e10vq
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 0-32421
NII HOLDINGS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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91-1671412
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1875 Explorer Street, Suite 1000
Reston, Virginia
(Address of Principal
Executive Offices)
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20190
(Zip
Code)
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(703) 390-5100
(Registrants
Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Number of Shares Outstanding
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Title of Class
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on May 1, 2009
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Common Stock, $0.001 par value per share
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165,782,002
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NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX
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Page
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Financial Statements (Unaudited)
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Condensed Consolidated Balance Sheets As of
March 31, 2009 and December 31, 2008
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2
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Condensed Consolidated Statements of Operations and
Comprehensive Income For the Three Months Ended
March 31, 2009 and 2008
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3
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Condensed Consolidated Statement of Changes in
Stockholders Equity For the Three Months Ended
March 31, 2009
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4
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Condensed Consolidated Statements of Cash Flows For
the Three Months Ended March 31, 2009 and 2008
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5
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Notes to Condensed Consolidated Financial Statements
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6
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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19
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Quantitative and Qualitative Disclosures About Market Risk
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46
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Controls and Procedures
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47
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Part II. Other Information.
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Legal Proceedings
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48
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Risk Factors
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48
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Exhibits
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48
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1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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March 31,
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December 31,
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2009
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2008
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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1,156,451
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$
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1,243,251
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Short-term investments
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21,881
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82,002
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Accounts receivable, less allowance for doubtful accounts of
$34,255 and $27,875
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468,802
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454,769
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Handset and accessory inventory
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138,327
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139,285
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Deferred income taxes, net
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132,128
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138,610
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Prepaid expenses and other
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176,642
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130,705
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Total current assets
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2,094,231
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2,188,622
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Property, plant and equipment, net
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1,931,976
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1,892,113
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Intangible assets, net
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300,610
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317,878
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Deferred income taxes, net
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423,885
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429,363
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Other assets
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324,290
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265,440
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Total assets
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$
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5,074,992
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$
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5,093,416
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Accounts payable
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$
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147,850
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$
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136,442
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Accrued expenses and other
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399,490
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446,270
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Deferred revenues
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114,050
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116,267
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Accrued interest
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16,953
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13,166
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Current portion of long-term debt
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132,030
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99,054
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Total current liabilities
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810,373
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811,199
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Long-term debt
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2,018,312
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2,034,086
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Deferred revenues
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28,841
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29,616
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Deferred credits
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131,511
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147,743
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Other long-term liabilities
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165,061
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158,652
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Total liabilities
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3,154,098
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3,181,296
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Commitments and contingencies (Note 6)
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Stockholders equity
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Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2009 and 2008, no
shares issued or outstanding 2009 and 2008
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Common stock, par value $0.001, 600,000 shares
authorized 2009 and 2008, 165,782 shares issued
and outstanding 2009 and 2008
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166
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166
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Paid-in capital
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1,176,848
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1,158,922
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Retained earnings
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1,364,045
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1,293,407
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Accumulated other comprehensive loss
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(620,165
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)
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(540,375
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)
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Total stockholders equity
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1,920,894
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1,912,120
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Total liabilities and stockholders equity
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$
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5,074,992
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$
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5,093,416
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
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Three Months Ended
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March 31,
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2009
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2008
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Operating revenues
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Service and other revenues
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$
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910,307
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$
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947,750
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Digital handset and accessory revenues
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51,007
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45,467
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961,314
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993,217
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Operating expenses
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Cost of service (exclusive of depreciation and amortization
included below)
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255,899
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258,509
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Cost of digital handsets and accessories
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145,249
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134,689
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Selling, general and administrative
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315,026
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314,069
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Depreciation
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86,352
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86,347
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Amortization
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6,544
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7,938
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809,070
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801,552
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Operating income
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152,244
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191,665
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Other income (expense)
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Interest expense, net
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(44,596
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)
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(51,954
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)
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Interest income
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12,653
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18,940
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Foreign currency transaction (losses) gains, net
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(7,314
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)
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|
2,905
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Other expense, net
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(1,642
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)
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(4,529
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)
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(40,899
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)
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(34,638
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)
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Income before income tax provision
|
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111,345
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157,027
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Income tax provision
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(40,707
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)
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(50,192
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)
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|
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Net income
|
|
$
|
70,638
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|
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$
|
106,835
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Net income, per common share, basic
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$
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0.43
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$
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0.63
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Net income, per common share, diluted
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|
$
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0.43
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|
$
|
0.62
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|
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|
Weighted average number of common shares outstanding,
basic
|
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165,782
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169,351
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Weighted average number of common shares outstanding,
diluted
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166,043
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177,970
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Comprehensive (loss) income, net of income taxes
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|
|
|
|
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|
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Foreign currency translation adjustment
|
|
$
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(80,156
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)
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$
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36,599
|
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Reclassification for gains on derivatives included in other
expense, net
|
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(115
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)
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|
|
(6
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)
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Unrealized gains on derivatives, net
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|
481
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|
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|
97
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|
|
|
|
|
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Other comprehensive (loss) income
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(79,790
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)
|
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|
36,690
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|
Net income
|
|
|
70,638
|
|
|
|
106,835
|
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|
|
|
|
|
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Total comprehensive (loss) income
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|
$
|
(9,152
|
)
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|
$
|
143,525
|
|
|
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|
|
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|
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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Accumulated
|
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|
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|
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Other
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Total
|
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|
Common Stock
|
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Paid-in
|
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Retained
|
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Comprehensive
|
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|
Stockholders
|
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Shares
|
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Amount
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Capital
|
|
|
Earnings
|
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Loss
|
|
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Equity
|
|
|
Balance, January 1, 2009
|
|
|
165,782
|
|
|
$
|
166
|
|
|
$
|
1,158,922
|
|
|
$
|
1,293,407
|
|
|
$
|
(540,375
|
)
|
|
$
|
1,912,120
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
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70,638
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|
|
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70,638
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Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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(79,790
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)
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|
|
(79,790
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)
|
Share-based payment expense for equity-based awards
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|
|
|
|
|
|
|
|
|
|
17,926
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|
|
|
|
|
|
|
|
|
|
|
17,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Balance, March 31, 2009
|
|
|
165,782
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|
|
$
|
166
|
|
|
$
|
1,176,848
|
|
|
$
|
1,364,045
|
|
|
$
|
(620,165
|
)
|
|
$
|
1,920,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
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|
|
|
|
|
|
|
|
Net income
|
|
$
|
70,638
|
|
|
$
|
106,835
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Amortization of debt financing costs
|
|
|
1,837
|
|
|
|
1,965
|
|
Depreciation and amortization
|
|
|
92,896
|
|
|
|
94,285
|
|
Provision for losses on accounts receivable
|
|
|
25,922
|
|
|
|
18,368
|
|
Foreign currency transaction losses (gains), net
|
|
|
7,314
|
|
|
|
(2,905
|
)
|
Deferred income tax benefit
|
|
|
(5,640
|
)
|
|
|
(13,288
|
)
|
Share-based payment expense
|
|
|
17,601
|
|
|
|
18,772
|
|
Amortization of discount on convertible notes
|
|
|
12,015
|
|
|
|
11,230
|
|
Excess tax benefit from share-based payment
|
|
|
(296
|
)
|
|
|
(4,147
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)
|
Contingency reversal, net of charges
|
|
|
(1,326
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)
|
|
|
|
|
(Gain) loss on short-term investments
|
|
|
(22
|
)
|
|
|
2,987
|
|
Accretion of asset retirement obligations
|
|
|
1,955
|
|
|
|
1,762
|
|
Other, net
|
|
|
952
|
|
|
|
(781
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(54,628
|
)
|
|
|
(43,074
|
)
|
Handset and accessory inventory
|
|
|
(3,628
|
)
|
|
|
(24,323
|
)
|
Prepaid expenses and other
|
|
|
(49,586
|
)
|
|
|
(23,657
|
)
|
Other long-term assets
|
|
|
(21,223
|
)
|
|
|
(32,803
|
)
|
Accounts payable, accrued expenses and other
|
|
|
35,368
|
|
|
|
37,729
|
|
Current deferred revenue
|
|
|
1,756
|
|
|
|
5,847
|
|
Deferred revenue and other long-term liabilities
|
|
|
5,495
|
|
|
|
4,153
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
137,400
|
|
|
|
158,955
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(182,991
|
)
|
|
|
(206,169
|
)
|
Payments for purchases of licenses and other
|
|
|
(2,836
|
)
|
|
|
(1,926
|
)
|
Proceeds from sales of short-term investments
|
|
|
205,093
|
|
|
|
81,367
|
|
Purchase of short-term investments
|
|
|
(144,242
|
)
|
|
|
(78,193
|
)
|
Transfers to restricted cash
|
|
|
(40,689
|
)
|
|
|
(108
|
)
|
Other
|
|
|
74
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(165,591
|
)
|
|
|
(204,926
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments to purchase common stock
|
|
|
|
|
|
|
(102,608
|
)
|
Payments of short-term notes payable
|
|
|
(18,000
|
)
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
|
|
|
|
125,000
|
|
Proceeds from stock option exercises
|
|
|
|
|
|
|
192
|
|
Excess tax benefit from share-based payment
|
|
|
296
|
|
|
|
4,147
|
|
Proceeds from tower financing transactions
|
|
|
|
|
|
|
27,271
|
|
Repayments under capital leases, license financing, tower
financing and other transactions
|
|
|
(1,831
|
)
|
|
|
(1,826
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(19,535
|
)
|
|
|
52,176
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
(39,074
|
)
|
|
|
9,054
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(86,800
|
)
|
|
|
15,259
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,243,251
|
|
|
|
1,370,165
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,156,451
|
|
|
$
|
1,385,424
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
NII
HOLDINGS, INC. AND SUBSIDIARIES
Unaudited
|
|
Note 1.
|
Basis of
Presentation
|
General. Our unaudited condensed
consolidated financial statements have been prepared under the
rules and regulations of the Securities and Exchange Commission,
or the SEC. While they do not include all of the information and
footnotes required by accounting principles generally accepted
in the United States of America for complete financial
statements, they reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation of the results
for interim periods. In addition, the year-end condensed
consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by accounting principles generally accepted in the
United States of America.
You should read these condensed consolidated financial
statements in conjunction with the consolidated financial
statements and notes contained in our 2008 annual report on
Form 10-K.
You should not expect results of operations for interim periods
to be an indication of the results for a full year.
Accumulated Other Comprehensive
Loss. The components of our accumulated other
comprehensive income, net of taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
|
(in thousands)
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
(619,172
|
)
|
|
$
|
(539,016
|
)
|
Unrealized losses on derivatives
|
|
|
(993
|
)
|
|
|
(1,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(620,165
|
)
|
|
$
|
(540,375
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
182,991
|
|
|
$
|
206,169
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
(13,513
|
)
|
|
|
(14,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
169,478
|
|
|
$
|
191,928
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
44,596
|
|
|
$
|
51,954
|
|
Interest capitalized
|
|
|
2,260
|
|
|
|
2,128
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,856
|
|
|
$
|
54,082
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
|
$
|
21,331
|
|
|
$
|
20,323
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
62,327
|
|
|
$
|
42,612
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, we had
$20.4 million in non-cash financing activities related to
the short-term financing of imported handsets in Brazil, the
financing of a mobile switching office in Peru and co-location
capital lease obligations on our communication towers. For the
three months ended March 31, 2008, we had $2.2 million
in non-cash financing activities related to co-location capital
lease obligations on our communication towers.
6
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings, but not securities that are antidilutive, including
stock options with an exercise price greater than the average
market price of our common stock.
As presented for the three months ended March 31, 2009, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock. We did not include
the common shares resulting from the potential conversion of our
3.125% convertible notes or our 2.75% 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 three months ended
March 31, 2009, we did not include 11.9 million
antidilutive stock options nor did we include an immaterial
amount of antidilutive restricted stock in our calculation of
diluted net income per common share for that period.
As presented for the three months ended March 31, 2008, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.75%
convertible notes. We did not include the common shares
resulting from the potential conversion of our 3.125%
convertible notes in our calculation of diluted net income per
common share because their effect would have been antidilutive
to our net income per common share for that period. Further, for
the three months ended March 31, 2008, we did not include
6.2 million antidilutive stock options nor did we include
an immaterial amount of antidilutive restricted stock in our
calculation of diluted net income per common share because their
effect would have been antidilutive to our net income per common
share for that period.
The following tables provide a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our condensed consolidated
statements of operations for the three months ended
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
70,638
|
|
|
|
165,782
|
|
|
$
|
0.43
|
|
|
$
|
106,835
|
|
|
|
169,351
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
1,461
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,216
|
|
|
|
6,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
70,638
|
|
|
|
166,043
|
|
|
$
|
0.43
|
|
|
$
|
110,051
|
|
|
|
177,970
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of Common Stock. In January
2008, our Board of Directors authorized a program to purchase
shares of our common stock for cash. The Board approved the
purchase of shares having an aggregate market value of up to
$500.0 million, depending on market conditions and factors.
As of March 31, 2008, we had purchased a total of
2,727,541 shares of our common stock for
$102.6 million. During the remainder of 2008, we purchased
an additional 2,827,492 shares of our common stock for
$140.1 million. We did not purchase any shares of our
common stock under this program during the first quarter of
2009. We treated purchases under this program as
7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
effective retirements of the purchased shares and therefore
reduced our reported shares issued and outstanding by the number
of shares purchased. In addition, we recorded the excess of the
purchase price over the par value of the common stock as a
reduction to paid-in capital.
Reclassifications. We have reclassified
certain prior year amounts in our unaudited condensed
consolidated financial statements to conform to our current year
presentation. Specifically, for the three months ended
March 31, 2008, we corrected the classification of
$8.9 million from cost of service to cost of digital
handset and accessory sales related to costs incurred in
connection with replacement handsets sold to current customers.
This revision did not have a material impact on previously
reported balances.
