e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
For the fiscal year ended
December 31, 2008
|
or
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
For the transition period
from to
|
|
|
|
Commission file number 0-32421
|
NII HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
91-1671412
|
(State or other jurisdiction of
|
|
(I.R.S. Employer Identification No.)
|
incorporation or organization)
|
|
|
|
|
|
1875 Explorer Street, Suite 1000
|
|
20190
|
Reston, Virginia
|
|
(Zip Code)
|
(Address of principal executive offices)
|
|
|
Registrants telephone number,
including area code:
(703) 390-5100
Securities registered pursuant
to Section 12(b) of the Act:
|
|
|
Title of each class
|
|
Name of each exchange on which registered
|
|
Common Stock, par value $0.001 per share
|
|
The Nasdaq Stock Market
|
Securities registered pursuant to
Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer þ
|
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
|
Smaller reporting
company o
|
|
|
|
|
(Do not check if a
smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of
June 30, 2008: $7,849,342,241
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.
|
|
|
|
|
|
|
Number of Shares Outstanding
|
|
Title of Class
|
|
on February 20, 2009
|
|
|
Common Stock, $0.001 par value per share
|
|
|
165,782,002
|
|
Documents
Incorporated by Reference
Portions of the registrants Proxy Statement for the 2009
Annual Meeting of Stockholders are incorporated by reference
into Part III hereof.
NII
HOLDINGS, INC.
TABLE OF
CONTENTS
1
PART I
We were originally organized in 1995 as a holding company for
the operations of Nextel Communications, Inc. in selected
international markets. The corporation that is currently known
as NII Holdings, Inc. was incorporated in Delaware in 2000 as
Nextel International, Inc. In December 2001, we changed our name
from Nextel International, Inc. to NII Holdings, Inc. Unless the
context requires otherwise, NII Holdings, Inc.,
NII Holdings, we, our,
us and the Company refer to the combined
businesses of NII Holdings, Inc. and its consolidated
subsidiaries. We refer to our operating companies by the
countries in which they operate, such as Nextel Mexico, Nextel
Brazil, Nextel Argentina, Nextel Peru and Nextel Chile. For
financial information about our operating companies, which we
refer to as segments, see Note 12 to our consolidated
financial statements included at the end of this annual report
on
Form 10-K.
Nextel, Nextel Direct Connect,
Nextel Worldwide and International Direct
Connect are trademarks or service marks of Nextel
Communications, Inc., a wholly-owned subsidiary of Sprint Nextel
Corporation. Motorola and iDEN are
trademarks or service marks of Motorola, Inc.
BlackBerry is a trademark of Research in Motion
Limited. Java is a trademark of Sun Microsystems,
Inc. In addition, various other trademarks discussed within this
annual report on
Form 10-K
are owned by various other entities.
Except as otherwise indicated, all amounts are expressed in
U.S. dollars and references to dollars and
$ are to U.S. dollars. All historical financial
statements contained in this report are prepared in accordance
with accounting principles generally accepted in the United
States.
Our principal executive office is located at 1875 Explorer
Street, Suite 1000, Reston, Virginia 20190. Our telephone
number at that location is
(703) 390-5100.
|
|
2.
|
Access to
Public Filings and Board Committee Charters
|
We maintain an internet website at www.nii.com. Information
contained on our website is not part of this annual report on
Form 10-K.
Stockholders of the Company and the public may access our
periodic and current reports (including annual, quarterly and
current reports on
Form 10-K,
Form 10-Q
and
Form 8-K,
respectively, and any amendments to those reports) filed with or
furnished to the Securities and Exchange Commission pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, through the investor relations
section of our website. The information is provided by a third
party link to the SECs online EDGAR database, is free of
charge and may be reviewed, downloaded and printed from our
website at any time.
We also provide public access to our Code of Ethics, entitled
the NII Holdings, Inc. Code of Business Conduct and Ethics, and
the charters of the following committees of our Board of
Directors: the Audit Committee, the Compensation Committee and
the Nominating Committee. The Code of Business Conduct and
Ethics and committee charters may be viewed free of charge on
the Investor Relations link of our website at the following
address: www.nii.com. You may obtain copies of any of these
documents free of charge by writing to: NII Holdings Investor
Relations, 1875 Explorer Street, Suite 1000, Reston,
Virginia 20190. If a provision of our Code of Business Conduct
and Ethics required under the Nasdaq Global Select Market
corporate governance standards is materially modified, or if a
waiver of our Code of Business Conduct and Ethics is granted to
a director or executive officer, we will post a notice of such
action on the Investor Relations link of our website at the
following address: www.nii.com. Only the Board of Directors or
the Audit Committee may consider a waiver of the Code of
Business Conduct and Ethics for an executive officer or director.
|
|
3.
|
Our
Networks, Services and Markets
|
We provide wireless communication services, primarily targeted
at meeting the needs of customers who use our services in their
businesses and individuals that have medium to high usage
patterns, both of whom value our multi function handsets,
including our Nextel Direct
Connect®
feature, and our high level of customer service. We provide
these services under the
Nexteltm
brand through operating companies located in selected Latin
American markets, with our principal operations located in major
business centers and related transportation corridors of Mexico,
Brazil, Argentina, Peru and Chile. We provide our services in
major urban and suburban centers with high population densities,
which we refer to as major business centers, where we believe
there is a concentration of the
2
countrys business users and economic activity. We believe
that vehicle traffic congestion, low wireline service
penetration and the expanded coverage of wireless networks in
these major business centers encourage the use of the mobile
wireless communications services that we offer.
We use a wireless transmission technology called integrated
digital enhanced network, or iDEN, developed by Motorola, Inc.
to provide our mobile services on 800 MHz spectrum holdings
in all of our markets. This technology, which is the only
technology currently available that can be used on
non-contiguous spectrum like ours, allows us to use our spectrum
efficiently and offer multiple wireless services integrated into
a variety of handset devices. The services we offer include:
|
|
|
|
|
mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a push-to-talk
basis, private one-to-one call or group call;
|
|
|
|
International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers using compatible handsets in the United
States and with TELUS subscribers using compatible handsets in
Canada;
|
|
|
|
text messaging services, mobile internet services,
e-mail
services including
Blackberrytm
services, location-based services, which include the use of
Global Positioning System (GPS) technologies, digital media
services and advanced
Javatm
enabled business applications; and
|
|
|
|
international roaming services.
|
We currently provide services in the three largest metropolitan
areas in each of Mexico, Brazil, Argentina and Peru, in various
other cities in each of these countries and in Santiago, Chile,
which is the largest metropolitan area in Chile.
As illustrated in the table below, as of December 31, 2008,
our operating companies had a total of about 6.20 million
handsets in commercial service, an increase of 1.47 million
from the 4.73 million handsets in commercial service as of
December 31, 2007. For purposes of the table, handsets in
commercial service represent all handsets with active customer
accounts on our mobile networks in each of the listed countries.
|
|
|
|
|
|
|
|
|
|
|
Handsets
|
|
|
|
in Commercial Service
|
|
|
|
As of December 31,
|
|
Country
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Mexico
|
|
|
2,726
|
|
|
|
2,140
|
|
Brazil
|
|
|
1,812
|
|
|
|
1,290
|
|
Argentina
|
|
|
967
|
|
|
|
812
|
|
Peru
|
|
|
669
|
|
|
|
477
|
|
Chile
|
|
|
26
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,200
|
|
|
|
4,729
|
|
|
|
|
|
|
|
|
|
|
We have also acquired licenses of spectrum outside the
800 MHz band that can be used to support other wireless
technologies in the future, including a recent acquisition of
nationwide spectrum in the 1.9 GHz band in Peru that we
will use to support the deployment of a new third generation, or
3G, network that utilizes WCDMA technology. 3G technologies
provide new service capabilities such as high speed internet
access, increased network capacity and reduced costs for voice
and data services as compared to 2G and other previous
generation technologies. We expect to continue to assess and, if
appropriate, pursue opportunities to acquire additional spectrum
in our markets in the future as part of our ongoing assessment
of our ability to meet our customers current and future
needs. In that regard, we currently plan to participate in
spectrum auctions in our markets, including auctions that are
expected to be conducted in Brazil and Mexico. We will also
evaluate the technologies that can be deployed on that spectrum
to asses their technical performance, cost and functional
capabilities. Our decision
3
whether to acquire rights to use additional spectrum, and our
choice of alternative network technologies to be deployed on any
spectrum we acquire, would likely be affected by a number of
factors, including:
|
|
|
|
|
types of features and services supported by the technology and
our assessment of the demand for those features and services;
|
|
|
|
the availability and pricing of related equipment, the spectrum
bands available for purchase in our markets and whether other
wireless carriers are operating or plan to operate a particular
technology in those spectrum bands;
|
|
|
|
our need to continue to support iDEN-based services for our
existing customer base either on an ongoing or transitional
basis; and
|
|
|
|
the availability and terms of any financing that we would be
required to raise in order to acquire the spectrum and fund the
deployment of an alternative technology.
|
Our goal is to generate increased revenues in our Latin American
markets by providing differentiated wireless communications
services that are valued by our customers while improving our
profitability and cash flow over the long term. Our strategy for
achieving that goal is based on several core principles,
including focusing on major business centers in key Latin
American markets, targeting high value customers, providing
differentiated services and delivering superior customer service.
We intend to operate our business with a focus on generating
growth in operating income and cash flow over the long term and
enhancing our profitability by attracting and retaining high
value wireless subscribers while maintaining appropriate
controls on costs. To support this goal, we plan to continue to
expand the coverage and capacity of our networks in our existing
markets and increase our existing subscriber base while managing
our costs in a manner designed to support that growth and
improve our operating results. We will seek to add subscribers
at rates and other terms that are competitive with other
offerings in the market, but that are consistent with our
strategy of balancing growth and profitability regardless of the
competitive landscape. We may also explore opportunities to
expand our network coverage in areas that we do not currently
serve. Based on market data that continues to show lower
wireless penetration in our markets relative to other regions of
the world and our current market share in those markets, we
believe that we can continue to generate growth in our
subscriber base and revenues while improving our profitability
and cash flow over the long term.
We believe that the wireless communications industry in the
markets in which we operate has been and will continue to be
highly competitive on the basis of price, the types of services
offered, the diversity of handsets offered and quality of
service. In each of our markets, we compete with at least two
large, well-capitalized competitors with substantial financial
and other resources. Some of these competitors have the ability
to offer bundled telecommunications services that include local,
long distance and data services, and can offer a larger variety
of handsets with a wide range of prices, brands and features.
Although competitive pricing of services and the variety and
pricing of handsets are often important factors in a
customers decision making process, we believe that the
users who primarily make up our targeted customer base are also
likely to base their purchase decisions on quality of service
and customer support, as well as on the availability of
differentiated features and services, like our Direct Connect
services, that make it easier for them to communicate quickly,
efficiently and economically. To address the competitive
pressures we face in some of our markets, we have:
|
|
|
|
|
added cell sites to improve network performance and expand the
coverage and capacity of our networks, with much of that
coverage expansion focused in Brazil and Mexico;
|
|
|
|
launched attractive commercial campaigns offering handsets to
new and existing customers at a lower cost and offering service
plans with prices and terms that are more competitive;
|
|
|
|
implemented customer retention programs that are focused on our
high value customers;
|
|
|
|
worked with Motorola to develop new handset models and features;
|
|
|
|
adjusted our credit policies in certain markets in an effort to
promote subscriber growth while maintaining the overall credit
quality of our customer base; and
|
|
|
|
implemented incentives to improve third party sales
distribution, such as increasing commission rates and making
other modifications to the compensation arrangements with our
indirect sales channels in an effort to promote additional sales
through these channels.
|
4
Our overall strategy and the competitive conditions in the
markets where we operate require that we continually improve the
coverage and capacity of our networks and the types and quality
of the services we offer. In order to do so, we must ensure that
we have sufficient radio spectrum in the geographic areas in
which we operate to support the services that we currently offer
and may offer in the future, including a recent acquisition of
nationwide spectrum in the 1.9 GHz band in Peru that we
will use to support the deployment of a new third generation, or
3G, network that utilizes WCDMA technology. 3G technologies
provide new service capabilities such as high speed internet
access, increased network capacity and reduced costs for voice
and data services as compared to 2G and other previous
generation technologies. We have acquired spectrum in the
800 MHz band which will support our iDEN services and have
also acquired spectrum in other bands through auctions and other
means that could be used to support other technologies in the
future. We expect to continue to assess and, if appropriate,
pursue opportunities to acquire additional spectrum in our
markets in the future. We also expect to assess alternate
technologies that may be deployed using this spectrum through an
evaluation of the technical performance, cost and functional
capabilities of these technologies as part of our ongoing
assessment of our ability to meet our business goals and our
customers current and future needs.
|
|
C.
|
Responding
to Changes in the Global Economic Environment
|
During 2008, the global economic environment was characterized
by a significant decline in economic growth rates, a marked
increase in the volatility of foreign currency exchange rates,
disruptions in the capital markets and a reduction in the
availability of financing. These conditions are expected to
continue into 2009 with most economists predicting a significant
slowing, and possibly a contraction, of economic growth
globally, including and in the markets in which we operate. We
have also seen an increase in the inflation rates in some
markets in which we operate, particularly in Argentina. While we
believe that we will be able to continue to expand our business
in this environment, these economic trends could affect our
business in a number of ways by:
|
|
|
|
|
reducing the demand for our services resulting from reduced
discretionary spending;
|
|
|
|
increasing the level of competition among the other wireless
service providers as we compete for a smaller number of
potential customers, which could require us to offer more
competitive service plans that could result in lower average
revenue per subscriber; and
|
|
|
|
increasing the level of voluntary customer turnover due to
increased competition and simultaneously increasing the levels
of involuntary customer turnover and bad debt expense as
customers find it more difficult to pay for services.
|
Historically, our operations have been subject to significant
volatility of the foreign currencies of the countries in which
we do business. Increased volatility of foreign currency
exchange rates has had and continues to have a significant
effect on us because nearly all of our revenues are earned in
non-U.S. currencies,
and a significant portion of our outstanding debt is denominated
in U.S. dollars. For example, in 2008, we had foreign
currency transaction losses of $120.6 million that were
primarily the result of the significant depreciation in the
value of the Brazilian real and the Mexican peso relative to the
U.S. dollar during the second half of 2008. From
September 30, 2008 to December 31, 2008, the exchange
rate for the Brazilian real increased from 1.91 reais per
U.S. dollar to 2.34, and the exchange rate for the Mexican
peso increased from 10.79 pesos per U.S. dollar to 13.54.
The depreciation in the values of the local currencies in the
markets where we operate makes it more costly for us to service
our debt obligations and affects our operating results because
we pay for some of our operating expenses and capital
expenditures in U.S. dollars. In addition, because we
report our results of operations in U.S. dollars, changes
in relative foreign currency valuations may result in reductions
in our reported revenues, operating income and earnings, as well
as a reduction in the carrying value of our assets, including
the value of cash investments in local currencies. Accordingly,
if the values of local currencies in the countries in which our
operating companies conduct business depreciate further relative
to the U.S. dollar, we would expect our operating results
in future periods, and the value of our assets held in local
currencies, to be adversely affected.
Deteriorating conditions in the economy and the capital markets
have also resulted in significant increases in the cost of
capital and have made it increasingly difficult for companies
with operations in emerging markets to obtain debt or equity
financing on acceptable terms. While a number of governments
have taken actions in an effort to address liquidity issues in
the financial markets and have undertaken various other
initiatives designed to help relieve the credit crisis, the
overall effects of these and other efforts on the financial
markets are uncertain, and they may not have the intended
effects. While we believe that our current cash balances and the
funds we expect to generate in our business are sufficient to
support our existing iDEN business, we depend upon access to the
credit and capital markets to help fund the growth of our
business, for the acquisition of additional spectrum and for
capital expenditures in connection with the expansion and
improvement of our wireless networks and the deployment of new
network technologies. If the present financial market conditions
continue, we expect that our
5
borrowing costs will increase to the extent that we incur new
debt at comparatively higher interest rates to finance our
growth and as a result of increases in the interest rates on our
variable rate debt obligations, and it may be difficult for us
to obtain funding on terms that are acceptable. These market
conditions may limit our access to funding that may be needed to
pursue our expansion plans and to acquire rights to use spectrum
and deploy networks that use new technologies in our markets.
We have taken a number of actions to address the potential
impact of these changes in the economic environment and capital
markets, including:
|
|
|
|
|
implementing strategies designed to conserve our liquidity by
increasing the cash generated by our operations and targeting
our capital expenditures in areas with greater growth
opportunities;
|
|
|
|
managing our subscriber and revenue growth consistent with our
long term strategy of expanding our business while improving our
profitability and cash flow generation;
|
|
|
|
improving our efficiency by managing our growth in headcount and
other expenses at levels consistent with our expectations
regarding subscriber and revenue growth; and
|
|
|
|
developing and implementing network expansion plans that are
consistent with our long term strategy of meeting our
customers demand for innovative high quality services, but
are consistent with a goal of preserving our liquidity in light
of the uncertain conditions in the capital markets.
|
We expect to continue to pursue these and other strategies as
necessary to adapt our business plans in order to meet our long
term business goals in a manner that takes into account the
uncertainty of the current economic environment.
|
|
D.
|
Our
Products, Services and Solutions
|
We offer a wide range of wireless communications services and
related subscriber equipment and a variety of service plans with
different rate structures that are designed to meet the needs of
our targeted customer groups. These services and equipment have
been designed to provide innovative features that meet those
customers needs for fast and reliable voice and data
communications that allow them to conduct business quickly and
efficiently. In addition to more traditional mobile telephony
services, we offer the following services that we believe
reflect the significant points of differentiation of our
services from those offered by our competitors:
1. Nextel Direct
Connect®. One
of our key competitive differentiators is Nextel Direct Connect,
the long-range walkie-talkie service that allows communication
at the touch of one button. The Nextel Direct Connect feature
gives customers the ability to instantly set up a
conference either privately (one-to-one) or with a
group (one-to-many) which allows our customers to
initiate and complete communications much more quickly than is
possible using a traditional mobile telephone call. Nextel
Direct Connect service greatly enhances the instant
communication abilities of business users within their
organizations and with suppliers, vendors and customers, and
provides individuals the ability to contact business colleagues,
friends and family instantly. This unique service is enhanced by
our International Direct
Connect®
service, which allows our subscribers to communicate instantly
across national borders. In addition, our agreement with Sprint
Nextel Corporation allows our subscribers in all of our markets
to use Nextel Direct Connect to communicate with subscribers
using compatible handsets in the United States, and our
agreement with TELUS Corporation allows our subscribers in
all of our markets to use Nextel Direct Connect to communicate
with subscribers using compatible handsets in Canada.
In some of our markets, we also offer services that provide our
customers with instant communication capabilities in a variety
of other ways, including a push-to-email application that allows
a user to send a streaming voice message from his or her handset
to an email recipient using our Direct Connect feature, Direct
Talksm,
a service available on certain handsets that enables
off-network
walkie-talkie communication, and Desktop Dispatch, a service
that allows users to send Direct Connect messages between Nextel
handsets and any internet connected personal computer.
Although a number of our competitors have launched or announced
plans to launch services that are designed to compete with
Nextel Direct Connect, we do not believe that the services that
have been deployed by our competitors to date compare favorably
with our service in terms of latency, quality, reliability or
ease of use.
2. Wireless Data Solutions and Mobile Internet
Access. We offer a variety of wireless data
solutions that are designed to help our customers increase their
productivity through the delivery of real-time information to
mobile workers anytime and anywhere, including remote
e-mail
access and mobile messaging services using two-way text and
multimedia communication capabilities and location based
services from their handsets. Accessible via our wireless
handsets, in addition to laptop computers and handheld computing
devices, wireless data solutions enable quick response among
workers in the field and streamline operations through faster
exchanges of information to support workforce mobility. We also
design wireless business solutions to meet the needs of specific
customers
6
based on their industry and individualized business needs,
including a wide array of fleet and workforce management
services that utilize the unique capabilities of our data
network, such as the ability to accurately and in near real
time, locate handsets using assisted global positioning system,
or A-GPS, technology. Wireless business services are backed by
customer support teams that help customers build, distribute,
and manage wireless applications. In addition, we offer our
customers always-on connectivity to the Internet directly from
their handset through mobile internet access, which combines the
vast resources of the Internet with convenient mobile content
services. We also offer a range of messaging services, including
email, that are available using our Blackberry devices, SMS and
multimedia messaging, or MMS, as well as additional mobile data
communications services.
3. Handsets. We offer our voice
and data communications features and services through handsets
that incorporate Motorolas iDEN technology and offer our
unique 4-in-1 service, which includes mobile telephone service,
Nextel Direct Connect walkie-talkie service, wireless Internet
access and SMS text and multimedia messaging capabilities. We
purchase most of our handsets from Motorola, other than the
Blackberry devices, which are purchased from Research in Motion,
or RIM. Our handsets range from basic models designed to serve
the needs of customers who require basic wireless services
without sacrificing the essential features they depend upon to
do their jobs, to more advanced Blackberry devices, which, in
addition to mobile telephone services and Nextel Direct Connect
features, provide integrated access to one or multiple corporate
and personal email accounts. Our handsets offer a wide range of
features. Many handsets we offer include a built-in
speakerphone, additional line service, conference calling, an
external screen that lets customers view caller ID,
voice-activated dialing for hands-free operation, a voice
recorder for calls and memos, an advanced phonebook that manages
contacts and date book tools to manage calendars and alert users
of business and personal meetings. All of our current handset
offerings have subscriber identification module, or SIM, cards,
which carry relevant authentication information and address book
information, thereby greatly easing subscribers abilities
to upgrade their handsets quickly and easily, particularly in
conjunction with our on-line web-based
back-up
tools. Many of our handsets include the ability to run
Javatm
applications. Java enables users to create and execute a number
of mobile applications and supports a wide range of downloadable
digital media capabilities.
4. International Roaming
Services. In addition to offering subscribers
the ability to roam in areas in other countries served by our
operating companies iDEN networks and those operated by
Sprint Nextel in the United States and TELUS in Canada, we offer
a handset that is capable of roaming on the networks in other
countries that operate using the global system for mobile
communications, or GSM, standard. The availability of these
services is subject to reaching agreements with the operators of
those networks. Our customers can roam in about 65 countries in
the world. We market these roaming capabilities as Roaming
International
and/or
Nextel
Worldwidesm
services.
|
|
E.
|
Our
Network and Wireless Technology
|
|
|
1.
|
Our
iDEN Network Technology
|
Our networks utilize the advanced iDEN technology developed and
designed by Motorola. iDEN is a digital technology that is able
to operate on non-contiguous spectrum frequencies, which
previously were usable only for two-way radio calls. Most of the
iDEN handsets that we offer are not currently designed to roam
onto non-iDEN wireless networks. Although iDEN offers a number
of advantages in relation to other technology platforms,
including the ability to operate on non-contiguous spectrum like
ours and to offer a high performance walkie-talkie feature,
unlike other wireless technologies, it is a proprietary
technology that relies solely on the efforts of Motorola and any
future licensees of this technology for product development and
innovation. We also rely on Motorola to provide us with
technology improvements designed to support new features and
services and improve the quality of our services and the
efficiency of our networks. We expect Motorola to continue to be
our sole source supplier of iDEN network infrastructure
equipment and most of our handsets with the exception of
Blackberry devices, which are manufactured by RIM, and other
specialized devices.
The iDEN technology substantially increases the capacity of our
existing spectrum channels and permits us to utilize our current
holdings of specialized mobile radio, or SMR, spectrum more
efficiently. This increase in capacity is accomplished in two
ways:
|
|
|
|
|
First, our iDEN networks are capable of simultaneously carrying
up to six voice
and/or
control paths on the same frequency channel without causing
interference. Using this feature of the iDEN technology, our
two-way radio dispatch service achieves about six times
improvement over analog SMR in channel utilization capacity and
about three times improvement over analog SMR in channel
utilization capacity for channels used for mobile telephone
service.
|
7
|
|
|
|
|
Second, our networks reuse each channel many times throughout
the market area in a manner similar to that used in the cellular
industry, further improving channel utilization capacity.
|
Motorola provides the iDEN infrastructure equipment and handsets
throughout our markets under agreements that set the prices we
must pay to purchase and license this equipment, as well as a
structure to develop new features and make long term
improvements to our networks. Motorola also provides integration
services in connection with the deployment of our iDEN network
elements. Our agreements with Motorola impose limitations and
conditions on our ability to use other technologies. These
agreements may delay or prevent us from employing new or
different technologies that perform better or are available at a
lower cost. Furthermore, iDEN technology is not as widely
adopted in relation to other wireless technologies and currently
has substantially fewer subscribers on a worldwide basis than
other digital technology formats such as GSM. See
Item 1A. Risk Factors 6.
Because we rely on one supplier for equipment used in our mobile
networks, any failure of that supplier to perform could
adversely affect our operations.
|
|
2.
|
Network
Expansion and Future Technologies
|
During 2008, we expanded the geographic coverage of our
networks, as well as their capacity and quality. This expansion,
which was focused primarily in our two largest operating
markets, Mexico and Brazil, was a part of our strategy to expand
our networks geographic coverage and capacity where
necessary to meet the growing demand of our customers. During
2009, we expect to build additional transmitter and receiver
sites to improve both our geographic coverage and to meet the
capacity needs of our growing customer base, with most of that
expansion expected to be focused in Brazil. As we continue to
balance our growth objectives with our goal of conserving
liquidity, we expect that capital expenditures related to our
core iDEN network will be at lower levels in 2009 compared to
2008. We also expect that this reduction in capital expenditures
related to our iDEN network will be partially offset by an
increase in capital expenditures related to the deployment of
our new network in Peru and may be further offset by potential
spectrum acquisitions in other markets.
Another key component in our overall strategy to improve the
coverage and capacity of our networks and the types and quality
of the services we offer now and in the future is ensuring that
we have sufficient radio spectrum in the geographic areas in
which we operate. We have acquired spectrum in the 800 MHz
band which will support our iDEN services and have also acquired
spectrum in other bands through auctions and other means that
could be used to support other technologies in the future. The
licenses relating to the newly acquired spectrum outside the
800 MHz band generally provide for nationwide rights to
utilize a significant block of contiguous spectrum that supports
the future deployment of new network technologies and services.
We expect to continue to assess and, if appropriate, pursue
opportunities to acquire additional spectrum in our markets in
the future as part of our ongoing assessment of our ability to
meet our customers current and future needs. In that
regard, we currently plan to participate in spectrum auctions in
our markets, including auctions that are expected to be
conducted in Brazil and Mexico. We also review alternate
technologies to assess their technical performance, cost and
functional capabilities as part of our ongoing assessment of our
ability to meet our customers current and future needs.
Our decision whether and how to acquire spectrum and to deploy
alternative technologies, as well as our choice of alternative
technologies, in these or other markets 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, the spectrum bands available for
purchase in our markets and whether other wireless carriers are
operating or plan to operate a particular technology in those
spectrum bands, and our need to continue to support iDEN-based
services for our existing customer base either on an ongoing or
transitional basis. Those decisions will also be affected by 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.
|
|
F.
|
Network
Implementation, Design and Construction
|
After obtaining necessary regulatory authorizations to develop
and deploy our networks, we undertake a careful frequency
planning and system design process. Our transmitter sites are
selected on the basis of their proximity to targeted customers,
the ability to acquire and build the sites, and frequency
propagation characteristics. Site procurement efforts include
obtaining leases and permits and, in many cases, zoning
approvals. See Item 1A. Risk Factors
8. Government regulations determine how we
operate in various countries, which could limit our growth and
strategic plans. The preparation of each site,
including grounding, ventilation, air conditioning and
construction, typically takes three months. We must also obtain
all equipment necessary for the site. Equipment installation,
testing and optimization generally take at least an additional
four weeks. Any scheduled build-out or expansion may be delayed
due to typical permitting, construction and other delays.
8
|
|
G.
|
Sales and
Distribution and Customer Care
|
Our differentiated products and services allow us to target
customers who use our services in their businesses and
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature, and our high level of customer service.
Our operating companies use a variety of sales channels as part
of our strategy to increase our customer base. These sales
channels may include direct sales representatives, indirect
sales agents, Nextel stores and other customer convenient sales
channels such as web sales. Each of our operating companies is
continuously optimizing the mix of sales channels to take into
consideration the methods that best meet local customer
preferences and facilitate our overall strategy of attracting
and retaining customers in our targeted groups.
Our operating companies employ direct sales representatives who
market our services directly to potential and existing
customers. The focus of our direct sales force is primarily on
businesses that value our industry expertise and differentiated
services, as well as our ability to develop tailored custom
communications capabilities that meet the specific needs of
these customers.
Our operating companies also utilize indirect sales agents,
which mainly consist of local and national non-affiliated
dealers. Dealers are independent contractors that solicit
customers for our service and are generally paid through
commissions. Dealers participate with our operating
companies direct sales forces in varying degrees in
pursuing each of our targeted customer groups.
Our sales channels in some of our markets also include
distribution through customer-convenient channels, including
telesales and sales through our Nextel stores. In some of our
markets, we utilize our website as a marketing tool that allows
customers to compare our various rate plans and research the
suite of our products and services, including handsets,
accessories and special promotions.
Our customer care organization works to improve our
customers experience, with the goal of retaining
subscribers of our wireless services. We believe that the
customer support provided by our customer care organization has
allowed us to achieve higher customer loyalty rates that are
superior to those of many of our competitors and has provided us
with a key competitive advantage.
Our operating companies primarily market their wireless
communications services to targeted customer groups that utilize
our services in their businesses and to individuals that have
medium to high usage patterns, all of whom value our
multi-function handsets, including our Nextel Direct Connect
feature described below, and our high level of customer service.
These targeted groups include companies with mobile work forces
that often need to provide their personnel with the ability to
communicate directly with one another. To meet the needs of
these customers, we offer a package of services and features
that combines multiple communications services in one handset,
including Nextel Direct Connect, which allows users to contact
other subscribers instantly on a push-to-talk basis,
on a private one-to-one call or on a one-to-many group call,
throughout the areas covered by our networks. To further
differentiate our service from that of our competitors, we offer
International Direct Connect service, which allows subscribers
to communicate instantly across national borders with our
subscribers in Mexico, Brazil, Argentina, Peru and Chile, with
Sprint Nextel Corporation subscribers using compatible handsets
in the United States and with TELUS subscribers using compatible
handsets in Canada. The nationwide and international network
features of our Nextel Direct Connect and International Direct
Connect services allow our customers to avoid the long distance
and roaming charges that our competitors may charge for long
distance and international long distance communications.
We offer a variety of pricing options and plans, including plans
designed specifically for our targeted base of customers. In
most instances, our services are sold on a postpaid basis
pursuant to a service contract, typically for periods of one to
two years, with services billed on a monthly basis according to
the applicable pricing plan. In some markets, we offer prepaid
services as a means to attract customers within our targeted
base who may not meet our customer credit policies, but who
value the flexibility to pay for service in advance or who want
to purchase certain services, such as wireless data services, on
a prepaid basis as an add-on service to their postpaid contract.
Although we market our services using traditional print and
television advertising, we also provide exposure to our brand
and wireless services through various sponsorships. The goal of
these initiatives, together with our other marketing
initiatives, is to increase brand awareness in our targeted
customer base.
9
The Latin American mobile communications industry has undergone
significant growth in recent years. We believe that the wireless
communications industry has been and will continue to be
characterized by intense competition on the basis of price, the
types of services offered, variety, features and pricing of
handsets and quality of service.
In the countries in which we operate, there are principally
three other multinational providers of mobile wireless voice
communications with whom we compete:
|
|
|
|
|
America Movil, which has the largest wireless market share in
Mexico and operates in Brazil, Argentina, Peru and Chile;
|
|
|
|
Telefonica Moviles, which has wireless operations throughout
Mexico, Argentina, Peru and Chile, and is a joint controlling
shareholder of Vivo, the largest wireless operator in
Brazil; and
|
|
|
|
Telecom Italia Mobile, or TIM, which has wireless operations
covering all of Brazil, and is a joint controlling shareholder
of the wireless affiliate of Telecom Argentina.
|
We also compete with regional or national providers of mobile
wireless voice communications, such as Telemars Oi in
Brazil and Iusacell in Mexico.
New licenses for spectrum may also be auctioned by governments
in markets in which we operate allowing for new competitors, as
well as the competitors listed above, many of whom have greater
coverage areas
and/or name
recognition than we do, to expand into new markets and offer new
products and services. Most of these existing competitors have
more extensive distribution channels than ours, a more expansive
spectrum position than ours, or are able to acquire subscribers
at a lower cost than we can. Most of our competitors, including
America Movil in Brazil, Telefonica Moviles, America Movil and
Telecom Personal in Argentina, America Movil and Telefonica
Moviles in Peru and Telefonica Moviles, America Movil and Entel
Chile in Chile, have launched a new generation of mobile
communications technology, which is generally referred to as 3G
technology, that incorporates high speed internet access and
video telephony into an existing network. We expect that 3G
technologies and future technology upgrades will support
additional services competitive with those available on our
networks including, potentially, services that are competitive
with our Direct Connect service. Further, we expect competition
to increase as a result of other technologies and services that
are developed and introduced in the future. These technologies
and services may potentially include those using either licensed
or unlicensed spectrum including World Interoperability for
Microwave Access, or WiMax, and wireless fidelity, or WiFi.
Additionally, some competitors operate in the wireline business,
which allows them to offer a bundle of wireline voice, high
speed internet and wireless services to their customers.
In each of the markets where our operating companies operate, we
compete with other communications services providers, including
other wireless communications companies and wireline telephone
companies, based primarily on our differentiated wireless
service offerings and products, principally our Direct Connect
service, including International Direct Connect. We also believe
that we differentiate ourselves from our competition by focusing
on the quality of our customer care and service. Our focus on
customer service and care is an important component of our
strategy to attract and retain customers within our targeted
customer groups. Historically, our largest competitors have
focused their marketing efforts primarily on retail customers
who purchase prepaid services largely on the basis of price
rather than quality of service, but recently, those competitors
have placed more emphasis on attracting postpaid customers. With
this shift in focus, some of our largest competitors have
recently begun to concentrate on enhancing their customer
service and customer care functions, which may minimize the
value of this point of differentiation and enable those
competitors to compete more effectively with us. Although
pricing is an increasingly important factor in potential
customers purchase decisions, we believe that our targeted
customers are also likely to base their purchase decisions on
quality of service and the availability of differentiated
features and services that make it easier for them to
communicate quickly and efficiently.
Many of our competitors are owned by or affiliated with large
multinational communications companies. As a result, these
competitors have substantially greater financial resources than
we do, which allows them to spend substantially more than we do
in their advertising/brand awareness campaigns and may enable
them to reduce prices in an effort to gain market share. The
higher cost of our handsets relative to the handsets offered by
our competitors requires us to absorb a comparatively larger
part of the cost of offering handsets to new and existing
customers and places us at a competitive disadvantage with
respect to the pricing of our handsets and our ability to offer
new handsets at discounted prices as an incentive to retain our
existing customers. We expect that the prices we charge for our
products and services will decline over the next few years as
competition intensifies in our markets. Several
10
of our competitors introduced aggressive pricing promotions,
including plans that allow shared minutes between groups of
callers.
The Latin American wireless market is predominantly a prepaid
market, which means that customers pay in advance for a
pre-determined number of minutes of use. Our customers, who
typically purchase our services under contract and pay for their
services on a monthly basis based on usage, represent the
premium segment within our markets, and they generally offer
higher average monthly revenue per subscriber and higher
operating income per subscriber, but as noted above, our
competitors have recently placed more emphasis on attracting
customers in the premium segment that we target. Since the
wireless industry has often competed based on price, increased
competition in the customer segments we target could require us
to decrease prices or increase service and product offerings,
which would lower our revenues or increase our costs. Additional
service offerings by our competitors
and/or
product offerings could also impact our ability to retain
customers. While we believe that the market for premium
customers will continue to grow, the market could become
saturated as competition in this customer segment increases.
For a more detailed description of the competitive factors
affecting each operating company, see the
Competition discussion for each of those operating
companies under L. Operating Companies.
The licensing, construction, ownership and operation of wireless
communications systems are regulated by governmental entities in
the markets in which our operating companies conduct business.
The grant, maintenance, and renewal of applicable licenses and
radio frequency allocations are also subject to regulation. In
addition, these matters and other aspects of wireless
communications system operations, including rates charged to
customers and the resale of wireless communications services,
may be subject to public utility regulation in the jurisdiction
in which service is provided. Further, statutes and regulations
in some of the markets in which our operating companies conduct
business impose limitations on the ownership of
telecommunications companies by foreign entities. Changes in the
current regulatory environments, the interpretation or
application of current regulations, or future judicial
intervention in those countries could impact our business. These
changes may affect interconnection arrangements, requirements
for increased capital investments, prices our operating
companies are able to charge for their services, or foreign
ownership limitations, among other things. For a more detailed
description of the regulatory environment in each of the
countries in which our managed operating companies conduct
business, see the Regulatory and Legal Overview
discussion for each of those operating companies under
L. Operating Companies.
|
|
K.
|
Foreign
Currency Controls and Dividends
|
In some of the countries in which we operate, the purchase and
sale of foreign currency is subject to governmental control.
Additionally, local law in some of these countries may limit the
ability of our operating companies to declare and pay dividends.
Local law may also impose a withholding tax in connection with
the payment of dividends. For a more detailed description of the
foreign currency controls and dividend limitations and taxes in
each of the countries in which our managed operating companies
conduct business, see the Foreign Currency Controls and
Dividends discussion for each of those operating companies
under L. Operating Companies.
Operating Company Overview. We refer to our
wholly-owned Mexican operating company, Comunicaciones Nextel de
Mexico, S.A. de C.V., as Nextel Mexico. Nextel Mexico is
headquartered in Mexico City and has many regional offices
throughout Mexico. As of December 31, 2008, Nextel Mexico
had 4,925 employees.
Nextel Mexico provides wireless services under the trade name
Nextel in major business centers, including Mexico
City, Guadalajara, Puebla, Leon, Monterrey, Toluca, Tijuana,
Torreon, Ciudad Juarez and Cancun, as well as in smaller markets
and along related transportation corridors throughout Mexico. As
of December 31, 2008, Nextel Mexico provided service to
about 2,726,300 handsets, which we estimate to be about 3.5% of
the total mobile handsets in commercial service in Mexico.
Competition. Nextel Mexicos wireless
network competes with cellular and personal communications
services system operators in all of its market areas. Nextel
Mexico competes on a nationwide basis with Radiomovil Dipsa,
S.A. de C.V., known as Telcel, which is a subsidiary of America
Movil, S.A. de C.V., an affiliate of Telefonos de Mexico, S.A.
de C.V., known as Telmex. Telcel holds spectrum and services
licenses throughout Mexico and is the
11
largest provider of wireless services in Mexico. Nextel Mexico
also competes on a nationwide basis with Telefonica, S.A. de
C.V., which is the second largest wireless operator in the
country and offers wireless services under the Movistar brand,
and with Iusacell, S.A. de C.V., which offers wireless services
under the Iusacell and Unefon brands.
We believe that the most important factors upon which Nextel
Mexico competes are the quality of our customer service and
network, recognition of our brand and our differentiated
services, primarily our Direct Connect service, which is
available throughout all areas where Nextel Mexico provides
service and International Direct
Connect®
service, which allows subscribers to communicate instantly
across national borders with subscribers of other NII Holdings
operating companies in Brazil, Argentina, Peru and Chile, with
Sprint Nextel Corporation subscribers using compatible handsets
in the United States and with TELUS subscribers using compatible
handsets in Canada. Nextel Mexicos competitors compete
aggressively by offering reduced prices for postpaid wireless
services, offering free or significantly discounted handsets,
offering various incentives to our customers to switch service
providers, including reimbursement of cancellation fees, and
offering bundled telecommunications services that include local,
long distance and data services. Some of these offers have been
designed to target business customers, including some of Nextel
Mexicos largest accounts. Nextel Mexico is addressing
these competitive actions by, among other things, offering a
wider range of handsets, offering handsets to new and existing
customers on more favorable terms and by offering more
competitive rate plans, which has recently resulted in a
decrease in our average revenue per subscriber in Mexico.
Notwithstanding these actions, the more intense competitive
conditions have made it more difficult for Nextel Mexico to
attract new customers and retain its existing customers. With
Telefonicas recent launch of its 3G network in Mexico, all
three of Nextel Mexicos largest competitors now offer
services supported by a 3G network.
Regulatory and Legal Overview. The Secretary
of Communications and Transportation of Mexico regulates the
telecommunications industry in Mexico. The Mexican
Telecommunications Commission oversees specific aspects of the
telecommunications industry on behalf of the Secretary of
Communications and Transportation.
The existing telecommunications law, which went into effect in
1995, restricts foreign ownership in telecommunications to a
maximum of 49% voting equity interest except for cellular
telephony, which has no such restriction. However, some of the
licenses held by Nextel Mexico prior to 2000 are not subject to
the 49% foreign ownership limitation as such licenses were
originally granted under the old telecommunications law that had
no such limitation to foreign ownership. All of the licenses
acquired by Nextel Mexico after January 1, 2000 are held
through Inversiones Nextel de Mexico, S.A. de C.V., or
Inversiones Nextel, a corporation with a capital structure known
under applicable corporate law as neutral stock, in
which Nextel Mexico owns approximately 99.99% of the economic
interest, but only 49% of the voting shares. The remaining 51%
of the voting shares in Inversiones Nextel, which is held by one
Mexican shareholder, is subject to a voting trust agreement and
a shareholders agreement between Nextel Mexico and this
shareholder that establish governance controls and transfer
restrictions that are designed to protect Nextel Mexicos
interests.
The current telecommunications law requires mandatory
interconnection between all telecommunication networks under
reciprocal terms and conditions when it is technically possible.
Notwithstanding the foregoing, some telecommunications companies
have had difficulty obtaining interconnection services under
reciprocal terms and conditions from other telephone operators.
Because Nextel Mexico has operated under SMR licenses in the
800 MHz band, it was not deemed a telephone operator and
has historically not been granted telephone numbers. As a
result, it was unclear whether Nextel Mexico was entitled to
reciprocal interconnection terms and conditions with wireline
and wireless public telephone networks. Meanwhile, to ensure its
access to interconnection, Nextel Mexico entered into commercial
agreements with other local, point to point and long distance
carriers such as Alestra, Avantel, Axtel, Bestel and Telmex that
provide interconnection between Nextel Mexicos networks
and the public switched telephone network. Nextel Mexico has
also executed commercial agreements to exchange SMS traffic with
Telcel, Telefonica, Iusacell and Unefon.
In contrast, entities like Operadora de Comunicaciones, S.A. de
C.V., or Opcom, which is an indirect subsidiary of Nextel Mexico
that hold licenses to provide local fixed/mobile wireless
telephone services, are entitled to reciprocal interconnection
terms and conditions with wireline and wireless public telephone
networks. Opcom also executed local-to-local interconnection
agreements with a number of local carriers and local-to-mobile
interconnection agreements with Telmex, Axtel, Alestra, Maxcom
and others, in which Opcom is considered to be the mobile
carrier. In November 2007, the Mexican authorities issued a
resolution of an interconnection dispute ordering Telcel,
Telefonica and Iusacell to interconnect Opcom on a
mobile-to-mobile modality. Following the issuance of that
resolution, Opcom entered into local-to-mobile and
mobile-to-mobile interconnection agreements with Telcel,
12
Telefonica, Iusacell and Unefon, as well as a local-to-mobile
interconnection agreement with Telmex, which acts as a transit
provider between all of the mobile networks in Mexico.
Under these agreements, Nextel Mexico has lowered
interconnection costs as it transitions services from providers
under its existing commercial agreements and has begun offering
new services in major cities, such as calling party pays
services, which allow customers to receive calls without
incurring related charges. Notwithstanding the 2007 decision
resolving the interconnection dispute, Nextel Mexico has ongoing
disputes with Telefonica, which are pending before the Mexican
regulatory authorities, because Telefonica refuses to allow its
subscribers to send short messages to Nextel Mexicos
subscribers that have an Opcom mobile number. Iusacell has also
refused to allow its subscribers to call Nextel Mexicos
subscribers that have an Opcom mobile number.
As of December 31, 2008, Nextel Mexico has filed
applications to renew 31 of its SMR licenses, 22 of which have
expired. Although Nextel Mexico expects that these renewals will
be granted, there is no guarantee that such renewals will be
granted. If some or all of these renewals are not granted,
Nextel Mexico could experience an adverse effect on its
business. Although renewal fees are governed by Mexican federal
law, the Mexican authorities may impose a one-time renewal fee
in addition to the fees already established under federal law.
We cannot currently predict whether such a renewal fee will be
imposed or estimate the related amount. See Note 3 to our
consolidated financial statements included at the end of this
annual report on
Form 10-K.
Foreign Currency Controls and
Dividends. Because there are no foreign currency
controls in place, Mexican currency is convertible into
U.S. dollars and other foreign currency without
restrictions. Mexican companies may distribute dividends and
profits outside of Mexico if the Mexican company meets specified
distribution and legal reserve requirements. Under Mexican
corporate law, approval of a majority of stockholders attending
an ordinary stockholders meeting of a corporation is
required to pay dividends. Dividends paid out of Nextel
Mexicos accumulated taxable income are not subject to
withholding tax; a tax of up to 39% is imposed on Nextel Mexico
if it pays dividends in excess of this amount. This tax may be
creditable against Nextel Mexicos future tax liability. A
15% withholding tax applies to interest paid by Nextel Mexico to
NII or its U.S. affiliates with respect to intercompany
loans made by NII Holdings or its subsidiaries to Nextel Mexico.
Income Tax Legislation. In December 2004,
the Mexican government enacted tax legislation, effective
January 1, 2005, which reduced the corporate tax rate to
30% for 2005, 29% for 2006 and 28% for 2007 and subsequent
years. On October 1, 2007, the Mexican government enacted
amendments to the Mexican tax law that became effective
January 1, 2008. The amendments established a new minimum
corporate tax, eliminated the previous minimum asset tax and
established a new withholding tax system on cash deposits in
bank accounts. The new minimum corporate tax is a supplemental
tax that superseded the previous asset tax and applies when and
to the extent the tax computed under the new minimum corporate
tax exceeds the amounts that would be payable under the existing
Mexican income tax. The new minimum corporate tax is computed on
a cash basis rather than on an accrual basis, and is calculated
based on gross revenues, with no deductions allowed for cost of
goods sold, non-taxable salaries and wages, interest expense,
depreciation, amortization, foreign currency transaction gains
and losses or existing net income tax operating losses from
prior years. For purposes of the new minimum corporate tax,
Nextel Mexico will generally deduct the value of depreciable
assets and inventory as an expense when these assets are
acquired. This tax will be phased in at a rate of 16.5% for
2008, 17% for 2009 and a final tax rate of 17.5% for 2010 and
thereafter. Certain tax credits may be available to reduce the
amount of new minimum corporate tax that is payable.
Operating Company Overview. We refer to our
wholly-owned Brazilian operating company, Nextel
Telecomunicacoes Ltda., as Nextel Brazil. Nextel Brazil provides
wireless services under the tradename Nextel in
major business centers, including Rio de Janeiro, Sao Paulo,
Belo Horizonte and Brasilia, along related transportation
corridors and in a number of smaller markets. In 2008, we
announced plans to expand our network coverage to areas in the
northeast region of Brazil, including Salvador and other cities.
We believe that this expansion will allow Nextel Brazil to
compete more effectively by offering broader coverage and by
meeting the needs of a wider range of customers who have
significant operations in the new areas it will serve. As of
December 31, 2008, Nextel Brazil provided service to about
1,811,700 handsets, which we estimate to be about 1.2% of the
total mobile handsets in commercial service in Brazil.
Nextel Brazils operations are headquartered in Sao Paulo,
with branch offices in Rio de Janeiro and various other cities.
As of December 31, 2008, Nextel Brazil had
3,817 employees.
13
Competition. Nextel Brazil competes with
cellular and personal communications services providers. The
largest competitors are Vivo (a joint venture of Telefonica S.A.
and Portugal Telecom S.A.), which has the largest market share
in the Sao Paulo Metropolitan Area and Rio de Janeiro; Telecom
Americas, which owns Claro and is controlled by America Movil;
Telecom Italia Mobile; TNL PCS S.A. (a personal communications
services operating subsidiary of Telemar Norte Leste S.A.,
Brazils largest wireline incumbent, and which markets
under the brand name Oi); and Brasil
Telecom GSM, a subsidiary of Brasil Telecom S.A.
Nextel Brazil also competes with other regional cellular and
wireless operators including Telemig Celular S.A. In addition,
some of Nextel Brazils largest competitors have launched,
and now offer services supported by, a 3G network.
We believe that the most important factors upon which Nextel
Brazil competes are the quality of our customer service and
network, our differentiated brand positioning and our
differentiated services, primarily our Direct Connect service,
which is available throughout all areas where Nextel Brazil
provides wireless services. While its competition generally
targets the prepaid market and competes on the basis of price,
Nextel Brazil primarily targets customers who utilize its
services in their businesses and individuals that have medium to
high usage patterns who are more concerned with the quality of
the customer care and service they receive. Nextel Brazils
focus on the quality of its customer service and care is an
important component of our strategy to attract and retain
customers within our targeted customer groups. Substantially all
of our subscribers in Brazil purchase our services pursuant to
contracts that provide for recurring monthly payments for
services for a specified term.
Regulatory and Legal Overview. Prior to 2000,
the Brazilian telecommunications regulations imposed various
restrictions that significantly limited the ability of Nextel
Brazil to provide mobile services to all potential customer
groups. With the changes to the Brazilian regulations enacted by
Brazils telecommunications regulatory agency, Agencia
Nacional de Telecomunicacoes, known as Anatel, in 2000 and in
subsequent years, Brazil began opening its markets to wider
competition in the mobile wireless communications market where
we operate.
Some of the key regulatory changes that have been adopted
include changes to the rules that limit the amount of spectrum
in the 800 MHz band that Nextel Brazil is allowed to hold
in a service area, which was increased in 2008 to 25MHz,
allowing Nextel Brazil to increase the capacity of its networks
more efficiently, the adoption of rules relating to the
interconnection of Nextel Brazils networks with those of
other carriers and the calculation of calling party pays
charges. Under the changes to the rules adopted in November
2008, Nextel Brazil may own up to 25 MHz of 800 MHz
spectrum only if it does not hold more than 50% of the spectrum
allocated to SMR services in the 700 MHz and 900 MHz
bands. Nextel Brazil does not currently own a significant amount
of spectrum in either of those bands. Under the rules adopted by
Anatel relating to interconnection charges, we have negotiated
agreements with all significant fixed line and wireless
operators in Brazil to reflect the additional payments between
carriers as a result of the calling party pays charges. The
calling party pays structure adopted by Anatel permits Nextel
Brazil to compensate other operators for calls terminated on
their network under a formula that reduces the amount paid to
them by allowing a percentage of these calls to be treated as
bill and keep. Since their adoption, these
regulations have resulted in savings to Nextel Brazil in
relation to interconnect charges made by other carriers.
Anatel is also responsible for the licensing of spectrum rights
in Brazil, including the SMR spectrum that we use in support of
our services. Any company interested in obtaining new SMR
licenses from Anatel must apply and present documentation
demonstrating certain technical, legal and financial
qualifications. Anatel may communicate its intention to grant
new licenses, as well as the terms and conditions applicable,
such as the relevant price. Before granting any license, Anatel
is required to publish an announcement in the official gazette.
Any company willing to respond to Anatels invitation, or
willing to render the applicable service in a given area claimed
by another interested party, may have the opportunity to obtain
a license. Whenever the number of claimants is larger than the
available spectrum, Anatel is required to conduct competitive
bidding to determine which interested party will be granted the
available licenses.
A license for the right to provide SMR services is granted for
an undetermined period of time. While the associated radio
frequencies are licensed for a period of 15 years, they are
renewable only once for an additional
15-year
period. Renewal of the license is subject to rules established
by Anatel. The renewal process must be initiated at least three
years before the expiration of the original term of the license
and the decision by Anatel whether to renew the license must be
made within 12 months of the filing of the request for
renewal. Anatel may deny a request for renewal of the license
only if the applicant is not making rational and adequate use of
the frequency, the applicant has committed repeated breaches in
the performance of its activities, or there is a need to modify
the radio frequency allocation. Nextel Brazil recently renewed
licenses for an additional term of 15 years, which begins
from the respective expiration of each license.
The rules require that Nextel Brazils services comply with
start-up
terms and minimum service availability and quality requirements
detailed in the regulations. Failure to meet Anatels
requirements may result in forfeiture of the
14
channels and revocation of licenses. We believe that Nextel
Brazil is currently in compliance with the applicable
operational requirements of its licenses in all material
respects.
Nextel Brazil has, from time to time, been the target of
complaints filed with the Brazilian regulatory authorities by
one or more of our competitors in which our competitors seek to
challenge the manner in which we conduct business. For instance,
in April 2008, one of our competitors in Brazil filed a
complaint with Anatel alleging that Nextel Brazil was offering
services to customers in a manner that violates our license and
the SMR regulations applicable to us and the services that we
offer. Our competitors have also petitioned the Brazilian
regulators seeking changes to the regulations applicable to our
operations in an effort to make it more difficult or costly for
us to operate. In this regard, some of our competitors in
Brazil, through Brazils Associacao Nacional das Operadoras
de Celular, or ACEL, recently filed a petition against Anatel to
challenge the partial bill and keep settlement process that
allows us to retain a portion of the amounts we would otherwise
be obligated to pay to other carriers under the calling party
pays structure in Brazil. Because the current settlement process
results in a significant reduction in our overall
interconnection charges, our competitors have sought changes to
these processes in order to increase our payments for call
terminations. We believe that we are operating in a manner that
is consistent with our license, and that the rationale that
supported the adoption of the partial bill and keep settlement
process applicable to our payment of termination charges
continues to apply. However, if Anatel were to take actions in
response to the competitors complaints that require us to
implement limitations or restrictions on the manner in which we
offer services in Brazil, or if Anatel were to eliminate the
partial bill and keep settlement process or modify it to
increase the amounts we pay to terminate calls, those actions
could have an adverse effect on our ability to attract new
customers to our services, our ability to pursue our business
plans and the costs we incur to operate, which could adversely
affect our results of operations.
Foreign Currency Controls and Dividends. The
purchase and sale of foreign currency in Brazil continues to be
subject to regulation by the Central Bank of Brazil despite
regulatory changes enacted in 2005 that were designed to reduce
the level of government regulation of foreign currency
transactions. Exchange rates are freely negotiated by the
parties, but purchase of currency for repatriation of capital
invested in Brazil and for payment of dividends to foreign
stockholders of Brazilian companies may only be made if the
original investment of foreign capital and capital increases
were registered with the Brazilian Central Bank. There are no
significant restrictions on the repatriation of registered share
capital and remittance of dividends. Nextel Brazil has
registered substantially all of its investments with the
Brazilian Central Bank.
The Nextel Brazil subsidiaries through which any dividend is
expected to flow have applied to the Brazilian Central Bank for
registration of its investments in Nextel Brazil. We intend to
structure future capital contributions to Brazilian subsidiaries
to maximize the amount of share capital and dividends that can
be repatriated through the exchange market.
Brazilian law provides that the Brazilian government may, for a
limited period of time, impose restrictions on the remittance by
Brazilian companies to foreign investors of the proceeds of
investments in Brazil. These restrictions may be imposed
whenever there is a material imbalance or a serious risk of a
material imbalance in Brazils balance of payments. The
Brazilian government may also impose restrictions on the
conversion of Brazilian currency into foreign currency. These
restrictions may hinder or prevent us from purchasing equipment
required to be paid for in any currency other than Brazilian
reais. Under current Brazilian law, a company may pay dividends
from current or accumulated earnings. Dividend payments from
current earnings are not subject to withholding tax. Interest on
foreign loans is generally subject to a 15% withholding tax.
Interest and payments including principal amounts on foreign
loans are generally subject to a 0.38% foreign exchange
transactions tax, except for interest and payments made on loan
agreements signed after October 23, 2008, for which the
applicable tax rate is zero.
Operating Company Overview. We refer to our
wholly-owned Argentine operating company, Nextel Communications
Argentina S.A. (formerly, Nextel Argentina S.R.L.), as Nextel
Argentina. Nextel Argentina provides wireless services under the
tradename Nextel in major business centers including
Buenos Aires, Cordoba, Rosario and Mendoza, along related
transportation corridors and in a number of smaller markets. As
of December 31, 2008, Nextel Argentina provided service to
about 967,000 handsets, which we estimate to be about 2.2% of
the total mobile handsets in commercial service in Argentina.
Nextel Argentina is headquartered in Buenos Aires and has
regional offices in Mar del Plata, Rosario, Mendoza and Cordoba,
and 16 branches in the Buenos Aires area. As of
December 31, 2008, Nextel Argentina had
1,686 employees.
15
Competition. There are three mobile service
providers in Argentina with which Nextel Argentina competes: the
Telefonica Moviles Group, commercially known as Movistar; AMX
Argentina S.A., which is commercially known as Claro and which
is owned by America Movil S.A. de C.V.; and Telecom Personal
S.A., or Personal, which is owned by Telecom Argentina S.A. All
of these companies hold cellular communications services
licenses, personal communications services (PCS licenses), or
both. The cellular and PCS licenses each cover only a specific
geographic area, but a combination of these licenses and the
roaming agreements with other carriers provide each of Nextel
Argentinas competitors with national coverage. In
addition, some of Nextel Argentinas competitors have
launched, and now offer services supported by, a 3G network. The
PCS licenses provide existing cellular companies with increased
spectrum capabilities and the ability to launch a wide range of
wireless products and services. Affiliated companies of
Movistar, Claro and Personal are also licensed to offer wireline
local, long distance and other telecommunications services.
As a result of the purchase of Compania de Radiocomunicaciones
Moviles, S.A., or Movicom, by the Telefonica Moviles Group, and
due to existing limitations in the amount of spectrum that a
group may hold in any given geographical region or area
(50 MHz maximum), Movistar is currently subject to an
obligation to return approximately 45 MHz of spectrum in
certain regions where it may exceed the 50 MHz limitation.
This may create opportunities for existing carriers or new
entrants to bid for such spectrum should this spectrum be
auctioned off publicly. However, the Argentine government has
announced plans to award this spectrum to a new mobile services
company made up of existing telephone cooperatives. Although it
was originally announced that the new company would begin
operations during 2006, no new announcements were made as of
December 31, 2008.
We believe that the most important factors upon which Nextel
Argentina competes are the quality of our customer service and
network, brand recognition and our differentiated services,
primarily our Direct Connect service, which is available
throughout all areas where Nextel Argentina provides wireless
services. While its competition generally targets the prepaid
market, Nextel Argentina primarily targets small and
medium-sized businesses with mobile workforces and high-end
individuals. Substantially all of our subscribers in Argentina
are on post-paid contracts.
Regulatory and Legal Overview. The Comision
Nacional de Comunicaciones, referred to as the CNC, the
Secretary of Communications, and the Ministry of Federal
Planning, Public Investments and Services are the Argentine
telecommunications authorities responsible for the
administration and regulation of the telecommunications industry.
|
|
|
|
|
Licenses of telecommunications
services. Licenses enable the rendering of
telecommunications services and are independent of the
authorizations to use spectrum (see Authorization of
Spectrum below). The regulations establish a single
license system that allows the license holder to offer any and
all types of telecommunications services. However, each specific
service to be offered must be separately registered with the
Secretary of Communications and is required to be launched
within an
18-month
term. The licensee is free to choose the geographic area,
technology and architecture through which its telecommunications
services will be provided. Licenses of telecommunications
services may be revoked for violation of the applicable
regulations. Licenses and spectrum authorizations may not be
transferred or assigned, in whole or in part, without prior
written approval of regulatory authorities. Prior authorization
is also required upon a change of control of a licensee
resulting from the transfer of the licensees capital
stock. Argentina does not impose any limitation of foreign
ownership of telecom licenses.
|
In addition to its SMR service, Nextel Argentina is deemed to
have registered the following services: paging, data
transmission, value added services and long distance telephony,
among others.
