d.
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We pay
significant import duties on our network equipment and handsets,
and any increases could impact our financial results.
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Our operations are highly dependent upon the successful and
cost-efficient importation of network equipment and handsets
from North America and, to a lesser extent, from Europe and
Asia. Network equipment and handsets may be subject to
significant import duties and other taxes in the countries in
which our operating companies conduct business. Any significant
increase in import duties in the future could significantly
increase our costs. To the extent we cannot pass these costs on
to our customers, our financial results will be negatively
impacted.
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e.
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We are
subject to foreign taxes in the countries in which we operate,
which may reduce amounts we receive from our operating companies
or may increase our tax costs.
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Many of the foreign countries in which we operate have
increasingly turned to new taxes, as well as aggressive
interpretations of current taxes, as a method of increasing
revenue. For example, the Mexican government recently enacted an
excise tax on telecommunications services, increased the
value-added tax rate and enacted an increase to the corporate
income tax rate. In addition, our operating company in Brazil is
required to pay two types of income taxes, which include a
corporate income tax and a social contribution tax and is
subject to various types of non-income taxes, including
value-added tax, excise tax, service tax, importation tax and
property tax. In addition, the reduction in tax revenues
resulting from the recent economic downturn has led to proposals
and new laws in some of our markets that increase the taxes
imposed on sales of handsets and on telecommunications services.
The provisions of new tax laws may attempt to prohibit us from
passing these taxes on to our customers. These taxes may reduce
the amount of earnings that we can generate from our services or
in some cases may result in operating losses.
Distributions of earnings and other payments, including
interest, received from our operating companies may be subject
to withholding taxes imposed by some countries in which these
entities operate. Any of these taxes will reduce the amount of
after-tax cash we can receive from those operating companies.
See Part I. Operating Companies for more
information.
In general, a U.S. corporation may claim a foreign tax
credit against its Federal income tax expense for foreign
withholding taxes and, under certain circumstances, for its
share of foreign income taxes paid directly by foreign corporate
entities in which the company owns 10% or more of the voting
stock. Our ability to claim foreign tax credits is, however,
subject to numerous limitations, and we may incur incremental
tax costs as a result of these limitations or because we do not
have U.S. Federal taxable income.
We may also be required to include in our income for
U.S. Federal income tax purposes our proportionate share of
specified earnings of our foreign corporate subsidiaries that
are classified as controlled foreign corporations, without
regard to whether distributions have been actually received from
these subsidiaries.
Nextel Brazil has received tax assessment notices from state and
federal Brazilian tax authorities asserting deficiencies in tax
payments related primarily to value added taxes, import duties
and matters surrounding the
28
definition and classification of equipment and services. Nextel
Brazil has filed various petitions disputing these assessments.
In some cases we have received favorable decisions, which are
currently being appealed by the respective governmental
authorities. In other cases, our petitions have been denied and
we are currently appealing those decisions. See Note 7 to
our consolidated financial statements for more information
regarding our potential tax obligations in Brazil.
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f.
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We have
entered into a number of agreements that are subject to
enforcement in foreign countries, which may limit efficient
dispute resolution.
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A number of the agreements that we and our operating companies
enter into with third parties are governed by the laws of, and
are subject to dispute resolution in the courts of or through
arbitration proceedings in, the countries or regions in which
the operations are located. We cannot accurately predict whether
these forums will provide effective and efficient means of
resolving disputes that may arise. Even if we are able to obtain
a satisfactory decision through arbitration or a court
proceeding, we could have difficulty enforcing any award or
judgment on a timely basis. Our ability to obtain or enforce
relief in the United States is also uncertain.
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3.
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Our
funding needs and debt service requirements could make us more
dependent on external financing and adverse changes in economic
conditions could negatively impact our access to the capital
markets. If we are unable to obtain financing when needed and on
terms acceptable to us, our business may be adversely
affected.
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Historically, cash flow from our operating activities has not
been sufficient to cover all of our consolidated working capital
requirements, interest expenses, taxes and capital expenditures
as we have expanded our business. The operation, expansion and
upgrading of our networks, as well as the marketing and
distribution of our services and products, require substantial
capital. Our funding needs may also increase in order to pursue
one or more of the following opportunities:
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acquisitions of spectrum licenses, either through government
sponsored auctions, including auctions of spectrum that are
expected to occur in Mexico and Brazil, or through acquisitions
of third parties, acquisitions of assets or businesses or other
strategic transactions;
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a decision by us to deploy new network technologies, in addition
to the planned network deployments in Peru and Chile, or to
offer new communications services in one or more of our
markets; or
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our expansion into new markets or further geographic expansion
in our existing markets, including the construction of
additional portions of our network.
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Our funding needs could also be affected by changes in economic
conditions in any of our markets generally, or by competitive
practices in the mobile wireless telecommunications industry
from those currently prevailing or from those now anticipated,
or by other presently unexpected circumstances that may arise
that have a material effect on the cash flow or profitability of
our wireless business. Any of these events or circumstances
could involve significant additional funding needs in excess of
the currently available sources, and could require us to raise
additional capital to meet those needs.
Deteriorating conditions in the worldwide economy and the
capital markets during 2008 and 2009 have resulted in
significant increases in the cost of capital and have made it
increasingly difficult for companies with operations in emerging
markets to obtain debt or equity financing on acceptable terms.
As a result, the interest rates applicable to the debt
financings we completed in 2009 are substantially higher than
the rates that apply to the convertible debt we incurred in
prior years. Adverse changes in market conditions in the future
could make it difficult or impossible for us to raise the
capital necessary to pursue our plans to acquire additional
spectrum and deploy new networks in our markets. While we
believe that our current cash balances and the funds we expect
to generate in our business are sufficient to support our
existing iDEN business and our current business plans, including
the deployment of new networks in Peru and Chile where we have
acquired or expect to acquire spectrum that supports those
networks, we have in the past and likely will in the future
depend upon access to the credit and capital markets to help
fund: (i) the growth of our business, (ii) the
29
acquisition of additional spectrum, and (iii) capital
expenditures in connection with the expansion and improvement of
our wireless networks and the deployment of new network
technologies. In addition, if there is an adverse change in
market conditions similar to what we experienced in the first
quarter of 2009, our access to funding that may be needed to
pursue current and future business plans to expand and acquire
rights to use spectrum and deploy networks that use new
technologies in our markets may be limited.
We also have substantial outstanding indebtedness that will
mature or may be tendered for purchase over the next five years,
with approximately $416.1 million principal face amount of
obligations outstanding as of December 31, 2009 that are
due during that period under our syndicated loan facilities in
Mexico and Brazil ($81.0 million of which is due in 2010);
$350.0 million in principal face amount of convertible
indebtedness that may be tendered for purchase at the option of
the relevant holders on each of August 15, 2010, 2012, 2015
and 2020; and $1.2 billion in convertible indebtedness that
matures in 2012, which will require us to either refinance the
indebtedness
and/or repay
it with our available cash. In addition, upon the occurrence of
certain kinds of change of control events, we may be required to
repurchase or repay a significant portion of our outstanding
debt.
Our existing or potential funding needs for our business,
including funds required to support our current plans to acquire
spectrum and deploy networks that use new technologies, and for
other purposes including the refinancing of our existing
indebtedness, may make it necessary for us to secure additional
financing, in the form of either debt or equity. Our ability to
obtain 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,
volatility and demand of the capital markets and future market
prices of our securities. If we fail to obtain suitable
financing when its required, it could, among other things,
result in our inability to implement our current or future
business plans and negatively impact our results of operations.
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4.
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Our
current and future debt may limit our flexibility and increase
our risk of default.
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As of December 31, 2009, the total outstanding principal
amount of our debt was $3,713.5 million. We may, over time
and as market conditions permit, incur significant additional
indebtedness for various purposes, which may include, without
limitation, expansion of our existing network, the acquisition
of telecommunications spectrum licenses or other assets, the
deployment of new network technologies and the refinancing,
repayment or repurchase of outstanding indebtedness. The terms
of the indenture governing our senior notes and the agreements
governing our other indebtedness permit us, subject to specified
limitations, to incur additional indebtedness, including secured
indebtedness. If new indebtedness is added to our current levels
of indebtedness, the related risks that we now face could
intensify.
Our existing debt and debt we may incur in the future could:
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limit our flexibility in planning for, or reacting to, changes
in our business and the industries in which we compete and
increase our vulnerability to general adverse economic and
industry conditions;
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limit our ability to obtain additional financing that we may
need to fund future working capital, capital expenditures,
product development, acquisitions or other corporate
requirements; and
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place us at a disadvantage compared to our competitors that have
less indebtedness.
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Furthermore, the indentures relating to our senior notes and
certain of our financing agreements include covenants that
impose restrictions on our business and, in some instances,
require us and our subsidiaries to maintain specified financial
ratios and satisfy financial tests. Similar restrictions may be
contained in future financing agreements. If we or our
subsidiaries are not able to meet the applicable ratios and
satisfy other tests, or if we fail to comply with any of the
other restrictive covenants that are contained in our current of
future financing agreements, we will be in default with respect
to one or more of the applicable financing agreements, which in
turn may result in defaults under the remaining financing
arrangements, giving our lenders and the holders of our debt
securities the right to require us to repay all amounts then
outstanding. In addition, these covenants and restrictions may
prevent us from raising additional financing, competing
effectively or taking advantage of new business opportunities,
which may affect our ability to generate revenues and profits.
30
Our ability to meet our existing or future debt obligations and
to reduce our indebtedness will depend on our future performance
and the other cash requirements of our business. Our
performance, to a certain extent, is subject to general economic
conditions and financial, business, political and other factors
that are beyond our control. We cannot assure you that we will
continue to generate cash flow from operations at or above
current levels, that we will be able to meet our cash interest
payments on all of our debt or that the related assets currently
owned by us will continue to benefit us in the future.
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5.
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Costs
and other aspects of a future deployment of advanced technology
could adversely affect our operations. The deployment of new
technology and service offerings could result in network
degradation or the loss of customers.
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We may decide to acquire new spectrum rights and deploy new
technologies to enable us to offer our customers new and
advanced services. To date, we have acquired rights to use
1.9 GHz spectrum in Peru that require us to deploy new
network technology within specified timeframes throughout Peru,
including in areas that we do not currently serve. In addition,
we were recently designated as the successful bidder for
spectrum in the 1.7 GHz and 2.1 GHz spectrum bands in
a recently completed spectrum auction in Chile. If the related
license is granted we will be required to deploy new network
technology throughout Chile consistent with the plans we
submitted in the auction process, which include areas that we do
not currently serve. Our deployments of new technologies to
offer our customers new and advanced services in Peru, Chile and
our other markets will require significant capital expenditures.
Those expenditures could increase in the event of unforeseen
delays, cost overruns, unanticipated expenses, regulatory
changes, engineering design changes, problems with network or
systems compatibility, equipment unavailability and
technological or other complications, such as our inability to
successfully coordinate this change with our customer care,
billing, order fulfillment and other back-office operations. In
addition, a deployment of new technologies will result in
incremental operating expenses prior to fully launching
services. We would also incur significant costs associated with
the integration of services offered on the new networks with
those offered on our existing iDEN network and with the
integration of billing, customer care and other support
functions.
Deployment of new technology supporting new service offerings
may also adversely affect the performance or reliability of our
networks with respect to both the new and existing services and
may require us to take action like curtailing new customers in
certain markets. Any resulting customer dissatisfaction could
affect our ability to retain customers and have an adverse
effect on our results of operations and growth prospects.
Additionally, we may be required to raise additional funds in
order to finance the costs associated with the development and
deployment of a new technology and, if required, the acquisition
of related spectrum rights in one or more of our markets
including auctions of spectrum that are expected to occur in
Mexico, Brazil and Argentina. To do so, we may issue shares of
common stock or incur new debt. Current conditions in the
financial markets may make it more difficult and expensive for
us to access the capital markets and raise funds to meet these
needs. See 3. Our funding needs and debt service
requirements could make us more dependent on external financing
and adverse changes in economic conditions could negatively
impact our access to the capital markets. If we are unable to
obtain financing when needed and on terms acceptable to us, our
business may be adversely affected. and 4.
Our current and future debt may limit our flexibility and
increase our risk of default. for more information.
|
|
6.
|
The
costs we incur to connect our operating companies networks
with those of other carriers are subject to local laws in the
countries in which they operate and may increase, which could
adversely impact our financial results.
|
Our operating companies must connect their telecommunication
networks with those of other carriers in order to provide the
services we offer. We incur costs relating to these
interconnection arrangements and for local and long distance
transport services relating to the connection of our transmitter
sites and other network equipment. These costs include
interconnection charges and fees, charges for terminating calls
on the other carriers networks and transport costs, most
of which are measured based on the level of our use of the
related services. We are able to recover a portion of these
costs through revenues earned from charges we are entitled
31
to bill other carriers for terminating calls on our network, but
because users of mobile telecommunications services who purchase
those services under contract generally, and business customers
like ours in particular, tend to make more calls that terminate
on other carriers networks and because we have a smaller
number of customers than most other carriers, we usually incur
more charges than we are entitled to receive under these
arrangements. The terms of the interconnection and transport
arrangements, including the rates that we pay, are subject to
local regulation in most of the countries in which we operate,
and often require us to negotiate agreements with the other
carriers, most of whom are our competitors, in order to provide
our services. In some instances, other carriers offer their
services at prices that are near or lower than the rates that we
pay for termination, which may make it more difficult for us to
compete profitably. Our costs relating to these interconnection
and transport arrangements are subject to fluctuation both as a
result of changes in regulations in the countries in which we
operate and the negotiations with the other carriers. For
example, a trade association representing some of our
competitors in Brazil recently filed a petition against Anatel
to challenge the partial bill and keep settlement process that
allows us to retain a portion of the amounts we would otherwise
be obligated to pay to other carriers under the calling party
pays structure in Brazil. Changes in the interconnection
arrangements either as a result of regulatory changes or
negotiated terms that are less favorable to us could result in
increased costs for the related services that we may not be able
to recover through increased revenues, which could adversely
impact our financial results.
|
|
7.
|
Because
we rely on one supplier for equipment used in our mobile
networks, any failure of that supplier to perform could
adversely affect our operations.
|
Much of the spectrum that our operating companies are licensed
to use is non-contiguous, and the iDEN technology supported by
Motorola is the only widespread, commercially available
technology that operates on non-contiguous spectrum. As a
result, Motorola is currently our sole source for most of the
network equipment and most of the handsets we sell. If Motorola
fails to deliver system infrastructure equipment and handsets or
enhancements to the features and functionality of our networks
and handsets on a timely, cost-effective basis, we may not be
able to adequately service our existing customers or attract new
customers. Nextel Communications, a subsidiary of Sprint Nextel,
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.
Sprint Nextels plans for the iDEN technology could affect
Motorolas ability to provide support for the development
of new iDEN handset models, which could make it more difficult
for us to compete effectively in some of our markets where new
handset styles and features are heavily valued by customers.
Lower levels of iDEN equipment purchases by Sprint Nextel could
also significantly increase our costs for equipment and new
network features and handset developments and could impact
Motorolas decision to continue to support iDEN technology
beyond their current commitments. We expect to continue to rely
principally on Motorola for the manufacture of a substantial
portion of the equipment necessary to construct, enhance and
maintain our iDEN-based networks and for the manufacture of iDEN
compatible handsets. Accordingly, if Motorola is unable to, or
determines not to, continue supporting or enhancing our
iDEN-based infrastructure and handsets, including potentially as
a result of adverse developments at Motorola with respect to its
operations, profitability, and financial condition or other
business developments, we will be materially adversely affected.
In addition, in February 2010, Motorola announced plans to
separate its mobile devices and home division into a separate
public entity. 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.
|
|
8.
|
Agreements
with Motorola reduce our operational flexibility and may
adversely affect our growth or operating results.
|
We have entered into agreements with Motorola that impose
certain limitations and conditions on our ability to use other
technologies that would displace our existing iDEN-based
networks. These agreements may delay or prevent us from
deploying new or different technologies that perform better or
are available at a lower cost because of the additional economic
costs and other impediments to change arising under the Motorola
agreements. If Motorola manufactures, or elects to manufacture,
the equipment utilizing the alternate technology that we elect
to deploy, we must give Motorola the opportunity to supply 50%
of our infrastructure
32
requirements for the equipment utilizing the alternate
technology for three years. If we utilize alternate equipment
suppliers, it may limit our ability to obtain the most favorable
volume pricing.
Furthermore, in connection with our handset supply agreement
with Motorola, we committed to annually escalating handset
purchases and certain pricing parameters for handsets 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.
|
|
9.
|
Our
reliance on indirect distribution channels for a significant
portion of our sales exposes us to the risk that our sales could
decline or cost of sales could increase if there are adverse
changes in our relationships with, or the condition of, our
indirect dealers.
|
Our business depends heavily upon third party distribution
channels for securing a substantial portion of the new customers
to our services. In some of our markets, a significant portion
of our sales through these indirect distribution channels is
concentrated in a small number of third party dealers. Because
these third party dealers are a primary contact between us and
the customer in many instances, they also play an important role
in customer retention. As a result, the volume of our new
customer additions and our ability to retain customers could be
adversely affected if these third party dealers terminate their
relationship with us, if there are adverse changes in our
relationships with these dealers or if the financial condition
of these dealers deteriorates. In addition, our profitability
could be adversely affected if we increase commissions to these
dealers or make other changes to our compensation arrangements
with them.
|
|
10.
|
If our
licenses to provide mobile services are not renewed, or are
modified or revoked, our business may be
restricted.
|
Wireless communications licenses and spectrum allocations are
subject to ongoing review and, in some cases, to modification or
early termination for failure to comply with applicable
regulations. If our operating companies fail to comply with the
terms of their licenses and other regulatory requirements,
including installation deadlines and minimum loading or service
availability requirements, their licenses could be revoked.
Further, compliance with these requirements is a condition for
eligibility for license renewal. Most of our wireless
communications licenses have fixed terms and are not renewed
automatically. Because governmental authorities have discretion
as to the grant or renewal of licenses, our licenses may not be
renewed or, if renewed, renewal may not be on acceptable
economic terms. For example, under existing regulations, our
licenses in Brazil and Peru are renewable once, and no
regulations presently exist regarding how or whether additional
renewals will be granted in future periods. In Mexico, we have
filed applications to renew 31 of our licenses, all of which
expired prior to their renewal. Nextel Mexico subsequently
received renewals of seven of the expired licenses. While we
expect that the remainder of these renewals will be granted, if
some or all of these renewals are not granted, it could have an
adverse effect on our business.
|
|
11.
|
Any
modification or termination of our trademark license with Nextel
Communications could increase our costs.
|
Nextel Communications has licensed to us the right to use
Nextel and other of its trademarks on a perpetual
royalty-free basis in Latin America. However, that license is
limited to the use of the trademarks in connection with the
offering of specified services, which may not include all of the
services we propose to offer in the future, and Nextel
Communications may terminate the license on 60 days notice
if we commit one of several specified defaults (namely, failure
to maintain agreed quality controls or a change in control of
NII Holdings). If there is a change in control of one of our
subsidiaries, upon 30 days notice, Nextel Communications
may terminate the sublicense granted by us to the subsidiary
with respect to the licensed marks. The loss of the use of the
Nextel name and trademark could have a material
adverse effect on our operations.
33
|
|
12.
|
Concerns
about health risks associated with wireless equipment may reduce
the demand for our services.
|
Portable communications devices have been alleged to pose health
risks, including cancer, due to radio frequency emissions from
these devices. The actual or perceived risk of mobile
communications devices could adversely affect us through
increased costs of doing business, additional governmental
regulation that sets emissions standards or otherwise limits or
prohibits our devices from being marketed and sold, a reduction
in customers, reduced network usage per customer or reduced
financing available to the mobile communications industry.
Further research and studies are ongoing, and we cannot be sure
that these studies will not demonstrate a link between radio
frequency emissions and health concerns.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our principal executive and administrative offices are located
in Reston, Virginia, where we lease about 105,337 square
feet of office space under a lease expiring in February 2020. In
addition, each of our operating companies own and lease office
space and transmitter and receiver sites in each of the
countries where they conduct business.
Each operating company leases transmitter and receiver sites for
the transmission of radio service under various individual site
leases. As of December 31, 2009, our operating companies
had constructed sites at leased and owned locations for their
business, as shown below:
|
|
|
|
|
|
|
Number
|
|
Operating Company
|
|
of Sites
|
|
|
Nextel Mexico
|
|
|
2,715
|
|
Nextel Brazil
|
|
|
3,101
|
|
Nextel Argentina
|
|
|
862
|
|
Nextel Peru
|
|
|
595
|
|
Nextel Chile
|
|
|
90
|
|
|
|
|
|
|
Total
|
|
|
7,363
|
|
|
|
|
|
|
These sites include sites sold and leased back from American
Tower Corporation, as well as various
co-location
sites with American Tower Corporation and other operators.
|
|
Item 3.
|
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. See Note 7 to our consolidated financial statements
at the end of this annual report on
Form 10-K
for more information.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2009.
Executive
Officers of the Registrant
The following people were serving as our executive officers as
of February 18, 2010. These executive officers were elected
to serve until their successors are elected. There is no family
relationship between any of our executive officers or between
any of these officers and any of our directors.
Steven M. Shindler, 47, has been a director on the board
of NII Holdings since 1997, chief executive officer from 2000
until February 2008 and chairman of the board since
November 12, 2002. In February 2008,
34
he became executive chairman of NII Holdings. Mr. Shindler
also served as executive vice president and chief financial
officer of Nextel Communications from 1996 until 2000. From 1987
to 1996, Mr. Shindler was an officer with Toronto Dominion
Bank, a bank where he was a managing director in its
communications finance group.
Steven P. Dussek, 53, has been a director on the board of
NII Holdings since 1999 and has been chief executive officer of
NII Holdings since February 2008. Prior to joining NII Holdings,
Mr. Dussek served as president and chief executive officer
of Dobson Communications Corporation, a publicly traded wireless
telecommunications company, from April 2005 until November 2007
when AT&T Wireless Services acquired Dobson Communications.
From 1999 to 2000, Mr. Dussek was the chief executive
officer of NII Holdings and was the president and chief
operating officer of NII Holdings from March 1999 until
September 1999. From 1996 to 2002, Mr. Dussek served in
various senior management positions with Nextel Communications,
most recently as executive vice president and chief operating
officer. From 1995 to 1996, Mr. Dussek served as vice
president and general manager of the northeast region for the
PCS division of AT&T Wireless Services. From 1993 to 1995,
Mr. Dussek served as senior vice president and chief
operating officer of Paging Networks, Inc., a paging company.
Mr. Dussek served on the board of directors of Dobson
Communications from 2006 to 2007.
Gokul Hemmady, 49, has been the vice president and chief
financial officer of NII Holdings since June 2007. From June
1998 to June 2007, Mr. Hemmady served in various positions
with ADC Telecommunications, Inc., a provider of global network
infrastructure products and services, including as vice
president and chief financial officer from August 2003 through
June 2007, as vice president and treasurer from June 1998
through August 2003 and as controller from May 2002 through
August 2003. Mr. Hemmady joined ADC as assistant treasurer
in October 1997. Prior to 1997, he was employed by
U.S. West International, a communications service provider,
where he served as director of international finance.
Gary D. Begeman, 51, has been the vice president and
general counsel of NII Holdings since February 2007 having
joined NII Holdings as vice president and deputy general counsel
in November 2006. From 2003 through 2006, he served as senior
vice president and deputy general counsel of Sprint Nextel
Corporation and was a vice president of Nextel Communications,
Inc. prior to its merger with Sprint. From 1999 through 2003, he
was senior vice president and general counsel of XO
Communications, Inc. From 1997 to 1999, Mr. Begeman was
vice president and deputy general counsel of Nextel
Communications, Inc. From 1991 until he joined Nextel,
Mr. Begeman was a partner with the law firm of Jones, Day,
Reavis & Pogue.
Ruben Butvilofsky, 57, has served as president of Nextel
Argentina since August 2005. From 1998 to August 2005,
Mr. Butvilofsky served as Nextel Argentinas vice
president of commercial operations. Prior to joining Nextel
Argentina, Mr. Butvilofsky was the sales director of
Liberty ART, a subsidiary of Liberty Mutual, in their Argentina
operations. Before joining Liberty ART, he was a direct sales
manager for Bellsouth (Movicom) and an indirect channel manager
for IBM Argentina.
Sergio Borges Chaia, 44, has served as president and
chief executive officer of Nextel Brazil since January 2007.
From 1996 until he joined Nextel Brazil in 2007, Mr. Chaia
held various management positions with Sodexho Pass Brazil,
including president, chief executive officer and managing
director.
Peter A. Foyo, 44, has served as president of Nextel
Mexico since 1998. From 1988 to 1998, Mr. Foyo held various
senior management positions with AT&T Corp., including
corporate strategy director of Alestra, S.A. de C.V., a joint
venture between AT&T and a local Mexican partner, and
president of AT&T Argentina.
Daniel E. Freiman, 38, has been our vice president and
treasurer since October 2008. Mr. Freiman was our vice
president and controller from April 2005 to September 2008.
Mr. Freiman was our director of investor relations from
June 2004 to April 2005, director of external financial
reporting from November 2002 to June 2004 and senior manager of
external financial reporting from September 2000 to November
2002. Prior to September 2000, he was a manager in the audit
practice of PricewaterhouseCoopers LLP in Washington, D.C.
Teresa S. Gendron, 40, has been our vice president and
controller (chief accounting officer) since January 2010.
Ms. Gendron was our vice president and assistant controller
from 2008 to December 2009. Prior to
35
2008, Ms. Gendron was our vice president of financial
compliance from 2005 to 2008 and our management director and
assistant controller from 2002 to 2005.
Claudio A. Hidalgo, 39, has served as president of Nextel
Chile since February 2010. From 2009 through 2010,
Mr. Hidalgo was vice president, mobile business and third
generation project for VTR, a Chilean telecommunications company
and subsidiary of Liberty Global, Inc. From 2007 through 2010,
Mr. Hidalgo was an entrepreneur with several new companies,
including Contiggo S.A., a financing company; Tonica S.A., an
advertising company; A7 S.A., an events promotion company; and
Intellity Consulting/ Telecom, a consulting company. From 2004
through 2007, Mr. Hidalgo served as president and chief
executive officer of Telefonica Moviles Panama and Nicaragua
together, and from 1999 to 2004, Mr. Hidalgo was the
president and chief executive officer of Movistar Puerto Rico.
Alfonso Martinez, 48, has been our vice president of
human resources since December 2008. From 2005 to November 2008,
Mr. Martinez held various management positions with
Sodexho, an integrated food and facilities management service
provider, and was most recently the group vice president of
global talent. From 2003 to 2005, Mr. Martinez was the
chief executive officer of the Hispanic Association on Corporate
Responsibility. Prior to 2003, Mr. Martinez held various
positions with Capital One, Aetna Insurance and Marriott
International.
John McMahon, 45, has been our vice president of business
operations since joining NII Holdings in 1999. Prior to that,
Mr. McMahon served as vice president of finance and
business operations, north region, for Nextel Communications
from 1997 to 1999, and as director of finance for the
mid-Atlantic region from 1995 to 1997.
Miguel E. Rivera, 57, has served as president of Nextel
Peru since 2000. Previously, Mr. Rivera was the general
manager of the Lima Stock Exchange from 1999 to 2000. From 1986
to 1998, Mr. Rivera held various executive positions with
IBM, most recently as general manager of Manufacturing Industry,
IBM Latin America.
Gregory J. Santoro, 47, has been our vice president and
chief marketing and strategy officer since February 2007. From
2000 until 2006, Mr. Santoro was the vice president of
products and services at Nextel Communications, Inc. and most
recently as the vice president of product innovation at Sprint
Nextel Corporation. Before Nextel, Mr. Santoro served as
the vice president of internet services at Bellsouth.net where
he was responsible for launching Bellsouths narrowband and
broadband internet services.
Alan Strauss, 50, has been our vice president and chief
technology and engineering officer since 2001. From 1998 until
2001, Mr. Strauss was the vice president and general
manager of Nextel Communications strategic business
operations group. From 1994 to 1998, Mr. Strauss held
various positions with Nextel Communications.
36
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
|
|
1.
|
Market
for Common Stock
|
Our common stock trades on the Nasdaq Global Select Market under
the trading symbol NIHD. The following table sets
forth on a per share basis the reported high and low sales
prices for our common stock, as reported on the market at the
time, for the quarters indicated.
|
|
|
|
|
|
|
|
|
|
|
Price Range of
|
|
|
Common Stock
|
|
|
High
|
|
Low
|
|
2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
52.72
|
|
|
$
|
28.71
|
|
Second Quarter
|
|
|
52.37
|
|
|
|
32.04
|
|
Third Quarter
|
|
|
57.05
|
|
|
|
32.93
|
|
Fourth Quarter
|
|
|
38.43
|
|
|
|
12.38
|
|
2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
24.49
|
|
|
$
|
10.23
|
|
Second Quarter
|
|
|
21.39
|
|
|
|
12.87
|
|
Third Quarter
|
|
|
31.39
|
|
|
|
17.98
|
|
Fourth Quarter
|
|
|
35.08
|
|
|
|
26.12
|
|
|
|
2.
|
Number
of Stockholders of Record
|
As of February 18, 2010, there were approximately 14
holders of record of our common stock, including the Depository
Trust Corporation, which acts as a clearinghouse for
multiple brokerage and custodial accounts.
We have not paid any dividends on our common stock and do not
plan to pay dividends on our common stock for the foreseeable
future. In addition, some of our financing documents contain and
future financing agreements may contain restrictions on the
payment of dividends. We anticipate that for the foreseeable
future any cash flow generated from our operations will be used
to develop and expand our business and operations and make
contractual payments under our debt facilities in accordance
with our business plan.
|
|
4.
|
Issuer
Purchases of Equity Securities
|
We did not repurchase any of our equity securities during the
fourth quarter of 2009.
37
Performance
Graph
The following graph presents the cumulative total stockholder
return on our common stock from December 31, 2004, when we
were listed on the Nasdaq National Market, through July 3,
2006, when we moved to the Nasdaq Global Select Market, until
December 31, 2009. This graph also compares our common
stock to the cumulative total stockholder return on the Nasdaq
100 Index, the common stock of America Movil, S.A. de C.V. and
Millicom International Cellular S.A. The graph assumes an
initial investment of $100 in our common stock as of
December 31, 2004 and in each of the comparative indices or
peer issuers, and that all dividends were reinvested.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
12/31/2004
|
|
12/31/2005
|
|
12/31/2006
|
|
12/31/2007
|
|
12/31/2008
|
|
12/31/2009
|
|
NII Holdings
|
|
$
|
100.00
|
|
|
$
|
351.17
|
|
|
$
|
518.08
|
|
|
$
|
388.48
|
|
|
$
|
146.16
|
|
|
$
|
269.97
|
|
Nasdaq 100
|
|
$
|
100.00
|
|
|
$
|
110.83
|
|
|
$
|
118.38
|
|
|
$
|
140.48
|
|
|
$
|
81.57
|
|
|
$
|
62.23
|
|
America Movil
|
|
$
|
100.00
|
|
|
$
|
107.02
|
|
|
$
|
165.40
|
|
|
$
|
224.54
|
|
|
$
|
113.35
|
|
|
$
|
171.76
|
|
Millicom International
|
|
$
|
100.00
|
|
|
$
|
153.37
|
|
|
$
|
352.23
|
|
|
$
|
673.94
|
|
|
$
|
256.63
|
|
|
$
|
421.54
|
|
38
|
|
Item 6.
|
Selected
Financial Data
|
The tables below set forth selected consolidated financial data
for the periods or as of the dates indicated and should be read
in conjunction with the consolidated financial statements and
notes thereto in Item 8 of this report and
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7 of this
report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
4,397,599
|
|
|
$
|
4,269,380
|
|
|
$
|
3,296,295
|
|
|
$
|
2,371,340
|
|
|
$
|
1,745,839
|
|
Foreign currency transaction gains (losses), net
|
|
$
|
104,866
|
|
|
$
|
(120,572
|
)
|
|
$
|
19,008
|
|
|
$
|
3,557
|
|
|
$
|
3,357
|
|
Net income
|
|
$
|
381,491
|
|
|
$
|
341,955
|
|
|
$
|
353,748
|
|
|
$
|
284,950
|
|
|
$
|
165,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, basic
|
|
$
|
2.30
|
|
|
$
|
2.05
|
|
|
$
|
2.12
|
|
|
$
|
1.85
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, diluted
|
|
$
|
2.27
|
|
|
$
|
2.02
|
|
|
$
|
2.02
|
|
|
$
|
1.67
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,554,693
|
|
|
$
|
5,090,073
|
|
|
$
|
5,436,205
|
|
|
$
|
3,298,681
|
|
|
$
|
2,622,960
|
|
Long-term debt, including current portion
|
|
$
|
3,580,788
|
|
|
$
|
2,133,140
|
|
|
$
|
2,061,381
|
|
|
$
|
1,078,698
|
|
|
$
|
1,078,655
|
|
Foreign Currency Transaction Gains (Losses),
Net. Consolidated foreign currency
transaction gains of $104.9 million for the year ended
December 31, 2009 are primarily related to the impact of
the significant appreciation in the value of the Brazilian real
relative to the U.S. dollar during 2009 on Nextel
Brazils syndicated loan facility, which is denominated in
U.S. dollars. Consolidated foreign currency transaction
losses of $120.6 million for the year ended
December 31, 2008 are primarily due to $80.2 million
in losses related to the impact of the significant depreciation
in the value of the Brazilian real relative to the
U.S. dollar during the second half of 2008 on Nextel
Brazils syndicated loan facility, which is denominated in
U.S. dollars, as well as $44.8 million in losses
related to the depreciation in the value of the Mexican peso
relative to the U.S. dollar on Nextel Mexicos
U.S. dollar-denominated net liabilities during the same
period. See Critical Accounting Policies and
Estimates Foreign Currency. for more
information.
39
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
INDEX TO
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
42
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
54
|
|
|
|
|
58
|
|
|
|
|
61
|
|
|
|
|
63
|
|
|
|
|
64
|
|
|
|
|
66
|
|
|
|
|
67
|
|
|
|
|
67
|
|
|
|
|
72
|
|
|
|
|
74
|
|
|
|
|
77
|
|
|
|
|
79
|
|
|
|
|
80
|
|
|
|
|
81
|
|
|
|
|
83
|
|
|
|
|
88
|
|
|
|
|
89
|
|
|
|
|
90
|
|
40
Forward-Looking
Statements
We include certain estimates, projections and other
forward-looking statements in our annual, quarterly and current
reports, as well as in other publicly available material.
Statements regarding expectations, including forecasts regarding
operating results and performance assumptions and estimates
relating to capital requirements, as well as other statements
that are not historical facts, are forward-looking statements.
These statements reflect managements judgments based on
currently available information and involve a number of risks
and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. With
respect to these forward-looking statements, management has made
assumptions regarding, among other things, customer and network
usage, customer growth and retention, pricing, operating costs,
the timing of various events, the economic and regulatory
environment and the foreign currency exchange rates of
currencies in the countries in which our operating companies
conduct business relative to the U.S. dollar.
Future performance cannot be assured. Actual results may differ
materially from those in the forward-looking statements. Some
factors that could cause actual results to differ include:
|
|
|
|
|
our ability to attract and retain customers;
|
|
|
|
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 currency exchange rate volatility in our
markets when 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 disruption in global capital markets during 2008 and 2009
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;
|
41
|
|
|
|
|
future legislation or regulatory actions relating to our SMR
services, other wireless communications services or
telecommunications generally and the costs
and/or
potential customer impacts of compliance with regulatory
mandates;
|
|
|
|
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;
|
|
|
|
equipment failure, natural disasters, terrorist acts or other
breaches of network or information technology security; and
|
|
|
|
other risks and uncertainties described in this annual report on
Form 10-K,
including in Part I, Item 1A. Risk
Factors, and in our other reports filed with the
Securities and Exchange Commission.
|
The words may, could,
estimate, project, forecast,
intend, expect, believe,
target, plan, providing
guidance and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are found
throughout this Managements Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in
this report. The reader should not place undue reliance on
forward-looking statements, which speak only as of the date of
this report. We are not obligated to publicly release any
revisions to forward-looking statements to reflect events after
the date of this report, including unforeseen events.
Introduction
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition for the years ended
December 31, 2009 and 2008 and our consolidated results of
operations for the years ended December 31, 2009, 2008 and
2007; and
|
|
|
|
significant factors which we believe could affect our
prospective financial condition and results of operations.
|
Historical results may not indicate future performance. See
Item 1A. Risk Factors for risks and
uncertainties that may impact our future performance.
We refer to our operating companies by the countries in which
they operate, such as Nextel Mexico, Nextel Brazil, Nextel
Argentina, Nextel Peru and Nextel Chile.
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
42
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, for private
one-to-one
calls or group calls;
|
|
|
|
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
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 above and
Item 1A. Risk Factors for
information on risks and uncertainties that could affect our
ability to reach these goals and the other objectives described
below.
We have also acquired licenses of spectrum outside the
800 MHz band in Peru and Chile that can be used to support
other wireless technologies in the future. We intend to use that
spectrum to support the deployment of a new third generation
network that utilizes WCDMA technology. Nextel Peru launched
third generation service in December 2009, and Nextel Chile is
currently in the process of constructing its third generation
network. Nextel Chile expects to begin providing third
generation service offerings in 2011.
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.
43
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, and we
expect this trend to continue. We expect that although we will
continue to focus on our current high value subscriber base, the
introduction of new handsets, service offerings and pricing
plans made possible in markets where we launch services
supported by a third generation network may enable us to further
expand our targeted customer groups in those markets.
