e10vq
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31,
2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 0-32421
NII HOLDINGS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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91-1671412
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1875 Explorer Street, Suite 1000
Reston, Virginia
(Address of Principal
Executive Offices)
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20190
(Zip
Code)
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(703) 390-5100
(Registrants Telephone
Number, Including Area Code)
Not Applicable
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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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 Exchange
Act). Yes o No
þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Number of Shares Outstanding
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Title of Class
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on April 30, 2010
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Common Stock, $0.001 par value per share
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167,286,549
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NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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March 31,
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December 31,
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2010
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2009
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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2,650,735
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$
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2,504,064
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Short-term investments
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30,540
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116,289
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Accounts receivable, less allowance for doubtful accounts of
$38,555 and $35,148
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632,357
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613,591
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Handset and accessory inventory
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139,243
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188,476
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Deferred income taxes, net
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169,324
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148,498
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Prepaid expenses and other
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306,589
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220,210
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Total current assets
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3,928,788
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3,791,128
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Property, plant and equipment, less accumulated depreciation
of $1,583,864 and $1,451,219
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2,513,691
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2,502,189
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Intangible assets, less accumulated amortization of $102,357
and $91,295
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341,593
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337,233
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Deferred income taxes, net
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471,596
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494,343
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Other assets
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400,547
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429,800
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Total assets
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$
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7,656,215
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$
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7,554,693
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Accounts payable
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$
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142,557
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$
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186,996
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Accrued expenses and other
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577,994
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599,209
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Deferred revenues
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141,883
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136,533
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Accrued interest
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40,967
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42,415
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Current portion of long-term debt
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584,000
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564,544
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Total current liabilities
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1,487,401
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1,529,697
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Long-term debt
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3,057,781
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3,016,244
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Deferred revenues
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22,436
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22,071
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Deferred credits
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83,166
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93,932
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Other long-term liabilities
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156,865
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145,912
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Total liabilities
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4,807,649
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4,807,856
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Commitments and contingencies (Note 4)
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Stockholders equity
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Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2010 and 2009, no
shares issued or outstanding 2010 and 2009
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Common stock, par value $0.001, 600,000 shares
authorized 2010 and 2009, 167,075 shares issued
and outstanding 2010, 166,730 shares issued and
outstanding 2009
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166
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166
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Paid-in capital
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1,265,738
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1,239,541
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Retained earnings
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1,723,360
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1,674,898
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Accumulated other comprehensive loss
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(140,698
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)
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(167,768
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)
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Total stockholders equity
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2,848,566
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2,746,837
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Total liabilities and stockholders equity
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$
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7,656,215
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$
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7,554,693
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
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Three Months Ended,
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March 31,
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2010
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2009
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Operating revenues
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Service and other revenues
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$
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1,217,670
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$
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910,307
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Digital handset and accessory revenues
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65,476
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51,007
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1,283,146
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961,314
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Operating expenses
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Cost of service (exclusive of depreciation and amortization
included below)
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349,525
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255,899
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Cost of digital handsets and accessories
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172,828
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145,249
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Selling, general and administrative
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419,426
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315,026
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Depreciation
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120,740
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86,352
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Amortization
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7,956
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6,544
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1,070,475
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809,070
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Operating income
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212,671
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152,244
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Other income (expense)
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Interest expense, net
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(85,726
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)
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(44,596
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)
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Interest income
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5,599
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12,653
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Foreign currency transaction losses, net
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(25,083
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)
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(7,314
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)
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Other expense, net
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(4,358
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)
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(1,642
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)
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(109,568
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)
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(40,899
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)
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Income before income tax provision
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103,103
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111,345
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Income tax provision
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(54,641
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)
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(40,707
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)
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Net income
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$
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48,462
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$
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70,638
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Net income, per common share, basic
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$
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0.29
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$
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0.43
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Net income, per common share, diluted
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$
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0.28
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$
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0.43
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Weighted average number of common shares outstanding,
basic
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166,817
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165,782
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Weighted average number of common shares outstanding,
diluted
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170,475
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166,043
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Comprehensive income (loss), net of income taxes
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Foreign currency translation adjustment
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$
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28,793
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$
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(80,156
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)
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Other
|
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(1,723
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)
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366
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|
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Other comprehensive income (loss)
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27,070
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(79,790
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)
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Net income
|
|
|
48,462
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|
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70,638
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|
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Total comprehensive income (loss)
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|
$
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75,532
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$
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(9,152
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)
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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Accumulated
|
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Other
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Total
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Common Stock
|
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Paid-in
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Retained
|
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Comprehensive
|
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Stockholders
|
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Shares
|
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Amount
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Capital
|
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Earnings
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Loss
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Equity
|
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Balance, January 1, 2010
|
|
|
166,730
|
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$
|
166
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|
$
|
1,239,541
|
|
|
$
|
1,674,898
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|
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$
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(167,768
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)
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|
$
|
2,746,837
|
|
Net income
|
|
|
|
|
|
|
|
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|
|
|
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|
48,462
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|
|
|
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|
48,462
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Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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27,070
|
|
|
|
27,070
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|
Exercise of stock options
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|
|
345
|
|
|
|
|
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|
|
8,023
|
|
|
|
|
|
|
|
|
|
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8,023
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|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
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|
17,880
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|
|
|
|
|
|
|
|
|
|
|
17,880
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|
Other
|
|
|
|
|
|
|
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
294
|
|
|
|
|
|
|
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|
|
|
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|
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Balance, March 31, 2010
|
|
|
167,075
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|
|
$
|
166
|
|
|
$
|
1,265,738
|
|
|
$
|
1,723,360
|
|
|
$
|
(140,698
|
)
|
|
$
|
2,848,566
|
|
|
|
|
|
|
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|
|
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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2010
|
|
|
2009
|
|
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Cash flows from operating activities:
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Net income
|
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$
|
48,462
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|
|
$
|
70,638
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|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
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Depreciation and amortization
|
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|
128,696
|
|
|
|
92,896
|
|
Provision for losses on accounts receivable
|
|
|
19,594
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|
|
|
25,922
|
|
Foreign currency transaction losses, net
|
|
|
25,083
|
|
|
|
7,314
|
|
Share-based payment expense
|
|
|
18,150
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|
|
|
17,601
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Other, net
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|
4,642
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|
|
|
9,475
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|
Change in assets and liabilities:
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Accounts receivable, gross
|
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(39,639
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)
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(54,628
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)
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Handset and accessory inventory
|
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|
60,399
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|
|
|
(3,628
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)
|
Prepaid expenses and other
|
|
|
52,349
|
|
|
|
(49,586
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)
|
Accounts payable, accrued expenses and other
|
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(130,676
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)
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|
|
35,368
|
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Other, net
|
|
|
10,014
|
|
|
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(13,972
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)
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|
|
|
|
|
|
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Net cash provided by operating activities
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|
|
197,074
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|
|
|
137,400
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|
|
|
|
|
|
|
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|
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Cash flows from investing activities:
|
|
|
|
|
|
|
|
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Capital expenditures
|
|
|
(156,289
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)
|
|
|
(182,991
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)
|
Proceeds from sales of short-term investments
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|
|
396,838
|
|
|
|
205,093
|
|
Purchase of short-term investments
|
|
|
(315,136
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)
|
|
|
(144,242
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)
|
Other, net
|
|
|
(17,778
|
)
|
|
|
(43,451
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)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(92,365
|
)
|
|
|
(165,591
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
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Borrowings under syndicated loan facilities
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|
|
60,000
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|
|
|
|
|
Repayments under syndicated loan facilities and other
transactions
|
|
|
(23,256
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)
|
|
|
(1,831
|
)
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Other, net
|
|
|
(7,088
|
)
|
|
|
(17,704
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
29,656
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|
|
|
(19,535
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)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
12,306
|
|
|
|
(39,074
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
146,671
|
|
|
|
(86,800
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
2,504,064
|
|
|
|
1,243,251
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,650,735
|
|
|
$
|
1,156,451
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
NII
HOLDINGS, INC. AND SUBSIDIARIES
Unaudited
|
|
Note 1.
|
Basis of
Presentation
|
General. Our unaudited condensed
consolidated financial statements have been prepared under the
rules and regulations of the Securities and Exchange Commission,
or the SEC. While they do not include all of the information and
footnotes required by accounting principles generally accepted
in the United States of America for complete financial
statements, they reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation of the results
for interim periods. In addition, the year-end condensed
consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by accounting principles generally accepted in the
United States of America.
You should read these condensed consolidated financial
statements in conjunction with the consolidated financial
statements and notes contained in our current report on
Form 8-K
filed on March 8, 2010. You should not expect results of
operations for interim periods to be an indication of the
results for a full year.
Accumulated Other Comprehensive
Loss. The components of our accumulated other
comprehensive loss, net of taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
(136,952
|
)
|
|
$
|
(165,744
|
)
|
Other
|
|
|
(3,746
|
)
|
|
|
(2,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(140,698
|
)
|
|
$
|
(167,768
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
156,289
|
|
|
$
|
182,991
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
(21,812
|
)
|
|
|
(13,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
134,477
|
|
|
$
|
169,478
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
85,726
|
|
|
$
|
44,596
|
|
Interest capitalized
|
|
|
2,238
|
|
|
|
2,260
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
87,964
|
|
|
$
|
46,856
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2010, we had
$23.3 million in non-cash financing, primarily related to
the short-term financing of imported handsets and infrastructure
in Brazil and co-location capital lease obligations on our
communication towers. For the three months ended March 31,
2009, we had $20.4 million in non-cash financing activities
related to the short-term financing of imported handsets and
infrastructure in Brazil, the financing of the mobile switching
office in Peru and co-location capital lease obligations on our
communication towers.
Revenue-Based Taxes. We record
revenue-based taxes and other excise taxes on a gross basis as a
component of both service and other revenues and selling,
general and administrative expenses in our condensed
6
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consolidated statements of operations. For the three months
ended March 31, 2010 and 2009, we had $43.5 million
and $18.2 million, respectively, in revenue-based taxes and
other excise taxes.
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings, but not securities that are antidilutive, including
stock options with an exercise price greater than the average
market price of our common stock.
As presented for the three months ended March 31, 2010 and
2009, our calculations of diluted net income per share include
common shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock. We did not include
the common shares resulting from the potential conversion of our
3.125% convertible notes or our 2.75% convertible notes in our
calculations of diluted net income per common share because
their effect would have been antidilutive to our net income per
common share for those periods. Further, for the three months
ended March 31, 2010 and 2009, we did not include
8.5 million and 11.9 million, respectively, in
antidilutive stock options in our calculations of diluted net
income per common share because their effect would also have
been antidilutive to our net income per common share for those
periods. For the three months ended March 31, 2009, we also
excluded an immaterial amount of our restricted stock 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.