The tariffs for the services offered by Nextel Argentina are not
subject to regulation and may be freely established by Nextel
Argentina.
|
|
|
|
|
Authorizations of spectrum; network deployment
requirements. The use of the SMR spectrum used by
Nextel Argentina in support of its services is subject to the
prior granting of an authorization to use that spectrum in a
specified, limited geographical area. SMR authorizations granted
through the year 2000 have an indefinite term, and those granted
beginning in 2001 expire after a 10 year-term. Nextel
Argentina holds licenses to use 1,815 channels, including those
covering the major business markets areas, without expiration
term, and 1,470 channels with
10-year
terms, mostly in smaller markets. SMR authorizations are subject
to service launch and subscriber loading requirements.
|
Rules adopted in 2005 under which new SMR spectrum is awarded
also establish a
180-day term
to launch the service in the corresponding geographical area and
require that at least 30% of the infrastructure equipment
deployed to operate on spectrum that is the subject of each new
authorization consist of
16
Argentinean sourced goods. The regulation is not clear as to the
computation of this percentage. Nextel Argentina believes that
it has plausible arguments to eventually challenge this rule
regarding Argentinean sourced goods.
|
|
|
|
|
Network interconnection. SMR service providers
are assured interconnection with other operators networks,
including the public switched telephone network, on a
nondiscriminatory basis. Interconnection terms and prices are
freely negotiated between the parties, although the regulations
include guidelines which are generally followed in practice and
which can be imposed by the Secretary of Communications if an
agreement between the parties is not reached. All
interconnection agreements entered into must be registered with
the CNC. Additional requirements are imposed or may be imposed
on all dominant carriers to ensure that the Argentine
telecommunications market is open to competition. Nextel
Argentina provides services to its subscribers that allow calls
to be completed on other carriers networks under
interconnection agreements with Telefonica de Argentina S.A. and
Telecom Argentina S.A., as well as other smaller local carriers.
Nextel Argentina has also implemented a calling party pays
program with the fixed line carriers with whom it interconnects
under which Nextel Argentina is compensated at agreed rates for
calls made to its subscribers from those networks for those
subscribers who purchase our services under calling party pays
rate plans. Charges recovered by Nextel Argentina for calling
party pays calls originated in fixed lines depend on a reference
price set periodically by the Minister of Federal Planning,
Public Investments and Services.
|
|
|
|
Turnover tax. The government of the city of
Buenos Aires imposes a turnover tax rate of 6% of revenues for
cellular companies while maintaining a 3% rate for other
telecommunications services. From a regulatory standpoint, we
are not considered a cellular company, although, the city of
Buenos Aires made claims to the effect that the higher turnover
tax rate should apply to our services. We disputed these claims,
although we made payments under protest totaling
$23.0 million to the city of Buenos Aires with respect to
these disputed taxes. In November 2007, Nextel Argentina
received a $4.2 million tax refund, plus interest, as the
result of a resolution issued by the tax authorities of the city
of Buenos Aires relating to a portion of these taxes paid under
protest. Nextel Argentina believes that such tax refund
clarifies and confirms the 3% general turnover tax rate and that
it should be entitled to receive additional refunds of all or a
portion of the remaining amounts paid under protest.
|
Similarly, one of the provincial governments in another one of
the markets where Nextel Argentina operates also increased their
turnover tax rate from 4.55% to 6% of revenues for cellular
companies. Nextel Argentina continues to pay the turnover tax in
this province at the existing rate and accrues a liability for
the incremental difference in the rate on interconnect revenues.
Foreign Currency Controls and Dividends. On
January 6, 2002, an Argentine emergency law became
effective, and the government formally declared a public
emergency in economic, administrative, financial and exchange
control matters. The law empowered the Federal Executive Power
to regulate those areas until December 10, 2003, subject to
overview by the National Congress. The Emergency Law amended
several provisions of the 1991 Convertibility Law
No. 23,928, the most significant of which was to repeal the
peg of the Argentine peso to the U.S. dollar. The
effectiveness of the Argentine Emergency Law was extended
through December 31, 2009 by the passing of a subsequent
law.
On February 3, 2002, the Federal Executive Power issued a
decree that reorganized Argentinas financial system and
converted the economy into Argentine pesos.
Pursuant to another decree, the National Executive Power and the
Argentine Central Bank have placed certain restrictions on the
acquisition of foreign currency by Argentine and non-Argentine
residents and on the inflow and outflow of capital to and from
Argentina, including those for the purposes of repayment of
principal and interest, dividend payments and repatriation of
capital. In addition, there are specific guidelines that must be
complied with in order to make any repayment of principal or
interest to foreign creditors. According to such regulations,
payments of profits and dividends abroad may be carried out as
long as they correspond to financial statements certified by
external auditors.
On June 9, 2005, the Federal Executive Power issued a
decree that introduced restrictions to the transfer of funds to
and from Argentina and created a mandatory deposit of 30% of the
funds transferred to Argentina. This decree provides that, under
certain circumstances, both Argentinean and non-Argentinean
residents transferring funds from abroad to Argentina are
obligated to make a
365-day
registered non-transferable non-interest bearing cash deposit
equal to 30% of the funds transferred by them to Argentina.
Among others, foreign direct investment and subscription of
primary issuances of debt or cash securities with public
offering in the capital or stock markets are exempt from such
restricted deposit requirement.
17
Under applicable Argentine corporate law, a company may pay
dividends only from liquid and realized profits as reported in
the companys financial statements prepared in accordance
with Argentine generally accepted accounting principles and duly
approved by the shareholders meeting. Of those profits, 5% must
be set aside until a reserve of 20% of the companys
capital stock has been established. Subject to these
requirements, the balance of profits may be declared as
dividends and paid in cash upon a majority vote of the
stockholders. Under current law, dividend payments are not
subject to withholding tax, except when the dividend payments
are the result of accumulated profits paid out in excess of the
profits computed for income tax purposes as of the financial
year preceding the date of the distribution of such dividends.
If dividends are paid in this manner, a 35% withholding tax
applies on the amount of the surplus. A withholding tax of 35%
applies to interest paid by Nextel Argentina to NII Holdings or
any of its U.S. subsidiaries with respect to intercompany
loans made by NII Holdings or its subsidiaries to Nextel
Argentina.
Operating Company Overview. We refer to our
wholly-owned Peruvian operating company, Nextel del Peru S.A.,
as Nextel Peru. Nextel Peru provides wireless services under the
tradename Nextel in major business centers,
including Arequipa, Chimbote, Cuzco, Ica, Lima and Trujillo, and
along related transportation corridors.
As of December 31, 2008, Nextel Peru provided service to
about 668,700 handsets, which we estimate to be about 3.5% of
the total mobile handsets in commercial service in Peru.
Nextel Peru is headquartered in Lima. As of December 31,
2008, Nextel Peru had 1,459 employees.
In July 2007, Proinversion, the governmental agency that
promotes investment in Peru, awarded a nationwide license of
35 MHz of 1.9 GHz spectrum to Nextel Peru for
$27.0 million through an auction process carried out by the
Peruvian government. We are currently planning to deploy a
network utilizing 3G technology on this spectrum in 2009.
Competition. Nextel Peru competes with all
other providers of mobile services in Peru, including Telefonica
Moviles S.A. and America Movil Peru S.A.C., a subsidiary of
Mexicos America Movil. Telefonica Moviles S.A. provides
nationwide coverage and operates under the brand name
Movistar. America Movil provides nationwide coverage
and operates under the brand name Claro.
We believe that the most important factors upon which Nextel
Peru competes are the quality of our customer service and
network, brand recognition and our differentiated services,
primarily our Direct Connect service, which is available
throughout all areas where Nextel Peru provides wireless
services. Nextel Peru primarily targets mobile workforces,
including large, mid-size and small corporations and their
respective business networks.
Regulatory and Legal Overview. The Organismo
Supervisor de Inversion Privada en Telecomunicaciones of Peru,
known as OSIPTEL, and the Ministry of Transportation and
Communications of Peru, referred to as the Peruvian Ministry of
Communications, regulate the telecommunications industry in
Peru. OSIPTEL oversees private investments and competition in
the telecommunications industry. The Peruvian Ministry of
Communications grants telecommunications licenses and issues
regulations governing the telecommunications industry. The
Telecommunications Law of Peru, the general regulations under
that law and the regulations issued by OSIPTEL govern the
operation of SMR services in Peru, which are considered public
mobile services in the same category as cellular and personal
communications services.
|
|
|
|
|
Spectrum licensing. In Peru, wireless service
providers, including SMR service providers, are granted
20-year
licenses that may be renewed for an additional
20-year
term, subject to compliance with the terms of the license. Peru
imposes no limitation on foreign ownership of wireless
licensees. Licenses may be revoked before their expiration for
material violations of applicable regulatory and license
requirements. Licensees must also comply with a minimum
expansion plan that establishes the minimum loading and coverage
requirements for the licensees, as well as spectrum targets
under the licenses. Nextel Peru has met its loading and coverage
requirements and has reached its spectrum targets. In addition,
we acquired rights to use 1.9 GHz spectrum in Peru that
require us to deploy new network technology within specified
timeframes throughout Peru, including in areas that we do not
currently serve.
|
|
|
|
Network interconnection. Under the general
regulations of Perus telecommunications law, all public
telecommunications service providers have the right to
interconnect to the networks of other providers of public
telecommunications services. Furthermore, interconnection with
these networks must be on an equal and nondiscriminatory basis.
The terms and conditions of interconnection agreements must be
negotiated in good faith between the parties in accordance with
the interconnect regulations and procedures issued by
|
18
|
|
|
|
|
OSIPTEL, which specify the rates to be charged for these
services. Nextel Peru is presently interconnected with all major
telecommunications operators in Peru, including Telefonica del
Peru S.A.A., Telefonica Moviles S.A., America Movil Peru S.A.C.
and Telmex Peru S.A. In November 2005, OSIPTEL adopted
regulations that resulted in savings in interconnect rates over
a four-year period ending December 31, 2009.
|
|
|
|
|
|
Tax matters. In 1998, Nextel Peru entered into
a 10-year
tax stability agreement with the Peruvian government that
suspends its net operating loss carryforwards from expiring
until Nextel Peru generates taxable income. Once Nextel Peru
generates taxable income, Nextel Peru has four years to offset
those tax loss carryforwards against taxable income, and any
taxable income in excess of the tax loss carryforwards will be
taxed at 30%. During 2006, 2007 and 2008, Nextel Peru generated
taxable income and offset all of its accumulated tax loss
carryforwards against the taxable income generated in those
years. The 1998 tax stability agreement effectively expired on
January 1, 2008. As of 2007, net operating losses may be
offset alternatively (i) during the four consecutive years
as of the year in which the loss was incurred, or
(ii) without limitations, provided that only 50% of the
taxable income is offset per year. In December 2008, Nextel Peru
entered into a new and substantially similar tax stability
agreement with the Peruvian government under which Nextel Peru
has been granted stability of the income tax regime in effect as
of that date, including the new regime for loss carryforwards,
expiring on September 20, 2027.
|
Foreign Currency Controls and Dividends. Under
current law, Peruvian currency is freely convertible into
U.S. dollars without restrictions. Peru has a free exchange
market for all foreign currency transactions. On both
October 1, 1998 and May 31, 2001, Nextel International
(Peru), LLC executed legal stability agreements with the
Peruvian government, which, among other things, guaranteed the
free conversion in foreign currency of, and free currency
remittances related to, its investments in Nextel Peru of
$85.0 million and $100.0 million, respectively. Both
of such agreements have a term of 10 years. In addition, on
September 21, 2007, Nextel International (Peru), LLC
entered into a legal stability agreement under which investments
of $166.5 million to be made by Nextel Peru before
September 20, 2012 will be stabilized under the same
conditions as the aforementioned legal stability agreements for
a period of 20 years. The new legal stability agreement
expires on September 20, 2027.
The payment and amount of dividends on Nextel Perus common
stock is subject to the approval of a majority of the
stockholders at a mandatory meeting of its stockholders.
According to Peruvian corporate law, the stockholders may decide
on the distribution of interim dividends or, alternatively,
delegate the decision to the board of directors. Dividends are
also subject to the availability of profits, determined in
accordance with Peruvian generally accepted accounting
principles. Profits are available for distribution only after
10% of pre-tax profits have been allocated for mandatory
employee profit sharing, and 10% of the net profits have been
set aside to constitute a legal reserve. This reserve is not
available for use except to cover losses in the profit and loss
statement. This reserve obligation remains until the legal
reserve constitutes 20% of the capital stock. Once this legal
reserve is met, the balance of the net profits is available for
distribution. A 4.1% withholding tax applies to dividends paid
by Nextel Peru to its foreign shareholders, and a 30%
withholding tax applies to interest paid by Nextel Peru to NII
Holdings or its non-Peruvian subsidiaries with respect to
intercompany loans made by NII Holdings or its subsidiaries to
Nextel Peru.
Operating Companies Overview. We refer to our
wholly-owned Chilean operating companies, Centennial Cayman
Corp. Chile S.A. and Multikom, S.A., as Nextel Chile. Nextel
Chile provides wireless services under the tradename
Nextel. These operating companies provide service in
Santiago, Valparaiso and Vina del Mar, along related
transportation corridors and on a limited basis in
San Antonio, Rancagua, Melipilla, Talagante and
San Felipe. As of December 31, 2008, Nextel Chile
provided services to about 25,700 handsets.
Nextel Chile is headquartered in Santiago, Chile. As of
December 31, 2008, Nextel Chile had 216 employees.
Competition. The three established mobile
telephone service providers, Entel Chile, Telefonica Moviles de
Chile S.A. and Claro S.A. provide services throughout Chile that
compete with Nextel Chiles wireless services. These
competitors also offer 3G mobile services. In addition, other
providers of SMR services in Chile have recently sought to amend
their telecommunications concessions to allow these providers to
deploy digital networks and offer related services in the
400 MHz spectrum band. If the Chilean government auctions
licenses related to 3G spectrum in the near future as planned,
we expect at least one additional competitor to enter the
Chilean market.
Regulatory and Legal Overview. The main
regulatory agency of the Chilean telecommunications sector is
the Ministry of Transportation and Telecommunications (the
Ministry), which acts primarily through the Undersecretary of
Telecommunications (the Undersecretary).
|
|
|
|
|
Licenses of telecommunications services; network deployment
obligations. Telecommunications concessions
granted by the Chilean regulatory authorities are not limited as
to their number, type of service or
|
19
|
|
|
|
|
geographical area. Therefore, it is possible to grant two or
more concessions for the provision of the same service on the
same location, except where technical limitations exist.
Concessions for the provision of public telecommunications
services are generally granted for a
30-year
period. These concessions may be renewed for additional
30-year
periods if requested by the concessionaire.
|
In order to provide digital SMR services in Chile, incorporate
digital technology to the networks of our Chilean operating
companies and obtain the corresponding authorization to
interconnect such networks to the publicly switched telephone
network, we have sought and obtained amendments to a number of
SMR concessions. The regulatory action approving those
amendments required us to build the network within a specified
period for each of the amended concessions. We have subsequently
obtained several amendments and extensions of the build-out
deadline specified in the approved amendments to our SMR
concessions. We are currently required to complete the
construction of the first stages of the authorized network by
October 2009. Currently the network has been partly built and
approval upon completion of such network has been granted by the
authorities, granting Nextel Chile the permission to begin
rendering digital services and charging for them. If the rest of
Nextel Chiles digital network is not completed within this
extended timeframe, and if we cannot obtain a new extension, we
may be sanctioned by the Chilean authorities with a written
admonition or nominal fines unless Nextel Chile decides to
forfeit its right to build out the remaining sites not yet built
in accordance with the build-out commitments. For regulatory
purposes, we have also requested an extension of the build-out
deadline for a number of analog concessions with coverage
outside of the area served by our digital network. If we cannot
obtain a new extension, we may be sanctioned by the Chilean
authorities with a written admonition or nominal fines unless
Nextel Chile decides to forfeit its right to build out the
remaining sites not yet built in accordance with the build-out
commitments.
|
|
|
|
|
Network interconnection. In Chile,
concessionaires of public telecommunications services and
concessionaires of long distance telephony services are required
by law to establish and accept interconnection with each other.
The Undersecretary has issued regulations relating to the
interconnection of public telephone networks with other public
telecommunications services of the same type.
|
Additionally, providers of public telecommunications services of
the same type that are authorized to be interconnected with
public telephone networks are also able to request the
assignment of specific numbering blocks for their subscribers.
As with interconnection, a provider of public telecommunications
services of the same type must be specifically authorized in its
concessions to interconnect before obtaining numbering. Our
operating companies have been granted numbering blocks and are
currently interconnected to the public switched telephone
network.
SMR concessionaires may freely determine the fees charged to
their subscribers. However, the fees and tariffs charged by a
telecommunications concessionaire to other telecommunications
concessionaires for the services rendered through
interconnection, including the access fees, are determined and
established by the regulatory authorities in accordance with a
tariff-setting procedure based upon, among other things, the
cost structure, including expansion plans, of an efficient
concessionaire, as set forth in the General Telecommunications
Law. The regulatory authorities recently established the tariff
for access to the networks of our three primary competitors in
Chile, which became effective in January 2009.
Foreign Currency Controls and Dividends. The
purchase and sale of foreign currency in Chile is not subject to
governmental control. Accordingly, any person may freely engage
in foreign exchange transactions. There are two foreign exchange
markets in Chile. The first is the formal exchange market, which
is subject to regulations of the Chilean Central Bank and
consists of banks and other entities authorized to participate
in the formal market by the Central Bank. This market is
generally used for trade-related transactions, such as import
and export transactions, regulated foreign currency investments
and other transactions, such as remittances abroad. The informal
exchange market consists of entities not expressly authorized to
operate in the formal exchange market, such as foreign exchange
houses and travel agencies. In general, foreign exchange
transactions may be done through the formal or the informal
foreign exchange markets. Both markets operate at floating rates
freely negotiated between the participants. There are no limits
imposed on the extent to which the informal exchange rate can
fluctuate above or below the formal exchange rate or the
observed exchange rate. The observed exchange rate is an
official reference exchange rate determined each day by the
Central Bank based on the average exchange rates observed in the
formal exchange market.
Foreign investments are subject to regulations in Chile that
impose certain requirements that affect the repatriation of
those investments. The investment of capital exceeding US
$10,000 in Chile and the repatriation of the investment and its
profits must be carried out under either Decree Law No. 600
or under Chapter XIV of the Compendium of Foreign Exchange
Regulations issued by the Central Bank of Chile under the
Central Bank Act. Foreign funds registered under Decree Law
No. 600 provide specified guarantees with respect to the
ability to
20
repatriate funds and the stability of the applicable tax regime.
Decree Law No. 600 permits foreign investors to access the
formal exchange market to repatriate their investments and
profits.
The foreign investment regulations may permit foreign investors
to access the formal exchange market to repatriate their
investments and profits as stated above. They do not, however,
necessarily guarantee that foreign currency will be available in
the market.
Under Chilean corporate law, corporations, such as our Chilean
companies, may distribute dividends among their stockholders
only from the net profits of a specific fiscal year or from
retained profits recognized by balance sheets approved by the
stockholders meeting. However, if the company has
accumulated losses, profits of that corporation must first be
allocated to cover the losses. Losses in a specific fiscal year
must be offset with retained profits, if any.
Unless otherwise agreed at a stockholders meeting by the
unanimous vote of all issued shares, publicly traded
corporations must annually distribute at least 30% of the net
profits of each fiscal year. This distribution must be in the
form of a cash dividend to their stockholders in proportion to
their ownership or as otherwise stated in the bylaws. Privately
held corporations, such as our Chilean operating companies, must
follow the provisions of their bylaws; if the bylaws do not
contain these provisions, the rules described above for the
distribution of profits by publicly traded stock corporations
apply. In any event, the Board of Directors may distribute
provisional dividends if the corporation has no accumulated
losses, subject to the personal responsibility of the directors
approving the distributions. As a general rule, any dividend
paid by Nextel Chile to its foreign shareholders will be subject
to a 35% withholding tax rate, reduced by a tax credit to
recognize the 17% corporate tax paid by Nextel Chile on the
income distributed or remitted abroad. As a general rule, a 35%
withholding tax applies to interest paid by Nextel Chile to NII
Holdings or its U.S. affiliates with respect to
intercompany loans made by NII Holdings or its subsidiaries to
Nextel Chile.
As of December 31, 2008, we had 12,299 employees.
Nextel Brazil is a party to a collective bargaining agreement
that covers all of its employees and expires on April 30,
2010. Although Nextel Mexico is a party to certain collective
bargaining agreements, as of December 31, 2008, none of
Nextel Mexicos employees have chosen to participate under
these agreements. Except for these agreements with our
subsidiaries in Brazil and Mexico, neither we nor any of our
other operating companies is a party to any collective
bargaining agreement although certain of our operating companies
are subject to employment statutes and regulations that
establish collective bargaining arrangements that are similar in
substance to collective bargaining agreements. We believe that
the relationship between us and our employees, and between each
of our operating companies and its employees, is good.
Investors should be aware that we and our business are subject
to various risks, including the risks described below. Our
business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading
price of our common stock could decline due to any of these
risks, and investors may lose all or part of any investment. Our
actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors,
including the risks faced by us described below and included
elsewhere. Please note that additional risks not presently known
to us or that we currently deem immaterial may also impair our
business and operations.
|
|
1.
|
Adverse
changes in the economic environment in our markets and a decline
in foreign exchange rates for currencies in our markets and
increases in the cost of capital may adversely affect our growth
and our operating results.
|
During 2008, the global economic environment was characterized
by a significant decline in economic growth rates, a marked
increase in the volatility of foreign currency exchange rates,
disruptions in the capital markets and a reduction in the
availability of financing. These conditions are expected to
continue into 2009 with most economists predicting a significant
slowing, and possibly a contraction, of economic growth
globally, including and in the markets in which we operate.
There has also been an increase in the inflation rates in some
of the markets in which we operate, particularly in Argentina.
These economic trends could affect our business in a number of
ways by:
|
|
|
|
|
reducing the demand for our services resulting from reduced
discretionary spending;
|
21
|
|
|
|
|
increasing the level of competition among the other wireless
service providers as we compete for a smaller number of
potential customers, which could require us to offer more
competitive service plans that could result in lower average
revenue per subscriber; and
|
|
|
|
increasing the level of voluntary customer turnover due to
increased competition and simultaneously increasing the levels
of involuntary customer turnover and bad debt expense as
customers find it more difficult to pay for services.
|
Historically, our operations have been subject to significant
volatility of the foreign currencies of the countries in which
we do business. Increased volatility of foreign currency
exchange rates has had and continues to have a significant
effect on us because nearly all of our revenues are earned in
non-U.S. currencies,
and a significant portion of our outstanding debt is denominated
in U.S. dollars. For example, in 2008, we had foreign
currency transaction losses of $120.6 million that were
primarily the result of the significant depreciation in the
value of the Brazilian real and the Mexican peso relative to the
U.S. dollar during the second half of 2008. From
September 30, 2008 to December 31, 2008, the exchange
rate for the Brazilian real increased from 1.91 reais per
U.S. dollar to 2.34, and the exchange rate for the Mexican
peso increased from 10.79 pesos per U.S. dollar to 13.54.
The depreciation in the values of the local currencies in the
markets where we operate makes it more costly for us to service
our debt obligations and affects our operating results because
we pay for some of our operating expenses and capital
expenditures in U.S. dollars. In addition, because we
report our results of operations in U.S. dollars, changes
in relative foreign currency valuations may result in reductions
in our reported revenues, operating income and earnings, as well
as a reduction in the carrying value of our assets, including
the value of cash investments in local currencies. Accordingly,
if the values of local currencies in the countries in which our
operating companies conduct business depreciate further relative
to the U.S. dollar, we would expect our operating results
in future periods, and the value of our assets held in local
currencies, to be adversely affected.
Deteriorating conditions in the economy and the capital markets
have also resulted in significant increases in the cost of
capital and have made it increasingly difficult for companies
with operations in emerging markets to obtain debt or equity
financing on acceptable terms. We depend upon access to the
credit and capital markets to help fund the growth of our
business, for the acquisition of additional spectrum and for
capital expenditures in connection with the expansion and
improvement of our wireless networks and the deployment of new
network technologies. If the present financial market conditions
continue, we expect that our borrowing costs will increase to
the extent that we incur new debt at comparatively higher
interest rates to finance our growth and as a result of
increases in the interest rates on our variable rate debt
obligations. As of December 31, 2008, $476.7 million,
or 21%, of our consolidated indebtedness was variable rate debt.
Significant increases in the cost of capital could adversely
affect our profitability. These market conditions may limit our
access to funding that may be needed to pursue our expansion
plans and to acquire rights to use spectrum and deploy networks
that use new technologies in our markets.
|
|
2.
|
If we
are not able to compete effectively in the highly competitive
wireless communications industry, our future growth and
operating results will suffer.
|
Our success will depend on the ability of our operating
companies to compete effectively with other telecommunications
services providers, including wireline companies and other
wireless telecommunications companies, in the markets in which
they operate. Our ability to compete successfully will depend on
our ability to anticipate and respond to various competitive
factors affecting the telecommunications industry, including new
services and technologies, changes in consumer preferences,
demographic trends, economic conditions and discount pricing
strategies by competitors.
|
|
|
|
a.
|
Competition in our markets has recently intensified making it
more difficult for us to attract and retain customers.
|
Competition in our markets has intensified in recent periods,
and we expect that it will continue to intensify in the future
as a result of the entry of new competitors, the development of
new technologies, products and services, and the auction of
additional spectrum. We also expect the current consolidation
trend in the wireless industry to continue as companies respond
to the need for cost reduction and additional spectrum. This
trend may result in larger competitors with greater financial,
technical, promotional and other resources to compete with our
businesses.
Among other things, our competitors have:
|
|
|
|
|
provided increased handset subsidies;
|
|
|
|
offered higher commissions to distributors;
|
22
|
|
|
|
|
provided discounted or free airtime or other services;
|
|
|
|
expanded their networks to provide more extensive network
coverage;
|
|
|
|
developed and deployed networks that use new technologies and
support new or improved services;
|
|
|
|
offered incentives to larger customers to switch service
providers, including reimbursement of cancellation fees; and
|
|
|
|
offered bundled telecommunications services that include local,
long distance and data services.
|
We anticipate that competition will lead to continued
significant advertising and promotional spending as well as
continued pressure on prices for voice services and handsets. In
addition, portability requirements, which enable customers to
switch wireless providers without changing their wireless
numbers, have been introduced in some of our markets, including
Mexico and Brazil, and may be introduced in other markets in the
near future. These developments and actions by our competitors
could negatively impact our operating results and our ability to
attract and retain customers. The cost of adding new customers
may increase, reducing profitability even if customer growth
continues. If we are unable to respond to competition and
compensate for declining prices by adding new customers,
increasing usage and offering new services, our revenues and
profitability could decline.
|
|
|
|
b.
|
Some of our competitors are financially stronger than we are,
which may limit our ability to compete based on price.
|
Because of their size and resources, and in some cases ownership
by larger companies, some of our competitors may be able to
offer services to customers at prices that are below the prices
that our operating companies can offer for comparable services.
Many of our competitors are well-established companies that have:
|
|
|
|
|
substantially greater financial and marketing resources;
|
|
|
|
larger customer bases;
|
|
|
|
larger spectrum positions; and
|
|
|
|
larger coverage areas than those of our operating companies.
|
If we cannot compete effectively based on the price of our
service offerings and related cost structure, our results of
operations may be adversely affected.
|
|
|
|
c.
|
Our equipment is more expensive than that of our competitors,
which may limit our ability to compete with other companies that
rely on more prevalent technologies and less expensive
equipment.
|
Our current networks utilize iDEN technology developed and
designed by Motorola. iDEN is a proprietary technology that
relies solely on the efforts of Motorola and any current or
future licensees of this technology for product development and
innovation. Additionally, Motorola and RIM are the sole
suppliers of all of our handsets. In contrast, our competitors
use infrastructure and subscriber equipment that are based on
standard technologies like GSM and WCDMA, which are
substantially more widely used technologies than iDEN and are
available from a significant number of suppliers. As a result,
our competitors benefit from economies of scale and lower costs
for handsets and infrastructure equipment. These factors, as
well as the higher cost of our handsets and other equipment may
make it more difficult for us to attract or retain customers,
and may require us to absorb a comparatively larger cost of
offering handsets to new and existing customers. The combination
of these factors may place us at a competitive disadvantage and
may reduce our growth and profitability.
|
|
|
|
d.
|
Our operating companies may face disadvantages when competing
against formerly government-owned incumbent wireline operators
or wireless operators affiliated with them.
|
In some markets, our operating companies may not be able to
compete effectively against a formerly government-owned monopoly
telecommunications operator, which today enjoys a near monopoly
on the provision of wireline telecommunications services and may
have a wireless affiliate or may be controlled by shareholders
who also control a wireless operator. For example, Telcel, which
is one of our largest competitors in Mexico, is an affiliate of
Telefonos de Mexico, S.A.B. de C.V., which provides wireline
services in Mexico and was formerly a government-owned monopoly.
Similarly, in Peru, we compete with Telefonica Moviles, which is
an affiliate of the Telefonica del Peru, S.A.A., which operates
wireline services in Peru and was formerly a government-owned
monopoly. Our operating companies may be at a competitive
disadvantage in these markets because formerly government-owned
incumbents or affiliated competitors may have:
|
|
|
|
|
close ties with national regulatory authorities;
|
23
|
|
|
|
|
control over connections to local telephone lines; or
|
|
|
|
the ability to subsidize competitive services with revenues
generated from services they provide on a monopoly or
near-monopoly basis.
|
Our operating companies may encounter obstacles and setbacks if
local governments adopt policies favoring these competitors or
otherwise afford them preferential treatment. As a result, our
operating companies may be at a competitive disadvantage to
incumbent providers, particularly as our operating companies
seek to offer new telecommunications services.
|
|
|
|
e.
|
Our coverage is not as extensive as those of other wireless
service providers in our markets, which may limit our ability to
attract and retain customers.
|
We have recently expanded the coverage of our networks,
particularly in Mexico and Brazil, but our networks do not offer
nationwide coverage in the countries in which we operate and our
current technology limits our potential roaming partners. As a
result, we may not be able to compete effectively with cellular
and personal communications services providers, many of whom
operate cellular and personal communications networks with more
extensive areas of service. Additionally, many of these
providers have entered into roaming agreements with each other,
which permit these providers to offer coverage to their
subscribers in each others markets. The iDEN technology
that we currently use in our networks is not compatible with
other wireless technologies such as the digital cellular or
personal communications services technologies used by our
competitors or with other iDEN networks not operating in the
800 MHz spectrum. Although some of the handset models that
we sell are compatible with both iDEN 800 MHz and GSM
900/1800 MHz systems, we offer very few of these models
and, as such, we are more limited in our ability to offer the
breadth of roaming capabilities of our competitors. In addition,
our customers are not able to roam on other carriers
networks where we do not have roaming agreements. These factors
may limit our ability to attract and retain certain customers.
To date, we have not entered into roaming agreements with
respect to GSM services offered in the countries in which our
operating companies conduct business, but have entered into
agreements that allow our customers to utilize roaming services
in other countries using the handsets that are compatible with
both iDEN and GSM systems and using other GSM handsets.
|
|
|
|
f.
|
If we do not keep pace with rapid technological changes, we
may not be able to attract and retain customers.
|
The wireless telecommunications industry is experiencing
significant technological change. For example, many of our
competitors, including Telefonica in Mexico, America Movil in
Brazil, Telecom Personal, S.A. in Argentina, America Movil and
Telefonica Moviles in Peru and Entel Chile in Chile, have
recently launched upgraded network technology, often referred to
as 3G technology, which is designed to allow them to offer
services that incorporate high speed data services, including
internet access and video telephony. These and other future
technological advancements may enable competitors who use other
wireless technologies to offer features or services we cannot
provide or exceed the quality of our current level of service,
thereby making the services we offer less competitive. In
addition, much of the 800 MHz spectrum that our operating
companies are licensed to use is non-contiguous while the 3G
technology platforms that are currently available operate only
on contiguous spectrum, and, except in Peru, we do not hold
rights to use additional spectrum in bands that would facilitate
a transition to a new network technology. These factors may make
it more difficult or impossible for us to migrate to a new
technology if we choose to do so unless we have also acquired
spectrum that supports these new technologies. Acquiring the
spectrum and deploying the related network equipment requires a
significant amount of time and capital. If we are unable to
acquire additional spectrum or deploy new technologies using
that spectrum, we will be heavily reliant on Motorola, as the
sole supplier of iDEN technology, to maintain the
competitiveness of our services and subscriber equipment. As a
result, if Motorola is unwilling or unable to upgrade or improve
iDEN technology or develop other technology solutions to meet
future advances in competing technologies on a timely basis, or
at an acceptable cost, we will be less able to compete
effectively and could lose customers to our competitors. In
addition, if we decide to pursue the deployment of a new
technology that operates on a different spectrum band, we will
incur costs to acquire this new spectrum band. See 7.
Costs and other aspects of a future deployment of advanced
communications technologies could adversely affect our
operations. for more information. Motorolas
support of the evolution of the iDEN technology and the
development of new features, functionality and handset models
may be affected by the amount of iDEN equipment purchased by
Sprint Nextel Corporation. Sprint Nextel Corporations
plans for the iDEN technology have been uncertain for some time.
Any significant decline in support of iDEN technology by Sprint
Nextel Corporation could result in us receiving less support
from Motorola and could make it more difficult for us
24
to compete with competitors who offer a wider range of handset
models and services. In addition, competition among the
differing wireless technologies could:
|
|
|
|
|
segment the user markets, which could reduce demand for our
technology; and
|
|
|
|
reduce the resources devoted by third-party suppliers, including
Motorola, which supplies all of the network and most of the end
user equipment used to provide our wireless services, to
developing or improving the technology for our systems.
|
|
|
|
|
g.
|
If our wireless communications technology does not perform in
a manner that meets customer expectations, we will be unable to
attract and retain customers.
|
Customer acceptance of the services we offer is and will
continue to be affected by technology-based differences and by
the operational performance and reliability of our networks. We
may have difficulty attracting and retaining customers if we are
unable to address and resolve satisfactorily performance or
other transmission quality issues as they arise or if these
issues:
|
|
|
|
|
limit our ability to expand our network coverage or capacity as
currently planned; or
|
|
|
|
place us at a competitive disadvantage to other wireless service
providers in our markets.
|
|
|
|
|
h.
|
If our current customer turnover rate increases, our business
could be negatively affected.
|
During 2008, we experienced a higher consolidated customer
turnover rate, which resulted primarily from the more
competitive sales environment in Mexico. In addition,
portability requirements, which enable customers to switch
wireless providers without changing their wireless numbers, have
been introduced in some of our markets, including Mexico and
Brazil, and may be introduced in other markets in the near
future, which could make it more difficult for us to retain our
customers. The cost of acquiring a new subscriber is much higher
than the cost of maintaining an existing subscriber.
Accordingly, an increase in subscriber deactivations could have
a negative impact on our operating income, even if we are able
to obtain one new subscriber for each lost subscriber. If we
experience an increase in our customer turnover rate, due to
these factors or to the recent decline in general economic
conditions, our ability to achieve revenue growth could be
impaired.
|
|
|
|
i.
|
We may be limited in our ability to grow unless we expand
network capacity and coverage and address increased demands on
our business systems and processes as needed.
|
Our subscriber base continues to grow rapidly. To continue to
successfully increase our number of subscribers and pursue our
business plan, we must economically:
|
|
|
|
|
expand the capacity and coverage of our networks;
|
|
|
|
secure sufficient transmitter and receiver sites at appropriate
locations to meet planned system coverage and capacity targets;
|
|
|
|
obtain adequate quantities of base radios and other system
infrastructure equipment; and
|
|
|
|
obtain an adequate volume and mix of handsets to meet subscriber
demand.
|
In the past, we have experienced difficulty in obtaining
sufficient volumes and types of handsets from Motorola; delays
in the development and availability of new handset models; and
handset manufacturing quality problems, particularly with
respect to new handset models. Our operating performance and
ability to retain new customers may be adversely affected if we
are not able to timely and efficiently address these matters,
meet the demands for our services and address any increased
demands on our customer service, billing and other back-office
functions. In the next few years, we plan to deploy new systems
that are designed to support the expected demands on our
customer care and billing functions, but the transition to these
new systems could heighten these risks. If we encounter problems
in this transition, it could have a material adverse effect on
our business.
|
|
3.
|
We
operate exclusively in foreign markets, and our assets,
customers and cash flows are concentrated in Latin America,
which presents risks to our operating plans.
|
|
|
|
|
a.
|
We face economic and political risks in our markets, which
may limit our ability to implement our strategy and our
financial flexibility and may disrupt our operations or hurt our
performance.
|
Our operations depend on the economies of the markets in which
our operating companies conduct business, all of which are
considered to be emerging markets. These markets are in
countries with economies in various stages of development or
structural reform, some of which are subject to volatile
economic cycles and significant, rapid
25
fluctuations in terms of commodity prices, local consumer
prices, employment levels, gross domestic product, interest
rates and inflation rates, which have been generally higher, and
in prior years, significantly higher than the inflation rate in
the United States. Specifically, in the last three years, the
inflation rate in Argentina has risen significantly, and we
expect that it may continue to remain elevated in the next
several years, which will increase our costs and could reduce
our profitability in Argentina. If these economic fluctuations
and higher inflation rates make it more difficult for customers
to pay for our products and services, we may experience lower
demand for our products and services and a decline in the growth
of their customer base and in revenues. During the second half
of 2008, the United States and global economies experienced a
significant downturn. That downturn will affect to varying
degrees the growth of the economies in the countries in which
our operating companies conduct business. If these global
economic conditions continue or worsen, or have a more
significant impact in the countries in which we operate, it may
adversely affect our results of operations.
In recent years, the economies in some of the markets in which
we operate have also been negatively affected by volatile
political conditions and, in some instances, by significant
intervention by the relevant government authorities relating to
economic and currency exchange policies. We are unable to
predict the impact that presidential or other contested local or
national elections and the associated transfer of power from
incumbent officials or political parties to elected victors may
have on the local economy or the growth and development of the
local telecommunications industry. Changes in leadership or in
the ruling party in the countries in which we operate may affect
the economic programs developed under the prior administration,
which in turn, may adversely affect the economies in the
countries in which we operate. Other risks associated with
political instability could include the risk of expropriation or
nationalization of our assets by the governments in the markets
where we operate. Although political, economic and social
conditions differ in each country in which we currently operate,
political and economic developments in one country or in the
United States may affect our business as a whole, including our
access to international capital markets.
|
|
|
|
b.
|
We are subject to fluctuations in currency exchange rates and
limitations on the expatriation or conversion of currencies,
which may result in significant financial charges, increased
costs of operations or decreased demand for our products and
services.
|
Beginning in September 2008, there has been a significant
depreciation in the value of the local currencies in all of our
markets relative to the U.S. dollar. For example, from
September 30, 2008 to December 31, 2008, the exchange
rate for the Brazilian real increased from 1.91 reais per
U.S. dollar to 2.34, and the exchange rate for the Mexican
peso increased from 10.79 pesos per U.S. dollar to 13.54.
Because nearly all of our revenues are earned in
non-U.S. currencies,
and a significant portion of our outstanding debt is denominated
in U.S. dollars, the depreciation in the value of local
currencies in the countries in which our operating companies
conduct business relative to the U.S. dollar could make it
more costly for us to service our debt obligations in the
future. In 2008, this depreciation resulted in foreign currency
transaction losses of $120.6 million that were primarily
the result of the significant depreciation in the value of the
Brazilian real and the Mexican peso relative to the
U.S. dollar during the second half of the year. In
addition, we pay for some of our operating expenses and capital
expenditures in U.S. dollars. The depreciation of the local
currencies results in increased costs to us for imported
equipment and may, at the same time, decrease demand for our
products and services in the affected markets.
In addition, because we report our results of operations in
U.S. dollars, changes in relative foreign currency
valuations affect our reported revenues, operating income and
earnings, as well as the carrying value of our assets, including
the value of cash investments in local currencies. Accordingly,
if the values of local currencies in the countries in which our
operating companies conduct business depreciate further relative
to the U.S. dollar, we would expect our operating results
in future periods, as well as the value of our assets held in
local currencies, to be adversely affected. As of
December 31, 2008, approximately 48% of our total cash and
cash equivalents was held in currencies other than
U.S. dollars, with a majority held in Mexican pesos.
Accordingly, if the values of local currencies in the countries
in which our operating companies conduct business relative to
the U.S. dollar depreciate further, we would expect our
operating results in future periods, and the value of our assets
held in local currencies, to be adversely affected.
|
|
|
|
c.
|
Our operating companies are subject to local laws and
regulations in the countries in which they operate, which could
impact our financial results.
|
Our operations are subject to local laws and regulations in the
countries in which we operate, which may differ from those in
the United States. We could become subject to legal penalties in
foreign countries if we do not comply with local laws and
regulations, which may be substantially different from those in
the United States. In some foreign countries, particularly in
those with developing economies, persons may engage in business
practices that are prohibited by United States regulations
applicable to us such as the Foreign Corrupt Practices Act.
Although we
26
have implemented policies and procedures designed to ensure
compliance with these laws, there can be no assurance that all
of our employees, consultants, contractors and agents will not
take actions in violations of our policies. Any such violation,
even if prohibited by our policies, could have a material
adverse effect on our business.
|
|
|
|
d.
|
We pay significant import duties on our network equipment and
handsets, and any increases could impact our financial
results.
|
Our operations are highly dependent upon the successful and
cost-efficient importation of network equipment and handsets
from North America and, to a lesser extent, from Europe and
Asia. Network equipment and handsets may be subject to
significant import duties and other taxes in the countries in
which our operating companies conduct business. Any significant
increase in import duties in the future could significantly
increase our costs. To the extent we cannot pass these costs on
to our customers, our financial results will be negatively
impacted.
|
|
|
|
e.
|
We are subject to foreign taxes in the countries in which we
operate, which may reduce amounts we receive from our operating
companies or may increase our tax costs.
|
Many of the foreign countries in which we operate have
increasingly turned to new taxes, as well as aggressive
interpretations of current taxes, as a method of increasing
revenue. For example, our operating company in Brazil is
required to pay two types of income taxes, which include a
corporate income tax and a social contribution tax. In addition,
our operating company in Brazil is subject to various types of
non-income taxes, including value-added tax, excise tax, service
tax, importation tax and property tax. The provisions of new tax
laws may attempt to prohibit us from passing these taxes on to
our customers. These taxes may reduce the amount of earnings
that we can generate from our services or in some cases may
result in operating losses.
Distributions of earnings and other payments, including
interest, received from our operating companies may be subject
to withholding taxes imposed by some countries in which these
entities operate. Any of these taxes will reduce the amount of
after-tax cash we can receive from those operating companies.
See L. Operating Companies for
more information.
In general, a U.S. corporation may claim a foreign tax
credit against its Federal income tax expense for foreign
withholding taxes and, under certain circumstances, for its
share of foreign income taxes paid directly by foreign corporate
entities in which the company owns 10% or more of the voting
stock. Our ability to claim foreign tax credits is, however,
subject to numerous limitations, and we may incur incremental
tax costs as a result of these limitations or because we do not
have U.S. Federal taxable income.
We may also be required to include in our income for
U.S. Federal income tax purposes our proportionate share of
specified earnings of our foreign corporate subsidiaries that
are classified as controlled foreign corporations, without
regard to whether distributions have been actually received from
these subsidiaries.
Nextel Brazil has received tax assessment notices from state and
federal Brazilian tax authorities asserting deficiencies in tax
payments related primarily to value added taxes, import duties
and matters surrounding the definition and classification of
equipment and services. Nextel Brazil has filed various
petitions disputing these assessments. In some cases we have
received favorable decisions, which are currently being appealed
by the respective governmental authorities. In other cases, our
petitions have been denied and we are currently appealing those
decisions. See Note 8 to our consolidated financial
statements for more information regarding our potential tax
obligations in Brazil.
|
|
|
|
f.
|
We have entered into a number of agreements that are subject
to enforcement in foreign countries, which may limit efficient
dispute resolution.
|
A number of the agreements that we and our operating companies
enter into with third parties are governed by the laws of, and
are subject to dispute resolution in the courts of or through
arbitration proceedings in, the countries or regions in which
the operations are located. We cannot accurately predict whether
these forums will provide effective and efficient means of
resolving disputes that may arise. Even if we are able to obtain
a satisfactory decision through arbitration or a court
proceeding, we could have difficulty enforcing any award or
judgment on a timely basis. Our ability to obtain or enforce
relief in the United States is also uncertain.
27
|
|
4.
|
Our
funding needs and debt service requirements could make us more
dependent on external financing. If we are unable to obtain
financing, our business may be adversely affected.
|
The operation, expansion and upgrading of our networks, as well
as the marketing and distribution of our services and products
require substantial capital. Our funding needs may also increase
in order to pursue one or more of the following opportunities:
|
|
|
|
|
acquisitions of spectrum licenses, either through government
sponsored auctions including auctions of spectrum that are
expected to occur in Mexico and Brazil, or through acquisitions
of third parties, acquisitions of assets or businesses or other
strategic transactions;
|
|
|
|
a decision by us to deploy new network technologies, in addition
to the planned network deployment in Peru, or to offer new
communications services in one or more of our markets; or
|
|
|
|
our expansion into new markets or further geographic expansion
in our existing markets, including the construction of
additional portions of our network.
|
Our funding needs could also be affected by changes in economic
conditions in any of our markets generally, or by competitive
practices in the mobile wireless telecommunications industry
from those currently prevailing or from those now anticipated,
or by other presently unexpected circumstances that may arise
that have a material effect on the cash flow or profitability of
our mobile wireless business. Any of these events or
circumstances could involve significant additional funding needs
in excess of the identified currently available sources, and
could require us to raise additional capital to meet those needs.
We also have substantial outstanding indebtedness that will
mature or may be tendered for purchase over the next five years,
with approximately $497.7 million in obligations currently
outstanding and due during that period under our syndicated loan
facilities in Mexico and Brazil ($89.8 million of which is
due in 2009), $350.0 million in convertible indebtedness
that may be tendered for purchase at the option of the relevant
holders on each of August 15, 2010, 2012, 2015 and 2020,
and $1.2 billion in convertible indebtedness that matures
in 2012, which will require us to either refinance the
indebtedness and/or repay it with our available cash. In
addition, upon the occurrence of certain kinds of change of
control events, we may be required to repurchase or repay a
significant portion of our outstanding debt.
Historically, cash flow from our operating activities has not
been sufficient to cover all of our consolidated working capital
requirements, interest expenses, taxes and capital expenditures
as we have expanded our business. As a result, our existing or
potential funding needs for our business, including funds
required to support our plans to acquire spectrum and deploy
networks that use new technologies, and for other purposes
including the refinancing of our existing indebtedness, may make
it necessary for us to secure additional financing, in the form
of either debt or equity. Our ability to obtain additional
capital, if necessary, is subject to a variety of additional
factors that we cannot presently predict with certainty,
including:
|
|
|
|
|
the commercial success of our operations;
|
|
|
|
the volatility and demand of the capital markets; and
|
|
|
|
the future market prices of our securities.
|
The recent disruption in the global capital markets, including
the markets where we operate and in the United States, has made
it increasingly difficult for companies with operations in
emerging markets to obtain debt or equity financing on
acceptable terms. If these market conditions continue, it may
limit or make it more difficult and expensive for us to access
the capital markets and raise funds to meet these needs. If we
have insufficient internal cash flow, or if we are unable to
raise the funds we need on terms that are acceptable, we may be
unable to pursue our business expansion plans, including our
plans to acquire additional spectrum and deploy networks that
use new technologies in our markets, which could adversely
affect our financial condition, results of operations and cash
flows.
|
|
5.
|
Our
current and future debt may limit our flexibility and increase
our risk of default.
|
As of December 31, 2008, the book value of our long term
debt was $2,193.2 million, including $1,200.0 million
of 3.125% convertible notes due 2012, $350.0 million of
2.75% convertible notes due 2025, that may be tendered for
purchase at the option of the relevant holders on each of
August 15, 2010, 2012, 2015 and 2020, $416.1 million
for syndicated loan facilities in Mexico and Brazil,
$151.9 million in obligations associated with the sale and
leaseback of communication towers, $65.5 million in capital
lease obligations and $9.7 million in spectrum license
financing and other. We may incur additional debt in the future
to provide funding for, among other things,
28
capital expenditures and other costs relating to the expansion
of our business, including the expansion of our existing
networks or deployment of new network technologies, acquisitions
of spectrum, other assets or businesses and for other corporate
purposes.
Our existing debt and debt we may incur in the future could:
|
|
|
|
|
limit our flexibility in planning for, or reacting to, changes
in our business and the industries in which we compete and
increasing our vulnerability to general adverse economic and
industry conditions;
|
|
|
|
limit our ability to obtain additional financing that we may
need to fund future working capital, capital expenditures,
product development, acquisitions or other corporate
requirements; and
|
|
|
|
place us at a disadvantage compared to our competitors that have
less indebtedness.
|
We may, over time and as market conditions permit, incur
significant additional indebtedness for various purposes, which
may include, without limitation, expansion of our existing
network, the acquisition of telecommunications spectrum licenses
or other assets, the deployment of new network technologies and
the refinancing, repayment or repurchase of outstanding
indebtedness. The terms of the agreements governing our other
indebtedness permit us, subject to specified limitations, to
incur additional indebtedness, including secured indebtedness.
If new indebtedness is added to our current levels of
indebtedness, the related risks that we now face could intensify.
Furthermore, certain of our financing agreements include
covenants that impose restrictions on our business, and similar
restrictions may be contained in future financing agreements. If
we are subject to these restrictions, we may be unable to raise
additional financing, compete effectively or take advantage of
new business opportunities, which may affect our ability to
generate revenues and profits. Examples of the types of
covenants that may limit how we conduct business include those
contained in the syndicated loan facilities to which Nextel
Mexico and Nextel Brazil are parties that, among other things,
restrict our ability to:
|
|
|
|
|
incur or guarantee additional indebtedness;
|
|
|
|
pay dividends and make other distributions;
|
|
|
|
prepay subordinated indebtedness;
|
|
|
|
make investments and other restricted payments;
|
|
|
|
enter into sale and leaseback transactions;
|
|
|
|
create liens;
|
|
|
|
sell assets; and
|
|
|
|
engage in transactions with affiliates.
|
These syndicated loan facilities also require Nextel Mexico and
Nextel Brazil, as applicable, to maintain specified financial
ratios and satisfy financial tests. If Nextel Mexico or Nextel
Brazil are not able to meet the applicable ratios and satisfy
other tests, or if we fail to comply with any of the other
restrictive covenants noted above or that are contained in any
other financing agreements, we will be in default with respect
to one or more of the applicable financing agreements, which in
turn may result in defaults under the remaining financing
arrangements, giving our lenders and the holders of our debt
securities the right to require us to repay all amounts then
outstanding.
In addition, under the terms of the Nextel Brazil syndicated
loan facility, we have pledged the shares of our Brazil
operating entities to secure the obligations of Nextel Brazil
under that facility. The grant of such a security interest may
make it more difficult for Nextel Brazil to secure additional
financing that it may require.
Our ability to meet our existing or future debt obligations and
to reduce our indebtedness will depend on our future performance
and the other cash requirements of our business. Our
performance, to a certain extent, is subject to general economic
conditions and financial, business, political and other factors
that are beyond our control. We cannot assure you that we will
continue to generate cash flow from operations at or above
current levels, that we will be able to meet our cash interest
payments on all of our debt or that the related assets currently
owned by us will continue to benefit us in the future.
29
|
|
6.
|
Because
we rely on one supplier for equipment used in our mobile
networks, any failure of that supplier to perform could
adversely affect our operations.
|
Much of the spectrum that our operating companies are licensed
to use is non-contiguous, and the iDEN technology is the only
widespread, commercially available technology that operates on
non-contiguous spectrum. As a result, Motorola is currently our
sole source for most of the network equipment and substantially
all of the handsets used throughout our markets, except for the
Blackberry handset, which is manufactured by Research in Motion,
or RIM. If Motorola fails to deliver system infrastructure
equipment and handsets or enhancements to the features and
functionality of our networks and handsets on a timely,
cost-effective basis, we may not be able to adequately service
our existing customers or attract new customers. Nextel
Communications, a subsidiary of Sprint Nextel Corporation, is
the largest customer of Motorola with respect to iDEN technology
and, in the past, has provided significant support with respect
to new product development for that technology. Sprint Nextel
Corporation has launched high performance push-to-talk services
on its next generation CDMA network platform. As a result,
Sprint Nextel Corporations plans for the iDEN technology
have been uncertain for some time, which we believe has
contributed to a recent decline in Motorolas support for
the development of new iDEN handset models. As a result, we have
had access to a reduced number of new handset models, which has
made it more difficult for us to compete effectively in some of
our markets where new handset styles and features are heavily
valued by customers. Lower levels of iDEN equipment purchases by
Sprint Nextel Corporation could also significantly increase our
costs for equipment and new network features and handset
developments and could impact Motorolas decision to
continue to support iDEN technology beyond their current
commitments. We expect to continue to rely principally on
Motorola for the manufacture of a substantial portion of the
equipment necessary to construct, enhance and maintain our
iDEN-based networks and for the manufacture of iDEN compatible
handsets. Accordingly, if Motorola is unable to, or determines
not to, continue supporting or enhancing our iDEN-based
infrastructure and handsets, including potentially as a result
of adverse developments at Motorola with respect to its
operations, profitability, and financial condition or other
business developments, we will be materially adversely affected.
|
|
7.
|
Costs
and other aspects of a future deployment of advanced technology
could adversely affect our operations.
|
We may decide to acquire new spectrum rights and deploy new
technologies to enable us to offer our customers new and
advanced services. To date, we have acquired rights to use
1.9 GHz spectrum in Peru that require us to deploy new
network technology within specified timeframes throughout Peru,
including in areas that we do not currently serve. Our
deployments of new technologies to offer our customers new and
advanced services in Peru and our other markets will require
significant capital expenditures. Those expenditures could
increase in the event of unforeseen delays, cost overruns,
unanticipated expenses, regulatory changes, engineering design
changes, problems with network or systems compatibility,
equipment unavailability and technological or other
complications, such as our inability to successfully coordinate
this change with our customer care, billing, order fulfillment
and other back-office operations. In addition, a deployment of
new technologies will result in incremental operating expenses
prior to fully launching services. We would also incur
significant costs associated with the integration of services
offered on the new networks with those offered on our existing
iDEN network and with the integration of billing, customer care
and other support functions.
Additionally, we may be required to raise additional funds in
order to finance the costs associated with the development and
deployment of a new technology and, if required, the acquisition
of related spectrum rights in one or more of our markets
including auctions of spectrum that are expected to occur in
Mexico and Brazil. To do so, we may issue shares of common stock
or incur new debt. Current conditions in the financial markets
may make it more difficult and expensive for us to access the
capital markets and raise funds to meet these needs. See
4. Our funding needs and debt service requirements
could make us more dependent on external financing. If we are
unable to obtain financing, our business may be adversely
affected. and 5. Our current and future debt may
limit our flexibility and increase our risk of
default. for more information.
|
|
8.
|
Government
regulations determine how we operate in various countries, which
could limit our growth and strategic plans.
|
In each market in which we operate, one or more regulatory
entities regulate the licensing, construction, acquisition,
ownership and operation of our wireless communications systems.
Adoption of new regulations, changes in the current
telecommunications laws or regulations or changes in the manner
in which they are interpreted or applied could adversely affect
our operations. In some markets, we are unable, or have
limitations on our ability, to provide some types of services we
have planned to offer. These limitations, or similar regulatory
prohibitions or limitations on our services that may arise in
the future could increase our costs, reduce our revenues or make
it more difficult for us to compete.
30
Further, the regulatory schemes in the countries in which we
operate allow third parties, including our competitors, to
challenge our actions. For instance, in April 2008, one of our
competitors in Brazil filed a complaint with Anatel alleging
that Nextel Brazil was offering services to customers in a
manner that violates our license and the SMR regulations
applicable to us and the services we offer. While we believe
that we are operating in a manner that is consistent with our
license and the applicable regulations and intend to oppose any
claims made or actions taken against us, if Anatel were to take
actions in response to the competitors complaint that
require us to implement limitations or restrictions on the
manner in which we offer services in Brazil, those actions could
have an adverse effect on our ability to attract new customers
to our services. If our competitors are successful in pursuing
claims such as these, or if the regulators in our markets take
actions against us in response to actions initiated by our
competitors, our ability to pursue our business plans and our
results of operations could be adversely affected. In addition,
if our competitors were to challenge the results of auctions in
which we are a participant, it could adversely affect our
ability to offer services and our ability to acquire the rights
to use spectrum that would provide us with the ability to deploy
new technologies that support new services.
Finally, in some of our markets, local governments have adopted
very stringent rules and regulations related to the placement
and construction of wireless towers, which can significantly
impede the planned expansion of our service coverage area,
eliminate existing towers and impose new and onerous taxes and
fees. These issues affect our ability to operate in each of our
markets, and therefore impact our business strategies. In
addition, local governments have placed embargoes on a number of
our cell sites owned by our operating companies in Argentina and
Brazil. If we are not able to successfully overcome these
embargoes, we may have to remove the cell sites and find a more
acceptable location.
|
|
9.
|
Our
reliance on indirect distribution channels for a significant
portion of our sales exposes us to the risk that our sales could
decline or cost of sales could increase if there are adverse
changes in our relationships with, or the condition of, our
indirect dealers.
|
Our business depends heavily upon third party distribution
channels for securing a substantial portion of the new
subscribers to our services. In some of our markets, a
significant portion of our sales through these indirect
distribution channels is concentrated in a small number of third
party dealers. Because these third party dealers are a primary
contact between us and the subscriber in many instances, they
also play an important role in customer retention. As a result,
the volume of our new subscriber additions and our ability to
retain subscribers could be adversely affected if these third
party dealers terminate their relationship with us, if there are
adverse changes in our relationships with these dealers or if
the financial condition of these dealers deteriorates. In
addition, our profitability could be adversely affected if we
increase commissions to these dealers or make other changes to
our compensation arrangements with them.
|
|
10.
|
The
costs we incur to connect our operating companies networks
with those of other carriers are subject to local laws in the
countries in which they operate and may increase, which could
adversely impact our financial results.
|
Our operating companies must connect their telecommunication
networks with those of other carriers in order to provide the
services we offer. We incur costs relating to these
interconnection arrangements and for local and long distance
transport services relating to the connection of our transmitter
sites and other network equipment. These costs include
interconnection charges and fees, charges for terminating calls
on the other carriers networks and transport costs, most
of which are measured based on the level of our use of the
related services. We are able to recover a portion of these
costs through revenues earned from charges we are entitled to
bill other carriers for terminating calls on our network, but
because users of mobile telecommunications services who purchase
those services under contract generally, and business customers
like ours in particular, tend to make more calls that terminate
on other carriers networks and because we have a smaller
number of customers than most other carriers, we usually incur
more charges than we are entitled to receive under these
arrangements. The terms of the interconnection and transport
arrangements, including the rates that we pay, are subject to
local regulation in most of the countries in which we operate,
and often require us to negotiate agreements with the other
carriers, some of whom are our competitors, in order to provide
our services. Our costs relating to these interconnection and
transport arrangements are subject to fluctuation both as a
result of changes in regulations in the countries in which we
operate and the negotiations with the other carriers. For
example, some of our competitors in Brazil, through
Brazils Associacao Nacional das Operadoras de Celular, or
ACEL, recently filed a petition against Anatel to challenge the
partial bill and keep settlement process that allows us to
retain a portion of the amounts we would otherwise be obligated
to pay to other carriers under the calling party pays structure
in Brazil. Changes in the interconnection arrangements either as
a result of regulatory changes or negotiated terms that are less
favorable to us could result in
31
increased costs for the related services that we may not be able
to recover through increased revenues, which could adversely
impact our financial results.
|
|
11.
|
If our
licenses to provide mobile services are not renewed, or are
modified or revoked, our business may be
restricted.
|
Wireless communications licenses and spectrum allocations are
subject to ongoing review and, in some cases, to modification or
early termination for failure to comply with applicable
regulations. If our operating companies fail to comply with the
terms of their licenses and other regulatory requirements,
including installation deadlines and minimum loading or service
availability requirements, their licenses could be revoked.