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 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 we have substantially expanded our coverage. 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 made
significant additional investments in Brazil in 2008 and 2009 in
order to expand our service areas, including expansion into the
northeast region of the country, and add more capacity
44
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 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 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 Nextels
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. In February 2010, Motorola announced plans to
separate its mobile devices and home division into a separate
public entity. 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 third 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, 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 acquired
spectrum in Peru and launched service there on our WCDMA-based
third generation network in December 2009. In 2009, we were
assigned preliminary rights to spectrum in Chile that we intend
to use to support the deployment of a third generation network
that utilizes WCDMA technology. In addition, we expect to pursue
opportunities to acquire additional spectrum in our other
markets in the future, including through participating in the
spectrum auctions that are expected to be conducted in Brazil,
Mexico and Argentina 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. Our decision whether to
acquire
45
rights to use additional spectrum, as well as our choice of
alternative technologies to be deployed on any spectrum we
acquire, would likely be affected by a number of factors,
including:
|
|
|
|
|
the 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, whether that
equipment is designed to operate or can be modified to operate
on the spectrum bands we are licensed to use or that are
available for purchase in our markets, and whether other
wireless carriers are operating or plan to operate a particular
technology;
|
|
|
|
the spectrum bands available for purchase in our markets and the
expected cost of acquiring that spectrum;
|
|
|
|
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 have deployed a third generation
network in Peru that utilizes WCDMA technology and will operate
on this spectrum, and in the fourth quarter of 2009, we launched
high speed wireless data services using air cards supported by
our third generation network in Peru. 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 third generation networks will enable us to offer new and
differentiated services to a larger base of potential customers.
During 2008 and 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 second half
of 2009, some of these conditions are expected to continue. 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
|
|
|
|
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.
|
Deteriorating conditions in the worldwide economy and the
capital markets during 2008 and 2009 have also resulted in
significant increases in the cost of capital and have made it
increasingly difficult for companies with operations in emerging
markets to obtain debt or equity financing on acceptable terms.
As a result of these and other factors, the interest rates
applicable to the debt financings we completed in 2009 are
substantially higher than the rates that apply to the debt we
raised in prior years. 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
46
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 offerings we completed during the third and fourth
quarters 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 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 changes in the economic environment, 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
|
|
|
|
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.
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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
December 31, 2009 and 2008. For purposes of the table,
handsets in commercial service represent all handsets with
active customer accounts on our mobile networks in each of the
listed countries.
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Mexico
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Brazil
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Argentina
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Peru
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Chile
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Total
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(handsets in thousands)
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Handsets in commercial service
December 31, 2008
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2,726
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1,812
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967
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669
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|
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26
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|
|
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6,200
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Net subscriber additions
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|
|
261
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|
|
|
671
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|
|
|
63
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|
|
|
172
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|
|
|
18
|
|
|
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1,185
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Handsets in commercial service
December 31, 2009
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2,987
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|
|
2,483
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|
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|
1,030
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|
|
841
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44
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7,385
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Foreign
Currency Exposure
Nearly all of our revenues are denominated in
non-U.S. currencies,
although a significant portion of our capital and operating
expenditures, including imported network equipment and handsets,
and a substantial portion of our outstanding debt, are
denominated in U.S. dollars. Accordingly, fluctuations in
exchange rates
47
relative to the U.S. dollar could have a material adverse
effect on our earnings and assets. 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. We translate the results of operations for our
non-U.S. subsidiaries
and affiliates from the designated functional currency to the
U.S. dollar using average exchange rates during the
relevant period. In addition, changes in exchange rates
associated with U.S. dollar-denominated assets and
liabilities result in foreign currency transaction gains or
losses. For example, 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 half of 2009 compared to
the first half of 2009, those values remained at levels below
those that prevailed during the beginning of 2008.
During the second half of 2008 and the first half of 2009, there
was a significant depreciation in the value of the local
currencies in all of our markets relative to the
U.S. dollar. If this trend continues, it could make it more
costly for us to service our debt obligations, substantially all
of which are denominated in U.S. dollars, and could affect
our operating results because we pay for some of our operating
expenses and capital expenditures in U.S. dollars. In
addition, 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 in local currencies during 2009 compared to 2008. If
the values of local currencies in the countries in which our
operating companies conduct business depreciate further relative
to the U.S. dollar, we would expect our operating results
in future periods, and the value of our assets held in local
currencies, to be adversely affected. Conversely, appreciation
of the U.S. dollar relative to the currencies in the
countries where we do business could result in stronger reported
results and increased asset values that are unrelated to the
operating trends in our business. Additional information
regarding the impact of currency rates is included in the
discussion of our segments under Results of
Operations.
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. Nextel Brazil did not reverse
any material accrued liabilities related to contingencies during
2009.
As of December 31, 2009 and 2008, Nextel Brazil had accrued
liabilities of $13.9 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. Nextel Brazil did not have any
unasserted claims as of December 31, 2009. Of the total
accrued liabilities as of December 31, 2008, Nextel Brazil
had $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 $121.8 million
and $125.8 million as of December 31, 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 December 31, 2009 and 2008, Nextel Argentina had
accrued liabilities of $28.2 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.
48
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires us to make estimates and judgments that
affect the amounts reported in those financial statements and
accompanying notes. We consider the accounting policies and
estimates addressed below the most important to our financial
position and results of operations, either because of the
significance of the financial statement item or because they
require the exercise of significant judgment
and/or use
of significant estimates. Although we believe that the
estimates, we use are reasonable, due to the inherent
uncertainty involved in making those estimates, actual results
reported in future periods could differ from those estimates.
For additional information, see Note 1 to our consolidated
financial statements included at the end of this annual report
on
Form 10-K.
Revenue Recognition. While our revenue
recognition policy does not require the exercise of significant
judgment or the use of significant estimates, we believe that
our policy is significant as revenue is a key component of our
results of operations.
Operating revenues primarily consist of service revenues and
revenues generated from the sale and rental of handsets and
accessories. We present our operating revenues net of
value-added taxes, but we include certain revenue-based taxes
that are our primary obligation. Service revenues primarily
consist of fixed monthly access charges for mobile telephone
service and two-way radio service. Other components of service
revenue include revenues from calling party pays programs where
applicable and variable charges for airtime and two-way radio
usage in excess of plan minutes, long-distance charges and
international roaming revenues derived from calls placed by our
customers on other carriers networks.
We recognize revenue for access charges and other services
charged at fixed amounts ratably over the service period, net of
credits and adjustments for service discounts and value-added
taxes. We recognize excess usage, local, long distance and
calling party pays revenue at contractual rates per minute as
minutes are used. We record cash received in excess of revenues
earned as deferred revenues.
We bill excess usage to our customers in arrears. In order to
recognize the revenues originating from excess usage subsequent
to customer invoicing, we estimate the unbilled portion based on
the usage that the handset had during the part of the month
already billed, and we use this actual usage to estimate the
unbilled usage for the rest of the month taking into
consideration working days and seasonality. Our estimates are
based on our experience in each market. We periodically evaluate
our estimates by comparing them to actual excess usage revenue
billed the following month. While our estimates have been
consistent with our actual results, actual usage in future
periods could differ from our estimates.
Other revenues primarily include amounts 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. We recognize revenue generated from our
handset maintenance programs on a monthly basis at fixed amounts
over the service period. We recognize roaming revenues at
contractual rates per minute as minutes are used. We recognize
co-location revenues from third party tenants on a monthly basis
based on the terms set by the underlying agreements.
We recognize revenue from handset and accessory sales when title
and risk of loss passes upon delivery of the handset or
accessory to the customer as this is considered a separate
earnings process from the sale of wireless services.
Allowance for Doubtful Accounts. We
establish an allowance for doubtful accounts receivable
sufficient to cover probable and reasonably estimated losses.
Our methodology for determining our allowance for doubtful
accounts receivable requires significant estimates. Since we
have over one million accounts, it is impracticable to review
the collectibility of each individual account when we determine
the amount of our allowance for doubtful accounts receivable
each period. Therefore, we consider a number of factors in
establishing the allowance on a
market-by-market
basis, including historical collection experience, current
economic trends, forecasted write-offs, age of the accounts
receivable portfolio and other factors. Actual write-offs in the
future could be impacted by general economic and business
conditions that are difficult to predict and therefore may
differ from our estimates. See Item 1A.
Risk Factors 2a. Adverse changes in the
49
economic environment in our markets and a decline in foreign
exchange rates for currencies in our markets may adversely
affect our growth and our operating results.
Depreciation of Property, Plant and
Equipment. The operation of wireless
communications networks is a capital intensive business. We
record at cost our network assets and other improvements that in
our opinion, extend the useful lives of the underlying assets,
and depreciate those assets over their estimated useful lives.
We calculate depreciation using the straight-line method based
on estimated useful lives ranging from 3 to 20 years for
mobile network equipment and network software and 3 to
10 years for office equipment, furniture and fixtures, and
other, which includes
non-network
internal use software. We depreciate our corporate aircraft
under capital lease using the straight-line method based on the
lease term of 10 years. We amortize leasehold improvements
over the shorter of the lease terms or the useful lives of the
improvements. Our networks are highly complex and, due to
constant innovation and enhancements, certain components of
those networks may lose their utility sooner than anticipated.
We periodically reassess the economic life of these components
and make adjustments to their useful lives after considering
historical experience and capacity requirements, consulting with
the vendor and assessing new product and market demands and
other factors. When our assessment indicates that the economic
life of a network component is shorter than originally
anticipated, we depreciate its remaining book value over its
revised useful life. Further, the deployment of any new
technologies could adversely affect the estimated remaining
useful lives of our network assets, which could significantly
impact future results of operations.
Amortization of Intangible
Assets. Intangible assets primarily consist
of our telecommunications licenses. We calculate amortization on
our licenses using the straight-line method based on estimated
useful lives of 10 to 20 years. While the terms of our
licenses, including renewals, range from 10 to 40 years,
the political and regulatory environments in the markets we
serve are continuously changing and, as a result, the cost of
renewing our licenses could be significant. Therefore, we do not
view the renewal of our licenses to be perfunctory. In addition,
the wireless telecommunications industry is experiencing
significant technological change, and the commercial life of any
particular technology is difficult to predict. Most of our
licenses give us the right to use 800 MHz spectrum that is
non-contiguous, and the iDEN technology is the only widespread,
commercially available technology that operates on
non-contiguous spectrum. As a result, our ability to deploy new
technologies using 800MHz spectrum may be limited. In light of
these uncertainties we classify our licenses as finite lived
intangible assets. Our licenses are subject to renewal after the
initial term, provided that we have complied with applicable
rules and policies in each of our markets. We intend to comply,
and believe we have complied, with these rules and policies in
all material respects. However, because governmental authorities
have discretion as to the renewal of licenses, our licenses may
not be renewed or we may be required to pay significant renewal
fees, either of which could have a significant impact on the
estimated useful lives of our licenses, which could
significantly impact future results of operations.
Asset Retirement Obligations. We record
an asset retirement obligation, or ARO, and an associated asset
retirement cost, or ARC, when we have a legal obligation in
connection with the retirement of tangible long-lived assets.
Our obligations under the FASBs authoritative guidance on
asset retirement obligations arise from certain of our leases
and relate primarily to the cost of removing our network
infrastructure and administrative assets from the leased space
where these assets are located at the end of the lease.
Estimating these obligations requires us to make certain
assumptions that are highly judgmental in nature. The
significant assumptions used in estimating our asset retirement
obligations include the following: the probability that our
assets with asset retirement obligations will be removed at the
lessors directive; expected settlement dates that coincide
with lease expiration dates plus estimates of lease extensions;
removal costs that are indicative of what third party vendors
would charge us to remove the assets; expected inflation rates;
and credit-adjusted risk-free rates that approximate our
incremental borrowing rates. We periodically review these
assumptions to ensure that the estimates are reasonable. Any
change in the assumptions used could significantly affect the
amounts recorded with respect to our asset retirement
obligations.
Foreign Currency. We translate the
results of operations for our
non-U.S. subsidiaries
from the designated functional currency to the U.S. dollar
using average exchange rates for the relevant period. We
translate assets and liabilities using the exchange rate in
effect at the relevant reporting date. We report the resulting
gains or losses from translating foreign currency financial
statements as other comprehensive income
50
or loss. Because we translate the operations of our
non-U.S. subsidiaries
using average exchange rates, our operating companies
trends may be impacted by the translation.
We report the effect of changes in exchange rates on
U.S. dollar-denominated assets and liabilities as foreign
currency transaction gains or losses. We report the effect of
changes in exchange rates on intercompany transactions of a
long-term investment nature as part of the cumulative foreign
currency translation adjustment in our consolidated financial
statements. The intercompany transactions that, in our view, are
of a long-term investment nature include certain intercompany
loans and advances from our U.S. subsidiaries to Nextel
Brazil and Nextel Chile and an intercompany payable to Nextel
Mexico. In contrast, we report the effect of exchange rates on
U.S. dollar-denominated intercompany loans and advances to
our foreign subsidiaries that are due, or for which repayment is
anticipated in the foreseeable future, as foreign currency
transaction gains or losses in our consolidated statements of
operations. As a result, our determination of whether
intercompany loans and advances are of a long-term investment
nature can have a significant impact on how we report foreign
currency transaction gains and losses in our consolidated
financial statements.
Loss Contingencies. We account for and
disclose loss contingencies such as pending litigation and
actual or possible claims and assessments in accordance with the
FASBs authoritative guidance on accounting for
contingencies. We accrue for loss contingencies if it is
probable that a loss will occur and if the loss can be
reasonably estimated. We disclose, but do not accrue for, loss
contingencies if it is reasonably possible that a loss will
occur and if the loss can be reasonably estimated. We do not
accrue for or disclose loss contingencies if there is only a
remote possibility that the loss will occur. The FASBs
authoritative guidance requires us to make judgments regarding
future events, including an assessment relating to the
likelihood that a loss may occur and an estimate of the amount
of such loss. In assessing loss contingencies, we often seek the
assistance of our legal counsel and in some instances, of third
party legal counsel. As a result of the significant judgment
required in assessing and estimating loss contingencies, actual
losses realized in future periods could differ significantly
from our estimates.
Stock-Based Compensation. On
January 1, 2006, we adopted the fair value recognition
provisions of the FASBs updated authoritative guidance on
share-based payments, which requires the measurement and
recognition of compensation expense, based on estimated fair
values, for all share-based awards, made to employees and
directors, including stock options and restricted stock. We used
the modified prospective transition method and therefore did not
restate our prior periods results. As a result, our
consolidated statements of operations for the years ended
December 31, 2009, 2008 and 2007 include share-based
compensation expense for awards granted (i) prior to, but
not yet vested as of January 1, 2006, based on the grant
date fair value estimated in accordance with the provisions of
the FASBs authoritative guidance on accounting for
stock-based compensation and (ii) subsequent to
January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of the FASBs
updated authoritative guidance on share-based payments.
We use the Black-Scholes-Merton option pricing model, which we
refer to as the Black-Scholes Model, for purposes of determining
the estimated fair value of share-based payment awards on the
date of grant under the FASBs updated authoritative
guidance. The Black-Scholes Model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, the
Black-Scholes-Model requires the input of highly subjective
assumptions, including expected stock price volatility and
exercise behavior, as well as other assumptions including the
average risk free interest rate and expected dividend yield.
The assumptions we use in the Black-Scholes Model represent our
best estimates, but these estimates involve inherent
uncertainties and the application of management judgment.
Consequently, there is a risk that our estimates of the fair
values of our stock option awards on the grant dates may bear
little resemblance to the actual values realized upon the
exercise, expiration, early termination or forfeiture of those
stock option awards in the future. For example, certain stock
option awards may expire worthless or otherwise result in zero
intrinsic value as compared to the fair values originally
estimated on the grant date and reported in our financial
statements. Alternatively, value may be realized from a stock
option award that is significantly in excess of the fair value
originally estimated on the grant date and reported in our
financial statements.
51
Additionally, the use of alternative assumptions could produce
significantly different estimates of the fair value of stock
option awards and consequently, the related amounts recognized
in the consolidated statements of operations. Currently, there
is no other practical application to verify the reliability and
accuracy of the estimates from option-pricing valuation models
such as Black-Scholes. Although the fair value of stock option
awards is determined in accordance with the FASBs
authoritative guidance on share-based payments, using the
Black-Scholes Model, the fair value may not be indicative of the
fair value observed in a willing buyer/willing seller market
transaction. Because stock options granted to employees have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, we believe that
the existing models, including the Black-Scholes model, do not
necessarily provide a reliable single measure of the fair value
of the stock options.
Income Taxes. We account for income
taxes using the asset and liability method, under which we
recognize deferred income taxes for the tax consequences
attributable to differences between the financial statement
carrying amounts and the tax bases of existing assets and
liabilities, as well as for tax loss carryforwards and tax
credit carryforwards. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recoverable or settled. We recognize the effect
on deferred taxes of a change in tax rates in income in the
period that includes the enactment date. We provide a valuation
allowance against deferred tax assets if, based upon the weight
of available evidence, we do not believe it is
more-likely-than-not that some or all of the
deferred tax assets will be realized. We report remeasurement
gains and losses related to deferred tax assets and liabilities
in our income tax provision.
Historically, a substantial portion of our deferred tax asset
valuation allowance related to deferred tax assets that, if
realized, would not result in a benefit to our income tax
provision. In accordance with the FASBs authoritative
guidance on financial reporting by entities in reorganization
under the bankruptcy code, we recognize decreases in the
valuation allowance existing at the reorganization date first as
a reduction in the carrying value of intangible assets existing
at the reorganization date of October 31, 2002 and then as
an increase to paid-in capital. As of December 31, 2004, we
reduced to zero the carrying value of our intangible assets
existing at the reorganization date. In accordance with the
FASBs updated authoritative guidance on business
combinations, effective beginning in 2009, we will record the
future decreases, if any, of the valuation allowance existing on
the reorganization date as a reduction to income tax expense. We
will also record decreases, if any, of the post-reorganization
valuation allowance as a reduction to our income tax expense.
Using a
with-and-without
method, in accordance with the FASBs updated authoritative
guidance on share-based payments, we recognize decreases in the
valuation allowance attributable to the excess tax benefits
resulting from the exercise of employee stock options as an
increase to paid-in capital. In each market and in the U.S., we
recognize decreases in the valuation allowance first as a
decrease in the remaining valuation allowance that existed as of
the reorganization date, then as a decrease in any
post-reorganization valuation allowance, and finally as a
decrease of the valuation allowance associated with stock option
deductions.
Realization of deferred tax assets in any of our markets depends
on continued future profitability in these markets. Our ability
to generate the expected amounts of taxable income from future
operations is dependent upon general economic conditions,
technology trends, political uncertainties, competitive
pressures and other factors beyond managements control. If
our operations continue to demonstrate profitability, we may
further reverse additional deferred tax asset valuation
allowance balances during 2010. We will continue to evaluate the
deferred tax asset valuation allowance balances in all of our
foreign and U.S. companies throughout 2010 to determine the
appropriate level of valuation allowances.
During 2009, we maintained our prior year position regarding the
repatriation of foreign earnings back to the U.S. As of
December 31, 2008, we included a $55.1 million
provision in deferred tax liability for U.S. federal, state
and foreign taxes with respect to future remittances of certain
undistributed earnings (other than income that has been
previously taxed in the U.S. under the subpart F rules) of
certain of our foreign subsidiaries. This deferred tax liability
decreased by $35.7 million to $19.4 million as of
December 31, 2009 due to a $38.3 million tax effect on
the distribution received from our Mexico and Argentine
subsidiaries and a $2.6 million increase due to the
strengthening in the Mexican exchange rate against the
U.S. dollar. Except for the earnings associated with this
$19.4 million provision, we currently have no intention to
remit any
52
additional undistributed earnings of our foreign subsidiaries,
other than income that has been previously taxed in the
U.S. under the subpart F rules. Should additional amounts
of our foreign subsidiaries undistributed earnings be
remitted to the U.S. as dividends, we may be subject to
additional U.S. income taxes (net of allowable foreign tax
credits) and foreign withholding taxes. It is not practicable to
estimate the amount of any additional taxes which may be payable
on the remaining undistributed earnings.
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. 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. We
have only recorded financial statement benefits for tax
positions which we believe reflect the
more-likely-than-not criteria of the FASBs
authoritative guidance on accounting for uncertainty in income
taxes, and we have established income tax reserves in accordance
with this guidance where necessary. Once a financial statement
benefit for a tax position is recorded or a tax reserve is
established, we adjust it only when there is more information
available or when an event occurs necessitating a change. While
we believe that the amount of the recorded financial statement
benefits and tax reserves reflect the more-likely-than-not
criteria, it is possible that the ultimate outcome of current or
future examinations may result in a reduction to the tax
benefits previously recorded on our consolidated financial
statements or may exceed the current income tax reserves in
amounts that could be material.
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of handsets and
accessories. Service revenues primarily include fixed monthly
access charges for mobile telephone service and two-way radio
and other services, including revenues from calling party pays
programs and variable charges for airtime and 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.
See Revenue Recognition above and Note 1 to our
consolidated financial statements included at the end of this
annual report on
Form 10-K
for a description of our revenue recognition methodology.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of handset and accessory sales.
Cost of providing 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 switches and
transmitter sites used to operate our mobile 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. 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
handsets terminating on their 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 handsets
in service and not necessarily by the number of customers, as
one customer may purchase one or many 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.
53
Selling and marketing expenses includes 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.
As further discussed in the notes to our condensed consolidated
financial statements, we adjusted our consolidated financial
statements for the years ended December 31, 2008 and 2007
for the retrospective application of the Financial Accounting
Standards Boards, or FASBs, recently issued
authoritative guidance for convertible debt instruments.
1.
Year Ended December 31, 2009 vs. Year Ended
December 31, 2008
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Year Ended
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Year Ended
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Consolidated
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|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2009
|
|
|
Revenues
|
|
|
|
2008
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
4,153,548
|
|
|
|
94
|
|
%
|
|
$
|
4,048,466
|
|
|
|
95
|
|
%
|
|
$
|
105,082
|
|
|
|
3
|
|
%
|
Digital handset and accessory revenues
|
|
|
244,051
|
|
|
|
6
|
|
%
|
|
|
220,914
|
|
|
|
5
|
|
%
|
|
|
23,137
|
|
|
|
10
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,397,599
|
|
|
|
100
|
|
%
|
|
|
4,269,380
|
|
|
|
100
|
|
%
|
|
|
128,219
|
|
|
|
3
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(1,225,222
|
)
|
|
|
(28
|
)
|
%
|
|
|
(1,110,927
|
)
|
|
|
(26
|
)
|
%
|
|
|
(114,295
|
)
|
|
|
10
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(623,733
|
)
|
|
|
(14
|
)
|
%
|
|
|
(585,391
|
)
|
|
|
(14
|
)
|
%
|
|
|
(38,342
|
)
|
|
|
7
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,848,955
|
)
|
|
|
(42
|
)
|
%
|
|
|
(1,696,318
|
)
|
|
|
(40
|
)
|
%
|
|
|
(152,637
|
)
|
|
|
9
|
|
%
|
Selling and marketing expenses
|
|
|
(536,150
|
)
|
|
|
(12
|
)
|
%
|
|
|
(568,864
|
)
|
|
|
(13
|
)
|
%
|
|
|
32,714
|
|
|
|
(6
|
)
|
%
|
General and administrative expenses
|
|
|
(902,313
|
)
|
|
|
(21
|
)
|
%
|
|
|
(831,778
|
)
|
|
|
(20
|
)
|
%
|
|
|
(70,535
|
)
|
|
|
8
|
|
%
|
Depreciation and amortization
|
|
|
(433,304
|
)
|
|
|
(10
|
)
|
%
|
|
|
(405,120
|
)
|
|
|
(9
|
)
|
%
|
|
|
(28,184
|
)
|
|
|
7
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
676,877
|
|
|
|
15
|
|
%
|
|
|
767,300
|
|
|
|
18
|
|
%
|
|
|
(90,423
|
)
|
|
|
(12
|
)
|
%
|
Interest expense, net
|
|
|
(218,844
|
)
|
|
|
(5
|
)
|
%
|
|
|
(205,516
|
)
|
|
|
(5
|
)
|
%
|
|
|
(13,328
|
)
|
|
|
6
|
|
%
|
Interest income
|
|
|
25,586
|
|
|
|
1
|
|
%
|
|
|
68,411
|
|
|
|
2
|
|
%
|
|
|
(42,825
|
)
|
|
|
(63
|
)
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
104,866
|
|
|
|
2
|
|
%
|
|
|
(120,572
|
)
|
|
|
(3
|
)
|
%
|
|
|
225,438
|
|
|
|
(187
|
)
|
%
|
Other expense, net
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
|
(28,806
|
)
|
|
|
(1
|
)
|
%
|
|
|
26,498
|
|
|
|
(92
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
586,177
|
|
|
|
13
|
|
%
|
|
|
480,817
|
|
|
|
11
|
|
%
|
|
|
105,360
|
|
|
|
22
|
|
%
|
Income tax provision
|
|
|
(204,686
|
)
|
|
|
(4
|
)
|
%
|
|
|
(138,862
|
)
|
|
|
(3
|
)
|
%
|
|
|
(65,824
|
)
|
|
|
47
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
381,491
|
|
|
|
9
|
|
%
|
|
$
|
341,955
|
|
|
|
8
|
|
%
|
|
$
|
39,536
|
|
|
|
12
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Throughout 2009, we continued to expand our subscriber base
across all of our markets with much of this growth concentrated
in Brazil and Mexico. We also experienced a higher consolidated
customer turnover rate compared to 2008, which resulted
primarily from the combined impact of weaker economic conditions
in Mexico and Argentina throughout 2009 and the more competitive
sales environment in Mexico that arose during 2007 and continued
through 2009. While we have implemented initiatives designed to
stabilize customer turnover rates in our markets, which resulted
in improved customer turnover rates during the third and fourth
quarters of 2009 compared to the customer turnover rates
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 throughout 2009, resulting in consolidated capital
expenditures of $733.2 million, which represented a 12%
decrease from 2008. The majority of this investment occurred in
Brazil where we continued to expand our coverage areas and
enhance
54
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 2010 as we focus more resources on
expansion in that market. In addition, our deployment of a third
generation network in Peru has required and will continue to
require significant additional capital expenditures as will our
planned deployment of a third generation network in Chile. We
will also incur significant additional capital expenditures if
we pursue our plans to acquire spectrum and deploy third
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
year ended December 31, 2009 compared to the year ended
December 31, 2008. Our operating results for 2010 will be
adversely affected when compared to prior periods if the values
of the local currencies relative to the U.S. dollar remain
at the average levels that prevailed during the first half of
2009.
The $105.1 million, or 3%, increase in consolidated service
and other revenues from 2008 to 2009 is primarily due to a 24%
increase in the average number of total handsets in service from
2008 to 2009, which resulted from both the continued strong
demand for our services and our balanced growth and expansion
strategy, primarily in Brazil. This increase was partially
offset by a decrease 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, reductions in the average revenue per
subscriber due to continued competitive pressures in Mexico and
an increase in the percentage of subscribers purchasing lower
priced prepaid rate plans in Peru.
The $23.1 million, or 10% increase in consolidated digital
handset and accessory revenues from 2008 to 2009 is largely due
to an increase in consolidated handset upgrades for existing
subscribers and, to a lesser extent, an increase in the sale of
higher cost handsets to new subscribers.
The $114.3 million, or 10%, increase in consolidated cost
of service from 2008 to 2009 is mostly due to the following:
|
|
|
|
|
an increase in consolidated service and repair costs, primarily
in Brazil, resulting from increased cost of repair per
subscriber related to a change in the mix of handsets in Brazil
toward more mid and high tier handsets;
|
|
|
|
an increase in consolidated interconnect costs, principally in
Brazil, resulting from an increase in consolidated interconnect
minutes of use;
|
|
|
|
an increase in consolidated direct switch and transmitter and
receiver site costs resulting from an increase in the
consolidated number of cell sites in service from
December 31, 2008 to December 31, 2009; and
|
|
|
|
an increase in consolidated payroll and employee related costs
primarily related to severance costs we incurred in the fourth
quarter of 2009 in connection with the expected transition of
certain employees to outsourcing vendors that will provide
network and information technology management services.
|
The $38.3 million, or 7%, increase in cost of digital
handset and accessory sales from 2008 to 2009 is largely due to
an increase in consolidated handset upgrades for existing
subscribers and, to a lesser extent, an increase in the sale of
higher cost handsets to new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $32.7 million, or 6%, decrease in consolidated selling
and marketing expenses from 2008 to 2009 is primarily the result
of a decrease in consolidated indirect commissions resulting
from lower indirect
55
commission per gross subscriber addition, principally due to the
depreciation of the Mexican peso, partially offset by an
increase in consolidated advertising expenses, mostly in Brazil.
|
|
4.
|
General and
administrative expenses
|
The $70.5 million, or 8%, increase in consolidated general
and administrative expenses from 2008 to 2009 is mostly due to
the following:
|
|
|
|
|
an 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 implementation of new billing systems in some of our
markets and the development and deployment of the third
generation network in Peru;
|
|
|
|
an increase in consolidated customer care expenses, primarily in
Brazil, related to an increase in customer care personnel
necessary to support a growing customer base; and
|
|
|
|
an increase in consolidated engineering management expenses
related to some of our new technology and other initiatives.
|
|
|
5.
|
Depreciation
and amortization
|
The $28.2 million, or 7%, increase in consolidated
depreciation and amortization from 2008 to 2009 is largely due
to an increase in consolidated property, plant and equipment in
service, primarily in Brazil, resulting from the continued
build-out of Nextel Brazils network.
The $13.3 million, or 6%, increase in consolidated interest
expense from 2008 to 2009 is primarily attributable to interest
incurred in connection with the issuance of our
10.0% senior notes in August 2009, partially offset by a
decrease in interest incurred under Nextel Mexico and Nextel
Brazils syndicated loan facilities as a result of the
repayment of a portion of the loans under those facilities in
2009. We expect to incur higher interest expense in 2010 as a
result of the interest we will incur under our 10.0% senior
notes that we issued in August 2009 and our 8.875% senior
notes that we issued in December 2009.
See Note 6 to our 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 $42.8 million, or 63%, decrease in consolidated
interest income from 2008 to 2009 is largely the result of a
decrease in short-term investments, as well as lower average
interest rates over the same period.
|
|
8.
|
Foreign
currency transaction gains (losses), net
|
Consolidated foreign currency transaction gains of
$104.9 million for 2009 are primarily the result of the
impact of the appreciation in the value of the Brazilian real
relative to the U.S. dollar during the second half of 2009
on Nextel Brazils U.S. dollar-denominated net
liabilities, primarily its syndicated loan facility.
Consolidated foreign currency transaction losses of
$120.6 million for 2008 are mostly the result of the impact
of the depreciation in the value of the Brazilian real and the
Mexican peso relative to the U.S. dollar during the second
half of 2008 on Nextel Brazil and Nextel Mexicos
U.S. dollar-denominated net liabilities, primarily their
syndicated loan facilities.
The $28.8 million in net consolidated other expense for
2008 primarily represents losses that we recognized in
connection with the decline in the value of our investment in a
U.S. short-term investment fund resulting from the
deteriorated market conditions at that time.
56
The $65.8 million, or 47%, increase in the consolidated
income tax provision is mainly due to a $105.4 million, or
22%, increase in income before taxes and a $22.8 million
increase in income tax withholding on intercompany payments.
Segment
Results
We evaluate performance of our segments and provide resources to
them based on operating income before depreciation, 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. For several years, we have charged a management fee to
Nextel Mexico for services rendered by corporate management that
directly benefit Nextel Mexico. In the fourth quarter of 2009,
we began charging management fees to our other segments,
effective as of January 1, 2009. The tables below provide a
summary of the components of our consolidated segments for the
years ended December 31, 2009 and 2008. The results of
Nextel Chile are included in Corporate and other.
Both Nextel Mexico and Nextel Brazils results of
operations were affected by the decline in the average values of
the Mexican peso and the Brazilian real during the year ended
December 31, 2009 compared to the average values of those
currencies during the same period in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Year Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
December 31, 2009
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,861,864
|
|
|
|
42
|
%
|
|
$
|
(720,180
|
)
|
|
|
39
|
%
|
|
$
|
(488,574
|
)
|
|
|
34
|
%
|
|
$
|
653,110
|
|
Nextel Brazil
|
|
|
1,734,637
|
|
|
|
40
|
%
|
|
|
(727,565
|
)
|
|
|
39
|
%
|
|
|
(511,747
|
)
|
|
|
36
|
%
|
|
|
495,325
|
|
Nextel Argentina
|
|
|
519,720
|
|
|
|
12
|
%
|
|
|
(241,148
|
)
|
|
|
13
|
%
|
|
|
(129,769
|
)
|
|
|
9
|
%
|
|
|
148,803
|
|
Nextel Peru
|
|
|
268,385
|
|
|
|
6
|
%
|
|
|
(148,193
|
)
|
|
|
8
|
%
|
|
|
(105,587
|
)
|
|
|
7
|
%
|
|
|
14,605
|
|
Corporate and other
|
|
|
14,086
|
|
|
|
|
|
|
|
(12,962
|
)
|
|
|
1
|
%
|
|
|
(202,786
|
)
|
|
|
14
|
%
|
|
|
(201,662
|
)
|
Intercompany eliminations
|
|
|
(1,093
|
)
|
|
|
|
|
|
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
4,397,599
|
|
|
|
100
|
%
|
|
$
|
(1,848,955
|
)
|
|
|
100
|
%
|
|
$
|
(1,438,463
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Year Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
December 31, 2008
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
2,133,241
|
|
|
|
50
|
%
|
|
$
|
(762,674
|
)
|
|
|
45
|
%
|
|
$
|
(606,223
|
)
|
|
|
43
|
%
|
|
$
|
764,344
|
|
Nextel Brazil
|
|
|
1,330,919
|
|
|
|
31
|
%
|
|
|
(549,970
|
)
|
|
|
32
|
%
|
|
|
(410,980
|
)
|
|
|
29
|
%
|
|
|
369,969
|
|
Nextel Argentina
|
|
|
554,324
|
|
|
|
13
|
%
|
|
|
(250,303
|
)
|
|
|
15
|
%
|
|
|
(133,166
|
)
|
|
|
10
|
%
|
|
|
170,855
|
|
Nextel Peru
|
|
|
243,390
|
|
|
|
6
|
%
|
|
|
(126,024
|
)
|
|
|
7
|
%
|
|
|
(74,809
|
)
|
|
|
5
|
%
|
|
|
42,557
|
|
Corporate and other
|
|
|
8,741
|
|
|
|
|
|
|
|
(8,582
|
)
|
|
|
1
|
%
|
|
|
(175,464
|
)
|
|
|
13
|
%
|
|
|
(175,305
|
)
|
Intercompany eliminations
|
|
|
(1,235
|
)
|
|
|
|
|
|
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
4,269,380
|
|
|
|
100
|
%
|
|
$
|
(1,696,318
|
)
|
|
|
100
|
%
|
|
$
|
(1,400,642
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
years ended December 31, 2009, 2008 and 2007. 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 prior
57
periods. 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
Nuevo sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 to 2009
|
|
|
2007 to 2008
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Percent Change
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
13.52
|
|
|
|
11.13
|
|
|
|
10.93
|
|
|
|
(21.5
|
)%
|
|
|
(1.8
|
)%
|
Brazilian real
|
|
|
2.00
|
|
|
|
1.83
|
|
|
|
1.95
|
|
|
|
(9.3
|
)%
|
|
|
6.2
|
%
|
Argentine peso
|
|
|
3.73
|
|
|
|
3.16
|
|
|
|
3.12
|
|
|
|
(18.0
|
)%
|
|
|
(1.5
|
)%
|
A discussion of the results of operations in each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,785,230
|
|
|
|
96
|
%
|
|
$
|
2,047,113
|
|
|
|
96
|
%
|
|
$
|
(261,883
|
)
|
|
|
(13
|
)%
|
Digital handset and accessory revenues
|
|
|
76,634
|
|
|
|
4
|
%
|
|
|
86,128
|
|
|
|
4
|
%
|
|
|
(9,494
|
)
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,861,864
|
|
|
|
100
|
%
|
|
|
2,133,241
|
|
|
|
100
|
%
|
|
|
(271,377
|
)
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(360,755
|
)
|
|
|
(19
|
)%
|
|
|
(401,846
|
)
|
|
|
(19
|
)%
|
|
|
41,091
|
|
|
|
(10
|
)%
|
Cost of digital handset and accessory sales
|
|
|
(359,425
|
)
|
|
|
(19
|
)%
|
|
|
(360,828
|
)
|
|
|
(17
|
)%
|
|
|
1,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(720,180
|
)
|
|
|
(38
|
)%
|
|
|
(762,674
|
)
|
|
|
(36
|
)%
|
|
|
42,494
|
|
|
|
(6
|
)%
|
Selling and marketing expenses
|
|
|
(235,224
|
)
|
|
|
(13
|
)%
|
|
|
(317,620
|
)
|
|
|
(15
|
)%
|
|
|
82,396
|
|
|
|
(26
|
)%
|
General and administrative expenses
|
|
|
(253,350
|
)
|
|
|
(14
|
)%
|
|
|
(288,603
|
)
|
|
|
(13
|
)%
|
|
|
35,253
|
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
653,110
|
|
|
|
35
|
%
|
|
|
764,344
|
|
|
|
36
|
%
|
|
|
(111,234
|
)
|
|
|
(15
|
)%
|
Management fee
|
|
|
(48,742
|
)
|
|
|
(3
|
)%
|
|
|
(32,187
|
)
|
|
|
(2
|
)%
|
|
|
(16,555
|
)
|
|
|
51
|
%
|
Depreciation and amortization
|
|
|
(168,663
|
)
|
|
|
(9
|
)%
|
|
|
(191,396
|
)
|
|
|
(9
|
)%
|
|
|
22,733
|
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
435,705
|
|
|
|
23
|
%
|
|
|
540,761
|
|
|
|
25
|
%
|
|
|
(105,056
|
)
|
|
|
(19
|
)%
|
Interest expense, net
|
|
|
(44,411
|
)
|
|
|
(2
|
)%
|
|
|
(60,086
|
)
|
|
|
(2
|
)%
|
|
|
15,675
|
|
|
|
(26
|
)%
|
Interest income
|
|
|
17,225
|
|
|
|
1
|
%
|
|
|
46,221
|
|
|
|
2
|
%
|
|
|
(28,996
|
)
|
|
|
(63
|
)%
|
Foreign currency transaction losses, net
|
|
|
(21,889
|
)
|
|
|
(1
|
)%
|
|
|
(44,811
|
)
|
|
|
(2
|
)%
|
|
|
22,922
|
|
|
|
(51
|
)%
|
Other expense, net
|
|
|
(1,406
|
)
|
|
|
|
|
|
|
(311
|
)
|
|
|
|
|
|
|
(1,095
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
385,224
|
|
|
|
21
|
%
|
|
$
|
481,774
|
|
|
|
23
|
%
|
|
$
|
(96,550
|
)
|
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Nextel Mexico continues to be our largest and most profitable
market segment, comprising 42% of our consolidated operating
revenues and generating a 35% segment earnings margin for 2009,
which is consistent with the margin reported for 2008. During
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 2009 depreciated
relative to the U.S. dollar by 21%, compared to the average
rates that prevailed during 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
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.