Adoption of FSP APB
14-1. On
January 1, 2009, we adopted Financial Accounting Standards
Board, or FASB, 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) of those debt
instruments and recognize the accretion of the resulting
discount on the debt as interest expense. FSP APB
14-1 is
required to be applied retrospectively to convertible debt
instruments within its scope that were outstanding during any
period presented in financial statements issued after its
adoption. The adoption of FSP APB
14-1
affected the accounting for:
|
|
|
|
|
our 2.875% convertible notes issued in 2004 and due 2034, of
which 99.99% were converted into shares of our common stock in
June 2007;
|
|
|
|
our 2.75% convertible notes issued in 2005 and due 2025; and
|
|
|
|
our 3.125% convertible notes issued in 2007 and due 2012.
|
The retroactive application of FSP APB
14-1 also
resulted in the recognition of additional capitalized interest
in the affected prior periods. See Note 5 for further
information.
The following table sets forth the effect of the retrospective
application of FSP APB
14-1 on
certain previously reported line items (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
As Previously
|
|
|
Effect of
|
|
Condensed Consolidated Statement of Operations:
|
|
As Adjusted
|
|
|
Reported
|
|
|
Change
|
|
|
Depreciation
|
|
$
|
86,347
|
|
|
$
|
86,214
|
|
|
$
|
133
|
|
Interest expense, net
|
|
|
(51,954
|
)
|
|
|
(41,388
|
)
|
|
|
(10,566
|
)
|
Income before income tax provision
|
|
|
157,027
|
|
|
|
167,726
|
|
|
|
(10,699
|
)
|
Income tax provision
|
|
|
(50,192
|
)
|
|
|
(54,157
|
)
|
|
|
3,965
|
|
Net income
|
|
|
106,835
|
|
|
|
113,569
|
|
|
|
(6,734
|
)
|
Net income, per common share, basic
|
|
$
|
0.63
|
|
|
$
|
0.67
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
0.62
|
|
|
$
|
0.65
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
As Previously
|
|
|
|
|
|
Effect of
|
|
Condensed Consolidated Balance Sheet:
|
|
As Adjusted
|
|
|
Reported
|
|
|
|
|
|
Change
|
|
|
Property, plant and equipment, net
|
|
$
|
1,892,113
|
|
|
$
|
1,887,315
|
|
|
|
|
|
|
$
|
4,798
|
|
Deferred income taxes, net
|
|
|
567,973
|
|
|
|
564,516
|
|
|
|
|
|
|
|
3,457
|
|
Other assets
|
|
|
265,440
|
|
|
|
268,399
|
|
|
|
|
|
|
|
(2,959
|
)
|
Long-term debt
|
|
|
2,034,086
|
|
|
|
2,193,240
|
|
|
|
|
|
|
|
(159,154
|
)
|
Deferred credits
|
|
|
147,743
|
|
|
|
108,526
|
|
|
|
|
|
|
|
39,217
|
|
Paid-in capital
|
|
|
1,158,922
|
|
|
|
954,192
|
|
|
|
|
|
|
|
204,730
|
|
Retained earnings
|
|
|
1,293,407
|
|
|
|
1,372,904
|
|
|
|
|
|
|
|
(79,497
|
)
|
New Accounting Pronouncements. In
December 2007, the FASB issued Statement of Financial Accounting
Standards, or 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. In April 2009, the FASB issued Staff Position
No. 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies, or FSP 141(R)-1, which requires assets
acquired and liabilities assumed in a business combination that
arise from contingencies to be recognized at fair value as of
the acquisition date if fair value can be determined during the
measurement period. If fair value cannot be determined,
contingent assets acquired and liabilities assumed in a business
combination should be accounted for in accordance with existing
guidance. SFAS No. 141(R) and FSP 141(R)-1 are
effective for fiscal years beginning after December 15,
2008. As a result, the provisions of SFAS No. 141(R)
and FSP 141(R)-1 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) and
FSP 141(R)-1 on our condensed consolidated financial
statements will be dependent upon 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 did not have
a material impact on our condensed consolidated financial
statements.
In December 2007, the FASB issued Emerging Issues Task Force, or
EITF, Issue
No. 07-5,
Determining Whether an Instrument (or Embedded Feature) Is
Indexed to an Entitys Own Stock, or
EITF 07-5.
SFAS 133 states that contracts which are both
(1) indexed to the reporting entitys own stock and
(2) classified as a component of stockholders equity
should not be accounted for as derivative instruments.
EITF 07-5
provides that an entity should use a two-step approach in
evaluating whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including
evaluating the instruments contingent exercise and
settlement provisions.
EITF 07-5
is effective for fiscal years beginning after December 15,
2008. The adoption of
EITF 07-5
did not impact our condensed consolidated financial statements.
9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 did not have a material impact on
our condensed consolidated financial statements.
In April 2008, the FASB issued Staff Position
No. 142-3,
Determination of the Useful Life of Intangible
Assets, or
FSP 142-3.
FSP 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 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 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years and applies to intangible assets
acquired on or after January 1, 2009. The adoption of
FSP 142-3
did not impact our condensed consolidated financial statements.
In April 2009, the FASB issued Staff Position
No. 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments, or
FSP 107-1
and APB
28-1.
FSP 107-1
and APB 28-1
require quarterly disclosures of the fair value and carrying
value of all financial instruments aggregated by major category
and disclosures concerning the methods and assumptions used to
estimate the instruments fair value.
FSP 107-1
and APB 28-1
will be effective for interim reporting periods ending after
June 15, 2009. We will adopt
FSP 107-1
and APB 28-1
in the second quarter of 2009 and do not expect the adoption of
FSP 107-1
and APB 28-1
to have a material impact on our condensed consolidated
financial statements.
In April 2009, the FASB issued Staff Position
No. 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly, or
FSP 157-4,
which provides guidance for determining when a market is no
longer active and when market transactions may not be
representative of fair value, which could impact the assumptions
used in determining the fair value of financial instruments.
FSP 157-4
will be effective for interim and annual reporting periods
ending after June 15, 2009. We will adopt
FSP 157-4
in the second quarter of 2009 and do not expect the adoption of
FSP 157-4
to have a material impact on our condensed consolidated
financial statements.
|
|
Note 2.
|
Fair
Value Measurements
|
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. In February 2008, the FASB issued Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, or
FSP 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 SFAS No.
157 and
FSP 157-2,
we adopted SFAS No. 157 for financial assets and
liabilities on January 1, 2008 and for non-financial assets
and liabilities in the first quarter of 2009. The adoption of
SFAS No. 157 with respect to our nonfinancial assets
and
10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
nonfinancial liabilities in the first quarter of 2009 did not
have a material impact on our condensed consolidated financial
statements.
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.
For assets and liabilities measured at fair value on a
non-recurring basis, fair value may be derived using various
valuation approaches including 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, even when
market assumptions are not readily available, our own
assumptions are set to reflect those that we believe market
participants would use when pricing the asset or liability at
the measurement date. The fair values maximize the use of
observable inputs and minimize the use of unobservable inputs,
by generally requiring that the observable inputs be used when
available, in measuring fair value for these items. Considerable
judgment is required in interpreting market data to develop the
estimates of fair value. 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. To the extent that the valuation is based on models or
inputs that are less observable or unobservable in the market,
the determination of fair value requires more judgment.
Accordingly, the degree of judgment exercised in determining
fair value is greatest for instruments categorized in
Level 3. The estimates presented below are not necessarily
indicative of the amounts that we could realize in a current
market exchange. The use of different market assumptions and
valuation techniques may have a material effect on the estimated
fair value amounts.
11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a description of the major categories of assets
and liabilities measured at fair value on a recurring basis.
Available-for-Sale
Securities.
Available-for-sale securities include short-term investments
made by Nextel Brazil and short-term investments in an enhanced
cash fund similar to, but not in the legal form of, a money
market fund that invested primarily in asset-backed securities.
In the first quarter of 2009, we received $15.2 million in
distributions from the enhanced cash fund and recorded a pre-tax
unrealized gain of $0.3 million in accumulated other
comprehensive income due to a slight increase in the net asset
value of the fund from December 31, 2008. As of
March 31, 2009, the carrying value of our investment in the
enhanced cash fund was $38.3 million, with approximately
$20.2 million classified as a long-term asset. The
short-term investments by Nextel Brazil are classified as
Level 1 within the fair value hierarchy. The net asset
value of the enhanced cash fund is classified as Level 3
within the fair value hierarchy at March 31, 2009 since
certain significant inputs for the fair value measurement remain
unobservable.
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 March 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of March 31, 2009
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
March 31,
|
|
|
December 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2009
|
|
|
2008
|
|
|
Short-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities Nextel Brazil
investments
|
|
$
|
3,800
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,800
|
|
|
$
|
48,859
|
|
Available-for-sale securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
18,081
|
|
|
|
18,081
|
|
|
|
33,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800
|
|
|
|
|
|
|
|
18,081
|
|
|
|
21,881
|
|
|
|
82,003
|
|
Long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
20,186
|
|
|
|
20,186
|
|
|
|
20,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,800
|
|
|
$
|
|
|
|
$
|
38,267
|
|
|
$
|
42,067
|
|
|
$
|
102,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the changes in fair value of our
Level 3 financial instruments measured at fair value on a
recurring basis (in thousands):
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
53,160
|
|
Principal distributions
|
|
|
(15,236
|
)
|
Unrealized gain
|
|
|
322
|
|
Realized gain on distributions
|
|
|
21
|
|
|
|
|
|
|
Ending balance
|
|
$
|
38,267
|
|
|
|
|
|
|
During the three months ended March 31, 2008, we had no
activity with respect to assets or liabilities measured at fair
value on a recurring basis using Level 3 inputs.
12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 3.
|
Property,
Plant and Equipment
|
The components of our property, plant and equipment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Land
|
|
$
|
6,519
|
|
|
$
|
6,600
|
|
Leasehold improvements
|
|
|
84,865
|
|
|
|
84,663
|
|
Digital mobile network equipment and network software
|
|
|
2,296,319
|
|
|
|
2,216,212
|
|
Office equipment, furniture and fixtures and other
|
|
|
328,874
|
|
|
|
329,352
|
|
Corporate aircraft capital lease
|
|
|
31,450
|
|
|
|
31,450
|
|
Less: Accumulated depreciation and amortization
|
|
|
(984,797
|
)
|
|
|
(928,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,763,230
|
|
|
|
1,739,909
|
|
Construction in progress
|
|
|
168,746
|
|
|
|
152,204
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,931,976
|
|
|
$
|
1,892,113
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4.
|
Intangible
Assets
|
Our intangible assets consist of our licenses and trade name,
all of which have finite useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
359,953
|
|
|
$
|
(59,343
|
)
|
|
$
|
300,610
|
|
|
$
|
373,315
|
|
|
$
|
(55,437
|
)
|
|
$
|
317,878
|
|
Trade name and other
|
|
|
1,372
|
|
|
|
(1,372
|
)
|
|
|
|
|
|
|
1,412
|
|
|
|
(1,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
361,325
|
|
|
$
|
(60,715
|
)
|
|
$
|
300,610
|
|
|
$
|
374,727
|
|
|
$
|
(56,849
|
)
|
|
$
|
317,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based solely on the carrying amount of amortizable intangible
assets existing as of March 31, 2009 and current foreign
currency exchange rates, we estimate amortization expense for
each of the next five years ending December 31 to be as follows
(in thousands):
|
|
|
|
|
|
|
Estimated
|
|
|
|
Amortization
|
|
Years
|
|
Expense
|
|
|
2009
|
|
$
|
25,982
|
|
2010
|
|
|
26,152
|
|
2011
|
|
|
26,152
|
|
2012
|
|
|
26,152
|
|
2013
|
|
|
26,026
|
|
Actual amortization expense to be reported in future periods
could differ from these estimates as a result of additional
acquisitions of intangibles, as well as changes in foreign
currency exchange rates and other relevant factors. See
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations. Business
Overview for more information related to changes in
foreign currency exchange rates. During the three
13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
months ended March 31, 2009 and 2008, we did not acquire,
dispose of or write down any goodwill or intangible assets with
indefinite useful lives.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
3.125% convertible notes due 2012, net
|
|
$
|
1,069,189
|
|
|
$
|
1,059,997
|
|
2.75% convertible notes due 2025, net
|
|
|
333,673
|
|
|
|
330,850
|
|
Brazil syndicated loan facility
|
|
|
300,000
|
|
|
|
300,000
|
|
Mexico syndicated loan facility
|
|
|
203,136
|
|
|
|
205,863
|
|
Tower financing obligations
|
|
|
151,055
|
|
|
|
157,262
|
|
Capital lease obligations
|
|
|
66,364
|
|
|
|
68,167
|
|
Other
|
|
|
26,925
|
|
|
|
11,001
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,150,342
|
|
|
|
2,133,140
|
|
Less: current portion
|
|
|
(132,030
|
)
|
|
|
(99,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,018,312
|
|
|
$
|
2,034,086
|
|
|
|
|
|
|
|
|
|
|
Convertible
Notes.
3.125% Convertible Notes. The
3.125% notes are convertible into shares of our common
stock at a conversion rate of 8.4517 shares per $1,000
principal amount of notes, or 10,142,040 aggregate common
shares, representing a conversion price of about $118.32 per
share. For the fiscal quarter ended March 31, 2009, the
closing sale price of our common stock did not exceed 120% of
the conversion price of $118.32 per share for at least 20
trading days in the 30 consecutive trading days ending on
March 31, 2009. As a result, the conversion contingency was
not met as of March 31, 2009.
2.75% Convertible Notes. The
2.75% notes are convertible, at the option of the holder,
into shares of our common stock at an adjusted conversion rate
of 19.967 shares per $1,000 principal amount of notes, or
6,988,370 aggregate common shares, representing a conversion
price of about $50.08 per share. For the fiscal quarter ended
March 31, 2009, the closing sale price of our common stock
did not exceed 120% of the conversion price of $50.08 per share
for at least 20 trading days in the 30 consecutive trading days
ending on March 31, 2009. As a result, the conversion
contingency was not met as of March 31, 2009.