Further, compliance with these requirements is a condition for
eligibility for license renewal. Most of our wireless
communications licenses have fixed terms and are not renewed
automatically. Because governmental authorities have discretion
as to the grant or renewal of licenses, our licenses may not be
renewed or, if renewed, renewal may not be on acceptable
economic terms. For example, under existing regulations, our
licenses in Brazil and Peru are renewable once, and no
regulations presently exist regarding how or whether additional
renewals will be granted in future periods. In Mexico, we have
filed applications to renew 31 of our licenses, 22 of which have
expired. While we expect that these renewals will be granted, if
some or all of these renewals are not granted, it could have an
adverse effect on our business.
|
|
12.
|
Agreements
with Motorola reduce our operational flexibility and may
adversely affect our growth or operating results.
|
We have entered into agreements with Motorola that impose
certain limitations and conditions on our ability to use other
technologies that would displace our existing iDEN-based
networks. These agreements may delay or prevent us from
deploying new or different technologies that perform better or
are available at a lower cost because of the additional economic
costs and other impediments to change arising under the Motorola
agreements. If Motorola manufactures, or elects to manufacture,
the equipment utilizing the alternate technology that we elect
to deploy, we must give Motorola the opportunity to supply 50%
of our infrastructure requirements for the equipment utilizing
the alternate technology for three years. If we utilize
alternate equipment suppliers, it may limit our ability to
obtain the most favorable volume pricing.
Furthermore, in connection with our handset supply agreement
with Motorola, we committed to annually escalating handset
purchases and certain pricing parameters for handsets linked to
the volume of our purchases. If we do not meet the specified
handset volume commitments, we would be required to pay an
additional amount based on any shortfall of actual purchased
handsets compared to the related annual volume commitment.
|
|
13.
|
Any
modification or termination of our trademark license with Nextel
Communications could increase our costs.
|
Nextel Communications has licensed to us the right to use
Nextel and other of its trademarks on a perpetual
royalty-free basis in Latin America. However, that license is
limited to the use of the trademarks in connection with the
offering of specified services, which may not include all of the
services we propose to offer in the future, and Nextel
Communications may terminate the license on 60 days notice
if we commit one of several specified defaults (namely, failure
to maintain agreed quality controls or a change in control of
NII Holdings). If there is a change in control of one of our
subsidiaries, upon 30 days notice, Nextel Communications
may terminate the sublicense granted by us to the subsidiary
with respect to the licensed marks. The loss of the use of the
Nextel name and trademark could have a material
adverse effect on our operations.
|
|
14.
|
We
have significant intangible assets that may not generate
adequate value to satisfy our obligations in the event of
liquidation.
|
If we were liquidated, the value of our assets may not be
sufficient to satisfy our obligations. We have a significant
amount of intangible assets, primarily telecommunications
licenses. The value of these licenses will depend mostly upon
the success of our business and the growth of the wireless
communications industries in general. Moreover, the transfer of
licenses in liquidation would be subject to governmental or
regulatory approvals that may not be obtained or that may
adversely impact the value of such licenses. Our net tangible
book value was $1,469.0 million as of December 31,
2008.
32
|
|
15.
|
Concerns
about health risks associated with wireless equipment may reduce
the demand for our services.
|
Portable communications devices have been alleged to pose health
risks, including cancer, due to radio frequency emissions from
these devices. The actual or perceived risk of mobile
communications devices could adversely affect us through
increased costs of doing business, additional governmental
regulation that sets emissions standards or otherwise limits or
prohibits our devices from being marketed and sold, a reduction
in subscribers, reduced network usage per subscriber or reduced
financing available to the mobile communications industry.
Further research and studies are ongoing, and we cannot be sure
that these studies will not demonstrate a link between radio
frequency emissions and health concerns.
|
|
16.
|
Our
forward-looking statements are subject to a variety of factors
that could cause actual results to differ materially from
current beliefs.
|
Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995. Certain
statements made in this annual report on
Form 10-K
are not historical or current facts, but deal with potential
future circumstances and developments. They can be identified by
the use of forward-looking words such as believes,
expects, intends, plans,
may, will, would,
could, should or anticipates
or other comparable words, or by discussions of strategy that
involve risks and uncertainties. We caution you that these
forward-looking statements are only predictions, which are
subject to risks and uncertainties, including technical
uncertainties, financial variations and changes in the
regulatory environment, industry growth and trend predictions.
We have attempted to identify, in context, some of the factors
that we currently believe may cause actual future experience and
results to differ from our current expectations regarding the
relevant matter or subject area. The operation and results of
our wireless communications business also may be subject to the
effects of other risks and uncertainties in addition to the
other qualifying factors identified in this Item, including, but
not limited to:
|
|
|
|
|
our ability to meet the operating goals established by our
business plan;
|
|
|
|
general economic conditions in the United States or in Latin
America and in the market segments that we are targeting for our
services, including the impact of the current uncertainties in
global economic conditions;
|
|
|
|
the political and social conditions in the countries in which we
operate, including political instability, which may affect the
economies of our markets and the regulatory schemes in these
countries;
|
|
|
|
the impact of foreign exchange volatility in our markets as
compared to the U.S. dollar and related currency
depreciation in countries in which our operating companies
conduct business;
|
|
|
|
our ability to access sufficient debt or equity capital to meet
any future operating and financial needs, including the impact
of the recent disruption in global capital markets that have
made it more difficult or costly to obtain funding on acceptable
terms;
|
|
|
|
reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of our mobile services in our markets;
|
|
|
|
the availability of adequate quantities of system infrastructure
and subscriber equipment and components at reasonable pricing to
meet our service deployment and marketing plans and customer
demand;
|
|
|
|
Motorolas ability and willingness to provide handsets and
related equipment and software applications or to develop new
technologies or features for us, including the timely
development and availability of new handsets with expanded
applications and features;
|
|
|
|
the risk of deploying new technologies, including the potential
need for additional funding to support that deployment, the risk
that new services supported by the new technology will not
attract enough subscribers to support the related costs of
deploying or operating the new technology, the need to
significantly increase our employee base and the potential
distraction of management;
|
|
|
|
our ability to successfully scale our billing, collection,
customer care and similar back-office operations to keep pace
with customer growth, increased system usage rates and growth or
to successfully deploy new systems that support those functions;
|
|
|
|
the success of efforts to improve and satisfactorily address any
issues relating to our network performance;
|
|
|
|
future legislation or regulatory actions relating to our SMR
services, other wireless communications services or
telecommunications generally;
|
33
|
|
|
|
|
the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our network business;
|
|
|
|
the quality and price of similar or comparable wireless
communications services offered or to be offered by our
competitors, including providers of cellular services and
personal communications services;
|
|
|
|
market acceptance of our new service offerings; and
|
|
|
|
other risks and uncertainties described in this annual report on
Form 10-K
and from time to time in our other reports filed with the
Securities and Exchange Commission.
|
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our principal executive and administrative offices are located
in Reston, Virginia, where we lease about 79,226 square
feet of office space under a lease expiring in February 2020. In
addition, each of our operating companies own and lease office
space and transmitter and receiver sites in each of the
countries where they conduct business.
Each operating company leases transmitter and receiver sites for
the transmission of radio service under various individual site
leases. Most of these leases are for terms of five years or
less, with options to renew. As of December 31, 2008, our
operating companies had constructed sites at leased and owned
locations for their business, as shown below:
|
|
|
|
|
|
|
Number
|
|
Operating Company
|
|
of Sites
|
|
|
Nextel Mexico
|
|
|
2,607
|
|
Nextel Brazil
|
|
|
2,478
|
|
Nextel Argentina
|
|
|
832
|
|
Nextel Peru
|
|
|
472
|
|
Nextel Chile
|
|
|
72
|
|
|
|
|
|
|
Total
|
|
|
6,461
|
|
|
|
|
|
|
These sites include sites sold and leased back from American
Tower Corporation, as well as various co-location sites with
American Tower Corporation and other operators.
|
|
Item 3.
|
Legal
Proceedings
|
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows. See Note 8 to our consolidated financial statements
at the end of this annual report on
Form 10-K
for more information.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2008.
Executive
Officers of the Registrant
The following people were serving as our executive officers as
of February 20, 2009. These executive officers were elected
to serve until their successors are elected. There is no family
relationship between any of our executive officers or between
any of these officers and any of our directors.
Steven M. Shindler, 46, has been a director on the board
of NII Holdings since 1997, chief executive officer from 2000
until February 2008 and chairman of the board since
November 12, 2002. In February 2008, he became executive
chairman of NII Holdings. Mr. Shindler also served as
executive vice president and chief financial officer of Nextel
Communications from 1996 until 2000. From 1987 to 1996,
Mr. Shindler was an officer with Toronto Dominion Bank, a
bank where he was a managing director in its communications
finance group.
34
Steven P. Dussek, 52, has been a director on the board of
NII Holdings since 1999 and has been chief executive officer of
NII Holdings since February 2008. Prior to joining NII Holdings,
Mr. Dussek served as president and chief executive officer
of Dobson Communications Corporation, a publicly traded wireless
telecommunications company, from April 2005 until November 2007
when AT&T Wireless Services acquired Dobson Communications
Corporation. From 1999 to 2000, Mr. Dussek was the chief
executive officer of NII Holdings and was the president and
chief operating officer of NII Holdings from March 1999 until
September 1999. From 1996 to 2002, Mr. Dussek served in
various senior management positions with Nextel Communications,
most recently as executive vice president and chief operating
officer. From 1995 to 1996, Mr. Dussek served as vice
president and general manager of the northeast region for the
PCS division of AT&T Wireless Services. From 1993 to 1995,
Mr. Dussek served as senior vice president and chief
operating officer of Paging Networks, Inc., a paging company.
Gokul Hemmady, 48, has been the vice president and chief
financial officer of NII Holdings since June 2007. From June
1998 to June 2007, Mr. Hemmady served in various positions
with ADC Telecommunications, Inc., a provider of global network
infrastructure products and services, including as vice
president and chief financial officer from August 2003 through
June 2007, as vice president and treasurer from June 1998
through August 2003 and as controller from May 2002 through
August 2003. Mr. Hemmady joined ADC as assistant treasurer
in October 1997. Prior to 1997, he was employed by
U.S. West International, a communications service provider,
where he served as director of international finance.
Gary D. Begeman, 50, has been the vice president and
general counsel of NII Holdings since February 2007 having
joined NII Holdings as vice president and deputy general counsel
in November 2006. From 2003 through 2006, he served as senior
vice president and deputy general counsel of Sprint Nextel
Corporation and was a vice president of Nextel Communications,
Inc. prior to its merger with Sprint. From 1999 through 2003, he
was senior vice president and general counsel of XO
Communications, Inc. From 1997 to 1999, Mr. Begeman was
vice president and deputy general counsel of Nextel
Communications, Inc. From 1991 until he joined Nextel,
Mr. Begeman was a partner with the law firm of Jones, Day,
Reavis & Pogue.
Alfonso Martinez, 47, has been our vice president of
human resources since December 2008. From 2005 to November 2008,
Mr. Martinez held various management positions with Sodexo,
an integrated food and facilities management service provider,
and was most recently the group vice president of global talent.
From 2003 to 2005, Mr. Martinez was the chief executive
officer of the Hispanic Association on Corporate Responsibility.
Prior to 2003, Mr. Martinez held various positions with
Capital One, Aetna Insurance and Marriott International.
John McMahon, 44, has been our vice president of business
operations since joining NII Holdings in 1999. Prior to that,
Mr. McMahon served as vice president of finance and
business operations, north region, for Nextel Communications
from 1997 to 1999, and as director of finance for the
mid-Atlantic region from 1995 to 1997.
Gregory J. Santoro, 46, has been our vice president and
chief marketing and strategy officer since February 2007. From
2000 until 2006, Mr. Santoro was the vice president of
products and services at Nextel Communications, Inc. and most
recently as the vice president of product innovation at Sprint
Nextel Corporation. Before Nextel, Mr. Santoro served as
the vice president of internet services at Bellsouth.net where
he was responsible for launching Bellsouths narrowband and
broadband internet services.
Alan Strauss, 49, has been our vice president and chief
technology and engineering officer since 2001. From 1998 until
2001, Mr. Strauss was the vice president and general
manager of Nextel Communications strategic business
operations group. From 1994 to 1998, Mr. Strauss held
various positions with Nextel Communications.
Daniel E. Freiman, 37, has been our vice president and
treasurer since October 2008. Mr. Freiman was our vice
president and controller from April 2005 to September 2008.
Mr. Freiman was our director of investor relations from
June 2004 to April 2005, director of external financial
reporting from November 2002 to June 2004 and senior manager of
external financial reporting from September 2000 to November
2002. Prior to September 2000, he was a manager in the audit
practice of PricewaterhouseCoopers LLP in Washington, D.C.
Catherine E. Neel, 48, has been our vice president and
controller since October 2008. Ms. Neel was our vice
president, treasurer and assistant secretary from November 2002
to September 2008. From 1999 to 2002, Ms. Neel was the
assistant treasurer of NII Holdings. Prior to 1999,
Ms. Neel held various management positions with Bellsouth
Corporation and was in public accounting with Arthur Andersen
LLP.
Ruben Butvilofsky, 56, has served as president of Nextel
Argentina since August 2005. From 1998 to August 2005,
Mr. Butvilofsky served as Nextel Argentinas vice
president of commercial operations. Prior to joining Nextel
Argentina, Mr. Butvilofsky was the sales director of
Liberty ART, a subsidiary of Liberty Mutual, in their Argentina
operations. Before joining Liberty ART, he was a direct sales
manager for Bellsouth (Movicom) and an indirect channel manager
for IBM Argentina.
35
Sergio Borges Chaia, 43, has served as president and
chief executive officer of Nextel Brazil since January 2007.
From 1996 until he joined Nextel Brazil in 2007, Mr. Chaia
held various management positions with Sodexho Pass Brazil,
including president, chief executive officer and managing
director.
Peter A. Foyo, 43, has served as president of Nextel
Mexico since 1998. From 1988 to 1998, Mr. Foyo held various
senior management positions with AT&T Corp., including
corporate strategy director of Alestra, S.A. de C.V., a joint
venture between AT&T and a local Mexican partner, and
president of AT&T Argentina.
Miguel E. Rivera, 56, has served as president of Nextel
Peru since 2000. Previously, Mr. Rivera was the general
manager of the Lima Stock Exchange from 1999 to 2000. From 1986
to 1998, Mr. Rivera held various executive positions with
IBM, most recently as general manager of Manufacturing Industry,
IBM Latin America.
36
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
|
|
1.
|
Market
for Common Stock
|
Our common stock trades on the Nasdaq Global Select Market under
the trading symbol NIHD. Our common stock had traded
on the Nasdaq National Market under the same symbol until
July 3, 2006. The following table sets forth on a per share
basis the reported high and low sales prices for our common
stock, as reported on the market at the time, for the quarters
indicated.
|
|
|
|
|
|
|
|
|
|
|
Price Range of
|
|
|
|
Common Stock
|
|
|
|
High
|
|
|
Low
|
|
|
2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
76.35
|
|
|
$
|
60.53
|
|
Second Quarter
|
|
|
82.91
|
|
|
|
74.19
|
|
Third Quarter
|
|
|
90.43
|
|
|
|
64.40
|
|
Fourth Quarter
|
|
|
83.44
|
|
|
|
42.50
|
|
2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
52.72
|
|
|
$
|
28.71
|
|
Second Quarter
|
|
|
52.37
|
|
|
|
32.04
|
|
Third Quarter
|
|
|
57.05
|
|
|
|
32.93
|
|
Fourth Quarter
|
|
|
38.43
|
|
|
|
12.38
|
|
|
|
2.
|
Number
of Stockholders of Record
|
As of February 20, 2009, there were approximately
13 holders of record of our common stock, including the
Depository Trust Corporation, which acts as a clearinghouse
for multiple brokerage and custodial accounts.
We have not paid any dividends on our common stock and do not
plan to pay dividends on our common stock for the foreseeable
future. In addition, some of our financing documents have
contained, and some future financing agreements may contain,
restrictions on the payment of dividends. We anticipate that for
the foreseeable future any cash flow generated from our
operations will be used to develop and expand our business and
operations and make contractual payments under our debt
facilities in accordance with our business plan.
|
|
4.
|
Issuer
Purchases of Equity Securities
|
We did not repurchase any of our equity securities during the
fourth quarter of 2008.
37
Performance
Graph
The following graph presents the cumulative total stockholder
return on our common stock from December 31, 2003, when we
were listed on the Nasdaq National Market, through July 3,
2006, when we moved to the Nasdaq Global Select Market, until
December 31, 2008. This graph also compares our common
stock to the cumulative total stockholder return on the Nasdaq
100 Index, the common stock of America Movil, S.A. de C.V. and
Millicom International Cellular S.A. The graph assumes an
initial investment of $100 in our common stock as of
December 31, 2003 and in each of the comparative indices or
peer issuers, and that all dividends were reinvested.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
12/31/2003
|
|
12/31/2004
|
|
12/31/2005
|
|
12/31/2006
|
|
12/31/2007
|
|
12/31/2008
|
NII Holdings
|
|
$
|
100.00
|
|
|
$
|
190.74
|
|
|
$
|
351.17
|
|
|
$
|
518.08
|
|
|
$
|
388.48
|
|
|
$
|
146.16
|
|
Nasdaq 100
|
|
$
|
100.00
|
|
|
$
|
109.49
|
|
|
$
|
110.83
|
|
|
$
|
118.38
|
|
|
$
|
140.48
|
|
|
$
|
81.57
|
|
America Movil
|
|
$
|
100.00
|
|
|
$
|
191.48
|
|
|
$
|
107.02
|
|
|
$
|
165.40
|
|
|
$
|
224.54
|
|
|
$
|
113.35
|
|
Millicom International
|
|
$
|
100.00
|
|
|
$
|
129.89
|
|
|
$
|
153.37
|
|
|
$
|
352.23
|
|
|
$
|
673.94
|
|
|
$
|
256.63
|
|
38
|
|
Item 6.
|
Selected
Financial Data
|
The tables below set forth selected consolidated financial data
for the periods or as of the dates indicated and should be read
in conjunction with the consolidated financial statements and
notes thereto in Item 8 of this report and
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7 of this
report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
4,048,466
|
|
|
$
|
3,184,696
|
|
|
$
|
2,279,922
|
|
|
$
|
1,666,613
|
|
|
$
|
1,214,837
|
|
Digital handset and accessory revenues
|
|
|
220,914
|
|
|
|
111,599
|
|
|
|
91,418
|
|
|
|
79,226
|
|
|
|
65,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,269,380
|
|
|
|
3,296,295
|
|
|
|
2,371,340
|
|
|
|
1,745,839
|
|
|
|
1,279,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
1,110,927
|
|
|
|
850,934
|
|
|
|
597,262
|
|
|
|
464,651
|
|
|
|
365,982
|
|
Cost of digital handset and accessory sales
|
|
|
585,391
|
|
|
|
443,760
|
|
|
|
331,714
|
|
|
|
251,192
|
|
|
|
207,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,696,318
|
|
|
|
1,294,694
|
|
|
|
928,976
|
|
|
|
715,843
|
|
|
|
573,094
|
|
Selling, general and administrative
|
|
|
1,400,642
|
|
|
|
1,077,893
|
|
|
|
780,373
|
|
|
|
545,235
|
|
|
|
358,076
|
|
Depreciation
|
|
|
371,901
|
|
|
|
289,897
|
|
|
|
194,817
|
|
|
|
123,990
|
|
|
|
84,139
|
|
Amortization
|
|
|
32,578
|
|
|
|
14,727
|
|
|
|
7,405
|
|
|
|
6,142
|
|
|
|
14,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
767,941
|
|
|
|
619,084
|
|
|
|
459,769
|
|
|
|
354,629
|
|
|
|
250,363
|
|
Interest expense, net
|
|
|
(162,614
|
)
|
|
|
(128,733
|
)
|
|
|
(89,379
|
)
|
|
|
(72,470
|
)
|
|
|
(55,113
|
)
|
Interest income
|
|
|
68,411
|
|
|
|
67,429
|
|
|
|
51,057
|
|
|
|
32,611
|
|
|
|
12,697
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(120,572
|
)
|
|
|
19,008
|
|
|
|
3,557
|
|
|
|
3,357
|
|
|
|
9,210
|
|
Debt conversion expense
|
|
|
|
|
|
|
(26,429
|
)
|
|
|
(5,070
|
)
|
|
|
(8,930
|
)
|
|
|
|
|
Loss on extinguishment of debt, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,327
|
)
|
Other expense, net
|
|
|
(28,806
|
)
|
|
|
(1,914
|
)
|
|
|
(6,000
|
)
|
|
|
(8,621
|
)
|
|
|
(2,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision and cumulative effect of
change in accounting principle
|
|
|
524,360
|
|
|
|
548,445
|
|
|
|
413,934
|
|
|
|
300,576
|
|
|
|
135,510
|
|
Income tax provision
|
|
|
(155,255
|
)
|
|
|
(170,027
|
)
|
|
|
(119,444
|
)
|
|
|
(125,795
|
)
|
|
|
(79,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle
|
|
|
369,105
|
|
|
|
378,418
|
|
|
|
294,490
|
|
|
|
174,781
|
|
|
|
56,319
|
|
Cumulative effect of change in accounting principle, net of
income taxes of $11,898 in 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
369,105
|
|
|
$
|
378,418
|
|
|
$
|
294,490
|
|
|
$
|
174,781
|
|
|
$
|
57,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting
principle per common share, basic
|
|
$
|
2.21
|
|
|
$
|
2.27
|
|
|
$
|
1.91
|
|
|
$
|
1.19
|
|
|
$
|
0.40
|
|
Cumulative effect of change in accounting principle per common
share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, basic
|
|
$
|
2.21
|
|
|
$
|
2.27
|
|
|
$
|
1.91
|
|
|
$
|
1.19
|
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting
principle per common share, diluted
|
|
$
|
2.14
|
|
|
$
|
2.11
|
|
|
$
|
1.67
|
|
|
$
|
1.06
|
|
|
$
|
0.39
|
|
Cumulative effect of change in accounting principle per common
share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, diluted
|
|
$
|
2.14
|
|
|
$
|
2.11
|
|
|
$
|
1.67
|
|
|
$
|
1.06
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic
|
|
|
166,927
|
|
|
|
166,749
|
|
|
|
154,085
|
|
|
|
146,336
|
|
|
|
139,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, diluted
|
|
|
175,290
|
|
|
|
184,256
|
|
|
|
184,282
|
|
|
|
176,562
|
|
|
|
145,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
|
$
|
708,591
|
|
|
$
|
877,536
|
|
|
$
|
330,984
|
|
Short-term investments
|
|
|
82,002
|
|
|
|
241,764
|
|
|
|
|
|
|
|
7,371
|
|
|
|
38,401
|
|
Property, plant and equipment, net
|
|
|
1,887,315
|
|
|
|
1,853,082
|
|
|
|
1,389,150
|
|
|
|
933,923
|
|
|
|
558,247
|
|
Intangible assets, net
|
|
|
317,878
|
|
|
|
410,447
|
|
|
|
369,196
|
|
|
|
83,642
|
|
|
|
67,956
|
|
Total assets
|
|
|
5,088,120
|
|
|
|
5,436,736
|
|
|
|
3,297,678
|
|
|
|
2,620,964
|
|
|
|
1,491,280
|
|
Long-term debt, including current portion
|
|
|
2,292,294
|
|
|
|
2,266,517
|
|
|
|
1,155,736
|
|
|
|
1,172,958
|
|
|
|
603,509
|
|
Stockholders equity
|
|
|
1,786,887
|
|
|
|
2,168,373
|
|
|
|
1,346,480
|
|
|
|
811,401
|
|
|
|
421,947
|
|
Ratio of
Earnings to Fixed Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
3.34x
|
|
|
|
4.15x
|
|
|
|
4.05x
|
|
|
|
3.80x
|
|
|
|
2.88x
|
|
For the purpose of computing the ratio of earnings to fixed
charges, earnings consist of income (loss) from continuing
operations before income taxes plus fixed charges and
amortization of capitalized interest less capitalized interest.
Fixed charges consist of:
|
|
|
|
|
interest on all indebtedness, amortization of debt financing
costs and amortization of original issue discount;
|
|
|
|
interest capitalized; and
|
|
|
|
the portion of rental expense we believe is representative of
interest.
|
Reclassifications. We have reclassified
certain prior year amounts in our consolidated financial
statements to conform to our current year presentation.
Specifically, for the years ended December 31, 2007 and
2006, we corrected the classification of $28.7 million and
$20.4 million, respectively, from cost of service to cost
of digital handset and accessory sales related to costs incurred
in connection with replacement handsets sold to existing
customers. We have also reclassified spectrum license fees from
selling, general and administrative expenses to cost of service
for the years ended December 31, 2005, 2004 and 2003. These
revisions did not have a material impact on previously reported
balances.
Foreign Currency Transaction (Losses) Gains,
Net. Consolidated foreign currency
transaction losses of $120.6 million for the year ended
December 31, 2008 are primarily due to $80.2 million
in losses related to the impact of the significant depreciation
in the value of the Brazilian real relative to the
U.S. dollar during the second half of 2008 on Nextel
Brazils syndicated loan facility, which is denominated in
U.S. dollars, as well as $44.8 million in losses
related to the depreciation in the value of the Mexican peso
relative to the U.S. dollar on Nextel Mexicos
U.S. dollar-denominated net liabilities during the same
period. See Critical Accounting Policies and
Estimates Foreign Currency. for more
information.
Debt Conversion Expense. On
June 10, 2005 and June 21, 2005, $40.0 million
and $48.5 million, respectively, aggregate principal amount
of our 3.5% convertible notes were converted into
3,000,000 shares of our common stock and
3,635,850 shares of our common stock in accordance with the
original terms of the debt securities. In connection with these
conversions, we paid in the aggregate $8.9 million in cash
as additional consideration for conversion, which we recorded as
debt conversion expense.
On December 14, 2006, all of the holders of the
$91.4 million remaining aggregate principal face amount of
our 3.5% convertible notes converted those notes into
6,852,150 shares of common stock in accordance with the
original terms of the debt agreement. In connection with this
conversion, we paid a total of $4.6 million as additional
consideration for conversion, as well as $0.8 million of
accrued interest and $0.5 million of direct external costs
associated with the transaction. We recorded the
$4.6 million paid to the noteholders and the
$0.5 million of direct external costs as debt conversion
expense in our consolidated statement of operations.
In July 2007, we accepted the tender of 99.99% of the
$300.0 million in outstanding principal amount of our
2.875% convertible notes under a tender offer that expired on
July 23, 2007. In connection with this tender offer, we
issued 11,268,103 shares of our common stock and paid to
the holders of the tendered notes an aggregate cash premium of
$25.5 million, $1.0 million in direct external costs
and accrued and unpaid interest of $4.2 million. We
recorded the $25.5 million in cash consideration and
$1.0 million in direct external costs as debt conversion
expense in our consolidated statement of operations.
Loss on Extinguishment of Debt,
Net. The $79.3 million net loss on early
extinguishment of debt for the year ended December 31, 2004
represents a loss we incurred in connection with the retirement
of substantially all of our 13.0% senior secured discount
notes through a cash tender offer in March 2004.
40
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
INDEX TO
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
42
|
|
|
|
|
51
|
|
|
|
|
52
|
|
|
|
|
52
|
|
|
|
|
57
|
|
|
|
|
60
|
|
|
|
|
63
|
|
|
|
|
65
|
|
|
|
|
67
|
|
|
|
|
68
|
|
|
|
|
68
|
|
|
|
|
72
|
|
|
|
|
74
|
|
|
|
|
76
|
|
|
|
|
78
|
|
|
|
|
80
|
|
|
|
|
81
|
|
|
|
|
83
|
|
|
|
|
87
|
|
|
|
|
87
|
|
|
|
|
88
|
|
41
Introduction
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition for the years ended
December 31, 2008 and 2007 and our consolidated results of
operations for the years ended December 31, 2008, 2007 and
2006; 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
quarterly reports on
Form 10-Q
for the quarters ended March 31, 2008, June 30, 2008
and September 30, 2008, including but not limited to, the
discussion regarding our critical accounting judgments, as
described below. Historical results may not indicate future
performance. See Item 1A. Risk
Factors for risks and uncertainties that may impact our
future performance.
We refer to our operating companies by the countries in which
they operate, such as Nextel Mexico, Nextel Brazil, Nextel
Argentina, Nextel Peru and Nextel Chile.
Business
Overview
We provide wireless communication services, primarily targeted
at meeting the needs of customers who use our services in their
businesses and individuals that have medium to high usage
patterns, both of whom value our multi-function handsets,
including our Nextel Direct
Connect®
feature, and our high level of customer service. We provide
these services through operating companies located in selected
Latin American markets, under the
Nexteltm
brand, with our principal operations located in major business
centers and related transportation corridors of Mexico, Brazil,
Argentina, Peru and Chile. We provide our services in major
urban and suburban centers with high population densities, which
we refer to as major business centers, where we believe there is
a concentration of the countrys business users and
economic activity. We believe that vehicle traffic congestion,
low wireline service penetration and the expanded coverage of
wireless networks in these major business centers encourage the
use of the mobile wireless communications services that we offer.
We use a wireless transmission technology called integrated
digital enhanced network, or iDEN, developed by Motorola, Inc.
to provide our digital mobile services on 800 MHz spectrum
holdings in all of our markets. This technology, which is the
only digital technology currently available that can be used on
non-contiguous spectrum like ours, allows us to use our spectrum
efficiently and offer multiple wireless services integrated into
a variety of handset devices. The services we offer include:
|
|
|
|
|
mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a push-to-talk
basis, private one-to-one call or group call;
|
|
|
|
International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers using compatible handsets in the United
States and with TELUS subscribers using compatible handsets in
Canada;
|
|
|
|
text messaging services, mobile internet services,
e-mail
services including
Blackberrytm
services, location-based services, which include the use of
Global Positioning System (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 improving 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
Item 1A. Risk Factors for
information on risks and uncertainties that could affect our
ability to reach these goals and the other objectives described
below.
42
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 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 individuals
that have medium to high usage patterns, both of whom value our
multi-function handsets, including our Nextel Direct Connect
feature and our high level of customer service. In our current
customer base, our typical customer has between 3 and 30
handsets, and some of our largest customers have over 500
handsets; however, new customers that we have recently acquired
generally have a lower number of handsets per customer.
Providing Differentiated Services. We
differentiate ourselves from our competitors by offering unique
services like our push-to-talk service, which we
refer to as Direct Connect. This service, which is available
throughout our service areas, provides significant value to our
customers by eliminating the long distance and domestic roaming
fees charged by other wireless service providers, while also
providing added functionality due to the near-instantaneous
nature of the communication and the ability to communicate on a
one-to-many basis. 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 generally providing a higher level of
customer service than our competitors. We work proactively with
our customers to match them with service plans offering greater
value based on their usage patterns. After analyzing customer
usage and expense data, we strive to minimize a customers
per minute costs while increasing overall usage of our array of
services, thereby providing higher value to our customers while
increasing our monthly revenues. This goal is also furthered by
our efforts during and after the sales process to educate
customers about our services, multi-function handsets and rate
plans. In addition, we have implemented proactive customer
retention programs to increase customer satisfaction and
retention.
Selectively Expanding our Service Areas. We
believe that we have significant opportunities to grow through
selective expansion of our service into additional areas in some
of the countries in which we currently operate, particularly in
Brazil where our coverage is not as extensive as in other
markets. Such expansion may involve building out certain areas
in which we already have spectrum, obtaining additional 800 MHZ
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
43
operate. We are currently expanding significantly our service
areas in Brazil in connection with our growth objectives and
recently announced our plans to make additional investments in
Brazil in order to add more capacity to Nextel Brazils
network, support its growth and expand its geographic coverage,
including expansion into the northeast region of the country.
See 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 innovative data services. The iDEN technology is
unique in that it is the only widespread, commercially available
technology that operates on non-contiguous spectrum, which is
important to us because much of the spectrum that our operating
companies hold in each of the markets we serve is
non-contiguous. Because Motorola is the sole supplier of iDEN
technology, we are dependent on Motorolas support of the
evolution of the iDEN technology and of the development of new
features, functionality and handset models. Sprint Nextel
Corporation is the largest customer of Motorola with respect to
iDEN technology and, in the past, has provided significant
support with respect to new product development for that
technology. In recent years, Sprint Nextel Corporation has
reduced its commitment to the development of new iDEN handsets
and features, and there has been a decline in the number of
handsets purchased by them; however, Sprint Nextel Corporation
has recently announced the launch of several new iDEN handsets,
and there has been an increase in the level of Sprint Nextel
Corporations advertising and promotion of iDEN services.
In light of the reduction in Sprint Nextel Corporations
development efforts, we have increased our effort and support of
iDEN handset product development and now lead the majority of
that development activity in support of our customers
needs. In addition, we have entered into arrangements with
Motorola that are designed to provide us with a continued source
of iDEN network equipment and handsets in an environment in
which Sprint Nextels purchases and support of future
development of that equipment may decline. Specifically, in
September 2006, we entered into agreements to extend our
relationship with Motorola for the supply of iDEN handsets and
iDEN network infrastructure through December 31, 2011.
Under these agreements, Motorola agreed to maintain an adequate
supply of the iDEN handsets and equipment used in our business
for the term of the agreement and to continue to invest in the
development of new iDEN devices and infrastructure features. In
addition, we agreed to annually escalating handset volume
purchase commitments and certain pricing parameters for handsets
and infrastructure linked to the volume of our purchases. If we
do not meet the specified handset volume commitments, we would
be required to pay an additional amount based on any shortfall
of actual purchased handsets compared to the related annual
volume commitment. During the first quarter of 2008, Motorola
announced plans to separate its mobile devices division into a
separate public entity through a spin-off of that division;
however, in October 2008, Motorola announced its intention to
delay this spin-off. While we cannot determine the impact of
Motorolas planned separation of the mobile devices
business on its iDEN business, Motorolas obligations under
our existing agreements, including the obligation to supply us
with iDEN handsets and network equipment, remain in effect.
Planning for the Future. Another key component
in our overall strategy is to expand and improve the innovative
and differentiated services we offer and evaluate the
technologies necessary to provide those services. One such
initiative is to develop and offer a broader range of data
services on our networks and to evaluate the feasibility of
offering next generation voice and broadband data services in
the future. This focus on offering innovative and differentiated
services requires that we continue to invest in, evaluate and,
if appropriate, deploy new services and enhancements to our
existing services as well as, in some cases, consider and pursue
acquisitions of assets that include spectrum licenses to deploy
these services, including in auctions of newly available
spectrum and through transactions involving acquisitions of
existing spectrum rights. We currently plan to participate in
auctions and other transactions of this nature, particularly in
Brazil and Mexico, to the extent that obtaining new spectrum can
be achieved at a reasonable cost, with available financing and
is consistent with our overall technology strategy.
As part of our ongoing assessment of our ability to meet our
customers current and future needs, we continually review
alternate technologies to assess their technical performance,
cost and functional capabilities. These reviews may involve the
deployment of the technologies under consideration on a trial
basis in order to evaluate their capabilities and market demand
for the supported services. We will deploy a new technology
beyond the minimum levels required by the terms of our spectrum
licenses only if it is warranted by expected customer demand and
when the anticipated benefits of services supported by the new
technology outweigh the costs of providing those services. Our
decision whether and how to deploy alternative technologies, as
well as our choice of alternative technologies, would likely be
affected by a number of factors, including:
|
|
|
|
|
types of features and services supported by the technology and
our assessment of the demand for those features and services;
|
44
|
|
|
|
|
the availability and pricing of related equipment, the spectrum
bands available for purchase in our markets and whether other
wireless carriers are operating or plan to operate a particular
technology in those spectrum bands;
|
|
|
|
our need to continue to support iDEN-based services for our
existing customer base either on an ongoing or transitional
basis; and
|
|
|
|
the availability and terms of any financing that we would be
required to raise in order to acquire the spectrum and fund the
deployment of an alternative technology. See Future
Capital Needs and Resources for more information.
|
Consistent with this strategy of pursuing new spectrum and
technology opportunities, in July 2007, we participated in a
spectrum auction and were awarded a nationwide license of
35 MHz of 1.9 GHz spectrum in Peru for a term of
20 years. The license under which the spectrum rights were
granted requires us to deploy new network technology within
specified timeframes throughout Peru, including in areas that we
do not currently serve. We plan to develop and deploy a third
generation network in Peru using this spectrum. The regulatory
authorities in Peru recently approved our plans for the
deployment of this new network. We believe that these plans will
enable us to significantly increase the size of our opportunity
in Peru by allowing us to offer new and differentiated services
to a larger base of potential customers.
During 2008, the global economic environment was characterized
by a significant decline in economic growth rates, a marked
increase in the volatility of foreign currency exchange rates,
disruptions in the capital markets and a reduction in the
availability of financing. These conditions are expected to
continue into 2009 with most economists predicting a significant
slowing, and possibly a contraction, of economic growth both
globally and in the markets in which we operate. We have also
seen an increase in the inflation rates in some markets in which
we operate, particularly in Argentina. While we believe that we
will be able to continue to expand our business in this
environment, these economic trends could affect our business in
a number of ways by:
|
|
|
|
|
reducing the demand for our services resulting from reduced
discretionary spending;
|
|
|
|
increasing the level of competition among the other wireless
service providers as we compete for a smaller number of
potential customers, which could require us to offer more
competitive service plans that could result in lower average
revenue per subscriber; and
|
|
|
|
increasing the level of voluntary customer turnover due to
increased competition and simultaneously increasing the levels
of involuntary customer turnover and bad debt expense as
customers find it more difficult to pay for services.
|
Historically, our operations have been subject to significant
volatility of the foreign currencies of the countries in which
we do business. Increased volatility of foreign currency
exchange rates has had and continues to have a significant
effect on us because nearly all of our revenues are earned in
non-U.S. currencies,
and a significant portion of our outstanding debt is denominated
in U.S. dollars. For example, in 2008, we had foreign
currency transaction losses of $120.6 million that were
primarily the result of the significant depreciation in the
value of the Brazilian real and the Mexican peso relative to the
U.S. dollar during the second half of 2008. From
September 30, 2008 to December 31, 2008, the exchange
rate for the Brazilian real increased from 1.91 reais per
U.S. dollar to 2.34, and the exchange rate for the Mexican
peso increased from 10.79 pesos per U.S. dollar to 13.54.
The depreciation in the values of the local currencies in the
markets where we operate makes it more costly for us to service
our debt obligations and affects our operating results because
we pay for some of our operating expenses and capital
expenditures in U.S. dollars. In addition, because we
report our results of operations in U.S. dollars, changes
in relative foreign currency valuations may result in reductions
in our reported revenues, operating income and earnings, as well
as a reduction in the carrying value of our assets, including
the value of cash investments in local currencies. Accordingly,
if the values of local currencies in the countries in which our
operating companies conduct business depreciate further relative
to the U.S. dollar, we would expect our operating results
in future periods, and the value of our assets held in local
currencies, to be adversely affected.
Deteriorating conditions in the economy and the capital markets
have also resulted in significant increases in the cost of
capital and have made it increasingly difficult for companies
with operations in emerging markets to obtain debt or equity
financing on acceptable terms. While a number of governments
have taken actions in an effort to address liquidity issues in
the financial markets and have undertaken various other
initiatives designed to help relieve the credit crisis, the
overall effects of these and other efforts on the financial
markets are uncertain, and they may not have the intended
effects. While we believe that our current cash balances and the
funds we expect to generate in our business are sufficient to
support our existing iDEN business, we depend upon access to the
credit
45
and capital markets to help fund the growth of our business, for
the acquisition of additional spectrum and for capital
expenditures in connection with the expansion and improvement of
our wireless networks and the deployment of new network
technologies. If the present financial market conditions
continue, we expect that our borrowing costs will increase to
the extent that we incur new debt at comparatively higher
interest rates to finance our growth and as a result of
increases in the interest rates on our variable rate debt
obligations, and it may be difficult for us to obtain funding on
terms that are acceptable. These market conditions may limit our
access to funding that may be needed to pursue our expansion
plans and to acquire rights to use spectrum and deploy networks
that use new technologies in our markets.
We have taken a number of actions to address the potential
impact of these changes in the economic environment and capital
markets, including:
|
|
|
|
|
implementing strategies designed to conserve our liquidity by
increasing the cash generated by our operations and targeting
our capital expenditures in areas with greater growth
opportunities;
|
|
|
|
managing our subscriber and revenue growth consistent with our
long term strategy of expanding our business while improving our
profitability and cash flow generation;
|
|
|
|
improving our efficiency by managing our growth in headcount and
other expenses at levels consistent with our expectations
regarding subscriber and revenue growth; and
|
|
|
|
developing and implementing network expansion plans that are
consistent with our long term strategy of meeting our
customers demand for innovative high quality services, but
are consistent with a goal of preserving our liquidity in light
of the uncertain conditions in the capital markets.
|
We expect to continue to pursue these and other strategies as
necessary to adapt our business plans in order to meet our long
term business goals in a manner that takes into account the
uncertainty of the current economic environment.
Handsets
in Commercial Service
The table below provides an overview of our total handsets in
commercial service in the countries indicated as of
December 31, 2008 and 2007. For purposes of the table,
handsets in commercial service represent all handsets with
active customer accounts on our mobile networks in each of the
listed countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Handsets in commercial service
December 31, 2007
|
|
|
2,140
|
|
|
|
1,290
|
|
|
|
812
|
|
|
|
477
|
|
|
|
10
|
|
|
|
4,729
|
|
Net subscriber additions
|
|
|
586
|
|
|
|
522
|
|
|
|
155
|
|
|
|
192
|
|
|
|
16
|
|
|
|
1,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handsets in commercial service
December 31, 2008
|
|
|
2,726
|
|
|
|
1,812
|
|
|
|
967
|
|
|
|
669
|
|
|
|
26
|
|
|
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Exposure
Nearly all of our revenues are denominated in
non-U.S. currencies,
although a significant portion of our capital and operating
expenditures, including imported network equipment and handsets,
and a substantial portion of our outstanding debt, are
denominated in U.S. dollars. Accordingly, fluctuations in
exchange rates relative to the U.S. dollar could have a
material adverse effect on our earnings and assets. We translate
the results of operations for our
non-U.S. subsidiaries
and affiliates from the designated functional currency to the
U.S. dollar using average exchange rates during the
relevant period. In addition, changes in exchange rates
associated with U.S. dollar-denominated assets and
liabilities result in foreign currency transaction gains or
losses.
During the second half of 2008, there was a significant
depreciation in the value of the local currencies in all of our
markets relative to the U.S. dollar. If this trend
continues, it could make it more costly for us to service our
debt obligations, substantially all of which are denominated in
U.S. dollars, and could affect our operating results
because we pay for some of our operating expenses and capital
expenditures in U.S. dollars. In addition, because we
report our results of operations in U.S. dollars, changes
in relative foreign currency valuations may result in reductions
in our reported revenues, operating income and earnings, as well
as a reduction in the carrying value of our assets, including
the value of cash investments in local currencies. Accordingly,
if the values of local currencies in the countries in which our
operating companies conduct business depreciate further relative
to the U.S. dollar, we would expect our operating results
in future periods, and the value of our assets held in local
currencies, to be adversely
46
affected. Additional information regarding the impact of
currency rates is included in the discussion of our segments
under Results of Operations.
Brazilian
Contingencies
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on
imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions
disputing these assessments. In some cases, Nextel Brazil has
received favorable decisions, which are currently being appealed
by the respective governmental authority. In other cases, Nextel
Brazils petitions have been denied, and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing various other claims. As a result of the expiration of
the statute of limitations for certain contingencies, during the
years ended December 31, 2007 and 2006, Nextel Brazil
reversed $10.6 million and $9.2 million, respectively,
in accrued liabilities, of which we recorded $4.5 million
and $4.4 million, respectively, as a reduction to operating
expenses and the remainder to other income, which represented
monetary corrections. Monetary corrections are specific
indexation factors under Brazilian law that are used to restore
the real economic value of tax and other contingent obligations
in local Brazilian currency after taking into consideration the
effects of inflation.
As of December 31, 2008 and 2007, Nextel Brazil had accrued
liabilities of $18.3 million and $20.2 million,
respectively, related to contingencies, all of which were
classified in accrued contingencies reported as a component of
other long-term liabilities. Of the total accrued liabilities as
of December 31, 2008 and 2007, Nextel Brazil had
$9.2 million and $10.8 million in unasserted claims.
We currently estimate the range of reasonably possible losses
related to matters for which Nextel Brazil has not accrued
liabilities, as they are not deemed probable, to be between
$196.4 million and $200.4 million as of
December 31, 2008. We are continuing to evaluate the
likelihood of probable and reasonably possible losses, if any,
related to all known contingencies. As a result, future
increases or decreases to our accrued liabilities may be
necessary and will be recorded in the period when such amounts
are determined to be probable and estimable.
Argentine
Contingencies
As of December 31, 2008 and 2007, Nextel Argentina had
accrued liabilities of $35.0 million and
$32.2 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.
Turnover Tax. The government of the
city of Buenos Aires imposes a turnover tax rate of 6% of
revenues for cellular companies while maintaining a 3% rate for
other telecommunications services. From a regulatory standpoint,
we are not considered a cellular company, although, the city of
Buenos Aires made claims to the effect that the higher turnover
tax rate should apply to our services. As a result, until April
2006, Nextel Argentina paid the turnover tax at a rate of 3% and
recorded a liability and related expense for the differential
between the higher rate applicable to cellular carriers and the
3% rate, plus interest. In April 2006, following some adverse
decisions by the city of Buenos Aires, Nextel Argentina decided
to pay under protest $18.8 million, which represented the
total amount of principal and interest, related to the
citys turnover tax claims and subsequently paid an
additional $4.2 million, plus interest, under protest, for
the period April 2006 through December 2006 related to this tax.
Nextel Argentina filed a lawsuit against the city of Buenos
Aires to pursue the reimbursement of the $18.8 million paid
under protest in April 2006.
In December 2006, the city of Buenos Aires issued new laws,
which Nextel Argentina believes support its position that it
should be taxed at the general 3% rate and not at the 6%
cellular rate. Beginning in January 2007, Nextel Argentina
determined that it would continue to accrue and pay only the 3%
general turnover tax rate and would continue with its efforts to
obtain reimbursement of amounts previously paid under protest in
excess of that level.
In 2007, Nextel Argentina received a $4.2 million tax
refund, plus interest, as the result of a resolution issued by
the tax authorities of the city of Buenos Aires with respect to
the amounts paid from April 2006 through December 2006 relating
to this tax. Nextel Argentina believes that the tax refund
clarifies and confirms that only the 3% general turnover tax
rate is applicable to our services. The resolution also
indicated that the city of Buenos Aires will defer the decision
of the pending lawsuit to pursue the reimbursement of the
$18.8 million paid under protest in April 2006 until the
court issues a ruling on the case. In addition, Nextel Argentina
unconditionally and unilaterally committed to donate
$3.4 million to charitable organizations. Other provincial
governments have sought to impose similar increases in the
turnover tax rate applicable to Nextel Argentina. Nextel
Argentina continues to
47
pay the turnover tax at the existing rate and accrues a
liability for the incremental difference in the rate. As of
December 31, 2008 and 2007, Nextel Argentina had accrued
$9.9 million and $6.8 million, respectively, for local
turnover taxes in this province, which are included as
components of accrued expenses and other.
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires us to make estimates and judgments that
affect the amounts reported in those financial statements and
accompanying notes. We consider the accounting policies and
estimates addressed below the most important to our financial
position and results of operations, either because of the
significance of the financial statement item or because they
require the exercise of significant judgment
and/or use
of significant estimates. Although we believe that the
estimates, we use are reasonable, due to the inherent
uncertainty involved in making those estimates, actual results
reported in future periods could differ from those estimates.
For additional information, see Note 1 to our consolidated
financial statements included at the end of this annual report
on
Form 10-K.
Revenue Recognition. While our revenue
recognition policy does not require the exercise of significant
judgment or the use of significant estimates, we believe that
our policy is significant as revenue is a key component of our
results of operations.
Operating revenues primarily consist of service revenues and
revenues generated from the sale and rental of handsets and
accessories. We present our operating revenues net of
value-added taxes, but we include certain revenue-based taxes
that are our primary obligation. Service revenues primarily
consist of fixed monthly access charges for mobile telephone
service and two-way radio service. Other components of service
revenue include revenues from calling party pays programs where
applicable and variable charges for airtime and two-way radio
usage in excess of plan minutes, long-distance charges and
international roaming revenues derived from calls placed by our
customers on other carriers networks.
We recognize revenue for access charges and other services
charged at fixed amounts ratably over the service period, net of
credits and adjustments for service discounts and value-added
taxes. We recognize excess usage, local, long distance and
calling party pays revenue at contractual rates per minute as
minutes are used. We record cash received in excess of revenues
earned as deferred revenues.
We bill excess usage to our customers in arrears. In order to
recognize the revenues originating from excess usage subsequent
to customer invoicing, we estimate the unbilled portion based on
the usage that the handset had during the part of the month
already billed, and we use this actual usage to estimate the
unbilled usage for the rest of the month taking into
consideration working days and seasonality. Our estimates are
based on our experience in each market. We periodically evaluate
our estimates by comparing them to actual excess usage revenue
billed the following month. While our estimates have been
consistent with our actual results, actual usage in future
periods could differ from our estimates.
Other revenues primarily include amounts generated from our
handset maintenance programs, roaming revenues generated from
other companies customers that roam on our networks and
co-location rental revenues from third party tenants that rent
space on our towers. We recognize revenue generated from our
handset maintenance programs on a monthly basis at fixed amounts
over the service period. We recognize roaming revenues at
contractual rates per minute as minutes are used. We recognize
co-location revenues from third party tenants on a monthly basis
based on the terms set by the underlying agreements.
We recognize revenue from handset and accessory sales when title
and risk of loss passes upon delivery of the handset or
accessory to the customer as this is considered a separate
earnings process from the sale of wireless services.
Allowance for Doubtful Accounts. We
establish an allowance for doubtful accounts receivable
sufficient to cover probable and reasonably estimated losses.
Our methodology for determining our allowance for doubtful
accounts receivable requires significant estimates. Since we
have over one million accounts, it is impracticable to review
the collectibility of each individual account when we determine
the amount of our allowance for doubtful accounts receivable
each period. Therefore, we consider a number of factors in
establishing the allowance on a
market-by-market
basis, including historical collection experience, current
economic trends, forecasted write-offs, age of the accounts
receivable portfolio and other factors. Actual write-offs in the
future could be impacted by general economic and business
conditions that are difficult to predict and therefore may
differ from our estimates. See Item 1A.
Risk Factors 1. Adverse changes in the economic
environment in our markets and a decline in foreign exchange
rates for currencies in our markets may adversely affect our
growth and our operating results.
48
Depreciation of Property, Plant and
Equipment. The operation of wireless
communications networks is a capital intensive business. We
record at cost our network assets and other improvements that in
our opinion, extend the useful lives of the underlying assets,
and depreciate those assets over their estimated useful lives.
We calculate depreciation using the straight-line method based
on estimated useful lives ranging from 3 to 20 years for
mobile network equipment and network software and 3 to
10 years for office equipment, furniture and fixtures, and
other, which includes
non-network
internal use software. We depreciate our corporate aircraft
under capital lease using the straight-line method based on the
lease term of 8 years. We amortize leasehold improvements
over the shorter of the lease terms or the useful lives of the
improvements. Our networks are highly complex and, due to
constant innovation and enhancements, certain components of
those networks may lose their utility sooner than anticipated.
We periodically reassess the economic life of these components
and make adjustments to their useful lives after considering
historical experience and capacity requirements, consulting with
the vendor and assessing new product and market demands and
other factors. When our assessment indicates that the economic
life of a network component is shorter than originally
anticipated, we depreciate its remaining book value over its
revised useful life. Further, the deployment of any new
technologies could adversely affect the estimated remaining
useful lives of our network assets, which could significantly
impact future results of operations.
Amortization of Intangible
Assets. Intangible assets primarily consist
of our telecommunications licenses. We calculate amortization on
our licenses using the straight-line method based on estimated
useful lives of 12 to 20 years. While the terms of our
licenses, including renewals, range from 30 to 40 years,
the political and regulatory environments in the markets we
serve are continuously changing and, as a result, the cost of
renewing our licenses could be significant. Therefore, we do not
view the renewal of our licenses to be perfunctory. In addition,
the wireless telecommunications industry is experiencing
significant technological change, and the commercial life of any
particular technology is difficult to predict. Most of our
licenses give us the right to use 800 MHz spectrum that is
non-contiguous, and the iDEN technology is the only widespread,
commercially available technology that operates on
non-contiguous spectrum. As a result, our ability to deploy new
technologies using 800MHz spectrum may be limited. In light of
these uncertainties we classify our licenses as finite lived
intangible assets. Our licenses are subject to renewal after the
initial term, provided that we have complied with applicable
rules and policies in each of our markets. We intend to comply,
and believe we have complied, with these rules and policies in
all material respects. However, because governmental authorities
have discretion as to the renewal of licenses, our licenses may
not be renewed or we may be required to pay significant renewal
fees, either of which could have a significant impact on the
estimated useful lives of our licenses, which could
significantly impact future results of operations.
Asset Retirement Obligations. We record
an asset retirement obligation, or ARO, and an associated asset
retirement cost, or ARC, when we have a legal obligation in
connection with the retirement of tangible long-lived assets.
Our obligations under SFAS No. 143 arise from certain
of our leases and relate primarily to the cost of removing our
network infrastructure and administrative assets from the leased
space where these assets are located at the end of the lease.
Estimating these obligations requires us to make certain
assumptions that are highly judgmental in nature. The
significant assumptions used in estimating our asset retirement
obligations include the following: the probability that our
assets with asset retirement obligations will be removed at the
lessors directive; expected settlement dates that coincide
with lease expiration dates plus estimates of lease extensions;
removal costs that are indicative of what third party vendors
would charge us to remove the assets; expected inflation rates;
and credit-adjusted risk-free rates that approximate our
incremental borrowing rates. We periodically review these
assumptions to ensure that the estimates are reasonable. Any
change in the assumptions used could significantly affect the
amounts recorded with respect to our asset retirement
obligations.
Foreign Currency. We translate the
results of operations for our
non-U.S. subsidiaries
from the designated functional currency to the U.S. dollar
using average exchange rates for the relevant period. We
translate assets and liabilities using the exchange rate in
effect at the relevant reporting date. We report the resulting
gains or losses from translating foreign currency financial
statements as other comprehensive income or loss. Because
average exchange rates are used to translate the operations of
our
non-U.S. subsidiaries,
our operating companies trends may be impacted by the
translation.
We report the effect of changes in exchange rates on
U.S. dollar-denominated assets and liabilities as foreign
currency transaction gains or losses. We report the effect of
changes in exchange rates on intercompany transactions of a
long-term investment nature as part of the cumulative foreign
currency translation adjustment in our consolidated financial
statements. The intercompany transactions that, in our view, are
of a long-term investment nature include intercompany loans and
advances from our U.S. subsidiaries to Nextel Brazil and
Nextel Chile and an intercompany payable to Nextel Mexico. In
contrast, we report the effect of exchange rates on
U.S. dollar denominated intercompany loans and advances to
our foreign subsidiaries that are due, or for which repayment is
anticipated, in the foreseeable future, as foreign currency
transaction gains or losses, net of income taxes in our
49
consolidated statements of operations. As a result, our
determination of whether intercompany loans and advances are of
a long-term investment nature can have a significant impact on
how we report foreign currency transaction gains and losses in
our consolidated financial statements.
Loss Contingencies. We account for and
disclose loss contingencies such as pending litigation and
actual or possible claims and assessments in accordance with
SFAS No. 5, Accounting for Contingencies.
We accrue for loss contingencies if it is probable that a loss
will occur and if the loss can be reasonably estimated. We
disclose, but do not accrue for, loss contingencies if it is
reasonably possible that a loss will occur and if the loss can
be reasonably estimated. We do not accrue for or disclose loss
contingencies if there is only a remote possibility that the
loss will occur. SFAS No. 5 requires us to make
judgments regarding future events, including an assessment
relating to the likelihood that a loss may occur and an estimate
of the amount of such loss. In assessing loss contingencies, we
often seek the assistance of our legal counsel and in some
instances, of third party legal counsel. As a result of the
significant judgment required in assessing and estimating loss
contingencies, actual losses realized in future periods could
differ significantly from our estimates.
Stock-Based Compensation. On
January 1, 2006, we adopted the fair value recognition
provisions of SFAS No. 123R, Shared-Based
Payment, which requires the measurement and recognition of
compensation expense, based on estimated fair values, for all
share-based awards, made to employees and directors, including
stock options and restricted stock. We used the modified
prospective transition method and therefore did not restate our
prior periods results. As a result, our consolidated
statements of operations for the years ended December 31,
2008, 2007 and 2006 include share-based compensation expense for
awards granted (i) prior to, but not yet vested as of
January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of
SFAS No. 123, Accounting for Stock Based
Compensation,, and (ii) subsequent to January 1,
2006, based on the grant date fair value estimated in accordance
with the provisions of SFAS 123R.
We use the Black-Scholes-Merton option pricing model, which we
refer to as the Black-Scholes Model, for purposes of determining
the estimated fair value of share-based payment awards on the
date of grant under SFAS 123R. The Black-Scholes Model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In
addition, the Black-Scholes-Model requires the input of highly
subjective assumptions, including expected stock price
volatility and exercise behavior, as well as other assumptions
including the average risk free interest rate and expected
dividend yield.
The assumptions we use in the Black-Scholes Model represent our
best estimates, but these estimates involve inherent
uncertainties and the application of management judgment.
Consequently, there is a risk that our estimates of the fair
values of our stock option awards on the grant dates may bear
little resemblance to the actual values realized upon the
exercise, expiration, early termination or forfeiture of those
stock option awards in the future. For example, certain stock
option awards may expire worthless or otherwise result in zero
intrinsic value as compared to the fair values originally
estimated on the grant date and reported in our financial
statements. Alternatively, value may be realized from a stock
option award that is significantly in excess of the fair value
originally estimated on the grant date and reported in our
financial statements. Additionally, the use of alternative
assumptions could produce significantly different estimates of
the fair value of stock option awards and consequently, the
related amounts recognized in the consolidated statements of
operations. Currently, there is no other practical application
to verify the reliability and accuracy of the estimates from
option-pricing valuation models such as Black-Scholes. Although
the fair value of stock option awards is determined in
accordance with SFAS 123R and SEC Staff Accounting
Bulletin Topic 14, or SAB 107, using the Black-Scholes
Model, the fair value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.
Because stock options granted to employees have characteristics
significantly different from those of traded options, and
because changes in the subjective input assumptions can
materially affect the fair value estimate, we believe that the
existing models, including the Black-Scholes model, do not
necessarily provide a reliable single measure of the fair value
of the stock options.
Income Taxes. We account for income
taxes using the asset and liability method, under which we
recognize deferred income taxes for the tax consequences
attributable to differences between the financial statement
carrying amounts and the tax bases of existing assets and
liabilities, as well as for tax loss carryforwards and tax
credit carryforwards. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recoverable or settled. We recognize the effect
on deferred taxes of a change in tax rates in income in the
period that includes the enactment date. We provide a valuation
allowance against deferred tax assets if, based upon the weight
of available evidence, we do not believe it is
more-likely-than-not that some or all of the
deferred tax assets will be realized. We report remeasurement
gains and losses related to deferred tax assets and liabilities
in our income tax provision.
50
Historically, a substantial portion of our deferred tax asset
valuation allowance related to deferred tax assets that, if
realized, would not result in a benefit to our income tax
provision. In accordance with Statement of Position
90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, or
SOP 90-7,
we recognize decreases in the valuation allowance existing at
the reorganization date first as a reduction in the carrying
value of intangible assets existing at the reorganization date
of October 31, 2002 and then as an increase to paid-in
capital. As of December 31, 2004, we reduced to zero the
carrying value of our intangible assets existing at the
reorganization date. In accordance with the changes made to
SOP 90-7
by SFAS No. 141(R), Business Combinations,
or SFAS No. 141(R), effective beginning in 2009, we
will record the future decreases, if any, of the valuation
allowance existing on the reorganization date as a reduction to
income tax expense. We will also record decreases, if any, of
the post-reorganization valuation allowance as a reduction to
our income tax expense. Using a
with-and-without
method, in accordance with SFAS 123R, we recognize
decreases in the valuation allowance attributable to the excess
tax benefits resulting from the exercise of employee stock
options as an increase to paid-in capital. In each market and in
the U.S., we recognize decreases in the valuation allowance
first as a decrease in the remaining valuation allowance that
existed as of the reorganization date, then as a decrease in any
post-reorganization valuation allowance, and finally as a
decrease of the valuation allowance associated with stock option
deductions.