Beginning in 2007, some of Nextel Mexicos competitors
significantly lowered their prices for postpaid wireless
services, offered free or significantly discounted handsets,
specifically targeted some of Nextel
58
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 2008 and 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. These competitive rate plans are designed to
encourage increased usage of the Direct Connect feature, but
have resulted in lower average revenues per subscriber.
Furthermore, Nextel Mexico experienced lower gross subscriber
additions and increased deactivations in 2009 as compared to
2008 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 is in the process of renegotiating the
commission structure for their 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 second half 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 $104.4 million for 2009,
which represents 14% of our consolidated capital expenditures
for 2009 and which is a decrease from 26% of consolidated
capital expenditures during 2008.
The $261.9 million, or 13%, decrease in service and other
revenues from 2008 to 2009 is primarily due to a decrease 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 an
increase in the average number of digital handsets in service
resulting from growth in Nextel Mexicos existing markets.
The $41.1 million, or 10%, decrease in cost of service from
2008 to 2009 is principally a result of the following:
|
|
|
|
|
$31.8 million, or 16%, decrease in interconnect costs,
largely as a result of the depreciation of the Mexican peso and
a decrease in interconnect minutes of use, partially offset by
an increase in the proportion of mobile-to mobile minutes of
use, which generally have a higher cost per minute; and
|
|
|
|
13% decrease in direct switch and transmitter and receiver site
costs resulting from the depreciation of the Mexican peso,
partially offset by an increase in the number of sites in
service from 2008 to 2009.
|
|
|
3.
|
Selling and
marketing expenses
|
The $82.4 million, or 26%, decrease in selling and
marketing expenses from 2008 to 2009 is primarily a result of
the following:
|
|
|
|
|
$56.2 million, or 35%, decrease in indirect commissions,
primarily due to the depreciation of the Mexican peso, and a
decrease in gross subscriber additions generated by Nextel
Mexicos external sales channels; and
|
59
|
|
|
|
|
$21.0 million, or 23%, decrease in direct commissions and
payroll expenses, principally due to a decrease in gross
subscriber additions generated by Nextel Mexicos internal
sales personnel and the depreciation of the Mexican peso.
|
|
|
4.
|
General and
administrative expenses
|
The $35.3 million, or 12%, decrease in general and
administrative expenses from 2008 to 2009 is primarily due to
the depreciation of the Mexican peso.
The $16.6 million, or 51%, increase in Nextel Mexicos
management fee from 2008 to 2009 is the result of our
implementation of a charge for the license of certain
intangibles effective as of the third quarter of 2009.
|
|
6.
|
Depreciation
and amortization
|
The 12% decrease in depreciation and amortization from 2008 to
2009 is primarily due to the depreciation of the Mexican peso,
partially offset by an increase in Nextel Mexicos
property, plant and equipment in service.
The 26% decrease in interest expense from 2008 to 2009 is
primarily a result of the repayment of a portion of the loans
under Nextel Mexicos syndicated loan facility in 2009 and
the depreciation of the Mexican peso.
The 63% decrease in interest income from 2008 to 2009 is
primarily the result of lower average cash balances and reduced
interest rates, as well as the depreciation of the Mexican peso.
|
|
9.
|
Foreign
currency transaction losses, net
|
Foreign currency transaction losses of $21.9 million for
2009 are largely the result of the impact of 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.
Foreign currency transaction losses of $44.8 million for
2008 are primarily the result of depreciation 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.
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,631,156
|
|
|
|
94
|
%
|
|
$
|
1,262,838
|
|
|
|
95
|
%
|
|
$
|
368,318
|
|
|
|
29
|
%
|
Digital handset and accessory revenues
|
|
|
103,481
|
|
|
|
6
|
%
|
|
|
68,081
|
|
|
|
5
|
%
|
|
|
35,400
|
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,734,637
|
|
|
|
100
|
%
|
|
|
1,330,919
|
|
|
|
100
|
%
|
|
|
403,718
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(588,076
|
)
|
|
|
(34
|
)%
|
|
|
(443,900
|
)
|
|
|
(33
|
)%
|
|
|
(144,176
|
)
|
|
|
32
|
%
|
Cost of digital handset and accessory sales
|
|
|
(139,489
|
)
|
|
|
(8
|
)%
|
|
|
(106,070
|
)
|
|
|
(8
|
)%
|
|
|
(33,419
|
)
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(727,565
|
)
|
|
|
(42
|
)%
|
|
|
(549,970
|
)
|
|
|
(41
|
)%
|
|
|
(177,595
|
)
|
|
|
32
|
%
|
Selling and marketing expenses
|
|
|
(198,091
|
)
|
|
|
(11
|
)%
|
|
|
(163,402
|
)
|
|
|
(12
|
)%
|
|
|
(34,689
|
)
|
|
|
21
|
%
|
General and administrative expenses
|
|
|
(313,656
|
)
|
|
|
(18
|
)%
|
|
|
(247,578
|
)
|
|
|
(19
|
)%
|
|
|
(66,078
|
)
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
495,325
|
|
|
|
29
|
%
|
|
|
369,969
|
|
|
|
28
|
%
|
|
|
125,356
|
|
|
|
34
|
%
|
Management fee
|
|
|
(20,026
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
(20,026
|
)
|
|
|
NM
|
|
Depreciation and amortization
|
|
|
(180,844
|
)
|
|
|
(11
|
)%
|
|
|
(141,005
|
)
|
|
|
(11
|
)%
|
|
|
(39,839
|
)
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
294,455
|
|
|
|
17
|
%
|
|
|
228,964
|
|
|
|
17
|
%
|
|
|
65,491
|
|
|
|
29
|
%
|
Interest expense, net
|
|
|
(51,741
|
)
|
|
|
(3
|
)%
|
|
|
(53,146
|
)
|
|
|
(4
|
)%
|
|
|
1,405
|
|
|
|
(3
|
)%
|
Interest income
|
|
|
6,304
|
|
|
|
|
|
|
|
6,141
|
|
|
|
1
|
%
|
|
|
163
|
|
|
|
3
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
119,060
|
|
|
|
7
|
%
|
|
|
(80,211
|
)
|
|
|
(6
|
)%
|
|
|
199,271
|
|
|
|
(248
|
)%
|
Other expense, net
|
|
|
(861
|
)
|
|
|
|
|
|
|
(12,633
|
)
|
|
|
(1
|
)%
|
|
|
11,772
|
|
|
|
(93
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
367,217
|
|
|
|
21
|
%
|
|
$
|
89,115
|
|
|
|
7
|
%
|
|
$
|
278,102
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
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 nearly 40% of
consolidated revenues in 2009 compared to 31% 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 made
significant investments in Brazil throughout 2009 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 2009. Coverage
expansion and network improvements in Brazil resulted in capital
expenditures of $407.4 million in 2009, which represented
56% of our consolidated capital expenditure investments during
the year, compared to 50% 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 year
ended December 31, 2009 depreciated relative to the
U.S. dollar by 9% compared to the average rates that
prevailed during the year ended December 31, 2008. As a
result, the components of Nextel Brazils results of
operations for 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 second half of 2009
appreciated compared to the average exchange rates that
prevailed during the fourth quarter of 2008 and the first half
of 2009.
61
The $368.3 million, or 29%, increase in service and other
revenues from 2008 to 2009 is primarily a result of a 38%
increase 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 expansion and growth objectives.
This increase was partially offset by a decrease in average
revenue per subscriber caused by the depreciation in the average
value of the Brazilian real.
The $35.4 million, or 52%, increase in digital handset and
accessory revenues from 2008 to 2009 is largely due to an
increase in handset upgrades for existing subscribers and, to a
lesser extent, an increase in the sale of higher cost handsets
to new subscribers.
The $144.2 million, or 32%, increase in cost of service
from 2008 to 2009 is primarily due to the following:
|
|
|
|
|
an increase in interconnect costs principally due to a 51%
increase in interconnect minutes of use resulting from Nextel
Brazils growing subscriber base;
|
|
|
|
an increase in direct switch and transmitter and receiver site
costs resulting from a 25% increase in the number of cell sites
in service in Brazil from December 31, 2008 to
December 31, 2009; and
|
|
|
|
an increase in service and repair costs largely due to an
increase 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 numbers of customers
participating in Nextel Brazils handset maintenance
program.
|
The $33.4 million, or 32%, increase in cost of digital
handset and accessory revenues from 2008 to 2009 is mostly due
to an increase in handset upgrades for existing subscribers and,
to a lesser extent, an increase in the sale of higher cost
handsets to new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $34.7 million, or 21%, increase in selling and
marketing expenses from 2008 to 2009 is primarily due to an
increase in advertising costs, as well as an increase in selling
and marketing personnel necessary to support Nextel
Brazils growing subscriber base.
|
|
4.
|
General and
administrative expenses
|
The $66.1 million, or 27%, increase in general and
administrative expenses from 2008 to 2009 is mostly due to the
following:
|
|
|
|
|
an increase in customer care personnel necessary to support
Nextel Brazils larger customer base;
|
|
|
|
an increase in the number of retail stores in Brazil;
|
|
|
|
an increase in information technology expenses mostly related to
higher consulting costs; and
|
|
|
|
an increase in bad debt expense related to Nextel Brazils
subscriber growth.
|
In 2009, we started charging a management fee to Nextel Brazil
for services rendered by corporate management that directly
benefit Nextel Brazil. During the year ended December 31,
2009, we charged Nextel Brazil a management fee of
$20.0 million.
62
|
|
6.
|
Depreciation
and amortization
|
The $39.8 million, or 28%, increase in depreciation and
amortization from 2008 to 2009 is principally due to an increase
in Nextel Brazils property, plant and equipment in service
resulting from the continued growth and expansion of its network.
|
|
7.
|
Foreign
currency transaction gains (losses), net
|
Foreign currency transaction gains of $119.1 million for
2009 are largely the result of the impact of the appreciation in
the value of the Brazilian real relative to the U.S. dollar
throughout 2009 compared to the levels experienced throughout
2008 on Nextel Brazils U.S. dollar-denominated net
liabilities, primarily its syndicated loan facility.
Foreign currency transaction losses of $80.2 million for
2008 are mostly the result of the impact of the depreciation in
the value of the Brazilian real relative to the U.S. dollar
throughout 2008 compared to the levels experienced throughout
2007 on Nextel Brazils U.S. dollar-denominated net
liabilities, primarily its syndicated loan facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
482,985
|
|
|
|
93
|
%
|
|
$
|
508,227
|
|
|
|
92
|
%
|
|
$
|
(25,242
|
)
|
|
|
(5
|
)%
|
Digital handset and accessory revenues
|
|
|
36,735
|
|
|
|
7
|
%
|
|
|
46,097
|
|
|
|
8
|
%
|
|
|
(9,362
|
)
|
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
519,720
|
|
|
|
100
|
%
|
|
|
554,324
|
|
|
|
100
|
%
|
|
|
(34,604
|
)
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(176,011
|
)
|
|
|
(34
|
)%
|
|
|
(179,349
|
)
|
|
|
(32
|
)%
|
|
|
3,338
|
|
|
|
(2
|
)%
|
Cost of digital handset and accessory sales
|
|
|
(65,137
|
)
|
|
|
(12
|
)%
|
|
|
(70,954
|
)
|
|
|
(13
|
)%
|
|
|
5,817
|
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(241,148
|
)
|
|
|
(46
|
)%
|
|
|
(250,303
|
)
|
|
|
(45
|
)%
|
|
|
9,155
|
|
|
|
(4
|
)%
|
Selling and marketing expenses
|
|
|
(43,430
|
)
|
|
|
(8
|
)%
|
|
|
(45,585
|
)
|
|
|
(8
|
)%
|
|
|
2,155
|
|
|
|
(5
|
)%
|
General and administrative expenses
|
|
|
(86,339
|
)
|
|
|
(17
|
)%
|
|
|
(87,581
|
)
|
|
|
(16
|
)%
|
|
|
1,242
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
148,803
|
|
|
|
29
|
%
|
|
|
170,855
|
|
|
|
31
|
%
|
|
|
(22,052
|
)
|
|
|
(13
|
)%
|
Management fee
|
|
|
(12,310
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
(12,310
|
)
|
|
|
NM
|
|
Depreciation and amortization
|
|
|
(38,482
|
)
|
|
|
(8
|
)%
|
|
|
(38,801
|
)
|
|
|
(7
|
)%
|
|
|
319
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
98,011
|
|
|
|
19
|
%
|
|
|
132,054
|
|
|
|
24
|
%
|
|
|
(34,043
|
)
|
|
|
(26
|
)%
|
Interest expense, net
|
|
|
4,773
|
|
|
|
1
|
%
|
|
|
(3,223
|
)
|
|
|
|
|
|
|
7,996
|
|
|
|
(248
|
)%
|
Interest income
|
|
|
688
|
|
|
|
|
|
|
|
2,425
|
|
|
|
|
|
|
|
(1,737
|
)
|
|
|
(72
|
)%
|
Foreign currency transaction gains, net
|
|
|
5,467
|
|
|
|
1
|
%
|
|
|
6,558
|
|
|
|
1
|
%
|
|
|
(1,091
|
)
|
|
|
(17
|
)%
|
Other income, net
|
|
|
3,748
|
|
|
|
1
|
%
|
|
|
45
|
|
|
|
|
|
|
|
3,703
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
112,687
|
|
|
|
22
|
%
|
|
$
|
137,859
|
|
|
|
25
|
%
|
|
$
|
(25,172
|
)
|
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
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 and its segments earnings decreased in 2009 compared
to 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 value of the Argentine peso for the year ended
December 31, 2009 depreciated relative to the
U.S. dollar by 18% from 2008. As a result, the components
of Nextel Argentinas results of operations for
63
the year ended December 31, 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 $25.2 million, or 5%, decrease in service and other
revenues from 2008 to 2009 is primarily attributable to the
following:
|
|
|
|
|
a decrease 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
|
|
|
|
an 11% increase in the average number of handsets in service,
resulting mostly from subscriber growth in Nextel
Argentinas existing markets.
|
The 20% decrease in digital handset and accessory revenues from
2008 to 2009 is mostly the result of a decrease in handset
upgrades to existing subscribers, a slight decrease in handset
sales to new subscribers, a decrease in the average sale price
of new handsets and the depreciation of the Argentine peso
relative to the U.S. dollar.
In 2009, we started charging a management fee to Nextel
Argentina for services rendered by corporate management that
directly benefit Nextel Argentina. During the year ended
December 31, 2009, we charged Nextel Argentina a management
fee of $12.3 million.
The changes in Nextel Argentinas cost of service, cost of
digital handset and accessory sales, selling and marketing
expenses, general and administrative expenses, net interest
expense, interest income, net foreign currency transaction gains
and net other income from 2008 to 2009 were immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
241,282
|
|
|
|
90
|
%
|
|
$
|
222,819
|
|
|
|
92
|
%
|
|
$
|
18,463
|
|
|
|
8
|
%
|
Digital handset and accessory revenues
|
|
|
27,103
|
|
|
|
10
|
%
|
|
|
20,571
|
|
|
|
8
|
%
|
|
|
6,532
|
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268,385
|
|
|
|
100
|
%
|
|
|
243,390
|
|
|
|
100
|
%
|
|
|
24,995
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(92,037
|
)
|
|
|
(34
|
)%
|
|
|
(80,804
|
)
|
|
|
(33
|
)%
|
|
|
(11,233
|
)
|
|
|
14
|
%
|
Cost of digital handset and accessory sales
|
|
|
(56,156
|
)
|
|
|
(21
|
)%
|
|
|
(45,220
|
)
|
|
|
(19
|
)%
|
|
|
(10,936
|
)
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148,193
|
)
|
|
|
(55
|
)%
|
|
|
(126,024
|
)
|
|
|
(52
|
)%
|
|
|
(22,169
|
)
|
|
|
18
|
%
|
Selling and marketing expenses
|
|
|
(40,866
|
)
|
|
|
(15
|
)%
|
|
|
(30,340
|
)
|
|
|
(12
|
)%
|
|
|
(10,526
|
)
|
|
|
35
|
%
|
General and administrative expenses
|
|
|
(64,721
|
)
|
|
|
(24
|
)%
|
|
|
(44,469
|
)
|
|
|
(18
|
)%
|
|
|
(20,252
|
)
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
14,605
|
|
|
|
6
|
%
|
|
|
42,557
|
|
|
|
18
|
%
|
|
|
(27,952
|
)
|
|
|
(66
|
)%
|
Management fee
|
|
|
(21,385
|
)
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
(21,385
|
)
|
|
|
NM
|
|
Depreciation and amortization
|
|
|
(32,117
|
)
|
|
|
(12
|
)%
|
|
|
(21,737
|
)
|
|
|
(9
|
)%
|
|
|
(10,380
|
)
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(38,897
|
)
|
|
|
(14
|
)%
|
|
|
20,820
|
|
|
|
9
|
%
|
|
|
(59,717
|
)
|
|
|
(287
|
)%
|
Interest expense, net
|
|
|
(3,022
|
)
|
|
|
(1
|
)%
|
|
|
(292
|
)
|
|
|
|
|
|
|
(2,730
|
)
|
|
|
NM
|
|
Interest income
|
|
|
245
|
|
|
|
|
|
|
|
875
|
|
|
|
|
|
|
|
(630
|
)
|
|
|
(72
|
)%
|
Foreign currency transaction losses, net
|
|
|
(221
|
)
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
(154
|
)
|
|
|
230
|
%
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax
|
|
$
|
(41,895
|
)
|
|
|
(15
|
)%
|
|
$
|
21,336
|
|
|
|
9
|
%
|
|
$
|
(63,231
|
)
|
|
|
(296
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
64
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 third 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 third 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 8% increase in service and other revenues from 2008 to 2009
is primarily due to an increase in the average number of digital
handsets in service, partially offset by a decrease 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 14% increase in cost of service from 2008 to 2009 is the
result of an increase in direct switch and transmitter and
receiver site costs due to an increase in the number of sites in
service from December 31, 2008 to December 31, 2009,
an increase in service and repair costs mainly resulting from an
increase in the number of subscribers participating in Nextel
Perus handset maintenance program and a change in the mix
of handsets repaired toward higher cost handsets. This increase
was also attributable to severance costs incurred during the
fourth quarter of 2009 related to a reduction in engineering
personnel. These increases were partially offset by a decrease
in interconnect costs due to lower rates charged for
interconnect minutes of use.
|
|
3.
|
Selling and
marketing expenses
|
The 35% increase in selling and marketing expenses from 2008 to
2009 is largely the result of an increase in direct commissions
and payroll expenses, principally due to an increase in sales
and marketing personnel and higher advertising costs.
|
|
4.
|
General and
administrative expenses
|
The $20.3 million, or 46%, increase in general and
administrative expenses from 2008 to 2009 is primarily due to an
increase in costs related to our third generation technology
initiatives and increases in customer care personnel and
facilities expenses necessary to support a growing customer base.
In 2009, we started charging a management fee to Nextel Peru for
services rendered by corporate management that directly benefit
Nextel Peru. During the year ended December 31, 2009, we
charged Nextel Peru a management fee of $21.4 million.
|
|
6.
|
Depreciation
and amortization
|
The 48% increase in depreciation and amortization from 2008 to
2009 is primarily due to an increase in Nextel Perus
property, plant and equipment in service resulting from the
continued build-out of Nextel Perus third generation
network.
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
and other
|
|
|
Year Ended
|
|
|
and other
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
13,988
|
|
|
|
99
|
%
|
|
$
|
8,704
|
|
|
|
100
|
%
|
|
$
|
5,284
|
|
|
|
61
|
%
|
Digital handset and accessory revenues
|
|
|
98
|
|
|
|
1
|
%
|
|
|
37
|
|
|
|
|
|
|
|
61
|
|
|
|
165
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,086
|
|
|
|
100
|
%
|
|
|
8,741
|
|
|
|
100
|
%
|
|
|
5,345
|
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(9,436
|
)
|
|
|
(67
|
)%
|
|
|
(6,263
|
)
|
|
|
(72
|
)%
|
|
|
(3,173
|
)
|
|
|
51
|
%
|
Cost of digital handset and accessory sales
|
|
|
(3,526
|
)
|
|
|
(25
|
)%
|
|
|
(2,319
|
)
|
|
|
(26
|
)%
|
|
|
(1,207
|
)
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,962
|
)
|
|
|
(92
|
)%
|
|
|
(8,582
|
)
|
|
|
(98
|
)%
|
|
|
(4,380
|
)
|
|
|
51
|
%
|
Selling and marketing expenses
|
|
|
(18,539
|
)
|
|
|
(132
|
)%
|
|
|
(11,917
|
)
|
|
|
(136
|
)%
|
|
|
(6,622
|
)
|
|
|
56
|
%
|
General and administrative expenses
|
|
|
(184,247
|
)
|
|
|
NM
|
|
|
|
(163,547
|
)
|
|
|
NM
|
|
|
|
(20,700
|
)
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(201,662
|
)
|
|
|
NM
|
|
|
|
(175,305
|
)
|
|
|
NM
|
|
|
|
(26,357
|
)
|
|
|
15
|
%
|
Management fee
|
|
|
102,463
|
|
|
|
NM
|
|
|
|
31,836
|
|
|
|
NM
|
|
|
|
70,627
|
|
|
|
222
|
%
|
Depreciation and amortization
|
|
|
(13,198
|
)
|
|
|
(94
|
)%
|
|
|
(12,061
|
)
|
|
|
(138
|
)%
|
|
|
(1,137
|
)
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(112,397
|
)
|
|
|
NM
|
|
|
|
(155,530
|
)
|
|
|
NM
|
|
|
|
43,133
|
|
|
|
(28
|
)%
|
Interest expense, net
|
|
|
(139,715
|
)
|
|
|
NM
|
|
|
|
(96,071
|
)
|
|
|
NM
|
|
|
|
(43,644
|
)
|
|
|
45
|
%
|
Interest income
|
|
|
16,333
|
|
|
|
116
|
%
|
|
|
20,051
|
|
|
|
229
|
%
|
|
|
(3,718
|
)
|
|
|
(19
|
)%
|
Foreign currency transaction gains (losses), net
|
|
|
2,449
|
|
|
|
17
|
%
|
|
|
(1,690
|
)
|
|
|
(19
|
)%
|
|
|
4,139
|
|
|
|
(245
|
)%
|
Other income (expense), net
|
|
|
2,141
|
|
|
|
15
|
%
|
|
|
(15,907
|
)
|
|
|
(182
|
)%
|
|
|
18,048
|
|
|
|
(113
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(231,189
|
)
|
|
|
NM
|
|
|
$
|
(249,147
|
)
|
|
|
NM
|
|
|
$
|
17,958
|
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the year ended December 31, 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 third 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 $20.7 million, or 13%, increase in general and
administrative expenses from 2008 to 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.
For several years, we have charged a management fee to Nextel
Mexico for services rendered by corporate management. In 2009,
we started charging a management fee to the rest of our markets.
As a result, the management fee increased by $70.6 million
from 2008 to 2009.
The $43.6 million, or 45%, increase in net interest expense
from 2008 to 2009 is mostly related to interest expense we
incurred related to the issuance of our 10.0% senior notes
in August 2009.
66
Net other expense of $15.9 million for 2008 primarily
represents losses that we recognized related to the decline in
the value of our investment in a short-term investment fund in
the United States resulting from deteriorating market conditions.
|
|
2.
|
Year
Ended December 31, 2008 vs. Year Ended December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
4,048,466
|
|
|
|
95
|
%
|
|
$
|
3,184,696
|
|
|
|
97
|
%
|
|
$
|
863,770
|
|
|
|
27
|
%
|
Digital handset and accessory revenues
|
|
|
220,914
|
|
|
|
5
|
%
|
|
|
111,599
|
|
|
|
3
|
%
|
|
|
109,315
|
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,269,380
|
|
|
|
100
|
%
|
|
|
3,296,295
|
|
|
|
100
|
%
|
|
|
973,085
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(1,110,927
|
)
|
|
|
(26
|
)%
|
|
|
(850,934
|
)
|
|
|
(26
|
)%
|
|
|
(259,993
|
)
|
|
|
31
|
%
|
Cost of digital handset and accessory sales
|
|
|
(585,391
|
)
|
|
|
(14
|
)%
|
|
|
(443,760
|
)
|
|
|
(13
|
)%
|
|
|
(141,631
|
)
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,696,318
|
)
|
|
|
(40
|
)%
|
|
|
(1,294,694
|
)
|
|
|
(39
|
)%
|
|
|
(401,624
|
)
|
|
|
31
|
%
|
Selling and marketing expenses
|
|
|
(568,864
|
)
|
|
|
(13
|
)%
|
|
|
(445,516
|
)
|
|
|
(14
|
)%
|
|
|
(123,348
|
)
|
|
|
28
|
%
|
General and administrative expenses
|
|
|
(831,778
|
)
|
|
|
(20
|
)%
|
|
|
(632,377
|
)
|
|
|
(19
|
)%
|
|
|
(199,401
|
)
|
|
|
32
|
%
|
Depreciation and amortization
|
|
|
(405,120
|
)
|
|
|
(9
|
)%
|
|
|
(305,029
|
)
|
|
|
(9
|
)%
|
|
|
(100,091
|
)
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
767,300
|
|
|
|
18
|
%
|
|
|
618,679
|
|
|
|
19
|
%
|
|
|
148,621
|
|
|
|
24
|
%
|
Interest expense, net
|
|
|
(205,516
|
)
|
|
|
(5
|
)%
|
|
|
(160,642
|
)
|
|
|
(5
|
)%
|
|
|
(44,874
|
)
|
|
|
28
|
%
|
Interest income
|
|
|
68,411
|
|
|
|
2
|
%
|
|
|
67,429
|
|
|
|
2
|
%
|
|
|
982
|
|
|
|
1
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(120,572
|
)
|
|
|
(3
|
)%
|
|
|
19,008
|
|
|
|
1
|
%
|
|
|
(139,580
|
)
|
|
|
NM
|
|
Debt conversion expense
|
|
|
|
|
|
|
|
|
|
|
(25,753
|
)
|
|
|
(1
|
)%
|
|
|
25,753
|
|
|
|
(100
|
)%
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(6,311
|
)
|
|
|
|
|
|
|
6,311
|
|
|
|
(100
|
)%
|
Other expense, net
|
|
|
(28,806
|
)
|
|
|
(1
|
)%
|
|
|
(1,914
|
)
|
|
|
|
|
|
|
(26,892
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
480,817
|
|
|
|
11
|
%
|
|
|
510,496
|
|
|
|
16
|
%
|
|
|
(29,679
|
)
|
|
|
(6
|
)%
|
Income tax provision
|
|
|
(138,862
|
)
|
|
|
(3
|
)%
|
|
|
(156,748
|
)
|
|
|
(5
|
)%
|
|
|
17,886
|
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
341,955
|
|
|
|
8
|
%
|
|
$
|
353,748
|
|
|
|
11
|
%
|
|
$
|
(11,793
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
The amounts included in the table above reflect the impact of
our retrospective application of the FASBs authoritative
guidance on convertible debt instruments. See Note 1 to our
consolidated financial statements for more information related
to our application of this pronouncement.
The values of the local currencies in each of our markets
depreciated significantly relative to the U.S. dollar both
during the fourth quarter of 2008 and subsequent to
December 31, 2008, primarily in Brazil and Mexico.
67
The $863.8 million, or 27%, increase in consolidated
service and other revenues from 2007 to 2008 is due to a 34%
increase in the average number of total handsets in service,
primarily in Mexico and Brazil, resulting from both the
continued strong demand for our services, as well as our
balanced growth and expansion strategy in those markets. This
increase was partially offset by declines in average
consolidated revenue per subscriber in both Mexico and Peru as a
result of the competitive conditions in Mexico and an increase
in the percentage of subscribers purchasing prepaid rate plans
in Peru.
The $109.3 million, or 98%, increase in consolidated
digital handset and accessory revenues from 2007 to 2008 is
largely due to an increase in handset upgrades for existing
subscribers and, to a lesser extent, an increase in the average
price per handset upgrade resulting from the launch of new
handset models and an increase in handset sales to new
subscribers.
The $260.0 million, or 31%, increase in consolidated cost
of service from 2007 to 2008 is principally a result of the
following:
|
|
|
|
|
a $120.7 million, or 26%, increase in consolidated
interconnect costs resulting from a 23% increase in consolidated
interconnect minutes of use and an increase, mostly in Brazil,
in the proportion of
mobile-to-mobile
minutes of use, which generally have higher per minute costs;
|
|
|
|
a $61.5 million, or 24%, increase in consolidated direct
switch and transmitter and receiver site costs resulting from a
19% increase in the total number of sites in service from
December 31, 2007, as well as an increase in operating and
maintenance costs per site for new and existing sites, primarily
in Mexico; and
|
|
|
|
a $49.4 million, or 53%, increase in consolidated service
and repair costs mainly as a result of an increased percentage
of the consolidated subscriber base participating in our handset
maintenance programs, as well as an increase in cost per handset
serviced.
|
The $141.6 million, or 32%, increase in consolidated cost
of digital handset and accessory sales from 2007 to 2008 is
largely due to an increase in handset upgrades for existing
subscribers and, to a lesser extent, an increase in handset
sales for new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $123.3 million, or 28%, increase in consolidated
selling and marketing expenses from 2007 to 2008 is principally
a result of the following:
|
|
|
|
|
a $51.4 million, or 28%, increase in consolidated indirect
commissions resulting from a 32% increase in total gross
subscriber additions generated through external sales channels,
as well as increased commission rates in Mexico;
|
|
|
|
a $47.1 million, or 30%, increase in consolidated payroll
expenses and direct commissions resulting from a 26% increase in
total gross subscriber additions generated by internal sales
personnel, as well as an increase in selling and marketing
personnel necessary to support continued consolidated sales
growth; and
|
|
|
|
a $21.2 million, or 24%, increase in consolidated
advertising expenses mainly related to the launch of new markets
in connection with our expansion plans in Brazil and Mexico and
increased advertising initiatives related to overall subscriber
growth, particularly in those markets.
|
68
|
|
4.
|
General and
administrative expenses
|
The $199.4 million, or 32%, increase in consolidated
general and administrative expenses from 2007 to 2008 are
largely a result of the following:
|
|
|
|
|
a $61.9 million, or 37%, increase in consolidated customer
care and billing operations expenses, mostly related to
increased payroll and related costs necessary to support our
growing subscriber base. This increase is the result of
additional customer care personnel necessary to support a larger
customer base in each of the markets in which we operate, as
well as an increase in salaries on a consolidated basis;
|
|
|
|
a $50.0 million, or 17%, increase in consolidated general
corporate costs largely resulting from higher personnel expenses
and an increase in facilities-related expenses due to continued
subscriber growth and expansion into new areas;
|
|
|
|
a $34.3 million, or 74%, increase in consolidated bad debt
expense, largely as a result of the increase in consolidated
operating revenues and a decrease in collection rates from new
subscribers in Mexico that have higher credit risk. As a result,
bad debt expense as a percentage of revenues increased from 1.4%
for 2007 to 1.9% for 2008;
|
|
|
|
a $25.7 million, or 53%, increase in revenue-based taxes in
Brazil that we report on a gross basis as both service and other
revenue and general and administrative expenses, primarily as a
result of the 52% increase in Nextel Brazils service and
other revenues; and
|
|
|
|
a $21.0 million, or 36%, increase in consolidated
information technology expenses primarily as a result of more
information technology personnel and higher systems maintenance
costs.
|
|
|
5.
|
Depreciation
and amortization
|
The $100.1 million, or 33%, increase in consolidated
depreciation and amortization from 2007 to 2008 is primarily due
to an increase in our consolidated property, plant and equipment
in service from December 31, 2007 to December 31, 2008
resulting from the continued expansion of our networks, mainly
in Brazil and Mexico, as well as a $17.9 million increase
in amortization principally related to the local
telecommunications concession that Nextel Mexico began using in
September 2007.
The $44.9 million, or 28%, increase in consolidated
interest expense from 2007 to 2008 is primarily due to the
following:
|
|
|
|
|
increases in the number of towers financed and the amount of
assets under capital leases in Mexico and Brazil;
|
|
|
|
the recognition of twelve months of interest expense on our
3.125% convertible notes issued during the second quarter of
2007, including non-cash interest expense resulting from the
amortization of the discount on those notes, partially offset by
the effect of converting our 2.875% convertible notes during the
third quarter of 2007; and
|
|
|
|
increased borrowings under Nextel Brazils syndicated loan
facility that occurred between October 2007 and March 2008,
partially offset by the effect of the payments of principal by
Nextel Mexico in April 2008 and October 2008 due under its
syndicated loan facility.
|
|
|
7.
|
Foreign
currency transaction (losses) gains, net
|
Consolidated foreign currency transaction losses of
$120.6 million for 2008 are primarily a result of the
impact of the significant depreciation in the value of the
Brazilian real relative to the U.S. dollar during the
second half of 2008 on Nextel Brazils syndicated loan
facility, which is denominated in U.S. dollars, as well as
the depreciation in the value of the Mexican peso relative to
the U.S. dollar on Nextel Mexicos
U.S. dollar-denominated net liabilities during the same
period.
Consolidated foreign currency transaction gains of
$19.0 million for 2007 are primarily a result of the impact
of the appreciation in the value of the Brazilian real relative
to the U.S. dollar on Nextel Brazils
U.S. dollar-denominated liabilities, primarily its
short-term intercompany payables.
69
|
|
8.
|
Debt
conversion expense
|
The $25.8 million in debt conversion expense for 2007
represents cash consideration that we paid in connection with
the tender offer for 99.99% of our 2.875% convertible notes
during the third quarter of 2007.
|
|
9.
|
Loss on
extinguishment of debt
|
We recognized a $6.3 million loss on extinguishment of debt
in connection with the tender offer for 99.99% of our 2.875%
convertible notes during the third quarter of 2007.
The $28.8 million in net consolidated other expense for
2008 primarily represents losses that we recognized related to
the decline in the value of our investment in a short-term
investment fund in the United States resulting from
deteriorating market conditions. If these conditions continue to
deteriorate, we could experience further losses related to this
investment.
The $17.9 million, or 11%, decrease in the consolidated
income tax provision from 2007 to 2008 is primarily due to
certain items included in the 2007 income tax provision that did
not recur in 2008; a $69.6 million tax provision for future
remittances of certain undistributed earnings, a
$48.7 million tax benefit from the release of a
post-reorganization deferred tax asset valuation allowance and a
$7.3 million net tax benefit for tax deductible dividends.
The remaining decrease in the consolidated income tax provision
was primarily due to a decrease in the consolidated pre-tax book
income.
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. For several years, we have charged
a management fee to Nextel Mexico for services rendered by
corporate management that directly benefit Nextel Mexico. For
the years ended December 31, 2008 and 2007, we reported
these management fees as a separate line item in the segment
reporting information as these amounts are now regularly
provided to our chief operating decision maker. The tables below
provide a summary of the components of our consolidated segments
for the years ended December 31, 2008 and 2007. The results
of Nextel Chile are included in Corporate and other.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
Year Ended
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
December 31,
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
2008
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
2,133,241
|
|
|
|
50
|
%
|
|
$
|
(762,674
|
)
|
|
|
45
|
%
|
|
$
|
(606,223
|
)
|
|
|
43
|
%
|
|
$
|
764,344
|
|
Nextel Brazil
|
|
|
1,330,919
|
|
|
|
31
|
%
|
|
|
(549,970
|
)
|
|
|
32
|
%
|
|
|
(410,980
|
)
|
|
|
29
|
%
|
|
|
369,969
|
|
Nextel Argentina
|
|
|
554,324
|
|
|
|
13
|
%
|
|
|
(250,303
|
)
|
|
|
15
|
%
|
|
|
(133,166
|
)
|
|
|
10
|
%
|
|
|
170,855
|
|
Nextel Peru
|
|
|
243,390
|
|
|
|
6
|
%
|
|
|
(126,024
|
)
|
|
|
7
|
%
|
|
|
(74,809
|
)
|
|
|
5
|
%
|
|
|
42,557
|
|
Corporate and other
|
|
|
8,741
|
|
|
|
|
|
|
|
(8,582
|
)
|
|
|
1
|
%
|
|
|
(175,464
|
)
|
|
|
13
|
%
|
|
|
(175,305
|
)
|
Intercompany eliminations
|
|
|
(1,235
|
)
|
|
|
|
|
|
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
4,269,380
|
|
|
|
100
|
%
|
|
$
|
(1,696,318
|
)
|
|
|
100
|
%
|
|
$
|
(1,400,642
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
Year Ended
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
December 31,
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
2007
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,792,699
|
|
|
|
55
|
%
|
|
$
|
(621,975
|
)
|
|
|
48
|
%
|
|
$
|
(494,879
|
)
|
|
|
46
|
%
|
|
$
|
675,845
|
|
Nextel Brazil
|
|
|
867,964
|
|
|
|
26
|
%
|
|
|
(365,548
|
)
|
|
|
28
|
%
|
|
|
(284,631
|
)
|
|
|
27
|
%
|
|
|
217,785
|
|
Nextel Argentina
|
|
|
442,093
|
|
|
|
13
|
%
|
|
|
(203,672
|
)
|
|
|
16
|
%
|
|
|
(100,067
|
)
|
|
|
9
|
%
|
|
|
138,354
|
|
Nextel Peru
|
|
|
190,858
|
|
|
|
6
|
%
|
|
|
(100,642
|
)
|
|
|
8
|
%
|
|
|
(54,447
|
)
|
|
|
5
|
%
|
|
|
35,769
|
|
Corporate and other
|
|
|
3,850
|
|
|
|
|
|
|
|
(4,026
|
)
|
|
|
|
|
|
|
(143,869
|
)
|
|
|
13
|
%
|
|
|
(144,045
|
)
|
Intercompany eliminations
|
|
|
(1,169
|
)
|
|
|
|
|
|
|
1,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
3,296,295
|
|
|
|
100
|
%
|
|
$
|
(1,294,694
|
)
|
|
|
100
|
%
|
|
$
|
(1,077,893
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
years ended December 31, 2008, 2007 and 2006. Although the
average exchange rates for the years ended December 31,
2008, 2007 and 2006 did not fluctuate significantly, Nextel
Mexicos and Nextel Brazils results of operations for
the fourth quarter of 2008 were particularly affected by 21% and
27% declines in the average value of the Mexican peso and the
Brazilian real, respectively, compared to the third quarter of
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 prior periods. 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 Nuevo sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 to 2008
|
|
|
2006 to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Percent Change
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
11.13
|
|
|
|
10.93
|
|
|
|
10.90
|
|
|
|
(1.8
|
)%
|
|
|
(0.3
|
)%
|
Brazilian real
|
|
|
1.83
|
|
|
|
1.95
|
|
|
|
2.18
|
|
|
|
6.2
|
%
|
|
|
11.8
|
%
|
Argentine peso
|
|
|
3.16
|
|
|
|
3.12
|
|
|
|
3.08
|
|
|
|
(1.5
|
)%
|
|
|
(1.3
|
)%
|
A discussion of the results of operations in each of our
reportable segments is provided below.