As a result of the adoption of FSP APB
14-1 on
January 1, 2009, we were required to separately account for
the debt and equity components of our 3.125% convertible notes
and our 2.75% convertible notes in a manner that reflects our
nonconvertible debt (unsecured debt) borrowing rate. The debt
and equity components recognized for our 3.125% convertible
notes and our 2.75% convertible notes were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Principal amount of convertible notes
|
|
$
|
1,200,000
|
|
|
$
|
349,996
|
|
|
$
|
1,200,000
|
|
|
$
|
349,996
|
|
Unamortized discount on convertible notes
|
|
|
130,811
|
|
|
|
16,323
|
|
|
|
140,003
|
|
|
|
19,146
|
|
Net carrying amount of convertible notes
|
|
|
1,069,189
|
|
|
|
333,673
|
|
|
|
1,059,997
|
|
|
|
330,850
|
|
Carrying amount of equity component
|
|
|
194,557
|
|
|
|
53,253
|
|
|
|
194,557
|
|
|
|
53,253
|
|
14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of March 31, 2009, the unamortized discount on our
3.125% convertible notes and our 2.75% convertible notes had
remaining recognition periods of approximately 38 months
and 17 months, respectively.
The amount of interest expense recognized on our 3.125%
convertible notes and our 2.75% convertible notes and effective
interest rates for the three months ended March 31, 2009
and 2008 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
9,375
|
|
|
$
|
2,406
|
|
|
$
|
9,375
|
|
|
$
|
2,406
|
|
Amortization of discount on convertible notes
|
|
|
9,192
|
|
|
|
2,823
|
|
|
|
8,578
|
|
|
|
2,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
18,567
|
|
|
$
|
5,229
|
|
|
$
|
17,953
|
|
|
$
|
5,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated Loan Facilities. In
September 2007, Nextel Brazil entered into a $300.0 million
syndicated loan facility. Of the total amount of the facility,
$45.0 million is denominated in U.S. dollars with a
floating interest rate based on LIBOR plus a specified margin
ranging from 2.00% to 2.50% (Tranche A 3.19%
and 3.43% as of March 31, 2009 and December 31, 2008,
respectively). The remaining $255.0 million is denominated
in U.S. dollars with a floating interest rate based on
LIBOR plus a specified margin ranging from 1.75% to 2.25%
(Tranche B 2.94% and 3.18% as of March 31,
2009 and December 31, 2008, respectively). Tranche A
matures on September 14, 2014, and Tranche B matures
on September 14, 2012.
In addition, a portion of Nextel Mexicos syndicated loan
facility bears a floating interest rate based on LIBOR plus a
specified margin. The interest rate on the portions of both the
Brazil and Mexico syndicated loan facilities that have interest
rates based on LIBOR are reset each quarter. If the LIBOR rate
increases, Nextel Brazil and Nextel Mexico will incur increased
interest expense related to their syndicated loans.
|
|
Note 6.
|
Commitments
and Contingencies
|
Brazilian
Contingencies.
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on
imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions
disputing these assessments. In some cases, Nextel Brazil has
received favorable decisions, which are currently being appealed
by the respective governmental authority. In other cases, Nextel
Brazils petitions have been denied, and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing various other claims.
As of March 31, 2009 and December 31, 2008, Nextel
Brazil had accrued liabilities of $19.1 million and
$18.3 million, respectively, related to contingencies, all
of which were classified in accrued contingencies reported as a
component of other long-term liabilities. Of the total accrued
liabilities as of March 31, 2009 and December 31,
2008, Nextel Brazil had $9.5 million and $9.2 million
in unasserted claims. We currently estimate the range of
reasonably possible losses related to matters for which Nextel
Brazil has not accrued liabilities, as they are not deemed
probable, to be between $216.7 million and
$220.7 million as of March 31, 2009. We are continuing
to evaluate the likelihood of probable and reasonably possible
losses, if any, related to all known contingencies. As a result,
future increases or decreases to our accrued liabilities may be
necessary and will be recorded in the period when such amounts
are determined to be probable and estimable.
15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Argentine
Contingencies.
As of March 31, 2009 and December 31, 2008, Nextel
Argentina had accrued liabilities of $29.8 million and
$35.0 million, respectively, related primarily to local
turnover taxes, universal service tax and local government
claims, all of which were classified in accrued contingencies
and accrued non-income taxes reported as components of accrued
expenses and other.
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. Another
provincial government has 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 March 31, 2009 and December 31, 2008,
Nextel Argentina had accrued $8.5 million and
$9.9 million, respectively, for local turnover taxes in
this province, which are included as components of accrued
expenses and other.
Legal
Proceedings.
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. The earliest years that remain subject to examination by
jurisdiction are: Chile 1993; U.S. 1995;
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.
16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows a reconciliation of our unrecognized
tax benefits according to FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
interpretation of FASB Statement No. 109, or
FIN No. 48, for the three months ended March 31,
2009 (in thousands):
|
|
|
|
|
Unrecognized tax benefits December 31, 2008
|
|
$
|
85,886
|
|
Additions for current year tax positions
|
|
|
862
|
|
Additions for prior year tax positions
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(62
|
)
|
Settlements with taxing authorities
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(3,427
|
)
|
|
|
|
|
|
Unrecognized tax benefits March 31, 2009
|
|
$
|
83,259
|
|
|
|
|
|
|
The unrecognized tax benefits as of December 31, 2008 and
March 31, 2009 include $63.2 million and
$60.6 million, respectively, of tax benefits that could
potentially reduce our future effective tax rate, if recognized.
We record interest and penalties associated with uncertain tax
positions as a component of our income tax provision.
We assessed the realizability of our deferred tax assets during
the first quarter of 2009, consistent with the methodology we
employed for 2008, and determined that the realizability of
those deferred assets has not changed for the markets in which
we operate. In that assessment, we considered the reversal of
existing temporary differences associated with deferred tax
assets and liabilities, future taxable income, tax planning
strategies and historical and future pre-tax book income (as
adjusted for permanent differences between financial and tax
accounting items) in order to determine if it is
more-likely-than-not that the deferred tax asset
will be realized. As a result of the retroactive adoption of
FASB Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments that May be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), on January 1, 2009, we recorded an
additional U.S. valuation allowance against our deferred
tax assets. We believe it is reasonably possible that, within
the next year, we will release some portion of the
U.S. valuation allowance. The character of the valuation
allowance that would likely be released would result in a
reduction to the income tax expense.
During 2004, Nextel Mexico amended its Mexican Federal income
tax returns in order to reverse a benefit previously claimed for
a disputed provision of the Federal income tax law covering
deductions and gains from the sale of property. We filed the
amended returns in order to avoid potential penalties, and we
also filed administrative petitions seeking clarification of our
right to the tax benefits claimed on the original income tax
returns. The tax authorities constructively denied our
administrative petitions in January 2005, and in May 2005 we
filed an annulment suit challenging the constructive denial.
Resolution of the annulment suit is pending. We believe it is
probable that we will recover this amount. Our condensed
consolidated balance sheets as of March 31, 2009 and
December 31, 2008 include $12.1 and $12.8 million,
respectively, in income taxes receivable, which are included as
components of other non-current assets. The income tax benefit
for this item was related to our income tax provision for the
years ended December 31, 2005, 2004 and 2003.
|
|
Note 8.
|
Segment
Reporting
|
We have determined that our reportable segments are those that
are based on our method of internal reporting, which
disaggregates our business by geographical location. Our
reportable segments are: (1) Mexico, (2) Brazil,
(3) Argentina and (4) Peru. The operations of all
other businesses that fall below the segment reporting
thresholds are included in the Corporate and other
segment below. This segment includes our Chilean operating
companies and our corporate operations in the U.S. We
evaluate performance of these segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element
17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of operational performance, we recognize share-based payment
expense at the corporate level and exclude it when evaluating
the business performance of our segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
427,407
|
|
|
$
|
297,290
|
|
|
$
|
124,171
|
|
|
$
|
58,932
|
|
|
$
|
2,775
|
|
|
$
|
(268
|
)
|
|
$
|
910,307
|
|
Digital handset and accessory revenues
|
|
|
17,622
|
|
|
|
18,791
|
|
|
|
7,995
|
|
|
|
6,593
|
|
|
|
6
|
|
|
|
|
|
|
|
51,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
445,029
|
|
|
$
|
316,081
|
|
|
$
|
132,166
|
|
|
$
|
65,525
|
|
|
$
|
2,781
|
|
|
$
|
(268
|
)
|
|
$
|
961,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
154,160
|
|
|
$
|
88,024
|
|
|
$
|
41,873
|
|
|
$
|
9,367
|
|
|
$
|
(48,284
|
)
|
|
$
|
|
|
|
$
|
245,140
|
|
Management fee
|
|
|
(7,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,950
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(39,009
|
)
|
|
|
(33,388
|
)
|
|
|
(9,851
|
)
|
|
|
(7,272
|
)
|
|
|
(3,376
|
)
|
|
|
|
|
|
|
(92,896
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
107,201
|
|
|
|
54,636
|
|
|
|
32,022
|
|
|
|
2,095
|
|
|
|
(43,710
|
)
|
|
|
|
|
|
|
152,244
|
|
Interest expense, net
|
|
|
(12,075
|
)
|
|
|
(10,504
|
)
|
|
|
1,062
|
|
|
|
(64
|
)
|
|
|
(24,707
|
)
|
|
|
1,692
|
|
|
|
(44,596
|
)
|
Interest income
|
|
|
10,856
|
|
|
|
1,239
|
|
|
|
208
|
|
|
|
40
|
|
|
|
2,002
|
|
|
|
(1,692
|
)
|
|
|
12,653
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(9,540
|
)
|
|
|
2,395
|
|
|
|
5,081
|
|
|
|
(109
|
)
|
|
|
(5,141
|
)
|
|
|
|
|
|
|
(7,314
|
)
|
Other (expense) income, net
|
|
|
(68
|
)
|
|
|
(1,317
|
)
|
|
|
2
|
|
|
|
|
|
|
|
(259
|
)
|
|
|
|
|
|
|
(1,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
96,374
|
|
|
$
|
46,449
|
|
|
$
|
38,375
|
|
|
$
|
1,962
|
|
|
$
|
(71,815
|
)
|
|
$
|
|
|
|
$
|
111,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
25,717
|
|
|
$
|
113,918
|
|
|
$
|
10,030
|
|
|
$
|
15,730
|
|
|
$
|
4,083
|
|
|
$
|
|
|
|
$
|
169,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
493,315
|
|
|
$
|
286,316
|
|
|
$
|
114,967
|
|
|
$
|
51,696
|
|
|
$
|
1,782
|
|
|
$
|
(326
|
)
|
|
$
|
947,750
|
|
Digital handset and accessory revenues
|
|
|
15,057
|
|
|
|
15,169
|
|
|
|
11,065
|
|
|
|
4,162
|
|
|
|
14
|
|
|
|
|
|
|
|
45,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
508,372
|
|
|
$
|
301,485
|
|
|
$
|
126,032
|
|
|
$
|
55,858
|
|
|
$
|
1,796
|
|
|
$
|
(326
|
)
|
|
$
|
993,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
191,752
|
|
|
$
|
81,390
|
|
|
$
|
39,378
|
|
|
$
|
12,061
|
|
|
$
|
(38,631
|
)
|
|
$
|
|
|
|
$
|
285,950
|
|
Management fee
|
|
|
(8,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,398
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(46,105
|
)
|
|
|
(31,976
|
)
|
|
|
(8,739
|
)
|
|
|
(4,955
|
)
|
|
|
(2,608
|
)
|
|
|
98
|
|
|
|
(94,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
137,249
|
|
|
|
49,414
|
|
|
|
30,639
|
|
|
|
7,106
|
|
|
|
(32,841
|
)
|
|
|
98
|
|
|
|
191,665
|
|
Interest expense, net
|
|
|
(16,062
|
)
|
|
|
(13,265
|
)
|
|
|
(658
|
)
|
|
|
(17
|
)
|
|
|
(23,920
|
)
|
|
|
1,968
|
|
|
|
(51,954
|
)
|
Interest income
|
|
|
10,569
|
|
|
|
997
|
|
|
|
1,267
|
|
|
|
291
|
|
|
|
7,784
|
|
|
|
(1,968
|
)
|
|
|
18,940
|
|
Foreign currency transaction gains (losses), net
|
|
|
4,160
|
|
|
|
(1,747
|
)
|
|
|
430
|
|
|
|
(191
|
)
|
|
|
253
|
|
|
|
|
|
|
|
2,905
|
|
Other (expense) income, net
|
|
|
(79
|
)
|
|
|
(1,197
|
)
|
|
|
28
|
|
|
|
1
|
|
|
|
(3,282
|
)
|
|
|
|
|
|
|
(4,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
135,837
|
|
|
$
|
34,202
|
|
|
$
|
31,706
|
|
|
$
|
7,190
|
|
|
$
|
(52,006
|
)
|
|
$
|
98
|
|
|
$
|
157,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
50,060
|
|
|
$
|
103,399
|
|
|
$
|
16,828
|
|
|
$
|
9,010
|
|
|
$
|
12,631
|
|
|
$
|
|
|
|
$
|
191,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
642,207
|
|
|
$
|
815,284
|
|
|
$
|
197,694
|
|
|
$
|
159,724
|
|
|
$
|
117,354
|
|
|
$
|
(287
|
)
|
|
$
|
1,931,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,107,880
|
|
|
$
|
1,656,377
|
|
|
$
|
443,709
|
|
|
$
|
300,240
|
|
|
$
|
567,073
|
|
|
$
|
(287
|
)
|
|
$
|
5,074,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
687,839
|
|
|
$
|
725,893
|
|
|
$
|
212,907
|
|
|
$
|
151,034
|
|
|
$
|
114,727
|
|
|
$
|
(287
|
)
|
|
$
|
1,892,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,122,161
|
|
|
$
|
1,492,488
|
|
|
$
|
451,694
|
|
|
$
|
291,825
|
|
|
$
|
735,535
|
|
|
$
|
(287
|
)
|
|
$
|
5,093,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
INDEX TO
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
20
|
|
|
|
|
20
|
|
|
|
|
25
|
|
|
|
|
25
|
|
|
|
|
25
|
|
|
|
|
26
|
|
|
|
|
26
|
|
|
|
|
27
|
|
|
|
|
30
|
|
|
|
|
33
|
|
|
|
|
35
|
|
|
|
|
37
|
|
|
|
|
39
|
|
|
|
|
40
|
|
|
|
|
41
|
|
|
|
|
44
|
|
|
|
|
45
|
|
19
Introduction
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition and results of operations
for the three-month periods ended March 31, 2009 and
2008; and
|
|
|
|
significant factors which we believe could affect our
prospective financial condition and results of operations.
|
You should read this discussion in conjunction with our 2008
annual report on
Form 10-K,
including, but not limited to, the discussion regarding our
critical accounting judgments, as described below. Historical
results may not indicate future performance. See Forward
Looking Statements for risks and uncertainties that may
impact our future performance.