Realization of deferred tax assets in any of our markets depends
on continued future profitability in these markets. Our ability
to generate the expected amounts of taxable income from future
operations is dependent upon general economic conditions,
technology trends, political uncertainties, competitive
pressures and other factors beyond managements control. If
our operations continue to demonstrate profitability, we may
further reverse additional deferred tax asset valuation
allowance balances during 2009. We will continue to evaluate the
deferred tax asset valuation allowance balances in all of our
foreign and U.S. companies throughout 2009 to determine the
appropriate level of valuation allowances.
During the fourth quarter of 2007, we changed our historic
position regarding the repatriation of foreign earnings back to
the U.S. and we recorded a $69.6 million provision in
deferred tax liability for U.S. federal, state and foreign
taxes with respect to future remittances of certain
undistributed earnings (other than income that has been
previously taxed in the U.S. under the subpart F rules) of
certain of our foreign subsidiaries. This deferred tax liability
decreased by $14.5 million to $55.1 million as of
December 31, 2008 due to the appreciation of the dollar
during the fourth quarter of 2008. Except for the earnings
associated with this $55.1 million provision, we currently
have no intention to remit any additional undistributed earnings
of our foreign subsidiaries, other than income that has been
previously taxed in the U.S. under the subpart F rules.
Should additional amounts of our foreign subsidiaries
undistributed earnings be remitted to the U.S. as
dividends, we may be subject to additional U.S. income
taxes (net of allowable foreign tax credits) and foreign
withholding taxes. It is not practicable to estimate the amount
of any additional taxes which may be payable on the remaining
undistributed earnings.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. We regularly assess the potential outcome of current and
future examinations in each of the taxing jurisdictions when
determining the adequacy of the provision for income taxes. We
have only recorded financial statement benefits for tax
positions which we believe reflect the
more-likely-than-not criteria of Financial
Accounting Standards Board, or FASB, Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109, or
FIN 48. We have also established income tax reserves in
accordance with FIN 48 where necessary. Once a financial
statement benefit for a tax position is recorded or a tax
reserve is established, we adjust it only when there is more
information available or when an event occurs necessitating a
change. While we believe that the amount of the recorded
financial statement benefits and tax reserves reflect the
FIN 48 more-likely-than-not criteria, it is possible that
the ultimate outcome of current or future examinations may
result in a reduction to the tax benefits previously recorded on
our consolidated financial statements or may exceed the current
income tax reserves in amounts that could be material.
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of handsets and
accessories. Service revenues primarily include fixed monthly
access charges for mobile telephone service and two-way radio
and other services, including revenues from calling party pays
programs and variable charges for airtime and two-way radio
usage in excess of plan minutes, long-distance charges and
international roaming revenues derived from calls placed by our
customers. Digital handset and accessory revenues represent
revenues we earn on the sale of digital handsets and accessories
to our customers.
51
In addition, we also have other less significant sources of
revenues. These revenues primarily include revenues generated
from our handset maintenance programs, roaming revenues
generated from other companies customers that roam on our
networks and co-location rental revenues from third-party
tenants that rent space on our towers.
See Revenue Recognition above and Note 1 to our
consolidated financial statements included at the end of this
annual report on
Form 10-K
for a description of our revenue recognition methodology.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of handset and accessory sales.
Cost of providing service consists largely of costs of
interconnection with local exchange carrier facilities and
direct switch and transmitter and receiver site costs, including
property taxes, expenses related to our handset maintenance
programs, insurance costs, utility costs, maintenance costs,
spectrum license fees and rent for the network switches and
transmitter sites used to operate our mobile networks.
Interconnection costs have fixed and variable components. The
fixed component of interconnection costs consists of monthly
flat-rate fees for facilities leased from local exchange
carriers, primarily for circuits required to connect our
transmitter sites to our network switches and to connect our
switches. The variable component of interconnection costs, which
fluctuates in relation to the volume and duration of wireless
calls, generally consists of per-minute use fees charged by
wireline and wireless providers for wireless calls from our
handsets terminating on their networks. Cost of digital handset
and accessory sales consists largely of the cost of the handset
and accessories, order fulfillment and installation-related
expenses, as well as write-downs of digital handset and related
accessory inventory for shrinkage or obsolescence.
Our service and other revenues and the variable component of our
cost of service are primarily driven by the number of handsets
in service and not necessarily by the number of customers, as
one customer may purchase one or many handsets. Our digital
handset and accessory revenues and cost of digital handset and
accessory sales are primarily driven by the number of new
handsets placed into service, as well as handset upgrades
provided to existing customers during the year.
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.
|
|
1.
|
Year
Ended December 31, 2008 vs. Year Ended December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2008
|
|
|
Revenues
|
|
|
|
2007
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
4,048,466
|
|
|
|
95
|
|
%
|
|
$
|
3,184,696
|
|
|
|
97
|
|
%
|
|
$
|
863,770
|
|
|
|
27
|
|
%
|
Digital handset and accessory revenues
|
|
|
220,914
|
|
|
|
5
|
|
%
|
|
|
111,599
|
|
|
|
3
|
|
%
|
|
|
109,315
|
|
|
|
98
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,269,380
|
|
|
|
100
|
|
%
|
|
|
3,296,295
|
|
|
|
100
|
|
%
|
|
|
973,085
|
|
|
|
30
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(1,110,927
|
)
|
|
|
(26
|
)
|
%
|
|
|
(850,934
|
)
|
|
|
(26
|
)
|
%
|
|
|
(259,993
|
)
|
|
|
31
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(585,391
|
)
|
|
|
(14
|
)
|
%
|
|
|
(443,760
|
)
|
|
|
(13
|
)
|
%
|
|
|
(141,631
|
)
|
|
|
32
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,696,318
|
)
|
|
|
(40
|
)
|
%
|
|
|
(1,294,694
|
)
|
|
|
(39
|
)
|
%
|
|
|
(401,624
|
)
|
|
|
31
|
|
%
|
Selling and marketing expenses
|
|
|
(568,864
|
)
|
|
|
(13
|
)
|
%
|
|
|
(445,516
|
)
|
|
|
(14
|
)
|
%
|
|
|
(123,348
|
)
|
|
|
28
|
|
%
|
General and administrative expenses
|
|
|
(831,778
|
)
|
|
|
(20
|
)
|
%
|
|
|
(632,377
|
)
|
|
|
(19
|
)
|
%
|
|
|
(199,401
|
)
|
|
|
32
|
|
%
|
Depreciation and amortization
|
|
|
(404,479
|
)
|
|
|
(9
|
)
|
%
|
|
|
(304,624
|
)
|
|
|
(9
|
)
|
%
|
|
|
(99,855
|
)
|
|
|
33
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
767,941
|
|
|
|
18
|
|
%
|
|
|
619,084
|
|
|
|
19
|
|
%
|
|
|
148,857
|
|
|
|
24
|
|
%
|
Interest expense, net
|
|
|
(162,614
|
)
|
|
|
(4
|
)
|
%
|
|
|
(128,733
|
)
|
|
|
(4
|
)
|
%
|
|
|
(33,881
|
)
|
|
|
26
|
|
%
|
Interest income
|
|
|
68,411
|
|
|
|
2
|
|
%
|
|
|
67,429
|
|
|
|
2
|
|
%
|
|
|
982
|
|
|
|
1
|
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(120,572
|
)
|
|
|
(3
|
)
|
%
|
|
|
19,008
|
|
|
|
1
|
|
%
|
|
|
(139,580
|
)
|
|
|
NM
|
|
|
Debt conversion expense
|
|
|
|
|
|
|
|
|
|
|
|
(26,429
|
)
|
|
|
(1
|
)
|
%
|
|
|
26,429
|
|
|
|
(100
|
)
|
%
|
Other expense, net
|
|
|
(28,806
|
)
|
|
|
(1
|
)
|
%
|
|
|
(1,914
|
)
|
|
|
|
|
|
|
|
(26,892
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
524,360
|
|
|
|
12
|
|
%
|
|
|
548,445
|
|
|
|
17
|
|
%
|
|
|
(24,085
|
)
|
|
|
(4
|
)
|
%
|
Income tax provision
|
|
|
(155,255
|
)
|
|
|
(3
|
)
|
%
|
|
|
(170,027
|
)
|
|
|
(5
|
)
|
%
|
|
|
14,772
|
|
|
|
(9
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
369,105
|
|
|
|
9
|
|
%
|
|
$
|
378,418
|
|
|
|
12
|
|
%
|
|
$
|
(9,313
|
)
|
|
|
(2
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
52
During 2007 and 2008, we significantly expanded our subscriber
base across all of our markets with the majority of this growth
concentrated in Mexico and Brazil. As a result, both our
consolidated revenues and consolidated operating expenses
increased substantially from 2007 to 2008. Both our consolidated
operating margin and our other consolidated operating expenses
as a percentage of consolidated operating revenues remained
relatively stable from 2007 to 2008. During 2008, we experienced
a higher consolidated customer turnover rate, which resulted
primarily from the more competitive sales environment in Mexico.
While we have implemented initiatives designed to stabilize our
customer turnover rate, the global economic environment and
competitive conditions we face may adversely affect our ability
to retain customers, particularly in Mexico.
We continued to invest in coverage expansion and network
improvements in 2008, resulting in consolidated capital
expenditures of $830.8 million, which represented a
$164.1 million increase from 2007. The increased level of
investment occurred primarily in Brazil and Mexico where we
continued to expand our coverage areas and simultaneously
improve the quality and capacity of our networks, consistent
with our plans to increase our customer base in those markets.
We expect that the amounts invested in Brazil and Mexico to
expand our network coverage and improve network quality and
capacity will continue to represent the majority of our
consolidated capital expenditure investments with a more
significant portion of those investments being made in Brazil as
we focus more resources on expanding in that market. In
addition, our deployment of a next generation network in Peru
will require additional significant capital expenditures. We
will incur additional significant capital expenditures if we
pursue our plans to acquire spectrum and deploy a next
generation network in any of our other markets. See Future
Capital Needs and Resources Capital
Expenditures for more information.
The values of the local currencies in each of our markets
depreciated significantly relative to the U.S. dollar both
during the fourth quarter of 2008 and subsequent to
December 31, 2008, primarily in Brazil and Mexico. Our
operating results in 2009 will be adversely affected in
comparison to prior periods if the values of the local
currencies relative to the U.S. dollar remain at the
average levels that prevailed during the fourth quarter of 2008
or if those values depreciate further.
The $863.8 million, or 27%, increase in consolidated
service and other revenues from 2007 to 2008 is due to a 34%
increase in the average number of total handsets in service,
primarily in Mexico and Brazil, resulting from both the
continued strong demand for our services, as well as our
balanced growth and expansion strategy in those markets. This
increase was partially offset by declines in average
consolidated revenue per subscriber in both Mexico and Peru as a
result of the competitive conditions in Mexico and an increase
in the percentage of subscribers purchasing prepaid rate plans
in Peru.
The $109.3 million, or 98%, increase in consolidated
digital handset and accessory revenues from 2007 to 2008 is
largely due to an increase in handset upgrades for existing
subscribers and, to a lesser extent, an increase in the average
price per handset upgrade resulting from the launch of new
handset models and an increase in handset sales to new
subscribers.
The $260.0 million, or 31%, increase in consolidated cost
of service from 2007 to 2008 is principally a result of the
following:
|
|
|
|
|
a $120.7 million, or 26%, increase in consolidated
interconnect costs resulting from a 23% increase in consolidated
interconnect minutes of use and an increase, mostly in Brazil,
in the proportion of mobile-to-mobile minutes of use, which
generally have higher per minute costs;
|
|
|
|
a $61.5 million, or 24%, increase in consolidated direct
switch and transmitter and receiver site costs resulting from a
19% increase in the total number of sites in service from
December 31, 2007, as well as an increase in operating and
maintenance costs per site for new and existing sites, primarily
in Mexico; and
|
|
|
|
a $49.4 million, or 53%, increase in consolidated service
and repair costs mainly as a result of an increased percentage
of the consolidated subscriber base participating in our handset
maintenance programs, as well as an increase in cost per handset
serviced.
|
The $141.6 million, or 32%, increase in consolidated cost
of digital handset and accessory sales from 2007 to 2008 is
largely due to an increase in handset upgrades for existing
subscribers and, to a lesser extent, an increase in handset
sales for new subscribers.
53
|
|
3.
|
Selling and
marketing expenses
|
The $123.3 million, or 28%, increase in consolidated
selling and marketing expenses from 2007 to 2008 is principally
a result of the following:
|
|
|
|
|
a $51.4 million, or 28%, increase in consolidated indirect
commissions resulting from a 32% increase in total gross
subscriber additions generated through external sales channels,
as well as increased commission rates in Mexico;
|
|
|
|
a $47.1 million, or 30%, increase in consolidated payroll
expenses and direct commissions resulting from a 26% increase in
total gross subscriber additions generated by internal sales
personnel, as well as an increase in selling and marketing
personnel necessary to support continued consolidated sales
growth; and
|
|
|
|
a $21.2 million, or 24%, increase in consolidated
advertising expenses mainly related to the launch of new markets
in connection with our expansion plans in Brazil and Mexico and
increased advertising initiatives related to overall subscriber
growth, particularly in those markets.
|
|
|
4.
|
General and
administrative expenses
|
The $199.4 million, or 32%, increase in consolidated
general and administrative expenses from 2007 to 2008 are
largely a result of the following:
|
|
|
|
|
a $61.9 million, or 37%, increase in consolidated customer
care and billing operations expenses, mostly related to
increased payroll and related costs necessary to support our
growing subscriber base. This increase is the result of
additional customer care personnel necessary to support a larger
customer base in each of the markets in which we operate, as
well as an increase in salaries on a consolidated basis.
|
|
|
|
a $50.0 million, or 17%, increase in consolidated general
corporate costs largely resulting from higher personnel expenses
and an increase in facilities-related expenses due to continued
subscriber growth and expansion into new areas;
|
|
|
|
a $34.3 million, or 74%, increase in consolidated bad debt
expense, largely as a result of the increase in consolidated
operating revenues and a decrease in collection rates from new
subscribers in Mexico that have higher credit risk. As a result,
bad debt expense as a percentage of revenues increased from 1.4%
for 2007 to 1.9% for 2008;
|
|
|
|
a $25.7 million, or 53%, increase in revenue-based taxes in
Brazil that we report on a gross basis as both service and other
revenue and general and administrative expenses, primarily as a
result of the 52% increase in Nextel Brazils service and
other revenues; and
|
|
|
|
a $21.0 million, or 36%, increase in consolidated
information technology expenses primarily as a result of more
information technology personnel and higher systems maintenance
costs.
|
|
|
5.
|
Depreciation
and amortization
|
The $99.9 million, or 33%, increase in consolidated
depreciation and amortization from 2007 to 2008 is primarily due
to an increase in our consolidated property, plant and equipment
in service from December 31, 2007 to December 31, 2008
resulting from the continued expansion of our networks, mainly
in Brazil and Mexico, as well as a $17.9 million increase
in amortization principally related to the local
telecommunications concession that Nextel Mexico began using in
September 2007.
The $33.9 million, or 26%, increase in consolidated
interest expense from 2007 to 2008 is primarily due to the
following:
|
|
|
|
|
increases in the number of towers financed and the amount of
assets under capital leases in Mexico and Brazil;
|
|
|
|
the recognition of twelve months of interest expense on our
3.125% convertible notes issued during the second quarter of
2007, partially offset by the effect of converting our 2.875%
convertible notes during the third quarter of 2007; and
|
54
|
|
|
|
|
increased borrowings under Nextel Brazils syndicated loan
facility that occurred between October 2007 and March 2008,
partially offset by the effect of the payments of principal by
Nextel Mexico in April 2008 and October 2008 due under its
syndicated loan facility.
|
|
|
7.
|
Foreign
currency transaction (losses) gains, net
|
Consolidated foreign currency transaction losses of
$120.6 million for 2008 are primarily a result of the
impact of the significant depreciation in the value of the
Brazilian real relative to the U.S. dollar during the
second half of 2008 on Nextel Brazils syndicated loan
facility, which is denominated in U.S. dollars, as well as
the depreciation in the value of the Mexican peso relative to
the U.S. dollar on Nextel Mexicos
U.S. dollar-denominated net liabilities during the same
period.
Consolidated foreign currency transaction gains of
$19.0 million for 2007 are primarily a result of the impact
of the appreciation in the value of the Brazilian real relative
to the U.S. dollar on Nextel Brazils
U.S. dollar-denominated liabilities, primarily its
short-term intercompany payables.
|
|
8.
|
Debt
conversion expense
|
The $26.4 million in debt conversion expense for 2007
represents cash consideration that we paid in connection with
the tender offer for 99.99% of our 2.875% convertible notes
during the third quarter of 2007.
The $28.8 million in net consolidated other expense for
2008 primarily represents losses that we recognized related to
the decline in the value of our investment in a short-term
investment fund in the United States resulting from
deteriorating market conditions. If these conditions continue to
deteriorate, we could experience further losses related to this
investment.
The $14.8 million, or 9%, decrease in the consolidated
income tax provision from 2007 to 2008 is primarily due to
certain items included in the 2007 income tax provision that did
not recur in 2008; a $69.6 million tax provision for future
remittances of certain undistributed earnings, a
$48.7 million tax benefit from the release of a
post-reorganization deferred tax asset valuation allowance and a
$7.3 million net tax benefit for tax deductible dividends.
Segment
Results
We evaluate performance of our segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element of operational
performance, we recognize share-based payment expense at the
corporate level and exclude it when evaluating the business
performance of our segments. For several years, we have charged
a management fee to Nextel Mexico for services rendered by
corporate management. For the year ended December 31, 2008
and 2007, we reported these management fees as a separate line
item in the segment reporting information as these amounts are
now regularly provided to our chief operating decision maker.
During the year ended December 31, 2006 Nextel Mexico
incurred a management fee of $47.9 million. However, for
the year ended December 31, 2006, our segment information
does not reflect this management fee as a separate line item
because this amount was not provided to or used by our chief
operating decision maker in making operating decisions related
to this segment. The tables below provide a summary of the
components of our consolidated segments for the years ended
December 31, 2008 and 2007. The results of Nextel Chile are
included in Corporate and other.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Year Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
December 31, 2008
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
2,133,241
|
|
|
|
50
|
%
|
|
$
|
(762,674
|
)
|
|
|
45
|
%
|
|
$
|
(606,223
|
)
|
|
|
43
|
%
|
|
$
|
764,344
|
|
Nextel Brazil
|
|
|
1,330,919
|
|
|
|
31
|
%
|
|
|
(549,970
|
)
|
|
|
32
|
%
|
|
|
(410,980
|
)
|
|
|
29
|
%
|
|
|
369,969
|
|
Nextel Argentina
|
|
|
554,324
|
|
|
|
13
|
%
|
|
|
(250,303
|
)
|
|
|
15
|
%
|
|
|
(133,166
|
)
|
|
|
10
|
%
|
|
|
170,855
|
|
Nextel Peru
|
|
|
243,390
|
|
|
|
6
|
%
|
|
|
(126,024
|
)
|
|
|
7
|
%
|
|
|
(74,809
|
)
|
|
|
5
|
%
|
|
|
42,557
|
|
Corporate and other
|
|
|
8,741
|
|
|
|
|
|
|
|
(8,582
|
)
|
|
|
1
|
%
|
|
|
(175,464
|
)
|
|
|
13
|
%
|
|
|
(175,305
|
)
|
Intercompany eliminations
|
|
|
(1,235
|
)
|
|
|
|
|
|
|
1,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
4,269,380
|
|
|
|
100
|
%
|
|
$
|
(1,696,318
|
)
|
|
|
100
|
%
|
|
$
|
(1,400,642
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Year Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
December 31, 2007
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,792,699
|
|
|
|
55
|
%
|
|
$
|
(621,975
|
)
|
|
|
48
|
%
|
|
$
|
(494,879
|
)
|
|
|
46
|
%
|
|
$
|
675,845
|
|
Nextel Brazil
|
|
|
867,964
|
|
|
|
26
|
%
|
|
|
(365,548
|
)
|
|
|
28
|
%
|
|
|
(284,631
|
)
|
|
|
27
|
%
|
|
|
217,785
|
|
Nextel Argentina
|
|
|
442,093
|
|
|
|
13
|
%
|
|
|
(203,672
|
)
|
|
|
16
|
%
|
|
|
(100,067
|
)
|
|
|
9
|
%
|
|
|
138,354
|
|
Nextel Peru
|
|
|
190,858
|
|
|
|
6
|
%
|
|
|
(100,642
|
)
|
|
|
8
|
%
|
|
|
(54,447
|
)
|
|
|
5
|
%
|
|
|
35,769
|
|
Corporate and other
|
|
|
3,850
|
|
|
|
|
|
|
|
(4,026
|
)
|
|
|
|
|
|
|
(143,869
|
)
|
|
|
13
|
%
|
|
|
(144,045
|
)
|
Intercompany eliminations
|
|
|
(1,169
|
)
|
|
|
|
|
|
|
1,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
3,296,295
|
|
|
|
100
|
%
|
|
$
|
(1,294,694
|
)
|
|
|
100
|
%
|
|
$
|
(1,077,893
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with accounting principles generally accepted in
the United States, we translated the results of operations of
our operating segments using the average exchange rates for the
years ended December 31, 2008, 2007 and 2006. Although the
average exchange rates for the years ended December 31,
2008, 2007 and 2006 did not fluctuate significantly, Nextel
Mexicos and Nextel Brazils results of operations for
the fourth quarter of 2008 were particularly affected by 21% and
27% declines in the average value of the Mexican peso and the
Brazilian real, respectively, compared to the third quarter of
2008. The following table presents the average exchange rates we
used to translate the results of operations of our operating
segments, as well as changes from the average exchange rates
utilized in prior periods. Because the U.S. dollar is the
functional currency in Peru, Nextel Perus results of
operations are not significantly impacted by changes in the
U.S. dollar to Nuevo sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 to 2008
|
|
2006 to 2007
|
|
|
2008
|
|
2007
|
|
2006
|
|
Percent Change
|
|
Percent Change
|
|
Mexican peso
|
|
|
11.13
|
|
|
|
10.93
|
|
|
|
10.90
|
|
|
|
(1.8
|
)%
|
|
|
(0.3
|
)%
|
Brazilian real
|
|
|
1.83
|
|
|
|
1.95
|
|
|
|
2.18
|
|
|
|
6.2
|
%
|
|
|
11.8
|
%
|
Argentine peso
|
|
|
3.16
|
|
|
|
3.12
|
|
|
|
3.08
|
|
|
|
(1.5
|
)%
|
|
|
(1.3
|
)%
|
56
A discussion of the results of operations in each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
2,047,113
|
|
|
|
96
|
%
|
|
$
|
1,762,596
|
|
|
|
98
|
%
|
|
$
|
284,517
|
|
|
|
16
|
%
|
Digital handset and accessory revenues
|
|
|
86,128
|
|
|
|
4
|
%
|
|
|
30,103
|
|
|
|
2
|
%
|
|
|
56,025
|
|
|
|
186
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,133,241
|
|
|
|
100
|
%
|
|
|
1,792,699
|
|
|
|
100
|
%
|
|
|
340,542
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(401,846
|
)
|
|
|
(19
|
)%
|
|
|
(343,979
|
)
|
|
|
(19
|
)%
|
|
|
(57,867
|
)
|
|
|
17
|
%
|
Cost of digital handset and accessory sales
|
|
|
(360,828
|
)
|
|
|
(17
|
)%
|
|
|
(277,996
|
)
|
|
|
(16
|
)%
|
|
|
(82,832
|
)
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(762,674
|
)
|
|
|
(36
|
)%
|
|
|
(621,975
|
)
|
|
|
(35
|
)%
|
|
|
(140,699
|
)
|
|
|
23
|
%
|
Selling and marketing expenses
|
|
|
(317,620
|
)
|
|
|
(15
|
)%
|
|
|
(262,495
|
)
|
|
|
(14
|
)%
|
|
|
(55,125
|
)
|
|
|
21
|
%
|
General and administrative expenses
|
|
|
(288,603
|
)
|
|
|
(13
|
)%
|
|
|
(232,384
|
)
|
|
|
(13
|
)%
|
|
|
(56,219
|
)
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
764,344
|
|
|
|
36
|
%
|
|
|
675,845
|
|
|
|
38
|
%
|
|
|
88,499
|
|
|
|
13
|
%
|
Management fee
|
|
|
(32,187
|
)
|
|
|
(2
|
)%
|
|
|
(34,376
|
)
|
|
|
(2
|
)%
|
|
|
2,189
|
|
|
|
(6
|
)%
|
Depreciation and amortization
|
|
|
(191,372
|
)
|
|
|
(9
|
)%
|
|
|
(151,573
|
)
|
|
|
(9
|
)%
|
|
|
(39,799
|
)
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
540,785
|
|
|
|
25
|
%
|
|
|
489,896
|
|
|
|
27
|
%
|
|
|
50,889
|
|
|
|
10
|
%
|
Interest expense, net
|
|
|
(60,086
|
)
|
|
|
(2
|
)%
|
|
|
(60,527
|
)
|
|
|
(3
|
)%
|
|
|
441
|
|
|
|
(1
|
)%
|
Interest income
|
|
|
46,221
|
|
|
|
2
|
%
|
|
|
29,605
|
|
|
|
2
|
%
|
|
|
16,616
|
|
|
|
56
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(44,811
|
)
|
|
|
(2
|
)%
|
|
|
2,559
|
|
|
|
|
|
|
|
(47,370
|
)
|
|
|
NM
|
|
Other (expense) income, net
|
|
|
(311
|
)
|
|
|
|
|
|
|
2,103
|
|
|
|
|
|
|
|
(2,414
|
)
|
|
|
(115
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
481,798
|
|
|
|
23
|
%
|
|
$
|
463,636
|
|
|
|
26
|
%
|
|
$
|
18,162
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Nextel Mexico continues to be our largest and most profitable
market segment, comprising 50% of our consolidated operating
revenues and generating a 36% segment earnings margin for 2008,
which was slightly lower than the margin reported for 2007.
During 2008, Nextel Mexicos results of operations
reflected increased costs, including network, personnel and
other expenses, incurred in connection with the expansion of the
coverage, and the quality and capacity of its network to support
subscriber growth during the period.
During 2007 and continuing into 2008, some of Nextel
Mexicos competitors significantly lowered their prices for
postpaid wireless services, offered free or significantly
discounted handsets, specifically targeted some of Nextel
Mexicos largest corporate customers, offered various
incentives to Nextel Mexicos customers to switch service
providers, including reimbursement of cancellation fees, and
offered bundled telecommunications services that include local,
long distance and data services. Nextel Mexico is addressing
these competitive actions by, among other things, launching
attractive commercial campaigns and offering both handsets to
new and existing customers and more competitive rate plans.
These competitive rate plans have resulted in lower average
revenues per subscriber. Nextel Mexico took a number of
additional steps to improve its competitiveness including the
implementation of an increase in its commission rates and other
modifications to its compensation arrangements with its external
sales channels in an effort to promote additional sales through
these channels. These changes to the compensation arrangements
led to an increase in indirect commission expense during 2008
compared to 2007. The more competitive environment in Mexico
also resulted in a higher customer turnover rate during 2008
compared to 2007 and in the addition of more subscribers with
higher credit risk. As Nextel Mexico continues to expand its
customer base in both new and existing markets and continues to
address a more competitive sales environment, Nextel
Mexicos average revenue per subscriber could continue to
decline on a local currency basis during 2009. In
57
addition, while we have implemented initiatives that have
recently begun to stabilize the customer turnover rate in
Mexico, the competitive conditions we face there may adversely
affect our ability to retain customers.
Coverage expansion and network improvements in Mexico resulted
in capital expenditures totaling $218.6 million for 2008,
which represents 26% of our consolidated capital expenditures
for 2008 and which is a decrease from 38% of consolidated
capital expenditures during 2007. While we expect that Nextel
Mexico will continue to represent a significant portion of our
total capital expenditures in the future, as we continue to
increase the coverage and capacity of our networks in our
existing markets, we expect its percentage of total capital
expenditures to decrease now that its expansion plans launched
in 2005 are substantially complete and as we pursue more
aggressive expansion plans in our other markets, mostly in
Brazil. We expect subscriber growth in Mexico to continue as we
build a customer base in new markets that were recently launched.
The average value of the Mexican peso for the year ended
December 31, 2008 depreciated relative to the
U.S. dollar by 2% from the year ended December 31,
2007. As a result, the components of Nextel Mexicos
results of operations for the year ended December 31, 2008
after translation into U.S. dollars reflect slightly lower
increases in U.S. dollar-denominated revenues and expenses
than would have occurred if it were not for the impact of the
depreciation in the average value of the peso relative to the
U.S. dollar. Nextel Mexicos results of operations in
the fourth quarter of 2008 were particularly affected by a 21%
decline in the average value of the peso compared to the third
quarter of 2008. The average value of the Mexican peso continued
to decline in January 2009. Nextel Mexicos results will
continue to be adversely affected in future periods if the
average value of the Mexican peso relative to the
U.S. dollar remains at its current levels or if the peso
depreciates further.
The $284.5 million, or 16%, increase in service and other
revenues from 2007 to 2008 is primarily due to the following:
|
|
|
|
|
a 32% increase in the average number of handsets in service
resulting from growth in Nextel Mexicos existing markets,
as well as the expansion of service coverage into new markets
launched in 2008; and
|
|
|
|
a $21.5 million, or 28%, increase in revenues generated
from Nextel Mexicos handset maintenance program as a
result of an increased percentage of Nextel Mexicos
subscriber base participating in this program.
|
These increases were partially offset by a decline in Nextel
Mexicos average revenue per subscriber due to the launch
of more competitive rate plans described above.
The $56.0 million, or 186%, increase in digital handset and
accessory revenues from 2007 to 2008 is primarily the result of
an increase in handset sales to new subscribers and an increase
in handset upgrades to existing subscribers, as well as an
increase in the average price paid by subscribers for both
handset sales and handset upgrades.
The $57.9 million, or 17%, increase in cost of service from
2007 to 2008 is principally a result of the following:
|
|
|
|
|
a $16.9 million, or 14%, increase in direct switch and
transmitter and receiver site costs resulting from a 10%
increase in the number of sites in service from
December 31, 2007 to December 31, 2008, as well as an
increase in operating and maintenance costs per site for new and
existing sites;
|
|
|
|
a $16.1 million, or 9%, increase in interconnect costs,
largely as a result of an 11% increase in interconnect system
minutes of use, as well as an increase in the proportion of
mobile-to-mobile minutes of use, which generally have higher
costs per minute;
|
|
|
|
a $10.9 million increase in facilities and administrative
costs largely due to higher product support costs; and
|
|
|
|
a $10.0 million, or 36%, increase in service and repair
costs largely due to increased costs of repairs, as well as an
increased percentage of Nextel Mexicos subscriber base
participating in its handset maintenance program.
|
The $82.8 million, or 30%, increase in cost of digital
handset and accessory sales from 2007 to 2008 is primarily due
to an increase in handset sales to new subscribers and an
increase in handset upgrades to existing subscribers, partially
offset by a reduction in handset unit costs.
58
|
|
3.
|
Selling and
marketing expenses
|
The $55.1 million, or 21%, increase in selling and
marketing expenses from 2007 to 2008 is primarily a result of
the following:
|
|
|
|
|
a $33.9 million, or 27%, increase in indirect commissions,
primarily due to a 28% increase in gross additions generated by
Nextel Mexicos external sales channels;
|
|
|
|
a $14.3 million, or 19%, increase in direct commissions and
payroll expenses, principally due to a 21% increase in gross
subscriber additions generated by Nextel Mexicos internal
sales personnel; and
|
|
|
|
a $7.3 million, or 14%, increase in advertising costs
resulting from the launch of new rate plans, as well as an
increase in advertising expenses designed specifically to
increase the market awareness of the Nextel brand name in Mexico.
|
|
|
4.
|
General and
administrative expenses
|
The $56.2 million, or 24%, increase in general and
administrative expenses from 2007 to 2008 is largely a result of
the following:
|
|
|
|
|
a $25.1 million, or 91%, increase in bad debt expense,
which increased as a percentage of revenue from 1.6% in 2007 to
2.5% in 2008, primarily due to a decrease in customer
collections from new subscribers that have higher credit risk,
as well as a change in the mix of Nextel Mexicos customer
base toward more individual customers;
|
|
|
|
a $21.7 million, or 26%, increase in customer care
expenses, primarily due to an increase in payroll and employee
related expenses caused by an increase in customer care
personnel necessary to support Nextel Mexicos growing
customer base; and
|
|
|
|
a $5.4 million, or 26%, increase in information technology
expenses resulting from an increase in systems maintenance
expenses, as well as an increase in payroll and related expenses
resulting from more information technology personnel.
|
|
|
5.
|
Depreciation
and amortization
|
The $39.8 million, or 26%, increase in depreciation and
amortization from 2007 to 2008 is primarily due to higher
depreciation related to an increase in Nextel Mexicos
property, plant and equipment in service resulting from the
continued build-out of Nextel Mexicos network in
connection with its expansion plan, as well as a
$16.4 million increase in amortization related to the local
telecommunications concession of licenses that Nextel Mexico
begun using in September 2007.
The $16.6 million, or 56%, increase in interest income from
2007 to 2008 is primarily a result of higher average cash
balances.
|
|
7.
|
Foreign
currency transaction (losses) gains, net
|
Foreign currency transaction losses of $44.8 million for
2008 are primarily due to the impact of the depreciation of the
value of the Mexican peso against the U.S. dollar on Nextel
Mexicos U.S. dollar-denominated net liabilities.
Foreign currency transaction gains of $2.6 million for 2007
are primarily due to the impact of the appreciation of the value
of the Mexican peso against the U.S. dollar on Nextel
Mexicos U.S. dollar-denominated net liabilities.
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,262,838
|
|
|
|
95
|
%
|
|
$
|
833,241
|
|
|
|
96
|
%
|
|
$
|
429,597
|
|
|
|
52
|
%
|
Digital handset and accessory revenues
|
|
|
68,081
|
|
|
|
5
|
%
|
|
|
34,723
|
|
|
|
4
|
%
|
|
|
33,358
|
|
|
|
96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,330,919
|
|
|
|
100
|
%
|
|
|
867,964
|
|
|
|
100
|
%
|
|
|
462,955
|
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(443,900
|
)
|
|
|
(33
|
)%
|
|
|
(284,744
|
)
|
|
|
(33
|
)%
|
|
|
(159,156
|
)
|
|
|
56
|
%
|
Cost of digital handset and accessory sales
|
|
|
(106,070
|
)
|
|
|
(8
|
)%
|
|
|
(80,804
|
)
|
|
|
(9
|
)%
|
|
|
(25,266
|
)
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(549,970
|
)
|
|
|
(41
|
)%
|
|
|
(365,548
|
)
|
|
|
(42
|
)%
|
|
|
(184,422
|
)
|
|
|
50
|
%
|
Selling and marketing expenses
|
|
|
(163,402
|
)
|
|
|
(12
|
)%
|
|
|
(117,754
|
)
|
|
|
(14
|
)%
|
|
|
(45,648
|
)
|
|
|
39
|
%
|
General and administrative expenses
|
|
|
(247,578
|
)
|
|
|
(19
|
)%
|
|
|
(166,877
|
)
|
|
|
(19
|
)%
|
|
|
(80,701
|
)
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
369,969
|
|
|
|
28
|
%
|
|
|
217,785
|
|
|
|
25
|
%
|
|
|
152,184
|
|
|
|
70
|
%
|
Depreciation and amortization
|
|
|
(140,897
|
)
|
|
|
(11
|
)%
|
|
|
(96,342
|
)
|
|
|
(11
|
)%
|
|
|
(44,555
|
)
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
229,072
|
|
|
|
17
|
%
|
|
|
121,443
|
|
|
|
14
|
%
|
|
|
107,629
|
|
|
|
89
|
%
|
Interest expense, net
|
|
|
(53,146
|
)
|
|
|
(4
|
)%
|
|
|
(33,943
|
)
|
|
|
(4
|
)%
|
|
|
(19,203
|
)
|
|
|
57
|
%
|
Interest income
|
|
|
6,141
|
|
|
|
1
|
%
|
|
|
744
|
|
|
|
|
|
|
|
5,397
|
|
|
|
NM
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(80,211
|
)
|
|
|
(6
|
)%
|
|
|
14,595
|
|
|
|
2
|
%
|
|
|
(94,806
|
)
|
|
|
NM
|
|
Other expense, net
|
|
|
(12,633
|
)
|
|
|
(1
|
)%
|
|
|
(127
|
)
|
|
|
|
|
|
|
(12,506
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
89,223
|
|
|
|
7
|
%
|
|
$
|
102,712
|
|
|
|
12
|
%
|
|
$
|
(13,489
|
)
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Over the last several years, Nextel Brazils subscriber
base has grown as a result of its continued focus on customer
service and the expansion of the geographic coverage of its
network. In addition, Nextel Brazil contributed 31% of
consolidated revenues in 2008 compared to 26% in 2007, and its
contribution to consolidated segment earnings margin increased
from 25% in 2007 to 28% in 2008 as a result of these factors.
Nextel Brazil has continued to experience growth in its existing
markets and has made significant investments in new markets as a
result of increased demand for its services. Consistent with the
expansion plans that we announced in 2007 and 2008, we have
recently made significant investments in Brazil in order to add
capacity to, and improve the quality of, Nextel Brazils
network to support its growth and expand its geographic
coverage. Coverage expansion and network improvements resulted
in capital expenditures of $414.5 million for 2008, which
represented 50% of our consolidated capital expenditure
investments during the year, compared to 38% in 2007. As Nextel
Brazil continues to expand its geographic coverage and pursue
its expansion plans, we expect its share of consolidated capital
expenditures to increase. We believe that Nextel Brazils
quality improvements and network expansion are contributing
factors to its low customer turnover rate and subscriber growth.
The average exchange rate of the Brazilian real for the year
ended December 31, 2008 appreciated relative to the
U.S. dollar by 6% from 2007. As a result, the components of
Nextel Brazils results of operations for the year ended
December 31, 2008, after translation into
U.S. dollars, reflect more significant increases in
U.S. dollar-denominated revenues and expenses than would
have occurred if the Brazilian real had not appreciated relative
to the U.S. dollar. While the average value of the
Brazilian real appreciated relative to the U.S. dollar for
the year ended December 31, 2008, the average value of the
Brazilian real depreciated 27% in the fourth quarter of 2008
compared to the third quarter of 2008. Nextel Brazils
results of operations in future periods will be adversely
affected if average values of the Brazilian real relative to the
U.S. dollar remain at the levels that prevailed during the
fourth quarter of 2008 or if those values depreciate further.
60
The $429.6 million, or 52%, increase in service and other
revenues from 2007 to 2008 is primarily a result of the
following:
|
|
|
|
|
a 42% increase in the average number of handsets in service
resulting from growth in Nextel Brazils existing markets
and the expansion of service coverage into new markets in
connection with its balanced growth and expansion objectives;
|
|
|
|
a $28.3 million, or 49%, increase in revenues generated
from Nextel Brazils handset maintenance program as a
result of an increased percentage of Nextel Brazils
subscriber base participating in this program; and
|
|
|
|
a slight increase in local currency-based average revenue per
subscriber.
|
The $33.4 million, or 96%, increase in digital handset and
accessory revenues from 2007 to 2008 is primarily due to an
increase in handset upgrades for existing subscribers, as well
as an increase in handset sales to new subscribers.
The $159.2 million, or 56%, increase in cost of service
from 2007 to 2008 is primarily due to the following:
|
|
|
|
|
a $92.0 million, or 59%, increase in interconnect costs
primarily resulting from a 54% increase in interconnect minutes
of use, as well as an increase in per minute costs due to
increased rates charged by fixed carriers for terminating calls
on their networks;
|
|
|
|
a $32.4 million, or 35%, increase in direct switch and
transmitter and receiver site costs resulting from a 31%
increase in the number of sites in service from
December 31, 2007 due to Nextel Brazils expansion
plan; and
|
|
|
|
a $27.6 million, or 133%, increase in service and repair
costs primarily due to an increased percentage of Nextel
Brazils subscriber base participating in its handset
maintenance program, as well as an increase in the cost of
repairs per subscriber related to a change in the mix of
handsets toward more mid and high tier handsets.
|
The $25.3 million, or 31%, increase in cost of digital
handset and accessory sales from 2007 to 2008 is mostly due to
an increase in handset upgrades for existing subscribers, as
well as an increase in handset sales to new subscribers,
partially offset by a decrease in cost per handset upgrade as a
larger proportion of upgrades were sales of SIM cards, which
have a significantly lower cost per unit sold than do handsets.
|
|
3.
|
Selling and
marketing expenses
|
The $45.6 million, or 39%, increase in selling and
marketing expenses from 2007 to 2008 is principally due to the
following:
|
|
|
|
|
a $22.6 million, or 43%, increase in payroll and direct
commissions largely as a result of a 41% increase in gross
subscriber additions generated by Nextel Brazils internal
sales force and higher payroll and related costs related to a
40% increase in selling and marketing personnel necessary to
support Nextel Brazils continued sales growth;
|
|
|
|
a $12.4 million, or 42%, increase in advertising expenses
primarily due to the launch of new markets in connection with
Nextel Brazils expansion plan, as well as continued print
and media campaigns for various products and services to promote
growth in existing markets; and
|
|
|
|
an $8.4 million, or 27%, increase in indirect commissions
resulting from a 31% increase in gross subscriber additions
generated through Nextel Brazils external sales channels.
|
|
|
4.
|
General and
administrative expenses
|
The $80.7 million, or 48%, increase in general and
administrative expenses from 2007 to 2008 is mainly a result of
the following:
|
|
|
|
|
a $28.4 million, or 56%, increase in customer care expenses
resulting from an increase in customer care personnel necessary
to support a larger customer base, as well as an increase in the
number of Nextel Brazils retail stores;
|
61
|
|
|
|
|
a $25.7 million, or 53%, increase in revenue-based taxes
that we report on a gross basis as both service and other
revenues and general and administrative expenses, primarily as a
result of the 52% increase in service and other revenues;
|
|
|
|
a $14.0 million, or 36%, increase in general corporate
costs largely resulting from an increase in general and
administrative personnel necessary to support Nextel
Brazils growth, as well as an increase in facilities
expenses due to Nextel Brazils expansion into new
markets; and
|
|
|
|
a $7.1 million, or 53%, increase in bad debt expense
primarily as a result of the increase in Nextel Brazils
operating revenues. Despite this increase, bad debt expense as a
percentage of operating revenues remained relatively stable at
1.5% in both 2007 and 2008.
|
|
|
5.
|
Depreciation
and amortization
|
The $44.6 million, or 46%, increase in depreciation and
amortization from 2007 to 2008 is mostly due to an increase in
Nextel Brazils property, plant and equipment in service
resulting from the continued build-out of Nextel Brazils
network.
The $19.2 million, or 57%, increase in net interest expense
from 2007 to 2008 is primarily the result of increased
borrowings under Nextel Brazils syndicated loan facility
that occurred between October 2007 and March 2008, as well as
increases in both the number of towers financed and the amount
of assets under capital leases.
|
|
7.
|
Foreign
currency transaction (losses) gains, net
|
Net foreign currency transaction losses of $80.2 million
for 2008 are a result of the impact of the significant
depreciation in the value of the Brazilian real against the
U.S. dollar during the year ended December 31, 2008 on
Nextel Brazils U.S. dollar-denominated syndicated
loan facility. All of these losses occurred during the fourth
quarter of 2008.
Net foreign currency transaction gains of $14.6 million for
2007 are a result of the impact of the appreciation in the value
of the Brazilian real against the U.S. dollar during the
year ended December 31, 2007 on Nextel Brazils
U.S. dollar-denominated short-term intercompany payables.
Net other expense of $12.6 million for 2008 primarily
represents withholding tax expense on Nextel Brazils
intercompany loan.
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
508,227
|
|
|
|
92
|
%
|
|
$
|
408,142
|
|
|
|
92
|
%
|
|
$
|
100,085
|
|
|
|
25
|
%
|
Digital handset and accessory revenues
|
|
|
46,097
|
|
|
|
8
|
%
|
|
|
33,951
|
|
|
|
8
|
%
|
|
|
12,146
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
554,324
|
|
|
|
100
|
%
|
|
|
442,093
|
|
|
|
100
|
%
|
|
|
112,231
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(179,349
|
)
|
|
|
(32
|
)%
|
|
|
(151,404
|
)
|
|
|
(34
|
)%
|
|
|
(27,945
|
)
|
|
|
18
|
%
|
Cost of digital handset and accessory sales
|
|
|
(70,954
|
)
|
|
|
(13
|
)%
|
|
|
(52,268
|
)
|
|
|
(12
|
)%
|
|
|
(18,686
|
)
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(250,303
|
)
|
|
|
(45
|
)%
|
|
|
(203,672
|
)
|
|
|
(46
|
)%
|
|
|
(46,631
|
)
|
|
|
23
|
%
|
Selling and marketing expenses
|
|
|
(45,585
|
)
|
|
|
(8
|
)%
|
|
|
(34,646
|
)
|
|
|
(8
|
)%
|
|
|
(10,939
|
)
|
|
|
32
|
%
|
General and administrative expenses
|
|
|
(87,581
|
)
|
|
|
(16
|
)%
|
|
|
(65,421
|
)
|
|
|
(15
|
)%
|
|
|
(22,160
|
)
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
170,855
|
|
|
|
31
|
%
|
|
|
138,354
|
|
|
|
31
|
%
|
|
|
32,501
|
|
|
|
23
|
%
|
Depreciation and amortization
|
|
|
(38,457
|
)
|
|
|
(7
|
)%
|
|
|
(30,227
|
)
|
|
|
(7
|
)%
|
|
|
(8,230
|
)
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
132,398
|
|
|
|
24
|
%
|
|
|
108,127
|
|
|
|
24
|
%
|
|
|
24,271
|
|
|
|
22
|
%
|
Interest expense, net
|
|
|
(3,223
|
)
|
|
|
|
|
|
|
(2,466
|
)
|
|
|
|
|
|
|
(757
|
)
|
|
|
31
|
%
|
Interest income
|
|
|
2,425
|
|
|
|
|
|
|
|
5,370
|
|
|
|
2
|
%
|
|
|
(2,945
|
)
|
|
|
(55
|
)%
|
Foreign currency transaction gains, net
|
|
|
6,558
|
|
|
|
1
|
%
|
|
|
1,244
|
|
|
|
|
|
|
|
5,314
|
|
|
|
NM
|
|
Other income, net
|
|
|
45
|
|
|
|
|
|
|
|
1,594
|
|
|
|
|
|
|
|
(1,549
|
)
|
|
|
(97
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
138,203
|
|
|
|
25
|
%
|
|
$
|
113,869
|
|
|
|
26
|
%
|
|
$
|
24,334
|
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Over the course of the last two years, the inflation rate in
Argentina has risen significantly, and we expect that it may
continue to remain elevated over the next several years. The
higher inflation rate has resulted primarily in higher personnel
costs. In addition, in recent quarters, Nextel Argentinas
customer turnover rate has increased because of the economic
environment in Argentina. If the economic conditions in
Argentina continue or worsen, Nextel Argentinas results of
operations may be adversely affected.
The average value of the Argentine peso for the year ended
December 31, 2008 depreciated relative to the
U.S. dollar by 2% from 2007. As a result, the components of
Nextel Argentinas results of operations for the year ended
December 31, 2008 after translation into U.S. dollars
reflect slightly lower U.S. dollar-denominated revenues and
expenses than would have occurred if the Argentine peso had not
depreciated relative to the U.S. dollar.
The $100.1 million, or 25%, increase in service and other
revenues from 2007 to 2008 is primarily attributable to the
following:
|
|
|
|
|
a 23% increase in the average number of handsets in service,
resulting mostly from growth in Nextel Argentinas existing
markets; and
|
|
|
|
a $14.0 million, or 32%, increase in revenues generated
from Nextel Argentinas handset maintenance program as a
result of an increased percentage of Nextel Argentinas
subscriber base participating in this program.
|
The $12.1 million, or 36%, increase in digital handset and
accessory revenues from 2007 to 2008 is mostly the result of an
increase in handset upgrades to existing subscribers, as well as
an increase in handset sales to new subscribers.
63
The $27.9 million, or 18%, increase in cost of service from
2007 to 2008 is principally a result of the following:
|
|
|
|
|
an $11.7 million, or 15%, increase in interconnect costs,
largely as a result of an 11% increase in interconnect minutes
of use, as well as an increase in the proportion of
mobile-to-mobile minutes of use, which generally have higher per
minute costs;
|
|
|
|
a $6.5 million, or 21%, increase in direct switch and
transmitter and receiver site costs due to a 22% increase in the
number of transmitter and receiver sites in service from
December 31, 2007 to December 31, 2008; and
|
|
|
|
a $6.4 million, or 17%, increase in service and repair
costs, largely as a result of an increased percentage of Nextel
Argentinas subscriber base participating in its handset
maintenance program.
|
The $18.7 million, or 36%, increase in cost of digital
handset and accessory sales from 2007 to 2008 is primarily the
result of an increase in handset upgrades to existing
subscribers, as well as an increase in handset sales to new
subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $10.9 million, or 32%, increase in selling and
marketing expenses from 2007 to 2008 is primarily due to the
following:
|
|
|
|
|
a $5.0 million, or 32%, increase in indirect commissions,
principally resulting from a 20% increase in gross subscriber
additions generated by Nextel Argentinas external sales
channels, as well as an increase in indirect commission earned
per subscriber addition; and
|
|
|
|
a $4.9 million, or 39%, increase in direct commissions and
payroll expenses, mostly due to an increase in facilities
expenses related to retail stores and a significant increase in
salaries consistent with the ongoing inflation in Argentina, as
well as an 11% increase in gross subscriber additions generated
by Nextel Argentinas internal sales personnel.
|
|
|
4.
|
General and
administrative expenses
|
The $22.2 million, or 34%, increase in general and
administrative expenses from 2007 to 2008 is primarily a result
of the following:
|
|
|
|
|
an $11.6 million, or 33%, increase in other general and
administrative costs primarily due to an increase in payroll and
related expenses caused by an increase in personnel, an increase
in salaries consistent with the ongoing inflation in Argentina
and an increase in turnover taxes;
|
|
|
|
a $6.7 million, or 40%, increase in customer care expenses
resulting from an increase in customer care personnel necessary
to support a larger customer base and an increase in salaries
consistent with the ongoing inflation in Argentina; and
|
|
|
|
a $2.3 million, or 24%, increase in information technology
expenses caused by an increase in information technology
personnel, higher software maintenance costs and an increase in
salaries consistent with the ongoing inflation in Argentina.
|
|
|
5.
|
Depreciation
and amortization
|
The $8.2 million, or 27%, increase in depreciation and
amortization from 2007 to 2008 is primarily due to a 23%
increase in Nextel Argentinas property, plant and
equipment in service.
|
|
6.
|
Foreign
currency transaction gains, net
|
Foreign currency transaction gains of $6.6 million for 2008
are primarily due to the impact of the depreciation of the value
of the Argentine peso against the U.S. dollar on Nextel
Argentinas U.S. dollar-denominated net assets.
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
222,819
|
|
|
|
92
|
%
|
|
$
|
178,058
|
|
|
|
93
|
%
|
|
$
|
44,761
|
|
|
|
25
|
%
|
Digital handset and accessory revenues
|
|
|
20,571
|
|
|
|
8
|
%
|
|
|
12,800
|
|
|
|
7
|
%
|
|
|
7,771
|
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243,390
|
|
|
|
100
|
%
|
|
|
190,858
|
|
|
|
100
|
%
|
|
|
52,532
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(80,804
|
)
|
|
|
(33
|
)%
|
|
|
(69,185
|
)
|
|
|
(36
|
)%
|
|
|
(11,619
|
)
|
|
|
17
|
%
|
Cost of digital handset and accessory sales
|
|
|
(45,220
|
)
|
|
|
(19
|
)%
|
|
|
(31,457
|
)
|
|
|
(17
|
)%
|
|
|
(13,763
|
)
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,024
|
)
|
|
|
(52
|
)%
|
|
|
(100,642
|
)
|
|
|
(53
|
)%
|
|
|
(25,382
|
)
|
|
|
25
|
%
|
Selling and marketing expenses
|
|
|
(30,340
|
)
|
|
|
(12
|
)%
|
|
|
(20,476
|
)
|
|
|
(10
|
)%
|
|
|
(9,864
|
)
|
|
|
48
|
%
|
General and administrative expenses
|
|
|
(44,469
|
)
|
|
|
(18
|
)%
|
|
|
(33,971
|
)
|
|
|
(18
|
)%
|
|
|
(10,498
|
)
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
42,557
|
|
|
|
18
|
%
|
|
|
35,769
|
|
|
|
19
|
%
|
|
|
6,788
|
|
|
|
19
|
%
|
Depreciation and amortization
|
|
|
(21,572
|
)
|
|
|
(9
|
)%
|
|
|
(19,867
|
)
|
|
|
(11
|
)%
|
|
|
(1,705
|
)
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
20,985
|
|
|
|
9
|
%
|
|
|
15,902
|
|
|
|
8
|
%
|
|
|
5,083
|
|
|
|
32
|
%
|
Interest expense, net
|
|
|
(292
|
)
|
|
|
|
|
|
|
(120
|
)
|
|
|
|
|
|
|
(172
|
)
|
|
|
143
|
%
|
Interest income
|
|
|
875
|
|
|
|
|
|
|
|
750
|
|
|
|
1
|
%
|
|
|
125
|
|
|
|
17
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(67
|
)
|
|
|
|
|
|
|
507
|
|
|
|
|
|
|
|
(574
|
)
|
|
|
(113
|
)%
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
21,501
|
|
|
|
9
|
%
|
|
$
|
17,041
|
|
|
|
9
|
%
|
|
$
|
4,460
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We plan to develop and deploy a third generation network in Peru
during 2009 using 1.9 GHz spectrum we acquired in 2007.
Earlier this year, the regulatory authorities in Peru approved
our plans for the deployment of this new network. We believe
that these plans will enable us to significantly increase the
size of our opportunity in Peru by allowing us to offer new and
differentiated services to a larger base of potential customers.
Because the U.S. dollar is the functional currency in Peru,
Nextel Perus results of operations are not significantly
impacted by changes in the U.S. dollar to Peruvian sol
exchange rate.
The $44.8 million, or 25%, increase in service and other
revenues from 2007 to 2008 is primarily due to a 41% increase in
the average number of handsets in service, partially offset by a
decrease in average revenue per subscriber mainly resulting from
an increase in the percentage of subscribers in Nextel
Perus subscriber base who purchase service under its
prepaid rate plans, which typically have lower average monthly
revenues per subscriber.
The $7.8 million, or 61%, increase in digital handset and
accessory revenues from 2007 to 2008 is primarily the result of
an increase in handset upgrades for existing subscribers, as
well as an increase in handset sales for new subscribers.
The $11.6 million, or 17%, increase in cost of service from
2007 to 2008 is largely a result of the following:
|
|
|
|
|
a $5.3 million, or 74%, increase in service and repair
costs largely due to an increased percentage of Nextel
Perus subscriber base participating in its handset
maintenance program, as well as an increase in the cost of
repairs per subscriber related to a change in the mix of
handsets; and
|
65
|
|
|
|
|
a $4.1 million, or 28%, increase in direct switch and
transmitter and receiver site costs due primarily to a 13%
increase in the number of transmitter and receiver sites in
service from December 31, 2007 to December 31, 2008,
as well as an increase in cost per site maintenance.
|
The $13.8 million, or 44%, increase in cost of digital
handset and accessory sales from 2007 to 2008 is largely the
result of an increase in handset upgrades for existing
subscribers, as well as an increase in handset sales for new
subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $9.9 million, or 48%, increase in selling and marketing
expenses from 2007 to 2008 is primarily due to the following:
|
|
|
|
|
a $4.4 million, or 75%, increase in indirect commissions
largely due to a 79% increase in gross subscriber additions
generated by Nextel Perus external sales channels; and
|
|
|
|
a $3.8 million, or 34%, increase in direct commissions and
payroll expenses, mostly due to an increase in gross subscriber
additions generated by Nextel Perus internal sales
personnel and an increase in selling and marketing personnel.
|
|
|
4.
|
General and
administrative expenses
|
The $10.5 million, or 31%, increase in general and
administrative expenses from 2007 to 2008 is primarily due to
the following:
|
|
|
|
|
a $4.3 million, or 34%, increase in general corporate costs
primarily due to an increase in general and administrative
personnel necessary to develop and deploy Nextel Perus new
network, as well as an increase in consulting expenses related
to this initiative;
|
|
|
|
a $4.3 million, or 35%, increase in customer care expenses
mainly caused by an increase in customer care and billing
operations personnel needed to support a growing customer
base; and
|
|
|
|
a $1.4 million, or 21%, increase in information technology
costs mostly related to an increase in information technology
personnel, as well as an increase in maintenance costs.
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
and other
|
|
|
Year Ended
|
|
|
and other
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
8,704
|
|
|
|
100
|
%
|
|
$
|
3,828
|
|
|
|
99
|
%
|
|
$
|
4,876
|
|
|
|
127
|
%
|
Digital handset and accessory revenues
|
|
|
37
|
|
|
|
|
|
|
|
22
|
|
|
|
1
|
%
|
|
|
15
|
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,741
|
|
|
|
100
|
%
|
|
|
3,850
|
|
|
|
100
|
%
|
|
|
4,891
|
|
|
|
127
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(6,263
|
)
|
|
|
(72
|
)%
|
|
|
(2,791
|
)
|
|
|
(73
|
)%
|
|
|
(3,472
|
)
|
|
|
124
|
%
|
Cost of digital handset and accessory sales
|
|
|
(2,319
|
)
|
|
|
(26
|
)%
|
|
|
(1,235
|
)
|
|
|
(32
|
)%
|
|
|
(1,084
|
)
|
|
|
88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,582
|
)
|
|
|
(98
|
)%
|
|
|
(4,026
|
)
|
|
|
(105
|
)%
|
|
|
(4,556
|
)
|
|
|
113
|
%
|
Selling and marketing expenses
|
|
|
(11,917
|
)
|
|
|
(136
|
)%
|
|
|
(10,145
|
)
|
|
|
(264
|
)%
|
|
|
(1,772
|
)
|
|
|
17
|
%
|
General and administrative expenses
|
|
|
(163,547
|
)
|
|
|
NM
|
|
|
|
(133,724
|
)
|
|
|
NM
|
|
|
|
(29,823
|
)
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(175,305
|
)
|
|
|
NM
|
|
|
|
(144,045
|
)
|
|
|
NM
|
|
|
|
(31,260
|
)
|
|
|
22
|
%
|
Management fee
|
|
|
31,836
|
|
|
|
NM
|
|
|
|
34,376
|
|
|
|
NM
|
|
|
|
(2,540
|
)
|
|
|
(7
|
)%
|
Depreciation and amortization
|
|
|
(12,061
|
)
|
|
|
(138
|
)%
|
|
|
(7,008
|
)
|
|
|
(182
|
)%
|
|
|
(5,053
|
)
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(155,530
|
)
|
|
|
NM
|
|
|
|
(116,677
|
)
|
|
|
NM
|
|
|
|
(38,853
|
)
|
|
|
33
|
%
|
Interest expense, net
|
|
|
(53,169
|
)
|
|
|
NM
|
|
|
|
(41,873
|
)
|
|
|
NM
|
|
|
|
(11,296
|
)
|
|
|
27
|
%
|
Interest income
|
|
|
20,051
|
|
|
|
229
|
%
|
|
|
41,156
|
|
|
|
NM
|
|
|
|
(21,105
|
)
|
|
|
(51
|
)%
|
Foreign currency transaction (losses) gains, net
|
|
|
(1,690
|
)
|
|
|
(19
|
)%
|
|
|
103
|
|
|
|
3
|
%
|
|
|
(1,793
|
)
|
|
|
NM
|
|
Debt conversion expense
|
|
|
|
|
|
|
NM
|
|
|
|
(26,429
|
)
|
|
|
NM
|
|
|
|
26,429
|
|
|
|
(100
|
)%
|
Other expense, net
|
|
|
(15,907
|
)
|
|
|
(182
|
)%
|
|
|
(5,486
|
)
|
|
|
(142
|
)%
|
|
|
(10,421
|
)
|
|
|
190
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(206,245
|
)
|
|
|
NM
|
|
|
$
|
(149,206
|
)
|
|
|
NM
|
|
|
$
|
(57,039
|
)
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the year ended December 31, 2008, corporate and other
operating revenues and cost of revenues primarily represent the
results of operations reported by Nextel Chile. We plan to
expand the coverage and capacity of our network in Chile over
the next several years, which will require additional
investments in capital expenditures and will likely result in a
modest level of
start-up
losses.
|
|
1.
|
General and
administrative expenses
|
The $29.8 million, or 22%, increase in general and
administrative expenses from 2007 to 2008 is primarily due to an
increase in corporate personnel expenses related to our new
technology and other initiatives, increased consulting expenses
and a $4.9 million, or 8%, increase in stock-based
compensation expense.