The following tables provide a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our condensed consolidated
statements of operations for the three months ended
March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
48,462
|
|
|
|
166,817
|
|
|
$
|
0.29
|
|
|
$
|
70,638
|
|
|
|
165,782
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
3,167
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
48,462
|
|
|
|
170,475
|
|
|
$
|
0.28
|
|
|
$
|
70,638
|
|
|
|
166,043
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Accounting Pronouncements. In June
2009, the Financial Accounting Standards Board, or 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 is effective for
fiscal years beginning after November 15, 2009. The
adoption of this guidance did not have an impact 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
7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. We are currently evaluating the
potential impact, if any, that the adoption of this guidance
will have on our consolidated financial statements. We plan to
adopt this new guidance on its effective date of January 1,
2011.
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 the
Level 1 and 2 classifications in the fair value hierarchy
and separate disclosures regarding purchases, sales, issuances
and settlements relating to assets and liabilities in the
Level 3 classification. It also provided guidance regarding
the required fair value disclosures on the level of
disaggregation and on the 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
disclosures on purchases, sales, issuances and settlements
relating to assets and liabilities in the Level 3
classification. That requirement is effective for fiscal years
beginning after December 15, 2010 and for interim periods
within those fiscal years. See Note 2 for additional
information regarding the fair value measurements used with
respect to certain of our assets. The adoption of this new
guidance did not have a material impact on our consolidated
financial statements.
|
|
Note 2.
|
Fair
Value Measurements
|
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 condensed
consolidated balance sheet as of March 31, 2010 and
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
|
March 31, 2010
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
March 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2010
|
|
|
Short-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
30,540
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
116,289
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
116,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities include short-term investments made by Nextel Brazil,
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.
During the three months ended March 31, 2009, we held
short-term investments 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. In the first quarter of
2009, we received $15.2 million in distributions and
recorded a pre-tax unrealized gain of $0.3 million in
accumulated other comprehensive income due to a slight increase
in the net asset value of the fund from December 31, 2008.
This fund was liquidated in December 2009. As a result, during
the three months ended March 31, 2010, we had no activity
with respect to assets or liabilities measured at fair value on
a recurring
8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
basis using Level 3 inputs. The following table summarizes
the changes in fair value of our Level 3 financial
instruments measured at fair value on a recurring basis for the
three months ended March 31, 2009 (in thousands):
|
|
|
|
|
Beginning balance
|
|
$
|
53,160
|
|
Principal distributions
|
|
|
(15,236
|
)
|
Unrealized gain, included in other comprehensive income
|
|
|
322
|
|
Realized gain on distributions, included in net income
|
|
|
21
|
|
|
|
|
|
|
Ending balance
|
|
$
|
38,267
|
|
|
|
|
|
|
Other
Financial Instruments.
We estimate the fair value of our financial instruments other
than our
available-for-sale
securities, including cash and cash equivalents, accounts
receivable, accounts payable, derivative instruments and debt.
The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and short-term borrowings contained
in the condensed consolidated balance sheets approximate their
fair values due to the short-term nature of these instruments.
The fair values of our derivative instruments are immaterial.
The carrying amounts and estimated fair values of our long-term
debt instruments as of March 31, 2010 and December 31,
2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Senior notes
|
|
$
|
1,277,755
|
|
|
$
|
1,398,000
|
|
|
$
|
1,277,207
|
|
|
$
|
1,312,165
|
|
Convertible notes
|
|
|
1,452,902
|
|
|
|
1,474,560
|
|
|
|
1,440,040
|
|
|
|
1,447,655
|
|
Syndicated loan facilities
|
|
|
455,821
|
|
|
|
441,835
|
|
|
|
416,081
|
|
|
|
403,079
|
|
Other
|
|
|
163,189
|
|
|
|
163,869
|
|
|
|
157,164
|
|
|
|
158,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,349,667
|
|
|
$
|
3,478,264
|
|
|
$
|
3,290,492
|
|
|
$
|
3,321,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimated the fair values of our senior notes using quoted
market prices in a broker dealer market and the fair values of
our convertible notes using quoted prices in a traded exchange
market, which may be adjusted for certain factors such as
historical trading levels and market data for our senior notes,
credit default spreads, stock volatility assumptions with
respect to our convertible notes and other corroborating market
or internally generated data. Because our fair value
measurements include assumptions based on market data,
corroborating market data and some broker internally generated
information, we consider these estimates Level 2 in the
fair value hierarchy.
We estimated the fair values of our syndicated loan facilities
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.
Other debt consists primarily of Brazilian credit paper and
import financing agreements. We estimated the fair value of the
Brazilian credit paper utilizing 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. We
believe that the fair value of our short-term, import financing
agreements approximate their carrying value primarily because of
the short maturities of the agreements prior to realization and
consider these measurements to be Level 3 in the fair value
hierarchy.
9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Senior notes, net
|
|
$
|
1,277,755
|
|
|
$
|
1,277,207
|
|
Convertible notes, net
|
|
|
1,452,902
|
|
|
|
1,440,040
|
|
Syndicated loan facilities
|
|
|
455,821
|
|
|
|
416,081
|
|
Other
|
|
|
455,303
|
|
|
|
447,460
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,641,781
|
|
|
|
3,580,788
|
|
Less: current portion
|
|
|
(584,000
|
)
|
|
|
(564,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,057,781
|
|
|
$
|
3,016,244
|
|
|
|
|
|
|
|
|
|
|
Peru Syndicated Loan Facility. In
December 2009, Nextel Peru entered into a $130.0 million
U.S. dollar-denominated syndicated loan agreement. Of the
total amount of this loan agreement, $50.0 million has a
floating interest rate of LIBOR plus 5.75%
(Tranche A 6.04% as of March 31, 2010),
$32.5 million has a floating interest rate of LIBOR plus
5.25%
(Tranche B-1
5.54% as of March 31, 2010), $37.5 million has a
floating interest rate of LIBOR plus 4.75%
(Tranche B-2
5.04% as of March 31, 2010) and $10.0 million has
a floating interest rate of LIBOR plus 5.75%
(Tranche B-3
6.04% as of March 31, 2010). Principal under Tranche A
and
Tranche B-3
is payable quarterly beginning in December 2011, and principal
under
Tranche B-1
and
Tranche B-2
is payable quarterly beginning in December 2010. Tranche A
and
Tranche B-3
mature on December 15, 2016,
Tranche B-1
matures on December 15, 2014 and
Tranche B-2
matures on December 15, 2012. Nextel Peru is subject to
various legal and financial covenants under this syndicated loan
facility that, among other things, require Nextel Peru to
maintain certain financial ratios and may limit the amount of
funds that could be repatriated in certain periods.
In March 2010, Nextel Peru borrowed $60.0 million under
this agreement. Nextel Peru plans to continue utilizing its
borrowings under this syndicated loan facility for capital
expenditures, general corporate purposes and the repayment of
short-term intercompany debt.
Convertible
Notes.
3.125% Convertible Notes. The
3.125% notes are convertible into shares of our common
stock at a conversion rate of 8.4517 shares per $1,000
principal amount of notes, or 10,142,040 aggregate common
shares, representing a conversion price of about $118.32 per
share. For the fiscal quarter ended March 31, 2010, 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
March 31, 2010. As a result, the conversion contingency was
not met as of March 31, 2010.
2.75% Convertible Notes. In
accordance with the terms of our 2.75% convertible notes, if the
notes are not converted, the noteholders have the right to
require us to repurchase the notes in August 2010 at a
repurchase price equal to 100% of their principal amount plus
accrued and unpaid interest. Based on current market conditions,
as well as the effective conversion price and trading prices of
our 2.75% convertible notes, we believe that the noteholders
will require us to repurchase our 2.75% convertible notes. As a
result, we classified the $350.0 million repayment of the
principal balance of our 2.75% convertible notes due 2025 as
current portion of long-term debt in our condensed consolidated
balance sheet.
The 2.75% notes are convertible, at the option of the
holder, into shares of our common stock at an adjusted
conversion rate of 19.967 shares per $1,000 principal
amount of notes, or 6,988,370 aggregate common shares,
representing a conversion price of about $50.08 per share. For
the fiscal quarter ended March 31, 2010, 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
10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
trading days in the 30 consecutive trading days ending on
March 31, 2010. As a result, the conversion contingency was
not met as of March 31, 2010.
Adoption of Authoritative Guidance on Convertible Debt
Instruments. As a result of adopting the
FASBs authoritative guidance on convertible debt
instruments on January 1, 2009, we were required to
separately account for the debt and equity components of our
3.125% convertible notes and our 2.75% convertible notes in a
manner that reflects our nonconvertible debt (unsecured debt)
borrowing rate. The debt and equity components recognized for
our 3.125% convertible notes and our 2.75% convertible notes
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
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
|
|
|
92,523
|
|
|
|
4,571
|
|
|
|
102,372
|
|
|
|
7,584
|
|
Net carrying amount of convertible notes
|
|
|
1,107,477
|
|
|
|
345,425
|
|
|
|
1,097,628
|
|
|
|
342,412
|
|
Carrying amount of equity component
|
|
|
194,557
|
|
|
|
53,253
|
|
|
|
194,557
|
|
|
|
53,253
|
|
As of March 31, 2010, the unamortized discount on our
3.125% convertible notes and our 2.75% convertible notes had
remaining recognition periods of about 26 months and
5 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 three months ended March 31, 2010
and 2009 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
9,375
|
|
|
$
|
2,406
|
|
|
$
|
9,375
|
|
|
$
|
2,406
|
|
Amortization of discount on convertible notes
|
|
|
9,849
|
|
|
|
3,013
|
|
|
|
9,192
|
|
|
|
2,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
19,224
|
|
|
$
|
5,419
|
|
|
$
|
18,567
|
|
|
$
|
5,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4.
|
Commitments
and Contingencies
|
Brazilian
Contingencies.
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on
imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions
disputing these assessments. In some cases, Nextel Brazil has
received favorable decisions, which are currently being appealed
by the respective governmental authority. In other cases, Nextel
Brazils petitions have been denied, and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing various other claims. Nextel Brazil did not reverse
any material accrued liabilities related to contingencies during
the first quarter of 2010.
As of March 31, 2010 and December 31, 2009, Nextel
Brazil had accrued liabilities of $13.9 million for both
periods related to contingencies, all of which were classified
in accrued contingencies reported as a component of other
long-term liabilities and none of which related to 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 $128.0 million and $132.0 million as of
March 31, 2010. We are continuing to evaluate the
likelihood of probable and reasonably possible losses, if any,
related to all known contingencies. As a
11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 March 31, 2010 and December 31, 2009, Nextel
Argentina had accrued liabilities of $29.3 million and
$28.2 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.
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;
Argentina and Mexico 2003; 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, for the three
months ended March 31, 2010 (in thousands):
|
|
|
|
|
Unrecognized tax benefits December 31, 2009
|
|
$
|
99,595
|
|
Additions for current year tax positions
|
|
|
3,910
|
|
Additions for prior year tax positions
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(468
|
)
|
Settlements with taxing authorities
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
3,181
|
|
|
|
|
|
|
Unrecognized tax benefits March 31, 2010
|
|
$
|
106,218
|
|
|
|
|
|
|
The unrecognized tax benefits as of December 31, 2009 and
March 31, 2010 include $75.7 million and
$81.6 million, respectively, of tax benefits that could
potentially reduce our future effective tax rate, if recognized.