Business
Overview
We provide wireless communication services, primarily targeted
at meeting the needs of customers who use our services in their
businesses and individuals that have medium to high usage
patterns, both of whom value our multi-function handsets,
including our Nextel Direct
Connect®
feature, and our high level of customer service. We provide
these services through operating companies located in selected
Latin American markets under the
Nexteltm
brand, with our principal operations located in major business
centers and related transportation corridors of Mexico, Brazil,
Argentina, Peru and Chile. We provide our services in major
urban and suburban centers with high population densities, which
we refer to as major business centers, where we believe there is
a concentration of the countrys business users and
economic activity. We believe that vehicle traffic congestion,
low wireline service penetration and the expanded coverage of
wireless networks in these major business centers encourage the
use of the mobile wireless communications services that we offer.
We use a wireless transmission technology called integrated
digital enhanced network, or iDEN, developed by Motorola, Inc.
to provide our digital mobile services on 800 MHz spectrum
holdings in all of our markets. This technology, which is the
only digital technology currently available that can be used on
non-contiguous spectrum like ours, allows us to use our spectrum
efficiently and offer multiple wireless services integrated into
a variety of handset devices. The services we offer include:
|
|
|
|
|
mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a
push-to-talk
basis, private
one-to-one
call or group call;
|
|
|
|
International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers using compatible handsets in the United
States and with TELUS subscribers using compatible handsets in
Canada;
|
|
|
|
text messaging services, mobile internet services,
e-mail
services including
Blackberrytm
services, location-based services, which include the use of
Global Positioning System (GPS) technologies, digital media
services and advanced
Javatm
enabled business applications; and
|
|
|
|
international roaming services.
|
Our goal is to generate increased revenues in our Latin American
markets by providing differentiated wireless communications
services that are valued by our customers, while improving our
profitability and cash flow over the long term. We plan to
continue to expand the coverage and capacity of our networks in
our existing markets and increase our existing subscriber base
while managing our costs in a manner designed to support that
growth and improve our operating results. We will seek to add
subscribers at rates and other terms that are competitive with
other offerings in the market, but that are consistent with our
strategy of finding the optimal balance of growth and
profitability regardless of the competitive landscape. See
Forward Looking Statements and
Item 1A. Risk
20
Factors in our 2008 annual report on
Form 10-K
for information on risks and uncertainties that could affect our
ability to reach these goals and the other objectives described
below.
We may also explore financially attractive opportunities to
expand our network coverage in areas that we do not currently
serve. Based on market data that continues to show lower
wireless penetration in our markets relative to other regions of
the world and our current market share in those markets, we
believe that we can continue to generate growth in our
subscriber base and revenues while improving our profitability
and cash flow over the long term.
We believe that the wireless communications industry in the
markets in which we operate has been and will continue to be
highly competitive on the basis of price, the types of services
offered, the diversity of handsets offered and the quality of
service. In each of our markets, we compete with at least two
large, well-capitalized competitors with substantial financial
and other resources. Some of these competitors have the ability
to offer bundled telecommunications services that include local,
long distance and data services, and can offer a larger variety
of handsets with a wide range of prices, brands and features.
Although competitive pricing of services and the variety and
pricing of handsets are often important factors in a
customers decision making process, we believe that the
users who primarily make up our targeted customer base are also
likely to base their purchase decisions on quality of service
and customer support, as well as on the availability of
differentiated features and services, like our Direct Connect
services, that make it easier for them to communicate quickly,
efficiently and economically.
We have implemented a strategy that we believe will position us
to achieve our long-term goal of generating profitable growth.
The key components of that strategy are as follows:
Focusing on Major Business Centers in Key Latin American
Markets. We operate primarily in large urban
markets, including five of the six largest cities in Latin
America, which have a concentration of medium to high usage
business customers and consumers. We target these markets
because we believe they have favorable long-term growth
prospects for our wireless communications services while
offering the cost benefits associated with providing services in
more concentrated population centers. In addition, the cities in
which we operate account for a high proportion of total economic
activity in each of their respective countries and provide us
with a large potential market. We believe that there are
significant opportunities for growth in these markets due to the
high demand for wireless communications services and the large
number of potential customers within our targeted customer
groups.
Targeting High Value Customers. Our main focus
is on customers who purchase services under contract and
primarily use our services in their businesses and on
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature and our high level of customer service.
In our current customer base, our typical customer has between 3
and 30 handsets, and some of our largest customers have over 500
handsets; however, new customers that we have recently acquired
generally have a lower number of handsets per customer.
Providing Differentiated Services. We
differentiate ourselves from our competitors by offering unique
services like our
push-to-talk
service, which we refer to as Direct Connect. This service,
which is available throughout our service areas, provides
significant value to our customers by eliminating the long
distance and domestic roaming fees charged by other wireless
service providers, while also providing added functionality due
to the near-instantaneous nature of the communication and the
ability to communicate on a
one-to-many
basis. In addition, we are in the process of developing a high
performance
push-to-talk
service that utilizes WCDMA technology in an effort to
continually provide differentiated service to our customers. Our
competitors have introduced competitive
push-to-talk
over cellular products, but we believe that the quality of our
Direct Connect service is superior at this time. We add further
value by customizing data applications that enhance the
productivity of our business customers, such as vehicle and
delivery tracking, order entry processing and workforce
monitoring applications.
Delivering Superior Customer Service. In
addition to our unique service offerings, we seek to further
differentiate ourselves by providing a higher level of customer
service than our competitors. We work proactively with our
customers to match them with service plans that offer greater
value based on the customers usage patterns. After
analyzing customer usage and expense data, we strive to minimize
a
21
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 spectrum
in new areas which would enable us to expand our network service
areas, and further developing our business in key urban areas.
In addition, we may consider selectively expanding into other
Latin American countries where we do not currently operate. We
are in the process of significantly expanding 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
Future Capital Needs and Resources Capital
Expenditures for a discussion of the factors that drive
our capital spending.
Preserving the iDEN Opportunity. The iDEN
networks that we operate allow us to offer differentiated
services like Direct Connect while offering high quality voice
telephony and 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,
including its Boost banded prepaid 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, including
22
evaluating 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. In some cases, we
will consider and pursue acquisitions of assets that include
spectrum licenses to deploy these services, including in
auctions of newly available spectrum and through transactions
involving acquisitions of existing spectrum rights. We currently
plan to participate in auctions and other transactions of this
nature, particularly in Brazil and Mexico, to the extent new
spectrum can be obtained at a reasonable cost with available
financing and consistent with our overall technology strategy.
As part of our ongoing assessment of our ability to meet our
customers current and future needs, we continually review
alternate technologies to assess their technical performance,
cost and functional capabilities. These reviews may involve the
deployment of the technologies under consideration on a trial
basis in order to evaluate their capabilities and the market
demand for the supported services. We will deploy a new
technology beyond the minimum levels required by the terms of
our spectrum licenses only if it is warranted by expected
customer demand and when the anticipated benefits of services
supported by the new technology outweigh the costs of providing
those services. Our decision whether and how to deploy
alternative technologies, as well as our choice of alternative
technologies, would likely be affected by a number of factors,
including:
|
|
|
|
|
types of features and services supported by the technology and
our assessment of the demand for those features and services;
|
|
|
|
the availability and pricing of related equipment, the spectrum
bands available in our markets and whether other wireless
carriers are operating or plan to operate a particular
technology in those spectrum bands;
|
|
|
|
our need to continue to support iDEN-based services for our
existing customer base either on an ongoing or transitional
basis; and
|
|
|
|
the availability and terms of any financing that we would be
required to raise in order to acquire the spectrum and fund the
deployment of an alternative technology. See Future
Capital Needs and Resources for more information.
|
Consistent with this strategy of pursuing new spectrum and
technology opportunities, in July 2007, we participated in a
spectrum auction and were awarded a nationwide license of
35 MHz of 1.9 GHz spectrum in Peru for a term of
20 years. The license under which the spectrum rights were
granted requires us to deploy new network technology within
specified timeframes throughout Peru, including in areas that we
do not currently serve. We 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 and continuing into the first quarter of 2009, the
global economic environment was characterized by a significant
decline in economic growth rates, a marked increase in the
volatility of foreign currency exchange rates, disruptions in
the capital markets and a reduction in the availability of
financing. These conditions are expected to continue at least
for the remainder of 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
|
23
|
|
|
|
|
increasing the level of voluntary customer turnover due to
increased competition and simultaneously increasing the levels
of involuntary customer turnover and bad debt expense as
customers find it more difficult to pay for services.
|
Historically, the value of the currencies of the countries in
which we do business in relation to the U.S. dollar have
been volatile. Recent weakness in the economies of those
countries has led to increased volatility in these currencies.
Because a significant portion of our outstanding debt is
denominated in U.S. dollars and we report our results in
U.S. dollars, significant fluctuations in foreign currency
exchange rates can affect our reported results. For example,
from September 30, 2008 to March 31, 2009, the
exchange rate for the Mexican peso increased from 10.79 pesos
per U.S. dollar to 14.33 pesos per U.S. dollar. These
changes, as well as changes in the exchange rate for the
Brazilian real, resulted in foreign currency transaction losses
of $104.4 million during the fourth quarter of 2008 and
$7.3 million during the first quarter of 2009. In addition,
the depreciation in the values of the local currencies in the
markets where we operate makes it more costly for us to service
our U.S. dollar-denominated debt obligations and affects
our operating results because we generate nearly all of our
revenues in foreign currencies, but we pay for some of our
operating expenses and capital expenditures in
U.S. dollars. Further, because we report our results of
operations in U.S. dollars, changes in relative foreign
currency valuations have resulted in reductions in our reported
revenues, operating income and earnings, as well as a reduction
in the carrying value of our assets, including the value of cash
investments held in local currencies during the fourth quarter
of 2008 and the first quarter of 2009. Accordingly, if the
values of local currencies in the countries in which our
operating companies conduct business depreciate further relative
to the U.S. dollar, we would expect our operating results
in future periods, and the value of our assets held in local
currencies, to continue to be adversely affected.
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 and our current business
plans, we have in the past and likely will in the future depend
upon access to the credit and capital markets to help fund the
growth of our business, for the acquisition of additional
spectrum and for capital expenditures in connection with the
expansion and improvement of our wireless networks and the
deployment of new network technologies. If the present 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 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;
|
|
|
|
developing and implementing strategies to target, capture and
retain profitable customers;
|
|
|
|
managing our subscriber and revenue growth consistent with our
long term strategy of expanding our business while improving our
profitability and cash flow generation;
|
|
|
|
improving our efficiency by managing our growth in headcount and
other expenses at levels consistent with our expectations
regarding subscriber and revenue growth; and
|
|
|
|
developing and implementing network expansion plans that are
consistent with our long term strategy of meeting our
customers demand for innovative high quality services
while remaining consistent with our goal of preserving liquidity
in light of the uncertain conditions in the capital markets.
|
We expect to continue to pursue these and other strategies as
necessary to adapt our business plans in order to meet our long
term business goals in a manner that takes into account the
uncertainty of the current economic environment.
24
See Forward Looking Statements for information on
risks and uncertainties that could affect the above objectives.
Handsets
in Commercial Service
The table below provides an overview of our total handsets in
commercial service in the countries indicated as of
March 31, 2009 and December 31, 2008. For purposes of
the table, handsets in commercial service represent all handsets
with active customer accounts on the networks in each of the
listed countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Handsets in commercial service December 31, 2008
|
|
|
2,726
|
|
|
|
1,812
|
|
|
|
967
|
|
|
|
669
|
|
|
|
26
|
|
|
|
6,200
|
|
Net subscriber additions
|
|
|
90
|
|
|
|
127
|
|
|
|
11
|
|
|
|
35
|
|
|
|
3
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handsets in commercial service March 31, 2009
|
|
|
2,816
|
|
|
|
1,939
|
|
|
|
978
|
|
|
|
704
|
|
|
|
29
|
|
|
|
6,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies and Estimates
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses and related disclosures of contingent assets and
liabilities in the consolidated financial statements and
accompanying notes. Although we believe that our estimates,
assumptions and judgments are reasonable, they are based upon
presently available information. Due to the inherent uncertainty
involved in making those estimates, actual results reported in
future periods could differ from those estimates.
As described in more detail in our 2008 Annual Report on
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations, we consider
the following accounting policies to be the most important to
our financial position and results of operations or policies
that require us to exercise significant judgment
and/or
estimates:
|
|
|
|
|
revenue recognition;
|
|
|
|
allowance for doubtful accounts;
|
|
|
|
depreciation of property, plant and equipment;
|
|
|
|
amortization of intangible assets;
|
|
|
|
asset retirement obligations;
|
|
|
|
foreign currency;
|
|
|
|
loss contingencies;
|
|
|
|
stock-based compensation; and
|
|
|
|
income taxes.
|
There have been no material changes to our critical accounting
policies and estimates during the three months ended
March 31, 2009 compared to those discussed in our 2008
annual report of
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations.
Ratio of
Earnings to Fixed Charges
|
|
|
|
|
Three Months
|
|
Ended
|
|
March 31,
|
|
2009
|
|
2008
|
|
|
2.90x
|
|
|
3.36x
|
|
25
For the purpose of computing the ratio of earnings to fixed
charges, earnings consist of income from continuing operations
before income taxes plus fixed charges and amortization of
capitalized interest less capitalized interest. Fixed charges
consist of:
|
|
|
|
|
interest on all indebtedness, amortization of debt financing
costs and amortization of original issue discount;
|
|
|
|
interest capitalized; and
|
|
|
|
the portion of rental expense we believe is representative of
interest.
|
Reclassifications
We have reclassified certain prior year amounts in our unaudited
condensed consolidated financial statements to conform to our
current year presentation. Specifically, for the three months
ended March 31, 2008, we corrected the classification of
$8.9 million from cost of service to cost of digital
handset and accessory sales related to costs incurred in
connection with replacement handsets sold to current customers.