The $11.3 million, or 27%, increase in net interest expense
from 2007 to 2008 is substantially the result of recognizing a
full twelve months of interest expense on our 3.125% convertible
notes that we issued during the second quarter of 2007,
partially offset by a decrease in interest due to the conversion
of our 2.875% convertible notes in the third quarter of 2007.
The $21.1 million, or 51%, decrease in interest income from
2007 to 2008 is primarily due to the impact of a decrease in
interest rates on average cash balances in the United States, as
well as a decrease in average cash balances from 2007 to 2008.
67
|
|
4.
|
Debt
conversion expense
|
The $26.4 million in debt conversion expense for 2007
represents cash consideration that we paid in connection with
the tender offer for 99.99% of our 2.875% convertible notes in
the third quarter of 2007. We did not tender any of our
convertible notes in 2008.
The $10.4 million increase in other expense, net, from 2007
to 2008 is primarily due to losses we recognized related to a
decline in the value of our investment in a short-term
investment fund in the United States resulting from a
deterioration in market conditions. If market conditions
continue to deteriorate, we could experience further losses in
this short-term investment.
|
|
2.
|
Year
Ended December 31, 2007 vs. Year Ended December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2007
|
|
|
Revenues
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,184,696
|
|
|
|
97
|
|
%
|
|
$
|
2,279,922
|
|
|
|
96
|
|
%
|
|
$
|
904,774
|
|
|
|
40
|
|
%
|
Digital handset and accessory revenues
|
|
|
111,599
|
|
|
|
3
|
|
%
|
|
|
91,418
|
|
|
|
4
|
|
%
|
|
|
20,181
|
|
|
|
22
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,296,295
|
|
|
|
100
|
|
%
|
|
|
2,371,340
|
|
|
|
100
|
|
%
|
|
|
924,955
|
|
|
|
39
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(850,934
|
)
|
|
|
(26
|
)
|
%
|
|
|
(597,262
|
)
|
|
|
(25
|
)
|
%
|
|
|
(253,672
|
)
|
|
|
42
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(443,760
|
)
|
|
|
(13
|
)
|
%
|
|
|
(331,714
|
)
|
|
|
(14
|
)
|
%
|
|
|
(112,046
|
)
|
|
|
34
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,294,694
|
)
|
|
|
(39
|
)
|
%
|
|
|
(928,976
|
)
|
|
|
(39
|
)
|
%
|
|
|
(365,718
|
)
|
|
|
39
|
|
%
|
Selling and marketing expenses
|
|
|
(445,516
|
)
|
|
|
(14
|
)
|
%
|
|
|
(321,240
|
)
|
|
|
(14
|
)
|
%
|
|
|
(124,276
|
)
|
|
|
39
|
|
%
|
General and administrative expenses
|
|
|
(632,377
|
)
|
|
|
(19
|
)
|
%
|
|
|
(459,133
|
)
|
|
|
(19
|
)
|
%
|
|
|
(173,244
|
)
|
|
|
38
|
|
%
|
Depreciation and amortization
|
|
|
(304,624
|
)
|
|
|
(9
|
)
|
%
|
|
|
(202,222
|
)
|
|
|
(9
|
)
|
%
|
|
|
(102,402
|
)
|
|
|
51
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
619,084
|
|
|
|
19
|
|
%
|
|
|
459,769
|
|
|
|
19
|
|
%
|
|
|
159,315
|
|
|
|
35
|
|
%
|
Interest expense, net
|
|
|
(128,733
|
)
|
|
|
(4
|
)
|
%
|
|
|
(89,379
|
)
|
|
|
(4
|
)
|
%
|
|
|
(39,354
|
)
|
|
|
44
|
|
%
|
Interest income
|
|
|
67,429
|
|
|
|
2
|
|
%
|
|
|
51,057
|
|
|
|
2
|
|
%
|
|
|
16,372
|
|
|
|
32
|
|
%
|
Foreign currency transaction gains, net
|
|
|
19,008
|
|
|
|
1
|
|
%
|
|
|
3,557
|
|
|
|
|
|
|
|
|
15,451
|
|
|
|
NM
|
|
|
Debt conversion expense
|
|
|
(26,429
|
)
|
|
|
(1
|
)
|
%
|
|
|
(5,070
|
)
|
|
|
|
|
|
|
|
(21,359
|
)
|
|
|
NM
|
|
|
Other expense, net
|
|
|
(1,914
|
)
|
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
4,086
|
|
|
|
(68
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
548,445
|
|
|
|
17
|
|
%
|
|
|
413,934
|
|
|
|
17
|
|
%
|
|
|
134,511
|
|
|
|
32
|
|
%
|
Income tax provision
|
|
|
(170,027
|
)
|
|
|
(5
|
)
|
%
|
|
|
(119,444
|
)
|
|
|
(5
|
)
|
%
|
|
|
(50,583
|
)
|
|
|
42
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
378,418
|
|
|
|
12
|
|
%
|
|
$
|
294,490
|
|
|
|
12
|
|
%
|
|
$
|
83,928
|
|
|
|
28
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
The $904.8 million, or 40%, increase in consolidated
service and other revenues from 2006 to 2007 is primarily due to
a 38% increase in the average number of total handsets in
service, primarily in Mexico and Brazil, resulting from
continued strong demand for our services and our balanced growth
and expansion strategy, as well as a $64.5 million, or 53%,
increase in revenues generated from our handset maintenance
programs as a result of an increase in the number of subscribers
participating in these programs. Average consolidated revenues
per handset remained relatively stable from 2006 to 2007.
The $20.2 million, or 22%, increase in consolidated digital
handset and accessory revenues from 2006 to 2007 is primarily
due to a 53% increase in handset upgrades, as well as a 41%
increase in handset sales, partially offset by lower sales
revenue per handset resulting from a change in the mix of
handsets sold and handset promotions, primarily in Mexico.
68
The $253.7 million, or 42%, increase in consolidated cost
of service from 2006 to 2007 is principally a result of the
following:
|
|
|
|
|
a $149.1 million, or 48%, increase in consolidated
interconnect costs resulting primarily from a 34% increase in
consolidated interconnect minutes of use, as well as an increase
in the proportion of mobile-to-mobile minutes of use, which
generally have higher per minute interconnection costs;
|
|
|
|
a $60.8 million, or 30%, increase in consolidated direct
switch and transmitter and receiver site costs resulting from a
20% increase in the total number of sites in service from
December 31, 2006 to December 31, 2007 and an increase
in costs per site; and
|
|
|
|
a $26.0 million, or 39%, increase in consolidated service
and repair costs mainly resulting from an increase in
subscribers participating under our handset maintenance programs.
|
The $112.0 million, or 34%, increase in consolidated cost
of digital handset and accessory sales from 2006 to 2007 is
primarily due to a 41% increase in total handset sales, as well
as a 53% increase in handset upgrades, partially offset by lower
costs per handset sale resulting from reductions in handset unit
costs and a change in the mix of handsets sold in 2007.
|
|
3.
|
Selling and
marketing expenses
|
The $124.3 million, or 39%, increase in consolidated
selling and marketing expenses from 2006 to 2007 is principally
a result of the following:
|
|
|
|
|
a $53.1 million, or 41%, increase in consolidated indirect
commissions resulting from a 37% increase in total handset sales
through external sales channels;
|
|
|
|
a $43.0 million, or 37%, increase in consolidated payroll
expenses and direct commissions resulting from a 46% increase in
total handset sales by internal sales personnel, partially
offset by a decrease in direct commission per handset sale,
primarily in Mexico; and
|
|
|
|
a $24.7 million, or 39%, increase in consolidated
advertising expenses, primarily in Mexico and Brazil, mainly
related to the launch of new markets in connection with our
expansion plan and increased advertising initiatives related to
overall subscriber growth.
|
|
|
4.
|
General and
administrative expenses
|
The $173.2 million, or 38%, increase in consolidated
general and administrative expenses from 2006 to 2007 is
primarily a result of the following:
|
|
|
|
|
a $53.7 million, or 48%, increase in consolidated customer
care expenses, mainly payroll and related expenses, resulting
from additional customer care personnel necessary to support a
larger customer base;
|
|
|
|
a $46.4 million, or 25%, increase in general corporate
costs largely due to higher personnel costs related to an
increase in headcount and higher facilities-related expenses due
to continued subscriber growth and expansion into new areas;
|
|
|
|
a $19.3 million, or 66%, increase in revenue-based taxes in
Brazil that we report on a gross basis as both service and other
revenues and general and administrative expenses;
|
|
|
|
an $18.1 million, or 61%, increase in stock option
compensation expense, primarily resulting from grants of stock
options in April 2006 and April 2007;
|
|
|
|
a $16.0 million, or 53%, increase in consolidated bad debt
expense, primarily in Mexico, as a result of the 39% increase in
consolidated operating revenues. Bad debt expense as a
percentage of consolidated operating revenues increased slightly
from 1.3% in 2006 to 1.4% in 2007; and
|
|
|
|
a $15.0 million, or 34%, increase in information technology
repair and maintenance costs primarily in Mexico and Brazil
related to the expansion of our mobile networks.
|
|
|
5.
|
Depreciation
and amortization
|
The $102.4 million, or 51%, increase in consolidated
depreciation and amortization from 2006 to 2007 is primarily due
to a 41% increase in our consolidated property, plant and
equipment in service from December 31,
69
2006 to December 31, 2007 resulting from the continued
expansion of our mobile networks, mainly in Mexico and Brazil.
The $39.4 million, or 44%, increase in consolidated net
interest expense from 2006 to 2007 is primarily due to the
following:
|
|
|
|
|
$21.9 million of interest expense incurred on our 3.125%
convertible notes that we issued in May 2007;
|
|
|
|
a $10.8 million increase in interest incurred on our towers
financing transactions and capital lease obligations in Mexico
and Brazil primarily due to increases in both the number of
towers financed and capital leases;
|
|
|
|
a $7.8 million decrease in capitalized interest related to
a significant decline in average
construction-in-progress
balances, primarily in Mexico and Brazil; and
|
|
|
|
$3.1 million of interest incurred on borrowings under
Nextel Brazils syndicated loan facility; partially
offset by
|
|
|
|
a $6.8 million decrease in interest expense due to the
conversion of our 3.5% convertible notes during the fourth
quarter of 2006 and our 2.875% convertible notes during the
third quarter of 2007.
|
The $16.4 million, or 32%, increase in consolidated
interest income from 2006 to 2007 is largely due to higher
average consolidated cash balances, primarily in the United
States, resulting from the $1.2 billion in gross proceeds
we received from the 3.125% convertible notes that we issued in
May 2007.
|
|
8.
|
Foreign
currency transaction gains, net
|
Consolidated foreign currency transaction gains of
$19.0 million for 2007 are mostly the result of the
strengthening of the Brazilian real relative to the
U.S. dollar on Nextel Brazils
U.S. dollar-denominated liabilities, primarily on a
short-term intercompany bridge loan and its syndicated loan
facility.
|
|
9.
|
Debt
conversion expense
|
Debt conversion expense for 2007 represents $26.4 million
in cash consideration and direct external costs that we paid in
connection with the tender offer for 99.99% of our 2.875%
convertible notes in the third quarter of 2007.
Debt conversion expense for 2006 represents $5.1 million in
cash consideration and direct external costs that we paid in
connection with the conversion of the remaining
$91.4 million of our 3.5% convertible notes during the
fourth quarter of 2006.
The $50.6 million, or 42%, increase in the consolidated
income tax provision from 2006 to 2007 is primarily due to a
$134.5 million, or 32%, increase in income before taxes and
a $69.6 million tax provision for future remittances of
certain undistributed earnings by Nextel Argentina and Nextel
Mexico that we recorded in 2007. These increases were partially
offset by the release of $48.7 million in
post-reorganization deferred tax asset valuation allowance by
Nextel Brazil in 2007. In addition, the 2006 income tax
provision included a $17.1 million tax benefit related to
an out-of-period adjustment.
70
Segment
Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
Year Ended
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
December 31,
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
2007
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,792,699
|
|
|
|
55
|
%
|
|
$
|
(621,975
|
)
|
|
|
48
|
%
|
|
$
|
(494,879
|
)
|
|
|
46
|
%
|
|
$
|
675,845
|
|
Nextel Brazil
|
|
|
867,964
|
|
|
|
26
|
%
|
|
|
(365,548
|
)
|
|
|
28
|
%
|
|
|
(284,631
|
)
|
|
|
27
|
%
|
|
|
217,785
|
|
Nextel Argentina
|
|
|
442,093
|
|
|
|
13
|
%
|
|
|
(203,672
|
)
|
|
|
16
|
%
|
|
|
(100,067
|
)
|
|
|
9
|
%
|
|
|
138,354
|
|
Nextel Peru
|
|
|
190,858
|
|
|
|
6
|
%
|
|
|
(100,642
|
)
|
|
|
8
|
%
|
|
|
(54,447
|
)
|
|
|
5
|
%
|
|
|
35,769
|
|
Corporate and other
|
|
|
3,850
|
|
|
|
|
|
|
|
(4,026
|
)
|
|
|
|
|
|
|
(143,869
|
)
|
|
|
13
|
%
|
|
|
(144,045
|
)
|
Intercompany eliminations
|
|
|
(1,169
|
)
|
|
|
|
|
|
|
1,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
3,296,295
|
|
|
|
100
|
%
|
|
$
|
(1,294,694
|
)
|
|
|
100
|
%
|
|
$
|
(1,077,893
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
Year Ended
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
December 31,
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
2006
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,341,297
|
|
|
|
57
|
%
|
|
$
|
(448,072
|
)
|
|
|
48
|
%
|
|
$
|
(362,541
|
)
|
|
|
46
|
%
|
|
$
|
530,684
|
|
Nextel Brazil
|
|
|
536,988
|
|
|
|
23
|
%
|
|
|
(243,288
|
)
|
|
|
26
|
%
|
|
|
(178,556
|
)
|
|
|
23
|
%
|
|
|
115,144
|
|
Nextel Argentina
|
|
|
345,034
|
|
|
|
14
|
%
|
|
|
(159,025
|
)
|
|
|
17
|
%
|
|
|
(87,013
|
)
|
|
|
11
|
%
|
|
|
98,996
|
|
Nextel Peru
|
|
|
146,373
|
|
|
|
6
|
%
|
|
|
(77,385
|
)
|
|
|
9
|
%
|
|
|
(42,910
|
)
|
|
|
6
|
%
|
|
|
26,078
|
|
Corporate and other
|
|
|
2,425
|
|
|
|
|
|
|
|
(1,983
|
)
|
|
|
|
|
|
|
(109,353
|
)
|
|
|
14
|
%
|
|
|
(108,911
|
)
|
Intercompany eliminations
|
|
|
(777
|
)
|
|
|
|
|
|
|
777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
2,371,340
|
|
|
|
100
|
%
|
|
$
|
(928,976
|
)
|
|
|
100
|
%
|
|
$
|
(780,373
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with accounting principles generally accepted in
the United States, we translated the results of operations of
our operating segments using the average exchange rates for the
years ended December 31, 2007, 2006 and 2005. The following
table presents the average exchange rates we used to translate
the results of operations of our operating segments, as well as
changes from the average exchange rates utilized in prior
periods. Because the U.S. dollar is the functional currency
in Peru, Nextel Perus results of operations are not
significantly impacted by changes in the U.S. dollar to
Nuevo sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 to 2007
|
|
|
2005 to 2006
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Percent Change
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
10.93
|
|
|
|
10.90
|
|
|
|
10.90
|
|
|
|
(0.3
|
)%
|
|
|
0.0
|
%
|
Brazilian real
|
|
|
1.95
|
|
|
|
2.18
|
|
|
|
2.43
|
|
|
|
11.8
|
%
|
|
|
11.5
|
%
|
Argentine peso
|
|
|
3.12
|
|
|
|
3.08
|
|
|
|
2.92
|
|
|
|
(1.3
|
)%
|
|
|
(5.2
|
)%
|
71
A discussion of the results of operations in each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,762,596
|
|
|
|
98
|
%
|
|
$
|
1,319,371
|
|
|
|
98
|
%
|
|
$
|
443,225
|
|
|
|
34
|
%
|
Digital handset and accessory revenues
|
|
|
30,103
|
|
|
|
2
|
%
|
|
|
21,926
|
|
|
|
2
|
%
|
|
|
8,177
|
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,792,699
|
|
|
|
100
|
%
|
|
|
1,341,297
|
|
|
|
100
|
%
|
|
|
451,402
|
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(343,979
|
)
|
|
|
(19
|
)%
|
|
|
(257,086
|
)
|
|
|
(19
|
)%
|
|
|
(86,893
|
)
|
|
|
34
|
%
|
Cost of digital handset and accessory sales
|
|
|
(277,996
|
)
|
|
|
(16
|
)%
|
|
|
(190,986
|
)
|
|
|
(14
|
)%
|
|
|
(87,010
|
)
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(621,975
|
)
|
|
|
(35
|
)%
|
|
|
(448,072
|
)
|
|
|
(33
|
)%
|
|
|
(173,903
|
)
|
|
|
39
|
%
|
Selling and marketing expenses
|
|
|
(262,495
|
)
|
|
|
(14
|
)%
|
|
|
(197,653
|
)
|
|
|
(15
|
)%
|
|
|
(64,842
|
)
|
|
|
33
|
%
|
General and administrative expenses
|
|
|
(232,384
|
)
|
|
|
(13
|
)%
|
|
|
(164,888
|
)
|
|
|
(12
|
)%
|
|
|
(67,496
|
)
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
675,845
|
|
|
|
38
|
%
|
|
|
530,684
|
|
|
|
40
|
%
|
|
|
145,161
|
|
|
|
27
|
%
|
Management fee
|
|
|
(34,376
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
(34,376
|
)
|
|
|
NM
|
|
Depreciation and amortization
|
|
|
(151,573
|
)
|
|
|
(9
|
)%
|
|
|
(105,867
|
)
|
|
|
(8
|
)%
|
|
|
(45,706
|
)
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
489,896
|
|
|
|
27
|
%
|
|
|
424,817
|
|
|
|
32
|
%
|
|
|
65,079
|
|
|
|
15
|
%
|
Interest expense, net
|
|
|
(60,527
|
)
|
|
|
(3
|
)%
|
|
|
(38,424
|
)
|
|
|
(3
|
)%
|
|
|
(22,103
|
)
|
|
|
58
|
%
|
Interest income
|
|
|
29,605
|
|
|
|
2
|
%
|
|
|
32,377
|
|
|
|
2
|
%
|
|
|
(2,772
|
)
|
|
|
(9
|
)%
|
Foreign currency transaction gains, net
|
|
|
2,559
|
|
|
|
|
|
|
|
3,957
|
|
|
|
|
|
|
|
(1,398
|
)
|
|
|
(35
|
)%
|
Other income (expense), net
|
|
|
2,103
|
|
|
|
|
|
|
|
(3,173
|
)
|
|
|
|
|
|
|
5,276
|
|
|
|
(166
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
463,636
|
|
|
|
26
|
%
|
|
$
|
419,554
|
|
|
|
31
|
%
|
|
$
|
44,082
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
The average exchange rate of the Mexican peso for the year ended
December 31, 2007 depreciated against the U.S. dollar
by less than 1% from the year ended December 31, 2006. As a
result, the components of Nextel Mexicos results of
operations after translation into U.S. dollars are largely
comparable from 2006 to 2007.
The $443.2 million, or 34%, increase in service and other
revenues from 2006 to 2007 is primarily due to the following:
|
|
|
|
|
a 39% increase in the average number of handsets in service
resulting from growth in Nextel Mexicos existing markets,
as well as the expansion of service coverage into new markets
during both 2006 and 2007; and
|
|
|
|
a $27.0 million, or 55%, increase in revenues generated
from Nextel Mexicos handset maintenance program as a
result of an increase in subscribers participating in this
program; partially offset by
|
|
|
|
a decline in average revenue per subscriber.
|
The $8.2 million, or 37%, increase in digital handset and
accessory revenues from 2006 to 2007 is primarily the result of
a 47% increase in handset sales and a 58% increase in handset
upgrades, partially offset by lower sales revenue per handset
resulting from handset promotions under which Nextel Mexico
offered handsets to new and existing customers at discounted
prices in order to meet competitive offers in the market.
72
The $86.9 million, or 34%, increase in cost of service from
2006 to 2007 is principally a result of the following:
|
|
|
|
|
a $50.3 million, or 39%, increase in interconnect costs,
largely as a result of a 33% increase in interconnect system
minutes of use, as well as an increase in the proportion of
mobile-to-mobile minutes of use, which generally have higher per
minute costs;
|
|
|
|
a $20.5 million, or 21%, increase in direct switch and
transmitter and receiver site costs resulting from a 16%
increase in the number of sites in service from
December 31, 2006 to December 31, 2007, as well as an
increase in operating and maintenance costs per site; and
|
|
|
|
a $7.3 million, or 36%, increase in service and repair
costs largely due to a 37% increase in subscribers participating
in Nextel Mexicos handset maintenance program.
|
The $87.0 million, or 46%, increase in cost of digital
handsets and accessory sales from 2006 to 2007 is primarily due
to a 47% increase in handset sales, as well as a 58% increase in
handset upgrades.
|
|
3.
|
Selling and
marketing expenses
|
The $64.8 million, or 33%, increase in selling and
marketing expenses from 2006 to 2007 is primarily a result of
the following:
|
|
|
|
|
a $34.6 million, or 38%, increase in indirect commissions,
primarily due to a 39% increase in handset sales by Nextel
Mexicos third party dealers;
|
|
|
|
a $19.5 million, or 35%, increase in direct commissions and
payroll expenses, principally due to a 61% increase in handset
sales by Nextel Mexicos sales personnel, partially offset
by a decrease in direct commission per handset sale resulting
from a change in the mix of rate plans sold; and
|
|
|
|
an $8.7 million, or 20%, increase in advertising costs
resulting from the launch of new markets in connection with
Nextel Mexicos expansion plan, the launch of new rate
plans and the establishment of objectives to reinforce market
awareness of the Nextel brandname.
|
|
|
4.
|
General and
administrative expenses
|
The $67.5 million, or 41%, increase in general and
administrative expenses from 2006 to 2007 is largely a result of
the following:
|
|
|
|
|
a $28.7 million, or 51%, increase in customer care
expenses, primarily due to an increase in payroll and employee
related expenses caused by an increase in customer care
personnel necessary to support a growing customer base, as well
as an increase in the number of retail stores in Mexico;
|
|
|
|
a $22.9 million, or 32%, increase in general corporate
costs resulting from an increase in payroll and related expenses
caused by more general and administrative personnel, higher
business insurance expenses and increased facilities costs due
to Nextel Mexicos expansion into new markets; and
|
|
|
|
a $11.3 million, or 69%, increase in bad debt expense,
primarily from higher revenues and the introduction of certain
rate plans that are available to customers with higher credit
risk. Bad debt as a percentage of revenue increased from 1.2% in
2006 to 1.5% in 2007.
|
We charge a management fee to Nextel Mexico for its share of the
corporate management services performed by us, which effective
January 1, 2007, we began including in our segment
reporting information. Nextel Mexico incurred a management fee
of $34.4 million in 2007. During 2006, Nextel Mexico
incurred a management fee of $47.9 million.
|
|
6.
|
Depreciation
and amortization
|
The $45.7 million, or 43%, increase in depreciation and
amortization from 2006 to 2007 is primarily due to a 27%
increase in Nextel Mexicos property, plant and equipment
in service resulting from the continued build-out of Nextel
Mexicos network in connection with its expansion plan, as
well as a $5.7 million increase in amortization due to the
acquisition of new licenses in late 2006.
73
Excluding $10.1 million in interest on the management fee
in 2007 that was not recognized for segment reporting purposes
in 2006, Nextel Mexicos interest expense increased
$12.0 million, or 31%, mostly as a result of a decrease in
capitalized interest related to a significant decrease in
average
construction-in-progress
balances in connection with the substantial completion of Nextel
Mexicos expansion plan. This increase was also due to an
increase in interest incurred on Nextel Mexicos towers
financing and co-location capital leases resulting from an
increase in the number of communication tower and co-location
agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
833,241
|
|
|
|
96
|
%
|
|
$
|
500,315
|
|
|
|
93
|
%
|
|
$
|
332,926
|
|
|
|
67
|
%
|
Digital handset and accessory revenues
|
|
|
34,723
|
|
|
|
4
|
%
|
|
|
36,673
|
|
|
|
7
|
%
|
|
|
(1,950
|
)
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
867,964
|
|
|
|
100
|
%
|
|
|
536,988
|
|
|
|
100
|
%
|
|
|
330,976
|
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(284,744
|
)
|
|
|
(33
|
)%
|
|
|
(172,336
|
)
|
|
|
(32
|
)%
|
|
|
(112,408
|
)
|
|
|
65
|
%
|
Cost of digital handset and accessory sales
|
|
|
(80,804
|
)
|
|
|
(9
|
)%
|
|
|
(70,952
|
)
|
|
|
(13
|
)%
|
|
|
(9,852
|
)
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(365,548
|
)
|
|
|
(42
|
)%
|
|
|
(243,288
|
)
|
|
|
(45
|
)%
|
|
|
(122,260
|
)
|
|
|
50
|
%
|
Selling and marketing expenses
|
|
|
(117,754
|
)
|
|
|
(14
|
)%
|
|
|
(70,411
|
)
|
|
|
(13
|
)%
|
|
|
(47,343
|
)
|
|
|
67
|
%
|
General and administrative expenses
|
|
|
(166,877
|
)
|
|
|
(19
|
)%
|
|
|
(108,145
|
)
|
|
|
(21
|
)%
|
|
|
(58,732
|
)
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
217,785
|
|
|
|
25
|
%
|
|
|
115,144
|
|
|
|
21
|
%
|
|
|
102,641
|
|
|
|
89
|
%
|
Depreciation and amortization
|
|
|
(96,342
|
)
|
|
|
(11
|
)%
|
|
|
(59,199
|
)
|
|
|
(11
|
)%
|
|
|
(37,143
|
)
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
121,443
|
|
|
|
14
|
%
|
|
|
55,945
|
|
|
|
10
|
%
|
|
|
65,498
|
|
|
|
117
|
%
|
Interest expense, net
|
|
|
(33,943
|
)
|
|
|
(4
|
)%
|
|
|
(23,961
|
)
|
|
|
(5
|
)%
|
|
|
(9,982
|
)
|
|
|
42
|
%
|
Interest income
|
|
|
744
|
|
|
|
|
|
|
|
3,490
|
|
|
|
1
|
%
|
|
|
(2,746
|
)
|
|
|
(79
|
)%
|
Foreign currency transaction gains (losses), net
|
|
|
14,595
|
|
|
|
2
|
%
|
|
|
(387
|
)
|
|
|
|
|
|
|
14,982
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(127
|
)
|
|
|
|
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
1,749
|
|
|
|
(93
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
102,712
|
|
|
|
12
|
%
|
|
$
|
33,211
|
|
|
|
6
|
%
|
|
$
|
69,501
|
|
|
|
209
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
The average exchange rate of the Brazilian real for the year
ended December 31, 2007 appreciated against the
U.S. dollar by 12% from the year ended December 31,
2006. As a result, the components of Nextel Brazils
results of operations after translation into U.S. dollars
reflect higher increases than would have occurred if it were not
for the impact of the appreciation in the average value of the
Brazilian real relative to the U.S. dollar.
The $332.9 million, or 67%, increase in service and other
revenues from 2006 to 2007 is primarily a result of the
following:
|
|
|
|
|
a 43% increase in the average number of handsets in service
resulting from growth in Nextel Brazils existing markets
and the expansion of service coverage into new markets in
connection with our balanced growth and expansion objectives;
|
|
|
|
the 12% appreciation of the Brazilian real against the
U.S. dollar;
|
|
|
|
a $24.4 million, or 72%, increase in revenues generated
from Nextel Brazils handset maintenance program as a
result of an increase in subscribers participating in this
program; and
|
|
|
|
an increase in local currency-based average revenue per
subscriber.
|
74
The $2.0 million, or 5%, decrease in digital handset and
accessory revenues from 2006 to 2007 is primarily due to a
decrease in handset sales revenues resulting from a larger
proportion of sales in 2007 of SIM cards, which allow a customer
to use our service by inserting the card into a separately
purchased handset and which generate lower sales revenues per
unit than handsets.
The $112.4 million, or 65%, increase in cost of service
from 2006 to 2007 is primarily due to the following:
|
|
|
|
|
a $73.3 million, or 88%, increase in interconnect costs
resulting from a 50% increase in interconnect minutes of use, as
well as an increase in the proportion of mobile-to-mobile
minutes of use, which generally have higher per minute costs;
|
|
|
|
a $29.9 million, or 48%, increase in direct switch and
transmitter and receiver site costs resulting from a 24%
increase in the number of sites in service from
December 31, 2006 to December 31, 2007, as well as an
increase in operating and maintenance costs per site; and
|
|
|
|
a $4.1 million, or 24%, increase in service and repair
costs largely due to a 40% increase in subscribers participating
in Nextel Brazils handset maintenance program.
|
The increase in cost of service also resulted from the 12%
appreciation of the Brazilian real against the U.S. dollar.
The $9.9 million, or 14%, increase in cost of digital
handset and accessory sales from 2006 to 2007 is primarily due
to a 53% increase in handset upgrades, partially offset by a
decrease in handset costs resulting from the larger proportion
in 2007 of sales of SIM cards, which have a significantly lower
cost per unit than handsets.
|
|
3.
|
Selling and
marketing expenses
|
The $47.3 million, or 67%, increase in selling and
marketing expenses from 2006 to 2007 is principally due to the
following:
|
|
|
|
|
an $18.9 million, or 56%, increase in payroll and direct
commissions largely as a result of a 45% increase in handset
sales by Nextel Brazils sales force and an increase in
selling and marketing personnel necessary to support continued
sales growth;
|
|
|
|
a $14.6 million, or 96%, increase in advertising expenses
resulting from the launch of new markets in connection with
Nextel Brazils expansion plan, its sponsorship of the Copa
Nextel Stock Car races, a professional racecar event, and its
continued print and media campaigns for various products and
services, including the launch of Blackberry services; and
|
|
|
|
a $13.1 million, or 71%, increase in indirect commissions
resulting from a 43% increase in handset sales through Nextel
Brazils external sales channels, as well as an increase in
indirect commissions earned per handset sale resulting from
premiums paid on sales exceeding pre-established thresholds.
|
All of these increases were also affected by the 12%
appreciation of the Brazilian real against the U.S. dollar.
|
|
4.
|
General and
administrative expenses
|
The $58.7 million, or 54%, increase in general and
administrative expenses from 2006 to 2007 is primarily a result
of the following:
|
|
|
|
|
a $19.3 million, or 66%, increase in revenue-based taxes
that we report on a gross basis as both service and other
revenues and general and administrative expenses, primarily due
to the 67% increase in Nextel Brazils service and other
revenues;
|
|
|
|
a $17.4 million, or 53%, increase in customer care expenses
resulting from an increase in customer care personnel necessary
to support a larger customer base, as well as an increase in the
number of retail stores;
|
|
|
|
a $13.6 million, or 53%, increase in general corporate
costs primarily resulting from an increase in general and
administrative personnel necessary to support Nextel
Brazils expansion, as well as an increase in facilities
costs due to the expansion into new markets; and
|
|
|
|
a $5.3 million, or 57%, increase in information technology
expenses related to the expansion of Nextel Brazils
network and the implementation of new systems.
|
75
All of these increases were also affected by the 12%
appreciation of the Brazilian real against the U.S. dollar.
|
|
5.
|
Depreciation
and amortization
|
The $37.1 million, or 63%, increase in depreciation and
amortization from 2006 to 2007 is primarily due to a 75%
increase in Nextel Brazils property, plant and equipment
in service resulting from the continued build-out of Nextel
Brazils mobile network, as well as the 12% appreciation of
the Brazilian real against the U.S. dollar.
The $10.0 million, or 42%, increase in net interest expense
from 2006 to 2007 is primarily the result of increased interest
incurred on Nextel Brazils tower financing and capital
lease obligations due to an increase in both the number of
towers financed and capital leases, $3.1 million of
interest incurred on borrowings under Nextel Brazils
syndicated loan facility, a decrease in capitalized interest and
the 12% appreciation of the Brazilian real against the
U.S. dollar.
As a result of the drawdown of amounts under its syndicated loan
facility in the fourth quarter of 2007, we expect that Nextel
Brazils net interest expense will increase in 2008 as we
incur interest under that facility for a full year.
|
|
7.
|
Foreign
currency transaction gains (losses), net
|
Foreign currency transaction gains of $14.6 million for
2007 is primarily due to the strengthening of the Brazilian real
relative to the U.S. dollar on Nextel Brazils
U.S. dollar-denominated liabilities, primarily on a
short-term intercompany bridge loan and its syndicated loan
facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
408,142
|
|
|
|
92
|
%
|
|
$
|
320,664
|
|
|
|
93
|
%
|
|
$
|
87,478
|
|
|
|
27
|
%
|
Digital handset and accessory revenues
|
|
|
33,951
|
|
|
|
8
|
%
|
|
|
24,370
|
|
|
|
7
|
%
|
|
|
9,581
|
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
442,093
|
|
|
|
100
|
%
|
|
|
345,034
|
|
|
|
100
|
%
|
|
|
97,059
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(151,404
|
)
|
|
|
(34
|
)%
|
|
|
(113,609
|
)
|
|
|
(33
|
)%
|
|
|
(37,795
|
)
|
|
|
33
|
%
|
Cost of digital handset and accessory sales
|
|
|
(52,268
|
)
|
|
|
(12
|
)%
|
|
|
(45,416
|
)
|
|
|
(13
|
)%
|
|
|
(6,852
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(203,672
|
)
|
|
|
(46
|
)%
|
|
|
(159,025
|
)
|
|
|
(46
|
)%
|
|
|
(44,647
|
)
|
|
|
28
|
%
|
Selling and marketing expenses
|
|
|
(34,646
|
)
|
|
|
(8
|
)%
|
|
|
(27,752
|
)
|
|
|
(8
|
)%
|
|
|
(6,894
|
)
|
|
|
25
|
%
|
General and administrative expenses
|
|
|
(65,421
|
)
|
|
|
(15
|
)%
|
|
|
(59,261
|
)
|
|
|
(17
|
)%
|
|
|
(6,160
|
)
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
138,354
|
|
|
|
31
|
%
|
|
|
98,996
|
|
|
|
29
|
%
|
|
|
39,358
|
|
|
|
40
|
%
|
Depreciation and amortization
|
|
|
(30,227
|
)
|
|
|
(7
|
)%
|
|
|
(20,141
|
)
|
|
|
(6
|
)%
|
|
|
(10,086
|
)
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
108,127
|
|
|
|
24
|
%
|
|
|
78,855
|
|
|
|
23
|
%
|
|
|
29,272
|
|
|
|
37
|
%
|
Interest expense, net
|
|
|
(2,466
|
)
|
|
|
|
|
|
|
(2,330
|
)
|
|
|
(1
|
)%
|
|
|
(136
|
)
|
|
|
6
|
%
|
Interest income
|
|
|
5,370
|
|
|
|
2
|
%
|
|
|
2,509
|
|
|
|
1
|
%
|
|
|
2,861
|
|
|
|
114
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
1,244
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
1,262
|
|
|
|
NM
|
|
Other income, net
|
|
|
1,594
|
|
|
|
|
|
|
|
329
|
|
|
|
|
|
|
|
1,265
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
113,869
|
|
|
|
26
|
%
|
|
$
|
79,345
|
|
|
|
23
|
%
|
|
$
|
34,524
|
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
76
The average exchange rate of the Argentine peso for the year
ended December 31, 2007 depreciated against the
U.S. dollar by 1% from the year ended December 31,
2006. As a result, the components of Nextel Argentinas
results of operations after translation into U.S. dollars
are largely comparable from 2006 to 2007.
The $87.5 million, or 27%, increase in service and other
revenues from 2006 to 2007 is primarily attributable to the
following:
|
|
|
|
|
a 28% increase in the average number of handsets in service,
resulting mostly from growth in Nextel Argentinas existing
markets; and
|
|
|
|
an $11.3 million, or 35%, increase in revenues generated
from Nextel Argentinas handset maintenance program as a
result of an increase in the number of subscribers participating
in this program.
|
The $9.6 million, or 39%, increase in digital handset and
accessory revenues from 2006 to 2007 is mostly the result of a
21% increase in handset sales, as well as a 30% increase in
handset upgrades.
The $37.8 million, or 33%, increase in cost of service from
2006 to 2007 is principally a result of the following:
|
|
|
|
|
a $16.3 million, or 26%, increase in interconnect costs,
largely as a result of an 18% increase in interconnect system
minutes of use, as well as an increase in the proportion of
mobile-to-mobile minutes of use, which generally have higher per
minute costs;
|
|
|
|
a $13.0 million, or 53%, increase in service and repair
costs, largely due to a 60% increase in subscribers
participating in Nextel Argentinas handset maintenance
program; and
|
|
|
|
a $6.8 million, or 27%, increase in direct switch and
transmitter and receiver site costs due to a 21% increase in the
number of sites in service from December 31, 2006 to
December 31, 2007, as well as increases in operating and
maintenance costs, rental costs and municipal taxes per site.
|
The $6.9 million, or 15%, increase in cost of digital
handset and accessory sales from 2006 to 2007 is primarily the
result of a 21% increase in handset sales, as well as a 30%
increase in handset upgrades.
|
|
3.
|
Selling and
marketing expenses
|
The $6.9 million, or 25%, increase in selling and marketing
expenses from 2006 to 2007 is primarily due to the following:
|
|
|
|
|
a $3.5 million, or 29%, increase in indirect commissions,
principally resulting from a 25% increase in handset sales by
Nextel Argentinas dealers, as well as an increase in
indirect commissions earned per handset sale; and
|
|
|
|
a $2.0 million, or 19%, increase in direct commissions and
payroll expenses, mostly due to a 16% increase in handset sales
by Nextel Argentinas sales personnel.
|
|
|
4.
|
General and
administrative expenses
|
The $6.2 million, or 10%, increase in general and
administrative expenses from 2006 to 2007 is primarily a result
of the following:
|
|
|
|
|
a $4.4 million, or 36%, increase in customer care expenses
resulting from an increase in customer care personnel necessary
to support a larger customer base; and
|
|
|
|
a $2.4 million, or 34%, increase in information technology
expenses caused by an increase in information technology
personnel and higher software maintenance costs; partially
offset by
|
|
|
|
a $1.8 million, or 5%, decrease in general corporate costs
primarily due to a lower turnover tax rate required in 2007 and
a cost reduction resulting from a change in the calculation of
universal service taxes.
|
77
|
|
5.
|
Depreciation
and amortization
|
The $10.1 million, or 50%, increase in depreciation and
amortization from 2006 to 2007 is primarily due to a 29%
increase in Nextel Argentinas property, plant and
equipment in service, as well as the correction of an error in
the computation of the useful life of certain software that
Nextel Argentina recorded during the second quarter of 2006.
The $2.9 million, or 114%, increase in interest income from
2006 to 2007 is primarily the result of an increase in Nextel
Argentinas average cash balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
178,058
|
|
|
|
93
|
%
|
|
$
|
137,924
|
|
|
|
94
|
%
|
|
$
|
40,134
|
|
|
|
29
|
%
|
Digital handset and accessory revenues
|
|
|
12,800
|
|
|
|
7
|
%
|
|
|
8,449
|
|
|
|
6
|
%
|
|
|
4,351
|
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190,858
|
|
|
|
100
|
%
|
|
|
146,373
|
|
|
|
100
|
%
|
|
|
44,485
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(69,185
|
)
|
|
|
(36
|
)%
|
|
|
(53,145
|
)
|
|
|
(36
|
)%
|
|
|
(16,040
|
)
|
|
|
30
|
%
|
Cost of digital handset and accessory sales
|
|
|
(31,457
|
)
|
|
|
(17
|
)%
|
|
|
(24,240
|
)
|
|
|
(17
|
)%
|
|
|
(7,217
|
)
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,642
|
)
|
|
|
(53
|
)%
|
|
|
(77,385
|
)
|
|
|
(53
|
)%
|
|
|
(23,257
|
)
|
|
|
30
|
%
|
Selling and marketing expenses
|
|
|
(20,476
|
)
|
|
|
(10
|
)%
|
|
|
(17,213
|
)
|
|
|
(12
|
)%
|
|
|
(3,263
|
)
|
|
|
19
|
%
|
General and administrative expenses
|
|
|
(33,971
|
)
|
|
|
(18
|
)%
|
|
|
(25,697
|
)
|
|
|
(17
|
)%
|
|
|
(8,274
|
)
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
35,769
|
|
|
|
19
|
%
|
|
|
26,078
|
|
|
|
18
|
%
|
|
|
9,691
|
|
|
|
37
|
%
|
Depreciation and amortization
|
|
|
(19,867
|
)
|
|
|
(11
|
)%
|
|
|
(12,927
|
)
|
|
|
(9
|
)%
|
|
|
(6,940
|
)
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
15,902
|
|
|
|
8
|
%
|
|
|
13,151
|
|
|
|
9
|
%
|
|
|
2,751
|
|
|
|
21
|
%
|
Interest expense, net
|
|
|
(120
|
)
|
|
|
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
25
|
|
|
|
(17
|
)%
|
Interest income
|
|
|
750
|
|
|
|
1
|
%
|
|
|
1,070
|
|
|
|
1
|
%
|
|
|
(320
|
)
|
|
|
(30
|
)%
|
Foreign currency transaction gains, net
|
|
|
507
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
401
|
|
|
|
NM
|
|
Other income, net
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
17,041
|
|
|
|
9
|
%
|
|
$
|
14,184
|
|
|
|
10
|
%
|
|
$
|
2,857
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Because the U.S. dollar is the functional currency in Peru,
Nextel Perus results of operations are not significantly
impacted by changes in the U.S. dollar to Nuevo sol
exchange rate.
The $40.1 million, or 29%, increase in service and other
revenues from 2006 to 2007 is primarily due to a 37% increase in
the average number of handsets in service, partially offset by a
decrease in average revenue per subscriber mainly resulting from
an increase in sales of prepaid rate plans, which typically have
lower average revenues per subscriber, during 2007 compared to
2006.
The $4.4 million, or 51%, increase in digital handset and
accessory revenues from 2006 to 2007 is primarily the result of
a 35% increase in handset sales, as well as an increase in
handset upgrades.
78
The $16.0 million, or 30%, increase in cost of service from
2006 to 2007 is largely a result of the following:
|
|
|
|
|
a $9.4 million, or 27%, increase in interconnect costs due
to a 24% increase in interconnect minutes of use;
|
|
|
|
a $3.0 million, or 26%, increase in direct switch and
transmitter and receiver site costs due to a 13% increase in the
number of sites in service from December 31, 2006 to
December 31, 2007, as well as an increase in operating and
maintenance costs per site; and
|
|
|
|
a $2.0 million, or 39%, increase in service and repair
costs largely due to a 41% increase in subscribers participating
in Nextel Perus handset maintenance program.
|
The $7.2 million, or 30%, increase in cost of digital
handsets and accessory sales from 2006 to 2007 is largely the
result of a 35% increase in handset sales, as well as an
increase in handset upgrades.
|
|
3.
|
Selling and
marketing expenses
|
The $3.3 million, or 19%, increase in selling and marketing
expenses from 2006 to 2007 is primarily due to a
$2.3 million, or 27%, increase in direct commissions and
payroll expenses principally due to a 31% increase in handset
sales by Nextel Perus sales personnel.
|
|
4.
|
General and
administrative expenses
|
The $8.3 million, or 32%, increase in general and
administrative expenses from 2006 to 2007 is primarily due to
the following:
|
|
|
|
|
a $3.1 million, or 33%, increase in general corporate costs
due to an increase in general and administrative personnel
necessary to support Nextel Perus expanding business;
|
|
|
|
a $2.5 million, or 26%, increase in customer care expenses,
mainly caused by an increase in customer care and billing
operations personnel needed to support a growing customer
base; and
|
|
|
|
a $1.8 million, or 38%, increase in information technology
costs primarily resulting from the implementation of a new
billing system.
|
|
|
5.
|
Depreciation
and amortization
|
The $6.9 million, or 54%, increase in depreciation and
amortization from 2006 to 2007 is primarily due to a 22%
increase in Nextel Perus property, plant and equipment in
service, as well as additional depreciation related to the early
retirement of certain network equipment.
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
and other
|
|
|
Year Ended
|
|
|
and other
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,828
|
|
|
|
99
|
%
|
|
$
|
2,425
|
|
|
|
100
|
%
|
|
$
|
1,403
|
|
|
|
58
|
%
|
Digital handset and accessory revenues
|
|
|
22
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,850
|
|
|
|
100
|
%
|
|
|
2,425
|
|
|
|
100
|
%
|
|
|
1,425
|
|
|
|
59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(2,791
|
)
|
|
|
(73
|
)%
|
|
|
(1,863
|
)
|
|
|
(77
|
)%
|
|
|
(928
|
)
|
|
|
50
|
%
|
Cost of digital handset and accessory sales
|
|
|
(1,235
|
)
|
|
|
(32
|
)%
|
|
|
(120
|
)
|
|
|
(5
|
)%
|
|
|
(1,115
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,026
|
)
|
|
|
(105
|
)%
|
|
|
(1,983
|
)
|
|
|
(82
|
)%
|
|
|
(2,043
|
)
|
|
|
103
|
%
|
Selling and marketing expenses
|
|
|
(10,145
|
)
|
|
|
(264
|
)%
|
|
|
(8,211
|
)
|
|
|
(339
|
)%
|
|
|
(1,934
|
)
|
|
|
24
|
%
|
General and administrative expenses
|
|
|
(133,724
|
)
|
|
|
NM
|
|
|
|
(101,142
|
)
|
|
|
NM
|
|
|
|
(32,582
|
)
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(144,045
|
)
|
|
|
NM
|
|
|
|
(108,911
|
)
|
|
|
NM
|
|
|
|
(35,134
|
)
|
|
|
32
|
%
|
Management fee
|
|
|
34,376
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
34,376
|
|
|
|
NM
|
|
Depreciation and amortization
|
|
|
(7,008
|
)
|
|
|
(182
|
)%
|
|
|
(4,481
|
)
|
|
|
(185
|
)%
|
|
|
(2,527
|
)
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(116,677
|
)
|
|
|
NM
|
|
|
|
(113,392
|
)
|
|
|
NM
|
|
|
|
(3,285
|
)
|
|
|
3
|
%
|
Interest expense, net
|
|
|
(41,873
|
)
|
|
|
NM
|
|
|
|
(24,613
|
)
|
|
|
NM
|
|
|
|
(17,260
|
)
|
|
|
70
|
%
|
Interest income
|
|
|
41,156
|
|
|
|
NM
|
|
|
|
11,705
|
|
|
|
NM
|
|
|
|
29,451
|
|
|
|
252
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
103
|
|
|
|
3
|
%
|
|
|
(101
|
)
|
|
|
(4
|
)%
|
|
|
204
|
|
|
|
(202
|
)%
|
Debt conversion expense
|
|
|
(26,429
|
)
|
|
|
NM
|
|
|
|
(5,070
|
)
|
|
|
(209
|
)%
|
|
|
(21,359
|
)
|
|
|
NM
|
|
Other expense, net
|
|
|
(5,486
|
)
|
|
|
(142
|
)%
|
|
|
(1,282
|
)
|
|
|
(53
|
)%
|
|
|
(4,204
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(149,206
|
)
|
|
|
NM
|
|
|
$
|
(132,753
|
)
|
|
|
NM
|
|
|
$
|
(16,453
|
)
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the year ended December 31, 2007, corporate and other
operating revenues and cost of revenues primarily represent the
results of both digital and analog operations reported by Nextel
Chile, which launched digital services in Chile during the
fourth quarter of 2006. For the year ended December 31,
2006, corporate and other operating revenues and cost of
revenues primarily represent the results of analog operations
reported by Nextel Chile.
|
|
1.
|
General and
administrative expenses
|
The $32.6 million, or 32%, increase in general and
administrative expenses from 2006 to 2007 is primarily due to an
$18.1 million, or 61%, increase in stock option
compensation expense, an increase in corporate payroll and
related expenses and an increase in outside service costs,
specifically for consulting services.
During 2007, Nextel Mexico incurred a management fee of
$34.4 million for services rendered by corporate
management. Although we have been charging this fee to Nextel
Mexico for several years, we began reporting this management fee
as a separate line item in our segment reporting information
beginning January 1, 2007. As a result, we have recorded
this management fee as a contra-expense in the table presented
above.
The $17.3 million, or 70%, increase in net interest expense
from 2006 to 2007 is substantially the result of
$21.9 million in interest related to our 3.125% convertible
notes that we issued in the second quarter of 2007, partially
offset by a $6.8 million decrease in interest expense due
to the conversion of our 3.5% convertible notes and 2.875%
convertible notes.
80
The $29.5 million increase in interest income from 2006 to
2007 is largely due to higher average cash balances resulting
from the $1.2 billion in gross proceeds we received from
the 3.125% convertible notes that we issued in May 2007.
|
|
5.
|
Debt
conversion expense
|
Debt conversion expense for 2007 represents $26.5 million
in cash consideration and direct external costs that we paid in
connection with the tender offer for 99.99% of our 2.875%
convertible notes in the third quarter of 2007.
Debt conversion expense for 2006 represents $5.1 million in
cash consideration and direct external costs that we paid in
connection with the conversion of the remaining
$91.4 million of our 3.5% convertible notes during the
fourth quarter of 2006.
The $4.2 million increase in other expense, net, from 2006
to 2007 is mainly due to a decline in the value of our
investment in a short-term investment fund, which we previously
characterized as a cash equivalent investment, resulting from
changing credit market conditions. Due to these changing
conditions, we evaluated the decline in the market value of the
investment and determined that unrealized losses related to
certain securities in this investment should be recognized as
other-than-temporary. We made these assessments by reviewing the
relevant factors and considering all available evidence,
including specific and individual investment data, the length of
time and the extent to which the market value was less than
cost, the financial condition and near-term prospects of our
investment fund and our intent and ability to hold the
investment. As a result, we recognized a pre-tax
$3.1 million loss related to the decline in the fair value
of our investment.
|
|
C.
|
Liquidity
and Capital Resources
|
We derive our liquidity and capital resources primarily from
cash flows from our operations. As of December 31, 2008, we
had working capital, which is defined as total current assets
less total current liabilities, of $1,372.4 million, a
$263.2 million decrease compared to working capital of
$1,635.6 million as of December 31, 2007, primarily
due to cash used for capital expenditures. Our working capital
includes $1,243.3 million in cash and cash equivalents as
of December 31, 2008, of which about 48% was held in
currencies other than U.S. dollars, with a majority held in
Mexican pesos, and $82.0 million of short-term investments,
about half of 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 highly liquid overnight
securities and certificates of deposit. For the year ended
December 31, 2008, the effect of exchange rate changes on
consolidated cash and cash equivalents was $126.6 million.
In January 2008, our Board of Directors authorized a program to
purchase shares of our common stock for cash. The Board approved
the purchase of shares having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. During the year ended December 31, 2008, we
purchased a total of 5,555,033 shares of our common stock
for $242.7 million. We did not purchase any shares of our
common stock during the three months ended December 31,
2008. During the year ended December 31, 2007, we purchased
a total of 7,401,543 shares of our common stock for
approximately $500.1 million under our first program to
purchase shares of our common stock for cash. We do not expect
to purchase any shares of our common stock for cash in 2009.
We recognized net income of $369.1 million for the year
ended December 31, 2008 compared to $378.4 million for
the year ended December 31, 2007. During the year ended
December 31, 2008 and 2007, our operating revenues more
than offset our operating expenses, excluding depreciation and
amortization, and cash capital expenditures.
Because we report our results of operations in
U.S. dollars, the declines in relative currency valuations
that occurred during the second half of 2008 resulted in
reductions in some of the reported values of our assets,
including the values of cash and cash equivalents held in local
currencies. If the values of the currencies in the countries in
which our operating companies conduct business relative to the
U.S. dollar remain at the average levels that prevailed
during the fourth quarter of 2008 or if these values depreciate
further, we would expect the reported value of these assets held
in local currencies to decrease further.
We believe our current working capital and anticipated future
cash flows will be adequate to meet our cash needs for daily
operations and capital expenditures, but our funding needs could
be affected by a number of factors.
81
Specifically, our liquidity could be negatively affected by a
decrease in operating revenues resulting from a decline in
demand for our products and services due to the significant
downturn in the global economy or from a decline in the values
of the currencies in the countries in which we conduct our
business relative to the U.S. dollar among other factors.
See D. Future Capital Needs and Resources
Future Outlook.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
Change from
|
|
|
|
Year Ended December 31,
|
|
|
2007 to 2008
|
|
|
2006 to 2007
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Dollars
|
|
|
Dollars
|
|
|
Cash and cash equivalents, beginning of year
|
|
$
|
1,370,165
|
|
|
$
|
708,591
|
|
|
$
|
877,536
|
|
|
$
|
661,574
|
|
|
$
|
(168,945
|
)
|
Net cash provided by operating activities
|
|
|
794,359
|
|
|
|
659,093
|
|
|
|
488,980
|
|
|
|
135,266
|
|
|
|
170,113
|
|
Net cash used in investing activities
|
|
|
(688,477
|
)
|
|
|
(944,104
|
)
|
|
|
(752,924
|
)
|
|
|
255,627
|
|
|
|
(191,180
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(106,181
|
)
|
|
|
944,046
|
|
|
|
96,635
|
|
|
|
(1,050,227
|
)
|
|
|
847,411
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(126,615
|
)
|
|
|
2,539
|
|
|
|
(1,636
|
)
|
|
|
(129,154
|
)
|
|
|
4,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
|
$
|
708,591
|
|
|
$
|
(126,914
|
)
|
|
$
|
661,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $794.4 million of
cash during 2008, a $135.3 million, or 21%, increase from
2007. Cash generated from operations during 2008 was primarily a
result of $369.1 million in net income, as well as non-cash
expenses including $404.5 million in depreciation and
amortization and $120.6 million in foreign currency
transaction losses. Our operating activities provided us with
$659.1 million of cash during 2007, a $170.1 million,
or 35%, increase from 2006. Cash generated from operations
during 2007 was primarily a result of $378.4 million in net
income, as well as non-cash expenses including
$304.6 million in depreciation and amortization. Cash
generated from operations during 2006 was mostly a result of
$294.5 million in net income, as well as non-cash expenses
including $202.2 million in depreciation and amortization.
We used $688.5 million of cash in our investing activities
during 2008, a $255.6 million decrease from 2007 primarily
due to $173.9 million in distributions we received from our
enhanced cash fund, which primarily consists of certain
asset-backed and mortgage-backed securities. Cash capital
expenditures increased $181.8 million from
$622.7 million in 2007 to $804.5 million in 2008,
primarily due to the continued expansion of the geographic
coverage and increased capacity of our networks, primarily in
Brazil, Mexico and Peru. We expect to continue to focus our
capital spending in these countries.
We used $944.1 million of cash in our investing activities
during 2007, a $191.2 million, or 25%, increase from 2006
due primarily to increased cash capital expenditures, our
$241.8 million investment in an enhanced cash fund similar
to, but not in the legal form of, a money market fund that
invests primarily in asset-backed securities and
$49.5 million in payments for acquisitions and purchases of
licenses, primarily in Brazil and Peru. Cash capital
expenditures increased $71.4 million, or 13%, to
$622.7 million from $551.3 million in 2006 due to the
continued build-out of our networks, primarily in Mexico and
Brazil.
We used $106.2 million of cash in our financing activities
during 2008, primarily due to $242.7 million in cash we
used to purchase shares of our common stock and
$57.7 million in repayments under Nextel Mexicos
syndicated loan facility, partially offset by
$125.0 million in borrowings under Nextel Brazils
syndicated loan facility, $33.8 million in proceeds that we
received from stock option exercises by our employees and
$27.3 million in proceeds that we received from our towers
financing transactions.
Our financing activities provided us with $944.0 million of
cash during 2007, primarily due to $1.2 billion in gross
proceeds that we received from the issuance of our 3.125%
convertible notes, $175.0 million in borrowings under
Nextel Brazils syndicated loan facility and
$91.0 million in proceeds that we received from stock
option exercises by our employees, partially offset by
$500.1 million in cash we used to purchase shares of our
common stock.
82
|
|
D.
|
Future
Capital Needs and Resources
|
Capital Resources. Our ongoing capital
resources depend on a variety of factors, including our existing
cash and cash equivalents balances, the value of our short-term
investments, cash flows generated by our operating companies and
external financial sources that may be available.
Our ability to generate sufficient net cash from our operating
activities is dependent upon, among other things:
|
|
|
|
|
the amount of revenue we are able to generate and collect from
our customers;
|
|
|
|
the amount of operating expenses required to provide our
services;
|
|
|
|
the cost of acquiring and retaining customers, including the
subsidies we incur to provide handsets to both our new and
existing customers;
|
|
|
|
our ability to continue to increase the size of our subscriber
base; and
|
|
|
|
fluctuations in foreign exchange rates.
|
Financing Activities. In 2007 and 2008,
we engaged in a number of financing transactions in order to
provide funding for our business and optimize our capital
structure including the following:
In May 2007, we privately placed $1.0 billion aggregate
principal amount of 3.125% convertible notes due 2012, which we
refer to as the 3.125% notes. In addition, we granted the
initial purchaser an option to purchase up to an additional
$200.0 million principal amount of 3.125% notes, which
the initial purchaser exercised in full. As a result, we issued
a total of $1.2 billion principal amount of the
3.125% notes for which we received total gross proceeds of
$1.2 billion. We also incurred direct issuance costs of
$22.8 million, which we recorded as a deferred financing
cost that we are amortizing into interest expense over the term
of the 3.125% notes. The notes bear interest at a rate of
3.125% per annum on the principal amount of the notes, payable
semi-annually in arrears in cash on June 15 and December 15 of
each year, beginning December 15, 2007. The notes will
mature on June 15, 2012 unless earlier converted or
redeemed by the holders or repurchased by us.
In July 2007, we accepted the tender of 99.99% of the
$300.0 million in outstanding principal amount of our
2.875% convertible notes under a tender offer that expired on
July 23, 2007. In connection with this tender offer, we
issued 11,268,103 shares of our common stock incurred
$1.0 million in direct external costs and paid to the
holders of the tendered notes an aggregate cash premium of
$25.5 million and accrued and unpaid interest of
$4.2 million.