We record interest and penalties associated with uncertain tax
positions as a component of our income tax provision.
We assessed the realizability of our deferred tax assets during
the first quarter of 2010, consistent with the methodology we
employed for 2009, and determined that the realizability of
those deferred assets has not changed for the markets in which
we operate. In that assessment, we considered the reversal of
existing temporary differences associated with deferred tax
assets and liabilities, future taxable income, tax planning
strategies and historical and future pre-tax book income (as
adjusted for permanent differences between financial and tax
accounting items) in order to determine if it is
more-likely-than-not that the deferred tax asset
will be realized. 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.
12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the first quarter of 2010, we changed our position
regarding the repatriation of current foreign earnings back to
the United States. We anticipate recording a U.S. federal,
state and foreign tax provision during 2010 with respect to
future remittances of certain undistributed earnings of our
subsidiaries in Mexico. In the first quarter of 2010, we
recorded a $19.6 million provision for U.S. federal,
state and foreign taxes on these future remittances of current
year earnings. We continue to indefinitely reinvest all other
remaining undistributed earnings of our foreign subsidiaries
outside the United States.
During 2004, Nextel Mexico amended its Mexican Federal income
tax returns in order to reverse a benefit previously claimed for
a disputed provision of the Federal income tax law covering
deductions and gains from the sale of property. We filed the
amended returns in order to avoid potential penalties, and we
also filed administrative petitions seeking clarification of our
right to the tax benefits claimed on the original income tax
returns. The tax authorities constructively denied our
administrative petitions in January 2005, and in May 2005 we
filed an annulment suit challenging the constructive denial.
Resolution of the annulment suit is pending. We believe it is
probable that we will recover this amount. Our condensed
consolidated balance sheets as of March 31, 2010 and
December 31, 2009 include $13.9 million and
$13.3 million, respectively in income taxes receivable,
which are included as components of other non-current assets.
The income tax benefit for this item was related to our income
tax provision for the years ended December 31, 2005, 2004
and 2003.
13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6.
|
Segment
Reporting
|
We have determined that our reportable segments are those that
are based on our method of internal reporting, which
disaggregates our business by geographical location. Our
reportable segments are: (1) Mexico, (2) Brazil,
(3) Argentina and (4) Peru. The operations of all
other businesses that fall below the segment reporting
thresholds are included in the Corporate and other
segment below. This segment includes our Chilean operating
companies and our corporate operations in the U.S. We
evaluate performance of these segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element of operational
performance, we recognize share-based payment expense at the
corporate level and exclude it when evaluating the business
performance of our segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
509,424
|
|
|
$
|
563,827
|
|
|
$
|
132,757
|
|
|
$
|
72,879
|
|
|
$
|
4,604
|
|
|
$
|
(345
|
)
|
|
$
|
1,283,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
184,384
|
|
|
$
|
176,709
|
|
|
$
|
36,599
|
|
|
$
|
4,223
|
|
|
$
|
(60,548
|
)
|
|
$
|
|
|
|
$
|
341,367
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,696
|
)
|
Foreign currency transaction losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,083
|
)
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
445,029
|
|
|
$
|
316,081
|
|
|
$
|
132,166
|
|
|
$
|
65,525
|
|
|
$
|
2,781
|
|
|
$
|
(268
|
)
|
|
$
|
961,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
154,160
|
|
|
$
|
88,024
|
|
|
$
|
41,873
|
|
|
$
|
9,367
|
|
|
$
|
(48,284
|
)
|
|
$
|
|
|
|
$
|
245,140
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,896
|
)
|
Foreign currency transaction losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,314
|
)
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,383,324
|
|
|
$
|
2,463,871
|
|
|
$
|
417,092
|
|
|
$
|
483,878
|
|
|
$
|
1,908,337
|
|
|
$
|
(287
|
)
|
|
$
|
7,656,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,234,120
|
|
|
$
|
2,530,896
|
|
|
$
|
399,579
|
|
|
$
|
445,828
|
|
|
$
|
1,944,557
|
|
|
$
|
(287
|
)
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7.
|
Condensed
Consolidating Financial Statements
|
In 2009, we issued senior notes totaling $1.3 billion in
aggregate principal amount comprised of our 10.0% senior
notes due 2016 and our 8.875% senior notes due 2019
(collectively, the notes). The notes are senior
unsecured obligations of NII Capital Corp., a wholly-owned
domestic subsidiary, and are guaranteed on a senior unsecured
basis by NII Holdings and all of its current and future first
tier and domestic restricted subsidiaries, other than NII
Capital Corp. No foreign subsidiaries will guarantee the notes
unless they are first tier subsidiaries of NII Holdings. These
guarantees are full and unconditional, as well as joint and
several.
In connection with the issuance of the notes and the guarantees
thereof, we are required to provide certain condensed
consolidating financial information. Included in the tables
below are condensed consolidating balance sheets as of
March 31, 2010 and December 31, 2009, as well as
condensed consolidating statements of operations and cash flows
for the three months ended March 31, 2010 and 2009, of:
(a) the parent company, NII Holdings, Inc.; (b) the
subsidiary issuer, NII Capital Corp.; (c) the guarantor
subsidiaries on a combined basis; (d) the non-guarantor
subsidiaries on a combined basis; (e) consolidating
adjustments; and (f) NII Holdings, Inc. and subsidiaries on
a consolidated basis. The condensed consolidating balance sheet
as of December 31, 2009 presented below has been revised to
reflect the inclusion of an additional subsidiary guarantor.
15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of March 31, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)(1)
|
|
|
Subsidiaries(2)
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,661,332
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
989,375
|
|
|
$
|
|
|
|
$
|
2,650,735
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,540
|
|
|
|
|
|
|
|
30,540
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
633,919
|
|
|
|
(1,562
|
)
|
|
|
632,357
|
|
Handset and accessory inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,243
|
|
|
|
|
|
|
|
139,243
|
|
Deferred income taxes, net
|
|
|
(3,711
|
)
|
|
|
|
|
|
|
(1,345
|
)
|
|
|
174,175
|
|
|
|
205
|
|
|
|
169,324
|
|
Prepaid expenses and other
|
|
|
954
|
|
|
|
11
|
|
|
|
5,750
|
|
|
|
299,897
|
|
|
|
(23
|
)
|
|
|
306,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,658,575
|
|
|
|
39
|
|
|
|
4,405
|
|
|
|
2,267,149
|
|
|
|
(1,380
|
)
|
|
|
3,928,788
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
63,868
|
|
|
|
2,450,110
|
|
|
|
(287
|
)
|
|
|
2,513,691
|
|
Investments in and advances to affiliates
|
|
|
1,805,123
|
|
|
|
2,553,463
|
|
|
|
3,125,945
|
|
|
|
11,844,751
|
|
|
|
(19,329,282
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
347,425
|
|
|
|
(5,832
|
)
|
|
|
341,593
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
471,596
|
|
|
|
|
|
|
|
471,596
|
|
Other assets
|
|
|
2,261,765
|
|
|
|
940,679
|
|
|
|
629,807
|
|
|
|
826,409
|
|
|
|
(4,258,113
|
)
|
|
|
400,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,725,463
|
|
|
$
|
3,494,181
|
|
|
$
|
3,824,025
|
|
|
$
|
18,207,440
|
|
|
$
|
(23,594,894
|
)
|
|
$
|
7,656,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
790
|
|
|
$
|
141,767
|
|
|
$
|
|
|
|
$
|
142,557
|
|
Accrued expenses and other
|
|
|
1,380,288
|
|
|
|
51,380
|
|
|
|
1,547,990
|
|
|
|
1,187,216
|
|
|
|
(3,588,880
|
)
|
|
|
577,994
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141,883
|
|
|
|
|
|
|
|
141,883
|
|
Accrued interest
|
|
|
12,662
|
|
|
|
23,165
|
|
|
|
|
|
|
|
5,140
|
|
|
|
|
|
|
|
40,967
|
|
Current portion of long-term debt
|
|
|
345,417
|
|
|
|
|
|
|
|
1,695
|
|
|
|
236,888
|
|
|
|
|
|
|
|
584,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,738,367
|
|
|
|
74,545
|
|
|
|
1,550,475
|
|
|
|
1,712,894
|
|
|
|
(3,588,880
|
)
|
|
|
1,487,401
|
|
Long-term debt
|
|
|
1,107,497
|
|
|
|
1,277,755
|
|
|
|
40,635
|
|
|
|
631,894
|
|
|
|
|
|
|
|
3,057,781
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,436
|
|
|
|
|
|
|
|
22,436
|
|
Deferred credits
|
|
|
15,714
|
|
|
|
|
|
|
|
(5,743
|
)
|
|
|
73,195
|
|
|
|
|
|
|
|
83,166
|
|
Other long-term liabilities
|
|
|
15,319
|
|
|
|
|
|
|
|
15,190
|
|
|
|
798,502
|
|
|
|
(672,146
|
)
|
|
|
156,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,876,897
|
|
|
|
1,352,300
|
|
|
|
1,600,557
|
|
|
|
3,238,921
|
|
|
|
(4,261,026
|
)
|
|
|
4,807,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,848,566
|
|
|
|
2,141,881
|
|
|
|
2,223,468
|
|
|
|
14,968,519
|
|
|
|
(19,333,868
|
)
|
|
|
2,848,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,725,463
|
|
|
$
|
3,494,181
|
|
|
$
|
3,824,025
|
|
|
$
|
18,207,440
|
|
|
$
|
(23,594,894
|
)
|
|
$
|
7,656,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
NII Capital Corp. is the issuer of our 10.0% senior notes
due 2016 and our 8.875% senior notes due 2019. |
|
(2) |
|
Represents our subsidiaries that have provided guarantees of the
obligations of NII Capital Corp. under our 10.0% senior
notes due 2016 and our 8.875% notes due 2019. |
16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,702,191
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
801,845
|
|
|
$
|
|
|
|
$
|
2,504,064
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,289
|
|
|
|
|
|
|
|
116,289
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613,666
|
|
|
|
(75
|
)
|
|
|
613,591
|
|
Handset and accessory inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,476
|
|
|
|
|
|
|
|
188,476
|
|
Deferred income taxes, net
|
|
|
(837
|
)
|
|
|
|
|
|
|
1,977
|
|
|
|
147,358
|
|
|
|
|
|
|
|
148,498
|
|
Prepaid expenses and other
|
|
|
724
|
|