This revision did not have a material impact on previously
reported balances.
Results
of Operations
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of digital
handsets and accessories. Service revenues primarily include
fixed monthly access charges for mobile telephone service and
digital two-way radio and other services, including revenues
from calling party pays programs and variable charges for
airtime and digital two-way radio usage in excess of plan
minutes, long-distance charges and international roaming
revenues derived from calls placed by our customers. Digital
handset and accessory revenues represent revenues we earn on the
sale of digital handsets and accessories to our customers.
In addition, we also have other less significant sources of
revenues. These revenues primarily include revenues generated
from our handset maintenance programs, roaming revenues
generated from other companies customers that roam on our
networks and co-location rental revenues from third-party
tenants that rent space on our towers.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of digital handset and accessory
sales. Cost of providing wireless service consists largely of
costs of interconnection with local exchange carrier facilities
and direct switch and transmitter and receiver site costs,
including property taxes, expenses related to our handset
maintenance programs, insurance costs, utility costs,
maintenance costs, spectrum license fees and rent for the
network switches and transmitter sites used to operate our
networks. Interconnection costs have fixed and variable
components. The fixed component of interconnection costs
consists of monthly flat-rate fees for facilities leased from
local exchange carriers, primarily for circuits required to
connect our transmitter sites to our network switches and to
connect our switches to each other. The variable component of
interconnection costs, which fluctuates in relation to the
volume and duration of wireless calls, generally consists of
per-minute use fees charged by wireline and wireless providers
for wireless calls from our digital handsets that terminate on
those providers networks. Cost of digital handset and
accessory sales consists largely of the cost of the handset and
accessories, order fulfillment and installation-related
expenses, as well as write-downs of digital handset and related
accessory inventory for shrinkage or obsolescence.
Our service and other revenues and the variable component of our
cost of service are primarily driven by the number of digital
handsets in service and not necessarily by the number of
customers, as one customer may purchase one or many digital
handsets. Our digital handset and accessory revenues and cost of
digital handset and accessory sales are primarily driven by the
number of new handsets placed into service, as well as handset
upgrades provided to existing customers during the year.
Selling and marketing expenses include all of the expenses
related to acquiring customers. General and administrative
expenses include expenses related to revenue-based taxes,
billing, customer care, collections including bad debt, repairs
and maintenance of management information systems, spectrum
license fees, corporate overhead and share-based payment for
stock options and restricted stock.
As further discussed in the notes to our condensed consolidated
financial statements, we adjusted our condensed consolidated
financial statements for the three months ended March 31,
2008 for the retrospective
26
application of Financial Accounting Standards Board, or FASB,
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.
In accordance with accounting principles generally accepted in
the United States, we translated the results of operations of
our operating segments using the average exchange rates for the
three months ended March 31, 2009 and 2008. The following
table presents the average exchange rates we used to translate
the results of operations of our operating segments, as well as
changes from the average exchange rates utilized in the prior
period. Because the U.S. dollar is the functional currency
in Peru, Nextel Perus results of operations are not
significantly impacted by changes in the U.S. dollar to
Peruvian sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
14.36
|
|
|
|
10.81
|
|
|
|
(32.8
|
)%
|
Brazilian real
|
|
|
2.31
|
|
|
|
1.74
|
|
|
|
(32.8
|
)%
|
Argentine peso
|
|
|
3.54
|
|
|
|
3.16
|
|
|
|
(12.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
910,307
|
|
|
|
95
|
%
|
|
$
|
947,750
|
|
|
|
95
|
%
|
|
$
|
(37,443
|
)
|
|
|
(4
|
)%
|
Digital handset and accessory revenues
|
|
|
51,007
|
|
|
|
5
|
%
|
|
|
45,467
|
|
|
|
5
|
%
|
|
|
5,540
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
961,314
|
|
|
|
100
|
%
|
|
|
993,217
|
|
|
|
100
|
%
|
|
|
(31,903
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(255,899
|
)
|
|
|
(27
|
)%
|
|
|
(258,509
|
)
|
|
|
(26
|
)%
|
|
|
2,610
|
|
|
|
(1
|
)%
|
Cost of digital handset and accessory sales
|
|
|
(145,249
|
)
|
|
|
(15
|
)%
|
|
|
(134,689
|
)
|
|
|
(14
|
)%
|
|
|
(10,560
|
)
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(401,148
|
)
|
|
|
(42
|
)%
|
|
|
(393,198
|
)
|
|
|
(40
|
)%
|
|
|
(7,950
|
)
|
|
|
2
|
%
|
Selling and marketing expenses
|
|
|
(113,213
|
)
|
|
|
(12
|
)%
|
|
|
(127,224
|
)
|
|
|
(13
|
)%
|
|
|
14,011
|
|
|
|
(11
|
)%
|
General and administrative expenses
|
|
|
(201,813
|
)
|
|
|
(21
|
)%
|
|
|
(186,845
|
)
|
|
|
(19
|
)%
|
|
|
(14,968
|
)
|
|
|
8
|
%
|
Depreciation and amortization
|
|
|
(92,896
|
)
|
|
|
(9
|
)%
|
|
|
(94,285
|
)
|
|
|
(9
|
)%
|
|
|
1,389
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
152,244
|
|
|
|
16
|
%
|
|
|
191,665
|
|
|
|
19
|
%
|
|
|
(39,421
|
)
|
|
|
(21
|
)%
|
Interest expense, net
|
|
|
(44,596
|
)
|
|
|
(5
|
)%
|
|
|
(51,954
|
)
|
|
|
(5
|
)%
|
|
|
7,358
|
|
|
|
(14
|
)%
|
Interest income
|
|
|
12,653
|
|
|
|
1
|
%
|
|
|
18,940
|
|
|
|
2
|
%
|
|
|
(6,287
|
)
|
|
|
(33
|
)%
|
Foreign currency transaction (losses) gains, net
|
|
|
(7,314
|
)
|
|
|
(1
|
)%
|
|
|
2,905
|
|
|
|
|
|
|
|
(10,219
|
)
|
|
|
NM
|
|
Other expense, net
|
|
|
(1,642
|
)
|
|
|
|
|
|
|
(4,529
|
)
|
|
|
|
|
|
|
2,887
|
|
|
|
(64
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
111,345
|
|
|
|
11
|
%
|
|
|
157,027
|
|
|
|
16
|
%
|
|
|
(45,682
|
)
|
|
|
(29
|
)%
|
Income tax provision
|
|
|
(40,707
|
)
|
|
|
(4
|
)%
|
|
|
(50,192
|
)
|
|
|
(5
|
)%
|
|
|
9,485
|
|
|
|
(19
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
70,638
|
|
|
|
7
|
%
|
|
$
|
106,835
|
|
|
|
11
|
%
|
|
$
|
(36,197
|
)
|
|
|
(34
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
During the first quarter of 2009, we continued to expand our
subscriber base across all of our markets with most of this
growth concentrated in Brazil and Mexico. We also experienced a
higher consolidated customer turnover rate, which resulted
primarily from the combined impact of weaker economic conditions
in Mexico and
27
Argentina during the first quarter of 2009 and the more
competitive sales environment in Mexico that arose during 2008.
While we have implemented initiatives designed to stabilize our
customer turnover rate, the economic environment and competitive
conditions we face in our markets may adversely affect our
ability to retain customers, particularly in Mexico.
We continued to invest in coverage expansion and network
improvements in the first quarter of 2009, resulting in
consolidated capital expenditures of $169.5 million, which
represented a $22.5 million decrease from the first quarter
of 2008. The majority of this investment occurred in Brazil
where we continued to expand our coverage areas and enhance the
quality and capacity of our networks, consistent with our plans
to increase our customer base in that market. We expect that the
amounts invested in Brazil to expand our network coverage and
improve network quality and capacity will continue to represent
the majority of our consolidated capital expenditure investments
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.
Continuing the trend that began during 2008, the average values
of the local currencies in each of our markets depreciated
relative to the U.S. dollar during the first quarter of
2009. Our operating results for the remainder of 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 level that prevailed during the first quarter of
2009 or if those values depreciate further.
The $37.4 million, or 4%, decrease in consolidated service
and other revenues from the first quarter of 2008 to the first
quarter of 2009 is primarily due to declines in average
consolidated revenue per subscriber across all markets as a
result of the depreciation of the average values of the local
currencies in each of our markets relative to the
U.S. dollar, continued competitive pressures in Mexico and
an increase in the percentage of subscribers purchasing prepaid
rate plans in Peru. These declines were partially offset by a
30% increase in the average number of total handsets in service,
with most of that increase attributable to subscriber growth in
Brazil and Mexico, which resulted from both the continued strong
demand for our services and our balanced growth and expansion
strategy in those markets.
The $10.6 million, or 8%, increase in consolidated cost of
digital handset and accessory sales from the first quarter of
2008 to the same period in 2009 is largely due to an increase in
consolidated handset upgrades for existing subscribers,
primarily in Mexico, and, to a lesser extent, an increase in
handset sales for new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $14.0 million, or 11%, decrease in consolidated selling
and marketing expenses from the first quarter of 2008 to the
first quarter of 2009 is mostly due to a $11.9 million, or
22%, decrease in consolidated indirect commissions resulting
from a decrease in indirect commission rates per gross
subscriber addition, primarily in Mexico, partially offset by a
14% increase in total gross subscriber additions generated
through external sales channels.
|
|
4.
|
General and
administrative expenses
|
The $15.0 million, or 8%, increase in consolidated general
and administrative expenses from the first quarter of 2008 to
the first quarter of 2009 is primarily due to the following:
|
|
|
|
|
a $7.6 million, or 41%, increase in consolidated bad debt
expense, largely as a result of the weaker economic environment
in Mexico; and
|
28
|
|
|
|
|
a $4.0 million, or 24%, increase in consolidated
information technology expenses primarily as a result of an
increase in information technology personnel and higher systems
maintenance costs, both of which are related to our deployment
of new billing systems in some of our markets.
|
The $7.4 million, or 14%, decrease in consolidated net
interest expense from the first quarter of 2008 to the same
period in 2009 is primarily due to a decrease in interest
incurred under Nextel Mexicos syndicated loan facility as
a result of the payments of principal in April 2008 and October
2008.
See Note 5 to our condensed consolidated financial
statements for further information on the impact of the adoption
of FSP APB
14-1 on our
net interest expense.
|
|
6.
|
Foreign
currency transaction (losses) gains, net
|
Consolidated foreign currency transaction losses of
$7.3 million for the first quarter of 2009 are primarily a
result of the impact of the depreciation in the value of the
Mexican peso relative to the U.S. dollar on Nextel
Mexicos U.S. dollar-denominated net assets during the
first quarter of 2009.
The $9.5 million, or 19%, decrease in the consolidated
income tax provision from the first quarter of 2008 to the same
period in 2009 is primarily due to a $45.7 million, or 29%,
decrease in income before taxes, partially offset by an increase
in U.S. deferred tax expense resulting from an increase in
the necessary valuation allowance against our deferred tax
assets.