In September 2007, Nextel Brazil entered into a
$300.0 million syndicated loan facility. Of the total
amount of the facility, $45.0 million is denominated in
U.S. dollars with a floating interest rate based on LIBOR
plus a specified margin ranging from 2.00% to 2.50%
(Tranche A 3.43% and 7.35% as of
December 31, 2008 and 2007, respectively). The remaining
$255.0 million is also denominated in U.S. dollars
with a floating interest rate based on LIBOR plus a specified
margin ranging from 1.75% to 2.25% (Tranche B
3.18% and 7.10% as of December 31, 2008 and 2007,
respectively). Tranche A matures on September 14,
2014, and Tranche B matures on September 14, 2012.
During the fourth quarter of 2007, Nextel Brazil borrowed
$26.2 million in term loans under Tranche A and
$148.8 million in term loans under Tranche B of this
syndicated loan facility. During the first quarter of 2008,
Nextel Brazil borrowed the remaining $18.8 million in term
loans under Tranche A and $106.2 million in term loans
under Tranche B of this syndicated loan facility.
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
a next generation network in Peru;
|
|
|
|
future spectrum purchases;
|
|
|
|
operating expenses and capital expenditures related to the
deployment of next generation networks in our other markets if
we are successful in acquiring spectrum;
|
|
|
|
debt service requirements, including tower financing and capital
lease obligations;
|
|
|
|
cash taxes; and
|
|
|
|
other general corporate expenditures.
|
83
The following table sets forth the amounts and timing of
contractual payments for our most significant contractual
obligations determined as of December 31, 2008. The
information in the table reflects future unconditional payments
and is based upon, among other things, the current terms of the
relevant agreements, appropriate classification of items under
accounting principles generally accepted in the United States
that are currently in effect and certain assumptions, such as
future interest rates. Future events could cause actual payments
to differ significantly from these amounts. See
Item 1A. Risk Factors 16.
Our forward-looking statements are subject to a variety of
factors that could cause actual results to differ materially
from current beliefs. Except as required by law, we
disclaim any obligation to modify or update the information
contained in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
Contractual Obligations
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Convertible notes(1)
|
|
$
|
47,125
|
|
|
$
|
94,250
|
|
|
$
|
1,238,000
|
|
|
$
|
465,523
|
|
|
$
|
1,844,898
|
|
Tower financing obligations(1)
|
|
|
48,272
|
|
|
|
96,515
|
|
|
|
96,467
|
|
|
|
268,546
|
|
|
|
509,800
|
|
Syndicated loan facilities(2)
|
|
|
111,567
|
|
|
|
339,140
|
|
|
|
92,256
|
|
|
|
8,382
|
|
|
|
551,345
|
|
Capital lease obligations(3)
|
|
|
12,281
|
|
|
|
24,562
|
|
|
|
39,375
|
|
|
|
71,751
|
|
|
|
147,969
|
|
Spectrum fees(4)
|
|
|
11,366
|
|
|
|
22,731
|
|
|
|
22,731
|
|
|
|
135,874
|
|
|
|
192,702
|
|
Operating leases(5)
|
|
|
115,327
|
|
|
|
188,918
|
|
|
|
134,395
|
|
|
|
172,550
|
|
|
|
611,190
|
|
Purchase obligations(6)
|
|
|
1,231,019
|
|
|
|
73,881
|
|
|
|
5,614
|
|
|
|
1,970
|
|
|
|
1,312,484
|
|
Other long-term obligations(7)
|
|
|
18,713
|
|
|
|
14,653
|
|
|
|
31,052
|
|
|
|
172,834
|
|
|
|
237,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual commitments
|
|
$
|
1,595,670
|
|
|
$
|
854,650
|
|
|
$
|
1,659,890
|
|
|
$
|
1,297,430
|
|
|
$
|
5,407,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts include estimated principal and interest payments
over the full term of the obligation based on our expectations
as to future interest rates, assuming the current payment
schedule. The $350.0 million repayment of the principal
balance of our 2.75% convertible notes due 2025 is included in
the table above in the column labeled more than
5 years. However, in accordance with the terms of
these 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. |
|
(2) |
|
These amounts include principal and interest payments associated
with Nextel Mexico and Nextel Brazils syndicated loan
facilities. |
|
(3) |
|
These amounts represent principal and interest payments due
under our co-location agreements with American Tower and our
existing corporate aircraft lease. The amounts related to our
existing aircraft lease exclude contingent amounts due in the
event we default under the lease, but include remaining amounts
due under the letter of credit provided for our new corporate
aircraft. See Note 7 to our consolidated financial
statements for more information. |
|
(4) |
|
These amounts do not include variable fees based on certain
operating revenues and are subject to increases in the Mexican
Consumer Pricing Index. |
|
(5) |
|
These amounts principally include future lease payments related
to our transmitter and receiver sites and switches and office
facilities. |
|
(6) |
|
These amounts include maximum contractual purchase obligations
under various agreements with our vendors, as well as estimated
amounts related to an interconnection agreement in Mexico. |
|
(7) |
|
These amounts include our current estimates of asset retirement
obligations based on our expectations as to future retirement
costs, inflation rates and timing of retirements, as well as
amounts related to our FIN 48 liabilities. |
In addition to these contractual obligations, as discussed in
Note 8 to the accompanying consolidated financial
statements, we entered into an agreement with Motorola during
2006, which requires us to purchase a minimum number of handsets
each year through December 31, 2011. Prices for handsets
that will be purchased in years subsequent to 2009 were not
stipulated in the agreement as they will be negotiated annually.
As a result, we are not able to quantify the dollar amount of
minimum purchases required under this agreement for years
subsequent to 2009 until each years prices and handset mix
are negotiated, and therefore, they are not included in the
table above.
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$830.8 million for the year ended December 31, 2008,
$666.8 million for the year ended December 31, 2007
and $627.4 million for the year ended December 31,
2006. In each of these years, a substantial portion of our
capital expenditures was invested in Mexico and Brazil. We
expect to continue to focus our capital spending in these two
markets, particularly in
84
Brazil in order to add more capacity to Nextel Brazils
network, support its growth and expand its geographic coverage,
including expansion into the northeast region of the country.
In addition, we currently plan to participate in spectrum
auctions in our markets, including auctions that are expected to
be conducted in Brazil and Mexico, and, if we are successful in
acquiring spectrum in those auctions, to deploy next generation
networks in those markets consistent with applicable regulatory
requirements and our business strategy. The purchase of spectrum
in these auctions and deployment of new next generation networks
would result in a significant increase in our capital
expenditures in the applicable markets although the amount and
timing of those additional capital expenditures is dependent on,
among other things, the timing of the auctions and the nature
and extent of any regulatory requirements that may be imposed
regarding the timing and scope of the deployment of the new
networks.
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. 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 next generation network in
Peru that utilizes the 1.9 GHz spectrum that we acquired in
2007;
|
|
|
|
the costs we incur in connection with future spectrum
acquisitions and the development and deployment of any future
next generation networks in our other markets; and
|
|
|
|
the costs we incur in connection with
non-network
related information technology projects.
|
Our future capital expenditures may be affected by future
technology improvements and technology choices. For example, we
have experienced voice quality problems related to certain types
of calls made using the 6:1 voice coder technology, an upgrade
to the iDEN technology used in our mobile network, and in some
markets, we have adjusted the network software to reduce the
number of calls completed using the 6:1 voice coder technology
in order to balance our network capacity needs with the need to
maintain voice quality. Because we have not used the 6:1 voice
coder technology to its full capacity, we have invested more
capital in our infrastructure to satisfy our network capacity
needs than would have been necessary if we had been able to
complete a higher percentage of calls using the technology, and
we may make similar investments in the future as we optimize our
network to meet our capacity and voice quality requirements. If
we were to decide to significantly curtail the use of the 6:1
voice coder technology in all of our markets, these investments
could be significant. See Item 1A. Risk
Factors 6. Because we rely on one supplier for
equipment used in our mobile networks, any failure of that
supplier to perform could adversely affect our
operations.
Future Outlook. We believe that our
current business plans, which contemplate significant expansion
of our iDEN network in Brazil, continued coverage and capacity
expansion of our iDEN networks in Mexico, Argentina and Chile,
and the construction of a new, complementary next generation
network in Peru, 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 auctions that are expected to be conducted in
Brazil and Mexico and by our plans to deploy next generation
networks in those markets if we are successful in acquiring
those spectrum rights. These plans, which are consistent with
our business strategy of providing differentiated services to
our customers, would require us to raise significant additional
funding. The amounts and timing of those additional funding
requirements would be affected by, among other things:
|
|
|
|
|
the timing of the auctions, whether we are successful in
acquiring spectrum in those auctions, and the amounts paid for
the spectrum rights if we are successful;
|
85
|
|
|
|
|
the nature and extent of any regulatory requirements that may be
imposed regarding the timing and scope of the deployment of the
new networks; and
|
|
|
|
our assessment of market conditions and their impact on both the
business opportunities supported by the new networks and the
availability of funding to support their construction.
|
Although we currently anticipate that most of those additional
funding requirements will not arise until after 2009, we will
continue to assess opportunities to raise additional funding as
market conditions permit during 2009 that could be used, among
other purposes, to meet those requirements or to refinance our
existing obligations. The indebtedness that we may incur in 2009
and in subsequent years in connection with these business
expansion activities and for refinancing may be significant. See
Item 1A. Risk Factors 16.
Our forward-looking statements are subject to a variety of
factors that could cause actual results to differ materially
from current beliefs.
In making this assessment of our funding needs under our current
plans and under our plans that contemplate the acquisition of
spectrum and the deployment of next generation networks, we have
considered:
|
|
|
|
|
cash and cash equivalents on hand and short-term-investments
available to fund our operations;
|
|
|
|
expected cash flows from operations;
|
|
|
|
the anticipated level of capital expenditures, including minimum
build-out requirements, relating to the deployment of the next
generation network that utilizes the 1.9 GHz spectrum we
acquired in Peru;
|
|
|
|
our expectation of the values of the currencies in the countries
in which we conduct business relative to the U.S. dollar;
|
|
|
|
our scheduled debt service; and
|
|
|
|
income taxes.
|
In addition to the factors described above, the anticipated cash
needs of our business, as well as the conclusions presented
herein as to the adequacy of the available sources of cash and
timing on our ability to generate net income, could change
significantly:
|
|
|
|
|
if our plans change;
|
|
|
|
if we decide to expand into new markets or expand our geographic
coverage or network capacity in our existing markets beyond our
current plans, as a result of the construction of additional
portions of our networks or the acquisition of competitors or
others;
|
|
|
|
if currency values in our markets depreciate further relative to
the U.S. dollar;
|
|
|
|
if economic conditions in any of our markets change generally;
|
|
|
|
if competitive practices in the mobile wireless
telecommunications industry in certain of our markets change
materially from those currently prevailing or from those now
anticipated; or
|
|
|
|
if other presently unexpected circumstances arise that have a
material effect on the cash flow or profitability of our mobile
wireless business.
|
Any of these events or circumstances could result in significant
funding needs beyond those contemplated by our current plans as
described above, and those funding needs could exceed our
currently available funding sources, which could require us to
raise additional capital to meet those needs. Our ability to
seek additional capital, if necessary, is subject to a variety
of additional factors that we cannot presently predict with
certainty, including:
|
|
|
|
|
the commercial success of our operations;
|
|
|
|
the volatility and demand of the capital markets; and
|
|
|
|
the future market prices of our securities.
|
Recent financial market conditions in debt and equity markets in
the United States and global markets have resulted in
substantial decline in the amount of funding available to
corporate borrowers. As a result, available funding is both more
costly and provided on terms that are less favorable to
borrowers than were previously available. If these conditions
continue or worsen, it could be difficult or more costly for us
to raise additional capital in order to meet our cash needs that
result from the factors identified above including those that
may result from our acquisition of spectrum and deployment of
next generation networks, and the related additional costs and
terms of
86
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 4. Our funding needs and debt
service requirements could make us more dependent on external
financing. If we are unable to obtain financing, our business
may be adversely affected. and 5.
Our current and future debt may limit our flexibility and
increase our risk of default.
|
|
E.
|
Effect
of Inflation and Foreign Currency Exchange
|
Our net assets are subject to foreign currency exchange risks
since they are primarily maintained in local currencies.
Additionally, a significant portion of our long-term debt,
including some long-term debt incurred by our operating
subsidiaries, is denominated entirely in U.S. dollars,
which exposes us to foreign currency exchange risks. Nextel
Argentina, Nextel Brazil and Nextel Mexico conduct business in
countries in which the rate of inflation has historically been
significantly higher than that of the United States. We seek to
protect our earnings from inflation and possible currency
depreciation by periodically adjusting the local currency prices
charged by each operating company for sales of handsets and
services to its customers. We routinely monitor our foreign
currency exposure and the cost effectiveness of hedging
instruments. See Item 1. Business C.
Responding to Changes in the Global Economic Environment
for more information.
Inflation is not currently a material factor affecting our
business, although rates of inflation in some of the countries
in which we operate have been historically volatile. In the last
two years, the inflation rate in Argentina has risen
significantly, and we expect that it may continue to rise in the
next several years, which will increase our costs and could
reduce our profitability in Argentina. General operating
expenses such as salaries, employee benefits and lease costs
are, however, subject to normal inflationary pressures. From
time to time, we may experience price changes in connection with
the purchase of system infrastructure equipment and handsets,
but we do not currently believe that any of these price changes
will be material to our business.
|
|
F.
|
Effect
of New Accounting Standards
|
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, or SFAS No. 157,
which provides guidance for using fair value to measure assets
and liabilities when required for recognition or disclosure
purposes. SFAS No. 157 does not expand the use of fair
value or determine when fair value should be used in financial
statements. In February 2008, the FASB issued Staff Position
No. 157-1,
Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purpose of Lease
Classification or Measurement Under Statement 13, or FSP
No. 157-1,
in order to amend SFAS No. 157 to exclude from its
scope FASB Statement No. 13, Accounting for
Leases, or SFAS No. 13, and other accounting
pronouncements that address fair value measurements for purposes
of lease classification or measurement. In addition, in February
2008, the FASB issued Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, or
FSP
No. 157-2,
which defers the effective date of SFAS No. 157 to
fiscal years beginning after November 15, 2008 for
nonfinancial assets and nonfinancial liabilities, except for
those that are recognized or disclosed at fair value on a
recurring basis (at least annually). In accordance with FSP
No. 157-2,
we adopted SFAS No. 157 for financial assets and
liabilities in the first quarter of fiscal year 2008 and for
non-financial assets and liabilities in the first quarter of
2009. The adoption of SFAS No. 157 did not have a
material impact on our consolidated financial statements. See
Note 2 for additional information and related disclosures
regarding our fair value measurements.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations, or
SFAS No. 141(R), which replaces
SFAS No. 141. SFAS No. 141(R) establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest
in the acquiree, the goodwill acquired and the expenses incurred
in connection with the acquisition. SFAS No. 141(R)
also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business
combination. SFAS No. 141(R) is effective for fiscal
years beginning after December 15, 2008. As a result, the
provisions of SFAS No. 141(R) will affect business
combinations that close on or after January 1, 2009. The
nature and magnitude of the impact, if any, of
SFAS No. 141(R) on our consolidated financial
statements will be limited to the nature, terms and size of any
acquisitions consummated after the effective date.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of Accounting Research
Bulletin No. 51, or SFAS No. 160.
SFAS No. 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by
parties other than the
87
parent, the amount of consolidated net income attributable to
the parent and to the noncontrolling interest, changes in a
parents ownership interest and the valuation of retained
noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS No. 160 also establishes
disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the
noncontrolling owners. SFAS No. 160 is effective for
fiscal years beginning after December 15, 2008. As a
result, we will apply the provisions of SFAS No. 160
to any non-controlling interests acquired on or after
January 1, 2009. The adoption of SFAS No. 160 in
the first quarter of 2009 is not expected to have a material
impact on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities An Amendment of FASB Statement
No. 133, or SFAS No. 161, which amends and
expands the disclosure requirements of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities to require qualitative disclosure about
objectives and strategies in using derivatives, quantitative
disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about the underlying
credit-risk-related contingent features in derivative
agreements. SFAS No. 161 requires additional
disclosures concerning the impact of derivative instruments
reflected in an entitys financial statements; the manner
in which derivative instruments and related hedged items are
accounted for under SFAS No. 133; and the impact that
derivative instruments and related hedged items may have on an
entitys financial position, performance and cash flows.
SFAS No. 161 is effective for financial statements
issued in fiscal years beginning after November 15, 2008
and requires only additional disclosures concerning derivatives
and hedging activities. The adoption of SFAS No. 161
in the first quarter of 2009 is not expected to have a material
impact on our consolidated financial statements.
In April 2008, the FASB issued Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible
Assets, or FSP
FAS 142-3.
FSP
FAS 142-3
amends the factors considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill
and Other Intangible Assets, in order to improve the
consistency between the useful life of the recognized intangible
asset and the period of expected cash flows used to measure the
fair value of the asset. FSP
FAS 142-3
applies to: (1) intangible assets that are acquired
individually or with a group of other assets, and
(2) intangible assets acquired both in business
combinations and asset acquisitions. FSP
FAS 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. As a result, we will apply the
provisions of FSP
FAS 142-3
to intangible assets acquired on or after January 1, 2009.
The adoption of FSP
FAS 142-3
is not expected to have a material impact on our consolidated
financial statements.
In May 2008, the FASB issued Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), or FSP APB
14-1. FSP
APB 14-1
requires that issuers of certain convertible debt instruments
that may be settled in cash upon conversion, including partial
cash settlement, separately account for the liability and equity
components (i.e. the embedded conversion option) and recognize
the accretion of the resulting discount on the debt as interest
expense. FSP APB
14-1 is
effective for fiscal years beginning after December 15,
2008 and for interim periods within those fiscal years. It is
required to be applied retrospectively to convertible debt
instruments within its scope that were outstanding during any
period presented in the financial statements issued after the
effective date. We believe that the adoption of FSP APB
14-1 in 2009
will result in a material increase in the amount of non-cash
interest expense with respect to certain of our convertible debt
securities and a corresponding reduction in our reported net
income and diluted earnings per share for all periods presented
in our consolidated financial statements. We are currently
quantifying the effect that the adoption of FSP APB
14-1 will
have on our consolidated financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our revenues are primarily denominated in foreign currencies,
while a significant portion of our operations are financed in
U.S. dollars through our convertible notes, a portion of
our syndicated loan facility in Mexico and our syndicated loan
facility in Brazil. As a result, fluctuations in exchange rates
relative to the U.S. dollar expose us to foreign currency
exchange risks. These risks include the impact of translating
our local currency reported earnings into U.S. dollars when
the U.S. dollar strengthens against the local currencies of
our foreign operations. In addition, Nextel Mexico, Nextel
Brazil, Nextel Argentina and Nextel Chile purchase some capital
assets and the majority of handsets in U.S. dollars, but
generate revenue from their operations in local currency. See
Item 1. Business C. Responding to Changes
in the Global Economic Environment for more information.
We enter into derivative transactions only for hedging or risk
management purposes. We have not and will not enter into any
derivative transactions for speculative or profit generating
purposes. As of December 31, 2008, we have not entered into
any derivative transactions to hedge our foreign currency
transaction risk during 2008 or any future period.
88
Interest rate changes expose our fixed rate long-term borrowings
to changes in fair value and expose our variable rate long-term
borrowings to changes in future cash flows. As of
December 31, 2008, $1,815.6 million, or 79%, of our
total consolidated debt was fixed rate debt, and the remaining
$476.7 million, or 21%, of our total consolidated debt was
variable rate debt. In July 2005, Nextel Mexico entered into an
interest rate swap agreement to hedge the variability of future
cash flows associated with the $31.0 million Mexican
peso-denominated variable interest rate portion of its
syndicated loan facility. Under the interest rate swap, Nextel
Mexico agreed to exchange the difference between the variable
Mexican reference rate, TIIE, and a fixed interest rate, based
on a notional amount of $31.4 million. The interest rate
swap fixed the amount of interest expense associated with this
portion of the Mexico syndicated loan facility commencing on
August 31, 2005 and will continue over the life of the
facility.
The table below presents principal amounts, related interest
rates by year of maturity and aggregate amounts as of
December 31, 2008 for our fixed rate debt obligations,
including our convertible notes, our syndicated loan facilities
in Mexico and Brazil, our tower financing obligations and our
interest rate swap, all of which have been determined at their
fair values. In addition, the $350.0 million repayment of
the principal balance of our 2.75% convertible notes due 2025 is
included in the table below in the column labeled
thereafter. However, in accordance with the terms of
these notes, if the notes are not converted, the noteholders
have the right to require us to repurchase the notes in August
2010 at a repurchase price equal to 100% of their principal
amount plus accrued and unpaid interest.
The changes in the fair values of our consolidated debt compared
to their fair values as of December 31, 2007 reflect
changes in applicable market conditions, the funding of the
remaining amounts available under Nextel Brazils
syndicated loan facility and the addition of incremental tower
financing obligations resulting from sales of towers during
2008. All of the information in the table is presented in
U.S. dollar equivalents, which is our reporting currency.
The actual cash flows associated with our consolidated long-term
debt are denominated in U.S. dollars (US$), Mexican pesos
(MP) and Brazilian reais (BR).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
|
2008
|
|
|
2007
|
|
|
|
1 Year
|
|
|
2 Years
|
|
|
3 Years
|
|
|
4 Years
|
|
|
5 Years
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
(dollars in thousands)
|
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate (US$)
|
|
$
|
1,846
|
|
|
$
|
2,714
|
|
|
$
|
2,768
|
|
|
$
|
1,220,539
|
|
|
$
|
856
|
|
|
$
|
350,877
|
|
|
$
|
1,579,600
|
|
|
$
|
1,066,131
|
|
|
$
|
1,576,982
|
|
|
$
|
1,489,671
|
|
Average Interest Rate
|
|
|
10.1%
|
|
|
|
9.1%
|
|
|
|
6.9%
|
|
|
|
3.2%
|
|
|
|
7.3%
|
|
|
|
2.8%
|
|
|
|
3.2%
|
|
|
|
|
|
|
|
3.2%
|
|
|
|
|
|
Fixed Rate (MP)
|
|
$
|
33,827
|
|
|
$
|
5,440
|
|
|
$
|
6,402
|
|
|
$
|
7,543
|
|
|
$
|
8,898
|
|
|
$
|
95,994
|
|
|
$
|
158,104
|
|
|
$
|
95,870
|
|
|
$
|
211,801
|
|
|
$
|
211,801
|
|
Average Interest Rate
|
|
|
11.9%
|
|
|
|
15.4%
|
|
|
|
15.4%
|
|
|
|
15.4%
|
|
|
|
15.4%
|
|
|
|
15.3%
|
|
|
|
14.7%
|
|
|
|
|
|
|
|
14.5%
|
|
|
|
|
|
Fixed Rate (BR)
|
|
$
|
2,796
|
|
|
$
|
3,242
|
|
|
$
|
3,939
|
|
|
$
|
4,696
|
|
|
$
|
5,815
|
|
|
$
|
57,436
|
|
|
$
|
77,924
|
|
|
$
|
38,414
|
|
|
$
|
96,134
|
|
|
$
|
96,134
|
|
Average Interest Rate
|
|
|
19.3%
|
|
|
|
20.0%
|
|
|
|
20.5%
|
|
|
|
21.2%
|
|
|
|
21.9%
|
|
|
|
24.0%
|
|
|
|
23.2%
|
|
|
|
|
|
|
|
24.8%
|
|
|
|
|
|
Variable Rate (US$)
|
|
$
|
40,519
|
|
|
$
|
81,039
|
|
|
$
|
237,639
|
|
|
$
|
81,039
|
|
|
$
|
8,182
|
|
|
$
|
8,182
|
|
|
$
|
456,600
|
|
|
$
|
408,776
|
|
|
$
|
331,600
|
|
|
$
|
331,600
|
|
Average Interest Rate
|
|
|
3.2%
|
|
|
|
3.2%
|
|
|
|
2.7%
|
|
|
|
3.2%
|
|
|
|
3.2%
|
|
|
|
3.2%
|
|
|
|
2.9%
|
|
|
|
|
|
|
|
6.8%
|
|
|
|
|
|
Variable Rate (MP)
|
|
$
|
20,066
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,066
|
|
|
$
|
19,372
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Average Interest Rate
|
|
|
9.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.0%
|
|
|
|
|
|
|
|
8.7%
|
|
|
|
|
|
Interest Rate Swap:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
|
|
$
|
13,301
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,301
|
|
|
$
|
(124)
|
|
|
$
|
26,420
|
|
|
$
|
(546)
|
|
Average Pay Rate
|
|
|
10.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8%
|
|
|
|
|
|
|
|
10.8%
|
|
|
|
|
|
Average Receive Rate
|
|
|
9.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.0%
|
|
|
|
|
|
|
|
8.7%
|
|
|
|
|
|
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
We have listed the consolidated financial statements required
under this Item in Part IV, Item 15(a)(1) of this
annual report on
Form 10-K.
We have listed the financial statement schedule required under
Regulation S-X
in Part IV, Item 15(a)(2) of this annual report on
Form 10-K.
The financial statements and schedule appear following the
signature page of this annual report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods required by the Securities and
Exchange
89
Commission and that such information is accumulated and
communicated to the Companys management, including our
chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
As of December 31, 2008, an evaluation of the effectiveness
of the design and operation of our disclosure controls and
procedures was carried out under the supervision and with the
participation of our management teams in the United States and
in our operating companies, including our chief executive
officer and chief financial officer. Based on and as of the date
of such evaluation, our chief executive officer and chief
financial officer concluded that the design and operation of our
disclosure controls and procedures were effective.
Changes
in Internal Control over Financial Reporting
There have been no changes in the Companys internal
control over financial reporting during the most recently
completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
Managements
Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended). Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In order to evaluate the effectiveness of internal control over
financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act, management conducted an assessment using the
criteria established in Internal Control
Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this
assessment, management has concluded that as of
December 31, 2008, our internal control over financial
reporting was effective.
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, who audited and reported on our financial
statements included in this annual report, has also audited the
effectiveness of our internal control over financial reporting
as of December 31, 2008, as stated in its Report of
Independent Registered Public Accounting Firm.
|
|
Item 9B.
|
Other
Information
|
None.
90
PART III
|
|
Item 10.
|
Directors,
Executive Officers of the Registrant and Corporate
Governance
|
Except as to certain information regarding executive officers
included in Part I hereof and incorporated herein by
reference, the information required by this item will be
provided by being incorporated herein by reference to the
Companys definitive proxy statement for the 2009 Annual
Meeting of Stockholders under the captions Election of
Directors, Governance of the Company
Committees of the Board Audit Committee,
Securities Ownership Section 16(a)
Beneficial Ownership Reporting Compliance and
Governance of the Company Code of Ethics.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2009 Annual Meeting of
Stockholders under the captions Director
Compensation and Executive Compensation
(except for the information set forth under the captions
Executive Compensation Compensation Committee
Report on Executive Compensation).
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2009 Annual Meeting of
Stockholders under the captions Securities
Ownership Securities Ownership of Certain Beneficial
Owners and Securities Ownership of
Management and Executive Compensation
Equity Compensation Plan Information.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2009 Annual Meeting of
Stockholders under the caption Certain Relationships and
Related Transactions.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2009 Annual Meeting of
Stockholders under the captions Audit
Information Fees Paid to Independent Registered
Public Accounting Firm and Audit
Committee Pre-Approval Policies and Procedures.
91
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules.
|
(a)(1) Financial Statements. Financial statements and report of
independent registered public accounting firm filed as part of
this report are listed below:
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Balance Sheets As of December 31,
2008 and 2007
|
|
|
F-3
|
|
Consolidated Statements of Operations For the Years
Ended December 31, 2008, 2007 and 2006
|
|
|
F-4
|
|
Consolidated Statements of Changes in Stockholders
Equity For the Years Ended December 31, 2008,
2007 and 2006
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows For the Years
Ended December 31, 2008, 2007 and 2006
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
|
|
|
|
(2)
|
Financial Statement Schedule. The following financial statement
schedule is filed as part of this report. Schedules other than
the schedule listed below are omitted because they are either
not required or not applicable.
|
|
|
|
|
|
|
|
Page
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
F-43
|
|
|
|
|
|
(3)
|
List of Exhibits. The exhibits filed as part of this report are
listed in the Exhibit Index, which is incorporated in this
item by reference.
|
(b) Exhibits. See Item 15(a)(3) above.
(c) Financial Statement Schedule. See Item 15(a)(2)
above.
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NII HOLDINGS, INC.
|
|
|
|
By:
|
/s/ Catherine
E. Neel
|
Catherine E. Neel
Vice President and Controller
(On behalf of the registrant and as
Principal Accounting Officer)
February 26, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
February 26, 2009.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Steven
M. Shindler
Steven
M. Shindler
|
|
Executive Chairman of the Board of Directors
|
|
|
|
/s/ Steven
P. Dussek
Steven
P. Dussek
|
|
Chief Executive Officer and Director
|
|
|
|
/s/ Gokul
Hemmady
Gokul
Hemmady
|
|
Vice President and Chief Financial Officer (Principal Financial
Officer)
|
|
|
|
/s/ George
A. Cope
George
A. Cope
|
|
Director
|
|
|
|
/s/ Raymond
P. Dolan
Raymond
P. Dolan
|
|
Director
|
|
|
|
/s/ Donald
Guthrie
Donald
Guthrie
|
|
Director
|
|
|
|
/s/ Charles
M. Herington
Charles
M. Herington
|
|
Director
|
|
|
|
/s/ Carolyn
Katz
Carolyn
Katz
|
|
Director
|
|
|
|
/s/ Rosendo
G. Parra
Rosendo
G. Parra
|
|
Director
|
|
|
|
/s/ John
W. Risner
John
W. Risner
|
|
Director
|
93
NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
|
F-2
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
|
F-43
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Board of
Directors and Stockholders of NII Holdings, Inc.
In our opinion, the consolidated financial statements listed in
the index under Item 15(a)(1) present fairly, in all
material respects, the financial position of NII Holdings, Inc.
and its subsidiaries at December 31, 2008 and 2007, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2008 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index
under Item 15(a)(2) presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements and financial statement schedule,
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in
Managements Report on Internal Control over Financial
Reporting under Item 9A. Our responsibility is to express
opinions on these financial statements, on the financial
statement schedule, and on the Companys internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 10 to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain income tax positions in 2007, additionally as
discussed in Note 2 to the consolidated financial
statements the Company changed the manner in which it measures
fair value for financial assets and liabilities in 2008.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts an expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLC
McLean, Virginia
February 26, 2009
F-2
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
Short-term investments
|
|
|
82,002
|
|
|
|
241,764
|
|
Accounts receivable, less allowance for doubtful accounts of
$27,875 and $20,204
|
|
|
454,769
|
|
|
|
438,348
|
|
Handset and accessory inventory
|
|
|
139,285
|
|
|
|
107,314
|
|
Deferred income taxes, net
|
|
|
133,558
|
|
|
|
121,512
|
|
Prepaid expenses and other
|
|
|
130,705
|
|
|
|
110,736
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,183,570
|
|
|
|
2,389,839
|
|
Property, plant and equipment, net
|
|
|
1,887,315
|
|
|
|
1,853,082
|
|
Intangible assets, net
|
|
|
317,878
|
|
|
|
410,447
|
|
Deferred income taxes, net
|
|
|
430,958
|
|
|
|
541,406
|
|
Other assets
|
|
|
268,399
|
|
|
|
241,962
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,088,120
|
|
|
$
|
5,436,736
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
136,442
|
|
|
$
|
125,040
|
|
Accrued expenses and other
|
|
|
446,270
|
|
|
|
436,703
|
|
Deferred revenues
|
|
|
116,267
|
|
|
|
109,640
|
|
Accrued interest
|
|
|
13,166
|
|
|
|
12,439
|
|
Current portion of long-term debt
|
|
|
99,054
|
|
|
|
70,448
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
811,199
|
|
|
|
754,270
|
|
Long-term debt
|
|
|
2,193,240
|
|
|
|
2,196,069
|
|
Deferred revenues
|
|
|
29,616
|
|
|
|
32,892
|
|
Deferred credits
|
|
|
108,526
|
|
|
|
158,621
|
|
Other long-term liabilities
|
|
|
158,652
|
|
|
|
126,511
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,301,233
|
|
|
|
3,268,363
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2008 and 2007, no
shares issued or outstanding 2008 and 2007
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001, 600,000 shares
authorized 2008 and 2007, 165,782 shares issued
and outstanding 2008, 169,910 shares issued and
outstanding 2007
|
|
|
166
|
|
|
|
170
|
|
Paid-in capital
|
|
|
954,192
|
|
|
|
1,091,672
|
|
Retained earnings
|
|
|
1,372,904
|
|
|
|
1,003,799
|
|
Accumulated other comprehensive (loss) income
|
|
|
(540,375
|
)
|
|
|
72,732
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,786,887
|
|
|
|
2,168,373
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,088,120
|
|
|
$
|
5,436,736
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
4,048,466
|
|
|
$
|
3,184,696
|
|
|
$
|
2,279,922
|
|
Digital handset and accessory revenues
|
|
|
220,914
|
|
|
|
111,599
|
|
|
|
91,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,269,380
|
|
|
|
3,296,295
|
|
|
|
2,371,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
1,110,927
|
|
|
|
850,934
|
|
|
|
597,262
|
|
Cost of digital handset and accessory sales
|
|
|
585,391
|
|
|
|
443,760
|
|
|
|
331,714
|
|
Selling, general and administrative
|
|
|
1,400,642
|
|
|
|
1,077,893
|
|
|
|
780,373
|
|
Depreciation
|
|
|
371,901
|
|
|
|
289,897
|
|
|
|
194,817
|
|
Amortization
|
|
|
32,578
|
|
|
|
14,727
|
|
|
|
7,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,501,439
|
|
|
|
2,677,211
|
|
|
|
1,911,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
767,941
|
|
|
|
619,084
|
|
|
|
459,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(162,614
|
)
|
|
|
(128,733
|
)
|
|
|
(89,379
|
)
|
Interest income
|
|
|
68,411
|
|
|
|
67,429
|
|
|
|
51,057
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(120,572
|
)
|
|
|
19,008
|
|
|
|
3,557
|
|
Debt conversion expense
|
|
|
|
|
|
|
(26,429
|
)
|
|
|
(5,070
|
)
|
Other expense, net
|
|
|
(28,806
|
)
|
|
|
(1,914
|
)
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(243,581
|
)
|
|
|
(70,639
|
)
|
|
|
(45,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
524,360
|
|
|
|
548,445
|
|
|
|
413,934
|
|
Income tax provision
|
|
|
(155,255
|
)
|
|
|
(170,027
|
)
|
|
|
(119,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
369,105
|
|
|
$
|
378,418
|
|
|
$
|
294,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, basic
|
|
$
|
2.21
|
|
|
$
|
2.27
|
|
|
$
|
1.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
2.14
|
|
|
$
|
2.11
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
166,927
|
|
|
|
166,749
|
|
|
|
154,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
175,290
|
|
|
|
184,256
|
|
|
|
184,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
Cumulative
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Deferred
|
|
|
and
|
|
|
Translation
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Investments
|
|
|
Adjustment
|
|
|
Equity
|
|
|
Balance, January 1, 2006
|
|
|
152,148
|
|
|
$
|
152
|
|
|
$
|
508,209
|
|
|
$
|
336,048
|
|
|
$
|
(7,428
|
)
|
|
$
|
(5,128
|
)
|
|
$
|
(20,452
|
)
|
|
$
|
811,401
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,490
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,532
|
|
|
|
15,532
|
|
Reclassification for losses on derivatives included in other
expense, net of taxes of $882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,184
|
|
|
|
|
|
|
|
2,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implementation of SFAS 123R
|
|
|
|
|
|
|
|
|
|
|
(7,428
|
)
|
|
|
|
|
|
|
7,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
45,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,864
|
|
Reversal of deferred tax asset valuation allowances
|
|
|
|
|
|
|
|
|
|
|
24,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,573
|
|
Conversion of 3.5% convertible notes to common stock
|
|
|
6,864
|
|
|
|
7
|
|
|
|
91,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,522
|
|
Reclassification of deferred financing costs on debt conversion
|
|
|
|
|
|
|
|
|
|
|
(1,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,453
|
)
|
Exercise of stock options
|
|
|
2,802
|
|
|
|
3
|
|
|
|
55,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,404
|
|
Tax benefits on exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
6,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
161,814
|
|
|
|
162
|
|
|
|
723,644
|
|
|
|
630,538
|
|
|
|
|
|
|
|
(2,944
|
)
|
|
|
(4,920
|
)
|
|
|
1,346,480
|
|
Cumulative effect of adopting FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,157
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,418
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,553
|
|
|
|
79,553
|
|
Unrealized loss on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
(50
|
)
|
Reclassification for losses on derivatives included in other
expense, net of taxes of $493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,093
|
|
|
|
|
|
|
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of common stock
|
|
|
(7,402
|
)
|
|
|
(7
|
)
|
|
|
(500,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500,087
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
66,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,670
|
|
Reversal of deferred tax asset valuation allowances
|
|
|
|
|
|
|
|
|
|
|
407,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407,041
|
|
Conversion of 2.75% convertible notes and 2.875% convertible
notes to common stock
|
|
|
11,268
|
|
|
|
11
|
|
|
|
295,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295,660
|
|
Exercise of stock options
|
|
|
4,230
|
|
|
|
4
|
|
|
|
90,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,996
|
|
Tax benefit on exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(1,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,627
|
)
|
Tax benefit of prior periods stock option exercises
|
|
|
|
|
|
|
|
|
|
|
9,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
169,910
|
|
|
$
|
170
|
|
|
$
|
1,091,672
|
|
|
$
|
1,003,799
|
|
|
$
|
|
|
|
$
|
(1,901
|
)
|
|
$
|
74,633
|
|
|
$
|
2,168,373
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
369,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
369,105
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(613,649
|
)
|
|
|
(613,649
|
)
|
Realization of unrealized loss on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Reclassification for losses on derivatives included in other
expense, net of taxes of $168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
492
|
|
|
|
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(244,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of common stock
|
|
|
(5,555
|
)
|
|
|
(5
|
)
|
|
|
(242,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(242,670
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
71,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,414
|
|
Exercise of stock options
|
|
|
1,427
|
|
|
|
1
|
|
|
|
33,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
165,782
|
|
|
$
|
166
|
|
|
$
|
954,192
|
|
|
$
|
1,372,904
|
|
|
$
|
|
|
|
$
|
(1,359
|
)
|
|
$
|
(539,016
|
)
|
|
$
|
1,786,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
369,105
|
|
|
$
|
378,418
|
|
|
$
|
294,490
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt financing costs
|
|
|
8,863
|
|
|
|
6,889
|
|
|
|
4,724
|
|
Depreciation and amortization
|
|
|
404,479
|
|
|
|
304,624
|
|
|
|
202,222
|
|
Provision for losses on accounts receivable
|
|
|
80,628
|
|
|
|
46,360
|
|
|
|
30,327
|
|
Foreign currency transaction losses (gains), net
|
|
|
120,572
|
|
|
|
(19,008
|
)
|
|
|
(3,557
|
)
|
Deferred income tax (benefit) provision
|
|
|
(59,781
|
)
|
|
|
51,748
|
|
|
|
38,836
|
|
Utilization of deferred credit
|
|
|
|
|
|
|
(21,087
|
)
|
|
|
(8,854
|
)
|
Share-based payment expense
|
|
|
71,279
|
|
|
|
67,010
|
|
|
|
45,951
|
|
Excess tax benefit from share-based payment
|
|
|
|
|
|
|
|
|
|
|
(6,599
|
)
|
Accretion of asset retirement obligations
|
|
|
7,721
|
|
|
|
5,900
|
|
|
|
4,273
|
|
Loss on short-term investments
|
|
|
14,755
|
|
|
|
3,320
|
|
|
|
|
|
Contingency reversals, net of charges
|
|
|
|
|
|
|
(13,141
|
)
|
|
|
(5,563
|
)
|
Other, net
|
|
|
1,799
|
|
|
|
2,616
|
|
|
|
(9,792
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(207,630
|
)
|
|
|
(166,645
|
)
|
|
|
(108,353
|
)
|
Handset and accessory inventory
|
|
|
(58,623
|
)
|
|
|
(35,766
|
)
|
|
|
(15,414
|
)
|
Prepaid expenses and other
|
|
|
(44,097
|
)
|
|
|
(33,729
|
)
|
|
|
(30,674
|
)
|
Other long-term assets
|
|
|
(63,365
|
)
|
|
|
(35,514
|
)
|
|
|
(19,911
|
)
|
Accounts payable, accrued expenses and other
|
|
|
95,145
|
|
|
|
90,992
|
|
|
|
50,474
|
|
Current deferred revenue
|
|
|
31,067
|
|
|
|
21,526
|
|
|
|
23,981
|
|
Deferred revenue and other long-term liabilities
|
|
|
22,442
|
|
|
|
4,580
|
|
|
|
2,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
794,359
|
|
|
|
659,093
|
|
|
|
488,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(804,546
|
)
|
|
|
(622,729
|
)
|
|
|
(551,256
|
)
|
Payments for acquisitions, purchases of licenses and other
|
|
|
(10,579
|
)
|
|
|
(49,530
|
)
|
|
|
(209,650
|
)
|
Transfers to restricted cash
|
|
|
(2,335
|
)
|
|
|
(29,062
|
)
|
|
|
(298
|
)
|
Purchases of short-term investments
|
|
|
(672,875
|
)
|
|
|
(269,061
|
)
|
|
|
|
|
Proceeds from maturities of short-term investments
|
|
|
|
|
|
|
|
|
|
|
7,371
|
|
Proceeds from sales of short-term investments
|
|
|
799,730
|
|
|
|
23,927
|
|
|
|
|
|
Other
|
|
|
2,128
|
|
|
|
2,351
|
|
|
|
909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(688,477
|
)
|
|
|
(944,104
|
)
|
|
|
(752,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes
|
|
|
|
|
|
|
1,200,000
|
|
|
|
|
|
Payments to purchase common stock
|
|
|
(242,665
|
)
|
|
|
(500,087
|
)
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
125,000
|
|
|
|
175,000
|
|
|
|
60,885
|
|
Repayments under syndicated loan facilities
|
|
|
(57,744
|
)
|
|
|
(18,309
|
)
|
|
|
(14,725
|
)
|
Proceeds from stock option exercises
|
|
|
33,772
|
|
|
|
90,996
|
|
|
|
55,404
|
|
Excess tax benefit from share-based payment
|
|
|
|
|
|
|
|
|
|
|
6,599
|
|
Proceeds from towers financing transactions
|
|
|
27,271
|
|
|
|
29,827
|
|
|
|
8,735
|
|
Borrowings under short-term notes payable
|
|
|
18,000
|
|
|
|
|
|
|
|
|
|
Repayments under software financing transactions
|
|
|
|
|
|
|
|
|
|
|
(13,375
|
)
|
Payment of debt financing costs
|
|
|
|
|
|
|
(27,941
|
)
|
|
|
(2,668
|
)
|
Repayments under capital leases, license financing, tower
financing transactions and other
|
|
|
(9,815
|
)
|
|
|
(5,440
|
)
|
|
|
(4,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(106,181
|
)
|
|
|
944,046
|
|
|
|
96,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
(126,615
|
)
|
|
|
2,539
|
|
|
|
(1,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(126,914
|
)
|
|
|
661,574
|
|
|
|
(168,945
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
1,370,165
|
|
|
|
708,591
|
|
|
|
877,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
|
$
|
708,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
NII
HOLDINGS, INC. AND SUBSIDIARIES
|
|
1.
|
Summary
of Operations and Significant Accounting Policies
|
Operations. We provide wireless communication
services, primarily targeted at meeting the needs of customers
who use our services in their businesses and individuals that
have medium to high usage patterns, both of whom value our
multi-function handsets, including our Nextel Direct
Connect®
feature, and our high level of customer service. We provide
these services under the
Nexteltm
brand through operating companies located in
selected Latin American markets, with our principal operations
located in major business centers and related transportation
corridors of Mexico, Brazil, Argentina, Peru and Chile. We
provide our services in major urban and suburban centers with
high population densities, which we refer to as major business
centers, where we believe there is a concentration of the
countrys business users and economic activity. We believe
that vehicle traffic congestion, low wireline service
penetration and the expanded coverage of wireless networks in
these major business centers encourage the use of the mobile
wireless communications services that we offer.
The services we offer include:
|
|
|
|
|
mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
|
|
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a push-to-talk
basis, private one-to-one call or group call;
|
|
|
|
International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers using compatible handsets in the United
States and with TELUS subscribers using compatible handsets in
Canada;
|
|
|
|
text messaging services, mobile internet services,
e-mail
services including
Blackberrytm
services, location-based services, which include the use of
Global Positioning System (GPS) technologies, digital media
services and advanced
Javatm
enabled business applications; and
|
|
|
|
international roaming services.
|
Use of Estimates. The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Due to the
inherent uncertainty involved in making estimates, actual
results to be reported in future periods could differ from our
estimates.
Principles of Consolidation. The consolidated
financial statements include the accounts of NII Holdings, Inc.
and our wholly-owned subsidiaries. Our decision to consolidate
an entity is based on our direct and indirect majority interest
in the entity. We eliminate all significant intercompany
transactions, including intercompany profits and losses, in
consolidation.
We refer to our subsidiaries by the countries in which they
operate, such as Nextel Mexico, Nextel Brazil, Nextel Argentina,
Nextel Peru and Nextel Chile.
Concentrations of Risk. Substantially all of
our revenues are generated from our operations located in
Mexico, Brazil, Argentina and Peru. Regulatory entities in each
country regulate the licensing, construction, acquisition,
ownership and operation of our digital mobile networks, and
certain other aspects of our business, including some of the
rates we charge our customers. Changes in the current
telecommunications statutes or regulations in any of these
countries could adversely affect our business. In addition, as
of December 31, 2008 and 2007, approximately
$3,613.9 million and $3,837.8 million, respectively,
of our assets were owned by Nextel Mexico and Nextel Brazil.
Political, financial and economic developments in Mexico and
Brazil could impact the recoverability of our assets.
Motorola is currently our sole source for most of the digital
network equipment and substantially all of the handsets used
throughout our markets, except for the Blackberry handset, which
is manufactured by Research in Motion, or RIM. If Motorola fails
to deliver system infrastructure equipment and handsets or
enhancements to the features and functionality of our networks
and handsets on a timely, cost-effective basis, we may not be
able to adequately service our existing customers or attract new
customers. Nextel Communications, a subsidiary of Sprint
F-7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
Nextel Corporation, is the largest customer of Motorola with
respect to iDEN technology and, in the past, has provided
significant support with respect to new product development for
that technology. Sprint Nextel Corporation has launched high
performance push-to-talk services on its next generation CDMA
network platform. As a result, Sprint Nextel Corporations
plans for the iDEN technology have been uncertain for some time,
which we believe has contributed to a recent decline in
Motorolas support for the development of new iDEN handset
models. As a result, we have had access to a reduced number of
new handset models, which has made it more difficult for us to
compete effectively in some of our markets where new handset
styles and features are heavily valued by customers. Lower
levels of iDEN equipment purchases by Sprint Nextel Corporation
could also significantly increase our costs for equipment and
new network features and handset developments and could impact
Motorolas decision to continue to support iDEN technology
beyond its current commitments. We expect to continue to rely
principally on Motorola for the manufacture of a substantial
portion of the equipment necessary to construct, enhance and
maintain our iDEN-based digital mobile networks and for the
manufacture of iDEN compatible handsets. Accordingly, if
Motorola determines not to continue supporting or enhancing our
iDEN-based infrastructure and handsets, our business will be
materially adversely affected. See Note 8 for more
information.
Financial instruments that potentially subject us to significant
amounts of credit risk consist of cash, cash equivalents,
short-term investments and accounts receivable. Our cash and
cash equivalents are deposited with high-quality financial
institutions. At times, we maintain cash balances in excess of
Federal Deposit Insurance Corporation (or the foreign country
equivalent institution) limits. Our short-term investments are
composed of investments made by Nextel Brazil in two different
investment funds and an investment in an enhanced cash fund that
invests primarily in asset backed securities. Approximately 9%
of the holdings in the enhanced cash fund consist of securities
that may involve risk exposure associated with investments in
sub-prime mortgages. See Note 2 for further information.
Our accounts receivable are generally unsecured. In some cases,
for certain higher risk customers, we require a customer
deposit. We routinely assess the financial strength of our
customers and maintain allowances for anticipated losses, where
necessary.
Foreign Currency. In Mexico, Brazil, Argentina
and Chile, the functional currency is the local currency, while
in Peru the functional currency is the U.S. dollar since it
is the currency used for substantially all transactions. We
translate the results of operations for our
non-U.S. subsidiaries
and affiliates from the designated functional currency to the
U.S. dollar using average exchange rates during the
relevant period, while we translate assets and liabilities at
the exchange rate in effect at the reporting date. We translate
equity balances at historical rates. We report the resulting
gains or losses from translating foreign currency financial
statements as other comprehensive income or loss. We remeasure
Nextel Perus financial statements into U.S. dollars
and record remeasurement gains and losses in the statement of
operations. For the year ended December 31, 2008, we
reported remeasurement losses in our income tax provision of
$3.2 million, and for the years ended December 31,
2007 and 2006, we reported remeasurement gains in our income tax
provision of $2.2 million and $2.3 million,
respectively, both of which were related to Nextel Perus
deferred tax assets and liabilities.
In general, monetary assets and liabilities designated in
U.S. dollars give rise to foreign currency realized and
unrealized transaction gains and losses, which we record in the
consolidated statement of operations as foreign currency
transaction gains, net. We report the effects of changes in
exchange rates associated with certain
U.S. dollar-denominated intercompany loans and advances to
our foreign subsidiaries that are of a long-term investment
nature as other comprehensive income or loss in our consolidated
financial statements. We have determined that certain
U.S. dollar-denominated intercompany loans and advances to
Nextel Brazil and Nextel Chile and an intercompany payable due
to Nextel Mexico are of a long-term investment nature.
F-8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
804,546
|
|
|
$
|
622,729
|
|
|
$
|
551,256
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
26,299
|
|
|
|
44,029
|
|
|
|
76,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
830,845
|
|
|
$
|
666,758
|
|
|
$
|
627,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
162,614
|
|
|
$
|
128,733
|
|
|
$
|
89,379
|
|
Interest capitalized
|
|
|
8,281
|
|
|
|
5,671
|
|
|
|
13,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
170,895
|
|
|
$
|
134,404
|
|
|
$
|
102,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of assets and business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
10,579
|
|
|
$
|
49,530
|
|
|
$
|
288,735
|
|
Less: liabilities assumed and deferred tax liabilities incurred
|
|
|
|
|
|
|
|
|
|
|
(78,854
|
)
|
Less: cash acquired
|
|
|
|
|
|
|
|
|
|
|
(231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,579
|
|
|
$
|
49,530
|
|
|
$
|
209,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
|
$
|
120,144
|
|
|
$
|
93,942
|
|
|
$
|
61,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
247,419
|
|
|
$
|
137,541
|
|
|
$
|
87,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008, 2007 and 2006, we
had $5.8 million, $13.9 million and $20.1 million
in non-cash financing activities related to co-location capital
lease obligations on our communication towers. During the year
ended December 31, 2006, Nextel Brazil and Nextel Argentina
financed $4.0 million and $3.0 million, respectively,
in software purchased from Motorola, Inc.
As discussed in Note 7, in the third quarter of 2007,
99.99% of the $300.0 million in outstanding principal
amount of our 2.875% convertible notes was converted into
11,268,103 shares of our common stock. In addition, in the
fourth quarter of 2006, the remaining principal amount of our
3.5% convertible notes was fully converted into
6,852,150 shares of our common stock.
Cash and Cash Equivalents. We consider all
highly liquid investments with an original maturity of three
months or less at the time of purchase to be cash equivalents.
Cash equivalents primarily consist of money market funds and
other similarly structured funds.
Short-Term Investments. Our short-term
investments consist of investments made by Nextel Brazil in two
different investment funds, as well as the current portion of an
investment in an enhanced cash fund similar to, but not in the
legal form of, a money market fund that invests primarily in
asset backed securities. We classify investments in debt
securities as available-for-sale as of the balance sheet date
and report them at fair value. We record unrealized gains and
losses, net of income tax, as other comprehensive income or
loss. During the years ended December 31, 2008, 2007 and
2006, we did not have any material unrealized gains or losses
for available-for-sale securities. We report realized gains or
losses, as determined on a specific identification basis, and
other-than-temporary declines in value, if any, in realized
gains or losses on investments. We assess declines in the value
of individual investments to determine whether the decline is
other-than-temporary and thus the investment is impaired. We
make these assessments by considering available evidence,
including changes in general market conditions, specific
industry and individual company data, the length of time and the
extent to which the market value has been less than cost, the
financial condition and near-term prospects of the individual
company and our intent and ability to hold the investment. See
Note 2 for additional information.
F-9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
Handset and Accessory Inventory. We record
handsets and accessories at the lower of cost or market. We
determine cost by the weighted average costing method. We
expense handset costs at the time of sale and classify such
costs in cost of digital handset and accessory sales. We write
down our inventory to cover losses related to obsolete and slow
moving inventory. For the years ended December 31, 2008,
2007 and 2006, our provision for inventory losses was
$5.2 million, $1.9 million and $1.2 million,
respectively.
Property, Plant and Equipment. We record
property, plant and equipment, including improvements that
extend useful lives or enhance functionality, at cost, while we
charge maintenance and repairs to operations as incurred. We
capitalize internal and external costs incurred to develop
internal-use software, which consist primarily of costs related
to configuration, interfaces, installation and testing. We also
capitalize internal and external costs incurred to develop
specified upgrades and enhancements if they result in
significant additional functionalities for our existing
software. We expense all costs related to evaluation of software
needs, data conversion, training, maintenance and other
post-implementation operating activities.
We calculate depreciation using the straight-line method based
on estimated useful lives ranging from 3 to 20 years for
digital mobile network equipment and network software and 3 to
10 years for office equipment, furniture and fixtures, and
other, which includes
non-network
internal use software. We depreciate our corporate aircraft
capital lease using the straight-line method based on the lease
term of eight years. We include depreciation expense on our
corporate aircraft capital lease and other capital leases in
accumulated depreciation and amortization. We amortize leasehold
improvements over the shorter of the lease terms or the useful
lives of the improvements.
Construction in progress includes internal and external labor,
materials, transmission and related equipment, engineering, site
development, interest and other costs relating to the
construction and development of our digital wireless networks.
We do not depreciate assets under construction until they are
ready for their intended use. We capitalize interest and other
costs, including labor and software upgrades, which are
applicable to the construction of, and significant improvements
that enhance functionality to, our digital mobile network
equipment.
We periodically review the depreciation method, useful lives and
estimated salvage value of our property, plant and equipment and
revise those estimates if current estimates are significantly
different from previous estimates.
Asset Retirement Obligations. We record an
asset retirement obligation and an associated asset retirement
cost when we have a legal obligation in connection with the
retirement of tangible long-lived assets. Our obligations arise
from certain of our leases and relate primarily to the cost of
removing our equipment from such leased sites. We report asset
retirement obligations and related asset retirement costs at
fair value computed using discounted cash flow techniques. In
addition, we review the adequacy of asset retirement obligations
on a regular basis and more often if changes in events or
circumstances warrant it. As of December 31, 2008 and 2007,
our asset retirement obligations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Balance, January 1
|
|
$
|
41,186
|
|
|
$
|
29,297
|
|
New asset retirement obligations
|
|
|
11,700
|
|
|
|
5,889
|
|
Accretion
|
|
|
7,721
|
|
|
|
5,900
|
|
Settlement of asset retirement obligations
|
|
|
(1,749
|
)
|
|
|
(1,384
|
)
|
Foreign currency translation and other
|
|
|
(9,157
|
)
|
|
|
1,484
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
49,701
|
|
|
$
|
41,186
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments. We enter
into derivative transactions for hedging or risk management
purposes only. We have not and will not enter into any
derivative transactions for speculative or profit generating
purposes. We formally document all relationships between hedging
instruments and hedged items, as well as our risk management
objectives for undertaking various hedge transactions before
entering into the transaction.
We record our derivative financial instruments at fair value as
either assets or liabilities. We recognize changes in fair value
either in earnings or equity, depending on the nature of the
underlying exposure being hedged and how effective the
derivatives are at offsetting price movements and the underlying
exposure. We evaluate the effectiveness of our hedging
relationships both at the hedge inception and on an ongoing
basis. Our derivative instruments
F-10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
are designated as cash-flow hedges and are considered to be
highly effective. We record the changes in fair value of our
derivatives financial instruments as other comprehensive income
or loss until the underlying hedged item is recognized in
earnings. We recognize in earnings immediately any ineffective
portion of a derivatives change in fair value.
Valuation of Long-Lived Assets. We review for
impairment long-lived assets such as property, plant and
equipment and identifiable intangible assets with definite
useful lives, which includes our licenses, whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. If the total of the expected undiscounted
future cash flows is less than the carrying amount of the asset,
we recognize a loss, if any, for the difference between the fair
value and carrying value of the asset.
Intangible Assets. Our intangible assets are
composed of wireless telecommunications licenses, customer base
and a trade name.
We amortize our intangible assets using the straight-line method
over the estimated period benefited. We amortize licenses
acquired after our emergence from reorganization over their
estimated useful lives of 12 to 20 years. In the countries
in which we operate, licenses are customarily issued
conditionally for specified periods of time ranging from 30 to
40 years, including renewals. The licenses are generally
renewable provided the licensee has complied with applicable
rules and policies. We believe we have complied with these
standards in all material respects. However, the political and
regulatory environments in the markets we serve are continuously
changing and, in many cases, the renewal fees could be
significant. Therefore, we do not view the renewal of our
licenses to be perfunctory. In addition, the wireless
telecommunications industry is experiencing significant
technological change, and the commercial life of any particular
technology is difficult to predict. Most of our licenses give us
the right to use 800 MHz spectrum that is non-contiguous,
and the iDEN technology is the only widespread, commercially
available digital technology that operates on non-contiguous
spectrum. As a result, our ability to deploy new technologies on
our licensed 800MHz spectrum is limited. In light of the
uncertainty regarding the availability of alternative
technologies and regarding the commercial life of any
technology, including the iDEN technology, our ability to use
our 800MHz spectrum for an indefinite period cannot be assured.
As a result, we classify our licenses as finite lived assets.
Revenue Recognition. Operating revenues
primarily consist of service revenues and revenues generated
from the sale and rental of digital handsets and accessories. We
present our operating revenues net of value-added taxes, but we
include certain revenue-based taxes for which we are the primary
obligor. Service revenues primarily include fixed monthly access
charges for digital mobile telephone service and digital two-way
radio and other services, including revenues from calling party
pays programs where applicable and variable charges for airtime
and digital two-way radio usage in excess of plan minutes, long
distance charges and international roaming revenues derived from
calls placed by our customers on other carriers networks.
We also have other sources of revenues. Other revenues primarily
include amounts generated from our handset maintenance programs,
roaming revenues generated from other companies customers
that roam on our networks and co-location rental revenues from
third party tenants that rent space on our towers.
We recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sale price is fixed and
determinable and collectibility is reasonably assured. The
following are the policies applicable to our major categories of
revenue transactions.
We recognize revenue for access charges and other services
charged at fixed amounts ratably over the service period, net of
credits and adjustments for service discounts and value-added
taxes. We recognize excess usage, local, long distance and
calling party pays revenue at contractual rates per minute as
minutes are used. We record cash received in excess of revenues
earned as deferred revenues.
We recognize revenue generated from our handset maintenance
programs on a monthly basis at fixed amounts over the service
period. We recognize roaming revenues at contractual rates per
minute as minutes are used. We recognize co-location revenues
from third party tenants on a monthly basis based on the terms
set by the underlying agreements.
F-11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
We bill excess usage to our customers in arrears. In order to
recognize the revenues originated from excess usage subsequent
to customer invoicing through the end of the reporting period,
we estimate the unbilled portion based on the usage that the
handset had during the part of the month already billed, and we
use the actual usage to estimate the unbilled usage for the rest
of the month taking into consideration working days and
seasonality. Our estimates are based on our experience in each
market. We periodically evaluate our estimation process by
comparing our estimates to actual excess usage revenue billed
the following month. As a result, actual usage could differ from
our estimates.
We recognize revenue from handset and accessory sales when title
and risk of loss passes upon delivery of the handset or
accessory to the customer as this is considered to be a separate
earnings process from the sale of wireless services.