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues.
|
|
$
|
2,047,113
|
|
|
|
96
|
%
|
|
$
|
1,762,596
|
|
|
|
98
|
%
|
|
$
|
284,517
|
|
|
|
16
|
%
|
Digital handset and accessory revenues
|
|
|
86,128
|
|
|
|
4
|
%
|
|
|
30,103
|
|
|
|
2
|
%
|
|
|
56,025
|
|
|
|
186
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,133,241
|
|
|
|
100
|
%
|
|
|
1,792,699
|
|
|
|
100
|
%
|
|
|
340,542
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(401,846
|
)
|
|
|
(19
|
)%
|
|
|
(343,979
|
)
|
|
|
(19
|
)%
|
|
|
(57,867
|
)
|
|
|
17
|
%
|
Cost of digital handset and accessory sales
|
|
|
(360,828
|
)
|
|
|
(17
|
)%
|
|
|
(277,996
|
)
|
|
|
(16
|
)%
|
|
|
(82,832
|
)
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(762,674
|
)
|
|
|
(36
|
)%
|
|
|
(621,975
|
)
|
|
|
(35
|
)%
|
|
|
(140,699
|
)
|
|
|
23
|
%
|
Selling and marketing expenses
|
|
|
(317,620
|
)
|
|
|
(15
|
)%
|
|
|
(262,495
|
)
|
|
|
(14
|
)%
|
|
|
(55,125
|
)
|
|
|
21
|
%
|
General and administrative expenses
|
|
|
(288,603
|
)
|
|
|
(13
|
)%
|
|
|
(232,384
|
)
|
|
|
(13
|
)%
|
|
|
(56,219
|
)
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
764,344
|
|
|
|
36
|
%
|
|
|
675,845
|
|
|
|
38
|
%
|
|
|
88,499
|
|
|
|
13
|
%
|
Management fee
|
|
|
(32,187
|
)
|
|
|
(2
|
)%
|
|
|
(34,376
|
)
|
|
|
(2
|
)%
|
|
|
2,189
|
|
|
|
(6
|
)%
|
Depreciation and amortization
|
|
|
(191,396
|
)
|
|
|
(9
|
)%
|
|
|
(151,597
|
)
|
|
|
(9
|
)%
|
|
|
(39,799
|
)
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
540,761
|
|
|
|
25
|
%
|
|
|
489,872
|
|
|
|
27
|
%
|
|
|
50,889
|
|
|
|
10
|
%
|
Interest expense, net
|
|
|
(60,086
|
)
|
|
|
(2
|
)%
|
|
|
(60,527
|
)
|
|
|
(3
|
)%
|
|
|
441
|
|
|
|
(1
|
)%
|
Interest income
|
|
|
46,221
|
|
|
|
2
|
%
|
|
|
29,605
|
|
|
|
2
|
%
|
|
|
16,616
|
|
|
|
56
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(44,811
|
)
|
|
|
(2
|
)%
|
|
|
2,559
|
|
|
|
|
|
|
|
(47,370
|
)
|
|
|
NM
|
|
Other (expense) income, net
|
|
|
(311
|
)
|
|
|
|
|
|
|
2,103
|
|
|
|
|
|
|
|
(2,414
|
)
|
|
|
(115
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
481,774
|
|
|
|
23
|
%
|
|
$
|
463,612
|
|
|
|
26
|
%
|
|
$
|
18,162
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
The average value of the Mexican peso for the year ended
December 31, 2008 depreciated relative to the
U.S. dollar by 2% from the year ended December 31,
2007. As a result, the components of Nextel Mexicos
results of operations for the year ended December 31, 2008
after translation into U.S. dollars reflect slightly lower
increases in 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. Nextel Mexicos results of operations in
the fourth quarter of 2008 were particularly affected by a 21%
decline in the average value of the peso compared to the third
quarter of 2008.
The $284.5 million, or 16%, increase in service and other
revenues from 2007 to 2008 is primarily due to the following:
|
|
|
|
|
a 32% increase in the average number of handsets in service
resulting from growth in Nextel Mexicos existing markets,
as well as the expansion of service coverage into new markets
launched in 2008; and
|
|
|
|
a $21.5 million, or 28%, increase in revenues generated
from Nextel Mexicos handset maintenance program as a
result of an increased percentage of Nextel Mexicos
subscriber base participating in this program.
|
These increases were partially offset by a decline in Nextel
Mexicos average revenue per subscriber due to the launch
of more competitive rate plans described above.
The $56.0 million, or 186%, increase in digital handset and
accessory revenues from 2007 to 2008 is primarily the result of
an increase in handset sales to new subscribers and an increase
in handset upgrades to
72
existing subscribers, as well as an increase in the average
price paid by subscribers for both handset sales and handset
upgrades.
The $57.9 million, or 17%, increase in cost of service from
2007 to 2008 is principally a result of the following:
|
|
|
|
|
a $16.9 million, or 14%, increase in direct switch and
transmitter and receiver site costs resulting from a 10%
increase in the number of sites in service from
December 31, 2007 to December 31, 2008, as well as an
increase in operating and maintenance costs per site for new and
existing sites;
|
|
|
|
a $16.1 million, or 9%, increase in interconnect costs,
largely as a result of an 11% increase in interconnect system
minutes of use, as well as an increase in the proportion of
mobile-to-mobile
minutes of use, which generally have higher costs per minute;
|
|
|
|
a $10.9 million increase in facilities and administrative
costs largely due to higher product support costs; and
|
|
|
|
a $10.0 million, or 36%, increase in service and repair
costs largely due to increased costs of repairs, as well as an
increased percentage of Nextel Mexicos subscriber base
participating in its handset maintenance program.
|
The $82.8 million, or 30%, increase in cost of digital
handset and accessory sales from 2007 to 2008 is primarily due
to an increase in handset sales to new subscribers and an
increase in handset upgrades to existing subscribers, partially
offset by a reduction in handset unit costs.
|
|
3.
|
Selling and
marketing expenses
|
The $55.1 million, or 21%, increase in selling and
marketing expenses from 2007 to 2008 is primarily a result of
the following:
|
|
|
|
|
a $33.9 million, or 27%, increase in indirect commissions,
primarily due to a 28% increase in gross additions generated by
Nextel Mexicos external sales channels;
|
|
|
|
a $14.3 million, or 19%, increase in direct commissions and
payroll expenses, principally due to a 21% increase in gross
subscriber additions generated by Nextel Mexicos internal
sales personnel; and
|
|
|
|
a $7.3 million, or 14%, increase in advertising costs
resulting from the launch of new rate plans, as well as an
increase in advertising expenses designed specifically to
increase the market awareness of the Nextel brand name in Mexico.
|
|
|
4.
|
General and
administrative expenses
|
The $56.2 million, or 24%, increase in general and
administrative expenses from 2007 to 2008 is largely a result of
the following:
|
|
|
|
|
a $25.1 million, or 91%, increase in bad debt expense,
which increased as a percentage of revenue from 1.6% in 2007 to
2.5% in 2008, primarily due to a decrease in customer
collections from new subscribers that have higher credit risk,
as well as a change in the mix of Nextel Mexicos customer
base toward more individual customers;
|
|
|
|
a $21.7 million, or 26%, increase in customer care
expenses, primarily due to an increase in payroll and employee
related expenses caused by an increase in customer care
personnel necessary to support Nextel Mexicos growing
customer base; and
|
|
|
|
a $5.4 million, or 26%, increase in information technology
expenses resulting from an increase in systems maintenance
expenses, as well as an increase in payroll and related expenses
resulting from more information technology personnel.
|
73
|
|
5.
|
Depreciation
and amortization
|
The $39.8 million, or 26%, increase in depreciation and
amortization from 2007 to 2008 is primarily due to higher
depreciation related to an increase in Nextel Mexicos
property, plant and equipment in service resulting from the
continued build-out of Nextel Mexicos network in
connection with its expansion plan, as well as a
$16.4 million increase in amortization related to the local
telecommunications concession of licenses that Nextel Mexico
begun using in September 2007.
The $16.6 million, or 56%, increase in interest income from
2007 to 2008 is primarily a result of higher average cash
balances.
|
|
7.
|
Foreign
currency transaction (losses) gains, net
|
Foreign currency transaction losses of $44.8 million for
2008 are primarily due to the impact of the depreciation of the
value of the Mexican peso against the U.S. dollar on Nextel
Mexicos U.S. dollar-denominated net liabilities.
Foreign currency transaction gains of $2.6 million for 2007
are primarily due to the impact of the appreciation of the value
of the Mexican peso against the U.S. dollar on Nextel
Mexicos U.S. dollar-denominated net liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,262,838
|
|
|
|
95
|
%
|
|
$
|
833,241
|
|
|
|
96
|
%
|
|
$
|
429,597
|
|
|
|
52
|
%
|
Digital handset and accessory revenues
|
|
|
68,081
|
|
|
|
5
|
%
|
|
|
34,723
|
|
|
|
4
|
%
|
|
|
33,358
|
|
|
|
96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,330,919
|
|
|
|
100
|
%
|
|
|
867,964
|
|
|
|
100
|
%
|
|
|
462,955
|
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(443,900
|
)
|
|
|
(33
|
)%
|
|
|
(284,744
|
)
|
|
|
(33
|
)%
|
|
|
(159,156
|
)
|
|
|
56
|
%
|
Cost of digital handset and accessory sales
|
|
|
(106,070
|
)
|
|
|
(8
|
)%
|
|
|
(80,804
|
)
|
|
|
(9
|
)%
|
|
|
(25,266
|
)
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(549,970
|
)
|
|
|
(41
|
)%
|
|
|
(365,548
|
)
|
|
|
(42
|
)%
|
|
|
(184,422
|
)
|
|
|
50
|
%
|
Selling and marketing expenses
|
|
|
(163,402
|
)
|
|
|
(12
|
)%
|
|
|
(117,754
|
)
|
|
|
(14
|
)%
|
|
|
(45,648
|
)
|
|
|
39
|
%
|
General and administrative expenses
|
|
|
(247,578
|
)
|
|
|
(19
|
)%
|
|
|
(166,877
|
)
|
|
|
(19
|
)%
|
|
|
(80,701
|
)
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
369,969
|
|
|
|
28
|
%
|
|
|
217,785
|
|
|
|
25
|
%
|
|
|
152,184
|
|
|
|
70
|
%
|
Depreciation and amortization
|
|
|
(141,005
|
)
|
|
|
(11
|
)%
|
|
|
(96,435
|
)
|
|
|
(11
|
)%
|
|
|
(44,570
|
)
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
228,964
|
|
|
|
17
|
%
|
|
|
121,350
|
|
|
|
14
|
%
|
|
|
107,614
|
|
|
|
89
|
%
|
Interest expense, net
|
|
|
(53,146
|
)
|
|
|
(4
|
)%
|
|
|
(33,943
|
)
|
|
|
(4
|
)%
|
|
|
(19,203
|
)
|
|
|
57
|
%
|
Interest income
|
|
|
6,141
|
|
|
|
1
|
%
|
|
|
744
|
|
|
|
|
|
|
|
5,397
|
|
|
|
NM
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(80,211
|
)
|
|
|
(6
|
)%
|
|
|
14,595
|
|
|
|
2
|
%
|
|
|
(94,806
|
)
|
|
|
NM
|
|
Other expense, net
|
|
|
(12,633
|
)
|
|
|
(1
|
)%
|
|
|
(127
|
)
|
|
|
|
|
|
|
(12,506
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
89,115
|
|
|
|
7
|
%
|
|
$
|
102,619
|
|
|
|
12
|
%
|
|
$
|
(13,504
|
)
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
The average exchange rate of the Brazilian real for the year
ended December 31, 2008 appreciated relative to the
U.S. dollar by 6% from 2007. As a result, the components of
Nextel Brazils results of operations for the year ended
December 31, 2008, after translation into
U.S. dollars, reflect more significant increases in
U.S. dollar-denominated revenues and expenses than would
have occurred if the Brazilian real had
74
not appreciated relative to the U.S. dollar. While the
average value of the Brazilian real appreciated relative to the
U.S. dollar for the year ended December 31, 2008, the
average value of the Brazilian real depreciated 27% in the
fourth quarter of 2008 compared to the third quarter of 2008.
The $429.6 million, or 52%, increase in service and other
revenues from 2007 to 2008 is primarily a result of the
following:
|
|
|
|
|
a 42% increase in the average number of 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;
|
|
|
|
a $28.3 million, or 49%, increase in revenues generated
from Nextel Brazils handset maintenance program as a
result of an increased percentage of Nextel Brazils
subscriber base participating in this program; and
|
|
|
|
a slight increase in local currency-based average revenue per
subscriber.
|
The $33.4 million, or 96%, increase in digital handset and
accessory revenues from 2007 to 2008 is primarily due to an
increase in handset upgrades for existing subscribers, as well
as an increase in handset sales to new subscribers.
The $159.2 million, or 56%, increase in cost of service
from 2007 to 2008 is primarily due to the following:
|
|
|
|
|
a $92.0 million, or 59%, increase in interconnect costs
primarily resulting from a 54% increase in interconnect minutes
of use, as well as an increase in per minute costs due to
increased rates charged by fixed carriers for terminating calls
on their networks;
|
|
|
|
a $32.4 million, or 35%, increase in direct switch and
transmitter and receiver site costs resulting from a 31%
increase in the number of sites in service from
December 31, 2007 due to Nextel Brazils expansion
plan; and
|
|
|
|
a $27.6 million, or 133%, increase in service and repair
costs primarily due to an increased percentage of Nextel
Brazils subscriber base participating in its handset
maintenance program, as well as an increase in the cost of
repairs per subscriber related to a change in the mix of
handsets toward more mid and high tier handsets.
|
The $25.3 million, or 31%, increase in cost of digital
handset and accessory sales from 2007 to 2008 is mostly due to
an increase in handset upgrades for existing subscribers, as
well as an increase in handset sales to new subscribers,
partially offset by a decrease in cost per handset upgrade as a
larger proportion of upgrades were sales of SIM cards, which
have a significantly lower cost per unit sold than do handsets.
|
|
3.
|
Selling and
marketing expenses
|
The $45.6 million, or 39%, increase in selling and
marketing expenses from 2007 to 2008 is principally due to the
following:
|
|
|
|
|
a $22.6 million, or 43%, increase in payroll and direct
commissions largely as a result of a 41% increase in gross
subscriber additions generated by Nextel Brazils internal
sales force and higher payroll and related costs related to a
40% increase in selling and marketing personnel necessary to
support Nextel Brazils continued sales growth;
|
|
|
|
a $12.4 million, or 42%, increase in advertising expenses
primarily due to the launch of new markets in connection with
Nextel Brazils expansion plan, as well as continued print
and media campaigns for various products and services to promote
growth in existing markets; and
|
75
|
|
|
|
|
an $8.4 million, or 27%, increase in indirect commissions
resulting from a 31% increase in gross subscriber additions
generated through Nextel Brazils external sales channels.
|
|
|
4.
|
General and
administrative expenses
|
The $80.7 million, or 48%, increase in general and
administrative expenses from 2007 to 2008 is mainly a result of
the following:
|
|
|
|
|
a $28.4 million, or 56%, increase in customer care expenses
resulting from an increase in customer care personnel necessary
to support a larger customer base, as well as an increase in the
number of Nextel Brazils retail stores;
|
|
|
|
a $25.7 million, or 53%, increase in revenue-based taxes
that we report on a gross basis as both service and other
revenues and general and administrative expenses, primarily as a
result of the 52% increase in service and other revenues;
|
|
|
|
a $14.0 million, or 36%, increase in general corporate
costs largely resulting from an increase in general and
administrative personnel necessary to support Nextel
Brazils growth, as well as an increase in facilities
expenses due to Nextel Brazils expansion into new
markets; and
|
|
|
|
a $7.1 million, or 53%, increase in bad debt expense
primarily as a result of the increase in Nextel Brazils
operating revenues. Despite this increase, bad debt expense as a
percentage of operating revenues remained relatively stable at
1.5% in both 2007 and 2008.
|
|
|
5.
|
Depreciation
and amortization
|
The $44.6 million, or 46%, increase in depreciation and
amortization from 2007 to 2008 is mostly due to an increase in
Nextel Brazils property, plant and equipment in service
resulting from the continued build-out of Nextel Brazils
network.
The $19.2 million, or 57%, increase in net interest expense
from 2007 to 2008 is primarily the result of increased
borrowings under Nextel Brazils syndicated loan facility
that occurred between October 2007 and March 2008, as well as
increases in both the number of towers financed and the amount
of assets under capital leases.
|
|
7.
|
Foreign
currency transaction (losses) gains, net
|
Net foreign currency transaction losses of $80.2 million
for 2008 are a result of the impact of the significant
depreciation in the value of the Brazilian real against the
U.S. dollar during the year ended December 31, 2008 on
Nextel Brazils U.S. dollar-denominated syndicated
loan facility. All of these losses occurred during the fourth
quarter of 2008.
Net foreign currency transaction gains of $14.6 million for
2007 are a result of the impact of the appreciation in the value
of the Brazilian real against the U.S. dollar during the
year ended December 31, 2007 on Nextel Brazils
U.S. dollar-denominated short-term intercompany payables.
Net other expense of $12.6 million for 2008 primarily
represents withholding tax expense on Nextel Brazils
intercompany loan.
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
508,227
|
|
|
|
92
|
%
|
|
$
|
408,142
|
|
|
|
92
|
%
|
|
$
|
100,085
|
|
|
|
25
|
%
|
Digital handset and accessory revenues
|
|
|
46,097
|
|
|
|
8
|
%
|
|
|
33,951
|
|
|
|
8
|
%
|
|
|
12,146
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
554,324
|
|
|
|
100
|
%
|
|
|
442,093
|
|
|
|
100
|
%
|
|
|
112,231
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues Cost of service (exclusive of depreciation and
amortization included below)
|
|
|
(179,349
|
)
|
|
|
(32
|
)%
|
|
|
(151,404
|
)
|
|
|
(34
|
)%
|
|
|
(27,945
|
)
|
|
|
18
|
%
|
Cost of digital handset and accessory sales
|
|
|
(70,954
|
)
|
|
|
(13
|
)%
|
|
|
(52,268
|
)
|
|
|
(12
|
)%
|
|
|
(18,686
|
)
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(250,303
|
)
|
|
|
(45
|
)%
|
|
|
(203,672
|
)
|
|
|
(46
|
)%
|
|
|
(46,631
|
)
|
|
|
23
|
%
|
Selling and marketing expenses
|
|
|
(45,585
|
)
|
|
|
(8
|
)%
|
|
|
(34,646
|
)
|
|
|
(8
|
)%
|
|
|
(10,939
|
)
|
|
|
32
|
%
|
General and administrative expenses
|
|
|
(87,581
|
)
|
|
|
(16
|
)%
|
|
|
(65,421
|
)
|
|
|
(15
|
)%
|
|
|
(22,160
|
)
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
170,855
|
|
|
|
31
|
%
|
|
|
138,354
|
|
|
|
31
|
%
|
|
|
32,501
|
|
|
|
23
|
%
|
Depreciation and amortization
|
|
|
(38,801
|
)
|
|
|
(7
|
)%
|
|
|
(30,436
|
)
|
|
|
(7
|
)%
|
|
|
(8,365
|
)
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
132,054
|
|
|
|
24
|
%
|
|
|
107,918
|
|
|
|
24
|
%
|
|
|
24,136
|
|
|
|
22
|
%
|
Interest expense, net
|
|
|
(3,223
|
)
|
|
|
|
|
|
|
(2,466
|
)
|
|
|
|
|
|
|
(757
|
)
|
|
|
31
|
%
|
Interest income
|
|
|
2,425
|
|
|
|
|
|
|
|
5,370
|
|
|
|
2
|
%
|
|
|
(2,945
|
)
|
|
|
(55
|
)%
|
Foreign currency transaction gains, net
|
|
|
6,558
|
|
|
|
1
|
%
|
|
|
1,244
|
|
|
|
|
|
|
|
5,314
|
|
|
|
NM
|
|
Other income, net
|
|
|
45
|
|
|
|
|
|
|
|
1,594
|
|
|
|
|
|
|
|
(1,549
|
)
|
|
|
(97
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
137,859
|
|
|
|
25
|
%
|
|
$
|
113,660
|
|
|
|
26
|
%
|
|
$
|
24,199
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
The average value of the Argentine peso for the year ended
December 31, 2008 depreciated relative to the
U.S. dollar by 2% from 2007. As a result, the components of
Nextel Argentinas results of operations for the year ended
December 31, 2008 after translation into U.S. dollars
reflect slightly 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 $100.1 million, or 25%, increase in service and other
revenues from 2007 to 2008 is primarily attributable to the
following:
|
|
|
|
|
a 23% increase in the average number of handsets in service,
resulting mostly from growth in Nextel Argentinas existing
markets; and
|
|
|
|
a $14.0 million, or 32%, increase in revenues generated
from Nextel Argentinas handset maintenance program as a
result of an increased percentage of Nextel Argentinas
subscriber base participating in this program.
|
The $12.1 million, or 36%, increase in digital handset and
accessory revenues from 2007 to 2008 is mostly the result of an
increase in handset upgrades to existing subscribers, as well as
an increase in handset sales to new subscribers.
77
The $27.9 million, or 18%, increase in cost of service from
2007 to 2008 is principally a result of the following:
|
|
|
|
|
an $11.7 million, or 15%, increase in interconnect costs,
largely as a result of an 11% increase in interconnect minutes
of use, as well as an increase in the proportion of
mobile-to-mobile
minutes of use, which generally have higher per minute costs;
|
|
|
|
a $6.5 million, or 21%, increase in direct switch and
transmitter and receiver site costs due to a 22% increase in the
number of transmitter and receiver sites in service from
December 31, 2007 to December 31, 2008; and
|
|
|
|
a $6.4 million, or 17%, increase in service and repair
costs, largely as a result of an increased percentage of Nextel
Argentinas subscriber base participating in its handset
maintenance program.
|
The $18.7 million, or 36%, increase in cost of digital
handset and accessory sales from 2007 to 2008 is primarily the
result of an increase in handset upgrades to existing
subscribers, as well as an increase in handset sales to new
subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $10.9 million, or 32%, increase in selling and
marketing expenses from 2007 to 2008 is primarily due to the
following:
|
|
|
|
|
a $5.0 million, or 32%, increase in indirect commissions,
principally resulting from a 20% increase in gross subscriber
additions generated by Nextel Argentinas external sales
channels, as well as an increase in indirect commission earned
per subscriber addition; and
|
|
|
|
a $4.9 million, or 39%, increase in direct commissions and
payroll expenses, mostly due to an increase in facilities
expenses related to retail stores and a significant increase in
salaries consistent with the ongoing inflation in Argentina, as
well as an 11% increase in gross subscriber additions generated
by Nextel Argentinas internal sales personnel.
|
|
|
4.
|
General and
administrative expenses
|
The $22.2 million, or 34%, increase in general and
administrative expenses from 2007 to 2008 is primarily a result
of the following:
|
|
|
|
|
an $11.6 million, or 33%, increase in other general and
administrative costs primarily due to an increase in payroll and
related expenses caused by an increase in personnel, an increase
in salaries consistent with the ongoing inflation in Argentina
and an increase in turnover taxes;
|
|
|
|
a $6.7 million, or 40%, increase in customer care expenses
resulting from an increase in customer care personnel necessary
to support a larger customer base and an increase in salaries
consistent with the ongoing inflation in Argentina; and
|
|
|
|
a $2.3 million, or 24%, increase in information technology
expenses caused by an increase in information technology
personnel, higher software maintenance costs and an increase in
salaries consistent with the ongoing inflation in Argentina.
|
|
|
5.
|
Depreciation
and amortization
|
The $8.4 million, or 27%, increase in depreciation and
amortization from 2007 to 2008 is primarily due to a 23%
increase in Nextel Argentinas property, plant and
equipment in service.
78
|
|
6.
|
Foreign
currency transaction gains, net
|
Foreign currency transaction gains of $6.6 million for 2008
are primarily due to the impact of the depreciation of the value
of the Argentine peso against the U.S. dollar on Nextel
Argentinas U.S. dollar-denominated net assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
222,819
|
|
|
|
92
|
%
|
|
$
|
178,058
|
|
|
|
93
|
%
|
|
$
|
44,761
|
|
|
|
25
|
%
|
Digital handset and accessory revenues
|
|
|
20,571
|
|
|
|
8
|
%
|
|
|
12,800
|
|
|
|
7
|
%
|
|
|
7,771
|
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,390
|
|
|
|
100
|
%
|
|
|
190,858
|
|
|
|
100
|
%
|
|
|
52,532
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(80,804
|
)
|
|
|
(33
|
)%
|
|
|
(69,185
|
)
|
|
|
(36
|
)%
|
|
|
(11,619
|
)
|
|
|
17
|
%
|
Cost of digital handset and accessory sales
|
|
|
(45,220
|
)
|
|
|
(19
|
)%
|
|
|
(31,457
|
)
|
|
|
(17
|
)%
|
|
|
(13,763
|
)
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,024
|
)
|
|
|
(52
|
)%
|
|
|
(100,642
|
)
|
|
|
(53
|
)%
|
|
|
(25,382
|
)
|
|
|
25
|
%
|
Selling and marketing expenses
|
|
|
(30,340
|
)
|
|
|
(12
|
)%
|
|
|
(20,476
|
)
|
|
|
(10
|
)%
|
|
|
(9,864
|
)
|
|
|
48
|
%
|
General and administrative expenses
|
|
|
(44,469
|
)
|
|
|
(18
|
)%
|
|
|
(33,971
|
)
|
|
|
(18
|
)%
|
|
|
(10,498
|
)
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
42,557
|
|
|
|
18
|
%
|
|
|
35,769
|
|
|
|
19
|
%
|
|
|
6,788
|
|
|
|
19
|
%
|
Depreciation and amortization
|
|
|
(21,737
|
)
|
|
|
(9
|
)%
|
|
|
(19,946
|
)
|
|
|
(11
|
)%
|
|
|
(1,791
|
)
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
20,820
|
|
|
|
9
|
%
|
|
|
15,823
|
|
|
|
8
|
%
|
|
|
4,997
|
|
|
|
32
|
%
|
Interest expense, net
|
|
|
(292
|
)
|
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
(172
|
)
|
|
|
143
|
%
|
Interest income
|
|
|
875
|
|
|
|
|
|
|
|
750
|
|
|
|
1
|
%
|
|
|
125
|
|
|
|
17
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(67
|
)
|
|
|
|
|
|
|
507
|
|
|
|
|
|
|
|
(574
|
)
|
|
|
(113
|
)%
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
21,336
|
|
|
|
9
|
%
|
|
$
|
16,962
|
|
|
|
9
|
%
|
|
$
|
4,374
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The $44.8 million, or 25%, increase in service and other
revenues from 2007 to 2008 is primarily due to a 41% increase in
the average number of handsets in service, partially offset by a
decrease in average revenue per subscriber mainly resulting from
an increase in the percentage of subscribers in Nextel
Perus subscriber base who purchase service under its
prepaid rate plans, which typically have lower average monthly
revenues per subscriber.
The $7.8 million, or 61%, increase in digital handset and
accessory revenues from 2007 to 2008 is primarily the result of
an increase in handset upgrades for existing subscribers, as
well as an increase in handset sales for new subscribers.
The $11.6 million, or 17%, increase in cost of service from
2007 to 2008 is largely a result of the following:
|
|
|
|
|
a $5.3 million, or 74%, increase in service and repair
costs largely due to an increased percentage of Nextel
Perus subscriber base participating in its handset
maintenance program, as well as an increase in the cost of
repairs per subscriber related to a change in the mix of
handsets; and
|
|
|
|
a $4.1 million, or 28%, increase in direct switch and
transmitter and receiver site costs due primarily to a 13%
increase in the number of transmitter and receiver sites in
service from December 31, 2007 to December 31, 2008,
as well as an increase in cost per site maintenance.
|
79
The $13.8 million, or 44%, increase in cost of digital
handset and accessory sales from 2007 to 2008 is largely the
result of an increase in handset upgrades for existing
subscribers, as well as an increase in handset sales for new
subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $9.9 million, or 48%, increase in selling and marketing
expenses from 2007 to 2008 is primarily due to the following:
|
|
|
|
|
a $4.4 million, or 75%, increase in indirect commissions
largely due to a 79% increase in gross subscriber additions
generated by Nextel Perus external sales channels; and
|
|
|
|
a $3.8 million, or 34%, increase in direct commissions and
payroll expenses, mostly due to an increase in gross subscriber
additions generated by Nextel Perus internal sales
personnel and an increase in selling and marketing personnel.
|
|
|
4.
|
General and
administrative expenses
|
The $10.5 million, or 31%, increase in general and
administrative expenses from 2007 to 2008 is primarily due to
the following:
|
|
|
|
|
a $4.3 million, or 34%, increase in general corporate costs
primarily due to an increase in general and administrative
personnel necessary to develop and deploy Nextel Perus new
network, as well as an increase in consulting expenses related
to this initiative;
|
|
|
|
a $4.3 million, or 35%, increase in customer care expenses
mainly caused by an increase in customer care and billing
operations personnel needed to support a growing customer
base; and
|
|
|
|
a $1.4 million, or 21%, increase in information technology
costs mostly related to an increase in information technology
personnel, as well as an increase in maintenance costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
and other
|
|
|
Year Ended
|
|
|
and other
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
8,704
|
|
|
|
100
|
%
|
|
$
|
3,828
|
|
|
|
99
|
%
|
|
$
|
4,876
|
|
|
|
127
|
%
|
Digital handset and accessory revenues
|
|
|
37
|
|
|
|
|
|
|
|
22
|
|
|
|
1
|
%
|
|
|
15
|
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,741
|
|
|
|
100
|
%
|
|
|
3,850
|
|
|
|
100
|
%
|
|
|
4,891
|
|
|
|
127
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(6,263
|
)
|
|
|
(72
|
)%
|
|
|
(2,791
|
)
|
|
|
(73
|
)%
|
|
|
(3,472
|
)
|
|
|
124
|
%
|
Cost of digital handset and accessory sales
|
|
|
(2,319
|
)
|
|
|
(26
|
)%
|
|
|
(1,235
|
)
|
|
|
(32
|
)%
|
|
|
(1,084
|
)
|
|
|
88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,582
|
)
|
|
|
(98
|
)%
|
|
|
(4,026
|
)
|
|
|
(105
|
)%
|
|
|
(4,556
|
)
|
|
|
113
|
%
|
Selling and marketing expenses
|
|
|
(11,917
|
)
|
|
|
(136
|
)%
|
|
|
(10,145
|
)
|
|
|
(264
|
)%
|
|
|
(1,772
|
)
|
|
|
17
|
%
|
General and administrative expenses
|
|
|
(163,547
|
)
|
|
|
NM
|
|
|
|
(133,724
|
)
|
|
|
NM
|
|
|
|
(29,823
|
)
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(175,305
|
)
|
|
|
NM
|
|
|
|
(144,045
|
)
|
|
|
NM
|
|
|
|
(31,260
|
)
|
|
|
22
|
%
|
Management fee
|
|
|
31,836
|
|
|
|
NM
|
|
|
|
34,376
|
|
|
|
NM
|
|
|
|
(2,540
|
)
|
|
|
(7
|
)%
|
Depreciation and amortization
|
|
|
(12,061
|
)
|
|
|
(138
|
)%
|
|
|
(7,008
|
)
|
|
|
(182
|
)%
|
|
|
(5,053
|
)
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(155,530
|
)
|
|
|
NM
|
|
|
|
(116,677
|
)
|
|
|
NM
|
|
|
|
(38,853
|
)
|
|
|
33
|
%
|
Interest expense, net
|
|
|
(96,071
|
)
|
|
|
NM
|
|
|
|
(73,782
|
)
|
|
|
NM
|
|
|
|
(22,289
|
)
|
|
|
30
|
%
|
Interest income
|
|
|
20,051
|
|
|
|
229
|
%
|
|
|
41,156
|
|
|
|
NM
|
|
|
|
(21,105
|
)
|
|
|
(51
|
)%
|
Foreign currency transaction (losses) gains, net
|
|
|
(1,690
|
)
|
|
|
(19
|
)%
|
|
|
103
|
|
|
|
3
|
%
|
|
|
(1,793
|
)
|
|
|
NM
|
|
Debt conversion expense
|
|
|
|
|
|
|
|
|
|
|
(25,753
|
)
|
|
|
NM
|
|
|
|
25,753
|
|
|
|
(100
|
)%
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(6,311
|
)
|
|
|
(164
|
)%
|
|
|
6,311
|
|
|
|
(100
|
)%
|
Other expense, net
|
|
|
(15,907
|
)
|
|
|
(182
|
)%
|
|
|
(5,486
|
)
|
|
|
(142
|
)%
|
|
|
(10,421
|
)
|
|
|
190
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(249,147
|
)
|
|
|
NM
|
|
|
$
|
(186,750
|
)
|
|
|
NM
|
|
|
$
|
(62,397
|
)
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
80
For the year ended December 31, 2008, corporate and other
operating revenues and cost of revenues primarily represent the
results of operations reported by Nextel Chile.
|
|
1.
|
General and
administrative expenses
|
The $29.8 million, or 22%, increase in general and
administrative expenses from 2007 to 2008 is primarily due to an
increase in corporate personnel expenses related to our new
technology and other initiatives, increased consulting expenses
and a $4.9 million, or 8%, increase in stock-based
compensation expense.
The $22.3 million, or 30%, increase in net interest expense
from 2007 to 2008 is substantially the result of recognizing a
full twelve months of interest expense on our 3.125% convertible
notes that we issued during the second quarter of 2007,
including non-cash interest expense resulting from the
amortization of the discount on those notes, partially offset by
a decrease in interest due to the conversion of our 2.875%
convertible notes in the third quarter of 2007.
The $21.1 million, or 51%, decrease in interest income from
2007 to 2008 is primarily due to the impact of a decrease in
interest rates on average cash balances in the United States, as
well as a decrease in average cash balances from 2007 to 2008.
|
|
4.
|
Debt
conversion expense
|
The $25.8 million in debt conversion expense for 2007
represents cash consideration that we paid in connection with
the tender offer for 99.99% of our 2.875% convertible notes in
the third quarter of 2007. We did not tender any of our
convertible notes in 2008.
|
|
5.
|
Loss on
extinguishment of debt
|
We recognized a $6.3 million loss on extinguishment of debt
in connection with the tender offer for 99.99% of our 2.875%
convertible notes during the third quarter of 2007.
The $10.4 million increase in other expense, net, from 2007
to 2008 is primarily due to losses we recognized related to a
decline in the value of our investment in a short-term
investment fund in the United States resulting from
deterioration in market conditions. If market conditions
continue to deteriorate, we could experience further losses in
this short-term investment.
|
|
C.
|
Liquidity
and Capital Resources
|
We derive our liquidity and capital resources primarily from
cash we raise in connection with external financings and cash
flows from our operations. As of December 31, 2009, we had
working capital, which is defined as total current assets less
total current liabilities, of $2,261.4 million, a
$887.3 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 and 8.875% senior
notes in December 2009. Our working capital includes
$2,504.1 million in cash and cash equivalents as of
December 31, 2009, of which about $236.7 million was
held in currencies other than U.S. dollars, 84% of which
was held in Mexican pesos, and $116.3 million of short-term
investments, which is held in Brazilian reais. 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 a combination of
U.S. treasury security funds, highly liquid overnight
securities and fixed income investment funds.
81
We recognized net income of $381.5 million for the year
ended December 31, 2009 compared to $342.0 million for
the year ended December 31, 2008. During the years ended
December 31, 2009 and 2008, our operating revenues more
than offset our operating expenses, excluding depreciation and
amortization, and cash capital expenditures.