|
|
15
|
|
|
|
4,812
|
|
|
|
214,693
|
|
|
|
(34
|
)
|
|
|
220,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,702,078
|
|
|
|
43
|
|
|
|
6,789
|
|
|
|
2,082,327
|
|
|
|
(109
|
)
|
|
|
3,791,128
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
57,051
|
|
|
|
2,445,425
|
|
|
|
(287
|
)
|
|
|
2,502,189
|
|
Investments in and advances to affiliates
|
|
|
1,686,513
|
|
|
|
2,195,901
|
|
|
|
2,736,467
|
|
|
|
10,473,228
|
|
|
|
(17,092,109
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343,065
|
|
|
|
(5,832
|
)
|
|
|
337,233
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
494,343
|
|
|
|
|
|
|
|
494,343
|
|
Other assets
|
|
|
2,237,959
|
|
|
|
940,834
|
|
|
|
698,307
|
|
|
|
903,467
|
|
|
|
(4,350,767
|
)
|
|
|
429,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,626,550
|
|
|
$
|
3,136,778
|
|
|
$
|
3,498,614
|
|
|
$
|
16,741,855
|
|
|
$
|
(21,449,104
|
)
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
997
|
|
|
$
|
185,999
|
|
|
$
|
|
|
|
$
|
186,996
|
|
Accrued expenses and other
|
|
|
1,388,189
|
|
|
|
35,578
|
|
|
|
1,547,458
|
|
|
|
1,251,947
|
|
|
|
(3,623,963
|
)
|
|
|
599,209
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,533
|
|
|
|
|
|
|
|
136,533
|
|
Accrued interest
|
|
|
5,693
|
|
|
|
31,405
|
|
|
|
|
|
|
|
5,317
|
|
|
|
|
|
|
|
42,415
|
|
Current portion of long-term debt
|
|
|
342,412
|
|
|
|
|
|
|
|
1,684
|
|
|
|
220,448
|
|
|
|
|
|
|
|
564,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,736,294
|
|
|
|
66,983
|
|
|
|
1,550,139
|
|
|
|
1,800,244
|
|
|
|
(3,623,963
|
)
|
|
|
1,529,697
|
|
Long-term debt
|
|
|
1,097,647
|
|
|
|
1,277,206
|
|
|
|
41,063
|
|
|
|
600,328
|
|
|
|
|
|
|
|
3,016,244
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,071
|
|
|
|
|
|
|
|
22,071
|
|
Deferred credits
|
|
|
33,900
|
|
|
|
18,667
|
|
|
|
(31,161
|
)
|
|
|
72,526
|
|
|
|
|
|
|
|
93,932
|
|
Other long-term liabilities
|
|
|
11,872
|
|
|
|
|
|
|
|
8,871
|
|
|
|
853,398
|
|
|
|
(728,229
|
)
|
|
|
145,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,879,713
|
|
|
|
1,362,856
|
|
|
|
1,568,912
|
|
|
|
3,348,567
|
|
|
|
(4,352,192
|
)
|
|
|
4,807,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,746,837
|
|
|
|
1,773,922
|
|
|
|
1,929,702
|
|
|
|
13,393,288
|
|
|
|
(17,096,912
|
)
|
|
|
2,746,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,626,550
|
|
|
$
|
3,136,778
|
|
|
$
|
3,498,614
|
|
|
$
|
16,741,855
|
|
|
$
|
(21,449,104
|
)
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,283,491
|
|
|
$
|
(345
|
)
|
|
$
|
1,283,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
522,663
|
|
|
|
(345
|
)
|
|
|
522,353
|
|
Selling, general and administrative
|
|
|
460
|
|
|
|
4
|
|
|
|
46,057
|
|
|
|
372,905
|
|
|
|
|
|
|
|
419,426
|
|
Management fee
|
|
|
(18,556
|
)
|
|
|
|
|
|
|
(23,220
|
)
|
|
|
41,776
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
1,680
|
|
|
|
127,016
|
|
|
|
|
|
|
|
128,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,096
|
)
|
|
|
4
|
|
|
|
24,552
|
|
|
|
1,064,360
|
|
|
|
(345
|
)
|
|
|
1,070,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
18,096
|
|
|
|
(4
|
)
|
|
|
(24,552
|
)
|
|
|
219,131
|
|
|
|
|
|
|
|
212,671
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(25,090
|
)
|
|
|
(31,758
|
)
|
|
|
(304
|
)
|
|
|
(34,755
|
)
|
|
|
6,181
|
|
|
|
(85,726
|
)
|
Interest income
|
|
|
2,917
|
|
|
|
|
|
|
|
533
|
|
|
|
8,319
|
|
|
|
(6,170
|
)
|
|
|
5,599
|
|
Foreign currency transaction losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,083
|
)
|
|
|
|
|
|
|
(25,083
|
)
|
Equity in income of affiliates
|
|
|
35,176
|
|
|
|
117,029
|
|
|
|
108,609
|
|
|
|
455,928
|
|
|
|
(716,742
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
115
|
|
|
|
(4,473
|
)
|
|
|
|
|
|
|
(4,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,003
|
|
|
|
85,271
|
|
|
|
108,953
|
|
|
|
399,936
|
|
|
|
(716,731
|
)
|
|
|
(109,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
31,099
|
|
|
|
85,267
|
|
|
|
84,401
|
|
|
|
619,067
|
|
|
|
(716,731
|
)
|
|
|
103,103
|
|
Income tax benefit (provision)
|
|
|
17,363
|
|
|
|
|
|
|
|
(17,675
|
)
|
|
|
(54,534
|
)
|
|
|
205
|
|
|
|
(54,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
48,462
|
|
|
$
|
85,267
|
|
|
$
|
66,726
|
|
|
$
|
564,533
|
|
|
$
|
(716,526
|
)
|
|
$
|
48,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
961,582
|
|
|
$
|
(268
|
)
|
|
$
|
961,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
401,366
|
|
|
|
(268
|
)
|
|
|
401,148
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
37,717
|
|
|
|
277,309
|
|
|
|
|
|
|
|
315,026
|
|
Management fee
|
|
|
|
|
|
|
|
|
|
|
(22,987
|
)
|
|
|
22,987
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
1,893
|
|
|
|
91,003
|
|
|
|
|
|
|
|
92,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,673
|
|
|
|
792,665
|
|
|
|
(268
|
)
|
|
|
809,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
|
|
|
|
|
|
|
|
(16,673
|
)
|
|
|
168,917
|
|
|
|
|
|
|
|
152,244
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(24,517
|
)
|
|
|
|
|
|
|
(190
|
)
|
|
|
(25,773
|
)
|
|
|
5,884
|
|
|
|
(44,596
|
)
|
Interest income
|
|
|
1,991
|
|
|
|
|
|
|
|
10
|
|
|
|
16,536
|
|
|
|
(5,884
|
)
|
|
|
12,653
|
|
Foreign currency transaction losses, net
|
|
|
(5,029
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,285
|
)
|
|
|
|
|
|
|
(7,314
|
)
|
Equity in income of affiliates
|
|
|
87,942
|
|
|
|
69,767
|
|
|
|
|
|
|
|
44,471
|
|
|
|
(202,180
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
22
|
|
|
|
|
|
|
|
137
|
|
|
|
(1,801
|
)
|
|
|
|
|
|
|
(1,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,409
|
|
|
|
69,767
|
|
|
|
(43
|
)
|
|
|
31,148
|
|
|
|
(202,180
|
)
|
|
|
(40,899
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax benefit (provision)
|
|
|
60,409
|
|
|
|
69,767
|
|
|
|
(16,716
|
)
|
|
|
200,065
|
|
|
|
(202,180
|
)
|
|
|
111,345
|
|
Income tax benefit (provision)
|
|
|
10,229
|
|
|
|
(712
|
)
|
|
|
800
|
|
|
|
(49,927
|
)
|
|
|
(1,097
|
)
|
|
|
(40,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
70,638
|
|
|
$
|
69,055
|
|
|
$
|
(15,916
|
)
|
|
$
|
150,138
|
|
|
$
|
(203,277
|
)
|
|
$
|
70,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
48,462
|
|
|
$
|
85,267
|
|
|
$
|
66,726
|
|
|
$
|
564,533
|
|
|
$
|
(716,526
|
)
|
|
$
|
48,462
|
|
Adjustments to reconcile net income to net cash (used in)
provided by operating activities
|
|
|
(83,922
|
)
|
|
|
(85,267
|
)
|
|
|
(131,081
|
)
|
|
|
(267,644
|
)
|
|
|
716,526
|
|
|
|
148,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(35,460
|
)
|
|
|
|
|
|
|
(64,355
|
)
|
|
|
296,889
|
|
|
|
|
|
|
|
197,074
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,376
|
)
|
|
|
|
|
|
|
|
|
|
|
(153,913
|
)
|
|
|
|
|
|
|
(156,289
|
)
|
Proceeds from sales of short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,838
|
|
|
|
|
|
|
|
396,838
|
|
Purchases of short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(315,136
|
)
|
|
|
|
|
|
|
(315,136
|
)
|
Other, net
|
|
|
(10,629
|
)
|
|
|
|
|
|
|
64,355
|
|
|
|
(17,778
|
)
|
|
|
(53,726
|
)
|
|
|
(17,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(13,005
|
)
|
|
|
|
|
|
|
64,355
|
|
|
|
(89,989
|
)
|
|
|
(53,726
|
)
|
|
|
(92,365
|
)
|
Net cash provided by (used in) financing activities
|
|
|
7,606
|
|
|
|
|
|
|
|
|
|
|
|
(31,676
|
)
|
|
|
53,726
|
|
|
|
29,656
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,306
|
|
|
|
|
|
|
|
12,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(40,859
|
)
|
|
|
|
|
|
|
|
|
|
|
187,530
|
|
|
|
|
|
|
|
146,671
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,702,191
|
|
|
|
28
|
|
|
|
|
|
|
|
801,845
|
|
|
|
|
|
|
|
2,504,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,661,332
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
989,375
|
|
|
$
|
|
|
|
$
|
2,650,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
70,638
|
|
|
$
|
69,056
|
|
|
$
|
(15,916
|
)
|
|
$
|
150,139
|
|
|
$
|
(203,279
|
)
|
|
$
|
70,638
|
|
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities
|
|
|
(102,268
|
)
|
|
|
(69,056
|
)
|
|
|
15,620
|
|
|
|
19,187
|
|
|
|
203,279
|
|
|
|
66,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(31,630
|
)
|
|
|
|
|
|
|
(296
|
)
|
|
|
169,326
|
|
|
|
|
|
|
|
137,400
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(360
|
)
|
|
|
|
|
|
|
|
|
|
|
(182,631
|
)
|
|
|
|
|
|
|
(182,991
|
)
|
Proceeds from sales of short-term investments
|
|
|
15,236
|
|
|
|
|
|
|
|
|
|
|
|
189,857
|
|
|
|
|
|
|
|
205,093
|
|
Purchases of short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(144,242
|
)
|
|
|
|
|
|
|
(144,242
|
)
|
Transfers to restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,689
|
)
|
|
|
|
|
|
|
(40,689
|
)
|
Intercompany borrowings
|
|
|
(108,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,000
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,762
|
)
|
|
|
|
|
|
|
(2,762
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(93,124
|
)
|
|
|
|
|
|
|
|
|
|
|
(180,467
|
)
|
|
|
108,000
|
|
|
|
(165,591
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,000
|
|
|
|
(108,000
|
)
|
|
|
|
|
Other, net
|
|
|
(447
|
)
|
|
|
|
|
|
|
296
|
|
|
|
(19,384
|
)
|
|
|
|
|
|
|
(19,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows (used in) provided by financing activities
|
|
|
(447
|
)
|
|
|
|
|
|
|
296
|
|
|
|
88,616
|
|
|
|
(108,000
|
)
|
|
|
(19,535
|
)
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,074
|
)
|
|
|
|
|
|
|
(39,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(125,201
|
)
|
|
|
|
|
|
|
|
|
|
|
38,401
|
|
|
|
|
|
|
|
(86,800
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
490,795
|
|
|
|
|
|
|
|
|
|
|
|
752,456
|
|
|
|
|
|
|
|
1,243,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
365,594
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
790,857
|
|
|
$
|
|
|
|
$
|
1,156,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
INDEX TO
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
23
|
|
|
|
|
23
|
|
|
|
|
27
|
|
|
|
|
27
|
|
|
|
|
28
|
|
|
|
|
29
|
|
|
|
|
32
|
|
|
|
|
33
|
|
|
|
|
35
|
|
|
|
|
35
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
41
|
|
|
|
|
41
|
|
22
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition as of March 31, 2010
and December 31, 2009 and our consolidated results of
operations for the three-month periods March 31, 2010 and
2009; and
|
|
|
|
significant factors which we believe could affect our
prospective financial condition and results of operations.