We recognized the proceeds received from our spectrum use and
build-out agreement with Nextel Communications as deferred
revenues. We amortize this amount into revenue on a
straight-line basis over 15.5 years, which represents the
average remaining useful life of our licenses in the Baja region
of Mexico as of the date we began providing service under this
agreement.
Handsets Provided Under Leases. Our operating
companies periodically provide handsets to our customers under
lease agreements. We evaluate each lease agreement at its
inception to determine whether the agreement represents a
capital lease or an operating lease. Under capital lease
agreements, we expense the full cost of the handset at the
inception of the lease term and recognize digital handset sales
revenue upon delivery of the handset to the customer and
collection of the up-front rental payment, which corresponds to
the inception of the lease term. Under operating lease
agreements, we expense the cost of the handset in excess of the
sum of the minimum contractual revenues associated with the
handset lease. We recognize revenue ratably over the lease term.
Revenue generated under the operating lease arrangement relates
primarily to the up-front rental payments required at the
inception of lease terms.
Allowance for Doubtful Accounts. We establish
an allowance for doubtful accounts receivable sufficient to
cover probable and reasonably estimated losses. Our methodology
for determining our allowance for doubtful accounts receivable
requires significant estimates. Since we have over one million
accounts, it is impracticable to review the collectibility of
all individual accounts when we determine the amount of our
allowance for doubtful accounts receivable each period.
Therefore, we consider a number of factors in establishing the
allowance on a
market-by-market
basis, including historical collection experience, current
economic trends, estimates of forecasted write-offs, agings of
the accounts receivable portfolio and other factors. While we
believe that the estimates we use are reasonable, actual results
could differ from those estimates.
Customer Related Direct Costs. We recognize
all costs of handset sales when title and risk of loss passes
upon delivery of the handset to the customer.
Advertising Costs. We expense costs related to
advertising and other promotional expenditures as incurred.
Advertising costs totaled $109.9 million,
$88.7 million and $63.9 million during the years ended
December 31, 2008, 2007 and 2006, respectively.
Stock-Based Compensation. Effective
January 1, 2006, we adopted the fair value recognition
provisions of SFAS No. 123 (Revised 2004),
Share-Based Payment, or SFAS 123R. We used the
modified prospective transition method and therefore did not
restate our prior periods results. Share-based payment
expense for all share-based payment awards granted after
January 1, 2006 is estimated in accordance with the
provisions of SFAS 123R. We recognize these compensation
costs net of actual forfeitures for only those shares expected
to vest on a straight-line basis over the requisite service
period of the award. See Note 11 for more information.
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings.
As presented for the year ended December 31, 2008, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based
F-12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
employee compensation plans and our restricted stock, as well as
common shares resulting from the potential conversion of our
2.75% convertible notes. We did not include the common shares
resulting from the potential conversion of our 3.125%
convertible notes in our calculation of diluted net income per
common share because their effect would have been antidilutive
to our net income per common share for that period. Further, for
the year ended December 31, 2008, we did not include
9.1 million in antidilutive stock options nor did we
include an immaterial amount of our restricted stock in our
calculation of diluted net income per common share because their
effect would also have been antidilutive to our net income per
common share for that period.
As presented for the year ended December 31, 2007, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.75%
convertible notes. Our calculation of diluted net income per
share for the year ended December 31, 2007 also includes
shares that would have been issued had our 2.875% convertible
notes been converted at the beginning of the year instead of on
the actual conversion date. We did not include the common shares
resulting from the potential conversion of our 3.125%
convertible notes because their effect would have been
antidilutive to our net income per common share for that period.
Further, for the year ended December 31, 2007, we did not
include 5.9 million in antidilutive stock options in our
calculation of diluted net income per common share because their
effect would also have been antidilutive to our net income per
common share for that period.
As presented for the year ended December 31, 2006, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.875%
convertible notes and our 2.75% convertible notes as if they
were converted at the beginning of the year. Our calculation of
diluted net income per share for the year ended
December 31, 2006 also includes shares that would have been
issued had our 3.5% convertible notes been converted at the
beginning of the year instead of on the actual conversion date.
For the year ended December 31, 2006, we did not include
3.1 million in antidilutive stock options nor did we
include an immaterial amount of our restricted stock in our
calculation of diluted net income per common share because their
effect would also have been antidilutive to our net income per
common share for that period.
The following tables provide a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our consolidated statements of
operations for the years ended December 31, 2008, 2007 and
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
369,105
|
|
|
|
166,927
|
|
|
$
|
2.21
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
1,121
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
252
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
6,796
|
|
|
|
6,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
375,901
|
|
|
|
175,290
|
|
|
$
|
2.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
378,418
|
|
|
|
166,749
|
|
|
$
|
2.27
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
3,633
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
524
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
10,395
|
|
|
|
13,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
388,813
|
|
|
|
184,256
|
|
|
$
|
2.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
294,490
|
|
|
|
154,085
|
|
|
$
|
1.91
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
4,521
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
936
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
14,106
|
|
|
|
24,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
308,596
|
|
|
|
184,282
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of Common Stock. In January 2008, our
Board of Directors authorized a program to purchase shares of
our common stock for cash. The Board approved the purchase of
shares having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. During the year ended December 31, 2008, we
purchased a total of 5,555,033 shares of our common stock
for $242.7 million. During the year ended December 31,
2007, we purchased a total of 7,401,543 shares of our
common stock for approximately $500.1 million under our
first program to purchase shares of our common stock for cash,
which was approved by our Board of Directors in May 2007. We
treat purchases of our common stock under this program as
effective retirements of the purchased shares and therefore
reduce our reported shares issued and outstanding by the number
of shares purchased. In addition, we record the excess of the
purchase price over the par value of the common stock as a
reduction to paid-in capital.
Debt Financing Costs. We defer costs incurred
to obtain new debt financing as other non-current assets. We
amortize debt financing costs over the shorter of the term of
the underlying debt or the holders first put date, when
applicable, using the effective interest method. We reclassify
to paid-in capital the net carrying value of deferred financing
costs related to convertible notes that are converted by the
holder.
Income Taxes. We account for income taxes
using the asset and liability method, under which we recognize
deferred income taxes for the tax consequences attributable to
differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities, as well as for
tax loss carryforwards and tax credit carryforwards. We measure
deferred tax assets and liabilities using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recoverable or settled.
We recognize the effect on deferred taxes of a change in tax
rates in income in the period that includes the enactment date.
We provide a valuation allowance against deferred tax assets if,
based upon the weight of available evidence, we do not believe
it is more-likely-than-not that some or all of the
deferred tax assets will be realized. We report remeasurement
gains and losses related to deferred tax assets and liabilities
in our income tax provision.
F-14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
Historically, a substantial portion of our deferred tax asset
valuation allowance related to deferred tax assets that, if
realized, would not result in a benefit to our income tax
provision. In accordance with Statement of Position
90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, or
SOP 90-7,
we recognize decreases in the valuation allowance existing at
the reorganization date first as a reduction in the carrying
value of intangible assets existing at the reorganization date
of October 31, 2002 and then as an increase to paid-in
capital. As of December 31, 2004, we reduced to zero the
carrying value of our intangible assets existing at the
reorganization date. In accordance with the changes made to
SOP 90-7
by SFAS No. 141(R), Business Combinations,
effective beginning in 2009, we will record the future
decreases, if any, of the valuation allowance existing on the
reorganization date as a reduction to income tax expense. We
will also record decreases, if any, of the post-reorganization
valuation allowance as a reduction to our income tax expense.
Using a
with-and-without
method, in accordance with SFAS 123R, we recognize
decreases in the valuation allowance attributable to the excess
tax benefits resulting from the exercise of employee stock
options as an increase to paid-in capital. In each market and in
the U.S., we recognize decreases in the valuation allowance
first as a decrease in the remaining valuation allowance that
existed as of the reorganization date, then as a decrease in any
post-reorganization valuation allowance, and finally as a
decrease of the valuation allowance associated with stock option
deductions.
We assess the realizability of our deferred tax assets at each
reporting period. Our assessments generally consider several
factors, including the reversal of existing deferred tax asset
temporary differences, projected future taxable income, tax
planning strategies and historical and future book income
adjusted for permanent book-to-tax differences.
During the fourth quarter of 2007, we changed our historic
position regarding the repatriation of foreign earnings back to
the U.S. and we recorded a $69.6 million provision in
deferred tax liability for U.S. federal, state and foreign
taxes with respect to future remittances of certain
undistributed earnings (other than income that has been
previously taxed in the U.S. under the subpart F rules) of
certain of our foreign subsidiaries. This deferred tax liability
decreased by $14.5 million to $55.1 million as of
December 31, 2008 due to the appreciation of the dollar
during the fourth quarter of 2008. Except for the earnings
associated with this $55.1 million provision, we currently
have no intention to remit any additional undistributed earnings
of our foreign subsidiaries, other than income that has been
previously taxed in the U.S. under the subpart F rules.
Should additional amounts of our foreign subsidiaries
undistributed earnings be remitted to the U.S. as
dividends, we may be subject to additional U.S. income
taxes (net of allowable foreign tax credits) and foreign
withholding taxes. It is not practicable to estimate the amount
of any additional taxes which may be payable on the remaining
undistributed earnings.
Change in Accounting Principle. Effective
January 1, 2006, we adopted the fair value recognition
provisions of SFAS 123R. We used the modified prospective
transition method and therefore did not restate our prior
periods results. Under this transition method, share-based
payment expense for the year ended December 31, 2006
includes compensation expense for all share-based payment awards
granted prior to, but not fully vested as of, January 1,
2006. Share-based payment expense for all share-based payment
awards granted after January 1, 2006 is estimated in
accordance with the provisions of SFAS 123R. See
Note 11 for more information.
Reclassifications. We have reclassified some
prior period amounts in our consolidated financial statements to
conform to our current year presentation. Specifically, for the
years ended December 31, 2007 and 2006, we corrected the
classification of $28.7 million and $20.4 million,
respectively, from cost of service to cost of digital handset
and accessory sales related to costs incurred in connection with
replacement handsets sold to existing customers. These revisions
did not have a material impact on previously reported balances.
New Accounting Pronouncements. In September
2006, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 157, Fair Value Measurements, or
SFAS No. 157, which provides guidance for using fair
value to measure assets and liabilities when required for
recognition or disclosure purposes. SFAS No. 157 does
not expand the use of fair value or determine when fair value
should be used in financial statements. In February 2008, the
FASB issued Staff Position
No. 157-1,
Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purpose of Lease
Classification or Measurement Under Statement 13, or FSP
No. 157-1,
in order to amend SFAS No. 157 to exclude from its
scope FASB Statement No. 13, Accounting for
Leases, or SFAS No. 13, and other accounting
pronouncements that address fair value measurements for purposes
of lease classification or measurement. In addition, in February
2008,
F-15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
the FASB issued Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, or
FSP
No. 157-2,
which defers the effective date of SFAS No. 157 to
fiscal years beginning after November 15, 2008 for
nonfinancial assets and nonfinancial liabilities, except for
those that are recognized or disclosed at fair value on a
recurring basis (at least annually). In accordance with FSP
No. 157-2,
we adopted SFAS No. 157 for financial assets and
liabilities in the first quarter of fiscal year 2008 and for
non-financial assets and liabilities in the first quarter of
2009. The adoption of SFAS No. 157 did not have a
material impact on our consolidated financial statements. See
Note 2 for additional information and related disclosures
regarding our fair value measurements.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations, or
SFAS No. 141(R), which replaces
SFAS No. 141. SFAS No. 141(R) establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest
in the acquiree, the goodwill acquired and the expenses incurred
in connection with the acquisition. SFAS No. 141(R)
also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business
combination. SFAS No. 141(R) is effective for fiscal
years beginning after December 15, 2008. As a result, the
provisions of SFAS No. 141(R) will affect business
combinations that close on or after January 1, 2009. The
nature and magnitude of the impact, if any, of
SFAS No. 141(R) on our consolidated financial
statements will be limited to the nature, terms and size of any
acquisitions consummated after the effective date.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of Accounting Research
Bulletin No. 51, or SFAS No. 160.
SFAS No. 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by
parties other than the parent, the amount of consolidated net
income attributable to the parent and to the noncontrolling
interest, changes in a parents ownership interest and the
valuation of retained noncontrolling equity investments when a
subsidiary is deconsolidated. SFAS No. 160 also
establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS No. 160
is effective for fiscal years beginning after December 15,
2008. As a result, we will apply the provisions of
SFAS No. 160 to any non-controlling interests acquired
on or after January 1, 2009. The adoption of
SFAS No. 160 in the first quarter of 2009 is not
expected to have a material impact on our consolidated financial
statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities An Amendment of FASB Statement
No. 133, or SFAS No. 161, which amends and
expands the disclosure requirements of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities to require qualitative disclosure about
objectives and strategies in using derivatives, quantitative
disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about the underlying
credit-risk-related contingent features in derivative
agreements. SFAS No. 161 requires additional
disclosures concerning the impact of derivative instruments
reflected in an entitys financial statements; the manner
in which derivative instruments and related hedged items are
accounted for under SFAS No. 133; and the impact that
derivative instruments and related hedged items may have on an
entitys financial position, performance and cash flows.
SFAS No. 161 is effective for financial statements
issued in fiscal years beginning after November 15, 2008
and requires only additional disclosures concerning derivatives
and hedging activities. The adoption of SFAS No. 161
in the first quarter of 2009 is not expected to have a material
impact on our consolidated financial statements.
In April 2008, the FASB issued Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible
Assets, or FSP
FAS 142-3.
FSP
FAS 142-3
amends the factors considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill
and Other Intangible Assets, in order to improve the
consistency between the useful life of the recognized intangible
asset and the period of expected cash flows used to measure the
fair value of the asset. FSP
FAS 142-3
applies to: (1) intangible assets that are acquired
individually or with a group of other assets, and
(2) intangible assets acquired both in business
combinations and asset acquisitions. FSP
FAS 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. As a result, we will apply the
provisions of FSP
FAS 142-3
to intangible assets acquired on or after January 1, 2009.
The adoption of FSP
FAS 142-3
is not expected to have a material impact on our consolidated
financial statements.
F-16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
In May 2008, the FASB issued Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), or FSP APB
14-1. FSP
APB 14-1
requires that issuers of certain convertible debt instruments
that may be settled in cash upon conversion, including partial
cash settlement, separately account for the liability and equity
components (i.e. the embedded conversion option) and recognize
the accretion of the resulting discount on the debt as interest
expense. FSP APB
14-1 is
effective for fiscal years beginning after December 15,
2008 and for interim periods within those fiscal years. It is
required to be applied retrospectively to convertible debt
instruments within its scope that were outstanding during any
period presented in the financial statements issued after the
effective date. We believe that the adoption of FSP APB
14-1 in 2009
will result in a material increase in the amount of non-cash
interest expense with respect to certain of our convertible debt
securities and a corresponding reduction in our reported net
income and diluted earnings per share for all periods presented
in our consolidated financial statements. We are currently
quantifying the effect that the adoption of FSP APB
14-1 will
have on our consolidated financial statements.
|
|
2.
|
Fair
Value Measurements
|
On January 1, 2008, we adopted SFAS No. 157 for
financial assets and liabilities. SFAS No. 157 defines
fair value, provides guidance for measuring fair value and
requires certain disclosures with respect to the processes used
to measure the fair value of financial assets and liabilities.
SFAS No. 157 does not require any new fair value
measurements, but rather applies to all other accounting
pronouncements that require or permit fair value measurements.
SFAS No. 157 clarifies that fair value is an exit
price, representing the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a
market-based measurement that is determined based on assumptions
that market participants would use in pricing an asset or
liability. Valuation techniques discussed under
SFAS No. 157 include the market approach (comparable
market prices), the income approach (present value of future
income or cash flow based on current market expectations) and
the cost approach (cost to replace the service capacity of an
asset or replacement cost). SFAS No. 157 utilizes a
three-tier fair value hierarchy, which prioritizes the inputs to
the valuation techniques used to measure fair value. The
following is a brief description of the three levels in the fair
value hierarchy:
Level 1: Observable inputs such as quoted prices
(unadjusted) in active markets for identical assets or
liabilities.
Level 2: Inputs other than quoted prices in active
markets that are observable for the asset or liability, either
directly or indirectly.
Level 3: Unobservable inputs that reflect the
reporting entitys own assumptions.
To the extent that the valuation is based on models or inputs
that are less observable or unobservable in the market, the
determination of fair value requires more judgment. Accordingly,
the degree of judgment exercised in determining fair value is
greatest for instruments categorized in Level 3. In certain
cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy
within which the fair value measurement falls is determined
based on the lowest level input that is significant to the fair
value measurement in its entirety.
For assets and liabilities measured at fair value on a
non-recurring basis, fair value is determined by using various
valuation approaches. The same hierarchy as described above,
which maximizes the use of observable inputs and minimizes the
use of unobservable inputs, by generally requiring that the
observable inputs be used when available, is used in measuring
fair value for these items. Fair value may be derived using
pricing models. Pricing models take into account the contract
terms (including maturity) as well as multiple inputs,
including, where applicable, interest rate yield curves, credit
curves, correlation, credit worthiness of the counterparty,
option volatility and currency rates. In accordance with
SFAS No. 157, the impact of our own credit spreads is
also considered when measuring the fair value of liabilities.
Where appropriate, valuation adjustments are made to account for
various factors such as credit quality and model uncertainty.
These adjustments are subject to judgment, are applied on a
consistent basis and are based upon observable inputs where
available. We generally subject all valuations and models to a
review process initially and on a periodic basis thereafter. As
fair value is a market-based measure considered from the
perspective of a market participant rather than an
entity-specific measure, even when market
F-17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Fair
Value Measurements (Continued)
|
assumptions are not readily available, our own assumptions are
set to reflect those that we believe market participants would
use when pricing the asset or liability at the measurement date.
Considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates
presented below are not necessarily indicative of the amounts
that we could realize in a current market exchange. The use of
different market assumptions and valuation techniques may have a
material effect on the estimated fair value amounts. The
following is a description of the major categories of assets and
liabilities measured at fair value on a recurring basis and the
valuation techniques applied to them.
Available-for-Sale
Securities.
Nextel Brazil Investments. Available-for-sale
securities include $48.9 million in short-term investments
made by Nextel Brazil in two investment funds. These funds
invest primarily in Brazilian government bonds, long-term,
low-risk bank certificates of deposit and Brazilian corporate
debentures. We account for these securities at fair value in
accordance with SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. The
fair value of the securities is based on the net asset value of
the funds. In our judgment, these securities trade with
sufficient daily observable market activity to support a
Level 1 classification within the fair value hierarchy.
Enhanced Cash Fund. In May 2007, we invested
in an enhanced cash fund similar to, but not in the legal form
of, a money market fund that invested primarily in asset-backed
securities. Initially, we classified our investment as a cash
equivalent because it was highly liquid at that time. In
December 2007, the fund manager ceased all purchases and sales
of interests in the fund and began an orderly liquidation of the
portfolios assets due to issues that arose in the
U.S. credit markets. We concluded that because the fair
value per unit of the fund was determined, published and the
basis for current transactions, the fair value of our investment
in the fund was readily determinable and as a result, we
classified this investment as available-for-sale. In addition,
we have the right at our option to receive an in-kind
distribution of the underlying assets in the fund that we can
sell or hold to maturity. As a result, as of December 31,
2007, we classified our investment in the fund of
$241.8 million as a current asset. Through the third
quarter of 2008, the underlying assets in the fund traded with
sufficient daily observable market activity to support a
Level 2 classification within the fair value hierarchy.
Due to the changing credit market conditions in the fourth
quarter of 2008, the net asset value per unit as determined by
the fund manager had declined from $1.000 at inception to $0.827
as of December 31, 2008. Considering all available evidence
and relevant factors, including specific and individual
investment data, the length of time and the extent to which the
market value was less than cost and the financial condition and
near-term prospects of the fund, we determined that this loss in
value was other-than-temporary. As a result, during the year
ended December 31, 2008, we recognized a pre-tax loss of
$14.8 million related to the loss in value of the fund. We
also received $173.9 million in distributions from the fund
in 2008. As of December 31, 2008, the carrying value of our
investment was $53.2 million, with approximately
$20.0 million classified as a long-term asset, since the
expected maturity of certain securities within the fund exceed
one year and considering the expected lack of liquidity in the
capital markets in the foreseeable future with respect to these
securities. In January 2009, we received a $9.1 million
distribution from the fund based on the $0.827 net asset
value per unit at December 31, 2008. We will continue to
assess any future declines in fair value to determine whether
additional other-than-temporary losses should be recognized. As
of December 31, 2008 and 2007, the fund was comprised of
the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Structured investment vehicles
|
|
|
9
|
%
|
|
|
10
|
%
|
Corporate bond or financial institution debt securities
|
|
|
22
|
%
|
|
|
29
|
%
|
Various asset-backed securities
|
|
|
58
|
%
|
|
|
46
|
%
|
Cash and other assets
|
|
|
11
|
%
|
|
|
15
|
%
|
During the fourth quarter of fiscal 2008, we reclassified the
enhanced cash fund from Level 2 to Level 3 because
certain significant inputs for the fair value measurement became
unobservable. The reclassification primarily resulted from the
continued deterioration of and lack of liquidity in the market
for asset-backed securities in the fourth quarter of 2008.
F-18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Fair
Value Measurements (Continued)
|
We determined the fair value of each underlying type of security
within the fund using primarily Level 3 inputs as follows:
|
|
|
|
|
The fair value of structured investment vehicles is estimated
using valuation models with significant unobservable pricing
inputs, including, interest rate yield curves, option volatility
and currency rates;
|
|
|
|
The fair value of corporate bonds is estimated using recently
executed transactions, market price quotations (where
observable), bond spreads or credit default swap spreads. The
spread data used are for the same maturity as the bond. If the
spread data do not reference the issuer, then data that
reference a comparable issuer is used. As price quotations are
not available, fair value is determined based on cash flow
models with yield curves, bond or single name credit default
swap spreads and recovery rates based on collateral values as
key inputs; and
|
|
|
|
The fair value of asset-backed securities is estimated using
valuation models with significant unobservable pricing inputs,
including the quality of the underlying collateral, the credit
rating of the issuers, interest rate yield curves, option
volatility and currency rates.
|
The following table sets forth the classification within the
fair value hierarchy of our financial instruments measured at
fair value on a recurring basis in the accompanying consolidated
balance sheet as of December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2008
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
December 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2008
|
|
|
Short-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities Nextel Brazil
investments
|
|
$
|
48,859
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48,859
|
|
Available-for-sale securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
33,144
|
|
|
|
33,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,859
|
|
|
|
|
|
|
|
33,144
|
|
|
|
82,003
|
|
Long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
20,016
|
|
|
|
20,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
48,859
|
|
|
$
|
|
|
|
$
|
53,160
|
|
|
$
|
102,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents additional information about
Level 3 assets measured at fair value on a recurring basis:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
|
|
Transfer to Level 3 classification
October 1, 2008
|
|
|
86,242
|
|
Principal distributions
|
|
|
(22,695
|
)
|
Realized losses
|
|
|
(10,387
|
)
|
|
|
|
|
|
Ending balance
|
|
$
|
53,160
|
|
|
|
|
|
|
Other
Financial Instruments.
We estimate the fair value of our financial instruments other
than our available-for-sale securities, including cash and cash
equivalents, accounts receivable, accounts payable, derivative
instruments and debt. The carrying values of cash and cash
equivalents, accounts receivable and accounts payable
approximate their fair values due to
F-19
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Fair
Value Measurements (Continued)
|
the short-term nature of these instruments. The fair values of
our derivative instruments are immaterial. The carrying amounts
and estimated fair values of our debt instruments at
December 31, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
$
|
1,549,996
|
|
|
$
|
1,036,526
|
|
|
$
|
1,549,996
|
|
|
$
|
1,462,685
|
|
Syndicated loan facilities
|
|
|
505,863
|
|
|
|
456,848
|
|
|
|
454,355
|
|
|
|
454,355
|
|
Towers financing obligations
|
|
|
157,262
|
|
|
|
58,027
|
|
|
|
177,199
|
|
|
|
177,199
|
|
Brazil spectrum license financing
|
|
|
6,660
|
|
|
|
4,649
|
|
|
|
9,446
|
|
|
|
9,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,219,781
|
|
|
$
|
1,556,050
|
|
|
$
|
2,190,996
|
|
|
$
|
2,103,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes. We estimated the
fair values of our convertible notes using quoted market prices
in a broker dealer market adjusted for certain factors such as
historical trading levels and market data for our notes, credit
default spreads, stock volatility assumptions and other
corroborating market or internally generated data. We also
considered other factors including the current trading prices of
other comparable convertible notes and current market interest
rates. Because our fair value measurement includes market data,
corroborating market data and some internally generated
information, we consider this Level 2 in the fair value
hierarchy.
Syndicated Loan Facilities. We
estimated the fair values of our syndicated loan facilities
using an income approach consisting of primarily Level 3
inputs such as prices of comparable bonds, LIBOR and zero-coupon
yield curves, treasury bond rates and credit spreads on
comparable publicly traded bonds.
Towers Financing Obligations. We
estimated the fair values of our towers financing using an
income approach consisting of primarily Level 3 inputs such
as forward U.S. Treasury yield curves and credit spreads of
comparable publicly traded bonds.
Brazil Spectrum License Financing. We
estimated the fair values of our spectrum financing arrangement
in Brazil using an income approach consisting of primarily
Level 3 inputs such as LIBOR and zero-coupon yield curves,
treasury bond rates and credit spreads on comparable publicly
traded bonds.
|
|
3.
|
Significant
Transactions
|
Cosmofrecuencias Acquisition. In September
2006, Nextel Mexico purchased all of the equity interests of
Cosmofrecuencias S.A. de C.V., or Cosmofrecuencias, and
Operadora de Communicaciones S.A. de C.V., or Operadora, for a
purchase price of $200.0 million in cash. Cosmofrecuencias
is the holding company of Operadora, which operated a public
telecommunications network using concession rights granted by
the Mexican government. In October 2006, Nextel Mexico received
the necessary regulatory approvals and released the
$200.0 million to complete this acquisition. The
acquisition of these concessions gives Nextel Mexico a 50MHz
nationwide footprint of 3.4GHz spectrum and a local fixed/mobile
wireless telephone concession, which we expect will result in
interconnect and operating cost savings, as well as additional
revenue generating opportunities in the future. We accounted for
this acquisition as a purchase of assets. We allocated the
purchase price to the licenses acquired ($278.1 million)
and a deferred tax liability ($77.8 million), which
represents the tax effect of the difference between the book
basis and tax basis of the acquired licenses. We classified the
licenses acquired as finite lived assets, and we are amortizing
them over the remaining statutory term, which was 10 years
and 9 months as of December 31, 2008.
Movilink Acquisition. In November 2007, Nextel
Argentina entered into an agreement with Telefonica Moviles
S.A., under which Nextel Argentina will acquire the 800 MHz
SMR spectrum licenses and related network assets used by
Telefonica Moviles S.A. to operate an iDEN-based network in
Argentina under the Movistar Trunking brand, which was formerly
known as Movilink, for a total purchase price of
$32.0 million in cash. This transaction, which is subject
to the receipt of necessary regulatory approvals, would result
in Nextel Argentina acquiring
F-20
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Significant
Transactions (Continued)
|
approximately 5 MHz of SMR spectrum in Buenos Aires,
Rosario, Mendoza and Cordoba, as well as the related iDEN
equipment and the prepayment of lease expenses relating to the
use of co-located sites for five years.
Spectrum Acquisitions. In July 2007,
Proinversion, the privatization agency in Peru, awarded a
nationwide license of 35 MHz of 1.9 GHz spectrum to
Nextel Peru for $27.0 million through an auction process
carried out by the Peruvian government. The license has a term
of 20 years, which we determined is the useful life of the
license for accounting purposes. We determined that this license
is a finite-lived asset. In addition, under a separate
investment stability agreement reached with the Peruvian
government, we are required to make cash contributions to Nextel
Perus share capital in the amount of $150.0 million
over the next five years, of which $38.5 million has
already been contributed. Under the terms of the spectrum
license, Nextel Peru is required to expand the coverage of its
network by adding 100 additional districts within five years
from the date the spectrum license was awarded.
|
|
4.
|
Property,
Plant and Equipment
|
The components of our property, plant and equipment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Land
|
|
$
|
6,600
|
|
|
$
|
4,949
|
|
Leasehold improvements
|
|
|
84,663
|
|
|
|
74,333
|
|
Digital mobile network equipment and network software
|
|
|
2,210,000
|
|
|
|
2,119,751
|
|
Office equipment, furniture and fixtures and other
|
|
|
329,352
|
|
|
|
279,013
|
|
Corporate aircraft capital lease
|
|
|
31,450
|
|
|
|
31,450
|
|
Less: Accumulated depreciation and amortization
|
|
|
(926,954
|
)
|
|
|
(777,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,735,111
|
|
|
|
1,732,445
|
|
Construction in progress
|
|
|
152,204
|
|
|
|
120,637
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,887,315
|
|
|
$
|
1,853,082
|
|
|
|
|
|
|
|
|
|
|
Our intangible assets consist of our licenses, customer base and
trade name, all of which have finite useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
373,315
|
|
|
$
|
(55,437
|
)
|
|
$
|
317,878
|
|
|
$
|
446,222
|
|
|
$
|
(35,775
|
)
|
|
$
|
410,447
|
|
Customer base
|
|
|
34,283
|
|
|
|
(34,283
|
)
|
|
|
|
|
|
|
42,617
|
|
|
|
(42,617
|
)
|
|
|
|
|
Trade name and other
|
|
|
1,412
|
|
|
|
(1,412
|
)
|
|
|
|
|
|
|
1,796
|
|
|
|
(1,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
409,010
|
|
|
$
|
(91,132
|
)
|
|
$
|
317,878
|
|
|
$
|
490,635
|
|
|
$
|
(80,188
|
)
|
|
$
|
410,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying value of our licenses as of December 31,
2008 primarily represent the licenses we acquired in connection
with our purchase of Cosmofrecuencias in Mexico. See Note 3
for more information related to license transactions.
F-21
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Intangible
Assets (Continued)
|
Based solely on the carrying amount of amortizable intangible
assets existing as of December 31, 2008 and current
exchange rates, we estimate amortization expense for each of the
next five years ending December 31 to be as follows (in
thousands):
|
|
|
|
|
|
|
Estimated
|
|
|
Amortization
|
Years
|
|
Expense
|
|
2009
|
|
$
|
26,389
|
|
2010
|
|
|
27,184
|
|
2011
|
|
|
27,184
|
|
2012
|
|
|
27,184
|
|
2013
|
|
|
27,011
|
|
Actual amortization expense to be reported in future periods
could differ from these estimates as a result of additional
acquisitions of intangibles, as well as changes in exchange
rates and other relevant factors. During the years ended
December 31, 2008 and 2007, we did not acquire, dispose of
or write down any goodwill or intangible assets with indefinite
useful lives.
Accrued
Expenses and Other.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Payroll related items and commissions
|
|
$
|
70,493
|
|
|
$
|
71,626
|
|
Capital expenditures
|
|
|
68,481
|
|
|
|
87,486
|
|
Network system and information technology
|
|
|
60,333
|
|
|
|
59,783
|
|
Non-income based taxes
|
|
|
52,918
|
|
|
|
48,444
|
|
Customer deposits
|
|
|
35,059
|
|
|
|
40,188
|
|
Other
|
|
|
158,986
|
|
|
|
129,176
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
446,270
|
|
|
$
|
436,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
3.125% convertible notes due 2012
|
|
$
|
1,200,000
|
|
|
$
|
1,200,000
|
|
2.75% convertible notes due 2025
|
|
|
349,996
|
|
|
|
349,996
|
|
Brazil syndicated loan facility
|
|
|
300,000
|
|
|
|
175,000
|
|
Mexico syndicated loan facility
|
|
|
205,863
|
|
|
|
279,355
|
|
Tower financing obligations
|
|
|
157,262
|
|
|
|
177,199
|
|
Capital lease obligations
|
|
|
68,167
|
|
|
|
75,436
|
|
Brazil spectrum license financing
|
|
|
6,660
|
|
|
|
9,446
|
|
Other
|
|
|
4,346
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,292,294
|
|
|
|
2,266,517
|
|
Less: current portion
|
|
|
(99,054
|
)
|
|
|
(70,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,193,240
|
|
|
$
|
2,196,069
|
|
|
|
|
|
|
|
|
|
|
F-22
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
3.125% Convertible Notes. In May
2007, we privately placed $1.0 billion aggregate principal
amount of 3.125% convertible notes due 2012, which we refer to
as the 3.125% notes. In addition, we granted the initial
purchaser an option to purchase up to an additional
$200.0 million principal amount of 3.125% notes, which
the initial purchaser exercised in full. As a result, we issued
a total of $1.2 billion principal amount of the
3.125% notes for which we received total gross proceeds of
$1.2 billion. We also incurred direct issuance costs of
$22.8 million, which we recorded as a deferred financing
cost that we will amortize into interest expense over the term
of the 3.125% notes. Our 3.125% notes are senior
unsecured obligations and rank equal in right of payment with
all of our other existing and future senior unsecured debt.
Historically, some of our long-term debt has been secured and
may be secured in the future.
The 3.125% notes bear interest at a rate of 3.125% per
annum on the principal amount of the notes, payable
semi-annually in arrears in cash on June 15 and December 15 of
each year, beginning December 15, 2007, and will mature on
June 15, 2012, when the entire principal balance of
$1,200.0 million will be due. In addition, and subject to
specified exceptions, the noteholders have the right to require
us to repurchase the notes at a repurchase price equal to 100%
of their principal amount, plus any accrued and unpaid interest
(including additional amounts, if any) up to, but excluding, the
repurchase date upon the occurrence of a fundamental change.
The 3.125% notes are convertible into shares of our common
stock at a conversion rate of 8.4517 shares per $1,000
principal amount of notes, or 10,142,040 aggregate common
shares, representing a conversion price of $118.32 per share.
The 3.125% notes are convertible, subject to adjustment,
prior to the close of business on the final maturity date under
any of the following circumstances:
|
|
|
|
|
during any fiscal quarter commencing after September 30,
2007, if the closing sale price of our common stock exceeds 120%
of the conversion price of $118.32 for at least 20 trading days
in the 30 consecutive trading days ending on the last trading
day of the preceding fiscal quarter;
|
|
|
|
prior to May 15, 2012, during the five business day period
after any five consecutive trading day period in which the
trading price per note for each day of such period was less than
98% of the product of the closing sale price of our common stock
and the number of shares issuable upon conversion of $1,000
principal amount of notes, or 10,142,040 aggregate common shares;
|
|
|
|
at any time on or after May 15, 2012; or
|
|
|
|
upon the occurrence of specified corporate events.
|
For the fiscal quarter ended December 31, 2008, the closing
sale price of our common stock did not exceed 120% of the
conversion price of $118.32 per share for at least 20 trading
days in the 30 consecutive trading days ending on
December 31, 2008. As a result, the conversion contingency
was not met as of December 31, 2008. We have the option to
satisfy the conversion of the 3.125% notes in shares of our
common stock, in cash or a combination of both.
The conversion feature related to the trading price per note
meets the criteria of an embedded derivative under
SFAS No. 133. As a result, we are required to separate
the value of the conversion feature from the notes and record a
liability on our consolidated balance sheet. As of
December 31, 2008, the conversion feature had a nominal
value, and therefore it did not have a material impact on our
financial position or results of operations. We will continue to
evaluate the materiality of the value of this conversion feature
on a quarterly basis and record the resulting adjustment, if
any, in our consolidated balance sheet and statement of
operations.
The conversion rate of the 3.125% notes is subject to
adjustment if any of the following events occur:
|
|
|
|
|
we issue common stock as a dividend or distribution on our
common stock;
|
|
|
|
we issue to all holders of common stock certain rights or
warrants to purchase our common stock;
|
|
|
|
we subdivide or combine our common stock;
|
|
|
|
we distribute to all holders of our common stock shares of our
capital stock, evidences of indebtedness or assets, including
cash or securities but excluding the rights, warrants, dividends
or distributions specified above;
|
F-23
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the
extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
current market price per share of common stock on the trading
day next succeeding the last date on which tenders or exchanges
may be made pursuant to this tender or exchange offer; or
|
|
|
|
someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of
the closing date of the offer, our board of directors is not
recommending the rejection of the offer, subject to certain
conditions.
|
Neither we, nor any of our subsidiaries, are subject to any
financial covenants under our 3.125% notes. In addition,
the indenture governing our 3.125% notes does not restrict
us or any of our subsidiaries from paying dividends, incurring
debt, or issuing or repurchasing our securities.
As presented for the years ended December 31, 2008 and
2007, our calculation of diluted net income per share does not
include the common shares resulting from the potential
conversion of our 3.125% convertible notes since their effect
would have been antidilutive to our net income per share for
those periods.
2.75% Convertible Notes. In the
third quarter of 2005, we privately placed $350.0 million
aggregate principal amount of 2.75% convertible notes due 2025,
which we refer to as our 2.75% notes. We also incurred
direct issuance costs of $9.0 million, which we recorded as
deferred financing costs on our consolidated balance sheet and
are amortizing over five years. Our 2.75% notes are senior
unsecured obligations and rank equal in right of payment with
all of our other existing and future senior unsecured debt.
Historically, some of our long-term debt has been secured and
may be secured in the future. In addition, since we conduct all
of our operations through our subsidiaries, our 2.75% notes
effectively rank junior in right of payment to all liabilities
of our subsidiaries. The 2.75% notes bear interest at a
rate of 2.75% per year on the principal amount of the notes,
payable semi-annually in arrears in cash on February 15 and
August 15 of each year, and will mature on August 15, 2025,
when the entire principal balance of $350.0 million will be
due. The 2.75% notes were publicly registered, effective
February 10, 2006.
The noteholders have the right to require us to repurchase the
2.75% notes on August 15 of 2010, 2012, 2015 and 2020 at a
repurchase price equal to 100% of their principal amount, plus
any accrued and unpaid interest up to, but excluding, the
repurchase date. In addition, if a fundamental change or
termination of trading, as defined, occurs prior to maturity,
the noteholders have a right to require us to repurchase all or
part of the notes at a repurchase price equal to 100% of the
principal amount, plus accrued and unpaid interest.
The 2.75% notes are convertible, at the option of the
holder, into shares of our common stock at an adjusted
conversion rate of 19.967 shares per $1,000 principal
amount of notes, or 6,988,370 aggregate common shares,
representing a conversion price of about $50.08 per share. The
2.75% notes are convertible, subject to adjustment, prior
to the close of business on the final maturity date under any of
the following circumstances:
|
|
|
|
|
during any fiscal quarter commencing after September 30,
2005 if the closing sale price of our common stock exceeds 120%
of the conversion price of $50.08 for at least 20 trading days
in the 30 consecutive trading days ending on the last trading
day of the preceding fiscal quarter;
|
|
|
|
prior to July 15, 2010, during the five business day period
after any five consecutive trading day period in which the
trading price per note for each day of such period was less than
98% of the product of the closing sale price of our common stock
and the number of shares issuable upon conversion of $1,000
principal amount of notes, or 6,988,370 aggregate common shares;
|
|
|
|
at any time on or after July 15, 2010; or
|
|
|
|
upon the occurrence of specified corporate events, including a
fundamental change, as defined in the 2.75% note agreement,
the issuance of certain rights or warrants or the distribution
of certain assets or debt securities.
|
F-24
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the fiscal quarter ended December 31, 2008, the closing
sale price of our common stock did not exceed 120% of the
conversion price of $50.08 per share for at least 20 trading
days in the 30 consecutive trading days ending on
December 31, 2008. As a result, the conversion contingency
was not met as of December 31, 2008.
The conversion feature related to the trading price per note
meets the criteria of an embedded derivative under
SFAS No. 133. As a result, we are required to separate
the value of the conversion feature from the notes and record a
liability on our consolidated balance sheet. As of
December 31, 2008 and 2007, the conversion feature had a
nominal value, and therefore it did not have a material impact
on our financial position or results of operations. We will
continue to evaluate the materiality of the value of this
conversion feature on a quarterly basis and record the resulting
adjustment, if any, in our consolidated balance sheet and
statement of operations.
The conversion rate of the 2.75% notes is subject to
adjustment if any of the following events occur:
|
|
|
|
|
we issue common stock as a dividend or distribution on our
common stock;
|
|
|
|
we issue to all holders of common stock certain rights or
warrants to purchase our common stock;
|
|
|
|
we subdivide or combine our common stock;
|
|
|
|
we distribute to all holders of our common stock shares of our
capital stock, evidences of indebtedness or assets, including
cash or securities but excluding the rights, warrants, dividends
or distributions specified above;
|
|
|
|
we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the
extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
current market price per share of common stock on the trading
day next succeeding the last date on which tenders or exchanges
may be made pursuant to this tender or exchange offer; or
|
|
|
|
someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of
the closing date of the offer, our board of directors is not
recommending the rejection of the offer, subject to certain
conditions.
|
Prior to August 20, 2010, the notes will not be redeemable.
On or after August 20, 2010, we may redeem for cash some or
all of the notes, at any time and from time to time, upon at
least 30 days notice for a price equal to 100% of the
principal amount of the notes to be redeemed, plus any accrued
and unpaid interest up to but excluding the redemption date.
Neither we, nor any of our subsidiaries, are subject to any
financial covenants under our 2.75% notes. In addition, the
indenture governing our 2.75% notes does not restrict us or
any of our subsidiaries from paying dividends, incurring debt,
or issuing or repurchasing our securities.
As presented for the years ended December 31, 2008, 2007
and 2006, our calculation of diluted net income per share
includes the common shares resulting from the potential
conversion of our 2.75% convertible notes.
2.875% Convertible Notes. As of
December 31, 2006, we had outstanding $300.0 million
aggregate principal amount of 2.875% convertible notes due 2034,
which we refer to as our 2.875% notes. The
2.875% notes bore interest at a rate of 2.875% per year on
the principal amount of the notes and were scheduled to mature
on February 1, 2034.
In July 2007, we accepted the tender of 99.99% of the
$300.0 million in outstanding principal amount of our
2.875% convertible notes under a tender offer that expired on
July 23, 2007. In connection with this tender offer, we
issued 11,268,103 shares of our common stock and paid to
the holders of the tendered notes an aggregate cash premium of
$25.5 million, $1.0 million in direct external costs
and accrued and unpaid interest of $4.2 million. We
recorded the $25.5 million cash premium and the
$1.0 million in direct external costs as debt conversion
expense in our consolidated statement of operations. We also
reclassified to paid-in capital the remaining $4.3 million
of deferred financing costs related to the notes that were
tendered.
As presented for the year ended December 31, 2007, our
calculation of diluted net income per share includes shares that
would have been issued had our 2.875% convertible notes been
converted at the beginning of the year
F-25
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
instead of on the actual conversion date. As presented for the
year ended December 31, 2006, our calculation of diluted
net income per share includes the common shares resulting from
the potential conversion of our 2.875% convertible notes.
Brazil Syndicated Loan Facility. In
September 2007, Nextel Brazil entered into a $300.0 million
syndicated loan facility. Of the total amount of the facility,
$45.0 million is denominated in U.S. dollars with a
floating interest rate based on LIBOR plus a specified margin
ranging from 2.00% to 2.50% (Tranche A 3.43%
and 7.35% as of December 31, 2008 and 2007, respectively).
The remaining $255.0 million is denominated in
U.S. dollars with a floating interest rate based on LIBOR
plus a specified margin ranging from 1.75% to 2.25%
(Tranche B 3.18% and 7.10% as of
December 31, 2008 and 2007, respectively). Tranche A
matures on September 14, 2014, and Tranche B matures
on September 14, 2012. Nextel Brazils obligations
under the syndicated loan facility agreement are guaranteed by
all of its material operating subsidiaries and are secured by a
pledge of the outstanding equity interests in Nextel Brazil and
those subsidiaries. In addition, Nextel Brazil is subject to
various legal and financial covenants under the syndicated loan
facility that, among other things, require Nextel Brazil to
maintain certain financial ratios and may limit the amount of
funds that could be repatriated in certain periods. Nextel
Brazil has utilized borrowings under this syndicated loan
facility for capital expenditures, general corporate purposes
and the repayment of specified short-term intercompany debt. In
connection with this agreement, Nextel Brazil deferred
$5.0 million of financing costs, which Nextel Brazil is
amortizing as additional interest expense over the term of the
syndicated loan.
During the fourth quarter of 2007, Nextel Brazil borrowed
$26.2 million in term loans under Tranche A and
$148.8 million in term loans under Tranche B of this
syndicated loan facility. During the first quarter of 2008,
Nextel Brazil borrowed the remaining $18.8 million in term
loans under Tranche A and $106.2 million in term loans
under Tranche B of this syndicated loan facility.
Mexico Syndicated Loan Facility. In
October 2004, we closed on a $250.0 million, five year
syndicated loan facility in Mexico. Of the total amount of the
facility, $129.0 million was denominated in
U.S. dollars with a floating interest rate based on LIBOR,
$31.0 million was denominated in Mexican pesos with a
floating interest rate based on the Mexican reference interest
rate TIIE, and $90.0 million was denominated in Mexican
pesos, at an interest rate fixed at the time of funding. In May
2005, we borrowed the entire $250.0 million available under
this facility. As part of this agreement, Nextel Mexico is
subject to various legal and financial covenants that, among
other things, require Nextel Mexico to maintain certain
financial ratios and may limit the amount of funds that could be
repatriated in certain periods. In July 2005, Nextel Mexico
entered into an interest rate swap agreement to hedge the
$31.4 million portion of the syndicated loan facility. This
interest rate swap fixed the amount of interest expense
associated with this portion of the syndicated loan facility
commencing on August 31, 2005 and continuing over the life
of the facility based on a fixed rate of about 11.95% per year.
In June 2006, Nextel Mexico entered into an agreement to
refinance its syndicated loan. The loan principal was increased
from the original $250.0 million to $296.6 million
after the refinancing. Under the agreement, the loan was
refinanced using the same variable (i.e. LIBOR and TIIE) and
fixed rates as the original agreement but with lower spreads for
each tranche. Of the total amount of the refinanced loan,
$156.6 million is denominated in U.S. dollars, with a
floating interest rate based on LIBOR
(Tranche A 2.44% and 6.31% as of
December 31, 2008 and 2007, respectively),
$57.0 million is denominated in Mexican pesos, with a
floating interest rate based on the Mexican reference rate TIIE
(Tranche C 8.98% and 8.67% as of
December 31, 2008 and 2007, respectively), and
$83.0 million is denominated in Mexican pesos, at an
interest rate fixed at the time of funding
(Tranche B 11.36% as of December 31, 2008
and 2007). For Tranche B and Tranche C, the principal
and interest payments will take place on the same dates as
previously scheduled under the original agreement. Under the
original agreement, principal for Tranche A was also due on
the same dates as the principal under Tranches B and C. However,
after the refinancing, principal for Tranche A will now be
due in a lump sum of $156.6 million in June 2011.
F-26
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Tower Financing Obligations. During the
years ended December 31, 2008 and 2007, Nextel Mexico and
Nextel Brazil sold communications towers as follows (proceeds in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Towers
|
|
|
|
|
|
Towers
|
|
|
|
|
|
|
Sold
|
|
|
Proceeds
|
|
|
Sold
|
|
|
Proceeds
|
|
|
Nextel Mexico
|
|
|
181
|
|
|
$
|
23,070
|
|
|
|
220
|
|
|
$
|
27,606
|
|
Nextel Brazil
|
|
|
54
|
|
|
|
5,565
|
|
|
|
34
|
|
|
|
3,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
235
|
|
|
$
|
28,635
|
|
|
|
254
|
|
|
$
|
31,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We account for these tower sales as financing arrangements. As a
result, we did not recognize any gains from the sales, and we
maintain the tower assets on our consolidated balance sheet and
continue to depreciate them. We recognize the proceeds received
as financing obligations that will be repaid through monthly
payments. To the extent that American Tower leases space on
these communication towers to third party companies, our base
rent and ground rent related to the towers leased are reduced.
We recognize ground rent payments as operating expenses in cost
of service and tower base rent payments as interest expense and
a reduction in the financing obligation using the effective
interest method. In addition, we recognize co-location rent
payments made by the third party lessees to American Tower as
other operating revenues because we are maintaining the tower
assets on our consolidated balance sheet. Both the proceeds
received and rent payments due are denominated in Mexican pesos
for the Mexican transactions and in Brazilian reais for the
Brazilian transactions. Rent payments are subject to local
inflation adjustments. During the years ended December 31,
2008, 2007 and 2006, we recognized $48.7 million,
$29.8 million and $18.6 million, respectively, in
other operating revenues related to these co-location lease
arrangements, a significant portion of which we recognized as
interest expense. Following the sale of these towers, we no
longer have any further contractual obligation or right to
transfer towers to American Tower Corporation.
On March 22, 2005, we amended the sale-leaseback agreement
with respect to the construction
and/or the
acquisition by American Tower of any new towers to be
constructed or purchased by our Mexican and our Brazilian
operating companies. The most significant of these amendments
provides for the elimination of existing minimum purchase and
construction commitments, the establishment of new purchase
commitments for the following four years, subject to certain
co-location conditions, the extension for an additional four
years, subject to certain conditions and limitations, of the
right of American Tower to market for co-location existing and
new towers and the reduction of the monthly rent payments, as
well as the purchase price, of any existing towers not
previously purchased or identified for purchase and of any new
sites built.
Capital
Lease Obligations.
Corporate Aircraft Leases. In April 2004, we
entered into an agreement to lease a corporate aircraft for
eight years for the purpose of enabling company employees to
visit and conduct business at our various operating companies in
Latin America. We account for this agreement as a capital lease
and recorded a capital lease asset and capital lease liability
for the present value of the future minimum lease payments. As
of December 31, 2008 and 2007, the capital lease liability
for our 2004 corporate aircraft was $25.3 million and
$26.9 million, respectively.
In November 2005, we entered into an agreement to lease a new
corporate aircraft beginning in 2009 for ten years. We refer to
this aircraft lease as the 2005 aircraft lease. This new
aircraft will replace the existing corporate aircraft that we
are currently leasing. We determined that in accordance with
EITF 97-10,
The Effect of Lessee Involvement in Asset
Construction, we are the owner of this new corporate
aircraft during its construction because we have substantially
all of the construction period risks. As a result, we recorded
an asset for
construction-in-progress
and a corresponding long-term liability for the new aircraft as
construction occurs, which was $37.3 million and
$14.9 million as of December 31, 2008 and 2007. When
construction of the new corporate aircraft is complete and the
lease term begins, we will record the 2005 aircraft lease as a
sale and a leaseback. We will also evaluate the classification
of the lease as either a capital lease or an operating lease at
that time.
Upon taking delivery of the new aircraft, we are required to
immediately exercise our early purchase option on the existing
aircraft and pay all amounts due under the 2004 aircraft lease.
If we fail to take delivery of the new
F-27
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
aircraft and acquire the existing aircraft, we will be subject
to certain penalties under the 2004 aircraft lease and the 2005
aircraft lease. If we take delivery of the new aircraft and
acquire the existing aircraft, we intend to immediately sell the
existing aircraft.
In addition, we signed a demand promissory note to guarantee the
total advance payments for the construction of the new aircraft
to be financed by the lessor under the 2005 aircraft lease. The
first scheduled advance payment occurred in November 2005. The
lessor committed to make advance payments of up to
$25.2 million during the construction of the new aircraft.
During the year ended December 31, 2007, the lessor made
advance payments of $5.6 million. We did not make any
advance payments during the year ended December 31, 2008.
We also provided a $1.0 million letter of credit to the
lessor as security for the first advance payment, which we paid
in the fourth quarter of 2005. To secure our obligations under
the letter of credit agreement, we initially deposited
approximately $1.0 million in a restricted cash account
with the bank issuing the letter of credit. Under the 2005
aircraft lease, we are obligated to increase the amount of the
letter of credit up to a maximum of $10.0 million as the
lessor makes advance payments. As a result, during 2007, we
deposited additional amounts in this restricted cash account to
continue to secure the letter of credit. As of December 31,
2008 and 2007, the balance in this restricted cash account was
$6.8 million. We classified this restricted cash account as
a long-term asset in our consolidated balance sheets as of
December 31, 2008 and 2007, respectively. Under the terms
of this promissory note, we are required to maintain
unencumbered cash, cash equivalents, marketable securities and
highly liquid investments of no less than $60.0 million at
all times.
Interest accrues on the portion of the outstanding principal
amount of the promissory note that is equal to or less than
$10.0 million, at a variable rate of interest, adjusted
monthly, equal to the monthly LIBOR rate plus 0.5% per year and
the portion of the outstanding principal amount of the note in
excess of $10.0 million, at a variable rate of interest,
adjusted monthly, equal to the monthly LIBOR rate plus 1.75% per
year.
Other Capital Lease Obligations. Under the
master lease agreement with American Tower, in certain
circumstances, Nextel Mexico and Nextel Brazil are permitted to
co-locate communications equipment on sites owned by American
Tower. Nextel Mexico and Nextel Brazil account for the majority
of these co-location agreements as capital leases.
Brazil Spectrum License
Financing. During the second quarter of 2005,
Nextel Brazil acquired spectrum licenses from the Brazilian
government for $8.3 million, of which it paid
$0.7 million. The remaining $7.6 million is due in six
annual installments, and we are amortizing these licenses over
15 years. Due to changes in foreign currency exchange
rates, the balance of the spectrum license financing as of
December 31, 2008 and 2007 was $6.7 million and
$9.4 million, respectively.
Debt Maturities. For the years
subsequent to December 31, 2008, scheduled annual
maturities of all long-term debt outstanding as of
December 31, 2008 are as follows (in thousands):
|
|
|
|
|
|
|
Principal
|
|
Year
|
|
Repayments
|
|
|
2009
|
|
$
|
99,054
|
|
2010
|
|
|
92,435
|
|
2011
|
|
|
250,748
|
|
2012
|
|
|
1,313,817
|
|
2013
|
|
|
23,751
|
|
Thereafter
|
|
|
512,489
|
|
|
|
|
|
|
Total
|
|
$
|
2,292,294
|
|
|
|
|
|
|
|
|
8.
|
Commitments
and Contingencies
|
Capital
and Operating Lease Commitments.
We have co-location capital lease obligations on some of our
communication towers in Mexico and Brazil. The remaining terms
of these lease agreements range from ten to fifteen years. In
addition, we have a capital lease
F-28
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Commitments
and Contingencies (Continued)
|
obligation on our existing corporate aircraft. The remaining
term of this lease agreement is four years. See Note 7 for
further information regarding these agreements.
We lease various cell sites, office facilities and other assets
under operating leases. Some of these leases provide for annual
increases in our rent payments based on changes in locally-based
consumer price indices. The remaining terms of our cell site
leases range from one to fifteen years and are generally
renewable, at our option, for additional terms. The remaining
terms of our office leases range from less than one to ten
years. During the years ended December 31, 2008, 2007 and
2006, total rent expense under operating leases was
$177.2 million, $133.1 million and
$100.5 million, respectively.
For years subsequent to December 31, 2008, future minimum
payments for all capital and operating lease obligations that
have initial noncancelable lease terms exceeding one year, net
of rental income, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
|
2009
|
|
$
|
12,281
|
|
|
$
|
115,327
|
|
|
$
|
127,608
|
|
2010
|
|
|
12,281
|
|
|
|
102,005
|
|
|
|
114,286
|
|
2011
|
|
|
12,281
|
|
|
|
86,913
|
|
|
|
99,194
|
|
2012
|
|
|
29,599
|
|
|
|
71,374
|
|
|
|
100,973
|
|
2013
|
|
|
9,777
|
|
|
|
63,021
|
|
|
|
72,798
|
|
Thereafter
|
|
|
71,751
|
|
|
|
172,550
|
|
|
|
244,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
147,970
|
|
|
|
611,190
|
|
|
|
759,160
|
|
Less: imputed interest
|
|
|
(79,803
|
)
|
|
|
|
|
|
|
(79,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,167
|
|
|
$
|
611,190
|
|
|
$
|
679,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorola
Commitments.
We are a party to agreements with Motorola, Inc. under which
Motorola provides us with infrastructure equipment and services,
including installation, implementation and training. We and
Motorola have also agreed to warranty and maintenance programs
and specified indemnity arrangements. We have also agreed to
provide Motorola with notice of our determination that
Motorolas technology is no longer suited to our needs at
least six months before publicly announcing or entering into a
contract to purchase equipment utilizing an alternate
technology. In addition, if Motorola manufactures, or elects to
manufacture, the equipment utilizing the alternate technology
that we elect to deploy, we must give Motorola the opportunity
to supply 50% of our infrastructure requirements for the
equipment utilizing the alternate technology for three years.
In September 2006, we entered into agreements to extend our
relationship with Motorola for the supply of iDEN handsets and
iDEN network infrastructure through December 31, 2011.
Under these agreements, Motorola agreed to maintain an adequate
supply of the iDEN handsets and equipment used in our business
for the term of the agreement and to continue to invest in the
development of new iDEN devices and infrastructure features. In
addition, we agreed to annually escalating handset volume
purchase commitments and certain pricing parameters for handsets
and infrastructure linked to the volume of our purchases. If we
do not meet the specified handset volume commitments, we would
be required to pay an additional amount based on any shortfall
of actual purchased handsets compared to the related annual
volume commitment.
Brazilian
Contingencies.
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on
imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions
disputing these assessments. In some cases, Nextel Brazil has
received favorable decisions, which are currently being appealed
by the respective governmental authority. In other cases, Nextel
Brazils petitions have been denied, and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing various other claims. As a result of the expiration of
the
F-29
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Commitments
and Contingencies (Continued)
|
statute of limitations for certain contingencies, during the
years ended December 31, 2007 and 2006, Nextel Brazil
reversed $10.6 million and $9.2 million, respectively,
in accrued liabilities, of which we recorded $4.5 million
and $4.4 million, respectively, as a reduction to operating
expenses and the remainder to other income, which represented
monetary corrections. Monetary corrections are specific
indexation factors under Brazilian law that are used to restore
the real economic value of tax and other contingent obligations
in local Brazilian currency after taking into consideration the
effects of inflation.
As of December 31, 2008 and 2007, Nextel Brazil had accrued
liabilities of $18.3 million and $20.2 million,
respectively, related to contingencies, all of which were
classified in accrued contingencies reported as a component of
other long-term liabilities. Of the total accrued liabilities as
of December 31, 2008 and 2007, Nextel Brazil had
$9.2 million and $10.8 million in unasserted claims.
We currently estimate the range of reasonably possible losses
related to matters for which Nextel Brazil has not accrued
liabilities, as they are not deemed probable, to be between
$196.4 million and $200.4 million as of
December 31, 2008. We are continuing to evaluate the
likelihood of probable and reasonably possible losses, if any,
related to all known contingencies. As a result, future
increases or decreases to our accrued liabilities may be
necessary and will be recorded in the period when such amounts
are determined to be probable and estimable.
Argentine
Contingencies.
As of December 31, 2008 and 2007, Nextel Argentina had
accrued liabilities of $35.0 million and
$32.2 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.
Turnover Tax. The government of the
city of Buenos Aires imposes a turnover tax rate of 6% of
revenues for cellular companies while maintaining a 3% rate for
other telecommunications services. From a regulatory standpoint,
we are not considered a cellular company, although, the city of
Buenos Aires made claims to the effect that the higher turnover
tax rate should apply to our services. As a result, until April
2006, Nextel Argentina paid the turnover tax at a rate of 3% and
recorded a liability and related expense for the differential
between the higher rate applicable to cellular carriers and the
3% rate, plus interest. In April 2006, following some adverse
decisions by the city of Buenos Aires, Nextel Argentina decided
to pay under protest $18.8 million, which represented the
total amount of principal and interest, related to the
citys turnover tax claims and subsequently paid an
additional $4.2 million, plus interest, under protest, for
the period April 2006 through December 2006 related to this tax.
Nextel Argentina filed a lawsuit against the city of Buenos
Aires to pursue the reimbursement of the $18.8 million paid
under protest in April 2006.