Because we report our results of operations in
U.S. dollars, the declines in relative currency valuations
that occurred during the year ended December 31, 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 year ended December 31,
2009 was a $22.9 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 cash balances and anticipated future cash
flows will be adequate to meet our business plan, which
contemplates the deployment of third generation networks in Peru
and Chile, but our funding needs could be affected by a number
of factors. Specifically, if we acquire spectrum in connection
with the upcoming auctions that are expected to occur in Brazil,
Mexico and Argentina, we will need to raise additional funding
to build the related third generation networks consistent with
applicable regulatory requirements and our business strategy. If
we acquire spectrum in connection with the auction expected to
occur in Mexico, our future funding needs to build a third
generation network in Mexico may be reduced as a result of the
agreement we entered into with Televisa in which Televisa would
acquire 30% of our Nextel Mexico operations in exchange for
$1.44 billion in cash. See Note 13 to our consolidated
financial statements for more information.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
Change from
|
|
|
|
Year Ended December 31,
|
|
|
2008 to 2009
|
|
|
2007 to 2008
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Dollars
|
|
|
Dollars
|
|
|
Cash and cash equivalents, beginning of year
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
|
$
|
708,591
|
|
|
$
|
(126,914
|
)
|
|
$
|
661,574
|
|
Net cash provided by operating activities
|
|
|
864,755
|
|
|
|
796,423
|
|
|
|
661,349
|
|
|
|
68,332
|
|
|
|
135,074
|
|
Net cash used in investing activities
|
|
|
(796,360
|
)
|
|
|
(690,541
|
)
|
|
|
(945,684
|
)
|
|
|
(105,819
|
)
|
|
|
255,143
|
|
Net cash provided by (used in) financing activities
|
|
|
1,215,306
|
|
|
|
(106,181
|
)
|
|
|
943,370
|
|
|
|
1,321,487
|
|
|
|
(1,049,551
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(22,888
|
)
|
|
|
(126,615
|
)
|
|
|
2,539
|
|
|
|
103,727
|
|
|
|
(129,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
2,504,064
|
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
|
$
|
1,260,813
|
|
|
$
|
(126,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $864.8 million of
cash during 2009, a $68.3 million, or 9%, increase from
2008. Our operating activities provided us with
$796.4 million of cash during 2008, a $135.1 million,
or 20%, increase from 2007. Both increases were primarily due to
higher operating income resulting from our profitable growth
strategy, partially offset by increases in working capital
investments due to the continued growth of our business.
We used $796.4 million of cash in our investing activities
during 2009, a $105.8 million increase from 2008, primarily
due to a $132.0 million net increase in the purchase of
short-term investments in Brazil, partially offset by a
$157.0 million decrease in cash capital expenditures,
mostly in Mexico, and a $55.3 million increase in
distributions we received in connection with our investment in
an enhanced cash fund.
82
We used $690.5 million of cash in our investing activities
during 2008, a $255.1 million decrease from 2007 primarily
due to $173.9 million in distributions we received from our
enhanced cash fund. Cash capital expenditures increased
$182.3 million from $624.3 million in 2007 to
$806.6 million in 2008, primarily due to the continued
expansion of the geographic coverage and increased capacity of
our networks, primarily in Brazil, Mexico and Peru.
Our financing activities provided us with $1,215.3 million
of cash during 2009, primarily due to $1,249.1 million in
cash we received in connection with the issuance of our
10% senior notes and our 8.875% senior notes and
$70.1 million in short-term borrowings in Brazil, partially
offset by $89.7 million in repayments under our syndicated
loan facilities in Mexico and Brazil and $18.0 million in
repayments under short-term notes payable in Peru.
We used $106.2 million of cash in our financing activities
during 2008, primarily due to $242.7 million in cash we
used to purchase shares of our common stock and
$57.7 million in repayments under our syndicated loan
facility in Mexico, partially offset by $125.0 million in
borrowings under our syndicated loan facility in Brazil,
$33.8 million in proceeds that we received from stock
option exercises by our employees and $27.3 million in
proceeds that we received from our towers financing transactions.
|
|
D.
|
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 financial sources that may be available.
Our ability to generate sufficient 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
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 exchange rates.
|
Financing Activities. During 2007, we
obtained financing in the U.S. and in Brazil; however,
during much of 2008, the capital markets were largely
unavailable or unattractive to raise capital because of the
global economic recession. As a result, we did not pursue any
new financing initiatives during 2008. Beginning in the first
quarter of 2009, we began executing a number of smaller,
short-term financing initiatives in Brazil to provide capital in
that market. As the global economic conditions improved during
the year, the U.S. high yield market began to open to a
larger number of potential issuers. We took advantage of this
opportunity, and in the second half of 2009, we issued
$1.3 billion of senior notes. We intend to continue to
pursue financing opportunities in the future in both the United
States and in our markets to meet our capital needs. The
following is a summary of the significant financing transactions
we have executed over the last three years. We currently intend
to use the proceeds we raised from these transactions to support
the continued growth of our business and to fund our third
generation business plan.
In May 2007, we privately placed $1.0 billion aggregate
principal amount of 3.125% convertible notes due 2012, which we
refer to as the 3.125% notes. In addition, we granted the
initial purchaser an option to purchase up to an additional
$200.0 million principal amount of 3.125% notes, which
the initial purchaser exercised in full. As a result, we issued
a total of $1.2 billion principal amount of the
3.125% notes for which we received total gross proceeds of
$1.2 billion. We also incurred direct issuance costs of
$22.8 million, which we recorded as a deferred financing
cost that we are amortizing into interest expense over the term
of the 3.125% notes. The notes bear interest at a rate of
3.125% per annum on the principal amount of the notes, payable
semi-annually in arrears in cash on June 15 and December 15 of
each year, beginning December 15,
83
2007. The notes will mature on June 15, 2012 unless earlier
converted or redeemed by the holders or repurchased by us.
In July 2007, we accepted the tender of 99.99% of the
$300.0 million in outstanding principal amount of our
2.875% convertible notes under a tender offer that expired on
July 23, 2007. In connection with this tender offer, we
issued 11,268,103 shares of our common stock incurred
$0.3 million in direct external costs and paid to the
holders of the tendered notes an aggregate cash premium of
$25.5 million and accrued and unpaid interest of
$4.2 million.
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 3.43% and 7.35% as of
December 31, 2008 and 2007, respectively). The remaining
$255.0 million is also 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
3.18% and 7.10% as of December 31, 2008 and 2007,
respectively). Tranche A matures on September 14,
2014, and Tranche B matures on September 14, 2012.
During the fourth quarter of 2007, Nextel Brazil borrowed
$26.2 million in term loans under Tranche A and
$148.8 million in term loans under Tranche B of this
syndicated loan facility. During the first quarter of 2008,
Nextel Brazil borrowed the remaining $18.8 million in term
loans under Tranche A and $106.2 million in term loans
under Tranche B of this syndicated loan facility.
In August 2009, we issued senior notes with $800.0 million
aggregate principal amount due at maturity for total cash
proceeds of $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 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.
In December 2009, we issued senior notes with
$500.0 million aggregate principal amount due at maturity
for total cash proceeds of about $486.6 million, after
deducting original issue discount and commissions. We also
incurred $0.5 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 bear interest at a
rate of 8.875% per year, which is payable semi-annually in
arrears on June 15 and December 15, beginning on
June 15, 2010. The notes will mature on December 15,
2019 when the entire principal amount of $500.0 million
will be due.
Throughout 2009, we also entered into a number of short-term
working capital financing arrangements in Brazil, including the
financing of imported handsets and infrastructure in Brazil.
Funding for both types of arrangements was provided by lenders
based in Brazil. In addition, Nextel Peru entered into a
$130.0 million syndicated loan agreement in December 2009,
the proceeds of which will be used for capital expenditures,
general corporate purposes and the repayment of short-term
intercompany debt. As of December 31, 2009, Nextel Peru had
not yet borrowed any funds under this agreement; however, we
expect that Nextel Peru will begin drawing on this loan in the
first quarter of 2010.
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 networks;
|
|
|
|
capital expenditures to expand and enhance our networks, as
discussed below under Capital Expenditures;
|
|
|
|
operating and capital expenditures related to the deployment of
third generation networks in Peru and Chile;
|
|
|
|
future spectrum purchases;
|
|
|
|
operating expenses and capital expenditures related to the
deployment of third generation networks in our other markets if
we are successful in acquiring spectrum;
|
84
|
|
|
|
|
debt service requirements, including significant upcoming
maturities in the next two years, and obligations relating to
our 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 December 31, 2009. The
information in the table reflects future unconditional payments
and is based upon, among other things, the current terms of the
relevant agreements 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
|
|
|
$
|
1,256,250
|
|
|
$
|
|
|
|
$
|
23
|
|
|
$
|
1,653,398
|
|
Senior notes(1)
|
|
|
124,415
|
|
|
|
248,750
|
|
|
|
248,750
|
|
|
|
1,681,875
|
|
|
|
2,303,790
|
|
Tower financing obligations(1)
|
|
|
58,740
|
|
|
|
117,442
|
|
|
|
117,370
|
|
|
|
269,530
|
|
|
|
563,082
|
|
Syndicated loan facilities(2)
|
|
|
90,356
|
|
|
|
326,996
|
|
|
|
16,870
|
|
|
|
|
|
|
|
434,222
|
|
Capital lease obligations(3)
|
|
|
18,069
|
|
|
|
35,565
|
|
|
|
34,487
|
|
|
|
96,375
|
|
|
|
184,496
|
|
Spectrum fees(4)
|
|
|
24,175
|
|
|
|
48,350
|
|
|
|
48,350
|
|
|
|
265,340
|
|
|
|
386,215
|
|
Operating leases(5)
|
|
|
155,190
|
|
|
|
232,296
|
|
|
|
181,065
|
|
|
|
256,921
|
|
|
|
825,472
|
|
Purchase obligations(6)
|
|
|
993,631
|
|
|
|
50,808
|
|
|
|
4,386
|
|
|
|
9,741
|
|
|
|
1,058,566
|
|
Import financing(7)
|
|
|
84,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,975
|
|
Brazil credit paper(8)
|
|
|
52,742
|
|
|
|
31,768
|
|
|
|
|
|
|
|
|
|
|
|
84,510
|
|
Other long-term obligations(9)
|
|
|
26,708
|
|
|
|
38,434
|
|
|
|
51,547
|
|
|
|
212,999
|
|
|
|
329,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual commitments
|
|
$
|
2,026,126
|
|
|
$
|
2,386,659
|
|
|
$
|
702,825
|
|
|
$
|
2,792,804
|
|
|
$
|
7,908,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts include estimated principal and interest payments
over the full term of the obligation, assuming the current
payment schedule. 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, 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 corporate aircraft lease. The amounts related to our
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
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. |
85
|
|
|
(7) |
|
This amount represents principal and interest payments due under
our import financing agreements in Brazil and Argentina. |
|
(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. |
In addition to these contractual obligations, as discussed in
Note 7 to the accompanying consolidated financial
statements, we entered into an agreement with Motorola during
2006, which requires us to purchase a minimum number of handsets
each year through December 31, 2011. Prices for handsets
that will be purchased in years subsequent to 2010 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 2010 until each years prices and handset mix
are negotiated, and therefore, they are not included in the
table above.
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$733.2 million for the year ended December 31, 2009,
$832.9 million for the year ended December 31, 2008
and $668.3 million for the year ended December 31,
2007. 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. We
expect to continue to focus our capital spending in these two
markets, particularly in Brazil in order to add more capacity to
Nextel Brazils network, support its growth and expand its
geographic coverage.
In addition, we currently plan to participate in spectrum
auctions in our markets, including auctions that are expected to
be conducted in Brazil, Mexico and Argentina, and, if we are
successful in acquiring spectrum in those auctions, to deploy
third 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
third 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.
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 that are or may become available. We may also
consider entering into strategic relationships with third
parties that will provide additional equity or other funding to
support our business plans, and we recently entered into an
investment agreement with Televisa pursuant to which Televisa
may make an equity investment in Nextel Mexico. For more
information, see Note 13 to our consolidated financial
statements. 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 extent to which we add capacity to our networks;
|
|
|
|
the amount we spend to deploy the third generation networks in
Chile and Peru;
|
|
|
|
the costs we incur in connection with future spectrum
acquisitions and the development and deployment of any third
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
86
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 Item 1A. Risk
Factors 7. Because we rely on one supplier for
equipment used in our mobile networks, any failure of that
supplier to perform could adversely affect our
operations.
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 third 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 plans to participate in auctions of spectrum rights in our
markets, including the auctions that are expected to be
conducted in Brazil, Mexico and Argentina, and by our plans to
deploy third 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, whether we are successful in
acquiring spectrum in those auctions, 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 the
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.
|
Our funding needs will also be affected by the need to repay or
refinance our existing indebtedness, including the
$350.0 million principal amount of our 2.75% convertible
notes that we believe the noteholders will require us to
repurchase in 2010 and the $1.2 billion principal amount of
our 3.125% convertible notes that mature in 2012.
We will continue to assess opportunities to raise additional
funding that could be used, among other purposes, to meet those
requirements, to refinance our existing obligations or to meet
the funding needs of our business plans. The indebtedness that
we may incur in 2010 and in subsequent years in order to fund
our business plans and for refinancing may be significant. See
Forward Looking Statements.
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 third 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 third
generation networks that utilize the 1.9 GHz spectrum we
acquired 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;
|
87
|
|
|
|
|
our scheduled debt service, which includes significant
maturities in the next several years; 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 global markets have resulted in a 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. Although conditions in the debt and equity markets in
the United States improved in the second half of 2009,
volatility in those markets could make it more 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 third 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. See Item 1A. Risk
Factors 3. 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 4. Our
current and future debt may limit our flexibility and increase
our risk of default.
|
|
E.
|
Effect
of Inflation and Foreign Currency Exchange
|
Our net assets are subject to foreign currency exchange risks
since they are primarily maintained in local currencies.
Additionally, a significant portion of our long-term debt,
including some long-term debt incurred by our operating
subsidiaries, is denominated entirely in U.S. dollars,
which exposes us to foreign currency exchange risks. Nextel
Argentina, Nextel Brazil and Nextel Mexico conduct business in
countries in which the rate of inflation has historically been
significantly higher than that of the United States. We seek to
protect our earnings from inflation and possible currency
depreciation by periodically adjusting the local currency prices
charged by each operating company for sales of handsets and
services to its customers. We routinely monitor our foreign
currency exposure and the cost effectiveness of hedging
instruments.
88
Inflation is not currently a material factor affecting our
business, although rates of inflation in some of the countries
in which we operate have been historically volatile. In the last
two years, the inflation rate in Argentina has risen
significantly, and we expect that it may continue to rise in the
next several years, which will increase our costs and could
reduce our profitability in Argentina. General operating
expenses such as salaries, employee benefits and lease costs
are, however, subject to normal inflationary pressures. From
time to time, we may experience price changes in connection with
the purchase of system infrastructure equipment and handsets,
but we do not currently believe that any of these price changes
will be material to our business.
|
|
F.
|
Effect
of New Accounting Standards
|
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 consolidated financial statements.
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 prospectively to revenue
arrangements entered into or materially modified in 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 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.
The adoption of this guidance did not have a material impact on
our consolidated financial statements.
In January 2010, the FASB updated its authoritative guidance on
accounting for distributions to shareholders with components of
stock and cash. The amendments clarify that the stock portion of
a distribution to shareholders that allows them to elect to
receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance that is reflected in
earnings per share prospectively and is not a stock dividend.
This updated authoritative guidance was effective for the year
ended December 31, 2009. The implementation of this updated
guidance did not have an impact to our consolidated financial
statements since we were already accounting for distributions in
this manner.
In January 2010, the FASB amended its authoritative guidance on
fair value measurements and disclosures. This update added new
requirements for disclosures about transfers into and out of
Levels 1 and 2 and separate disclosures about purchases,
sales, issuances and settlements relating to Level 3
measurements. It also clarified existing fair value disclosures
about the level of disaggregation and about inputs and valuation
techniques used to measure fair value. This updated guidance is
effective for annual and interim reporting periods beginning
after December 15, 2009, except for the requirement to
provide the Level 3 activity between purchases, sales,
issuances and settlements on a gross basis. That requirement is
effective for fiscal years beginning after December 15,
2010 and for interim periods within those fiscal years. We do
not expect the adoption of this new guidance to have a material
impact on our consolidated financial statements.
89
|
|
Item 7A.
|
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 December 31, 2009, $3,297.4 million,
or 89%, of our total consolidated debt was fixed rate debt, and
the remaining $416.1 million, or 11%, of our total
consolidated debt was variable rate debt.
The table below presents principal amounts, related interest
rates by year of maturity and aggregate amounts as of
December 31, 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 currency call options and
written currency 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 $350.0 million repayment of the principal balance of
our 2.75% convertible notes due 2025 is included in the table
below in the column labeled 1 Year.
The changes in the fair values of our consolidated debt compared
to their fair values as of December 31, 2008 reflect
changes in applicable market conditions during 2009. All of the
information in the table is presented in U.S. dollar
equivalents, which is our reporting currency. The actual cash
flows associated with our consolidated long-term debt are
denominated in U.S. dollars (US$), Mexican pesos (MP) and
Brazilian reais (BR).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
|
2009
|
|
|
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$)
|
|
$
|
435,126
|
|
|
$
|
4,489
|
|
|
$
|
1,204,749
|
|
|
$
|
5,028
|
|
|
$
|
5,325
|
|
|
$
|
1,333,887
|
|
|
$
|
2,988,604
|
|
|
$
|
2,898,424
|
|
|
$
|
1,579,600
|
|
|
$
|
1,066,131
|
|
Average Interest Rate
|
|
|
3.4%
|
|
|
|
5.5%
|
|
|
|
3.1%
|
|
|
|
5.6%
|
|
|
|
5.6%
|
|
|
|
9.4%
|
|
|
|
6.0%
|
|
|
|
|
|
|
|
3.2%
|
|
|
|
|
|
Fixed Rate (MP)
|
|
$
|
5,614
|
|
|
$
|
6,615
|
|
|
$
|
7,803
|
|
|
$
|
9,217
|
|
|
$
|
10,903
|
|
|
$
|
89,330
|
|
|
$
|
129,482
|
|
|
$
|
129,482
|
|
|
$
|
158,104
|
|
|
$
|
95,870
|
|
Average Interest Rate
|
|
|
15.8%
|
|
|
|
15.8%
|
|
|
|
15.8%
|
|
|
|
15.8%
|
|
|
|
15.8%
|
|
|
|
15.7%
|
|
|
|
15.8%
|
|
|
|
|
|
|
|
14.7%
|
|
|
|
|
|
Fixed Rate (BR)
|
|
$
|
50,351
|
|
|
$
|
19,710
|
|
|
$
|
20,742
|
|
|
$
|
7,777
|
|
|
$
|
7,960
|
|
|
$
|
72,838
|
|
|
$
|
179,378
|
|
|
$
|
181,039
|
|
|
$
|
77,924
|
|
|
$
|
38,414
|
|
Average Interest Rate
|
|
|
12.1%
|
|
|
|
12.6%
|
|
|
|
13.2%
|
|
|
|
21.6%
|
|
|
|
24.2%
|
|
|
|
23.5%
|
|
|
|
17.9%
|
|
|
|
|
|
|
|
23.2%
|
|
|
|
|
|
Variable Rate (US$)
|
|
$
|
81,039
|
|
|
$
|
237,639
|
|
|
$
|
81,039
|
|
|
$
|
8,182
|
|
|
$
|
8,182
|
|
|
$
|
|
|
|
$
|
416,081
|
|
|
$
|
403,079
|
|
|
$
|
456,600
|
|
|
$
|
408,776
|
|
Average Interest Rate
|
|
|
2.0%
|
|
|
|
1.7%
|
|
|
|
2.0%
|
|
|
|
2.0%
|
|
|
|
2.0%
|
|
|
|
|
|
|
|
1.9%
|
|
|
|
|
|
|
|
2.9%
|
|
|
|
|
|
Variable Rate (MP)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,066
|
|
|
$
|
19,372
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.0%
|
|
|
|
|
|
Interest Rate Swap:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
|
|
$
|
|
|
|
$
|
156,600
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
156,600
|
|
|
$
|
(1,246)
|
|
|
$
|
13,301
|
|
|
$
|
(124)
|
|
Average Pay Rate
|
|
|
|
|
|
|
1.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4%
|
|
|
|
|
|
|
|
10.8%
|
|
|
|
|
|
Average Receive Rate
|
|
|
|
|
|
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0%
|
|
|
|
|
|
|
|
9.0%
|
|
|
|
|
|
Foreign Currency Exchange Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
$
|
139,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
139,000
|
|
|
$
|
1,620
|
|
|
$
|
|
|
|
$
|
|
|
Average Strike Price
|
|
$
|
0.07 - 0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.07 - 0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
We have listed the consolidated financial statements required
under this Item in Part IV, Item 15(a)(1) of this
annual report on
Form 10-K.
We have listed the financial statement schedule required under
Regulation S-X
in Part IV, Item 15(a)(2) of this annual report on
Form 10-K.
The financial statements and schedule appear following the
signature page of this annual report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
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 December 31, 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
There have been no 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.
Managements
Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended). Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In order to evaluate the effectiveness of internal control over
financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act, management conducted an assessment using the
criteria established in Internal Control
Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this
assessment, management has concluded that as of
December 31, 2009, our internal control over financial
reporting was effective.
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, who audited and reported on our financial
statements included in this annual report, has also audited the
effectiveness of our internal control over financial reporting
as of December 31, 2009, as stated in their Report of
Independent Registered Public Accounting Firm.
|
|
Item 9B.
|
Other
Information
|
None.
91
PART III
|
|
Item 10.
|
Directors,
Executive Officers of the Registrant and Corporate
Governance
|
Except as to certain information regarding executive officers
included in Part I hereof and incorporated herein by
reference, the information required by this item will be
provided by being incorporated herein by reference to the
Companys definitive proxy statement for the 2010 Annual
Meeting of Stockholders under the captions Election of
Directors, Governance of the Company
Committees of the Board Audit Committee,
Securities Ownership Section 16(a)
Beneficial Ownership Reporting Compliance and
Governance of the Company Code of Ethics.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2010 Annual Meeting of
Stockholders under the captions Director
Compensation and Executive Compensation
(except for the information set forth under the captions
Executive Compensation Compensation Committee
Report on Executive Compensation).
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2010 Annual Meeting of
Stockholders under the captions Securities
Ownership Securities Ownership of Certain Beneficial
Owners and Securities Ownership of
Management and Executive Compensation
Equity Compensation Plan Information.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2010 Annual Meeting of
Stockholders under the caption Certain Relationships and
Related Transactions.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2010 Annual Meeting of
Stockholders under the captions Audit
Information Fees Paid to Independent Registered
Public Accounting Firm and Audit
Committee Pre-Approval Policies and Procedures.
92
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules.
|
(a)(1) Financial Statements. Financial statements and report of
independent registered public accounting firm filed as part of
this report are listed below:
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
|
(2)
|
Financial Statement Schedule. The following financial statement
schedule is filed as part of this report. Schedules other than
the schedule listed below are omitted because they are either
not required or not applicable.
|
|
|
|
|
(3)
|
List of Exhibits. The exhibits filed as part of this report are
listed in the Exhibit Index, which is incorporated in this item
by reference.
|
(b) Exhibits. See Item 15(a)(3) above.
(c) Financial Statement Schedule. See Item 15(a)(2)
above.
93
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NII HOLDINGS, INC.
|
|
|
|
By:
|
/s/ Teresa
S. Gendron
|
Teresa S. Gendron
Vice President and Controller
(On behalf of the registrant and as
Principal Accounting Officer)
February 25, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
February 25, 2010.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Steven
M. Shindler
Steven
M. Shindler
|
|
Executive Chairman of the Board of Directors
|
|
|
|
/s/ Steven
P. Dussek
Steven
P. Dussek
|
|
Chief Executive Officer and Director
|
|
|
|
/s/ Gokul
Hemmady
Gokul
Hemmady
|
|
Vice President and Chief Financial Officer (Principal Financial
Officer)
|
|
|
|
/s/ George
A. Cope
George
A. Cope
|
|
Director
|
|
|
|
/s/ Raymond
P. Dolan
Raymond
P. Dolan
|
|
Director
|
|
|
|
/s/ Donald
Guthrie
Donald
Guthrie
|
|
Director
|
|
|
|
/s/ Charles
M. Herington
Charles
M. Herington
|
|
Director
|
|
|
|
/s/ Carolyn
Katz
Carolyn
Katz
|
|
Director
|
|
|
|
/s/ Rosendo
G. Parra
Rosendo
G. Parra
|
|
Director
|
|
|
|
/s/ John
W. Risner
John
W. Risner
|
|
Director
|
94
NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
|
F-2
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
|
F-46
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of NII Holdings, Inc.
In our opinion, the consolidated financial statements listed in
the index under Item 15(a)(1) present fairly, in all
material respects, the financial position of NII Holdings, Inc.
and its subsidiaries at December 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index
under item 15(a)(2) presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements and financial statement schedule,
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in
Managements Report on Internal Control over Financial
Reporting under Item 9A. Our responsibility is to express
opinions on these financial statements, on the financial
statement schedule, and on the Companys internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 9 to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain income tax positions in 2007. Additionally, as
discussed in Note 6 to the consolidated financial
statements, the Company changed the manner in which it measures
fair value for financial assets and liabilities in 2008. Also,
as discussed in Note 5 to the consolidated financial
statements, the Company changed the manner in which it accounts
for convertible debt instruments that may be settled in cash
upon conversion (including partial cash settlement) in 2009.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
McLean, Virginia
February 25, 2010
F-2
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except par values)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,504,064
|
|
|
$
|
1,243,251
|
|
Short-term investments
|
|
|
116,289
|
|
|
|
82,002
|
|
Accounts receivable, less allowance for doubtful accounts of
$35,148 and $27,875
|
|
|
613,591
|
|
|
|
454,769
|
|
Handset and accessory inventory
|
|
|
188,476
|
|
|
|
139,285
|
|
Deferred income taxes, net
|
|
|
148,498
|
|
|
|
135,265
|
|
Prepaid expenses and other
|
|
|
220,210
|
|
|
|
130,705
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,791,128
|
|
|
|
2,185,277
|
|
Property, plant and equipment, net
|
|
|
2,502,189
|
|
|
|
1,892,113
|
|
Intangible assets, net
|
|
|
337,233
|
|
|
|
317,878
|
|
Deferred income taxes, net
|
|
|
494,343
|
|
|
|
429,365
|
|
Other assets
|
|
|
429,800
|
|
|
|
265,440
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,554,693
|
|
|
$
|
5,090,073
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
186,996
|
|
|
$
|
136,442
|
|
Accrued expenses and other
|
|
|
599,209
|
|
|
|
446,270
|
|
Deferred revenues
|
|
|
136,533
|
|
|
|
116,267
|
|
Accrued interest
|
|
|
42,415
|
|
|
|
13,166
|
|
Current portion of long-term debt
|
|
|
564,544
|
|
|
|
99,054
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,529,697
|
|
|
|
811,199
|
|
Long-term debt
|
|
|
3,016,244
|
|
|
|
2,034,086
|
|
Deferred revenues
|
|
|
22,071
|
|
|
|
29,616
|
|
Deferred credits
|
|
|
93,932
|
|
|
|
144,397
|
|
Other long-term liabilities
|
|
|
145,912
|
|
|
|
158,652
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,807,856
|
|
|
|
3,177,950
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2009 and 2008, no
shares issued or outstanding 2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001, 600,000 shares
authorized 2009 and 2008, 166,730 shares issued
and outstanding 2009, 165,782 shares issued and
outstanding 2008
|
|
|
166
|
|
|
|
166
|
|
Paid-in capital
|
|
|
1,239,541
|
|
|
|
1,158,925
|
|
Retained earnings
|
|
|
1,674,898
|
|
|
|
1,293,407
|
|
Accumulated other comprehensive loss
|
|
|
(167,768
|
)
|
|
|
(540,375
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,746,837
|
|
|
|
1,912,123
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
7,554,693
|
|
|
$
|
5,090,073
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
4,153,548
|
|
|
$
|
4,048,466
|
|
|
$
|
3,184,696
|
|
Digital handset and accessory revenues
|
|
|
244,051
|
|
|
|
220,914
|
|
|
|
111,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,397,599
|
|
|
|
4,269,380
|
|
|
|
3,296,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
1,225,222
|
|
|
|
1,110,927
|
|
|
|
850,934
|
|
Cost of digital handset and accessory sales
|
|
|
623,733
|
|
|
|
585,391
|
|
|
|
443,760
|
|
Selling, general and administrative
|
|
|
1,438,463
|
|
|
|
1,400,642
|
|
|
|
1,077,893
|
|
Depreciation
|
|
|
404,062
|
|
|
|
372,542
|
|
|
|
290,302
|
|
Amortization
|
|
|
29,242
|
|
|
|
32,578
|
|
|
|
14,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,720,722
|
|
|
|
3,502,080
|
|
|
|
2,677,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
676,877
|
|
|
|
767,300
|
|
|
|
618,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(218,844
|
)
|
|
|
(205,516
|
)
|
|
|
(160,642
|
)
|
Interest income
|
|
|
25,586
|
|
|
|
68,411
|
|
|
|
67,429
|
|
Foreign currency transaction gains (losses), net
|
|
|
104,866
|
|
|
|
(120,572
|
)
|
|
|
19,008
|
|
Debt conversion expense
|
|
|
|
|
|
|
|
|
|
|
(25,753
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
(6,311
|
)
|
Other expense, net
|
|
|
(2,308
|
)
|
|
|
(28,806
|
)
|
|
|
(1,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90,700
|
)
|
|
|
(286,483
|
)
|
|
|
(108,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
586,177
|
|
|
|
480,817
|
|
|
|
510,496
|
|
Income tax provision
|
|
|
(204,686
|
)
|
|
|
(138,862
|
)
|
|
|
(156,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
381,491
|
|
|
$
|
341,955
|
|
|
$
|
353,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, basic
|
|
$
|
2.30
|
|
|
$
|
2.05
|
|
|
$
|
2.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
2.27
|
|
|
$
|
2.02
|
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
166,042
|
|
|
|
166,927
|
|
|
|
166,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
174,014
|
|
|
|
175,290
|
|
|
|
184,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
Cumulative
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
and
|
|
|
Translation
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Investments
|
|
|
Adjustment
|
|
|
Equity
|
|
|
Balance, January 1, 2007
|
|
|
161,814
|
|
|
$
|
162
|
|
|
$
|
823,990
|
|
|
$
|
606,296
|
|
|
$
|
(2,944
|
)
|
|
$
|
(4,920
|
)
|
|
$
|
1,422,584
|
|
Cumulative effect of adopting ASC 740-10
|
|
|
|
|
|
|
|
|
|
|
1,239
|
|
|
|
(8,592
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,353
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353,748
|
|
|
|
|
|
|
|
|
|
|
|
353,748
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,553
|
|
|
|
79,553
|
|
Other losses on
available-for-sale
securities and derivatives, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,043
|
|
|
|
|
|
|
|
1,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of common stock
|
|
|
(7,402
|
)
|
|
|
(7
|
)
|
|
|
(500,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500,087
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
66,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,670
|
|
Reversal of deferred tax asset valuation allowances
|
|
|
|
|
|
|
|
|
|
|
407,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407,041
|
|
Conversion feature, net of income taxes 3.125%
convertible notes
|
|
|
|
|
|
|
|
|
|
|
118,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,874
|
|
Equity issuance costs, net of income taxes 3.125%
convertible notes
|
|
|
|
|
|
|
|
|
|
|
(2,268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,268
|
)
|
Conversion of 2.75% convertible notes and 2.875% convertible
notes to common stock
|
|
|
11,268
|
|
|
|
11
|
|
|
|
282,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282,197
|
|
Exercise of stock options
|
|
|
4,230
|
|
|
|
4
|
|
|
|
90,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,996
|
|
Tax benefits on exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
Tax benefit of prior periods stock option exercises
|
|
|
|
|
|
|
|
|
|
|
7,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
169,910
|
|
|
|
170
|
|
|
|
1,296,405
|
|
|
|
951,452
|
|
|
|
(1,901
|
)
|
|
|
74,633
|
|
|
|
2,320,759
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341,955
|
|
|
|
|
|
|
|
|
|
|
|
341,955
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(613,649
|
)
|
|
|
(613,649
|
)
|
Other losses on
available-for-sale
securities and derivatives, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
542
|
|
|
|
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(271,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of common stock
|
|
|
(5,555
|
)
|
|
|
(5
|
)
|
|
|
(242,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(242,670
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
71,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,414
|
|
Exercise of stock options
|
|
|
1,427
|
|
|
|
1
|
|
|
|
33,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
165,782
|
|
|
|
166
|
|
|
|
1,158,925
|
|
|
|
1,293,407
|
|
|
|
(1,359
|
)
|
|
|
(539,016
|
)
|
|
|
1,912,123
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
381,491
|
|
|
|
|
|
|
|
|
|
|
|
381,491
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373,272
|
|
|
|
373,272
|
|
Other losses on
available-for-sale
securities and derivatives, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(665
|
)
|
|
|
|
|
|
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
754,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax deficiency on current period exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(5,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,267
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
70,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,213
|
|
Exercise of stock options
|
|
|
948
|
|
|
|
|
|
|
|
15,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
166,730
|
|
|
$
|
166
|
|
|
$
|
1,239,541
|
|
|
$
|
1,674,898
|
|
|
$
|
(2,024
|
)
|
|
$
|
(165,744
|
)
|
|
$
|
2,746,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
381,491
|
|
|
$
|
341,955
|
|
|
$
|
353,748
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt financing costs
|
|
|
8,480
|
|
|
|
7,846
|
|
|
|
6,044
|
|
Amortization of debt discount
|
|
|
49,922
|
|
|
|
45,982
|
|
|
|
34,334
|
|
Depreciation and amortization
|
|
|
433,304
|
|
|
|
405,120
|
|
|
|
305,029
|
|
Provision for losses on accounts receivable
|
|
|
86,961
|
|
|
|
80,628
|
|
|
|
46,360
|
|
Foreign currency transaction (gains) losses, net
|
|
|
(104,866
|
)
|
|
|
120,572
|
|
|
|
(19,008
|
)
|
Deferred income tax (benefit) provision
|
|
|
(24,783
|
)
|
|
|
(76,175
|
)
|
|
|
38,469
|
|
Utilization of deferred credit
|
|
|
|
|
|
|
|
|
|
|
(21,087
|
)
|
Share-based payment expense
|
|
|
70,716
|
|
|
|
71,279
|
|
|
|
67,010
|
|
Accretion of asset retirement obligations
|
|
|
8,961
|
|
|
|
7,721
|
|
|
|
5,900
|
|
(Gain) loss on short-term investments
|
|
|
(2,210
|
)
|
|
|
14,755
|
|
|
|
3,320
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
6,311
|
|
Contingency reversals, net of charges
|
|
|
(7,473
|
)
|
|
|
|
|
|
|
(13,141
|
)
|
Other, net
|
|
|
(4,616
|
)
|
|
|
1,801
|
|
|
|
2,616
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(184,640
|
)
|
|
|
(207,630
|
)
|
|
|
(166,645
|
)
|
Handset and accessory inventory
|
|
|
(7,284
|
)
|
|
|
(58,623
|
)
|
|
|
(35,766
|
)
|
Prepaid expenses and other
|
|
|
(53,202
|
)
|
|
|
(44,097
|
)
|
|
|
(33,729
|
)
|
Other long-term assets
|
|
|
2,054
|
|
|
|
(63,365
|
)
|
|
|
(35,514
|
)
|
Accounts payable, accrued expenses and other
|
|
|
203,208
|
|
|
|
95,145
|
|
|
|
90,992
|
|
Current deferred revenue
|
|
|
8,558
|
|
|
|
31,067
|
|
|
|
21,526
|
|
Deferred revenue and other long-term liabilities
|
|
|
174
|
|
|
|
22,442
|
|
|
|
4,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
864,755
|
|
|
|
796,423
|
|
|
|
661,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(649,578
|
)
|
|
|
(806,610
|
)
|
|
|
(624,309
|
)
|
Payments for acquisitions, purchases of licenses and other
|
|
|
(28,158
|
)
|
|
|
(10,579
|
)
|
|
|
(49,530
|
)
|
Transfers to restricted cash
|
|
|
(107,070
|
)
|
|
|
(2,335
|
)
|
|
|
(29,062
|
)
|
Purchases of short-term investments
|
|
|
(964,489
|
)
|
|
|
(672,875
|
)
|
|
|
(269,061
|
)
|
Proceeds from sales of short-term investments
|
|
|
959,368
|
|
|
|
799,730
|
|
|
|
23,927
|
|
Other
|
|
|
(6,433
|
)
|
|
|
2,128
|
|
|
|
2,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(796,360
|
)
|
|
|
(690,541
|
)
|
|
|
(945,684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
1,249,078
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes
|
|
|
|
|
|
|
|
|
|
|
1,200,000
|
|
Payments to purchase common stock
|
|
|
|
|
|
|
(242,665
|
)
|
|
|
(500,087
|
)
|
Borrowings under syndicated loan facilities
|
|
|
|
|
|
|
125,000
|
|
|
|
175,000
|
|
Borrowings under credit paper
|
|
|
70,078
|
|
|
|
|
|
|
|
|
|
Repayments under syndicated loan facilities
|
|
|
(89,673
|
)
|
|
|
(57,744
|
)
|
|
|
(18,309
|
)
|
Proceeds from stock option exercises
|
|
|
15,671
|
|
|
|
33,772
|
|
|
|
90,996
|
|
Proceeds from towers financing transactions
|
|
|
|
|
|
|
27,271
|
|
|
|
29,827
|
|
Proceeds from capital lease
|
|
|
8,779
|
|
|
|
|
|
|
|
|
|
(Payments of) borrowings under short-term notes payable
|
|
|
(18,000
|
)
|
|
|
18,000
|
|
|
|
|
|
Payment of debt financing costs
|
|
|
(5,693
|
)
|
|
|
|
|
|
|
(28,617
|
)
|
Repayments under capital leases, tower financing transactions
and other
|
|
|
(14,934
|
)
|
|
|
(9,815
|
)
|
|
|
(5,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
1,215,306
|
|
|
|
(106,181
|
)
|
|
|
943,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
(22,888
|
)
|
|
|
(126,615
|
)
|
|
|
2,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,260,813
|
|
|
|
(126,914
|
)
|
|
|
661,574
|
|
Cash and cash equivalents, beginning of year
|
|
|
1,243,251
|
|
|
|
1,370,165
|
|
|
|
708,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
2,504,064
|
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
NII
HOLDINGS, INC. AND SUBSIDIARIES
|
|
1.
|
Summary
of Operations and Significant Accounting Policies
|
Operations. 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 under the
NextelTM
brand through operating companies located in selected Latin
American markets, 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.