|
You should read this discussion in conjunction with our annual
report on
Form 10-K,
as supplemented by our current report on
Form 8-K
filed on March 8, 2010, including, but not limited to, the
discussion regarding our critical accounting policies and
estimates, as described below. Historical results may not
indicate future performance. See Forward Looking
Statements and Item 1A. Risk
Factors in our annual report on
Form 10-K
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 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
23
improve our operating results. We will seek to add subscribers
at rates and other terms that are competitive with other
offerings in the market, but that are consistent with our
strategy of finding the optimal balance of growth and
profitability regardless of the competitive landscape. See
Forward Looking Statements and
Item 1A. Risk Factors in our annual
report on
Form 10-K
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.
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 two auctions of
licenses authorizing the use of certain frequency bands for
wireless communication services in Mexico expected to be
conducted in 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 may also explore financially attractive opportunities to
expand our network coverage in areas that we do not currently
serve. Based on market data that continues to show lower
wireless penetration in our markets relative to other regions of
the world and our current market share in those markets, we
believe that we can continue to generate growth in our
subscriber base and revenues while improving our profitability
and cash flow over the long term.
We believe that the wireless communications industry in the
markets in which we operate has been and will continue to be
highly competitive on the basis of price, the types of services
offered, the diversity of handsets offered and the quality of
service. In each of our markets, we compete with at least two
large, well-capitalized competitors with substantial financial
and other resources. Some of these competitors have the ability
to offer bundled telecommunications services that include local,
long distance and data services, and can offer a larger variety
of handsets with a wide range of prices, brands and features.
Although competitive pricing of services and the variety and
pricing of handsets are often important factors in a
customers decision making process, we believe that the
users who primarily make up our targeted customer base are also
likely to base their purchase decisions on quality of service
and customer support, as well as on the availability of
differentiated features and services, like our Direct Connect
services, that make it easier for them to communicate quickly,
efficiently and economically.
We have implemented a strategy that we believe will position us
to achieve our long-term goal of generating profitable growth.
The key components of that strategy are as follows:
Focusing on Major Business Centers in Key Latin American
Markets. We operate primarily in large urban
markets, including five of the six largest cities in Latin
America, which have a concentration of medium to high usage
business customers and consumers. We target these markets
because we believe they have favorable long-term growth
prospects for our wireless communications services while
offering the cost benefits associated with providing services in
more concentrated population centers. In addition, the cities in
which we operate account for a high proportion of total economic
activity in each of their respective countries and provide us
with a large potential market. We believe that there are
significant opportunities for growth in these markets due to the
high demand for wireless communications services and the large
number of potential customers within our targeted customer
groups.
Targeting High Value Customers. Our main focus
is on customers who purchase services under contract and
primarily use our services in their businesses and on
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature and our high level of customer service.
In our current customer base, our typical customer has between 3
and 30 handsets, and some of our largest customers have over 500
handsets; however, new customers that we have recently acquired
generally have a lower number of handsets per customer, and we
expect this trend to continue. We expect that although we
24
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 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 have declined. 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
25
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.
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. In addition, in April
2010, we also launched voice services utilizing 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. 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 Mexico,
Brazil and Argentina to the extent new spectrum can be obtained
at a reasonable cost with available financing and consistent
with our overall technology strategy. Nextel Mexico has been
approved to participate jointly with Televisa in the spectrum
auction expected to occur in 2010. 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.
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 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
|
26
|
|
|
|
|
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.
|
During 2008 and continuing into 2009, the global economic
environment was characterized by a significant decline in
economic growth rates and a marked increase in the volatility of
foreign currency exchange rates. The effects of these changes
were particularly severe in our Latin American markets during
the first half of 2009 when we experienced significant
reductions in our operational performance due to the reduction
in customer demand and in our reported financial results due to
both the economic downturn and the substantial decline in local
currency values relative to the U.S. dollar. During the
second half of 2009 and into the first quarter of 2010, we have
experienced stabilizing or improving economic conditions, as
well as strengthening local currency exchange rates in some of
our markets, but there is no assurance that these improvements
will continue. Future declines in the economic growth rates and
volatility of foreign currency exchange rates globally and in
our markets could negatively impact our operations and our
operating and financial results.
See Forward Looking Statements and
Item 1A. Risk Factors in our annual report on
Form 10-K
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
March 31, 2010 and December 31, 2009. For purposes of
the table, handsets in commercial service represent all handsets
with active customer accounts on the networks in each of the
listed countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Handsets in commercial service December 31, 2009
|
|
|
2,987
|
|
|
|
2,483
|
|
|
|
1,030
|
|
|
|
842
|
|
|
|
44
|
|
|
|
7,386
|
|
Net subscriber additions
|
|
|
105
|
|
|
|
180
|
|
|
|
24
|
|
|
|
63
|
|
|
|
5
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handsets in commercial service
March 31, 2010
|
|
|
3,092
|
|
|
|
2,663
|
|
|
|
1,054
|
|
|
|
905
|
|
|
|
49
|
|
|
|
7,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies and Estimates
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses and related disclosures of contingent assets and
liabilities in the condensed consolidated financial statements
and accompanying notes. Although we believe that our estimates,
assumptions and judgments are reasonable, they are based upon
presently available information. Due to the inherent uncertainty
involved in making those estimates, actual results reported in
future periods could differ from those estimates.
As described in more detail in our annual report on
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations, we consider
the following accounting policies to be the most important to
our financial position and results of operations or policies
that require us to exercise significant judgment
and/or
estimates:
|
|
|
|
|
revenue recognition;
|
|
|
|
allowance for doubtful accounts;
|
27
|
|
|
|
|
depreciation of property, plant and equipment;
|
|
|
|
amortization of intangible assets;
|
|
|
|
asset retirement obligations;
|
|
|
|
foreign currency;
|
|
|
|
loss contingencies;
|
|
|
|
stock-based compensation; and
|
|
|
|
income taxes.
|
There have been no material changes to our critical accounting
policies and estimates during the three months ended
March 31, 2010 compared to those discussed under
Managements Discussion and Analysis of Financial
Condition and Results of Operations in our annual report
on
Form 10-K.
Results
of Operations
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.
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.
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.
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
three months ended March 31, 2010 and 2009. The following
table presents the average exchange rates we used to translate
the results of operations of our operating segments, as well as
changes from the average exchange rates utilized in the prior
period. Because the
28
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.
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|
|
|
|
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|
Three Months Ended March 31,
|
|
|
2010
|
|
2009
|
|
Percent Change
|
|
Mexican peso
|
|
|
12.80
|
|
|
|
14.36
|
|
|
|
11
|
%
|
Brazilian real
|
|
|
1.80
|
|
|
|
2.31
|
|
|
|
22
|
%
|
Argentine peso
|
|
|
3.84
|
|
|
|
3.54
|
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
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|
|
|
|
% of
|
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|
|
|
|
|
|
|
|
|
|
Consolidated
|
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|
|
|
|
Consolidated
|
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|
Change from
|
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|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,217,670
|
|
|
|
95
|
%
|
|
$
|
910,307
|
|
|
|
95
|
%
|
|
$
|
307,363
|
|
|
|
34
|
%
|
Digital handset and accessory revenues
|
|
|
65,476
|
|
|
|
5
|
%
|
|
|
51,007
|
|
|
|
5
|
%
|
|
|
14,469
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,283,146
|
|
|
|
100
|
%
|
|
|
961,314
|
|
|
|
100
|
%
|
|
|
321,832
|
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(349,525
|
)
|
|
|
(27
|
)%
|
|
|
(255,899
|
)
|
|
|
(27
|
)%
|
|
|
(93,626
|
)
|
|
|
37
|
%
|
Cost of digital handset and accessory sales
|
|
|
(172,828
|
)
|
|
|
(14
|
)%
|
|
|
(145,249
|
)
|
|
|
(15
|
)%
|
|
|
(27,579
|
)
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(522,353
|
)
|
|
|
(41
|
)%
|
|
|
(401,148
|
)
|
|
|
(42
|
)%
|
|
|
(121,205
|
)
|
|
|
30
|
%
|
Selling and marketing expenses
|
|
|
(150,389
|
)
|
|
|
(12
|
)%
|
|
|
(113,213
|
)
|
|
|
(12
|
)%
|
|
|
(37,176
|
)
|
|
|
33
|
%
|
General and administrative expenses
|
|
|
(269,037
|
)
|
|
|
(21
|
)%
|
|
|
(201,813
|
)
|
|
|
(21
|
)%
|
|
|
(67,224
|
)
|
|
|
33
|
%
|
Depreciation and amortization
|
|
|
(128,696
|
)
|
|
|
(10
|
)%
|
|
|
(92,896
|
)
|
|
|
(9
|
)%
|
|
|
(35,800
|
)
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
212,671
|
|
|
|
16
|
%
|
|
|
152,244
|
|
|
|
16
|
%
|
|
|
60,427
|
|
|
|
40
|
%
|
Interest expense, net
|
|
|
(85,726
|
)
|
|
|
(6
|
)%
|
|
|
(44,596
|
)
|
|
|
(5
|
)%
|
|
|
(41,130
|
)
|
|
|
92
|
%
|
Interest income
|
|
|
5,599
|
|
|
|
|
|
|
|
12,653
|
|
|
|
1
|
%
|
|
|
(7,054
|
)
|
|
|
(56
|
)%
|
Foreign currency transaction losses, net
|
|
|
(25,083
|
)
|
|
|
(2
|
)%
|
|
|
(7,314
|
)
|
|
|
(1
|
)%
|
|
|
(17,769
|
)
|
|
|
243
|
%
|
Other expense, net
|
|
|
(4,358
|
)
|
|
|
|
|
|
|
(1,642
|
)
|
|
|
|
|
|
|
(2,716
|
)
|
|
|
165
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
103,103
|
|
|
|
8
|
%
|
|
|
111,345
|
|
|
|
11
|
%
|
|
|
(8,242
|
)
|
|
|
(7
|
)%
|
Income tax provision
|
|
|
(54,641
|
)
|
|
|
(4
|
)%
|
|
|
(40,707
|
)
|
|
|
(4
|
)%
|
|
|
(13,934
|
)
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
48,462
|
|
|
|
4
|
%
|
|
$
|
70,638
|
|
|
|
7
|
%
|
|
$
|
(22,176
|
)
|
|
|
(31
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2010, we expanded our subscriber
base across all of our markets with much of this growth
concentrated in Brazil and Mexico. We also experienced a lower
consolidated customer turnover rate in the first quarter of 2010
compared to the first quarter of 2009, which resulted primarily
from improving economic conditions in our markets, as well as
the initiatives we implemented in 2009 to stabilize customer
turnover rates in our markets.