In December 2006, the city of Buenos Aires issued new laws,
which Nextel Argentina believes support its position that it
should be taxed at the general 3% rate and not at the 6%
cellular rate. Beginning in January 2007, Nextel Argentina
determined that it would continue to accrue and pay only the 3%
general turnover tax rate and would continue with its efforts to
obtain reimbursement of amounts previously paid under protest in
excess of that level.
In 2007, Nextel Argentina received a $4.2 million tax
refund, plus interest, as the result of a resolution issued by
the tax authorities of the city of Buenos Aires with respect to
the amounts paid from April 2006 through December 2006 relating
to this tax. Nextel Argentina believes that the tax refund
clarifies and confirms that only the 3% general turnover tax
rate is applicable to our services. The resolution also
indicated that the city of Buenos Aires will defer the decision
of the pending lawsuit to pursue the reimbursement of the
$18.8 million paid under protest in April 2006 until the
court issues a ruling on the case. In addition, Nextel Argentina
unconditionally and unilaterally committed to donate
$3.4 million to charitable organizations. Other provincial
governments have sought to impose similar increases in the
turnover tax rate applicable to Nextel Argentina. Nextel
Argentina continues to pay the turnover tax at the existing rate
and accrues a liability for the incremental difference in the
rate. As of December 31, 2008 and 2007, Nextel Argentina
had accrued $9.9 million and $6.8 million,
respectively, for local turnover taxes in this province, which
are included as components of accrued expenses and other.
F-30
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Commitments
and Contingencies (Continued)
|
Legal
Proceedings.
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
Income
Taxes.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. We regularly assess the potential outcome of current and
future examinations in each of the taxing jurisdictions when
determining the adequacy of the provision for income taxes. We
have only recorded financial statement benefits for tax
positions which we believe reflect the
more-likely-than-not criteria of FIN 48. We
have also established income tax reserves in accordance with
FIN 48 where necessary. Once a financial statement benefit
for a tax position is recorded or a tax reserve is established,
we adjust it only when there is more information available or
when an event occurs necessitating a change. While we believe
that the amount of the recorded financial statement benefits and
tax reserves reflect the FIN 48 more-likely-than-not
criteria, it is possible that the ultimate outcome of current or
future examinations may result in a reduction to the tax
benefits previously recorded on the financial statements or may
exceed the current income tax reserves in amounts that could be
material.
We currently have 600,000,000 shares of authorized common
stock, par value $0.001 per share, and 10,000,000 shares of
authorized undesignated preferred stock, par value $0.001 per
share.
We issued 3,000,000 shares, 3,635,850 shares and
6,852,150 shares of our common stock in connection with the
conversion of our 3.5% convertible notes on June 10, 2005,
June 21, 2005 and December 14, 2006, respectively. As
described in Note 7, we issued 11,268,103 shares of
our common stock in connection with the conversion of our 2.875%
convertible notes in July 2007. In addition, as described in
Note 1, during the years ended December 31, 2008 and
2007, we repurchased a total of 5,555,033 shares and
7,401,543 shares of our common stock, respectively.
During the years ended December 31, 2008, 2007 and 2006, we
issued common shares of stock in connection with the exercise of
stock options by employees.
As of December 31, 2008 and 2007, there were
165,782,002 shares and 169,910,315 shares of our
common stock outstanding, respectively.
Common Stock. Holders of our common
stock are entitled to one vote per share on all matters
submitted for action by the stockholders and share equally,
share for share, if dividends are declared on the common stock.
If our Company is partially or completely liquidated, dissolved
or wound up, whether voluntarily or involuntarily, the holders
of the common stock are entitled to share ratably in the net
assets remaining after payment of all liquidation preferences,
if any, applicable to any outstanding preferred stock. There are
no redemption or sinking fund provisions applicable to the
common stock.
Undesignated Preferred Stock. Our board
of directors has the authority to issue undesignated preferred
stock of one or more series and in connection with the creation
of such series, to fix by resolution the designation, voting
powers, preferences and relative, participating, optional and
other special rights of such series, and the qualifications,
limitations and restrictions thereof. As of December 31,
2008, we had not issued any shares of undesignated preferred
stock.
Common Stock Reserved for Issuance. As
of December 31, 2008 and 2007, under our employee stock
option plan, we had reserved for future issuance
17,610,279 shares and 20,494,643 shares of our common
stock, respectively.
F-31
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of the income tax provision from continuing
operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,086
|
)
|
|
$
|
(3,396
|
)
|
|
$
|
(5,086
|
)
|
State, net of Federal tax benefit
|
|
|
|
|
|
|
|
|
|
|
(444
|
)
|
Foreign
|
|
|
(213,950
|
)
|
|
|
(114,793
|
)
|
|
|
(75,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
(215,036
|
)
|
|
|
(118,189
|
)
|
|
|
(80,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
15,383
|
|
|
|
(54,772
|
)
|
|
|
(6,265
|
)
|
State, net of Federal tax benefit
|
|
|
1,714
|
|
|
|
(6,103
|
)
|
|
|
(698
|
)
|
Foreign
|
|
|
42,684
|
|
|
|
9,037
|
|
|
|
(31,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision
|
|
|
59,781
|
|
|
|
(51,838
|
)
|
|
|
(38,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
(155,255
|
)
|
|
$
|
(170,027
|
)
|
|
$
|
(119,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the U.S. statutory Federal income tax
rate to our effective tax rate as a percentage of income before
taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statutory Federal tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State taxes, net of Federal tax benefit
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Effect of foreign operations
|
|
|
(5
|
)
|
|
|
(6
|
)
|
|
|
(4
|
)
|
Nondeductible SFAS 123R expense
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Change in deferred tax asset valuation allowance
|
|
|
5
|
|
|
|
(8
|
)
|
|
|
|
|
Intercompany transactions
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
Withholding tax and tax on subpart F income
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Loss on Mexican fixed asset disposals
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Tax-deductible dividends
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
U.S. tax on unremitted foreign earnings
|
|
|
|
|
|
|
12
|
|
|
|
|
|
Inflation adjustments
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
(4
|
)
|
Amortization of acquired tax benefits (deferred credit)
|
|
|
|
|
|
|
(4
|
)
|
|
|
(2
|
)
|
Income tax credits
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
30
|
%
|
|
|
31
|
%
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Income
Taxes (Continued)
|
Significant components of our deferred tax assets and
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses and capital loss carryforwards
|
|
$
|
209,254
|
|
|
$
|
298,709
|
|
Allowance for doubtful accounts
|
|
|
18,339
|
|
|
|
18,375
|
|
Accrued expenses
|
|
|
59,829
|
|
|
|
49,267
|
|
Accrual for contingent liabilities
|
|
|
6,230
|
|
|
|
6,874
|
|
Intangible assets
|
|
|
4,022
|
|
|
|
13,058
|
|
Property, plant and equipment
|
|
|
183,756
|
|
|
|
224,049
|
|
Capital lease obligations
|
|
|
62,108
|
|
|
|
70,132
|
|
Deferred revenue
|
|
|
48,466
|
|
|
|
51,948
|
|
Stock option expense
|
|
|
28,744
|
|
|
|
14,902
|
|
Other
|
|
|
67,792
|
|
|
|
25,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
688,540
|
|
|
|
772,430
|
|
Valuation allowance
|
|
|
(73,962
|
)
|
|
|
(58,651
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
614,578
|
|
|
|
713,779
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
71,555
|
|
|
|
90,843
|
|
Unremitted foreign earnings
|
|
|
55,093
|
|
|
|
69,477
|
|
Deferred revenue
|
|
|
24,132
|
|
|
|
26,057
|
|
Property, plant and equipment
|
|
|
2,418
|
|
|
|
9,893
|
|
Other
|
|
|
12,202
|
|
|
|
13,252
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
165,400
|
|
|
|
209,522
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
449,178
|
|
|
$
|
504,257
|
|
|
|
|
|
|
|
|
|
|
During 2006, we identified errors in our consolidated financial
statements for the years ended December 31, 2003 and 2004
related to accounting for income taxes in Nextel Mexico. We
determined that these errors were not material to any period,
and accordingly, as a result of the Nextel Mexico errors
recorded in the fourth quarter of 2006, we decreased our tax
provision by $17.1 million and our current tax payable
liability by $35.0 million, increased amortization expense
by $1.4 million and increased paid-in capital by
$18.6 million as of December 31, 2006. Without this
decrease to the income tax provision, our 2006 effective tax
rate would have been 33% rather than 29%.
We have not recorded a deferred tax liability on Nextel
Brazils unrealized foreign currency gain on the
intercompany loan from NII Holdings, Inc. as it is our intention
to not subject that unrealized gain to Brazilian tax. If this
gain is subject to tax, it could result in an additional income
tax liability. As of December 31, 2008 and 2007, the
cumulative amount of additional tax liability would have been
approximately $49.3 million and $115.3 million,
respectively.
During the fourth quarter of 2007, we changed our historic
position regarding the repatriation of foreign earnings back to
the U.S. and we recorded a $69.6 million provision in
deferred tax liability for U.S. federal, state and foreign
taxes with respect to future remittances of certain
undistributed earnings (other than income that has been
previously taxed in the U.S. under the subpart F rules) of
certain of our foreign subsidiaries. This deferred tax liability
decreased by $14.5 million to $55.1 million as of
December 31, 2008 due to the appreciation of the dollar
during the fourth quarter of 2008. Except for the earnings
associated with this $55.1 million provision, we currently
have no intention to remit any additional undistributed earnings
of our foreign subsidiaries, other than income that has been
previously taxed in the U.S. under the subpart F rules.
Should additional amounts of our foreign
F-33
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Income
Taxes (Continued)
|
subsidiaries undistributed earnings be remitted to the
U.S. as dividends, we may be subject to additional
U.S. income taxes (net of allowable foreign tax credits)
and foreign withholding taxes. It is not practicable to estimate
the amount of any additional taxes which may be payable on the
remaining undistributed earnings.
As of December 31, 2008, we had approximately
$263.8 million of net operating loss carryforwards for
U.S. Federal and state income tax purposes that expire in
various amounts beginning in 2010 through 2028. The timing and
manner in which we will utilize the net operating loss
carryforwards in any year, or in total, may be limited in the
future under the provisions of Internal Revenue Code
Section 382 regarding changes in our ownership.
As of December 31, 2008, we had approximately
$6.9 million of capital loss carryforwards for
U.S. Federal income tax purposes, a small amount of which
expires in 2012, with the balance expiring in 2013. We will only
be able to utilize these capital losses to the extent we
generate U.S. capital gains. As we do not believe we meet
the more-likely-than-not criteria regarding the utilization of
these capital losses prior to their expiration, we have
established a full valuation allowance against these capital
losses.
As of December 31, 2008, we had approximately
$5.1 million of net operating loss carryforwards in our
Mexican subsidiary. These carryforwards expire in various
amounts and at various periods from 2009 to 2018. Nextel Chile
had approximately $50.6 million of net operating loss
carryforwards that can be carried forward indefinitely. In
addition, our Brazilian subsidiaries had approximately
$548.1 million of net operating loss carryforwards that can
also be carried forward indefinitely, but the amount that we can
utilize annually is limited to 30% of Brazilian taxable income
before the net operating loss deduction. Our foreign
subsidiaries ability to utilize the foreign tax net
operating losses in any single year ultimately depends upon
their ability to generate sufficient taxable income.
We excluded $208.7 million of U.S. net operating loss
carryforwards from the calculation of the deferred tax asset
above because it represents excess stock option deductions that
did not reduce taxes payable in the U.S. The tax effect of
these unrealized excess stock option deductions, if realized in
the future, will result in an increase to paid-in capital. We
recognize the benefits of net operating loss carryforwards in
the following order: (1) net operating losses from items
other than excess stock option deductions; (2) net
operating losses from excess stock option deductions accounted
for under SFAS 123R; and (3) from excess stock option
deductions accounted for under SFAS 123R. We use a
with-and-without
method to determine the tax benefit realized from excess stock
option deductions under SFAS 123R. We calculated our
adoption date pool of excess tax benefits previously included in
paid-in capital under the standard method outlined in
SFAS 123R.
During 2007, the deferred tax asset valuation allowance
decreased by $385.7 million primarily due to the
$377.8 million release (net of foreign currency translation
adjustments) of the valuation allowance previously recorded with
respect to the deferred tax assets of one of our Brazilian
entities, Nextel Telecomunicacoes Ltda. (Brazil
Ltda.). In evaluating the need for a valuation allowance
for Brazil Ltda., we considered the following positive evidence:
(1) for the cumulative three-year period 2005 through 2007,
Brazil Ltda. generated positive pre-tax income in accordance
with U.S. GAAP, (2) Brazil Ltda. is expected to
continue to generate positive pre-tax income in accordance with
U.S. GAAP for the foreseeable future, and
(3) Brazilian net operating losses can be carried forward
indefinitely and utilized in future years without expiration.
Based on this evidence, we concluded in the fourth quarter of
2007 that it was more-likely-than-not the deferred
tax assets of Brazil Ltda. would be fully utilized, and we
released the associated valuation allowance. The financial
statement treatment of this valuation allowance release
(excluding the effect of the foreign currency translation
adjustments) is shown in the table below.
Our deferred tax asset valuation allowances generally consist of
three components. We record decreases in these valuation
allowances as coming first from valuation allowances existing as
of the reorganization date, second from valuation allowances
created subsequent to the reorganization from items other than
excess stock option deductions, and third from
post-reorganization excess stock option deductions accounted for
under SFAS 123R. Historically, in accordance with
SOP 90-7,
we have recognized decreases in the deferred tax asset valuation
allowance that existed at the reorganization date first as a
reduction in the carrying value of our intangible assets
existing at the reorganization date until fully exhausted, and
then as an increase to paid-in capital. As of December 31,
2004, we reduced to zero the carrying value of our intangible
assets existing at the reorganization date. In accordance with
the changes made to
SOP 90-7
by SFAS No. 141(R), Business Combinations,
or SFAS No. 141(R), effective
F-34
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Income
Taxes (Continued)
|
beginning in 2009, we will record the future decreases, if any,
of the valuation allowance existing on the reorganization date
as a reduction to income tax expense. The table below reflects
the impact on our stockholders equity and income tax
provision of the deferred tax asset valuation allowance
decreases that we recorded during 2007 and 2006 in accordance
with
SOP 90-7.
$18.6 million of the 2006 increase to stockholders
equity relates to errors identified in our consolidated
financial statements for the years ended December 31, 2003
and 2004 related to accounting for income taxes in Nextel
Mexico. There were no changes to our deferred tax asset
valuation allowance during 2008 in accordance with
SOP 90-7.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase to stockholders equity
|
|
$
|
407,224
|
|
|
$
|
24,573
|
|
Reduction to income tax provision
|
|
|
48,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
455,948
|
|
|
$
|
24,573
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, Nextel Brazil, Nextel Chile and
Nextel Mexico have $15.3 million, $8.0 million and
$1.4 million of deferred tax asset valuation allowances,
respectively. In addition, our U.S. operations have
$49.2 million of deferred tax asset valuation allowance as
of December 31, 2008. Of the total $73.9 million
consolidated deferred tax asset valuation allowance as of
December 31, 2008, $12.8 million of Nextel
Brazils valuation allowance existed as of our emergence
from Chapter 11 reorganization and therefore, any future
decreases in this amount will be recorded in accordance with
SOP 90-7
as a reduction to income tax expense. Similarly,
$26.6 million of the U.S. valuation allowance relates
to excess stock option deductions that did not reduce taxes
payable and, if realized, will result in an increase to paid-in
capital.
We believe it is reasonably possible that, as a result of the
repatriation of certain earnings of our Mexican subsidiaries
discussed above, within the next year, we will release some
portion of the U.S. valuation allowance. The character of
the valuation allowance that would be released would likely be
related to excess stock option deductions that did not
previously reduce taxes payable. If this portion of the
U.S. valuation allowance is released, it would result in an
increase to paid-in capital and will be dependent upon the
generation of sufficient U.S. taxable income by our
U.S. entities. Realization of any additional deferred tax
assets in any of our markets depends on future profitability in
these markets. Our ability to generate the expected amounts of
taxable income from future operations is dependent upon general
economic conditions, technology trends, political uncertainties,
competitive pressures and other factors beyond managements
control. If our operations demonstrate profitability, we may
reverse additional deferred tax asset valuation allowances by
jurisdiction in the future. We will continue to evaluate the
deferred tax asset valuation allowance balances in all of our
foreign and U.S. companies throughout 2009 to determine the
appropriate level of valuation allowance.
In 1998, Nextel Peru entered into a
10-year tax
stability agreement with the Peruvian government that suspends
its net operating loss carryforwards from expiring until Nextel
Peru generates taxable income. Once Nextel Peru generates
taxable income, Nextel Peru has four years to utilize those tax
loss carryforwards and any taxable income in excess of the tax
loss carryforwards will be taxed at 30%. During 2005, 2006, 2007
and 2008, Nextel Peru generated taxable income and offset all of
its accumulated tax loss carryforwards against the taxable
income generated in those years. The 1998 tax stability
agreement effectively expired on January 1, 2008. As of
2007, net operating losses may be offset alternatively
(i) during the four consecutive years as of the year in
which the loss was incurred, or (ii) without limitations,
provided that only 50% of the taxable income is offset per year.
In December 2008, Nextel Peru entered into a new and similar tax
stability agreement with the Peruvian government under which
Nextel Peru has been granted stability of the income tax regime
in effect as of that date, including the new regime for loss
carryforwards, expiring on September 20, 2027.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. The earliest years that remain subject to examination by
jurisdiction are: Chile 1993; U.S. 1995;
Mexico 2001; Argentina 2002; Peru and
Brazil 2004. We regularly assess the potential
outcome of current and future examinations in each of the taxing
jurisdictions when determining the adequacy of the provision for
income taxes.
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, on
January 1, 2007. As a result of the implementation of
FIN 48, we accounted for our change in reserve for
uncertain
F-35
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Income
Taxes (Continued)
|
tax positions as a $5.2 million decrease to the beginning
balance of retained earnings on our consolidated balance sheet.
The following table shows a reconciliation of our total
FIN 48 unrecognized tax benefit as of December 31,
2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Unrecognized tax benefits at January 1
|
|
$
|
67,955
|
|
|
$
|
55,965
|
|
Additions for current year tax positions
|
|
|
27,436
|
|
|
|
14,408
|
|
Additions for prior year tax positions
|
|
|
555
|
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(490
|
)
|
|
|
(3,058
|
)
|
Settlements with taxing authorities
|
|
|
(124
|
)
|
|
|
(152
|
)
|
Foreign currency translation adjustment
|
|
|
(9,446
|
)
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at December 31
|
|
$
|
85,886
|
|
|
$
|
67,955
|
|
|
|
|
|
|
|
|
|
|
The unrecognized tax benefits as of January 1, 2008 and
December 31, 2008 included $49.2 million and
$63.2 million, respectively, of tax benefits that could
potentially reduce our future effective tax rate, if recognized.
It also includes $0.6 million of unrecognized tax benefits
related to
non-U.S. deductions
that lack sufficient supporting documentation, which are
reasonably possible will be recognized within the next twelve
months following December 31, 2008, as a result of the
expiring statute of limitations.
We record interest and penalties associated with uncertain tax
positions as a component of our income tax provision. During the
years ended December 31, 2008 and 2007, we recognized
approximately $1.6 million and $0.9 million,
respectively, of interest and penalties in our current income
tax provision and statement of financial position and a benefit
of $3.0 million of interest and penalties of the
unrecognized tax benefits for which the statute of limitations
expired in 2008. We had accrued approximately $2.0 million
and $3.8 million for the payment of interest and penalties
as of December 31, 2008 and 2007, respectively. We classify
our uncertain tax positions as non-current income tax
liabilities.
In December 2004, the Mexican government enacted tax
legislation, effective January 1, 2005, which reduced the
corporate tax rate to 30% for 2005, 29% for 2006 and 28% for
2007 and subsequent years.
During 2004, Nextel Mexico amended its Mexican Federal income
tax returns in order to reverse a benefit previously claimed for
a disputed provision of the Federal income tax law covering
deductions and gains from the sale of property. We filed the
amended returns in order to avoid potential penalties and we
also filed administrative petitions seeking clarification of our
right to the tax benefits claimed on the original income tax
returns. The tax authorities constructively denied our
administrative petitions in January 2005 and in May 2005 we
filed an annulment suit challenging the constructive denial.
Resolution of the annulment suit is pending. Based on an opinion
by our independent legal counsel in Mexico, we believe it is
probable that we will recover this amount. Our consolidated
balance sheets as of December 31, 2008 and 2007 include
$12.8 million and $16.0 million, respectively, in
income taxes receivable, which are included as components of
other non-current assets. The $3.2 million decrease from
December 31, 2007 to December 31, 2008 was due to the
change in the exchange rate between the Mexican peso and the
U.S. dollar. The income tax benefit for this item was
related to our income tax provision for the years ended
December 31, 2005, 2004 and 2003.
On October 1, 2007, the Mexican government enacted
amendments to the Mexican tax law that became effective
January 1, 2008. The amendments established a new minimum
corporate tax, eliminated the previous minimum asset tax and
established a new withholding tax system on cash deposits in
bank accounts. The new minimum corporate tax is a supplemental
tax that superseded the previous asset tax and applies when and
to the extent the tax computed under the new minimum corporate
tax exceeds the amounts that would be payable under the existing
Mexican income tax. The new minimum corporate tax is computed on
a cash basis rather than on an accrual basis, and is calculated
based on gross revenues, with no deductions allowed for cost of
goods sold, non-taxable salaries and wages, interest expense,
depreciation, amortization, foreign currency transaction gains
and losses or existing net income tax operating losses from
prior years. For purposes of the minimum corporate tax, Nextel
Mexico will generally deduct the value of depreciable assets and
inventory as an expense when these assets are
F-36
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Income
Taxes (Continued)
|
acquired. This tax will be phased in at a rate of 16.5% for
2008, 17% for 2009 and a final tax rate of 17.5% for 2010 and
thereafter. Certain tax credits may be available to reduce the
amount of new minimum corporate tax that is payable.
We believe that the new minimum corporate tax is an income tax
to which SFAS No. 109, Accounting for Income
Taxes, is applicable. The effect of the new minimum
corporate tax on our existing deferred tax assets and
liabilities must be reflected in that period as an increase or
decrease to our deferred income tax provision. After evaluating
the impact that the new minimum corporate tax had on Nextel
Mexico, no adjustment to our deferred income tax provision was
necessary. We also do not believe we will incur any material
minimum corporate tax liability in the future.
Income (loss) from continuing operations before income taxes
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
U.S.
|
|
$
|
(174,400
|
)
|
|
$
|
(116,765
|
)
|
|
$
|
(109,622
|
)
|
Non-U.S.
|
|
|
698,760
|
|
|
|
665,210
|
|
|
|
523,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
524,360
|
|
|
$
|
548,445
|
|
|
$
|
413,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
Employee
Stock and Benefit Plans
|
As of December 31, 2008, we had the following share-based
compensation plans:
Under our Revised Third Amended Joint Plan of Reorganization, on
November 12, 2002, we adopted the 2002 Management Incentive
Plan for the benefit of our employees and directors. Although
there are 27,958 stock options outstanding under the 2002
Management Incentive Plan as of December 31, 2008, no
additional awards will be granted under the Plan. We adopted the
2004 Incentive Compensation Plan in April 2004. The 2004
Incentive Compensation Plan provides us the opportunity to
compensate selected employees with stock options, stock
appreciation rights (SARs), stock awards, performance share
awards, incentive awards
and/or stock
units. Through December 31, 2008, we have not granted any
SARs, performance share awards, incentive awards or stock units.
The 2004 Incentive Compensation Plan provides equity and
equity-related incentives to directors, officers or key
employees of and consultants to our company up to a maximum of
39,600,000 shares of common stock, subject to adjustments.
A stock option entitles the optionee to purchase shares of
common stock from us at the specified exercise price. A SAR
entitles the holder to receive the excess of the fair market
value of each share of common stock encompassed by such SARs
over the initial value of such share as determined on the date
of grant. Stock awards consist of awards of common stock,
subject to certain restrictions specified in the 2004 Incentive
Compensation Plan. An award of performance shares entitles the
participant to receive cash, shares of common stock, stock units
or a combination thereof if certain requirements are satisfied.
An incentive award is a cash-denominated award that entitles the
participant to receive a payment in cash or common stock, stock
units, or a combination thereof. Stock units are awards stated
with reference to a specified number of shares of common stock
that entitle the holder to receive a payment for each stock unit
equal to the fair market value of a share of common stock on the
date of payment. All grants or awards made under the 2004
Incentive Compensation Plan are governed by written agreements
between us and the participants and have a maximum contractual
term of ten years. We issue new shares when both stock options
and stock awards are exercised.
Historically, our Board of Directors has granted stock options
and other equity awards to employees on an annual basis near the
end of April. On April 23, 2008, our Board of Directors
granted 3.6 million stock options to certain of our
employees and directors in connection with this annual stock
option grant. Stock options are also granted to certain new
employees on the later of their date of hire or the date that
the grant is approved. In addition, our chief executive officer
may grant, under authority delegated to him by the Compensation
Committee of our Board of Directors, a limited number of stock
options (not to exceed 10,000 shares in any single grant
and 100,000 shares in the aggregate) to employees who are
not executive officers.
We adopted SFAS 123R effective January 1, 2006. We
used the modified prospective transition method to adopt
SFAS 123R and therefore did not restate our prior periods
results. Under this transition method, share-based payment
expense for the years ended December 31, 2008, 2007 and
2006 includes compensation expense for all share-based payment
awards granted prior to, but not fully vested as of,
January 1, 2006 based on the grant date fair
F-37
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Employee
Stock and Benefit Plans (Continued)
|
value estimated in accordance with the original provisions of
SFAS 123. Share-based payment expense for all share-based
payment awards granted after January 1, 2006 is based on
the grant date fair value estimated in accordance with the
provisions of SFAS 123R. We recognize these compensation
costs net of a forfeiture rate for only those shares expected to
vest on a straight-line basis over the requisite service period
of the award. Our stock options generally vest twenty-five
percent per year over a four-year period, and our restricted
shares generally vest in full on the third
and/or
fourth anniversaries of the grant. We used actual forfeitures to
calculate our compensation expense for the years ended
December 31, 2008, 2007 and 2006.
For the years ended December 31, 2008, 2007 and 2006, we
recognized $64.7 million, $55.2 million and
$34.0 million, respectively, in share-based payment expense
related to stock options. For the years ended December 31,
2008, 2007 and 2006, we recognized $6.6 million,
$11.8 million and $11.9 million, respectively, in
share-based payment expense related to restricted stock. We
include substantially all share-based payment expense, including
restricted stock expense, as a component of selling, general and
administrative expenses. In addition, prior to the adoption of
SFAS 123R, we presented the tax benefit of stock option
exercises as operating cash flows. Upon the adoption of
SFAS 123R, we classify tax benefits resulting from tax
deductions in excess of the compensation cost recognized for
share-based awards as financing cash flows. Because we do not
view share-based compensation as an important element of
operational performance, we recognize share-based payment
expense primarily at the corporate level and exclude it when
evaluating the business performance of our segments. As of
December 31, 2008, there was approximately
$130.8 million in unrecognized compensation cost related to
non-vested employee stock option awards. We expect this cost to
be recognized over a four-year period and for a weighted average
period of 1.8 years.
Stock
Option Awards
The following table summarizes stock option activity under all
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Number of
|
|
Exercise Price
|
|
|
Options
|
|
per Option
|
|
Outstanding, January 1, 2006
|
|
|
11,270,219
|
|
|
|
22.70
|
|
Granted
|
|
|
3,313,900
|
|
|
|
59.89
|
|
Exercised
|
|
|
(2,802,067
|
)
|
|
|
19.77
|
|
Forfeited
|
|
|
(675,152
|
)
|
|
|
33.37
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2006
|
|
|
11,106,900
|
|
|
|
33.96
|
|
Granted
|
|
|
3,574,600
|
|
|
|
78.00
|
|
Exercised
|
|
|
(3,390,812
|
)
|
|
|
26.81
|
|
Forfeited
|
|
|
(682,175
|
)
|
|
|
45.44
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2007
|
|
|
10,608,513
|
|
|
|
50.34
|
|
Granted
|
|
|
4,000,340
|
|
|
|
42.05
|
|
Exercised
|
|
|
(1,426,720
|
)
|
|
|
23.14
|
|
Forfeited
|
|
|
(1,117,476
|
)
|
|
|
56.51
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2008
|
|
|
12,064,657
|
|
|
|
49.75
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2006
|
|
|
837,775
|
|
|
|
20.39
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2007
|
|
|
1,027,438
|
|
|
|
37.45
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2008
|
|
|
3,458,316
|
|
|
|
45.98
|
|
|
|
|
|
|
|
|
|
|
F-38
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Employee
Stock and Benefit Plans (Continued)
|
Following is a summary of the status of employee stock options
outstanding and exercisable as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
Average
|
|
Average
|
|
|
Aggregate
|
|
Exercise Price or
|
|
|
|
|
Remaining
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
|
Remaining
|
|
Exercise
|
|
|
Intrinsic
|
|
Range
|
|
|
Shares
|
|
Life
|
|
Price
|
|
|
Value
|
|
|
Shares
|
|
Life
|
|
Price
|
|
|
Value
|
|
|
|
$0.41 0.42
|
|
|
|
27,958
|
|
|
|
3.87 years
|
|
|
$
|
0.42
|
|
|
$
|
496,629
|
|
|
|
27,958
|
|
|
|
3.87 years
|
|
|
$
|
0.42
|
|
|
$
|
496,629
|
|
$
|
17.67 23.76
|
|
|
|
739,581
|
|
|
|
5.59 years
|
|
|
|
19.04
|
|
|
|
3,400
|
|
|
|
697,481
|
|
|
|
5.33 years
|
|
|
|
19.00
|
|
|
|
3,400
|
|
$
|
25.12 37.31
|
|
|
|
2,319,622
|
|
|
|
6.36 years
|
|
|
|
26.45
|
|
|
|
|
|
|
|
975,997
|
|
|
|
6.32 years
|
|
|
|
26.41
|
|
|
|
|
|
$
|
40.62 58.17
|
|
|
|
3,754,890
|
|
|
|
9.28 years
|
|
|
|
41.22
|
|
|
|
|
|
|
|
23,600
|
|
|
|
7.56 years
|
|
|
|
51.62
|
|
|
|
|
|
$
|
58.68 87.33
|
|
|
|
5,222,606
|
|
|
|
7.88 years
|
|
|
|
70.85
|
|
|
|
|
|
|
|
1,733,280
|
|
|
|
7.70 years
|
|
|
|
68.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,064,657
|
|
|
|
7.87 years
|
|
|
|
|
|
|
$
|
500,029
|
|
|
|
3,458,316
|
|
|
|
6.80 years
|
|
|
|
|
|
|
$
|
500,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic values in the table above represent the
total pre-tax intrinsic value (the difference between our
closing stock price on the last trading day of the year ended
December 31, 2008 and the exercise price, multiplied by the
number of in-the-money options) that would have been received by
the option holders had all option holders exercised their
options on December 31, 2008. This amount changes based on
the fair market value of our common stock. Total intrinsic value
of options exercised for the years ended December 31, 2008,
2007 and 2006 was $35.7 million, $174.6 million and
$112.0 million, respectively. The total fair value of
options vested was $73.4 million, $42.4 million and
$22.5 million for the years ended December 31, 2008,
2007 and 2006, respectively. Generally, our stock options are
non-transferable, except by will or laws of descent or
distribution, and the actual value of the stock options that a
recipient may realize, if any, will depend on the excess of the
market price on the date of exercise over the exercise price.
The weighted average fair value of the stock option awards on
their grant dates using the Black-Scholes-Merton option-pricing
model was $18.78 for each option granted for the year ended
December 31, 2008, $29.43 for each option granted for the
year ended December 31, 2007 and $22.28 for each option
granted for the year ended December 31, 2006 based on the
following assumptions:
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
Risk free interest rate
|
|
1.52% - 3.56%
|
|
3.84% - 5.04%
|
|
4.73% - 5.10%
|
Expected stock price volatility
|
|
47.4% - 51.5%
|
|
36.9% - 38.5%
|
|
31.0% - 38.5%
|
Expected term in years
|
|
4.52 - 4.60
|
|
4.52 - 4.75
|
|
4.00 - 4.75
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
The expected term of stock option awards granted represents the
period that we expect our stock option awards will be
outstanding and was determined based on (1) historical data
on employee exercise and post-vesting employment termination
behavior, (2) the contractual terms of the stock option
awards, (3) vesting schedules and (4) expectations of
future employee behavior. The risk-free interest rate for
periods consistent with the contractual life of the stock option
award is based on the yield curve of U.S. Treasury strip
securities in effect at the time of the grant. Expected
volatility for options granted after April 1, 2006 takes
into consideration historical volatility and the implied
volatility from traded options on our stock.
The Black-Scholes-Merton option-pricing model was developed for
use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition,
option-pricing models such as the Black-Scholes-Merton model
require the input of highly subjective assumptions, including
the expected stock price volatility. We hired an independent
consulting firm with expertise in this area to review our
assumptions, methodology and calculations. The assumptions
listed above represent our best estimates, but these estimates
involve inherent uncertainties and the application of management
judgment. Consequently, there is a risk that our estimates of
the fair values of our stock option awards on the grant dates
may bear little resemblance to the actual values realized upon
the exercise, expiration, early termination or forfeiture of
those stock option awards in the future. Certain stock option
awards may expire worthless or otherwise result in zero
intrinsic value as compared to the fair values originally
estimated on the grant date and reported in our financial
statements. Alternatively, value may be realized from the stock
option awards that is significantly in excess of the fair values
originally estimated on the grant date and reported in our
financial statements. Additionally, application of alternative
assumptions could
F-39
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Employee
Stock and Benefit Plans (Continued)
|
produce significantly different estimates of the fair value of
stock option awards and consequently, the related amounts
recognized in the consolidated statements of operations.
Currently, there is no market-based mechanism or other practical
application to verify the reliability and accuracy of the
estimates from option-pricing valuation models, such as
Black-Scholes-Merton, nor is there a means to compare and adjust
the estimates to actual values. Although the fair value of stock
option awards is determined in accordance with SFAS 123R
and Staff Accounting Bulletin Topic 14, or SAB 107,
using the Black-Scholes-Merton option-pricing model, the fair
value may not be indicative of the fair value observed in a
willing buyer/willing seller market transaction. Because stock
options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, we
believe that the existing models do not necessarily provide a
reliable single measure of the fair value of the stock options.
Restricted
Stock Awards
Following is a summary of the status of our non-vested
restricted stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Average Grant
|
|
|
Number of
|
|
Date Fair Value
|
|
|
Shares
|
|
Per Share
|
|
Non-vested restricted stock awards as of January 1, 2006
|
|
|
864,000
|
|
|
$
|
19.13
|
|
Granted
|
|
|
632,000
|
|
|
|
52.77
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(73,000
|
)
|
|
|
40.59
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 31, 2006
|
|
|
1,423,000
|
|
|
|
32.97
|
|
Granted
|
|
|
30,000
|
|
|
|
74.02
|
|
Vested
|
|
|
(839,000
|
)
|
|
|
19.13
|
|
Forfeited
|
|
|
(36,000
|
)
|
|
|
60.77
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 31, 2007
|
|
|
578,000
|
|
|
|
61.36
|
|
Granted
|
|
|
110,000
|
|
|
|
44.17
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(109,000
|
)
|
|
|
60.38
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 31, 2008
|
|
|
579,000
|
|
|
|
56.29
|
|
|
|
|
|
|
|
|
|
|
If a participant terminates employment prior to the vesting
dates, the unvested shares will be forfeited and available for
reissuance under the terms of the 2004 Incentive Compensation
Plan. The fair value of our restricted stock awards is
determined based on the quoted price of our common stock at the
grant date. As of December 31, 2008, there was
approximately $9.2 million in unrecognized compensation
cost related to non-vested restricted stock awards. We expect
this cost to be recognized over a weighted average period of
1.4 years.
Nextel Mexico Pension Plan. We have a
pension plan which is administered in accordance with local laws
and income tax regulations. As of December 31, 2008 and
2007, we had accrued pension costs of $8.0 million and
$7.9 million, respectively. We do not expect contributions
to this plan to be material in 2009 or thereafter.
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
F-40
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Segment
Information (Continued)
|
of operational performance, we recognize share-based payment
expense at the corporate level and exclude it when evaluating
the business performance of our segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
2,047,113
|
|
|
$
|
1,262,838
|
|
|
$
|
508,227
|
|
|
$
|
222,819
|
|
|
$
|
8,704
|
|
|
$
|
(1,235
|
)
|
|
$
|
4,048,466
|
|
Digital handset and accessory revenues
|
|
|
86,128
|
|
|
|
68,081
|
|
|
|
46,097
|
|
|
|
20,571
|
|
|
|
37
|
|
|
|
|
|
|
|
220,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
2,133,241
|
|
|
$
|
1,330,919
|
|
|
$
|
554,324
|
|
|
$
|
243,390
|
|
|
$
|
8,741
|
|
|
$
|
(1,235
|
)
|
|
$
|
4,269,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
764,344
|
|
|
$
|
369,969
|
|
|
$
|
170,855
|
|
|
$
|
42,557
|
|
|
$
|
(175,305
|
)
|
|
$
|
|
|
|
$
|
1,172,420
|
|
Management fee
|
|
|
(32,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,836
|
|
|
|
351
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(191,372
|
)
|
|
|
(140,897
|
)
|
|
|
(38,457
|
)
|
|
|
(21,572
|
)
|
|
|
(12,061
|
)
|
|
|
(120
|
)
|
|
|
(404,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
540,785
|
|
|
|
229,072
|
|
|
|
132,398
|
|
|
|
20,985
|
|
|
|
(155,530
|
)
|
|
|
231
|
|
|
|
767,941
|
|
Interest expense, net
|
|
|
(60,086
|
)
|
|
|
(53,146
|
)
|
|
|
(3,223
|
)
|
|
|
(292
|
)
|
|
|
(53,169
|
)
|
|
|
7,302
|
|
|
|
(162,614
|
)
|
Interest income
|
|
|
46,221
|
|
|
|
6,141
|
|
|
|
2,425
|
|
|
|
875
|
|
|
|
20,051
|
|
|
|
(7,302
|
)
|
|
|
68,411
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(44,811
|
)
|
|
|
(80,211
|
)
|
|
|
6,558
|
|
|
|
(67
|
)
|
|
|
(1,690
|
)
|
|
|
(351
|
)
|
|
|
(120,572
|
)
|
Other (expense) income, net
|
|
|
(311
|
)
|
|
|
(12,633
|
)
|
|
|
45
|
|
|
|
|
|
|
|
(15,907
|
)
|
|
|
|
|
|
|
(28,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
481,798
|
|
|
$
|
89,223
|
|
|
$
|
138,203
|
|
|
$
|
21,501
|
|
|
$
|
(206,245
|
)
|
|
$
|
(120
|
)
|
|
$
|
524,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
218,623
|
|
|
$
|
414,466
|
|
|
$
|
83,491
|
|
|
$
|
63,418
|
|
|
$
|
50,847
|
|
|
$
|
|
|
|
$
|
830,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,762,596
|
|
|
$
|
833,241
|
|
|
$
|
408,142
|
|
|
$
|
178,058
|
|
|
$
|
3,828
|
|
|
$
|
(1,169
|
)
|
|
$
|
3,184,696
|
|
Digital handset and accessory revenues
|
|
|
30,103
|
|
|
|
34,723
|
|
|
|
33,951
|
|
|
|
12,800
|
|
|
|
22
|
|
|
|
|
|
|
|
111,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,792,699
|
|
|
$
|
867,964
|
|
|
$
|
442,093
|
|
|
$
|
190,858
|
|
|
$
|
3,850
|
|
|
$
|
(1,169
|
)
|
|
$
|
3,296,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
675,845
|
|
|
$
|
217,785
|
|
|
$
|
138,354
|
|
|
$
|
35,769
|
|
|
$
|
(144,045
|
)
|
|
$
|
|
|
|
$
|
923,708
|
|
Management fee
|
|
|
(34,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,376
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(151,573
|
)
|
|
|
(96,342
|
)
|
|
|
(30,227
|
)
|
|
|
(19,867
|
)
|
|
|
(7,008
|
)
|
|
|
393
|
|
|
|
(304,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
489,896
|
|
|
|
121,443
|
|
|
|
108,127
|
|
|
|
15,902
|
|
|
|
(116,677
|
)
|
|
|
393
|
|
|
|
619,084
|
|
Interest expense, net
|
|
|
(60,527
|
)
|
|
|
(33,943
|
)
|
|
|
(2,466
|
)
|
|
|
(120
|
)
|
|
|
(41,873
|
)
|
|
|
10,196
|
|
|
|
(128,733
|
)
|
Interest income
|
|
|
29,605
|
|
|
|
744
|
|
|
|
5,370
|
|
|
|
750
|
|
|
|
41,156
|
|
|
|
(10,196
|
)
|
|
|
67,429
|
|
Foreign currency transaction gains, net
|
|
|
2,559
|
|
|
|
14,595
|
|
|
|
1,244
|
|
|
|
507
|
|
|
|
103
|
|
|
|
|
|
|
|
19,008
|
|
Debt conversion expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,429
|
)
|
|
|
|
|
|
|
(26,429
|
)
|
Other income (expense), net
|
|
|
2,103
|
|
|
|
(127
|
)
|
|
|
1,594
|
|
|
|
2
|
|
|
|
(5,486
|
)
|
|
|
|
|
|
|
(1,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
463,636
|
|
|
$
|
102,712
|
|
|
$
|
113,869
|
|
|
$
|
17,041
|
|
|
$
|
(149,206
|
)
|
|
$
|
393
|
|
|
$
|
548,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
255,245
|
|
|
$
|
256,410
|
|
|
$
|
66,974
|
|
|
$
|
43,707
|
|
|
$
|
44,422
|
|
|
$
|
|
|
|
$
|
666,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,319,371
|
|
|
$
|
500,315
|
|
|
$
|
320,664
|
|
|
$
|
137,924
|
|
|
$
|
2,425
|
|
|
$
|
(777
|
)
|
|
$
|
2,279,922
|
|
Digital handset and accessory revenues
|
|
|
21,926
|
|
|
|
36,673
|
|
|
|
24,370
|
|
|
|
8,449
|
|
|
|
|
|
|
|
|
|
|
|
91,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,341,297
|
|
|
$
|
536,988
|
|
|
$
|
345,034
|
|
|
$
|
146,373
|
|
|
$
|
2,425
|
|
|
$
|
(777
|
)
|
|
$
|
2,371,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
530,684
|
|
|
$
|
115,144
|
|
|
$
|
98,996
|
|
|
$
|
26,078
|
|
|
$
|
(108,911
|
)
|
|
$
|
|
|
|
$
|
661,991
|
|
Depreciation and amortization
|
|
|
(105,867
|
)
|
|
|
(59,199
|
)
|
|
|
(20,141
|
)
|
|
|
(12,927
|
)
|
|
|
(4,481
|
)
|
|
|
393
|
|
|
|
(202,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
424,817
|
|
|
|
55,945
|
|
|
|
78,855
|
|
|
|
13,151
|
|
|
|
(113,392
|
)
|
|
|
393
|
|
|
|
459,769
|
|
Interest expense, net
|
|
|
(38,424
|
)
|
|
|
(23,961
|
)
|
|
|
(2,330
|
)
|
|
|
(145
|
)
|
|
|
(24,613
|
)
|
|
|
94
|
|
|
|
(89,379
|
)
|
Interest income
|
|
|
32,377
|
|
|
|
3,490
|
|
|
|
2,509
|
|
|
|
1,070
|
|
|
|
11,705
|
|
|
|
(94
|
)
|
|
|
51,057
|
|
Foreign currency transaction gains (losses), net
|
|
|
3,957
|
|
|
|
(387
|
)
|
|
|
(18
|
)
|
|
|
106
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
3,557
|
|
Debt conversion expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,070
|
)
|
|
|
|
|
|
|
(5,070
|
)
|
Other (expense) income, net
|
|
|
(3,173
|
)
|
|
|
(1,876
|
)
|
|
|
329
|
|
|
|
2
|
|
|
|
(1,282
|
)
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
419,554
|
|
|
$
|
33,211
|
|
|
$
|
79,345
|
|
|
$
|
14,184
|
|
|
$
|
(132,753
|
)
|
|
$
|
393
|
|
|
$
|
413,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
308,254
|
|
|
$
|
201,828
|
|
|
$
|
61,718
|
|
|
$
|
37,575
|
|
|
$
|
18,050
|
|
|
$
|
|
|
|
$
|
627,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Segment
Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
687,740
|
|
|
$
|
725,232
|
|
|
$
|
210,297
|
|
|
$
|
149,606
|
|
|
$
|
114,727
|
|
|
$
|
(287
|
)
|
|
$
|
1,887,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,122,062
|
|
|
$
|
1,491,827
|
|
|
$
|
449,084
|
|
|
$
|
290,397
|
|
|
$
|
735,037
|
|
|
$
|
(287
|
)
|
|
$
|
5,088,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
803,393
|
|
|
$
|
673,462
|
|
|
$
|
183,889
|
|
|
$
|
107,532
|
|
|
$
|
84,972
|
|
|
$
|
(166
|
)
|
|
$
|
1,853,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,297,580
|
|
|
$
|
1,540,227
|
|
|
$
|
444,125
|
|
|
$
|
231,018
|
|
|
$
|
923,952
|
|
|
$
|
(166
|
)
|
|
$
|
5,436,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
690,573
|
|
|
$
|
415,577
|
|
|
$
|
152,818
|
|
|
$
|
83,920
|
|
|
$
|
46,822
|
|
|
$
|
(560
|
)
|
|
$
|
1,389,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
1,978,469
|
|
|
$
|
637,230
|
|
|
$
|
322,813
|
|
|
$
|
171,871
|
|
|
$
|
187,855
|
|
|
$
|
(560
|
)
|
|
$
|
3,297,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(in thousands, except per share amounts)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
993,217
|
|
|
$
|
1,103,954
|
|
|
$
|
1,182,725
|
|
|
$
|
989,484
|
|
Operating income
|
|
|
191,798
|
|
|
|
199,721
|
|
|
|
219,007
|
|
|
|
157,415
|
|
Net income
|
|
|
113,569
|
|
|
|
155,274
|
|
|
|
91,786
|
|
|
|
8,476
|
|
Net income, per common share, basic
|
|
$
|
0.67
|
|
|
$
|
0.93
|
|
|
$
|
0.55
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
0.65
|
|
|
$
|
0.88
|
|
|
$
|
0.54
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(in thousands, except per share amounts)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
714,765
|
|
|
$
|
786,984
|
|
|
$
|
854,403
|
|
|
$
|
940,143
|
|
Operating income
|
|
|
142,637
|
|
|
|
135,216
|
|
|
|
159,439
|
|
|
|
181,792
|
|
Net income
|
|
|
84,164
|
|
|
|
84,080
|
|
|
|
81,666
|
|
|
|
128,508
|
|
Net income, per common share, basic
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
$
|
0.48
|
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
0.47
|
|
|
$
|
0.47
|
|
|
$
|
0.46
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2007 quarterly amounts presented above include a
$4.0 million reclassification from interest income to
operating revenues related to amounts received from Nextel
Brazils customers in connection with late payments.
The sum of the per share amounts do not equal the annual amounts
due to changes in the number of weighted average number of
common shares outstanding during the year.
F-42
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Deductions
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
and Other
|
|
|
End of
|
|
|
|
Period
|
|
|
Expenses
|
|
|
Adjustments(1)
|
|
|
Period
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
20,204
|
|
|
$
|
80,628
|
|
|
$
|
(72,957
|
)
|
|
$
|
27,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
58,651
|
|
|
$
|
24,400
|
|
|
$
|
(9,089
|
)
|
|
$
|
73,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
15,928
|
|
|
$
|
46,360
|
|
|
$
|
(42,084
|
)
|
|
$
|
20,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
444,393
|
|
|
$
|
6,098
|
|
|
$
|
(391,840
|
)
|
|
$
|
58,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
11,677
|
|
|
$
|
30,327
|
|
|
$
|
(26,076
|
)
|
|
$
|
15,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
417,341
|
|
|
$
|
5,258
|
|
|
$
|
21,794
|
|
|
$
|
444,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the impact of foreign currency translation adjustments. |
F-43
EXHIBIT INDEX
For periods before December 21, 2001, references to NII
Holdings, Inc. refer to Nextel International, Inc. the former
name of NII Holdings. All documents referenced below were filed
pursuant to the Securities Exchange Act of 1934 by NII Holdings,
file number 0-32421, unless otherwise indicated.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
2
|
.1
|
|
Revised Third Amended Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code for NII Holdings and NII
Holdings (Delaware), Inc. (incorporated by reference to
Exhibit 2.1 to NII Holdings
Form 8-K,
filed on November 12, 2002).
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of NII Holdings, Inc., as
amended (incorporated by reference to Exhibit 3.1 to NII
Holdings
Form 10-K,
filed on February 27, 2007).
|
|
3
|
.2
|
|
Second Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit 3.1 to NII Holdings
Form 8-K,
filed on October 29, 2007).
|
|
4
|
.1
|
|
Indenture governing our 2.75% convertible notes due 2025, dated
as of August 15, 2005, by and between NII Holdings and
Wilmington Trust Company, as Indenture Trustee
(incorporated by reference to Exhibit 4.1 to NII
Holdings
Form 10-Q,
filed on November 9, 2005).
|
|
4
|
.2
|
|
Indenture governing our 3.125% convertible notes due 2012, dated
June 5, 2007, by and between NII Holdings, Inc. and
Wilmington Trust Company, as Indenture Trustee
(incorporated by reference to Exhibit 4.1 to NII
Holdings
Form 10-Q,
filed August 6, 2007).
|
|
10
|
.1
|
|
Subscriber Unit Purchase Agreement, dated as of January 1,
2005, by and between NII Holdings and Motorola, Inc.
(incorporated by reference to Exhibit 10.1 to NII
Holdings
Form 10-K,
filed on March 22, 2006) (portions of this exhibit have
been omitted pursuant to a request for confidential treatment).
|
|
10
|
.2
|
|
Amendment Number One to the Subscriber Unit Purchase Agreement
for NII Holdings, Inc., dated as of December 12, 2005,
between NII Holdings and Motorola, Inc. (incorporated by
reference to Exhibit 10.20 to NII Holdings
Form 10-K,
filed on March 22, 2006) (portions of this exhibit have
been omitted pursuant to a request for confidential treatment).
|
|
10
|
.3
|
|
Amendment Number Three to the Subscriber Unit Purchase
Agreement, dated September 28, 2006, by and between NII
Holdings and Motorola, Inc. (incorporated by reference to
Exhibit 10.1 to NII Holdings
Form 10-Q,
filed on November 6, 2006) (portions of this exhibit have
been omitted pursuant to a request for confidential treatment).
|
|
10
|
.4
|
|
Amendment 003 to iDEN Subscriber Supply Agreement, dated
December 10, 2001, between NII Holdings and Motorola, Inc.
(incorporated by reference to Exhibit 10.51 to NII
Holdings
Form 10-K,
filed on March 29, 2002).
|
|
10
|
.5
|
|
Form of iDEN Installation Services Agreement, dated
August 14, 2000 by and between NII Holdings, Motorola, Inc.
and each of Nextel, Telecomunicações Ltda., Nextel
Argentina S.R.L., Nextel de Mexico, S.A. de C.V., Nextel del
Peru, S.A. and Nextel Communications Philippines, Inc.
(incorporated by reference to Exhibit 10.1 to NII
Holdings
Form 8-K,
filed on December 22, 2000).
|
|
10
|
.6
|
|
Form of Amendment 001 to iDEN Infrastructure Installation
Services Agreement, dated as of January 1, 2005, by and
between NII Holdings, Motorola, Inc. and each of Nextel
Argentina, S.A., Nextel Telecomunicacoes, Ltda., Communicaciones
Nextel de Mexico, S.A. de C.V. and Nextel del Peru, S.A.
(incorporated by reference to Exhibit 10.4 to NII
Holdings
Form 10-K,
filed on March 22, 2006).
|
|
10
|
.7
|
|
Form of iDEN Infrastructure Equipment Supply Agreement dated
August 14, 2000 by and between NII Holdings, Motorola, Inc.
and each of Nextel Telecommunicacoes Ltda., Nextel Argentina
S.R.L., Nextel de Mexico, S.A. de C.V., Nextel del Peru, S.A.
and Nextel Communications Philippines, Inc. (incorporated by
reference to Exhibit 10.2 to NII Holdings
Form 8-K,
filed on December 22, 2000).
|
|
10
|
.8
|
|
Amendment 003 to iDEN Infrastructure Equipment Supply Agreement,
dated December 7, 2001, between NII Holdings, Motorola,
Inc., Nextel Argentina, S.A., Nextel Telecomunicações
Ltda., Comunicaciones Nextel de México, S.A. de C.V.,
Nextel del Peru S.A. and Nextel Communications Philippines, Inc.
(incorporated by reference to Exhibit 10.48 to NII
Holdings
Form 10-K,
filed on March 29, 2002).
|
|
10
|
.9
|
|
Form of Amendment 005 to iDEN Infrastructure Supply Agreement,
dated as of December 15, 2004, between NII Holdings,
Motorola, Inc. and each of Nextel Telecommunicacoes Ltda.,
Nextel Argentina S.R.L., Comunicaciones Nextel de Mexico, S.A.
de C.V. and Nextel del Peru, S.A. (incorporated by reference to
Exhibit 10.11 to NII Holdings
Form 10-K,
filed on March 31, 2005).
|
|
10
|
.10
|
|
Form of Amendment 006 to the iDEN Infrastructure Equipment
Supply Agreement, dated as of January 1, 2005, between NII
Holdings, Motorola, Inc. and each of Nextel Communications
Argentina, S.A., Nextel Telecomunicacoes Ltda., Communicaciones
Nextel de Mexico, S.A. de C.V. and Nextel del Peru, S.A.
(incorporated by reference to Exhibit 10.9 to NII
Holdings
Form 10-K,
filed on March 22, 2006) (portions of this exhibit have
been omitted pursuant to a request for confidential treatment).
|
94
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.11
|
|
Form of Amendment 007A to the iDEN Infrastructure Equipment
Supply Agreement, dated September 28, 2006, between NII
Holdings, Motorola, Inc. and each of Nextel Communications
Argentina, S.A., Nextel Telecomunicacoes, Ltda., Centennial
Cayman Corp. Chile, S.A., Comunicaciones Nextel de Mexico, S.A.
de C.V. and Nextel del Peru, S.A. (incorporated by reference to
Exhibit 10.2 to NII Holdings
Form 10-Q,
filed on November 6, 2006) (portions of this exhibit have
been omitted pursuant to a request for confidential treatment).
|
|
10
|
.12
|
|
Amended and Restated Credit Agreement, dated as of June 27,
2006, by and among Communicaciones Nextel de Mexico, S.A. de
C.V., the financial institutions thereto, as lenders, Citibank,
N.A., Citigroup Global Markets, Inc. and Scotiabank Inverlat,
S.A. (incorporated by reference to Exhibit 10.1 to NII
Holdings
Form 10-Q,
filed on August 7, 2006).
|
|
10
|
.13
|
|
Term Facility Agreement A/B, dated as of September 14,
2007, by and among Nextel Telecomunicacoes Ltda., Nederlandse
Financierings-Maatschappij Voor Ontwikkelingslanden N.V., as
lender, and Standard Bank Offshore Trust Company Jersey
Limited, as Security Agent (incorporated by reference to
Exhibit 10.1 to NII Holdings
Form 10-Q,
filed on November 6, 2007).
|
|
10
|
.14
|
|
Third Amended and Restated Trademark License Agreement, dated as
of November 12, 2002, between Nextel Communications, Inc.
and NII Holdings (incorporated by reference to
Exhibit 10.12 to NII Holdings
Form S-1,
File
No. 333-102077,
filed on December 20, 2002).
|
|
10
|
.15*
|
|
Management Incentive Plan, dated as of November 12, 2002
(incorporated by reference to Exhibit 99.1 to NII
Holdings Registration Statement on
Form S-8,
filed on November 12, 2002).
|
|
10
|
.16
|
|
Spectrum Use and Build Out Agreement, dated as of
November 12, 2002 (incorporated by reference to
Exhibit 10.22 to NII Holdings
Form 10-K,
filed on March 27, 2003).
|
|
10
|
.17
|
|
Registration Rights Agreement related to our 2.75% convertible
notes due 2025, dated as of August 15, 2005, by and between
NII Holdings, and Goldman, Sachs & Co. (incorporated
by reference to Exhibit 10.2 to NII Holdings
Form 10-Q,
filed on November 9, 2005).
|
|
10
|
.18
|
|
Purchase Agreement for the sale of our 3.125% convertible notes
due 2012, dated as of May 30, 2007, by and among NII
Holdings, Inc. and the initial purchasers (incorporated by
reference to Exhibit 10.1 to NII Holdings
Form 10-Q,
filed August 6, 2007).
|
|
10
|
.19
|
|
Registration Rights Agreement related to our 3.125% convertible
notes due 2012, dated as of June 5, 2007, by and among NII
Holdings, Inc. and the initial purchasers (incorporated by
reference to Exhibit 10.2 to NII Holdings
Form 10-Q,
filed August 6, 2007).
|
|
10
|
.20*
|
|
Form of NII Holdings Change of Control Severance Plan
(incorporated by reference to Exhibit 10.2 to NII
Holdings
Form 10-Q,
filed on August 6, 2008).
|
|
10
|
.21*
|
|
2004 Incentive Compensation Plan (incorporated by reference to
Exhibit 10.1 to NII Holdings
Form 10-Q,
filed on August 6, 2008).
|
|
10
|
.22*
|
|
Form of Executive Officer Restricted Stock Award Agreement
(incorporated by reference to Exhibit 10.1 to NII
Holdings
Form 8-K,
filed on May 2, 2006).
|
|
10
|
.23*
|
|
Form of Executive Officer Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 10.2 to NII
Holdings
Form 8-K,
filed on May 2, 2006).
|
|
10
|
.24*
|
|
Form of Non-employee Director Restricted Stock Award Agreement
(incorporated by reference to Exhibit 10.3 to NII
Holdings
Form 8-K,
filed on May 2, 2006).
|
|
10
|
.25*
|
|
Form of Non-employee Director Nonqualified Stock Option
Agreement (incorporated by reference to Exhibit 10.4 to NII
Holdings
Form 8-K,
filed on May 2, 2006).
|
|
10
|
.26*
|
|
Outside Directors Deferral Plan (incorporated by reference to
Exhibit 10.26 to NII Holdings
Form 10-K,
filed on February 27, 2008).
|
|
10
|
.29
|
|
Employment Letter Agreement dated February 21, 2007 between
NII Holdings, Inc. and Peter A. Foyo (incorporated by reference
to Exhibit 10.2 to NII Holdings
Form 10-Q,
filed on May 7, 2007).
|
|
10
|
.30*
|
|
Severance Plan (incorporated by reference to Exhibit 10.1
to NII Holdings
Form 10-Q,
filed on August 6, 2008).
|
|
10
|
.31*
|
|
Executive Voluntary Deferral Plan (incorporated by reference to
Exhibit 10.3 to NII Holdings
Form 8-K,
filed on December 16, 2008).
|
|
10
|
.32
|
|
Employment Letter Agreement dated January 5, 2008 between
NII Holdings, Inc. and Steven P. Dussek (incorporated by
reference to Exhibit 10.1 to NII Holdings
Form 8-K,
filed on January 9, 2008).
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges (filed herewith).
|
|
14
|
.1
|
|
Code of Business Conduct and Ethics (incorporated by reference
to Exhibit 14.1 to NII Holdings
Form 10-K,
filed on March 12, 2004).
|
95
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
21
|
.1
|
|
Subsidiaries of NII Holdings (filed herewith).
|
|
23
|
.1
|
|
Consent of PricewaterhouseCoopers LLP (filed herewith).
|
|
31
|
.1
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a)
(filed herewith).
|
|
31
|
.2
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a)
(filed herewith).
|
|
32
|
.1
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 (filed herewith).
|
|
32
|
.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 (filed herewith).
|
|
|
|
* |
|
Indicates Management Compensatory Plan. |
96