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, for private
one-to-one
calls or group calls;
|
|
|
|
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
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.
|
Use of Estimates. The preparation of 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 and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Due to the
inherent uncertainty involved in making estimates, actual
results to be reported in future periods could differ from our
estimates.
Principles of Consolidation. The consolidated
financial statements include the accounts of NII Holdings, Inc.
and our wholly-owned subsidiaries. Our decision to consolidate
an entity is based on our direct and indirect majority interest
in the entity. We eliminate all significant intercompany
transactions, including intercompany profits and losses, in
consolidation.
We refer to our subsidiaries by the countries in which they
operate, such as Nextel Mexico, Nextel Brazil, Nextel Argentina,
Nextel Peru and Nextel Chile.
Concentrations of Risk. Substantially all of
our revenues are generated from our operations located in
Mexico, Brazil, Argentina and Peru. Regulatory entities in each
country regulate the licensing, construction, acquisition,
ownership and operation of our digital mobile networks, and
certain other aspects of our business, including some of the
rates we charge our customers. Changes in the current
telecommunications statutes or regulations in any of these
countries could adversely affect our business. In addition, as
of December 31, 2009 and 2008, approximately
$4,765.0 million and $3,614.4 million, respectively,
of our assets were owned by
F-7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
Nextel Mexico and Nextel Brazil. Political, financial and
economic developments in Mexico and Brazil could impact the
recoverability of our assets.
Motorola is currently our sole source for most of the digital
network equipment and substantially all of the handsets used
throughout our markets, except for the Blackberry handset, which
is manufactured by Research in Motion, or RIM. If Motorola fails
to deliver system infrastructure equipment and handsets or
enhancements to the features and functionality of our networks
and handsets on a timely, cost-effective basis, we may not be
able to adequately service our existing customers or attract new
customers. Nextel Communications, a subsidiary of Sprint Nextel,
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.
Sprint Nextels plans for the iDEN technology could affect
Motorolas ability to provide support for the development
of new iDEN handset models, which could make it more difficult
for us to compete effectively in some of our markets where new
handset styles and features are heavily valued by customers.
Lower levels of iDEN equipment purchases by Sprint Nextel could
also significantly increase our costs for equipment and new
network features and handset developments and could impact
Motorolas decision to continue to support iDEN technology
beyond its current commitments. We expect to continue to rely
principally on Motorola for the manufacture of a substantial
portion of the equipment necessary to construct, enhance and
maintain our iDEN-based digital mobile networks and for the
manufacture of iDEN compatible handsets. Accordingly, if
Motorola is unable to, or determines not to, continue supporting
or enhancing our iDEN-based infrastructure and handsets, our
business will be materially adversely affected. See Note 7
for more information.
Financial instruments that potentially subject us to significant
amounts of credit risk consist of cash, cash equivalents,
short-term investments and accounts receivable. Our cash and
cash equivalents are deposited with high-quality financial
institutions. At times, we maintain cash balances in excess of
Federal Deposit Insurance Corporation (or the foreign country
equivalent institution) limits. Our short-term investments are
composed of investments made by Nextel Brazil in two different
investment funds. See Note 6 for further information. Our
accounts receivable are generally unsecured. In some cases, for
certain higher risk customers, we require a customer deposit. We
routinely assess the financial strength of our customers and
maintain allowances for anticipated losses, where necessary.
Foreign Currency. In Mexico, Brazil, Argentina
and Chile, the functional currency is the local currency, while
in Peru the functional currency is the U.S. dollar since it
is the currency used for substantially all transactions. We
translate the results of operations for our
non-U.S. subsidiaries
and affiliates from the designated functional currency to the
U.S. dollar using average exchange rates during the
relevant period, while we translate assets and liabilities at
the exchange rate in effect at the reporting date. We translate
equity balances at historical rates. We report the resulting
gains or losses from translating foreign currency financial
statements as other comprehensive income or loss. We remeasure
Nextel Perus financial statements into U.S. dollars
and record remeasurement gains and losses in the statement of
operations. For the years ended December 31, 2009 and 2007,
we reported remeasurement gains in our income tax provision of
$5.5 million and $2.2 million, respectively, both of
which were related to Nextel Perus deferred tax assets and
liabilities. For the year ended December 31, 2008, we
reported remeasurement losses in our income tax provision of
$3.2 million.
In general, monetary assets and liabilities designated in
U.S. dollars give rise to foreign currency realized and
unrealized transaction gains and losses, which we record in the
consolidated statement of operations as foreign currency
transaction gains, net. We report the effects of changes in
exchange rates associated with certain
U.S. dollar-denominated intercompany loans and advances to
our foreign subsidiaries that are of a long-term investment
nature as other comprehensive income or loss in our consolidated
financial statements. We have determined that certain
U.S. dollar-denominated intercompany loans and advances to
Nextel Brazil and Nextel Chile and an intercompany payable due
to Nextel Mexico are of a long-term investment nature.
F-8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
Supplemental Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
649,578
|
|
|
$
|
806,610
|
|
|
$
|
624,309
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
83,579
|
|
|
|
26,299
|
|
|
|
44,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
733,157
|
|
|
$
|
832,909
|
|
|
$
|
668,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
218,844
|
|
|
$
|
205,516
|
|
|
$
|
160,642
|
|
Interest capitalized
|
|
|
12,472
|
|
|
|
10,345
|
|
|
|
7,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
231,316
|
|
|
$
|
215,861
|
|
|
$
|
167,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of assets and business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
28,158
|
|
|
$
|
10,579
|
|
|
$
|
49,530
|
|
Less: liabilities assumed and deferred tax liabilities incurred
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: cash acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,158
|
|
|
$
|
10,579
|
|
|
$
|
49,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
|
$
|
105,804
|
|
|
$
|
118,080
|
|
|
$
|
92,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
219,333
|
|
|
$
|
247,419
|
|
|
$
|
137,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2009, we had
$134.2 million in non-cash financing, primarily related to
the short-term financing of imported handsets and infrastructure
in both Brazil and Argentina, the financing of our new corporate
aircraft, the financing of a mobile switching office in Peru and
co-location capital lease obligations on our communication
towers. For the years ended December 31, 2008 and 2007, we
had $5.8 million and $13.9 million in non-cash
financing activities related to co-location capital lease
obligations on our communication towers.
As discussed in Note 5, in the third quarter of 2007,
99.99% of the $300.0 million in outstanding principal
amount of our 2.875% convertible notes was converted into
11,268,103 shares of our common stock.
Managed Services Agreements. We recently
entered into an agreement with Nokia Siemens Networks to manage
our network operations infrastructure and a separate agreement
with Hewlett Packard to manage our information technology
infrastructure throughout Latin America. In connection with
these agreements, about 10% of our employees are expected to
transition to become employees of these service providers. As a
result, we recorded a pre-tax charge of $26.9 million in
the fourth quarter of 2009 for severance benefits under ASC 712,
Compensation Non-Retirement Post-Employment
Benefits, related to the workforce transition. Of the
$26.9 million total pre-tax charge, we recorded
$20.7 million in cost of service and $6.2 million in
selling, general and administrative costs. We expect the
employee transition to occur, as well as the cash payments for
severance, during the first half of 2010.
Cash and Cash Equivalents. We consider all
highly liquid investments with an original maturity of three
months or less at the time of purchase to be cash equivalents.
Cash equivalents primarily consist of money market funds and
other similarly structured funds.
F-9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
Restricted Cash. As of December 31, 2009,
we had $144.9 million in restricted cash,
$135.2 million of which was included in other assets and
was largely comprised of a debt service reserve account related
to our syndicated loan in Brazil and cash collateral supporting
the issuance of a performance bond that was required in
connection with our recent spectrum acquisition in Chile. The
remainder of our restricted cash is included in other current
assets. As of December 31, 2008, we did not have a material
amount of restricted cash.
Short-Term Investments. Our short-term
investments consist of investments made by Nextel Brazil in two
different investment funds. As of December 31, 2008, our
short-term investments also included the current portion of an
investment in an enhanced cash fund similar to, but not in the
legal form of, a money market fund that invests primarily in
asset backed securities. We classify investments in debt
securities as
available-for-sale
as of the balance sheet date and report them at fair value. We
record unrealized gains and losses, net of income tax, as other
comprehensive income or loss. During the years ended
December 31, 2009, 2008 and 2007, we did not have any
material unrealized gains or losses for
available-for-sale
securities. We report realized gains or losses, as determined on
a specific identification basis, and
other-than-temporary
declines in value, if any, in net other expense in our
consolidated statement of operations. We assess declines in the
value of individual investments to determine whether the decline
is
other-than-temporary
and thus the investment is impaired. We make these assessments
by considering available evidence, including changes in general
market conditions, specific industry and individual company
data, the length of time and the extent to which the market
value has been less than cost, the financial condition and
near-term prospects of the individual company and our intent and
ability to hold the investment. See Note 6 for additional
information.
Handset and Accessory Inventory. We record
handsets and accessories at the lower of cost or market. We
determine cost by the weighted average costing method. We
expense handset costs at the time of sale and classify such
costs in cost of digital handset and accessory sales. We write
down our inventory to cover losses related to obsolete and slow
moving inventory. For the years ended December 31, 2009,
2008 and 2007, our provision for inventory losses was
$0.3 million, $5.2 million and $1.9 million,
respectively.
Property, Plant and Equipment. We record
property, plant and equipment, including improvements that
extend useful lives or enhance functionality, at cost, while we
charge maintenance and repairs to operations as incurred. We
capitalize internal and external costs incurred to develop
internal-use software, which consist primarily of costs related
to configuration, interfaces, installation and testing. We also
capitalize internal and external costs incurred to develop
specified upgrades and enhancements if they result in
significant additional functionalities for our existing
software. We expense all costs related to evaluation of software
needs, data conversion, training, maintenance and other
post-implementation operating activities.
We calculate depreciation using the straight-line method based
on estimated useful lives ranging from 3 to 20 years for
digital mobile network equipment and network software and 3 to
10 years for office equipment, furniture and fixtures, and
other, which includes
non-network
internal use software. We depreciate our corporate aircraft
capital lease using the straight-line method based on the lease
term of 10 years. We include depreciation expense on our
corporate aircraft capital lease and other capital leases in
accumulated depreciation. We amortize leasehold improvements
over the shorter of the lease terms or the useful lives of the
improvements.
Construction in progress includes internal and external labor,
materials, transmission and related equipment, engineering, site
development, interest and other costs relating to the
construction and development of our digital wireless networks.
We do not depreciate assets under construction until they are
ready for their intended use. We capitalize interest and other
costs, including labor and software upgrades, which are
applicable to the construction of, and significant improvements
that enhance functionality to, our digital mobile network
equipment.
F-10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
We periodically review the depreciation method, useful lives and
estimated salvage value of our property, plant and equipment and
revise those estimates if current estimates are significantly
different from previous estimates.
Asset Retirement Obligations. We record an
asset retirement obligation and an associated asset retirement
cost when we have a legal obligation in connection with the
retirement of tangible long-lived assets. Our obligations arise
from certain of our leases and relate primarily to the cost of
removing our equipment from such leased sites. We report asset
retirement obligations and related asset retirement costs at
fair value computed using discounted cash flow techniques. In
addition, we review the adequacy of asset retirement obligations
on a regular basis and more often if changes in events or
circumstances warrant it. As of December 31, 2009 and 2008,
our asset retirement obligations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance, January 1
|
|
$
|
49,701
|
|
|
$
|
41,186
|
|
New asset retirement obligations
|
|
|
5,071
|
|
|
|
7,291
|
|
Accretion
|
|
|
8,961
|
|
|
|
7,721
|
|
Settlement of asset retirement obligations
|
|
|
(4
|
)
|
|
|
(1,749
|
)
|
Foreign currency translation and other
|
|
|
(682
|
)
|
|
|
(4,748
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
63,047
|
|
|
$
|
49,701
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments. We enter
into derivative transactions for hedging or risk management
purposes only. We have not and will not enter into any
derivative transactions for speculative or profit generating
purposes. We formally document all relationships between hedging
instruments and hedged items, as well as our risk management
objectives for undertaking various hedge transactions before
entering into the transaction.
We record our derivative financial instruments at fair value as
either assets or liabilities. We recognize changes in fair value
either in earnings or equity, depending on the nature of the
underlying exposure being hedged and how effective the
derivatives are at offsetting price movements and the underlying
exposure. We evaluate the effectiveness of our hedging
relationships both at the hedge inception and on an ongoing
basis. Our derivative instruments are designated as cash-flow
hedges and are considered to be highly effective. We record the
changes in fair value of our derivatives financial instruments
as other comprehensive income or loss until the underlying
hedged item is recognized in earnings. We recognize in earnings
immediately any ineffective portion of a derivatives
change in fair value.
Valuation of Long-Lived Assets. We review for
impairment long-lived assets such as property, plant and
equipment and identifiable intangible assets with definite
useful lives, which includes our licenses, whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. If the total of the expected undiscounted
future cash flows of the asset or asset group is less than the
carrying amount of the asset, we recognize a loss, if any, for
the difference between the fair value and carrying value of the
asset.
Intangible Assets. Our intangible assets are
composed of wireless telecommunications licenses and a trade
name.
We amortize our intangible assets using the straight-line method
over the estimated period benefited. We amortize licenses
acquired after our emergence from reorganization over their
estimated useful lives of 10 to 20 years. In the countries
in which we operate, licenses are customarily issued
conditionally for specified periods of time ranging from 10 to
40 years, including renewals. The licenses are generally
renewable provided the licensee has complied with applicable
rules and policies. We believe we have complied with
F-11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
these standards in all material respects. However, the political
and regulatory environments in the markets we serve are
continuously changing and, in many cases, the renewal fees could
be significant. Therefore, we do not view the renewal of our
licenses to be perfunctory. In addition, the wireless
telecommunications industry is experiencing significant
technological change, and the commercial life of any particular
technology is difficult to predict. Most of our licenses give us
the right to use 800 MHz spectrum that is non-contiguous,
and the iDEN technology is the only widespread, commercially
available digital technology that operates on non-contiguous
spectrum. As a result, our ability to deploy new technologies on
our licensed 800MHz spectrum is limited. In light of the
uncertainty regarding the availability of alternative
technologies and regarding the commercial life of any
technology, including the iDEN technology, our ability to use
our 800MHz spectrum for an indefinite period cannot be assured.
As a result, we classify our licenses as finite lived assets.
Revenue Recognition. Operating revenues
primarily consist of service revenues and revenues generated
from the sale and rental of digital handsets and accessories. We
present our operating revenues net of value-added taxes, but we
include certain revenue-based taxes for which we are the primary
obligor. Service revenues primarily include fixed monthly access
charges for digital mobile telephone service and digital two-way
radio and other services, including revenues from calling party
pays programs where applicable 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 on other carriers networks.
We also have other sources of revenues. Other revenues primarily
include amounts 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.
We recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sale price is fixed and
determinable and collectibility is reasonably assured. The
following are the policies applicable to our major categories of
revenue transactions.
We recognize revenue for access charges and other services
charged at fixed amounts ratably over the service period, net of
credits and adjustments for service discounts and value-added
taxes. We recognize excess usage, local, long distance and
calling party pays revenue at contractual rates per minute as
minutes are used. We record cash received in excess of revenues
earned as deferred revenues.
We recognize revenue generated from our handset maintenance
programs on a monthly basis at fixed amounts over the service
period. We recognize roaming revenues at contractual rates per
minute as minutes are used. We recognize co-location revenues
from third party tenants on a monthly basis based on the terms
set by the underlying agreements.
We bill excess usage to our customers in arrears. In order to
recognize the revenues originated from excess usage subsequent
to customer invoicing through the end of the reporting period,
we estimate the unbilled portion based on the usage that the
handset had during the part of the month already billed, and we
use the actual usage to estimate the unbilled usage for the rest
of the month taking into consideration working days and
seasonality. Our estimates are based on our experience in each
market. We periodically evaluate our estimation process by
comparing our estimates to actual excess usage revenue billed
the following month. As a result, actual usage could differ from
our estimates.
We recognize revenue from handset and accessory sales when title
and risk of loss passes upon delivery of the handset or
accessory to the customer as this is considered to be a separate
earnings process from the sale of wireless services.
We recognized the proceeds received from our spectrum use and
build-out agreement with Nextel Communications as deferred
revenues. We amortize this amount into revenue on a
straight-line basis over
F-12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
15.5 years, which represents the average remaining useful
life of our licenses in the Baja region of Mexico as of the date
we began providing service under this agreement.
Handsets Provided Under Leases. Our operating
companies periodically provide handsets to our customers under
lease agreements. We evaluate each lease agreement at its
inception to determine whether the agreement represents a
capital lease or an operating lease. Under capital lease
agreements, we expense the full cost of the handset at the
inception of the lease term and recognize digital handset sales
revenue upon delivery of the handset to the customer and
collection of the up-front rental payment, which corresponds to
the inception of the lease term. Under operating lease
agreements, we expense the cost of the handset in excess of the
sum of the minimum contractual revenues associated with the
handset lease. We recognize revenue ratably over the lease term.
Revenue generated under the operating lease arrangement relates
primarily to the up-front rental payments required at the
inception of lease terms.
Allowance for Doubtful Accounts. We establish
an allowance for doubtful accounts receivable sufficient to
cover probable and reasonably estimated losses. Our methodology
for determining our allowance for doubtful accounts receivable
requires significant estimates. Since we have over one million
accounts, it is impracticable to review the collectibility of
all individual accounts when we determine the amount of our
allowance for doubtful accounts receivable each period.
Therefore, we consider a number of factors in establishing the
allowance on a
market-by-market
basis, including historical collection experience, current
economic trends, estimates of forecasted write-offs, agings of
the accounts receivable portfolio and other factors. While we
believe that the estimates we use are reasonable, actual results
could differ from those estimates.
Customer Related Direct Costs. We recognize
all costs of handset sales when title and risk of loss passes
upon delivery of the handset to the customer.
Advertising Costs. We expense costs related to
advertising and other promotional expenditures as incurred.
Advertising costs totaled $123.4 million,
$109.9 million and $88.7 million during the years
ended December 31, 2009, 2008 and 2007, respectively.
Stock-Based Compensation. Effective
January 1, 2006, we adopted the Financial Accounting
Standards Boards, or the FASBs, authoritative
guidance surrounding share-based payments. In accordance with
this guidance, we used the modified prospective transition
method and therefore did not restate our prior periods
results. Share-based payment expense for all share-based payment
awards granted after January 1, 2006 is estimated in
accordance with the FASBs authoritative guidance. We
recognize these compensation costs net of actual forfeitures for
only those shares expected to vest on a straight-line basis over
the requisite service period of the award. See Note 10 for
more information.
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.
As presented for the year ended December 31, 2009, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.75%
convertible notes. We did not include the common shares
resulting from 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 that period. Further, for
the year ended December 31, 2009, we did not include
10.3 million in antidilutive stock options nor did we
include an immaterial amount of our restricted stock in our
calculation of diluted net income per
F-13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
common share because their effect would also have been
antidilutive to our net income per common share for that period.
As presented for the year ended December 31, 2008, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.75%
convertible notes. We did not include the common shares
resulting from 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 that period. Further, for
the year ended December 31, 2008, we did not include
9.1 million in antidilutive stock options nor did we
include an immaterial amount of our restricted stock in our
calculation of diluted net income per common share because their
effect would also have been antidilutive to our net income per
common share for that period.
As presented for the year ended December 31, 2007, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.75%
convertible notes. Our calculation of diluted net income per
share for the year ended December 31, 2007 also includes
shares that would have been issued had our 2.875% convertible
notes been converted at the beginning of the year instead of on
the actual conversion date. We did not include the common shares
resulting from the potential conversion of our 3.125%
convertible notes because their effect would have been
antidilutive to our net income per common share for that period.
Further, for the year ended December 31, 2007, we did not
include 5.9 million in antidilutive stock options in our
calculation of diluted net income per common share because their
effect would also have been antidilutive to our net income per
common share for that period.
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 consolidated statements of
operations for the years ended December 31, 2009, 2008 and
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
381,491
|
|
|
|
166,042
|
|
|
$
|
2.30
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
707
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
277
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
13,076
|
|
|
|
6,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
394,567
|
|
|
|
174,014
|
|
|
$
|
2.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
341,955
|
|
|
|
166,927
|
|
|
$
|
2.05
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
1,121
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
252
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
12,805
|
|
|
|
6,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
354,760
|
|
|
|
175,290
|
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(In thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
353,748
|
|
|
|
166,749
|
|
|
$
|
2.12
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
3,633
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
524
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
18,597
|
|
|
|
13,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
372,345
|
|
|
|
184,256
|
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 other
factors. During the year ended December 31, 2008, we
purchased a total of 5,555,033 shares of our common stock
for $242.7 million. During the year ended December 31,
2007, we purchased a total of 7,401,543 shares of our
common stock for approximately $500.1 million under our
first program to purchase shares of our common stock for cash,
which was approved by our Board of Directors in May 2007. We did
not purchase any shares of our common stock during the year
ended December 31, 2009. We treat purchases of our common
stock under this program as effective retirements of the
purchased shares and therefore reduce our reported shares issued
and outstanding by the number of shares purchased. In addition,
we record the excess of the purchase price over the par value of
the common stock as a reduction to paid-in capital.
Income Taxes. We account for income taxes
using the asset and liability method, under which we recognize
deferred income taxes for the tax consequences attributable to
differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities, as well as for
tax loss carryforwards and tax credit carryforwards. We measure
deferred tax assets and liabilities using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recoverable or settled.
We recognize the effect on deferred taxes of a change in tax
rates in income in the period that includes the enactment date.
We provide a valuation allowance against deferred tax assets if,
based upon the weight of available evidence, we do not believe
it is more-likely-than-not that some or all of the
F-15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
deferred tax assets will be realized. We report remeasurement
gains and losses related to deferred tax assets and liabilities
in our income tax provision.
Historically, a substantial portion of our deferred tax asset
valuation allowance related to deferred tax assets that, if
realized, would not result in a benefit to our income tax
provision. In accordance with the FASBs authoritative
guidance on financial reporting by entities in reorganization
under the bankruptcy code, we recognize decreases in the
valuation allowance existing at the reorganization date first as
a reduction in the carrying value of intangible assets existing
at the reorganization date of October 31, 2002 and then as
an increase to paid-in capital. As of December 31, 2004, we
reduced to zero the carrying value of our intangible assets
existing at the reorganization date. In accordance with the
FASBs updated authoritative guidance on business
combinations, effective beginning in 2009, we will record the
future decreases, if any, of the valuation allowance existing on
the reorganization date as a reduction to income tax expense. We
will also record decreases, if any, of the post-reorganization
valuation allowance as a reduction to our income tax expense.
Using a
with-and-without
method, in accordance with the FASBs updated authoritative
guidance on share-based payments, we recognize decreases in the
valuation allowance attributable to the excess tax benefits
resulting from the exercise of employee stock options as an
increase to paid-in capital. In each market and in the U.S., we
recognize decreases in the valuation allowance first as a
decrease in the remaining valuation allowance that existed as of
the reorganization date, then as a decrease in any
post-reorganization valuation allowance, and finally as a
decrease of the valuation allowance associated with stock option
deductions.
We assess the realizability of our deferred tax assets at each
reporting period. Our assessments generally consider several
factors, including the reversal of existing deferred tax
temporary differences, projected future taxable income, tax
planning strategies and historical and future book income
adjusted for permanent
book-to-tax
differences.
During 2009, we maintained our prior year position regarding the
repatriation of foreign earnings back to the U.S. As of
December 31, 2008, we included a $55.1 million
provision in deferred tax liability for U.S. federal, state
and foreign taxes with respect to future remittances of certain
undistributed earnings (other than income that has been
previously taxed in the U.S. under the subpart F rules) of
certain of our foreign subsidiaries. This deferred tax liability
decreased by $35.7 million to $19.4 million as of
December 31, 2009 due to a $38.3 million tax effect on
the distribution received from our Mexico and Argentine
subsidiaries and a $2.6 million increase due to the
strengthening in the Mexican exchange rate against the
U.S. dollar. Except for the earnings associated with this
$19.4 million provision, we currently have no intention to
remit any additional undistributed earnings of our foreign
subsidiaries, other than income that has been previously taxed
in the U.S. under the subpart F rules. Should additional
amounts of our foreign subsidiaries undistributed earnings
be remitted to the U.S. as dividends, we may be subject to
additional U.S. income taxes (net of allowable foreign tax
credits) and foreign withholding taxes. It is not practicable to
estimate the amount of any additional taxes which may be payable
on the remaining undistributed earnings.
Reclassifications. We have reclassified some
prior period amounts in our consolidated financial statements to
conform to our current year presentation. Specifically, for the
year ended December 31, 2007, we corrected the
classification of $28.7 million from cost of service to
cost of digital handset and accessory sales related to costs
incurred in connection with replacement handsets sold to
existing customers. This revision did not have a material impact
on previously reported balances. We did not reclassify any prior
period amounts in our consolidated financial statements during
the year ended December 31, 2008.
New Accounting Pronouncements. 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
F-16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
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 consolidated
financial statements.
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 prospectively to revenue
arrangements entered into or materially modified in 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 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.
The adoption of this guidance did not have a material impact on
our consolidated financial statements.
In January 2010, the FASB updated its authoritative guidance on
accounting for distributions to shareholders with components of
stock and cash. The amendments clarify that the stock portion of
a distribution to shareholders that allows them to elect to
receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance that is reflected in
earnings per share prospectively and is not a stock dividend.
This updated authoritative guidance was effective for the year
ended December 31, 2009. The implementation of this updated
guidance did not have an impact to our consolidated financial
statements since we were already accounting for distributions in
this manner.
In January 2010, the FASB amended its authoritative guidance on
fair value measurements and disclosures. This update added new
requirements for disclosures about transfers into and out of
Levels 1 and 2 and separate disclosures about purchases,
sales, issuances and settlements relating to Level 3
measurements. It also clarified existing fair value disclosures
about the level of disaggregation and about inputs and valuation
techniques used to measure fair value. This updated guidance is
effective for annual and interim reporting periods beginning
after December 15, 2009, except for the requirement to
provide the Level 3 activity between purchases, sales,
issuances and settlements on a gross basis. That requirement is
effective for fiscal years beginning after December 15,
2010 and for interim periods within those fiscal years. We do
not expect the adoption of this new guidance to have a material
impact on our consolidated financial statements.
F-17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Property,
Plant and Equipment
|
The components of our property, plant and equipment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Land
|
|
$
|
7,365
|
|
|
$
|
6,600
|
|
Leasehold improvements
|
|
|
122,364
|
|
|
|
84,663
|
|
Digital mobile network equipment and network software
|
|
|
3,144,673
|
|
|
|
2,216,212
|
|
Office equipment, furniture and fixtures and other
|
|
|
487,051
|
|
|
|
329,352
|
|
Corporate aircraft capital lease
|
|
|
42,747
|
|
|
|
31,450
|
|
Less: Accumulated depreciation and amortization
|
|
|
(1,451,219
|
)
|
|
|
(928,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,352,981
|
|
|
|
1,739,909
|
|
Construction in progress
|
|
|
149,208
|
|
|
|
152,204
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,502,189
|
|
|
$
|
1,892,113
|
|
|
|
|
|
|
|
|
|
|
Our intangible assets consist of our licenses, customer base and
trade name, all of which have finite useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
426,888
|
|
|
$
|
(89,655
|
)
|
|
$
|
337,233
|
|
|
$
|
373,315
|
|
|
$
|
(55,437
|
)
|
|
$
|
317,878
|
|
Trade name and other
|
|
|
1,640
|
|
|
|
(1,640
|
)
|
|
|
|
|
|
|
1,412
|
|
|
|
(1,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
428,528
|
|
|
$
|
(91,295
|
)
|
|
$
|
337,233
|
|
|
$
|
374,727
|
|
|
$
|
(56,849
|
)
|
|
$
|
317,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying value of our licenses as of December 31,
2009 primarily represent the licenses we acquired in connection
with our purchase of Cosmofrecuencias in Mexico during 2006.
Based solely on the carrying amount of amortizable intangible
assets existing as of December 31, 2009 and current
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
|
|
|
2010
|
|
$
|
30,269
|
|
2011
|
|
|
30,878
|
|
2012
|
|
|
30,878
|
|
2013
|
|
|
30,878
|
|
2014
|
|
|
30,690
|
|
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 exchange
rates and other relevant factors. During the years ended
December 31, 2009 and 2008, we did not acquire, dispose of
or write down any goodwill or intangible assets with indefinite
useful lives.
F-18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued
Expenses and Other.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Non-income based taxes
|
|
$
|
133,298
|
|
|
$
|
52,918
|
|
Payroll related items and commissions
|
|
|
114,517
|
|
|
|
70,493
|
|
Network system and information technology
|
|
|
77,281
|
|
|
|
60,333
|
|
Capital expenditures
|
|
|
70,357
|
|
|
|
68,481
|
|
Other
|
|
|
203,756
|
|
|
|
194,045
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
599,209
|
|
|
$
|
446,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
10.0% senior notes due 2016, net
|
|
$
|
781,261
|
|
|
$
|
|
|
8.875% senior notes due 2019, net
|
|
|
495,946
|
|
|
|
|
|
3.125% convertible notes due 2012
|
|
|
1,097,628
|
|
|
|
1,059,997
|
|
2.75% convertible notes due 2025
|
|
|
342,412
|
|
|
|
330,850
|
|
Brazil syndicated loan facility
|
|
|
259,481
|
|
|
|
300,000
|
|
Mexico syndicated loan facility
|
|
|
156,600
|
|
|
|
205,863
|
|
Tower financing obligations
|
|
|
174,497
|
|
|
|
157,262
|
|
Capital lease obligations
|
|
|
110,063
|
|
|
|
72,449
|
|
Other Brazil financings
|
|
|
151,053
|
|
|
|
|
|
Other
|
|
|
11,847
|
|
|
|
6,719
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,580,788
|
|
|
|
2,133,140
|
|
Less: current portion
|
|
|
(564,544
|
)
|
|
|
(99,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,016,244
|
|
|
$
|
2,034,086
|
|
|
|
|
|
|
|
|
|
|
High
Yield Notes.
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 $762.5 million, after deducting original issue
discount and commissions. We also incurred $0.9 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 certain of 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
F-19
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, NII Capital Corp.
may redeem the notes, 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 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;
|
|
|
|
enter into transactions with affiliates; and
|
|
|
|
merge or consolidate with another entity.
|
These covenants are subject to a number of qualifications and
exceptions.
8.875% Senior Notes due 2019. In
December 2009, we issued senior notes with $500.0 million
aggregate principal amount due at maturity for total cash
proceeds of about $486.6 million, after deducting original
issue discount and commissions. We also incurred
$0.5 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
F-20
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
senior unsecured obligations of NII Capital Corp., a domestic
subsidiary that we wholly own, and are guaranteed by us and by
certain of 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 Capital Corp.s
10.0% senior notes, 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 8.875% per year, which is payable semi-annually in
arrears on June 15 and December 15, beginning on
June 15, 2010. The notes will mature on December 15,
2019 when the entire principal amount of $500.0 million
will be due.
The notes are not entitled to any mandatory redemption or
sinking fund. Prior to December 15, 2014, NII Capital Corp.
may redeem the notes, 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 December 15, 2014 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 December 15 of the applicable year:
|
|
|
|
|
|
|
Redemption
|
|
Year
|
|
Price
|
|
|
2014
|
|
|
104.438
|
%
|
2015
|
|
|
102.958
|
%
|
2016
|
|
|
101.479
|
%
|
2017 and thereafter
|
|
|
100.000
|
%
|
Prior to December 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 108.875% of their principal amount, plus accrued and unpaid
interest. Such redemption may only be made if, after the
redemption, at least 65% of the aggregate principal amount of
the notes issued remains outstanding. The remainder of the terms
under our 8.875% senior notes are identical to the terms
contained in our 10.0% senior notes described above.
Convertible
Notes.
3.125% Convertible Notes. In May
2007, we privately placed $1.0 billion aggregate principal
amount of 3.125% convertible notes due 2012, which we refer to
as the 3.125% notes. In addition, we granted the initial
purchaser an option to purchase up to an additional
$200.0 million principal amount of 3.125% notes, which
the initial purchaser exercised in full. As a result, we issued
a total of $1.2 billion principal amount of the
3.125% notes for which we received total gross proceeds of
$1.2 billion. We also incurred direct issuance costs of
$22.8 million, which we recorded as a deferred financing
cost that we will amortize into interest expense over the term
of the 3.125% notes. Our 3.125% notes are senior
unsecured obligations and rank equal in right of payment with
all of our other existing and future senior unsecured debt.
Historically, some of our long-term debt has been secured and
may be secured in the future.
The 3.125% notes bear interest at a rate of 3.125% per
annum on the principal amount of the notes, payable
semi-annually in arrears in cash on June 15 and December 15 of
each year, beginning December 15, 2007, and will mature on
June 15, 2012, when the entire principal balance of
$1,200.0 million will be due. In addition, and subject to
specified exceptions, the noteholders have the right to require
us to repurchase the notes at a repurchase
F-21
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
price equal to 100% of their principal amount, plus any accrued
and unpaid interest (including additional amounts, if any) up
to, but excluding, the repurchase date upon the occurrence of a
fundamental change.
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 $118.32 per share.
The 3.125% notes are convertible, subject to adjustment,
prior to the close of business on the final maturity date under
any of the following circumstances:
|
|
|
|
|
during any fiscal quarter commencing after September 30,
2007, if the closing sale price of our common stock exceeds 120%
of the conversion price of $118.32 for at least 20 trading days
in the 30 consecutive trading days ending on the last trading
day of the preceding fiscal quarter;
|
|
|
|
prior to May 15, 2012, during the five business day period
after any five consecutive trading day period in which the
trading price per note for each day of such period was less than
98% of the product of the closing sale price of our common stock
and the number of shares issuable upon conversion of $1,000
principal amount of notes, or 10,142,040 aggregate common shares;
|
|
|
|
at any time on or after May 15, 2012; or
|
|
|
|
upon the occurrence of specified corporate events.
|
For the fiscal quarter ended December 31, 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
December 31, 2009. As a result, the conversion contingency
was not met as of December 31, 2009. We have the option to
satisfy the conversion of the 3.125% notes in shares of our
common stock, in cash or a combination of both.
The conversion feature related to the trading price per note
meets the criteria of an embedded derivative in accordance with
the FASBs authoritative guidance for derivatives. As a
result, we are required to separate the value of the conversion
feature from the notes and record a liability on our
consolidated balance sheet. As of December 31, 2009, the
conversion feature had a nominal value, and therefore it did not
have a material impact on our financial position or results of
operations. We will continue to evaluate the materiality of the
value of this conversion feature on a quarterly basis and record
the resulting adjustment, if any, in our consolidated balance
sheet and statement of operations.
The conversion rate of the 3.125% notes is subject to
adjustment if any of the following events occur:
|
|
|
|
|
we issue common stock as a dividend or distribution on our
common stock;
|
|
|
|
we issue to all holders of common stock certain rights or
warrants to purchase our common stock;
|
|
|
|
we subdivide or combine our common stock;
|
|
|
|
we distribute to all holders of our common stock shares of our
capital stock, evidences of indebtedness or assets, including
cash or securities but excluding the rights, warrants, dividends
or distributions specified above;
|
|
|
|
we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the
extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
current market price per share of common stock on the trading
day next succeeding the last date on which tenders or exchanges
may be made pursuant to this tender or exchange offer; or
|
F-22
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of
the closing date of the offer, our board of directors is not
recommending the rejection of the offer, subject to certain
conditions.
|
Neither we, nor any of our subsidiaries, are subject to any
financial covenants under our 3.125% notes. In addition,
the indenture governing our 3.125% notes does not restrict
us or any of our subsidiaries from paying dividends, incurring
debt, or issuing or repurchasing our securities.
As presented for the years ended December 31, 2009, 2008
and 2007, our calculation of diluted net income per share does
not include the common shares resulting from the potential
conversion of our 3.125% convertible notes since their effect
would have been antidilutive to our net income per share for
those periods.
2.75% Convertible Notes. In the
third quarter of 2005, we privately placed $350.0 million
aggregate principal amount of 2.75% convertible notes due 2025,
which we refer to as our 2.75% notes. We also incurred
direct issuance costs of $9.0 million, which we recorded as
deferred financing costs on our consolidated balance sheet and
are amortizing over five years. Our 2.75% notes are senior
unsecured obligations and rank equal in right of payment with
all of our other existing and future senior unsecured debt.
Historically, some of our long-term debt has been secured and
may be secured in the future. In addition, since we conduct all
of our operations through our subsidiaries, our 2.75% notes
effectively rank junior in right of payment to all liabilities
of our subsidiaries. The 2.75% notes bear interest at a
rate of 2.75% per year on the principal amount of the notes,
payable semi-annually in arrears in cash on February 15 and
August 15 of each year, and will mature on August 15, 2025,
when the entire principal balance of $350.0 million will be
due. The 2.75% notes were publicly registered, effective
February 10, 2006.
The noteholders have the right to require us to repurchase the
2.75% notes on August 15 of 2010, 2012, 2015 and 2020 at a
repurchase price equal to 100% of their principal amount, plus
any accrued and unpaid interest up to, but excluding, the
repurchase date. In addition, if a fundamental change or
termination of trading, as defined, occurs prior to maturity,
the noteholders have a right to require us to repurchase all or
part of the notes at a repurchase price equal to 100% of the
principal amount, plus accrued and unpaid interest.