We continued to invest in coverage expansion and network
improvements during the first quarter of 2010, resulting in
consolidated capital expenditures of $134.5 million, which
represented a 21% decrease from the first quarter of 2009. The
majority of this investment occurred in Brazil where we
continued to expand our coverage areas and enhance the quality
and capacity of our networks, consistent with our plans to
increase our customer base in that market. We expect that the
amounts invested in Brazil to expand our network coverage and
improve network quality and capacity will continue to represent
the majority of our consolidated capital expenditure investments
for the remainder of 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 and are awarded spectrum in the auctions that are
expected to take place in Mexico, Brazil and Argentina in 2010
and if we proceed with our plans to deploy third generation
networks in those markets. 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
29
with Televisa pursuant to which Televisa would acquire 30% of
Nextel Mexico in exchange for a $1.44 billion cash
investment, although this transaction is subject to a number of
conditions, some of which are out of our control. If we are
successful in the auction in Mexico and the transaction with
Televisa is not consummated, we may need to raise significant
capital to cover the cost of this spectrum and the deployment of
a third generation network in Mexico. See Future Capital
Needs and Resources Capital Expenditures for
more information.
The average values of the local currencies in Brazil and Mexico
appreciated relative to the U.S. dollar during the three
months ended March 31, 2010 compared to the three months
ended March 31, 2009. Conversely, the average value of the
Argentine peso depreciated relative to the U.S. dollar
during the first quarter of 2010 compared to the first quarter
of 2009.
The $307.4 million, or 34%, increase in consolidated
service and other revenues from the first quarter of 2009 to the
same period in 2010 is primarily due to a 20% increase in the
average number of total digital handsets in service over the
same period, which resulted from both the continued strong
demand for our services, primarily in Brazil, and our balanced
growth and expansion strategy across our markets. This increase
was also the result of an increase in consolidated average
revenue per subscriber unit resulting primarily from the
appreciation in the average values of the local currencies in
Brazil and Mexico compared to the first quarter of 2009 and from
an increase in average revenue per subscriber unit in local
currencies in Brazil driven by higher usage and an increase in
the prices charged for various rate plans.
The $93.6 million, or 37%, increase in consolidated cost of
service from the first quarter of 2009 to the same period in
2010 is largely the result of the following:
|
|
|
|
|
an increase in consolidated interconnect costs, primarily in
Brazil, resulting from an increase in the relative amount of
minutes of use for calls that terminate on other carriers
networks and require the payment of call termination charges;
|
|
|
|
an increase in consolidated service and repair costs,
principally 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, and an increase
in the number of customers participating in our handset
maintenance programs; and
|
|
|
|
an increase in consolidated direct switch and transmitter and
receiver site costs resulting from an increase in the number of
cell sites in service from March 31, 2009 to March 31,
2010 to support the expansion of the coverage and capacity of
our iDEN networks in Brazil and Mexico and the deployment of our
third generation network in Peru.
|
The $27.6 million, or 19%, increase in consolidated cost of
digital handset and accessory sales from the first quarter of
2009 to the same period in 2010 is largely the result of 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 $37.2 million, or 33%, increase in consolidated selling
and marketing expenses from the first quarter of 2009 to the
same period in 2010 is primarily a result of the following:
|
|
|
|
|
an increase in consolidated direct commissions and payroll
expenses, primarily in Brazil, due to an increase in gross
subscriber additions by internal market sales personnel, as well
as an increase in sales and marketing personnel;
|
|
|
|
an increase in consolidated advertising costs related to
promotions for new rate plans that were launched in the first
quarter of 2010; and
|
30
|
|
|
|
|
an increase in consolidated indirect commissions, mostly in
Brazil, due to an increase in gross subscriber additions
generated by external market sales personnel.
|
|
|
4.
|
General and
administrative expenses
|
The $67.2 million, or 33%, increase in consolidated general
and administrative expenses from the first quarter of 2009 to
the same period in 2010 is principally a result of the following:
|
|
|
|
|
an increase in consolidated general corporate costs, primarily
in Brazil, largely related to an increase in revenue-based taxes
in Brazil; and
|
|
|
|
an increase in consolidated customer care and billing operations
expenses, mostly in Brazil, primarily as a result of an increase
in customer care personnel necessary to support a larger
customer base.
|
|
|
5.
|
Depreciation
and amortization
|
The $35.8 million, or 39%, increase in consolidated
depreciation and amortization from the first quarter of 2009 to
the same period in 2010 is primarily due to an increase in
consolidated property, plant and equipment in service resulting
from the continued build-out of our networks, primarily in
Brazil.
The $41.1 million, or 92%, increase in consolidated net
interest expense from the first quarter of 2009 to the same
period in 2010 is largely attributable to interest incurred in
connection with the issuance of our senior notes in 2009.
|
|
7.
|
Foreign
currency transaction losses, net
|
Net foreign currency transaction losses of $25.1 million
during the first quarter of 2010 are primarily the result of the
impact of the depreciation in the value of the Mexican peso and
the Brazilian real relative to the U.S. dollar on Nextel
Mexicos U.S. dollar-denominated net assets and Nextel
Brazils U.S. dollar-denominated net liabilities,
primarily its syndicated loan facility.
The $13.9 million, or 34%, increase in the consolidated
income tax provision from the first quarter of 2009 to the same
period in 2010 is primarily due to a $19.6 million tax
provision for the future remittances of certain undistributed
earnings from our Mexican subsidiaries, partially offset by an
increase in the tax deductible dividends expected to be declared
by one of our markets at the end of the year.
Segment
Results
We evaluate performance of our segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element of operational
performance, we recognize share-based payment expense at the
corporate level and exclude it when evaluating the business
performance of our segments. The results of Nextel Chile are
included in Corporate and other. A discussion of the
results of operations for each of our reportable segments is
provided below.
31
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
487,921
|
|
|
|
96
|
%
|
|
$
|
427,407
|
|
|
|
96
|
%
|
|
$
|
60,514
|
|
|
|
14
|
%
|
|
|
|
|
Digital handset and accessory revenues
|
|
|
21,503
|
|
|
|
4
|
%
|
|
|
17,622
|
|
|
|
4
|
%
|
|
|
3,881
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509,424
|
|
|
|
100
|
%
|
|
|
445,029
|
|
|
|
100
|
%
|
|
|
64,395
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(86,445
|
)
|
|
|
(17
|
)%
|
|
|
(83,589
|
)
|
|
|
(19
|
)%
|
|
|
(2,856
|
)
|
|
|
3
|
%
|
|
|
|
|
Cost of digital handset and accessory sales
|
|
|
(100,749
|
)
|
|
|
(20
|
)%
|
|
|
(88,323
|
)
|
|
|
(20
|
)%
|
|
|
(12,426
|
)
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(187,194
|
)
|
|
|
(37
|
)%
|
|
|
(171,912
|
)
|
|
|
(39
|
)%
|
|
|
(15,282
|
)
|
|
|
9
|
%
|
|
|
|
|
Selling and marketing expenses
|
|
|
(66,091
|
)
|
|
|
(13
|
)%
|
|
|
(53,724
|
)
|
|
|
(12
|
)%
|
|
|
(12,367
|
)
|
|
|
23
|
%
|
|
|
|
|
General and administrative expenses
|
|
|
(71,755
|
)
|
|
|
(14
|
)%
|
|
|
(65,233
|
)
|
|
|
(14
|
)%
|
|
|
(6,522
|
)
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
184,384
|
|
|
|
36
|
%
|
|
$
|
154,160
|
|
|
|
35
|
%
|
|
$
|
30,224
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel Mexico continues to be our largest market segment,
comprising 40% of our consolidated operating revenues and
generating a 36% segment earnings margin for the first quarter
of 2010, which is slightly higher than the margin reported for
the first quarter of 2009. During the first quarter of 2010,
Nextel Mexicos results of operations reflected slightly
higher average revenues per subscriber due primarily to the
appreciation in the average value of the peso relative to the
U.S. dollar discussed below and the overall improvement in
Mexicos economy, partially offset by the impact of the
implementation of lower cost rate plans in response to the
competitive environment in Mexico.
The average value of the Mexican peso for the first quarter of
2010 appreciated relative to the U.S. dollar by 11%,
compared to the average rate that prevailed during the first
quarter of 2009. As a result, the components of Nextel
Mexicos results of operations for the first quarter of
2010 after translation into U.S. dollars reflect higher
U.S. dollar-denominated revenues and expenses than would
have occurred if it were not for the impact of the appreciation
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 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 2009 and have continued into
2010. Nextel Mexico is addressing these competitive actions by,
among other things, launching attractive commercial campaigns
and offering both handsets and more competitive and more
controlled 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. In order to continue to expand
and improve its customer base, in 2009, Nextel Mexico
implemented more stringent credit requirements for new customers
and recently renegotiated 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.
Coverage expansion and network improvements in Mexico resulted
in capital expenditures totaling $17.2 million for the
first quarter of 2010, which represents 13% of our consolidated
capital expenditures for the three months ended March 31,
2010 and which is a slight decrease from 15% of consolidated
capital expenditures during the three months ended
March 31, 2009.
32
The $60.5 million, or 14%, increase in service and other
revenues from the first quarter of 2009 to the same period in
2010 is primarily due to a 10% increase in the average number of
digital handsets in service resulting from subscriber growth
across Nextel Mexicos markets and the overall improvement
in Nextel Mexicos economy, as well as a slight increase in
average service revenue per subscriber, partially offset by the
impact of the implementation of lower cost rate plans in
response to the competitive environment in Mexico.