Segment
Results
We evaluate performance of our segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element of operational
performance, we recognize share-based payment expense at the
corporate level and exclude it when evaluating the business
performance of our segments. The tables below provide a summary
of the components of our consolidated segments for the three
months ended March 31, 2009 and 2008. The results of Nextel
Chile are included in Corporate and other. Both
Nextel Mexico and Nextel Brazils results of operations
were significantly affected by the decline in the average values
of the Mexican peso and the Brazilian real during the first
quarter of 2009 compared to the average values of those
currencies during the first quarter of 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Three Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
March 31, 2009
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
445,029
|
|
|
|
46
|
%
|
|
$
|
(171,912
|
)
|
|
|
43
|
%
|
|
$
|
(118,957
|
)
|
|
|
38
|
%
|
|
$
|
154,160
|
|
Nextel Brazil
|
|
|
316,081
|
|
|
|
33
|
%
|
|
|
(134,424
|
)
|
|
|
33
|
%
|
|
|
(93,633
|
)
|
|
|
30
|
%
|
|
|
88,024
|
|
Nextel Argentina
|
|
|
132,166
|
|
|
|
14
|
%
|
|
|
(58,242
|
)
|
|
|
14
|
%
|
|
|
(32,051
|
)
|
|
|
10
|
%
|
|
|
41,873
|
|
Nextel Peru
|
|
|
65,525
|
|
|
|
7
|
%
|
|
|
(34,549
|
)
|
|
|
9
|
%
|
|
|
(21,609
|
)
|
|
|
7
|
%
|
|
|
9,367
|
|
Corporate and other
|
|
|
2,781
|
|
|
|
|
|
|
|
(2,289
|
)
|
|
|
1
|
%
|
|
|
(48,776
|
)
|
|
|
15
|
%
|
|
|
(48,284
|
)
|
Intercompany eliminations
|
|
|
(268
|
)
|
|
|
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
961,314
|
|
|
|
100
|
%
|
|
$
|
(401,148
|
)
|
|
|
100
|
%
|
|
$
|
(315,026
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Three Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
March 31, 2008
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
508,372
|
|
|
|
51
|
%
|
|
$
|
(176,822
|
)
|
|
|
45
|
%
|
|
$
|
(139,798
|
)
|
|
|
45
|
%
|
|
$
|
191,752
|
|
Nextel Brazil
|
|
|
301,485
|
|
|
|
30
|
%
|
|
|
(128,531
|
)
|
|
|
33
|
%
|
|
|
(91,564
|
)
|
|
|
29
|
%
|
|
|
81,390
|
|
Nextel Argentina
|
|
|
126,032
|
|
|
|
13
|
%
|
|
|
(58,268
|
)
|
|
|
15
|
%
|
|
|
(28,386
|
)
|
|
|
9
|
%
|
|
|
39,378
|
|
Nextel Peru
|
|
|
55,858
|
|
|
|
6
|
%
|
|
|
(28,242
|
)
|
|
|
7
|
%
|
|
|
(15,555
|
)
|
|
|
5
|
%
|
|
|
12,061
|
|
Corporate and other
|
|
|
1,796
|
|
|
|
|
|
|
|
(1,661
|
)
|
|
|
|
|
|
|
(38,766
|
)
|
|
|
12
|
%
|
|
|
(38,631
|
)
|
Intercompany eliminations
|
|
|
(326
|
)
|
|
|
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
993,217
|
|
|
|
100
|
%
|
|
$
|
(393,198
|
)
|
|
|
100
|
%
|
|
$
|
(314,069
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A discussion of the results of operations for each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
427,407
|
|
|
|
96
|
%
|
|
$
|
493,315
|
|
|
|
97
|
%
|
|
$
|
(65,908
|
)
|
|
|
(13
|
)%
|
Digital handset and accessory revenues
|
|
|
17,622
|
|
|
|
4
|
%
|
|
|
15,057
|
|
|
|
3
|
%
|
|
|
2,565
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
445,029
|
|
|
|
100
|
%
|
|
|
508,372
|
|
|
|
100
|
%
|
|
|
(63,343
|
)
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(83,589
|
)
|
|
|
(19
|
)%
|
|
|
(97,337
|
)
|
|
|
(19
|
)%
|
|
|
13,748
|
|
|
|
(14
|
)%
|
Cost of digital handset and accessory sales
|
|
|
(88,323
|
)
|
|
|
(20
|
)%
|
|
|
(79,485
|
)
|
|
|
(16
|
)%
|
|
|
(8,838
|
)
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171,912
|
)
|
|
|
(39
|
)%
|
|
|
(176,822
|
)
|
|
|
(35
|
)%
|
|
|
4,910
|
|
|
|
(3
|
)%
|
Selling and marketing expenses
|
|
|
(53,724
|
)
|
|
|
(12
|
)%
|
|
|
(73,065
|
)
|
|
|
(14
|
)%
|
|
|
19,341
|
|
|
|
(26
|
)%
|
General and administrative expenses
|
|
|
(65,233
|
)
|
|
|
(14
|
)%
|
|
|
(66,733
|
)
|
|
|
(13
|
)%
|
|
|
1,500
|
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
154,160
|
|
|
|
35
|
%
|
|
|
191,752
|
|
|
|
38
|
%
|
|
|
(37,592
|
)
|
|
|
(20
|
)%
|
Management fee
|
|
|
(7,950
|
)
|
|
|
(2
|
)%
|
|
|
(8,398
|
)
|
|
|
(2
|
)%
|
|
|
448
|
|
|
|
(5
|
)%
|
Depreciation and amortization
|
|
|
(39,009
|
)
|
|
|
(9
|
)%
|
|
|
(46,105
|
)
|
|
|
(9
|
)%
|
|
|
7,096
|
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
107,201
|
|
|
|
24
|
%
|
|
|
137,249
|
|
|
|
27
|
%
|
|
|
(30,048
|
)
|
|
|
(22
|
)%
|
Interest expense, net
|
|
|
(12,075
|
)
|
|
|
(3
|
)%
|
|
|
(16,062
|
)
|
|
|
(3
|
)%
|
|
|
3,987
|
|
|
|
(25
|
)%
|
Interest income
|
|
|
10,856
|
|
|
|
3
|
%
|
|
|
10,569
|
|
|
|
2
|
%
|
|
|
287
|
|
|
|
3
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(9,540
|
)
|
|
|
(2
|
)%
|
|
|
4,160
|
|
|
|
1
|
%
|
|
|
(13,700
|
)
|
|
|
NM
|
|
Other expense, net
|
|
|
(68
|
)
|
|
|
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
11
|
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
96,374
|
|
|
|
22
|
%
|
|
$
|
135,837
|
|
|
|
27
|
%
|
|
$
|
(39,463
|
)
|
|
|
(29
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Nextel Mexico continues to be our largest and most profitable
market segment, comprising 46% of our consolidated operating
revenues and generating a 35% segment earnings margin for the
three months ended March 31, 2009, which was slightly lower
than the margin reported for the three months ended
March 31, 2008.
30
During the three months ended March 31, 2009, Nextel
Mexicos results of operations reflected lower average
revenues per subscriber, as well as increased costs on a local
currency basis, 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.
The average value of the Mexican peso for the three months ended
March 31, 2009 depreciated relative to the U.S. dollar
by 33% compared to the average rates that prevailed during the
three months ended March 31, 2008. While the average
exchange rate of the Mexican peso continued to decline
subsequent to December 31, 2008, the majority of this
depreciation occurred during the fourth quarter of 2008. As a
result, the components of Nextel Mexicos results of
operations for the three months ended March 31, 2009 after
translation into U.S. dollars reflect substantially lower
U.S. dollar-denominated revenues and expenses than would
have occurred if it were not for the impact of the depreciation
in the average value of the peso relative to the
U.S. dollar. 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.
During 2008, some of Nextel Mexicos competitors
significantly lowered their prices for postpaid wireless
services, offered free or significantly discounted handsets,
specifically targeted some of Nextel Mexicos largest
corporate customers, offered various incentives to Nextel
Mexicos customers to switch service providers, including
reimbursement of cancellation fees, and offered bundled
telecommunications services that include local, long distance
and data services. These competitive actions and practices
largely remained in place during the first quarter of 2009.
Nextel Mexico is addressing these competitive actions by, among
other things, launching attractive commercial campaigns and
offering both handsets and more competitive rate plans to new
and existing customers. These competitive rate plans are
designed to encourage increased usage of the Direct Connect
feature, but have resulted in lower average revenues per
subscriber. The weaker economic conditions and more competitive
environment in Mexico also resulted in a higher customer
turnover rate during 2009 compared to 2008 and in the addition
of more subscribers with limited credit histories or higher
credit risk. As Nextel Mexico continues to expand its customer
base and continues to address a more competitive sales
environment, Nextel Mexicos average revenue per subscriber
could continue to decline on a local currency basis during 2009.
In addition, while we have implemented initiatives that were
designed to stabilize the customer turnover rate in Mexico, the
pressures of the weaker economic environment combined with the
competitive conditions we face there may adversely affect our
ability to retain or attract customers.
Coverage expansion and network improvements in Mexico resulted
in capital expenditures totaling $25.7 million for the
three months ended March 31, 2009, which represents 15% of
our consolidated capital expenditures for first three months of
2009 and which is a decrease from 26% of consolidated capital
expenditures during the first three months of 2008. 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 $65.9 million, or 13%, decrease in service and other
revenues from the three months ended March 31, 2008 to the
same period in 2009 is primarily due to the 33% depreciation of
the Mexican peso relative to the U.S. dollar, as well as a
decline in average revenue per subscriber due to a weaker
economic environment in Mexico and the launch of more
competitive rate plans described above. These decreases were
partially offset by a 26% 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.
The $2.6 million, or 17%, increase in digital handset and
accessory revenues from the three months ended March 31,
2008 to the same period in 2009 is primarily the result of an
increase in handset sales to new subscribers and an increase in
handset upgrades to existing subscribers.
31
The $13.7 million, or 14%, decrease in cost of service from
the three months ended March 31, 2008 to the same period in
2009 is principally a result of the following:
|
|
|
|
|
a $7.6 million, or 16%, decrease in interconnect costs,
largely as a result of the depreciation of the Mexican peso
relative to the U.S. dollar, partially offset by a 4%
increase in interconnect minutes of use; and
|
|
|
|
a $4.0 million, or 12%, decrease in direct switch and
transmitter and receiver site costs due to the depreciation of
the Mexican peso relative to the U.S. dollar, partially
offset by a 9% increase in the number of transmitter and
receiver sites in service from March 31, 2008 to
March 31, 2009 and an increase in software and hardware
maintenance costs.
|
The $8.8 million, or 11%, increase in cost of digital
handset and accessory sales from the three months ended
March 31, 2008 to the same period in 2009 is primarily the
result of an increase in handset sales to new subscribers and an
increase in handset upgrades to existing subscribers, partially
offset by a reduction in handset unit costs.
|
|
3.
|
Selling and
marketing expenses
|
The $19.3 million, or 26%, decrease in selling and
marketing expenses from the three months ended March 31,
2008 to the same period in 2009 is primarily a result of the
following:
|
|
|
|
|
an $11.1 million, or 28%, decrease in indirect commissions,
primarily due to the depreciation of the Mexican peso relative
to the U.S. dollar, partially offset by a 6% increase in
gross additions generated by Nextel Mexicos external sales
channels;
|
|
|
|
a $4.5 million, or 21%, decrease in direct commissions and
payroll expenses, principally due to the depreciation of the
Mexican peso relative to the U.S. dollar, partially offset
by a 7% increase in gross subscriber additions generated by
Nextel Mexicos internal sales personnel; and
|
|
|
|
a $3.1 million, or 29%, decrease in advertising costs
primarily resulting from the depreciation of the Mexican peso
relative to the U.S. dollar.
|
|
|
4.
|
General and
administrative expenses
|
The $1.5 million, or 2%, decrease in general and
administrative expenses from the three months ended
March 31, 2008 to the same period in 2009 is largely a
result of the following:
|
|
|
|
|
a $3.8 million, or 16%, decrease in general corporate costs
resulting from the depreciation of the Mexican peso relative to
the U.S. dollar; and
|
|
|
|
a $3.0 million, or 12%, decrease in customer care expenses,
primarily due to the depreciation of the Mexican peso relative
to the U.S. dollar, partially offset by an increase in
payroll and employee related expenses caused by an increase in
customer care personnel necessary to support Nextel
Mexicos growing customer base; partially offset by
|
|
|
|
a $4.7 million, or 39%, increase in bad debt expense
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.
|
|
|
5.
|
Depreciation
and amortization
|
The $7.1 million, or 15%, decrease in depreciation and
amortization from three months ended March 31, 2008 to the
same period in 2009 is primarily due to the reduction in the
carrying value of property, plant and equipment and intangible
assets denominated in Mexican pesos as a result of the
depreciation of the Mexican peso relative to the
U.S. dollar, partially offset by higher depreciation
related to an increase in Nextel Mexicos property, plant
and equipment in service resulting from the build-out of Nextel
Mexicos network in connection with its expansion plan.
32
The $4.0 million, or 25%, decrease in interest expense from
the three months ended March 31, 2008 to the same period in
2009 is primarily due to a decrease in interest incurred under
Nextel Mexicos syndicated loan facility as a result of the
payments of principal in April 2008 and October 2008, as well as
the impact of the depreciation of the Mexican peso relative to
the U.S. dollar on interest obligations under Nextel
Mexicos syndicated loan facility that are denominated in
Mexican pesos.
|
|
7.
|
Foreign
currency transaction (losses) gains, net
|
Foreign currency transaction losses of $9.5 million for the
three months ended March 31, 2009 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 assets.
Foreign currency transaction gains of $4.2 million for the
three months ended March 31, 2008 are primarily due to the
impact of the appreciation of the value of the Mexican peso
against the U.S. dollar on Nextel Mexicos
U.S. dollar-denominated net liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
297,290
|
|
|
|
94
|
%
|
|
$
|
286,316
|
|
|
|
95
|
%
|
|
$
|
10,974
|
|
|
|
4
|
%
|
|
|
|
|
Digital handset and accessory revenues
|
|
|
18,791
|
|
|
|
6
|
%
|
|
|
15,169
|
|
|
|
5
|
%
|
|
|
3,622
|
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
316,081
|
|
|
|
100
|
%
|
|
|
301,485
|
|
|
|
100
|
%
|
|
|
14,596
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(105,096
|
)
|
|
|
(33
|
)%
|
|
|
(100,469
|
)
|
|
|
(33
|
)%
|
|
|
(4,627
|
)
|
|
|
5
|
%
|
|
|
|
|
Cost of digital handset and accessory sales
|
|
|
(29,328
|
)
|
|
|
(9
|
)%
|
|
|
(28,062
|
)
|
|
|
(9
|
)%
|
|
|
(1,266
|
)
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134,424
|
)
|
|
|
(42
|
)%
|
|
|
(128,531
|
)
|
|
|
(42
|
)%
|
|
|
(5,893
|
)
|
|
|
5
|
%
|
|
|
|
|
Selling and marketing expenses
|
|
|
(37,699
|
)
|
|
|
(12
|
)%
|
|
|
(35,332
|
)
|
|
|
(12
|
)%
|
|
|
(2,367
|
)
|
|
|
7
|
%
|
|
|
|
|
General and administrative expenses
|
|
|
(55,934
|
)
|
|
|
(18
|
)%
|
|
|
(56,232
|
)
|
|
|
(19
|
)%
|
|
|
298
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
88,024
|
|
|
|
28
|
%
|
|
|
81,390
|
|
|
|
27
|
%
|
|
|
6,634
|
|
|
|
8
|
%
|
|
|
|
|
Depreciation and amortization
|
|
|
(33,388
|
)
|
|
|
(11
|
)%
|
|
|
(31,976
|
)
|
|
|
(11
|
)%
|
|
|
(1,412
|
)
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
54,636
|
|
|
|
17
|
%
|
|
|
49,414
|
|
|
|
16
|
%
|
|
|
5,222
|
|
|
|
11
|
%
|
|
|
|
|
Interest expense, net
|
|
|
(10,504
|
)
|
|
|
(3
|
)%
|
|
|
(13,265
|
)
|
|
|
(4
|
)%
|
|
|
2,761
|
|
|
|
(21
|
)%
|
|
|
|
|
Interest income
|
|
|
1,239
|
|
|
|
|
|
|
|
997
|
|
|
|
|
|
|
|
242
|
|
|
|
24
|
%
|
|
|
|
|
Foreign currency transaction gains (losses), net
|
|
|
2,395
|
|
|
|
1
|
%
|
|
|
(1,747
|
)
|
|
|
(1
|
)%
|
|
|
4,142
|
|
|
|
(237
|
)%
|
|
|
|
|
Other expense, net
|
|
|
(1,317
|
)
|
|
|
|
|
|
|
(1,197
|
)
|
|
|
|
|
|
|
(120
|
)
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
46,449
|
|
|
|
15
|
%
|
|
$
|
34,202
|
|
|
|
11
|
%
|
|
$
|
12,247
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over the last several years, Nextel Brazils subscriber
base has grown as a result of its continued focus on customer
service and the expansion of the geographic coverage of its
network. As a result, Nextel Brazil contributed 33% of
consolidated revenues in the first quarter of 2009 compared to
30% for the same period in 2008, and its contribution to
consolidated segment earnings margin increased from 27% in 2008
to 28% in 2009. Nextel Brazil has continued to experience growth
in its existing markets and has made significant investments in
new markets as a
33
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. Specifically, Nextel Brazil launched several large
markets in its northeast region during the first quarter of
2009. Coverage expansion and network improvements resulted in
capital expenditures of $113.9 million for the first
quarter of 2009, which represented 67% of our consolidated
capital expenditure investments during the quarter, compared to
54% in the first quarter of 2008. We believe that Nextel
Brazils quality improvements and network expansion are
contributing factors to its low customer turnover rate and
increased subscriber growth.