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. The
2.75% notes are convertible, subject to adjustment, prior
to the close of business on the final maturity date under any of
the following circumstances:
|
|
|
|
|
during any fiscal quarter commencing after September 30,
2005 if the closing sale price of our common stock exceeds 120%
of the conversion price of $50.08 for at least 20 trading days
in the 30 consecutive trading days ending on the last trading
day of the preceding fiscal quarter;
|
|
|
|
prior to July 15, 2010, during the five business day period
after any five consecutive trading day period in which the
trading price per note for each day of such period was less than
98% of the product of the closing sale price of our common stock
and the number of shares issuable upon conversion of $1,000
principal amount of notes, or 6,988,370 aggregate common shares;
|
|
|
|
at any time on or after July 15, 2010; or
|
|
|
|
upon the occurrence of specified corporate events, including a
fundamental change, as defined in the 2.75% note agreement,
the issuance of certain rights or warrants or the distribution
of certain assets or debt securities.
|
For the fiscal quarter ended December 31, 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
F-23
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
trading days ending on December 31, 2009. As a result, the
conversion contingency was not met as of December 31, 2009.
The conversion feature related to the trading price per note
meets the criteria of an embedded derivative in accordance with
the FASBs authoritative guidance for derivatives. As a
result, we are required to separate the value of the conversion
feature from the notes and record a liability on our
consolidated balance sheet. As of December 31, 2009 and
2008, the conversion feature had a nominal value, and therefore
it did not have a material impact on our financial position or
results of operations. We will continue to evaluate the
materiality of the value of this conversion feature on a
quarterly basis and record the resulting adjustment, if any, in
our consolidated balance sheet and statement of operations.
Prior to August 20, 2010, the notes will not be redeemable.
On or after August 20, 2010, we may redeem for cash some or
all of the notes, at any time and from time to time, upon at
least 30 days notice for a price equal to 100% of the
principal amount of the notes to be redeemed, plus any accrued
and unpaid interest up to but excluding the redemption date. The
remainder of the terms under our 2.75% convertible notes are
identical to the terms contained in our 3.125% convertible notes
described above.
As presented for the years ended December 31, 2009, 2008
and 2007, our calculation of diluted net income per share
includes the common shares resulting from the potential
conversion of our 2.75% convertible notes.
2.875% Convertible Notes. As of
December 31, 2006, we had outstanding $300.0 million
aggregate principal amount of 2.875% convertible notes due 2034,
which we refer to as our 2.875% notes. The
2.875% notes bore interest at a rate of 2.875% per year on
the principal amount of the notes and were scheduled to mature
on February 1, 2034.
In July 2007, we accepted the tender of 99.99% of the
$300.0 million in outstanding principal amount of our
2.875% convertible notes under a tender offer that expired on
July 23, 2007. In connection with this tender offer, we
issued 11,268,103 shares of our common stock and paid to
the holders of the tendered notes an aggregate cash premium of
$25.5 million, $0.3 million in direct external costs
and accrued and unpaid interest of $4.2 million. We
recorded the $25.5 million cash premium and the
$0.3 million in direct external costs as debt conversion
expense in our consolidated statement of operations. We also
recognized a $6.3 million loss on extinguishment of our
2.875% convertible notes, including the write-off of
$3.4 million of deferred financing costs related to the
notes that were tendered.
As presented for the year ended December 31, 2007, our
calculation of diluted net income per share includes shares that
would have been issued had our 2.875% convertible notes been
converted at the beginning of the year instead of on the actual
conversion date.
Adoption of Authoritative Guidance on Convertible Debt
Instruments. As a result of adopting the
FASBs authoritative guidance on convertible debt
instruments, we are 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 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
|
|
|
102,372
|
|
|
|
7,584
|
|
|
|
140,003
|
|
|
|
19,146
|
|
Net carrying amount of convertible notes
|
|
|
1,097,628
|
|
|
|
342,412
|
|
|
|
1,059,997
|
|
|
|
330,850
|
|
Carrying amount of equity component
|
|
|
194,557
|
|
|
|
53,253
|
|
|
|
194,557
|
|
|
|
53,253
|
|
F-24
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2009, the unamortized discount on our
3.125% convertible notes and our 2.75% convertible notes had
remaining recognition periods of about 29 months and
8 months, respectively.
The amount of interest expense recognized on our 3.125%
convertible notes and our 2.75% convertible notes and effective
interest rates for the years ended December 31, 2009 and
2008 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
2.875% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2034
|
|
|
Contractual coupon interest
|
|
$
|
37,500
|
|
|
$
|
9,625
|
|
|
$
|
37,500
|
|
|
$
|
9,625
|
|
|
$
|
21,875
|
|
|
$
|
9,625
|
|
|
$
|
5,031
|
|
Amortization of discount on convertible notes
|
|
|
37,631
|
|
|
|
11,561
|
|
|
|
35,120
|
|
|
|
10,862
|
|
|
|
19,433
|
|
|
|
10,204
|
|
|
|
4,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
75,131
|
|
|
$
|
21,186
|
|
|
$
|
72,620
|
|
|
$
|
20,487
|
|
|
$
|
41,308
|
|
|
$
|
19,829
|
|
|
$
|
9,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
6.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil Syndicated Loan Facility. 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 2.25%
and 3.43% as of December 31, 2009 and 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 2.00% and 3.18% as of
December 31, 2009 and 2008, respectively). Tranche A
matures on September 14, 2014, and Tranche B matures
on September 14, 2012. Nextel Brazils obligations
under the syndicated loan facility agreement are guaranteed by
all of its material operating subsidiaries and are secured by a
pledge of the outstanding equity interests in Nextel Brazil and
those subsidiaries. In addition, Nextel Brazil is subject to
various legal and financial covenants under the syndicated loan
facility that, among other things, require Nextel Brazil to
maintain certain financial ratios and may limit the amount of
funds that could be repatriated in certain periods. Nextel
Brazil has utilized borrowings under this syndicated loan
facility for capital expenditures, general corporate purposes
and the repayment of specified short-term intercompany debt. In
connection with this agreement, Nextel Brazil deferred
$5.0 million of financing costs, which Nextel Brazil is
amortizing as additional interest expense over the term of the
syndicated loan.
During the fourth quarter of 2007, Nextel Brazil borrowed
$26.2 million in term loans under Tranche A and
$148.8 million in term loans under Tranche B of this
syndicated loan facility. During the first quarter of 2008,
Nextel Brazil borrowed the remaining $18.8 million in term
loans under Tranche A and $106.2 million in term loans
under Tranche B of this syndicated loan facility.
Mexico Syndicated Loan Facility. In
October 2004, we closed on a $250.0 million, five year
syndicated loan facility in Mexico. Of the total amount of the
facility, $129.0 million was denominated in
U.S. dollars with a floating interest rate based on LIBOR,
$31.0 million was denominated in Mexican pesos with a
floating interest rate based on the Mexican reference interest
rate TIIE, and $90.0 million was denominated in Mexican
pesos, at an interest rate fixed at the time of funding. In May
2005, we borrowed the entire $250.0 million available under
this facility. As part of this agreement, Nextel Mexico is
subject to various legal and financial covenants that, among
other things, require Nextel Mexico to maintain certain
financial ratios and may limit the amount of funds that could be
repatriated in certain periods. In July 2005, Nextel Mexico
entered into an interest rate swap agreement to hedge the
$31.4 million portion of the syndicated loan facility. This
interest rate swap fixed the amount of interest expense
associated with this portion of the syndicated loan facility
F-25
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
commencing on August 31, 2005 and continuing over the life
of the facility based on a fixed rate of about 11.95% per year.
In June 2006, Nextel Mexico entered into an agreement to
refinance its syndicated loan. The loan principal was increased
from the original $250.0 million to $296.6 million
after the refinancing. Under the agreement, the loan was
refinanced using the same variable (i.e. LIBOR and TIIE) and
fixed rates as the original agreement but with lower spreads for
each tranche. In October 2009, Nextel Mexico paid the remaining
principal amounts under both Tranche B and Tranche C
of its syndicated loan. The remaining $156.6 million is
denominated in U.S. dollars with a floating interest rate
based on LIBOR (Tranche A 1.56% and 2.44% as of
December 31, 2009 and 2008, respectively). Under the
original agreement, principal for Tranche A was also due on
the same dates as the principal under Tranches B and C. However,
after the refinancing, principal for Tranche A is now due
in a lump sum of $156.6 million in June 2011.
Tower Financing Obligations. During the
year ended December 31, 2008, Nextel Mexico sold 181
communications towers for total proceeds of $23.1 million,
and Nextel Brazil sold 54 communications towers for total
proceeds of $5.6 million. Nextel Mexico and Nextel Brazil
did not sell any communications towers during the year ended
December 31, 2009.
We account for these tower sales as financing arrangements. As a
result, we did not recognize any gains from the sales, and we
maintain the tower assets on our consolidated balance sheet and
continue to depreciate them. We recognize the proceeds received
as financing obligations that will be repaid through monthly
payments. To the extent that American Tower leases space on
these communication towers to third party companies, our base
rent and ground rent related to the towers leased are reduced.
We recognize ground rent payments as operating expenses in cost
of service and tower base rent payments as interest expense and
a reduction in the financing obligation using the effective
interest method. In addition, we recognize co-location rent
payments made by the third party lessees to American Tower as
other operating revenues because we are maintaining the tower
assets on our consolidated balance sheet. Both the proceeds
received and rent payments due are denominated in Mexican pesos
for the Mexican transactions and in Brazilian reais for the
Brazilian transactions. Rent payments are subject to local
inflation adjustments. During the years ended December 31,
2009, 2008 and 2007, we recognized $68.4 million,
48.7 million and $29.8 million, respectively, in other
operating revenues related to these co-location lease
arrangements, a significant portion of which we recognized as
interest expense. Following the sale of these towers, we no
longer have any further contractual obligation or right to
transfer towers to American Tower Corporation.
On March 22, 2005, we amended the sale-leaseback agreement
with respect to the construction
and/or the
acquisition by American Tower of any new towers to be
constructed or purchased by our Mexican and our Brazilian
operating companies. The most significant of these amendments
provides for the elimination of existing minimum purchase and
construction commitments, the establishment of new purchase
commitments for the following four years, subject to certain
co-location conditions, the extension for an additional four
years, subject to certain conditions and limitations, of the
right of American Tower to market for co-location existing and
new towers and the reduction of the monthly rent payments, as
well as the purchase price, of any existing towers not
previously purchased or identified for purchase and of any new
sites built.
Capital
Lease Obligations.
Corporate Aircraft Lease. In November 2005, we
entered into an agreement to lease a new corporate aircraft
beginning in 2009 for ten years. We refer to this aircraft lease
as the 2005 aircraft lease. We determined that in accordance
with the authoritative guidance for lessee involvement in asset
construction, we were the owner of this new corporate aircraft
during its construction because we had substantially all of the
construction period risks. As a result, we recorded an asset for
construction-in-progress
and a corresponding
F-26
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
long-term liability for the new aircraft as construction occurs,
which was $37.3 million as of December 31, 2008. In
December 2009, upon taking delivery of the aircraft and
commencement of the lease term, we began accounting for the 2005
aircraft lease as a capital lease. As a result, we recorded a
capital lease liability and a corresponding capital lease asset
of $42.7 million in December 2009.
Other Capital Lease Obligations. Under the
master lease agreement with American Tower, in certain
circumstances, Nextel Mexico and Nextel Brazil are permitted to
co-locate communications equipment on sites owned by American
Tower. Nextel Mexico and Nextel Brazil account for the majority
of these co-location agreements as capital leases.
Other
Brazil Financings.
Brazil Import Financing. In March 2009, Nextel
Brazil began financing certain handset and infrastructure
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. In December 2009, Nextel
Brazil entered into a third $28.7 million working capital
loan with a separate Brazilian bank. Interest on the third loan
is payable monthly for the first twelve months beginning in
January 2010. The principal matures beginning in January 2011
through December 2012 and is payable in 24 equal consecutive
monthly payments.
For the year ended December 31, 2009, our short-term
financings had a weighted average interest rate of 8.06%.
Debt Maturities. For the years
subsequent to December 31, 2009, scheduled annual
maturities of all long-term debt outstanding as of
December 31, 2009 are as follows (in thousands):
|
|
|
|
|
|
|
Principal
|
|
Year
|
|
Repayments
|
|
|
2010
|
|
$
|
572,130
|
|
2011
|
|
|
268,453
|
|
2012
|
|
|
1,314,333
|
|
2013
|
|
|
30,204
|
|
2014
|
|
|
32,370
|
|
Thereafter
|
|
|
1,496,055
|
|
|
|
|
|
|
Total
|
|
$
|
3,713,545
|
|
|
|
|
|
|
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% notes. As a result,
the $350.0 million repayment of the
F-27
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
principal balance of our 2.75% convertible notes due 2025 is
included in the 2010 debt maturity payments in the table above.
|
|
6.
|
Fair
Value Measurements
|
The FASBs authoritative guidance on fair value
measurements defines fair value as 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. Valuation techniques
discussed under the FASBs authoritative guidance for fair
value measurements include the market approach (comparable
market prices), the income approach (present value of future
income or cash flow based on current market expectations) and
the cost approach (cost to replace the service capacity of an
asset or replacement cost). As a basis for considering these
assumptions, the guidance utilizes a three-tier fair value
hierarchy, which prioritizes the inputs to the valuation
techniques used to measure fair value. The following is a brief
description of the three levels in the fair value hierarchy:
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.
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. In certain
cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy
within which the fair value measurement falls is determined
based on the lowest level input that is significant to the fair
value measurement in its entirety.
For assets and liabilities measured at fair value on a
non-recurring basis, fair value is determined by using various
valuation approaches. The same hierarchy as described above,
which maximizes the use of observable inputs and minimizes the
use of unobservable inputs, by generally requiring that the
observable inputs be used when available, is used in measuring
fair value for these items. Fair value may be derived using
pricing models. Pricing models take into account the contract
terms (including maturity) as well as multiple inputs,
including, where applicable, interest rate yield curves, credit
curves, correlation, credit worthiness of the counterparty,
option volatility and currency rates. In accordance with the
FASBs authoritative guidance for fair value measurements,
the impact of our own credit spreads is also considered when
measuring the fair value of liabilities. Where appropriate,
valuation adjustments are made to account for various factors
such as credit quality and model uncertainty. These adjustments
are subject to judgment, are applied on a consistent basis and
are based upon observable inputs where available. We generally
subject all valuations and models to a review process initially
and on a periodic basis thereafter. As fair value is a
market-based measure considered from the perspective of a market
participant rather than an entity-specific measure, even when
market assumptions are not readily available, our own
assumptions are set to reflect those that we believe market
participants would use when pricing the asset or liability at
the measurement date.
Considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, 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
F-28
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Fair
Value Measurements (Continued)
|
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 and the
valuation techniques applied to them.
Available-for-Sale
Securities.
Nextel Brazil
Investments. Available-for-sale
securities include $116.3 million in short-term investments
made by Nextel Brazil in two investment funds. These funds
invest primarily in Brazilian government bonds, long-term,
low-risk bank certificates of deposit and Brazilian corporate
debentures. We account for these securities at fair value in
accordance with the FASBs authoritative guidance
surrounding the accounting for investments in debt and equity
securities. The fair value of the securities is based on the net
asset value of the funds. In our judgment, these securities
trade with sufficient daily observable market activity to
support a Level 1 classification within the fair value
hierarchy.
Enhanced Cash Fund. In May 2007, we invested
in an enhanced cash fund similar to, but not in the legal form
of, a money market fund that invested primarily in asset-backed
securities. Initially, we classified our investment as a cash
equivalent because it was highly liquid at that time. In
December 2007, the fund manager ceased all purchases and sales
of interests in the fund and began an orderly liquidation of the
portfolios assets due to issues that arose in the
U.S. credit markets. We concluded that because the fair
value per unit of the fund was determined, published and the
basis for current transactions, the fair value of our investment
in the fund was readily determinable and as a result, we
classified this investment as
available-for-sale.
In addition, we have the right at our option to receive an
in-kind distribution of the underlying assets in the fund that
we can sell or hold to maturity. As a result, as of
December 31, 2007, we classified our investment in the fund
of $241.8 million as a current asset. Through the third
quarter of 2008, the underlying assets in the fund traded with
sufficient daily observable market activity to support a
Level 2 classification within the fair value hierarchy.
Due to the changing market conditions in the fourth quarter of
2008, the net asset value per unit as determined by the fund
manager had declined from $1.000 per unit at inception to $0.827
per unit as of December 31, 2008. We determined that this
loss in value was
other-than-temporary.
As a result, during the year ended December 31, 2008, we
recognized a pre-tax loss of $14.8 million related to the
loss in value of the fund, which we recorded as a component of
net other expense in our consolidated statement of operations.
We also received $173.9 million in distributions from the
fund during the year ended December 31, 2008. Also, as a
result of the decline in the overall market conditions of the
credit market and the reduced liquidity in the observable market
for asset-backed securities, we reclassified the enhanced cash
fund from Level 2 to Level 3 because certain
significant inputs for the fair value measurement became
unobservable.
The fund was liquidated during December 2009. For the year ended
December 31, 2009, we received $55.3 million in total
distributions and realized a pre-tax gain during 2009 of
$2.1 million, which we recorded as a component of net other
expense in our consolidated statement of operations.
F-29
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Fair
Value Measurements (Continued)
|
The following tables set 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 sheets as of December 31, 2009 and 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2009
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
December 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2009
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
116,289
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
116,289
|
|
Available-for-sale
securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
116,289
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
116,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2008
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
December 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2008
|
|
|
Short-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
48,859
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48,859
|
|
Available-for-sale
securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
33,144
|
|
|
|
33,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,859
|
|
|
|
|
|
|
|
33,144
|
|
|
|
82,003
|
|
Long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
20,016
|
|
|
|
20,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,859
|
|
|
$
|
|
|
|
$
|
53,160
|
|
|
$
|
102,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present additional information about
Level 3 assets measured at fair value on a recurring basis:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
53,160
|
|
Principal distributions
|
|
|
(55,302
|
)
|
Realized gains
|
|
|
2,142
|
|
|
|
|
|
|
Ending balance
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
|
|
Transfer to Level 3 classification
October 1, 2008
|
|
|
86,242
|
|
Principal distributions
|
|
|
(22,695
|
)
|
Realized losses
|
|
|
(10,387
|
)
|
|
|
|
|
|
Ending balance
|
|
$
|
53,160
|
|
|
|
|
|
|
F-30
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Fair
Value Measurements (Continued)
|
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 values of cash and cash equivalents, accounts
receivable and accounts payable approximate their fair values
due to the short-term nature of these instruments. The fair
values of our derivative instruments are immaterial. The
carrying amounts and estimated fair values of our debt
instruments at December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes
|
|
$
|
1,277,207
|
|
|
$
|
1,312,165
|
|
|
$
|
|
|
|
$
|
|
|
Convertible notes
|
|
|
1,440,040
|
|
|
|
1,447,655
|
|
|
|
1,390,847
|
|
|
|
1,036,526
|
|
Syndicated loan facilities
|
|
|
416,081
|
|
|
|
403,079
|
|
|
|
505,863
|
|
|
|
456,848
|
|
Brazil credit paper
|
|
|
74,661
|
|
|
|
76,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,207,989
|
|
|
$
|
3,239,221
|
|
|
$
|
1,896,710
|
|
|
$
|
1,493,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and Convertible Notes. 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 notes, credit
default spreads, stock volatility assumptions with respect to
our senior notes and our convertible notes and other
corroborating market or internally generated data. Because our
fair value measurement includes market data, corroborating
market data and some internally generated information, we
consider this Level 2 in the fair value hierarchy.
Syndicated Loan Facilities. We
estimated the fair values of our syndicated loan facilities
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.
Brazil Credit Paper. The Brazilian
credit paper represents working capital loans from Brazilian
banks. We borrowed $25.6 million in May 2009,
$16.9 million in June 2009 and an additional
$28.7 million in December 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.
|
|
7.
|
Commitments
and Contingencies
|
Capital
and Operating Lease Commitments.
We have co-location capital lease obligations on some of our
communication towers in Mexico and Brazil. The remaining terms
of these lease agreements range from one to fifteen years. In
addition, we have a capital lease obligation on our existing
corporate aircraft. The remaining term of this lease agreement
is ten years. See Note 5 for further information regarding
these agreements.
We lease various cell sites, office facilities and other assets
under operating leases. Some of these leases provide for annual
increases in our rent payments based on changes in locally-based
consumer price indices. The remaining terms of our cell site
leases range from one to fifteen years and are generally
renewable, at our option, for additional terms. The remaining
terms of our office leases range from less than one to ten
years.
F-31
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Commitments
and Contingencies (Continued)
|
During the years ended December 31, 2009, 2008 and 2007,
total rent expense under operating leases was
$183.3 million, $177.2 million and
$133.1 million, respectively.
For years subsequent to December 31, 2009, future minimum
payments for all capital and operating lease obligations that
have initial noncancelable lease terms exceeding one year, net
of rental income, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
|
2010
|
|
$
|
76,810
|
|
|
$
|
155,190
|
|
|
$
|
232,000
|
|
2011
|
|
|
76,619
|
|
|
|
125,764
|
|
|
|
202,383
|
|
2012
|
|
|
76,387
|
|
|
|
106,532
|
|
|
|
182,919
|
|
2013
|
|
|
76,103
|
|
|
|
95,463
|
|
|
|
171,566
|
|
2014
|
|
|
75,755
|
|
|
|
85,602
|
|
|
|
161,357
|
|
Thereafter
|
|
|
365,905
|
|
|
|
256,921
|
|
|
|
622,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
747,579
|
|
|
|
825,472
|
|
|
|
1,573,051
|
|
Less: imputed interest
|
|
|
(463,019
|
)
|
|
|
|
|
|
|
(463,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
284,560
|
|
|
$
|
825,472
|
|
|
$
|
1,110,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorola
Commitments.
We are a party to agreements with Motorola, Inc. under which
Motorola provides us with infrastructure equipment and services,
including installation, implementation and training. We and
Motorola have also agreed to warranty and maintenance programs
and specified indemnity arrangements. We have also agreed to
provide Motorola with notice of our determination that
Motorolas technology is no longer suited to our needs at
least six months before publicly announcing or entering into a
contract to purchase equipment utilizing an alternate
technology. In addition, if Motorola manufactures, or elects to
manufacture, the equipment utilizing the alternate technology
that we elect to deploy, we must give Motorola the opportunity
to supply 50% of our infrastructure requirements for the
equipment utilizing the alternate technology for three years.
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.
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. Nextel Brazil did not reverse
any material accrued liabilities related to contingencies during
2009.
F-32
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Commitments
and Contingencies (Continued)
|
As of December 31, 2009 and 2008, Nextel Brazil had accrued
liabilities of $13.9 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. Nextel Brazil did not have any
unasserted claims as of December 31, 2009. Of the total
accrued liabilities as of December 31, 2008, Nextel Brazil
had $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 $121.8 million
and $125.8 million as of December 31, 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 December 31, 2009 and 2008, Nextel Argentina had
accrued liabilities of $28.2 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.
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.
Income
Taxes.
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. 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. We
have only recorded financial statement benefits for tax
positions which we believe reflect the
more-likely-than-not criteria incorporated in the
FASBs authoritative guidance on accounting for uncertainty
in income taxes, and we have established income tax reserves in
accordance with this authoritative guidance where necessary.
Once a financial statement benefit for a tax position is
recorded or a tax reserve is established, we adjust it only when
there is more information available or when an event occurs
necessitating a change. While we believe that the amount of the
recorded financial statement benefits and tax reserves reflect
the more-likely-than-not criteria, it is possible that the
ultimate outcome of current or future examinations may result in
a reduction to the tax benefits previously recorded on the
financial statements or may exceed the current income tax
reserves in amounts that could be material.
We currently have 600,000,000 shares of authorized common
stock, par value $0.001 per share, and 10,000,000 shares of
authorized undesignated preferred stock, par value $0.001 per
share.
As described in Note 5, we issued 11,268,103 shares of
our common stock in connection with the conversion of our 2.875%
convertible notes in July 2007. In addition, as described in
Note 1, during the years ended December 31, 2008 and
2007, we repurchased a total of 5,555,033 shares and
7,401,543 shares of our common stock, respectively.
F-33
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Capital
Stock (Continued)
|
During the years ended December 31, 2009, 2008 and 2007, we
issued common shares of stock in connection with the exercise of
stock options by employees.
As of December 31, 2009 and 2008, there were
166,730,066 shares and 165,782,002 shares of our
common stock outstanding, respectively.
Common Stock. Holders of our common
stock are entitled to one vote per share on all matters
submitted for action by the stockholders and share equally,
share for share, if dividends are declared on the common stock.
If our Company is partially or completely liquidated, dissolved
or wound up, whether voluntarily or involuntarily, the holders
of the common stock are entitled to share ratably in the net
assets remaining after payment of all liquidation preferences,
if any, applicable to any outstanding preferred stock. There are
no redemption or sinking fund provisions applicable to the
common stock.
Undesignated Preferred Stock. Our board
of directors has the authority to issue undesignated preferred
stock of one or more series and in connection with the creation
of such series, to fix by resolution the designation, voting
powers, preferences and relative, participating, optional and
other special rights of such series, and the qualifications,
limitations and restrictions thereof. As of December 31,
2009, we had not issued any shares of undesignated preferred
stock.
Common Stock Reserved for Issuance. As
of December 31, 2009 and 2008, under our employee stock
option plan, we had reserved for future issuance
12,517,735 shares and 17,610,279 shares of our common
stock, respectively.
The components of the income tax provision from continuing
operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(2,973
|
)
|
|
$
|
|
|
|
$
|
2,954
|
|
State, net of Federal tax benefit
|
|
|
(480
|
)
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(226,016
|
)
|
|
|
(215,037
|
)
|
|
|
(121,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
(229,469
|
)
|
|
|
(215,037
|
)
|
|
|
(118,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
45,303
|
|
|
|
30,547
|
|
|
|
(42,463
|
)
|
State, net of Federal tax benefit
|
|
|
5,011
|
|
|
|
3,404
|
|
|
|
(4,731
|
)
|
Foreign
|
|
|
(25,531
|
)
|
|
|
42,224
|
|
|
|
8,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision
|
|
|
24,783
|
|
|
|
76,175
|
|
|
|
(38,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
(204,686
|
)
|
|
$
|
(138,862
|
)
|
|
$
|
(156,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
A reconciliation of the U.S. statutory Federal income tax
rate to our effective tax rate as a percentage of income before
taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory Federal tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State taxes, net of Federal tax benefit
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Effect of foreign operations
|
|
|
(4
|
)
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Nondeductible stock option expense
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
Change in deferred tax asset valuation allowance
|
|
|
3
|
|
|
|
5
|
|
|
|
(9
|
)
|
Intercompany transactions
|
|
|
(1
|
)
|
|
|
3
|
|
|
|
2
|
|
Withholding tax and tax on subpart F income
|
|
|
3
|
|
|
|
2
|
|
|
|
2
|
|
Tax deductible dividends
|
|
|
(2
|
)
|
|
|
|
|
|
|
(2
|
)
|
U.S. tax on unremitted foreign earnings
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Inflation adjustments
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
(4
|
)
|
Amortization of acquired tax benefits (deferred credit)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Income tax credits
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
Other nondeductible expenses
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
35
|
%
|
|
|
29
|
%
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
Significant components of our deferred tax assets and
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses and capital loss carryforwards
|
|
$
|
250,961
|
|
|
$
|
210,332
|
|
Allowance for doubtful accounts
|
|
|
27,635
|
|
|
|
18,339
|
|
Accrued expenses
|
|
|
100,686
|
|
|
|
79,255
|
|
Accrual for contingent liabilities
|
|
|
6,298
|
|
|
|
6,230
|
|
Intangible assets
|
|
|
3,377
|
|
|
|
5,182
|
|
Property, plant and equipment
|
|
|
266,480
|
|
|
|
170,486
|
|
Capital lease obligations
|
|
|
37,939
|
|
|
|
62,108
|
|
Deferred revenue
|
|
|
45,207
|
|
|
|
40,715
|
|
Stock option expense
|
|
|
51,297
|
|
|
|
41,079
|
|
Other
|
|
|
40,827
|
|
|
|
55,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
830,707
|
|
|
|
689,183
|
|
Valuation allowance
|
|
|
(75,584
|
)
|
|
|
(48,456
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
755,123
|
|
|
|
640,727
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
70,151
|
|
|
|
71,555
|
|
Unremitted foreign earnings
|
|
|
19,352
|
|
|
|
55,093
|
|
Deferred revenue
|
|
|
21,565
|
|
|
|
24,132
|
|
Property, plant and equipment
|
|
|
17,560
|
|
|
|
2,418
|
|
Debt discount
|
|
|
42,773
|
|
|
|
61,909
|
|
Other
|
|
|
37,634
|
|
|
|
12,202
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
209,035
|
|
|
|
227,309
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
546,088
|
|
|
$
|
413,418
|
|
|
|
|
|
|
|
|
|
|
We have not recorded a deferred tax liability on Nextel
Brazils unrealized foreign currency gain on the
intercompany loan from NII Holdings, Inc. as it is our intention
to not subject that unrealized gain to Brazilian tax. If this
gain is subject to tax, it could result in an additional income
tax liability. As of December 31, 2009 and 2008, the
cumulative amount of additional tax liability would have been
approximately $123.1 million and $49.3 million,
respectively.
During 2009, we maintained our prior year position regarding the
repatriation of foreign earnings back to the U.S. As of
December 31, 2008, we included a $55.1 million
provision in deferred tax liability for U.S. federal, state
and foreign taxes with respect to future remittances of certain
undistributed earnings (other than income that has been
previously taxed in the U.S. under the subpart F rules) of
certain of our foreign subsidiaries. This deferred tax liability
decreased by $35.7 million to $19.4 million as of
December 31, 2009 due to a $38.3 million tax effect on
a distribution received from our Mexico and Argentine
subsidiaries and $2.6 million increase due to the
strengthening in the Mexican exchange rate against the
U.S. dollar. Except for the earnings associated with this
$19.4 million provision, we currently have no intention to
remit any additional undistributed earnings of our foreign
subsidiaries, other than income that has been previously taxed
F-36
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
in the U.S. under the subpart F rules. Should additional
amounts of our foreign subsidiaries undistributed earnings
be remitted to the U.S. as dividends, we may be subject to
additional U.S. income taxes (net of allowable foreign tax
credits) and foreign withholding taxes. It is not practicable to
estimate the amount of any additional taxes which may be payable
on the remaining undistributed earnings.
As of December 31, 2009, we had approximately
$252.7 million of net operating loss carryforwards for
U.S. Federal and state income tax purposes,
$18.2 million of which expires in various amounts beginning
in 2010 through 2019, and $234.5 million expires in various
amounts from 2020 through 2028. The timing and manner in which
we will utilize the net operating loss carryforwards in any
year, or in total, may be limited in the future under the
provisions of Internal Revenue Code Section 382 regarding
changes in our ownership.
As of December 31, 2009, we had approximately
$15.9 million of capital loss carryforwards for
U.S. Federal income tax purposes, which expires in various
amounts from 2012 through 2014. We will only be able to utilize
these capital losses to the extent we generate U.S. capital
gains. As we do not believe we meet the more-likely-than-not
criteria regarding the utilization of these capital losses prior
to their expiration, we have established a full valuation
allowance against these capital losses.
As of December 31, 2009, we had approximately
$5.7 million of net operating loss carryforwards in our
Mexican subsidiary. These carryforwards expire in various
amounts and at various periods from 2010 to 2019. Nextel Chile
had approximately $88.7 million of net operating loss
carryforwards that can be carried forward indefinitely. In
addition, our Brazilian subsidiaries had approximately
$666.5 million of net operating loss carryforwards that can
also be carried forward indefinitely, but the amount that we can
utilize annually is limited to 30% of Brazilian taxable income
before the net operating loss deduction. Our foreign
subsidiaries ability to utilize the foreign tax net
operating losses in any single year ultimately depends upon
their ability to generate sufficient taxable income.
We excluded $187.7 million of U.S. net operating loss
carryforwards from the calculation of the deferred tax asset
above because it represents excess stock option deductions that
did not reduce taxes payable in the U.S. The tax effect of
these unrealized excess stock option deductions, if realized in
the future, will result in an increase to paid-in capital. We
recognize the benefits of net operating loss carryforwards in
the following order: (1) net operating losses from items
other than excess stock option deductions; (2) net
operating losses from excess stock option deductions accounted
for under FASBs updated authoritative guidance on
share-based payments; and (3) from excess stock option
deductions accounted for under FASBs updated authoritative
guidance on share-based payments. We use a
with-and-without
method to determine the tax benefit realized from excess stock
option deductions under FASBs updated authoritative
guidance on share-based payments. We calculated our adoption
date pool of excess tax benefits previously included in paid-in
capital under the standard method outlined in FASBs
updated authoritative guidance on share-based payments.
During 2009, the deferred tax asset valuation allowance
increased by $27.1 million, due to the impact of foreign
currency translation adjustments in Brazil, an increase in the
net operating loss carryforward in Chile, for which it is more
likely than not that the benefits will not be realized in the
near term, and an increase in items not currently deductible for
U.S. tax purposes.
During 2007, the deferred tax asset valuation allowance
decreased by $383.1 million primarily due to the
$377.8 million release (net of foreign currency translation
adjustments) of the valuation allowance previously recorded with
respect to the deferred tax assets of one of our Brazilian
entities, Nextel Telecomunicacoes Ltda. (Brazil
Ltda.). In evaluating the need for a valuation allowance
for Brazil Ltda., we considered the following positive evidence:
(1) for the cumulative three-year period 2005 through 2007,
Brazil Ltda. generated positive pre-tax income in accordance
with U.S. GAAP, (2) Brazil Ltda. is expected to
continue to generate positive pre-tax income in accordance with
U.S. GAAP for the foreseeable future, and
(3) Brazilian net operating losses can be carried forward
indefinitely and utilized in future years without expiration.
Based on this
F-37
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
evidence, we concluded in the fourth quarter of 2007 that it was
more-likely-than-not the deferred tax assets of
Brazil Ltda. would be fully utilized, and we released the
associated valuation allowance. The financial statement
treatment of this valuation allowance release (excluding the
effect of the foreign currency translation adjustments) is shown
in the table below.
Our deferred tax asset valuation allowances generally consist of
three components. We record decreases in these valuation
allowances as coming first from valuation allowances existing as
of the reorganization date, second from valuation allowances
created subsequent to the reorganization from items other than
excess stock option deductions, and third from
post-reorganization excess stock option deductions accounted for
under FASBs authoritative guidance on share-based
payments. Historically, in accordance with the FASBs
authoritative guidance on financial reporting by entities in
reorganization under the bankruptcy code, we have recognized
decreases in the deferred tax asset valuation allowance that
existed at the reorganization date first as a reduction in the
carrying value of our intangible assets existing at the
reorganization date until fully exhausted, and then as an
increase to paid-in capital. As of December 31, 2004, we
reduced to zero the carrying value of our intangible assets
existing at the reorganization date. In accordance with the
FASBs updated authoritative guidance on business
combinations, effective beginning in 2009, we will record the
future decreases, if any, of the valuation allowance existing on
the reorganization date as a reduction to income tax expense.
The table below reflects the impact on our stockholders
equity and income tax provision of the deferred tax asset
valuation allowance decreases that we recorded during 2007 in
accordance with the FASBs authoritative guidance on
financial reporting by entities in reorganization under the
bankruptcy code. There were no changes to our deferred tax asset
valuation allowance during 2008 and 2009 in accordance with the
FASBs authoritative guidance on financial reporting by
entities in reorganization under the bankruptcy code.
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Increase to stockholders equity
|
|
$
|
407,224
|
|
Reduction to income tax provision
|
|
|
48,724
|
|
|
|
|
|
|
Total
|
|
$
|
455,948
|
|
|
|
|
|
|
As of December 31, 2009, Nextel Brazil, Nextel Chile and
Nextel Mexico have $21.3 million, $14.7 million and
$1.6 million of deferred tax asset valuation allowances,
respectively. In addition, our U.S. operations have
$38.0 million of a deferred tax asset valuation allowance
as of December 31, 2009. Of the total $75.6 million
consolidated deferred tax asset valuation allowance as of
December 31, 2009, $17.1 million of Nextel
Brazils valuation allowance existed as of our emergence
from Chapter 11 reorganization and therefore, any future
decreases in this amount will be recorded in accordance with the
FASBs updated authoritative guidance on financial
reporting by entities in reorganization under the bankruptcy
code as a reduction to income tax expense.
Realization of any additional deferred tax assets in any of our
markets depends on future profitability in these markets. Our
ability to generate the expected amounts of taxable income from
future operations is dependent upon general economic conditions,
technology trends, political uncertainties, competitive
pressures and other factors beyond managements control. If
our operations demonstrate profitability, we may reverse
additional deferred tax asset valuation allowances by
jurisdiction in the future. We will continue to evaluate the
deferred tax asset valuation allowance balances in all of our
foreign and U.S. companies throughout 2010 to determine the
appropriate level of valuation allowance.
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;
F-38
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
Mexico 2003; Argentina 2002; Peru and
Brazil 2005. 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.
The following table shows a reconciliation of our unrecognized
tax benefits according to the FASBs authoritative guidance
on accounting for uncertainty in income taxes, as of
December 31, 2009, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Unrecognized tax benefits at January 1
|
|
$
|
85,886
|
|
|
$
|
67,955
|
|
|
$
|
55,965
|
|
Additions for current year tax positions
|
|
|
12,018
|
|
|
|
27,436
|
|
|
|
14,408
|
|
Additions for prior year tax positions
|
|
|
|
|
|
|
555
|
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(583
|
)
|
|
|
(490
|
)
|
|
|
(3,058
|
)
|
Settlements with taxing authorities
|
|
|
|
|
|
|
(124
|
)
|
|
|
(152
|
)
|
Foreign currency translation adjustment
|
|
|
2,274
|
|
|
|
(9,446
|
)
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at December 31
|
|
$
|
99,595
|
|
|
$
|
85,886
|
|
|
$
|
67,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrecognized tax benefits as of December 31, 2009, 2008
and 2007 included $75.7 million, $63.2 million and
$49.2 million, respectively, of tax benefits that could
potentially reduce our future effective tax rate, if recognized.