The changes in Nextel Mexicos cost of revenues, cost of
service, selling and marketing expenses and general and
administrative expenses as a percentage of Nextel Mexicos
operating revenues from the three months ended March 31,
2009 to the same period in 2010 were immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
538,050
|
|
|
|
95
|
%
|
|
$
|
297,290
|
|
|
|
94
|
%
|
|
$
|
240,760
|
|
|
|
81
|
%
|
Digital handset and accessory revenues
|
|
|
25,777
|
|
|
|
5
|
%
|
|
|
18,791
|
|
|
|
6
|
%
|
|
|
6,986
|
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,827
|
|
|
|
100
|
%
|
|
|
316,081
|
|
|
|
100
|
%
|
|
|
247,746
|
|
|
|
78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(190,570
|
)
|
|
|
(34
|
)%
|
|
|
(105,096
|
)
|
|
|
(33
|
)%
|
|
|
(85,474
|
)
|
|
|
81
|
%
|
Cost of digital handset and accessory sales
|
|
|
(37,885
|
)
|
|
|
(7
|
)%
|
|
|
(29,328
|
)
|
|
|
(9
|
)%
|
|
|
(8,557
|
)
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(228,455
|
)
|
|
|
(41
|
)%
|
|
|
(134,424
|
)
|
|
|
(42
|
)%
|
|
|
(94,031
|
)
|
|
|
70
|
%
|
Selling and marketing expenses
|
|
|
(55,369
|
)
|
|
|
(10
|
)%
|
|
|
(37,699
|
)
|
|
|
(12
|
)%
|
|
|
(17,670
|
)
|
|
|
47
|
%
|
General and administrative expenses
|
|
|
(103,294
|
)
|
|
|
(18
|
)%
|
|
|
(55,934
|
)
|
|
|
(18
|
)%
|
|
|
(47,360
|
)
|
|
|
85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
176,709
|
|
|
|
31
|
%
|
|
$
|
88,024
|
|
|
|
28
|
%
|
|
$
|
88,685
|
|
|
|
101
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 44% of
consolidated revenues from the three months ended March 31,
2010 compared to 33% in the same period during 2009. Nextel
Brazil has continued to experience growth in its existing
markets and has continued to make investments in its newer
markets as a result of increased demand for its services.
Consistent with the expansion plans that we announced in 2007
and 2008, we invested in Brazil during 2009 and continued to
invest in Brazil during the first quarter of 2010 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. As a result, Nextel Brazils capital
expenditures represented 63% of our total consolidated capital
expenditures for the first quarter of 2010. 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 rate of the Brazilian real for the three
months ended March 31, 2010 appreciated against the
U.S. dollar by 22% compared to the same period in 2009. As
a result, the components of Nextel Brazils results of
operations for the three months ended March 31, 2010, after
translation into U.S. dollars, reflect more significant
increases in U.S. dollar revenues and expenses in our
results than would have occurred if the Brazilian real had not
appreciated relative to the U.S. dollar.
The $240.8 million, or 81%, increase in service and other
revenues from the three months ended March 31, 2009 to the
same period in 2010 is the result of a 37% increase in the
average number of digital handsets in service
33
resulting from growth in Nextel Brazils existing markets
and the expansion of service coverage into newer markets, as
well as an increase in average revenue per subscriber unit.
The 37% increase in digital handset and accessory revenues from
the three months ended March 31, 2009 to the same period in
2010 is largely due to an increase in handset upgrades for
existing subscribers, as well as an increase in handset sales.
The $85.5 million, or 81%, increase in cost of service from
the three months ended March 31, 2009 to the same period in
2010 is primarily due to the following:
|
|
|
|
|
an increase in interconnect costs principally resulting from an
increase in the relative amount of minutes of use for calls that
terminate on other carriers networks and require the
payment of call termination charges;
|
|
|
|
an increase in direct switch and transmitter and receiver site
costs due to an increase in the number of cell sites in service
in Brazil from March 31, 2009 to March 31,
2010; and
|
|
|
|
an increase in service and repair costs resulting from a
temporary shortage of replacement handsets in the first quarter
of 2010, which caused a significant increase in higher tier
handsets utilized in Nextel Brazils handset maintenance
program, as well as an increase in the number of customers
participating in this program.
|
The 29% increase in cost of digital handset and accessory
revenues from the three months ended March 31, 2009 to the
same period in 2010 is due to an increase in handset upgrades
for existing subscribers and an increase in handset sales to new
subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The 47% increase in selling and marketing expenses from the
three months ended March 31, 2009 to the same period in
2010 is due to an increase in handset sales made by internal
sales personnel, an increase in selling and marketing personnel
necessary to support Nextel Brazils growing subscriber
base and an increase in handset sales by indirect dealers.
|
|
4.
|
General and
administrative expenses
|
The 85% increase in general and administrative expenses from the
three months ended March 31, 2009 to the same period in
2010 is due to the following:
|
|
|
|
|
an increase in other general and administrative costs due to an
83% increase in revenue based taxes and an increase in general
and administrative personnel;
|
|
|
|
an increase in customer care costs related to an increase in the
number of retail stores in Brazil, as well as an increase in
customer care personnel necessary to support Nextel
Brazils larger customer base;
|
|
|
|
an increase in information technology costs mainly due to
increased consulting and facilities costs, as well as a slight
increase in information technology personnel; and
|
|
|
|
an increase in bad debt expense primarily resulting from Nextel
Brazils growth in operating revenues.
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
121,879
|
|
|
|
92
|
%
|
|
$
|
124,171
|
|
|
|
94
|
%
|
|
$
|
(2,292
|
)
|
|
|
(2
|
)%
|
Digital handset and accessory revenues
|
|
|
10,878
|
|
|
|
8
|
%
|
|
|
7,995
|
|
|
|
6
|
%
|
|
|
2,883
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,757
|
|
|
|
100
|
%
|
|
|
132,166
|
|
|
|
100
|
%
|
|
|
591
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(44,320
|
)
|
|
|
(33
|
)%
|
|
|
(44,773
|
)
|
|
|
(34
|
)%
|
|
|
453
|
|
|
|
(1
|
)%
|
Cost of digital handset and accessory sales
|
|
|
(18,485
|
)
|
|
|
(14
|
)%
|
|
|
(13,469
|
)
|
|
|
(10
|
)%
|
|
|
(5,016
|
)
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,805
|
)
|
|
|
(47
|
)%
|
|
|
(58,242
|
)
|
|
|
(44
|
)%
|
|
|
(4,563
|
)
|
|
|
8
|
%
|
Selling and marketing expenses
|
|
|
(10,682
|
)
|
|
|
(8
|
)%
|
|
|
(10,102
|
)
|
|
|
(8
|
)%
|
|
|
(580
|
)
|
|
|
6
|
%
|
General and administrative expenses
|
|
|
(22,671
|
)
|
|
|
(17
|
)%
|
|
|
(21,949
|
)
|
|
|
(16
|
)%
|
|
|
(722
|
)
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
36,599
|
|
|
|
28
|
%
|
|
$
|
41,873
|
|
|
|
32
|
%
|
|
$
|
(5,274
|
)
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 segment earnings has decreased
from the three months ended March 31, 2009 compared to same
period in 2010 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 three months
ended March 31, 2010 depreciated relative to the
U.S. dollar by 8% compared to the same period in 2009. As a
result, the components of Nextel Argentinas results of
operations for the three months ended March 31, 2010 after
translation into U.S. dollars reflect somewhat 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 changes in Nextel Argentinas operating revenues, cost
of service, cost of revenues, selling and marketing expenses and
general and administrative expenses as a percentage of Nextel
Argentinas operating revenues from the three months ended
March 31, 2009 to the same period in 2010 were immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
65,600
|
|
|
|
90
|
%
|
|
$
|
58,932
|
|
|
|
90
|
%
|
|
$
|
6,668
|
|
|
|
11
|
%
|
Digital handset and accessory revenues
|
|
|
7,279
|
|
|
|
10
|
%
|
|
|
6,593
|
|
|
|
10
|
%
|
|
|
686
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,879
|
|
|
|
100
|
%
|
|
|
65,525
|
|
|
|
100
|
%
|
|
|
7,354
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(25,657
|
)
|
|
|
(35
|
)%
|
|
|
(21,100
|
)
|
|
|
(32
|
)%
|
|
|
(4,557
|
)
|
|
|
22
|
%
|
Cost of digital handset and accessory sales
|
|
|
(14,884
|
)
|
|
|
(21
|
)%
|
|
|
(13,449
|
)
|
|
|
(21
|
)%
|
|
|
(1,435
|
)
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,541
|
)
|
|
|
(56
|
)%
|
|
|
(34,549
|
)
|
|
|
(53
|
)%
|
|
|
(5,992
|
)
|
|
|
17
|
%
|
Selling and marketing expenses
|
|
|
(12,565
|
)
|
|
|
(17
|
)%
|
|
|
(8,136
|
)
|
|
|
(12
|
)%
|
|
|
(4,429
|
)
|
|
|
54
|
%
|
General and administrative expenses
|
|
|
(15,550
|
)
|
|
|
(21
|
)%
|
|
|
(13,473
|
)
|
|
|
(21
|
)%
|
|
|
(2,077
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
4,223
|
|
|
|
6
|
%
|
|
$
|
9,367
|
|
|
|
14
|
%
|
|
$
|
(5,144
|
)
|
|
|
(55
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
In December 2009, we launched a third generation network in Peru
using 1.9 GHz spectrum we acquired in 2007. We continue to
develop and deploy transmitter and receiver sites in conjunction
with the continued build-out of this network, and in April 2010,
we launched voice service on this network. 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.
Segment earnings decreased 55% from the three months ended
March 31, 2009 to the same period in 2010 primarily due to
the following:
|
|
|
|
|
a 54% increase in selling and marketing expenses largely
attributable to an increase in sales and marketing personnel in
connection with the launch of our third generation network in
December 2009, as well as higher advertising costs in support of
that launch; and
|
|
|
|
a 22% increase in cost of service resulting from an increase in
the number of transmitter and receiver sites in service, as well
as an increase in service and repair costs mainly resulting from
a change in the mix of handsets repaired toward higher cost
handsets.
|
The change in Nextel Perus operating revenues, and the
change in Nextel Perus general and administrative expenses
as a percentage of its operating revenues, from the three months
ended March 31, 2009 to the same period in 2010 were
immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
and other
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
4,565
|
|
|
|
99
|
%
|
|
$
|
2,775
|
|
|
|
100
|
%
|
|
$
|
1,790
|
|
|
|
65
|
%
|
Digital handset and accessory revenues
|
|
|
39
|
|
|
|
1
|
%
|
|
|
6
|
|
|
|
|
|
|
|
33
|
|
|
|
550
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,604
|
|
|
|
100
|
%
|
|
|
2,781
|
|
|
|
100
|
%
|
|
|
1,823
|
|
|
|
66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(2,878
|
)
|
|
|
(62
|
)%
|
|
|
(1,609
|
)
|
|
|
(58
|
)%
|
|
|
(1,269
|
)
|
|
|
79
|
%
|
Cost of digital handset and accessory sales
|
|
|
(825
|
)
|
|
|
(18
|
)%
|
|
|
(680
|
)
|
|
|
(24
|
)%
|
|
|
(145
|
)
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,703
|
)
|
|
|
(80
|
)%
|
|
|
(2,289
|
)
|
|
|
(82
|
)%
|
|
|
(1,414
|
)
|
|
|
62
|
%
|
Selling and marketing expenses
|
|
|
(5,682
|
)
|
|
|
(123
|
)%
|
|
|
(3,552
|
)
|
|
|
(128
|
)%
|
|
|
(2,130
|
)
|
|
|
60
|
%
|
General and administrative expenses
|
|
|
(55,767
|
)
|
|
|
NM
|
|
|
|
(45,224
|
)
|
|
|
NM
|
|
|
|
(10,543
|
)
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
$
|
(60,548
|
)
|
|
|
NM
|
|
|
$
|
(48,284
|
)
|
|
|
NM
|
|
|
$
|
(12,264
|
)
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the three months ended March 31, 2010 and 2009,
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 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 this third generation network will enable us to
offer new and differentiated services to a larger base of
potential customers in Chile. Deployment of our 3G network and
other planned network expansion in Chile will require
significant investments in capital expenditures in Chile over
the next several years.