The average exchange rate of the Brazilian real for the three
months ended March 31, 2009 depreciated relative to the
U.S. dollar by 33% compared to the average rates that
prevailed during the three months ended March 31, 2008. As
a result, the components of Nextel Brazils results of
operations for the three months ended March 31, 2009, after
translation into U.S. dollars, reflect significantly lower
U.S. dollar-denominated revenues and expenses with respect
to revenues that are earned and expenses that are paid in
Brazilian reais than would have occurred if the Brazilian real
had not depreciated relative to the U.S. dollar. The
majority of this currency depreciation occurred during the
fourth quarter of 2008. The average exchange rate of the
Brazilian real was relatively stable compared to the average
exchange rates Nextel Brazil experienced during the fourth
quarter of 2008.
The $11.0 million, or 4%, increase in service and other
revenues from the three months ended March 31, 2008 to the
same period in 2009 is primarily a result of the following:
|
|
|
|
|
a 40% increase in the average number of digital handsets in
service resulting from growth in Nextel Brazils existing
markets and the expansion of service coverage into new markets
in connection with its balanced growth and expansion objectives;
partially offset by
|
|
|
|
a decline in average revenue per subscriber primarily due to the
33% depreciation in the Brazilian real.
|
The $3.6 million, or 24%, increase in digital handset and
accessory revenues from the three months ended March 31,
2008 to the same period in 2009 is primarily due to an increase
in handset upgrades for existing subscribers, as well as an
increase in handset sales to new subscribers.
The $4.6 million, or 5%, increase in cost of service from
the three months ended March 31, 2008 to the same period in
2009 is primarily due to the following:
|
|
|
|
|
a $2.9 million, or 5%, increase in interconnect costs
resulting from a 50% increase in interconnect minutes of use,
which is partially offset by the depreciation of the
real; and
|
|
|
|
a $1.9 million, or 18%, increase in service and repair
costs largely due to 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, partially offset by a decreased
percentage of Nextel Brazils subscriber base participating
in its handset maintenance program.
|
The $1.3 million, or 5%, increase in cost of digital
handset and accessory sales from the three months ended
March 31, 2008 to the same period in 2009 is primarily due
to an increase in handset upgrades for existing customers and an
increase in handset sales to new subscribers, partially offset
by a decrease in cost per handset sale as a larger proportion of
these sales were sales of SIM cards.
|
|
3.
|
Selling and
marketing expenses
|
The $2.4 million, or 7%, increase in selling and marketing
expenses from the three months ended March 31, 2008 to the
same period in 2009 is principally due to the combination of an
increase in advertising expenses resulting from the launch of
new markets in connection with Nextel Brazils northeast
expansion plan, increased costs associated with the Blackberry
launch that occurred in the first quarter of 2009 and an
increase in gross subscriber additions generated through Nextel
Brazils external sales channels. These increases were
partially offset
34
by a decrease in indirect commissions resulting from a reduction
in average commission rates and the depreciation of the real.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
124,171
|
|
|
|
94
|
%
|
|
$
|
114,967
|
|
|
|
91
|
%
|
|
$
|
9,204
|
|
|
|
8
|
%
|
Digital handset and accessory revenues
|
|
|
7,995
|
|
|
|
6
|
%
|
|
|
11,065
|
|
|
|
9
|
%
|
|
|
(3,070
|
)
|
|
|
(28
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,166
|
|
|
|
100
|
%
|
|
|
126,032
|
|
|
|
100
|
%
|
|
|
6,134
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(44,773
|
)
|
|
|
(34
|
)%
|
|
|
(41,356
|
)
|
|
|
(33
|
)%
|
|
|
(3,417
|
)
|
|
|
8
|
%
|
Cost of digital handset and accessory sales
|
|
|
(13,469
|
)
|
|
|
(10
|
)%
|
|
|
(16,912
|
)
|
|
|
(13
|
)%
|
|
|
3,443
|
|
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,242
|
)
|
|
|
(44
|
)%
|
|
|
(58,268
|
)
|
|
|
(46
|
)%
|
|
|
26
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
(10,102
|
)
|
|
|
(8
|
)%
|
|
|
(9,663
|
)
|
|
|
(8
|
)%
|
|
|
(439
|
)
|
|
|
5
|
%
|
General and administrative expenses
|
|
|
(21,949
|
)
|
|
|
(16
|
)%
|
|
|
(18,723
|
)
|
|
|
(15
|
)%
|
|
|
(3,226
|
)
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
41,873
|
|
|
|
32
|
%
|
|
|
39,378
|
|
|
|
31
|
%
|
|
|
2,495
|
|
|
|
6
|
%
|
Depreciation and amortization
|
|
|
(9,851
|
)
|
|
|
(8
|
)%
|
|
|
(8,739
|
)
|
|
|
(7
|
)%
|
|
|
(1,112
|
)
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
32,022
|
|
|
|
24
|
%
|
|
|
30,639
|
|
|
|
24
|
%
|
|
|
1,383
|
|
|
|
5
|
%
|
Interest expense, net
|
|
|
1,062
|
|
|
|
1
|
%
|
|
|
(658
|
)
|
|
|
|
|
|
|
1,720
|
|
|
|
(261
|
)%
|
Interest income
|
|
|
208
|
|
|
|
|
|
|
|
1,267
|
|
|
|
1
|
%
|
|
|
(1,059
|
)
|
|
|
(84
|
)%
|
Foreign currency transaction gains, net
|
|
|
5,081
|
|
|
|
4
|
%
|
|
|
430
|
|
|
|
|
|
|
|
4,651
|
|
|
|
NM
|
|
Other income, net
|
|
|
2
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
(93
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
38,375
|
|
|
|
29
|
%
|
|
$
|
31,706
|
|
|
|
25
|
%
|
|
$
|
6,669
|
|
|
|
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 affected costs that are incurred in
Argentine pesos, including personnel costs in particular. 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 three months
ended March 31, 2009 depreciated relative to the
U.S. dollar by 12% from the three months ended
March 31, 2008. As a result, the components of Nextel
Argentinas results of operations for the three months
ended March 31, 2009 after translation into
U.S. dollars reflect significantly lower
U.S. dollar-denominated revenues and expenses than would
have occurred if the Argentine peso had not depreciated relative
to the U.S. dollar.
The $9.2 million, or 8%, increase in service and other
revenues from the three months ended March 31, 2008 to the
same period in 2009 is primarily due to a 17% increase in the
average number of handsets in service, resulting from growth in
Nextel Argentinas existing markets, partially offset by
the depreciation of the Argentine peso relative to the
U.S. dollar.
35
The $3.1 million, or 28%, decrease in digital handset and
accessory revenues from the three months ended March 31,
2008 to the same period 2009 is mostly the result of a decrease
in handset upgrades to existing subscribers, a slight decrease
in handset sales to new subscribers and the depreciation of the
Argentine peso relative to the U.S. dollar.
The $3.4 million, or 8%, increase in cost of service from
the three months ended March 31, 2008 to the same period in
2009 is principally a result of the following:
|
|
|
|
|
a $2.5 million, or 23%, increase in service and repair
costs, largely as a result of an increased number of claims per
subscriber submitted under Nextel Argentinas handset
maintenance program; and
|
|
|
|
a $2.1 million, or 24%, increase in direct switch and
transmitter and receiver site costs due to a 19% increase in the
number of transmitter and receiver sites in service from
March 31, 2008 to March 31, 2009; partially offset by
|
|
|
|
a $1.4 million, or 7%, decrease in interconnect costs,
largely as a result of the depreciation of the Argentine peso
relative to the U.S. dollar as the interconnect minutes of
use remained constant between the two periods.
|
The $3.4 million, or 20%, decrease in cost of digital
handset and accessory sales from the three months ended
March 31, 2008 to the same period in 2009 is primarily the
result of a decrease in handset upgrades to existing
subscribers, a slight decrease in handset sales to new
subscribers and the depreciation of the Argentine peso relative
to the U.S. dollar.
|
|
3.
|
General and
administrative expenses
|
The $3.2 million, or 17%, increase in general and
administrative expenses from three months ended March 31,
2008 to the same period in 2009 is primarily a result of the
following:
|
|
|
|
|
a $1.3 million, or 13%, increase in other general and
administrative costs primarily due to an increase in payroll and
related expenses caused by an increase in personnel and an
increase in salaries consistent with the ongoing inflation in
Argentina;
|
|
|
|
a $1.0 million, or 90%, increase in bad debt expense
primarily due to an increase in customer turnover resulting from
a decrease in customer collections; and
|
|
|
|
a $0.9 million, or 18%, 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.
|
|
|
4.
|
Foreign
currency transaction gains, net
|
Foreign currency transaction gains of $5.1 million for the
three months ended March 31, 2009 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.
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
58,932
|
|
|
|
90
|
%
|
|
$
|
51,696
|
|
|
|
93
|
%
|
|
$
|
7,236
|
|
|
|
14
|
%
|
Digital handset and accessory revenues
|
|
|
6,593
|
|
|
|
10
|
%
|
|
|
4,162
|
|
|
|
7
|
%
|
|
|
2,431
|
|
|
|
58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,525
|
|
|
|
100
|
%
|
|
|
55,858
|
|
|
|
100
|
%
|
|
|
9,667
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(21,100
|
)
|
|
|
(32
|
)%
|
|
|
(18,468
|
)
|
|
|
(33
|
)%
|
|
|
(2,632
|
)
|
|
|
14
|
%
|
Cost of digital handset and accessory sales
|
|
|
(13,449
|
)
|
|
|
(21
|
)%
|
|
|
(9,774
|
)
|
|
|
(18
|
)%
|
|
|
(3,675
|
)
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,549
|
)
|
|
|
(53
|
)%
|
|
|
(28,242
|
)
|
|
|
(51
|
)%
|
|
|
(6,307
|
)
|
|
|
22
|
%
|
Selling and marketing expenses
|
|
|
(8,136
|
)
|
|
|
(12
|
)%
|
|
|
(6,268
|
)
|
|
|
(11
|
)%
|
|
|
(1,868
|
)
|
|
|
30
|
%
|
General and administrative expenses
|
|
|
(13,473
|
)
|
|
|
(21
|
)%
|
|
|
(9,287
|
)
|
|
|
(16
|
)%
|
|
|
(4,186
|
)
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
9,367
|
|
|
|
14
|
%
|
|
|
12,061
|
|
|
|
22
|
%
|
|
|
(2,694
|
)
|
|
|
(22
|
)%
|
Depreciation and amortization
|
|
|
(7,272
|
)
|
|
|
(11
|
)%
|
|
|
(4,955
|
)
|
|
|
(9
|
)%
|
|
|
(2,317
|
)
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,095
|
|
|
|
3
|
%
|
|
|
7,106
|
|
|
|
13
|
%
|
|
|
(5,011
|
)
|
|
|
(71
|
)%
|
Interest expense, net
|
|
|
(64
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
(47
|
)
|
|
|
276
|
%
|
Interest income
|
|
|
40
|
|
|
|
|
|
|
|
291
|
|
|
|
|
|
|
|
(251
|
)
|
|
|
(86
|
)%
|
Foreign currency transaction losses, net
|
|
|
(109
|
)
|
|
|
|
|
|
|
(191
|
)
|
|
|
|
|
|
|
82
|
|
|
|
(43
|
)%
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
1,962
|
|
|
|
3
|
%
|
|
$
|
7,190
|
|
|
|
13
|
%
|
|
$
|
(5,228
|
)
|
|
|
(73
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are developing and deploying a third generation network in
Peru in 2009 using 1.9 GHz spectrum we acquired in 2007. In
2008 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 Nextel Perus functional
currency, results of operations are not significantly impacted
by changes in the U.S. dollar to Peruvian sol exchange rate.
The $7.2 million, or 14%, increase in service and other
revenues from the three months ended March 31, 2008 to the
same period in 2009 is primarily due to a 38% increase in the
average number of digital handsets in service, partially offset
by a decrease in average revenue per subscriber mainly resulting
from an increase in the percentage of subscribers in Nextel
Perus subscriber base who purchase service under its
prepaid rate plans, which generally have lower average monthly
revenues per subscriber.
The $2.4 million, or 58%, increase in digital handset and
accessory revenues from the three months ended March 31,
2008 to the same period in 2009 is due primarily to an increase
in handset upgrades for existing customers and an increase in
handset sales to new subscribers.