It also includes $1.0 million of unrecognized tax benefits
related to
non-U.S. tax
credits inappropriately offset against income tax liabilities,
which are reasonably possible will be recognized within the next
twelve months following December 31, 2009, as a result of
the expiring statute of limitations.
We record interest and penalties associated with uncertain tax
positions as a component of our income tax provision. During the
years ended December 31, 2009, 2008 and 2007, we recognized
approximately $0.3 million, $1.6 million and
$0.9 million, respectively, of interest and penalties in
our current income tax provision and statement of financial
position and a benefit of $1.9 million and
$3.0 million of interest and penalties of the unrecognized
tax benefits for which the statute of limitations expired in
2009 and 2008, respectively. We had accrued approximately
$0.5 million, $2.0 million and $3.8 million for
the payment of interest and penalties as of December 31,
2009, 2008 and 2007, respectively. We classify our uncertain tax
positions as non-current income tax liabilities.
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. Based on an opinion
by our independent legal counsel in Mexico, we believe it is
probable that we will recover this amount. Our consolidated
balance sheets as of December 31, 2009 and 2008 include
$13.3 million and $12.8 million, respectively, in
income taxes receivable, which are included as components of
other non-current assets. The $0.5 million increase from
December 31, 2008 to December 31, 2009 was due to the
change in the exchange rate between the Mexican peso and the
U.S. dollar. The income tax benefit for this item was
related to our income tax provision for the years ended
December 31, 2005, 2004 and 2003.
On December 7, 2009, the Mexican government enacted
amendments to the Mexican income tax law that became effective
January 1, 2010. The amendments established a transitory
increase to the income tax rate, from 28%, in force for 2007 to
2009, to 30% for 2010 to 2012, 29% for 2013 and 28% for 2014 and
subsequent years.
F-39
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
Income from continuing operations before income taxes consisted
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S.
|
|
$
|
(188,735
|
)
|
|
$
|
(217,301
|
)
|
|
$
|
(154,308
|
)
|
Non-U.S.
|
|
|
774,912
|
|
|
|
698,118
|
|
|
|
664,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
586,177
|
|
|
$
|
480,817
|
|
|
$
|
510,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Employee
Stock and Benefit Plans
|
As of December 31, 2009, we had the following share-based
compensation plans:
Under our Revised Third Amended Joint Plan of Reorganization, on
November 12, 2002, we adopted the 2002 Management Incentive
Plan for the benefit of our employees and directors. Although
there are 27,958 stock options outstanding under the 2002
Management Incentive Plan as of December 31, 2009, no
additional awards will be granted under the Plan. We adopted the
2004 Incentive Compensation Plan in April 2004. The 2004
Incentive Compensation Plan provides us the opportunity to
compensate selected employees with stock options, stock
appreciation rights (SARs), stock awards, performance share
awards, incentive awards
and/or stock
units. Through December 31, 2009, we have not granted any
SARs, performance share awards, incentive awards or stock units.
The 2004 Incentive Compensation Plan provides equity and
equity-related incentives to directors, officers or key
employees of and consultants to our company up to a maximum of
39,600,000 shares of common stock, subject to adjustments.
A stock option entitles the optionee to purchase shares of
common stock from us at the specified exercise price. Stock
awards consist of awards of common stock, subject to certain
restrictions specified in the 2004 Incentive Compensation Plan.
All grants or awards made under the 2004 Incentive Compensation
Plan are governed by written agreements between us and the
participants and have a maximum contractual term of ten years.
We issue new shares when both stock options and stock awards are
exercised.
Historically, our Board of Directors has granted stock options
and stock awards to employees on an annual basis near the end of
April. On April 22, 2009, our Board of Directors granted
5,153,946 stock options and 449,724 restricted stock awards to
certain of our employees and directors in connection with this
annual stock option grant. Stock options are also granted to
certain new employees on the later of their date of hire or the
date that the grant is approved. In addition, our chief
executive officer may grant, under authority delegated to him by
the Compensation Committee of our Board of Directors, a limited
number of stock options (not to exceed 10,000 shares in any
single grant and 100,000 shares in the aggregate) to
employees who are not executive officers.
We adopted the FASBs updated authoritative guidance for
stock-based compensation effective January 1, 2006. We used
the modified prospective transition method to adopt this
guidance and therefore did not restate our prior periods
results. Under this transition method, share-based payment
expense for the years ended December 31, 2009, 2008 and
2007 includes compensation expense for all share-based payment
awards granted prior to, but not fully vested as of,
January 1, 2006 based on the grant date fair value
estimated in accordance with the provisions of the FASBs
initial authoritative guidance for stock-based compensation.
Share-based payment expense for all share-based payment awards
granted after January 1, 2006 is based on the grant date
fair value estimated in accordance with the provisions of the
FASBs updated authoritative guidance on stock-based
compensation. We recognize these compensation costs net of a
forfeiture rate for only those shares expected to vest on a
straight-line basis over the requisite service period of the
award. Our stock options generally vest twenty-five percent per
year over a four-year period except for stock options granted in
2009, which vest thirty-three percent per year over a three-year
period. Our restricted shares generally vest in
F-40
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Employee
Stock and Benefit Plans (Continued)
|
full on the third
and/or
fourth anniversaries of the grant except for restricted shares
granted in 2009, which vest thirty-three percent per year over a
three-year period. We used actual forfeitures to calculate our
compensation expense for the years ended December 31, 2009,
2008 and 2007.
For the years ended December 31, 2009, 2008 and 2007, we
recognized $62.9 million, $64.7 million and
$55.2 million, respectively, in share-based payment expense
related to stock options. For the years ended December 31,
2009, 2008 and 2007, we recognized $7.8 million,
$6.6 million and $11.8 million, respectively, in
share-based payment expense related to restricted stock. Amounts
recognized in the income statement for tax benefits related to
share-based payment arrangements in 2009, 2008 and 2007 were not
material. We include substantially all share-based payment
expense, including restricted stock expense, as a component of
selling, general and administrative expenses. We classify tax
benefits resulting from tax deductions in excess of the
compensation cost recognized for share-based awards as financing
cash flows. As of December 31, 2009, there was
approximately $98.5 million in unrecognized compensation
cost related to non-vested employee stock option awards. We
expect this cost to be recognized over a weighted average period
of 1.5 years. Cash received from exercise under all
share-based payment arrangements, net of shares surrendered for
employee tax obligations, was $15.7 million for 2009,
$33.8 million for 2008 and $91.0 million for 2007. We
did not realize any tax benefits from exercise of the
share-based payment arrangements in 2009, 2008 or 2007.
Stock
Option Awards
The following table summarizes stock option activity under all
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Weighted Average
|
|
|
Aggregate Intrinsic
|
|
|
|
Options
|
|
|
per Option
|
|
|
Remaining Life
|
|
|
Value
|
|
|
Outstanding, December 31, 2008
|
|
|
12,064,657
|
|
|
|
49.75
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
5,217,946
|
|
|
|
14.44
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(624,064
|
)
|
|
|
24.62
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(767,738
|
)
|
|
|
46.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2009
|
|
|
15,890,801
|
|
|
|
39.28
|
|
|
|
7.70 years
|
|
|
$
|
118,791,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2009
|
|
|
6,208,105
|
|
|
|
47.99
|
|
|
|
6.36 years
|
|
|
$
|
21,993,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intrinsic value of options exercised for the years ended
December 31, 2009, 2008 and 2007 was $4.7 million,
$35.7 million and $174.6 million, respectively. The
total fair value of options vested was $69.9 million,
$73.4 million and $42.4 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Generally,
our stock options are non-transferable, except by will or laws
of descent or distribution, and the actual value of the stock
options that a recipient may realize, if any, will depend on the
excess of the market price on the date of exercise over the
exercise price.
The weighted average fair value of the stock option awards on
their grant dates using the Black-Scholes-Merton option-pricing
model was $7.55 for each option granted for the year ended
December 31, 2009, $18.78
F-41
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Employee
Stock and Benefit Plans (Continued)
|
for each option granted for the year ended December 31,
2008 and $29.43 for each option granted for the year ended
December 31, 2007 based on the following assumptions:
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|
Risk free interest rate
|
|
1.50% - 2.51%
|
|
1.52% - 3.56%
|
|
3.84% - 5.04%
|
Expected stock price volatility
|
|
47.4% - 62.6%
|
|
47.4% - 51.5%
|
|
36.9% - 38.5%
|
Expected term in years
|
|
4.52 - 4.69
|
|
4.52 - 4.60
|
|
4.52 - 4.75
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
The expected term of stock option awards granted represents the
period that we expect our stock option awards will be
outstanding and was determined based on (1) historical data
on employee exercise and post-vesting employment termination
behavior, (2) the contractual terms of the stock option
awards, (3) vesting schedules and (4) expectations of
future employee behavior. The risk-free interest rate for
periods consistent with the contractual life of the stock option
award is based on the yield curve of U.S. Treasury strip
securities in effect at the time of the grant. Expected
volatility for options granted after April 1, 2006 takes
into consideration historical volatility and the implied
volatility from traded options on our stock consistent with the
guidance in SAB No. 107, Share-Based Payment.
The Black-Scholes-Merton option-pricing model was developed for
use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition,
option-pricing models such as the Black-Scholes-Merton model
require the input of highly subjective assumptions, including
the expected stock price volatility. The assumptions listed
above represent our best estimates, but these estimates involve
inherent uncertainties and the application of management
judgment. Consequently, there is a risk that our estimates of
the fair values of our stock option awards on the grant dates
may bear little resemblance to the actual values realized upon
the exercise, expiration, early termination or forfeiture of
those stock option awards in the future. Certain stock option
awards may expire worthless or otherwise result in zero
intrinsic value as compared to the fair values originally
estimated on the grant date and reported in our financial
statements. Alternatively, value may be realized from stock
option awards that are significantly in excess of the fair
values originally estimated on the grant date and reported in
our financial statements. Additionally, application of
alternative assumptions could produce significantly different
estimates of the fair value of stock option awards and
consequently, the related amounts recognized in the consolidated
statements of operations. Currently, there is no market-based
mechanism or other practical application to verify the
reliability and accuracy of the estimates from option-pricing
valuation models, such as Black-Scholes-Merton, nor is there a
means to compare and adjust the estimates to actual values.
Although the fair value of stock option awards is determined in
accordance with the FASBs updated authoritative guidance
for stock-based compensation, using the Black-Scholes-Merton
option-pricing model, the fair value may not be indicative of
the fair value observed in a willing buyer/willing seller market
transaction. Because stock options have characteristics
significantly different from those of traded options, and
because changes in the subjective input assumptions can
materially affect the fair value estimate, we believe that the
existing models do not necessarily provide a reliable single
measure of the fair value of the stock options.
F-42
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Employee
Stock and Benefit Plans (Continued)
|
Restricted
Stock Awards
Following is a summary of the status of our non-vested
restricted stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Number of
|
|
|
Date Fair Value
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Non-vested restricted stock awards as of December 31, 2008
|
|
|
579,000
|
|
|
|
56.29
|
|
Granted
|
|
|
449,724
|
|
|
|
14.33
|
|
Vested
|
|
|
(324,000
|
)
|
|
|
61.25
|
|
Forfeited
|
|
|
(21,500
|
)
|
|
|
30.53
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 31, 2009
|
|
|
683,224
|
|
|
|
27.59
|
|
|
|
|
|
|
|
|
|
|
If a participant terminates employment prior to the vesting
dates, the unvested shares will be forfeited and available for
reissuance under the terms of the 2004 Incentive Compensation
Plan. The fair value of our restricted stock awards is
determined based on the quoted price of our common stock at the
grant date. As of December 31, 2009, there was
approximately $7.6 million in unrecognized compensation
cost related to non-vested restricted stock awards. We expect
this cost to be recognized over a weighted average period of
1.5 years. The total fair value of restricted stock units
vested was $6.0 million during 2009, $0 during 2008 and
$67.4 million during 2007. The weighted average grant date
fair value of restricted stock units granted during 2009 was
$14.33 per unit compared to $44.17 per unit for 2008 and $74.02
per unit for 2007.
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, 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
other segments. For several years, we have charged a management
fee to Nextel Mexico for services rendered by
F-43
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Segment
Information (Continued)
|
corporate management. In the fourth quarter of 2009, we began
charging management fees to our other segments, retroactive to
January 1, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,785,230
|
|
|
$
|
1,631,156
|
|
|
$
|
482,985
|
|
|
$
|
241,282
|
|
|
$
|
13,988
|
|
|
$
|
(1,093
|
)
|
|
$
|
4,153,548
|
|
Digital handset and accessory revenues
|
|
|
76,634
|
|
|
|
103,481
|
|
|
|
36,735
|
|
|
|
27,103
|
|
|
|
98
|
|
|
|
|
|
|
|
244,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,861,864
|
|
|
$
|
1,734,637
|
|
|
$
|
519,720
|
|
|
$
|
268,385
|
|
|
$
|
14,086
|
|
|
$
|
(1,093
|
)
|
|
$
|
4,397,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
653,110
|
|
|
$
|
495,325
|
|
|
$
|
148,803
|
|
|
$
|
14,605
|
|
|
$
|
(201,662
|
)
|
|
$
|
|
|
|
$
|
1,110,181
|
|
Management fee
|
|
|
(48,742
|
)
|
|
|
(20,026
|
)
|
|
|
(12,310
|
)
|
|
|
(21,385
|
)
|
|
|
102,463
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(168,663
|
)
|
|
|
(180,844
|
)
|
|
|
(38,482
|
)
|
|
|
(32,117
|
)
|
|
|
(13,198
|
)
|
|
|
|
|
|
|
(433,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
435,705
|
|
|
|
294,455
|
|
|
|
98,011
|
|
|
|
(38,897
|
)
|
|
|
(112,397
|
)
|
|
|
|
|
|
|
676,877
|
|
Interest expense, net
|
|
|
(44,411
|
)
|
|
|
(51,741
|
)
|
|
|
4,773
|
|
|
|
(3,022
|
)
|
|
|
(139,715
|
)
|
|
|
15,272
|
|
|
|
(218,844
|
)
|
Interest income
|
|
|
17,225
|
|
|
|
6,304
|
|
|
|
688
|
|
|
|
245
|
|
|
|
16,333
|
|
|
|
(15,209
|
)
|
|
|
25,586
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(21,889
|
)
|
|
|
119,060
|
|
|
|
5,467
|
|
|
|
(221
|
)
|
|
|
2,449
|
|
|
|
|
|
|
|
104,866
|
|
Other (expense) income, net
|
|
|
(1,406
|
)
|
|
|
(861
|
)
|
|
|
3,748
|
|
|
|
|
|
|
|
2,141
|
|
|
|
(5,930
|
)
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax (provision) benefit
|
|
|
385,224
|
|
|
|
367,217
|
|
|
|
112,687
|
|
|
|
(41,895
|
)
|
|
|
(231,189
|
)
|
|
|
(5,867
|
)
|
|
|
586,177
|
|
Income tax (provision) benefit
|
|
|
(96,916
|
)
|
|
|
(109,330
|
)
|
|
|
(40,382
|
)
|
|
|
9,838
|
|
|
|
32,104
|
|
|
|
|
|
|
|
(204,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
288,308
|
|
|
$
|
257,887
|
|
|
$
|
72,305
|
|
|
$
|
(32,057
|
)
|
|
$
|
(199,085
|
)
|
|
$
|
(5,867
|
)
|
|
$
|
381,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
104,418
|
|
|
$
|
407,449
|
|
|
$
|
38,626
|
|
|
$
|
148,463
|
|
|
$
|
34,201
|
|
|
$
|
|
|
|
$
|
733,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
2,047,113
|
|
|
$
|
1,262,838
|
|
|
$
|
508,227
|
|
|
$
|
222,819
|
|
|
$
|
8,704
|
|
|
$
|
(1,235
|
)
|
|
$
|
4,048,466
|
|
Digital handset and accessory revenues
|
|
|
86,128
|
|
|
|
68,081
|
|
|
|
46,097
|
|
|
|
20,571
|
|
|
|
37
|
|
|
|
|
|
|
|
220,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
2,133,241
|
|
|
$
|
1,330,919
|
|
|
$
|
554,324
|
|
|
$
|
243,390
|
|
|
$
|
8,741
|
|
|
$
|
(1,235
|
)
|
|
$
|
4,269,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
764,344
|
|
|
$
|
369,969
|
|
|
$
|
170,855
|
|
|
$
|
42,557
|
|
|
$
|
(175,305
|
)
|
|
$
|
|
|
|
$
|
1,172,420
|
|
Management fee
|
|
|
(32,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,836
|
|
|
|
351
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(191,396
|
)
|
|
|
(141,005
|
)
|
|
|
(38,801
|
)
|
|
|
(21,737
|
)
|
|
|
(12,061
|
)
|
|
|
(120
|
)
|
|
|
(405,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
540,761
|
|
|
|
228,964
|
|
|
|
132,054
|
|
|
|
20,820
|
|
|
|
(155,530
|
)
|
|
|
231
|
|
|
|
767,300
|
|
Interest expense, net
|
|
|
(60,086
|
)
|
|
|
(53,146
|
)
|
|
|
(3,223
|
)
|
|
|
(292
|
)
|
|
|
(96,071
|
)
|
|
|
7,302
|
|
|
|
(205,516
|
)
|
Interest income
|
|
|
46,221
|
|
|
|
6,141
|
|
|
|
2,425
|
|
|
|
875
|
|
|
|
20,051
|
|
|
|
(7,302
|
)
|
|
|
68,411
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(44,811
|
)
|
|
|
(80,211
|
)
|
|
|
6,558
|
|
|
|
(67
|
)
|
|
|
(1,690
|
)
|
|
|
(351
|
)
|
|
|
(120,572
|
)
|
Other (expense) income, net
|
|
|
(311
|
)
|
|
|
(12,633
|
)
|
|
|
45
|
|
|
|
|
|
|
|
(15,907
|
)
|
|
|
|
|
|
|
(28,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax (provision) benefit
|
|
|
481,774
|
|
|
|
89,115
|
|
|
|
137,859
|
|
|
|
21,336
|
|
|
|
(249,147
|
)
|
|
|
(120
|
)
|
|
|
480,817
|
|
Income tax (provision) benefit
|
|
|
(100,577
|
)
|
|
|
(22,920
|
)
|
|
|
(49,176
|
)
|
|
|
(9,042
|
)
|
|
|
42,853
|
|
|
|
|
|
|
|
(138,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
381,197
|
|
|
$
|
66,195
|
|
|
$
|
88,683
|
|
|
$
|
12,294
|
|
|
$
|
(206,294
|
)
|
|
$
|
(120
|
)
|
|
$
|
341,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
218,623
|
|
|
$
|
414,466
|
|
|
$
|
84,631
|
|
|
$
|
64,342
|
|
|
$
|
50,847
|
|
|
$
|
|
|
|
$
|
832,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Segment
Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,762,596
|
|
|
$
|
833,241
|
|
|
$
|
408,142
|
|
|
$
|
178,058
|
|
|
$
|
3,828
|
|
|
$
|
(1,169
|
)
|
|
$
|
3,184,696
|
|
Digital handset and accessory revenues
|
|
|
30,103
|
|
|
|
34,723
|
|
|
|
33,951
|
|
|
|
12,800
|
|
|
|
22
|
|
|
|
|
|
|
|
111,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,792,699
|
|
|
$
|
867,964
|
|
|
$
|
442,093
|
|
|
$
|
190,858
|
|
|
$
|
3,850
|
|
|
$
|
(1,169
|
)
|
|
$
|
3,296,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
675,845
|
|
|
$
|
217,785
|
|
|
$
|
138,354
|
|
|
$
|
35,769
|
|
|
$
|
(144,045
|
)
|
|
$
|
|
|
|
$
|
923,708
|
|
Management fee
|
|
|
(34,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,376
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(151,597
|
)
|
|
|
(96,435
|
)
|
|
|
(30,436
|
)
|
|
|
(19,946
|
)
|
|
|
(7,008
|
)
|
|
|
393
|
|
|
|
(305,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
489,872
|
|
|
|
121,350
|
|
|
|
107,918
|
|
|
|
15,823
|
|
|
|
(116,677
|
)
|
|
|
393
|
|
|
|
618,679
|
|
Interest expense, net
|
|
|
(60,527
|
)
|
|
|
(33,943
|
)
|
|
|
(2,466
|
)
|
|
|
(120
|
)
|
|
|
(73,782
|
)
|
|
|
10,196
|
|
|
|
(160,642
|
)
|
Interest income
|
|
|
29,605
|
|
|
|
744
|
|
|
|
5,370
|
|
|
|
750
|
|
|
|
41,156
|
|
|
|
(10,196
|
)
|
|
|
67,429
|
|
Foreign currency transaction gains, net
|
|
|
2,559
|
|
|
|
14,595
|
|
|
|
1,244
|
|
|
|
507
|
|
|
|
103
|
|
|
|
|
|
|
|
19,008
|
|
Debt conversion expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,753
|
)
|
|
|
|
|
|
|
(25,753
|
)
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,311
|
)
|
|
|
|
|
|
|
(6,311
|
)
|
Other income (expense), net
|
|
|
2,103
|
|
|
|
(127
|
)
|
|
|
1,594
|
|
|
|
2
|
|
|
|
(5,486
|
)
|
|
|
|
|
|
|
(1,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax (provision) benefit
|
|
|
463,612
|
|
|
|
102,619
|
|
|
|
113,660
|
|
|
|
16,962
|
|
|
|
(186,750
|
)
|
|
|
393
|
|
|
|
510,496
|
|
Income tax (provision) benefit
|
|
|
(101,567
|
)
|
|
|
36,613
|
|
|
|
(39,819
|
)
|
|
|
(3,023
|
)
|
|
|
(48,952
|
)
|
|
|
|
|
|
|
(156,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
362,045
|
|
|
$
|
139,232
|
|
|
$
|
73,841
|
|
|
$
|
13,939
|
|
|
$
|
(235,702
|
)
|
|
$
|
393
|
|
|
$
|
353,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
255,245
|
|
|
$
|
256,744
|
|
|
$
|
67,966
|
|
|
$
|
43,961
|
|
|
$
|
44,422
|
|
|
$
|
|
|
|
$
|
668,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
670,926
|
|
|
$
|
1,248,803
|
|
|
$
|
193,339
|
|
|
$
|
268,524
|
|
|
$
|
120,884
|
|
|
$
|
(287
|
)
|
|
$
|
2,502,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,234,120
|
|
|
$
|
2,530,896
|
|
|
$
|
399,579
|
|
|
$
|
445,828
|
|
|
$
|
1,944,557
|
|
|
$
|
(287
|
)
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
803,517
|
|
|
$
|
674,230
|
|
|
$
|
185,703
|
|
|
$
|
108,201
|
|
|
$
|
84,972
|
|
|
$
|
(166
|
)
|
|
$
|
1,856,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,297,669
|
|
|
$
|
1,540,731
|
|
|
$
|
445,304
|
|
|
$
|
231,487
|
|
|
$
|
921,180
|
|
|
$
|
(166
|
)
|
|
$
|
5,436,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(in thousands, except per share amounts)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
961,314
|
|
|
$
|
1,058,865
|
|
|
$
|
1,142,458
|
|
|
$
|
1,234,962
|
|
Operating income
|
|
|
152,244
|
|
|
|
163,114
|
|
|
|
186,297
|
|
|
|
175,222
|
|
Net income
|
|
|
70,638
|
|
|
|
134,290
|
|
|
|
116,982
|
|
|
|
59,581
|
|
Net income, per common share, basic
|
|
$
|
0.43
|
|
|
$
|
0.81
|
|
|
$
|
0.70
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
0.43
|
|
|
$
|
0.79
|
|
|
$
|
0.69
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(in thousands, except per share amounts)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
993,217
|
|
|
$
|
1,103,954
|
|
|
$
|
1,182,725
|
|
|
$
|
989,484
|
|
Operating income
|
|
|
191,665
|
|
|
|
199,570
|
|
|
|
218,837
|
|
|
|
157,228
|
|
Net income
|
|
|
107,064
|
|
|
|
148,546
|
|
|
|
84,430
|
|
|
|
1,915
|
|
Net income, per common share, basic
|
|
$
|
0.63
|
|
|
$
|
0.89
|
|
|
$
|
0.51
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
0.62
|
|
|
$
|
0.86
|
|
|
$
|
0.50
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Quarterly
Financial Data
(Unaudited) (Continued)
|
The sum of the per share amounts do not equal the annual amounts
due to changes in the number of weighted average number of
common shares outstanding during the year.
Televisa Agreement. On
February 15, 2010, NII Holdings, Grupo Televisa, S.A.B., a
Mexican corporation, or Televisa, and our wholly-owned
subsidiaries, Nextel Mexico and Nextel International (Uruguay),
LLC, a Delaware limited liability company, entered into an
investment and securities subscription agreement pursuant to
which Televisa will acquire a 30% equity interest in Nextel
Mexico for an aggregate purchase price of $1.44 billion.
Pursuant to this investment agreement, the parties agreed to
form a consortium to participate together in an auction of
licenses authorizing the use of certain frequency bands for
wireless communication services in Mexico expected to be
conducted during the first half of 2010. Completion of the
transactions contemplated by this agreement, including the
acquisition by Televisa of the equity interest, is conditioned
upon, among other things, the consortiums success in
acquiring spectrum in the auction. We are currently evaluating
the effect that completion of the transactions contemplated by
this agreement will have on our consolidated financial
statements.
F-46
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Deductions
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
and Other
|
|
|
End of
|
|
|
|
Period
|
|
|
Expenses
|
|
|
Adjustments(1)
|
|
|
Period
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
27,875
|
|
|
$
|
86,960
|
|
|
$
|
(79,687
|
)
|
|
$
|
35,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
48,456
|
|
|
$
|
27,146
|
|
|
$
|
(22
|
)
|
|
$
|
75,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
20,204
|
|
|
$
|
80,628
|
|
|
$
|
(72,957
|
)
|
|
$
|
27,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
32,509
|
|
|
$
|
25,036
|
|
|
$
|
(9,089
|
)
|
|
$
|
48,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
15,928
|
|
|
$
|
46,360
|
|
|
$
|
(42,084
|
)
|
|
$
|
20,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
415,637
|
|
|
$
|
8,712
|
|
|
$
|
(391,840
|
)
|
|
$
|
32,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the impact of foreign currency translation adjustments. |
F-47
EXHIBIT INDEX
For periods before December 21, 2001, references to NII
Holdings refer to Nextel International, Inc. the former name of
NII Holdings. All documents referenced below were filed pursuant
to the Securities Exchange Act of 1934 by NII Holdings, file
number 0-32421, unless otherwise indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
|
2
|
.1
|
|
Revised Third Amended Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code for NII Holdings and NII
Holdings (Delaware), Inc.
|
|
8-K
|
|
|
2
|
.1
|
|
11/12/02
|
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of NII Holdings, as amended
|
|
10-K
|
|
|
3
|
.1
|
|
02/27/07
|
|
|
|
3
|
.2
|
|
Second Amended and Restated Bylaws of NII Holdings
|
|
8-K
|
|
|
3
|
.1
|
|
10/29/07
|
|
|
|
4
|
.1
|
|
Indenture governing our 2.75% convertible notes due 2025, dated
as of August 15, 2005, by and between NII Holdings and
Wilmington Trust Company, as Indenture Trustee
|
|
10-Q
|
|
|
4
|
.1
|
|
11/09/05
|
|
|
|
4
|
.2
|
|
Indenture governing our 3.125% convertible notes due 2012, dated
June 5, 2007, by and between NII Holdings and Wilmington
Trust Company, as Indenture Trustee
|
|
10-Q
|
|
|
4
|
.1
|
|
08/06/07
|
|
|
|
4
|
.3
|
|
Indenture governing our 10% senior notes due 2016, dated as
of August 18, 2009, by and between NII Holdings and
Wilmington Trust Company, as Indenture Trustee
|
|
8-K
|
|
|
4
|
.1
|
|
08/18/09
|
|
|
|
4
|
.4
|
|
Indenture governing our 8.875% senior notes due 2019, dated
as of December 15, 2009, by and between NII Holdings and
Wilmington Trust Company, as Indenture Trustee
|
|
8-K
|
|
|
4
|
.1
|
|
12/15/09
|
|
|
|
10
|
.1
|
|
Subscriber Unit Purchase Agreement, dated as of January 1,
2005, by and between NII Holdings and Motorola, Inc. (portions
of this exhibit have been omitted pursuant to a request for
confidential treatment)
|
|
10-K
|
|
|
10
|
.1
|
|
03/22/06
|
|
|
|
10
|
.2
|
|
Amendment Number One to the Subscriber Unit Purchase Agreement,
dated as of December 12, 2005, between NII Holdings and
Motorola, Inc. (portions of this exhibit have been omitted
pursuant to a request for confidential treatment)
|
|
10-K
|
|
|
10
|
.20
|
|
03/22/06
|
|
|
|
10
|
.3
|
|
Amendment Number Three to the Subscriber Unit Purchase
Agreement, dated September 28, 2006, by and between NII
Holdings and Motorola, Inc. (portions of this exhibit have been
omitted pursuant to a request for confidential treatment)
|
|
10-Q
|
|
|
10
|
.1
|
|
11/06/06
|
|
|
|
10
|
.4
|
|
Amendment 003 to iDEN Subscriber Supply Agreement, dated
December 10, 2001, between NII Holdings and Motorola, Inc.
|
|
10-K
|
|
|
10
|
.51
|
|
03/29/02
|
|
|
|
10
|
.5
|
|
Form of iDEN Installation Services Agreement, dated
August 14, 2000 by and between NII Holdings, Motorola, Inc.
and each of Nextel, Telecomunicações Ltda., Nextel
Argentina S.R.L., Nextel de Mexico, S.A. de C.V., Nextel del
Peru, S.A. and Nextel Communications Philippines, Inc.
|
|
8-K
|
|
|
10
|
.1
|
|
12/22/00
|
|
|
|
10
|
.6
|
|
Form of Amendment 001 to iDEN Infrastructure Installation
Services Agreement, dated as of January 1, 2005, by and
between NII Holdings, Motorola, Inc. and each of Nextel
Argentina, S.A., Nextel Telecomunicações Ltda.,
Communicaciones Nextel de Mexico, S.A. de C.V. and Nextel del
Peru, S.A.
|
|
10-K
|
|
|
10
|
.4
|
|
03/22/06
|
|
|
F-48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
|
10
|
.7
|
|
Form of iDEN Infrastructure Equipment Supply Agreement, dated
August 14, 2000, by and between NII Holdings, Motorola,
Inc. and each of Nextel Telecomunicações Ltda., Nextel
Argentina S.R.L., Nextel de Mexico, S.A. de C.V., Nextel del
Peru, S.A. and Nextel Communications Philippines, Inc.
|
|
8-K
|
|
|
10
|
.2
|
|
12/22/00
|
|
|
|
10
|
.8
|
|
Amendment 003 to iDEN Infrastructure Equipment Supply Agreement,
dated December 7, 2001, between NII Holdings, Motorola,
Inc., Nextel Argentina, S.A., Nextel Telecomunicações
Ltda., Comunicaciones Nextel de México, S.A. de C.V.,
Nextel del Peru S.A. and Nextel Communications Philippines, Inc.
|
|
10-K
|
|
|
10
|
.48
|
|
03/29/02
|
|
|
|
10
|
.9
|
|
Form of Amendment 005 to iDEN Infrastructure Equipment Supply
Agreement, dated as of December 15, 2004, between NII
Holdings, Motorola, Inc. and each of Nextel
Telecomunicações Ltda., Nextel Argentina S.R.L.,
Comunicaciones Nextel de Mexico, S.A. de C.V. and Nextel del
Peru, S.A.
|
|
10-K
|
|
|
10
|
.11
|
|
03/31/05
|
|
|
|
10
|
.10
|
|
Form of Amendment 006 to the iDEN Infrastructure Equipment
Supply Agreement, dated as of January 1, 2005, between NII
Holdings, Motorola, Inc. and each of Nextel Communications
Argentina, S.A., Nextel Telecomunicações Ltda.,
Communicaciones Nextel de Mexico, S.A. de C.V. and Nextel del
Peru, S.A. (portions of this exhibit have been omitted pursuant
to a request for confidential treatment)
|
|
10-K
|
|
|
10
|
.9
|
|
03/22/06
|
|
|
|
10
|
.11
|
|
Form of Amendment 007A to the iDEN Infrastructure Equipment
Supply Agreement, dated September 28, 2006, between NII
Holdings, Motorola, Inc. and each of Nextel Communications
Argentina, S.A., Nextel Telecomunicações Ltda.,
Centennial Cayman Corp. Chile, S.A., Comunicaciones Nextel de
Mexico, S.A. de C.V. and Nextel del Peru, S.A. (portions of this
exhibit have been omitted pursuant to a request for confidential
treatment)
|
|
10-Q
|
|
|
10
|
.2
|
|
11/06/06
|
|
|
|
10
|
.12
|
|
Amended and Restated Credit Agreement, dated as of June 27,
2006, by and among Communicaciones Nextel de Mexico, S.A. de
C.V., the financial institutions thereto, as lenders, Citibank,
N.A., Citigroup Global Markets, Inc. and Scotiabank Inverlat,
S.A.
|
|
10-Q
|
|
|
10
|
.1
|
|
08/07/06
|
|
|
|
10
|
.13
|
|
Term Facility Agreement A/B, dated as of September 14,
2007, by and among Nextel Telecomunicações Ltda.,
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden
N.V., as lender, and Standard Bank Offshore Trust Company
Jersey Limited, as Security Agent
|
|
10-Q
|
|
|
10
|
.1
|
|
11/06/07
|
|
|
|
10
|
.14
|
|
Third Amended and Restated Trademark License Agreement, dated as
of November 12, 2002, between Nextel Communications, Inc.
and NII Holdings
|
|
S-1
|
|
|
10
|
.12
|
|
12/20/02
|
|
|
|
10
|
.15+
|
|
Management Incentive Plan, dated as of November 12, 2002
|
|
S-8
|
|
|
99
|
.1
|
|
12/12/02
|
|
|
|
10
|
.16
|
|
Spectrum Use and Build Out Agreement, dated as of
November 12, 2002
|
|
10-K
|
|
|
10
|
.22
|
|
03/27/03
|
|
|
|
10
|
.17+
|
|
Form of NII Holdings Change of Control Severance Plan
|
|
10-Q
|
|
|
10
|
.2
|
|
08/06/08
|
|
|
|
10
|
.18+
|
|
2004 Incentive Compensation Plan
|
|
10-Q
|
|
|
10
|
.1
|
|
08/06/08
|
|
|
|
10
|
.19+
|
|
Form of Executive Officer Restricted Stock Award Agreement
|
|
8-K
|
|
|
10
|
.1
|
|
04/22/09
|
|
|
|
10
|
.20+
|
|
Form of Executive Officer Nonqualified Stock Option Agreement
|
|
8-K
|
|
|
10
|
.2
|
|
04/22/09
|
|
|
|
10
|
.21+
|
|
Form of Non-employee Director Restricted Stock Award Agreement
|
|
10-Q
|
|
|
10
|
.3
|
|
05/06/09
|
|
|
F-49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
|
10
|
.22+
|
|
Form of Non-employee Director Nonqualified Stock Option Agreement
|
|
8-K
|
|
|
10
|
.4
|
|
05/02/06
|
|
|
|
10
|
.23+
|
|
Outside Directors Deferral Plan
|
|
10-K
|
|
|
10
|
.26
|
|
02/27/08
|
|
|
|
10
|
.24+
|
|
Severance Plan
|
|
10-Q
|
|
|
10
|
.1
|
|
08/06/08
|
|
|
|
10
|
.25+
|
|
Executive Voluntary Deferral Plan
|
|
8-K
|
|
|
10
|
.3
|
|
12/16/08
|
|
|
|
10
|
.26+
|
|
Employment Letter Agreement, dated January 5, 2008, between
NII Holdings and Steven P. Dussek
|
|
8-K
|
|
|
10
|
.1
|
|
01/09/08
|
|
|
|
10
|
.27
|
|
Registration Rights Agreement related to our 10% senior
notes due 2016, dated as of August 18, 2009, by and among
NII Holdings and the initial purchasers
|
|
8-K
|
|
|
4
|
.2
|
|
08/18/09
|
|
|
|
10
|
.28
|
|
Registration Rights Agreement related to our 8.875% senior
notes due 2019, dated as of December 15, 2009, by and among
NII Holdings and the initial purchasers
|
|
8-K
|
|
|
4
|
.2
|
|
12/15/09
|
|
|
|
10
|
.29+
|
|
Employment Agreement for Steven M. Shindler, dated June 8,
2009
|
|
8-K
|
|
|
10
|
.1
|
|
06/09/09
|
|
|
|
10
|
.30+
|
|
Employment Agreement for Sergio Chaia, dated January 16,
2007
|
|
|
|
|
|
|
|
|
|
*
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges
|
|
|
|
|
|
|
|
|
|
*
|
|
14
|
.1
|
|
Code of Business Conduct and Ethics
|
|
10-K
|
|
|
14
|
.1
|
|
03/12/04
|
|
|
|
21
|
.1
|
|
Subsidiaries of NII Holdings
|
|
|
|
|
|
|
|
|
|
*
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP
|
|
|
|
|
|
|
|
|
|
*
|
|
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. Annual
Report on Form 10-K for the year ended December 31, 2009
formatted in eXtensible Business Reporting Language (XBRL):
(i) Consolidated Balance Sheets, (ii) Consolidated
Statements of Operations, (iii) Consolidated Statements of
Changes in Stockholders Equity, (iv) Consolidated
Statements of Cash Flows and (v) Notes to Consolidated
Financial Statements.
|
|
|
|
|
|
|
|
|
|
*
|
|
|
|
+ |
|
Indicates Management Compensatory Plan, Contract or Arrangement. |
F-50