36
Segment losses increased from the three months ended
March 31, 2009 to the same period in 2010 primarily due to
an increase in general and administrative expenses resulting
from 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 initiatives. We
expect that our general and administrative expenses will
continue to increase along with other operating expenses as we
continue with our expansion plans in Chile and our new
technology initiatives.
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 March 31, 2010, we had
working capital, which is defined as total current assets less
total current liabilities, of $2,441.4 million, a
$180.0 million increase compared to working capital of
$2,261.4 million as of December 31, 2009. Our working
capital includes $2,650.7 million in cash and cash
equivalents as of March 31, 2010, of which about
$322.3 million was held in currencies other than
U.S. dollars with 78% of that amount held in Mexican pesos,
and $30.5 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.
We recognized net income of $48.5 million for the three
months ended March 31, 2010 compared to $70.6 million
for the three months ended March 31, 2009. During the three
months ended March 31, 2010 and 2009, our operating
revenues more than offset our operating expenses, excluding
depreciation and amortization, and cash capital expenditures.
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 pursuant to which
Televisa would acquire 30% of Nextel Mexico in exchange for a
$1.44 billion cash investment, although this transaction is
subject to a number of conditions. If we are successful in the
auction in Mexico and the transaction with Televisa is not
consummated, we may need to raise significant capital to cover
the cost of this spectrum and the deployment of a third
generation network in Mexico.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
2,504,064
|
|
|
$
|
1,243,251
|
|
|
$
|
1,260,813
|
|
Net cash provided by operating activities
|
|
|
197,074
|
|
|
|
137,400
|
|
|
|
59,674
|
|
Net cash used in investing activities
|
|
|
(92,365
|
)
|
|
|
(165,591
|
)
|
|
|
73,226
|
|
Net cash provided by (used in) financing activities
|
|
|
29,656
|
|
|
|
(19,535
|
)
|
|
|
49,191
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
12,306
|
|
|
|
(39,074
|
)
|
|
|
51,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,650,735
|
|
|
$
|
1,156,451
|
|
|
$
|
1,494,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $197.1 million of
cash during the first quarter of 2010, a $60.0 million, or
43%, increase from the first quarter of 2009, primarily due to
higher operating income resulting
37
from our profitable growth strategy, partially offset by an
increase in working capital investments due to the continued
growth of our business.
We used $92.4 million of cash in our investing activities
during the first quarter of 2010, a $73.2 million decrease
in cash used during the first quarter of 2009, primarily due to
a $26.7 million decrease in cash capital expenditures and
the liquidation of the enhanced cash fund at the end of 2009.
Our financing activities provided us with $29.7 million of
cash during the first quarter of 2010, primarily due to
$60.0 million in borrowings under Nextel Perus
syndicated loan facility, partially offset by a
$20.3 million repayment under our syndicated loan facility
in Brazil. We used $19.5 million of cash in our financing
activities during the first quarter of 2009, primarily due to
$18.0 million in payments of short-term notes payable.
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 ongoing
capital resources may also be affected by the availability of
funding from external sources, including the availability of
funding from the proposed transaction with Televisa and the
availability of vendor financing or similar arrangements.
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.
|
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;
|
|
|
|
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.
|
In making assessments regarding our future capital needs and
current capital resources, we do not consider events that have
not occurred like success in any particular auction and the
costs of acquiring that spectrum or the costs of the related
network deployment, and we do not assume the availability of
external sources of funding that may be available for these
future events, including potential equity investments like the
one currently contemplated by the transaction with Televisa or
vendor financing.
During the three months ended March 31, 2010, there were no
material changes to our contractual obligations as described in
our annual report on
Form 10-K
for the year ended December 31, 2009.
38
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$134.5 million for the three months ended March 31,
2010 and $169.5 million for the three months ended
March 31, 2009. In both quarters, a substantial portion of
our capital expenditures was invested in the expansion of the
coverage and capacity of our network in Brazil. We expect to
continue to focus our capital spending in this market 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
has agreed to make an equity investment of $1.44 billion in
cash in Nextel Mexico subject to the satisfaction of specified
conditions. 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, as well as the
acquisition of spectrum relating to, and the deployment of, next
generation networks in markets other than Peru and Chile, among
other things.
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;
|
39
|
|
|
|
|
the nature and extent of any regulatory requirements that may be
imposed regarding the timing and scope of the deployment of the
new networks;
|
|
|
|
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; and
|
|
|
|
the availability of proceeds from the proposed transaction with
Televisa.
|
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
purchase 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 and
Item 1A. Risk Factors in our annual
report on
Form 10-K.
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;
|
|
|
|
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;
|
|
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if currency values in our markets depreciate relative to the
U.S. dollar;
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if economic conditions in any of our markets change generally;
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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
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if other presently unexpected circumstances arise that have a
material effect on the cash flow or profitability of our mobile
wireless business.
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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:
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the commercial success of our operations;
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40
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the volatility and demand of the capital markets; and
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the future market prices of our securities.
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Market conditions in debt and equity markets in the United
States and global markets during 2008 and 2009 resulted in a
substantial decline in the amount of funding available to
corporate borrowers compared to prior periods as the global
economic downturn affected both the availability and terms of
financing. Since that time, available funding for corporate
borrowers has been and continues to be 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. in our annual report on
Form 10-K.
Effect of
New Accounting Standards
In June 2009, the Financial Accounting Standards Board, or 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 is effective for
fiscal years beginning after November 15, 2009. The
adoption of this guidance did not have an impact 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. We are currently evaluating
the potential impact, if any, that the adoption of this guidance
will have on our consolidated financial statements. We plan to
adopt this new guidance on its effective date of January 1,
2011.
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 the
Level 1 and 2 classifications in the fair value hierarchy
and separate disclosures regarding purchases, sales, issuances
and settlements relating to assets and liabilities in the
Level 3 classification. It also provided guidance regarding
the required fair value disclosures on the level of
disaggregation and on the 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
disclosures on purchases, sales, issuances and settlements
relating to assets and liabilities in the Level 3
classification. That requirement is effective for fiscal years
beginning after December 15, 2010 and for interim periods
within those fiscal years. See Note 2 for additional
information regarding the fair value measurements used with
respect to certain of our assets. The adoption of this new
guidance did not have a material impact on our consolidated
financial statements.
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
41
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, 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:
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our ability to attract and retain customers;
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our ability to meet the operating goals established by our
business plan;
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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;
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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;
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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;
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our ability to access sufficient debt or equity capital to meet
any future operating and financial needs;
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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;
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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;
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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;
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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;
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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;
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the success of efforts to improve and satisfactorily address any
issues relating to our network performance;
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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;
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the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our network business;
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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;
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market acceptance of our new service offerings;
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42
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equipment failure, natural disasters, terrorist acts or other
breaches of network or information technology security; and
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other risks and uncertainties described in this quarterly report
on
Form 10-Q
and in our other reports filed with the Securities and Exchange
Commission, including in Part I, Item 1A. Risk
Factors, of our annual report on
Form 10-K.
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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.
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Item 3.
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Quantitative
and Qualitative Disclosures About Market Risk.
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During the three months ended March 31, 2010, there were no
material changes to our market risk policies or our market risk
sensitive instruments and positions as described in our annual
report on
Form 10-K
for the year ended December 31, 2009.
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Item 4.
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Controls
and Procedures.
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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 March 31, 2010, an evaluation of the effectiveness of
the design and operation of our disclosure controls and
procedures was carried out under the supervision and with the
participation of our management teams in the United States and
in our operating companies, including our chief executive
officer and chief financial officer. Based on and as of the date
of such evaluation, our chief executive officer and chief
financial officer concluded that the design and operation of our
disclosure controls and procedures were effective.
Changes
in Internal Control over Financial Reporting
During the first quarter of 2010, Nextel Brazil completed an
upgrade of its customer billing system. There have been no other
changes in the Companys internal control over financial
reporting during the most recently completed fiscal quarter that
have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial
reporting.
43
PART II
OTHER INFORMATION
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Item 1.
|
Legal
Proceedings.
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We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
For information on our various loss contingencies, see
Note 4 to our condensed consolidated financial statements
above.
There have been no material changes in our risk factors from
those disclosed in our annual report on
Form 10-K
dated February 25, 2010.
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|
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|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.1*
|
|
Investment and Securities Subscription Agreement, dated as of
February 15, 2010, by and among NII Holdings, Inc.,
Comunicaciones Nextel de Mexico, S.A. de C.V., Nextel
International (Uruguay), LLC and Grupo Televisa, S.A.B.
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
101**
|
|
|
The following materials from the NII Holdings, Inc. Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2010 formatted in
eXtensible Business Reporting Language (XBRL):
(i) Condensed Consolidated Balance Sheets,
(ii) Condensed Consolidated Statements of Operations and
Comprehensive Income, (iii) Condensed Consolidated
Statement of Changes in Stockholders Equity,
(iv) Condensed Consolidated Statements of Cash Flows and
(v) Notes to Condensed Consolidated Financial Statements.**
|
|
|
|
* |
|
Portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a
request for confidential treatment. |
|
** |
|
Submitted electronically herewith. |
44
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
By:
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/s/ TERESA
S. GENDRON
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Teresa S. Gendron
Vice President and Controller
(on behalf of the registrant and as
chief accounting officer)
Date: May 5, 2010
45
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.1*
|
|
Investment and Securities Subscription Agreement, dated as of
February 15, 2010, by and among NII Holdings, Inc.,
Comunicaciones Nextel de Mexico, S.A. de C.V., Nextel
International (Uruguay), LLC and Grupo Televisa, S.A.B.
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
101**
|
|
|
The following materials from the NII Holdings, Inc. Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2010 formatted in
eXtensible Business Reporting Language (XBRL):
(i) Condensed Consolidated Balance Sheets,
(ii) Condensed Consolidated Statements of Operations and
Comprehensive Income, (iii) Condensed Consolidated
Statement of Changes in Stockholders Equity,
(iv) Condensed Consolidated Statements of Cash Flows and
(v) Notes to Condensed Consolidated Financial Statements.
|
|
|
|
* |
|
Portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a
request for confidential treatment. |
|
** |
|
Submitted electronically herewith. |
46