37
The $2.6 million, or 14%, increase in cost of service from
the three months ended March 31, 2008 to the same period in
2009 is largely a result of the following:
|
|
|
|
|
a 41% increase in direct switch and transmitter and receiver
site costs due to an 18% increase in the number of sites in
service from March 31, 2008 to March 31, 2009, as well
as an increase in operating and maintenance costs per
site; and
|
|
|
|
a 59% increase in service and repair costs largely due to an
increased percentage of Nextel Perus subscriber base
participating in its handset maintenance program; partially
offset by
|
|
|
|
a 10% decrease in interconnect costs largely due to the net
effect of a reduction in the interconnect rates charged to
Nextel Peru when Nextel Perus subscribers make calls to
customers with other service providers and a 4% increase in
interconnect minutes of use.
|
The $3.7 million, or 38%, increase in cost of digital
handsets and accessory sales from the three months ended
March 31, 2008 to the same period in 2009 is the result of
an increase in handset upgrade costs primarily due to an
increase in handset upgrades for existing customers, an increase
in handset sales to new subscribers and an increase in handset
costs.
|
|
3.
|
Selling and
marketing expenses
|
The $1.9 million, or 30%, increase in selling and marketing
expenses from the three months ended March 31, 2008 to the
same period in 2009 is largely a result of an increase in
indirect commissions primarily due to an increase in gross
subscriber additions generated through Nextel Perus
external sales channels, partially offset by a decrease in
indirect commission per gross subscriber addition and an
increase in direct commissions and payroll expenses principally
due to an increase in Nextel Perus internal sales
personnel.
|
|
4.
|
General and
administrative expenses
|
The $4.2 million, or 45%, increase in general and
administrative expenses from the three months ended
March 31, 2008 to the same period in 2009 is largely a
result of an increase in bad debt expense primarily due to
increased subscriber additions generated through retail channels
who generally have a higher credit risk profile. As a result of
this increase in bad debt expense, Nextel Peru implemented
stricter credit policies during the first quarter of 2009. This
increase in general and administrative expenses is also
attributable to an increase in information technology costs
mostly related to new technology initiatives and an increase in
information technology personnel necessary to develop and deploy
Nextel Perus new network.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
2,775
|
|
|
|
100
|
%
|
|
$
|
1,782
|
|
|
|
99
|
%
|
|
$
|
993
|
|
|
|
56
|
%
|
Digital handset and accessory revenues
|
|
|
6
|
|
|
|
|
|
|
|
14
|
|
|
|
1
|
%
|
|
|
(8
|
)
|
|
|
(57
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,781
|
|
|
|
100
|
%
|
|
|
1,796
|
|
|
|
100
|
%
|
|
|
985
|
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(1,609
|
)
|
|
|
(58
|
)%
|
|
|
(1,205
|
)
|
|
|
(67
|
)%
|
|
|
(404
|
)
|
|
|
34
|
%
|
Cost of digital handset and accessory sales
|
|
|
(680
|
)
|
|
|
(24
|
)%
|
|
|
(456
|
)
|
|
|
(25
|
)%
|
|
|
(224
|
)
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,289
|
)
|
|
|
(82
|
)%
|
|
|
(1,661
|
)
|
|
|
(92
|
)%
|
|
|
(628
|
)
|
|
|
38
|
%
|
Selling and marketing expenses
|
|
|
(3,552
|
)
|
|
|
(128
|
)%
|
|
|
(2,896
|
)
|
|
|
(161
|
)%
|
|
|
(656
|
)
|
|
|
23
|
%
|
General and administrative expenses
|
|
|
(45,224
|
)
|
|
|
NM
|
|
|
|
(35,870
|
)
|
|
|
NM
|
|
|
|
(9,354
|
)
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(48,284
|
)
|
|
|
NM
|
|
|
|
(38,631
|
)
|
|
|
NM
|
|
|
|
(9,653
|
)
|
|
|
25
|
%
|
Management fee
|
|
|
7,950
|
|
|
|
286
|
%
|
|
|
8,398
|
|
|
|
NM
|
|
|
|
(448
|
)
|
|
|
(5
|
)%
|
Depreciation and amortization
|
|
|
(3,376
|
)
|
|
|
(121
|
)%
|
|
|
(2,608
|
)
|
|
|
(145
|
)%
|
|
|
(768
|
)
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(43,710
|
)
|
|
|
NM
|
|
|
|
(32,841
|
)
|
|
|
NM
|
|
|
|
(10,869
|
)
|
|
|
33
|
%
|
Interest expense, net
|
|
|
(24,707
|
)
|
|
|
NM
|
|
|
|
(23,920
|
)
|
|
|
NM
|
|
|
|
(787
|
)
|
|
|
3
|
%
|
Interest income
|
|
|
2,002
|
|
|
|
72
|
%
|
|
|
7,784
|
|
|
|
NM
|
|
|
|
(5,782
|
)
|
|
|
(74
|
)%
|
Foreign currency transaction (losses) gains, net
|
|
|
(5,141
|
)
|
|
|
(185
|
)%
|
|
|
253
|
|
|
|
14
|
%
|
|
|
(5,394
|
)
|
|
|
NM
|
|
Other expense, net
|
|
|
(258
|
)
|
|
|
(9
|
)%
|
|
|
(3,282
|
)
|
|
|
(183
|
)%
|
|
|
3,024
|
|
|
|
(92
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(71,814
|
)
|
|
|
NM
|
|
|
$
|
(52,006
|
)
|
|
|
NM
|
|
|
$
|
(19,808
|
)
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the three months ended March 31, 2009 and 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.
|
|
1.
|
General and
administrative expenses
|
The $9.4 million, or 26%, increase in general and
administrative expenses from the first quarter of 2008 to the
same period in 2009 is primarily due to an increase in corporate
personnel expenses and increased consulting costs, both of which
are largely related to the commencement of some of our new
technology and other initiatives.
The $5.8 million, or 74%, decrease in interest income from
the first quarter of 2008 to the first quarter of 2009 is the
result of lower average cash balances and a decrease in our
short-term investments.
39
|
|
3.
|
Foreign
currency transaction (losses) gains, net
|
Foreign currency transaction losses for the first quarter of
2009 are primarily due to the impact of the depreciation of the
value of the Mexican peso relative to the U.S. dollar on
the Mexican peso-denominated management fee due from Nextel
Mexico.
Liquidity
and Capital Resources
We derive our liquidity and capital resources primarily from
cash flows from our operations. As of March 31, 2009, we
had working capital, which is defined as total current assets
less total current liabilities, of $1,283.9 million, a
$93.5 million decrease compared to working capital of
$1,377.4 million as of December 31, 2008, due to a
combination of our use of cash for capital expenditures and a
reduction in the value of our cash held in local currencies as a
result of the decline in the value of those currencies relative
to the U.S. dollar. Our working capital includes
$1,156.4 million in cash and cash equivalents as of
March 31, 2009, of which about 34% was held in currencies
other than U.S. dollars, with a majority held in Mexican
pesos, and $21.9 million of short-term investments. A
substantial portion of our cash and cash equivalents held in
U.S. dollars is maintained in U.S. treasury security
funds, and our cash and cash equivalents held in local
currencies is typically maintained in highly liquid overnight
securities and certificates of deposit.
We recognized net income of $70.6 million for the three
months ended March 31, 2009 compared to $106.8 million
for the three months ended March 31, 2008. During the three
months ended March 31, 2009 and 2008, our operating
revenues more than offset our operating expenses, excluding
depreciation and amortization, and our cash capital expenditures.
Because we report our results of operations in
U.S. dollars, the declines in relative currency valuations
that occurred during the first quarter of 2009 resulted in
reductions in some of the reported values of our assets,
including the values of cash and cash equivalents held in local
currencies. For the three months ended March 31, 2009, the
effect of exchange rate changes on consolidated cash and cash
equivalents was a $39.1 million loss in the value of those
assets. If the values of the currencies in the countries in
which our operating companies conduct business relative to the
U.S. dollar remain at the average levels that prevailed
during the first quarter of 2009 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 ongoing
operations and capital expenditures, but our funding needs could
be affected by a number of factors. Specifically, our liquidity
could be negatively affected by a decrease in operating revenues
resulting from a decline in demand for our products and services
due to the significant downturn in the global economy or from a
decline in the values of the currencies in the countries in
which we conduct our business relative to the U.S. dollar
among other factors. See Future Capital Needs and
Resources Future Outlook.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Cash and cash equivalents, beginning of year
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
|
$
|
(126,914
|
)
|
Net cash provided by operating activities
|
|
|
137,400
|
|
|
|
158,955
|
|
|
|
(21,555
|
)
|
Net cash used in investing activities
|
|
|
(165,591
|
)
|
|
|
(204,926
|
)
|
|
|
39,335
|
|
Net cash (used in) provided by financing activities
|
|
|
(19,535
|
)
|
|
|
52,176
|
|
|
|
(71,711
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(39,074
|
)
|
|
|
9,054
|
|
|
|
(48,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,156,451
|
|
|
$
|
1,385,424
|
|
|
$
|
(228,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
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 $137.4 million of
cash during the first quarter of 2009, a $21.6 million, or
14%, decrease from the first quarter of 2008. The decrease in
cash generated from operating activities was primarily due to
the affect of depreciating foreign currencies in the markets
where we do business on the value of cash in U.S. dollars
and increased cash used for working capital.
We used $165.6 million of cash in our investing activities
during the first quarter of 2009, a $39.3 million decrease
from the first quarter of 2008 primarily due to a
$15.2 million increase in distributions we received from
our enhanced cash fund, which primarily consists of certain
asset-backed and mortgage-backed securities, and a
$23.2 million decrease in cash capital expenditures from
$206.2 million in the first quarter of 2008 to
$183.0 million in the first quarter of 2009. We expect to
continue to focus our capital spending in Brazil, Mexico and
Peru.
We used $19.5 million of cash in our financing activities
during the first quarter of 2009, primarily due to
$18.0 million in payments of short-term notes payable. Our
financing activities provided us with $52.2 million of cash
during the first quarter of 2008, primarily due to
$125.0 million in borrowings under Nextel Brazils
syndicated loan facility and $27.3 million in proceeds from
our towers financing transactions in Mexico and Brazil,
partially offset by $102.6 million in cash we used to
purchase shares of our common stock.
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 currency exchange rates.
|
Capital Needs and Contractual
Obligations. We currently anticipate that our
future capital needs will principally consist of funds required
for:
|
|
|
|
|
operating expenses relating to our 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.
|
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$169.5 million for the three months ended March 31,
2009 and $191.9 million for the three months ended
March 31, 2008. In each of these years, a substantial
portion of our capital expenditures was invested in the
expansion of the coverage and capacity of our networks in Mexico
and Brazil. We expect to continue to focus our capital spending
in these two markets, particularly in Brazil as we significantly
expand the geographic coverage of Nextel Brazils network,
including expansion into the northeast region of the country,
and as we expand that networks capacity to support Nextel
Brazils growth.
41
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 Forward Looking Statements.
Future Outlook. We believe that our
current business plans, which contemplate significant expansion
of our iDEN network in Brazil, continued coverage and capacity
expansion of our iDEN networks in Mexico, 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;
|
|
|
|
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
|
42
|
|
|
|
|
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 the remainder of 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 connection with these business expansion activities and
for refinancing may be significant.
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:
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|
|
|
|
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 any financing we raise could impose restrictions that
limit our flexibility in responding to business conditions and
our ability to obtain additional financing. If new indebtedness
is added to our current levels of indebtedness, the related
risks that we now face could intensify. For more information,
see Item 1A. Risk Factors 4. Our funding needs and
debt service requirements could make us more dependent on
external financing. If we are unable to obtain
43
financing, our business may be adversely affected.
and 5. Our current and future debt may limit our
flexibility and increase our risk of default. in our
2008 annual report on
Form 10-K.
Forward
Looking Statements
Safe Harbor Statement under the Private
Securities Litigation Reform Act of
1995. Certain statements made in this
quarterly report on
Form 10-Q
are not historical or current facts, but deal with potential
future circumstances and developments. They can be identified by
the use of forward-looking words such as believes,
expects, intends, plans,
may, will, would,
could, should or anticipates
or other comparable words, or by discussions of strategy that
involve risks and uncertainties. We caution you that these
forward-looking statements are only predictions, which are
subject to risks and uncertainties, including technical
uncertainties, financial variations and changes in the
regulatory environment, industry growth and trend predictions.
We have attempted to identify, in context, some of the factors
that we currently believe may cause actual future experience and
results to differ from our current expectations regarding the
relevant matter or subject area. The operation and results of
our wireless communications business also may be subject to the
effects of other risks and uncertainties in addition to the
other qualifying factors identified in this Item, including, but
not limited to:
|
|
|
|
|
our ability to meet the operating goals established by our
business plan;
|
|
|
|
general economic conditions in the United States or in Latin
America and in the market segments that we are targeting for our
services, including the impact of the current uncertainties in
global economic conditions;
|
|
|
|
the political and social conditions in the countries in which we
operate, including political instability, which may affect the
economies of our markets and the regulatory schemes in these
countries;
|
|
|
|
the impact of foreign exchange volatility in our markets as
compared to the U.S. dollar and related currency
depreciation in countries in which our operating companies
conduct business;
|
|
|
|
our ability to access sufficient debt or equity capital to meet
any future operating and financial needs, including the impact
of the recent disruption in global capital markets that have
made it more difficult or costly to obtain funding on acceptable
terms;
|
|
|
|
reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of 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;
|
|
|
|
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;
|
44
|
|
|
|
|
market acceptance of our new service offerings; and
|
|
|
|
other risks and uncertainties described in this quarterly report
on
Form 10-Q
and from time to time in our other reports filed with the
Securities and Exchange Commission, including in our 2008 annual
report on
Form 10-K.
|
Effect of
New Accounting Standards
In December 2007, the FASB issued Statement of Financial
Accounting Standards, or 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. In April 2009,
the FASB issued Staff Position No. 141(R)-1,
Accounting for Assets Acquired and Liabilities Assumed in
a Business Combination That Arise from Contingencies, or
FSP 141(R)-1, which requires assets acquired and
liabilities assumed in a business combination that arise from
contingencies to be recognized at fair value as of the
acquisition date if fair value can be determined during the
measurement period. If fair value cannot be determined,
contingent assets acquired and liabilities assumed in a business
combination should be accounted for in accordance with existing
guidance. SFAS No. 141(R) and FSP 141(R)-1 are
effective for fiscal years beginning after December 15,
2008. As a result, the provisions of SFAS No. 141(R)
and FSP 141(R)-1 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) and
FSP 141(R)-1 on our condensed consolidated financial
statements will be dependent upon 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 did not have
a material impact on our condensed consolidated financial
statements.
In December 2007, the FASB issued Emerging Issues Task Force, or
EITF, Issue
No. 07-5,
Determining Whether an Instrument (or Embedded Feature) Is
Indexed to an Entitys Own Stock, or
EITF 07-5.
SFAS 133 states that contracts which are both
(1) indexed to the reporting entitys own stock and
(2) classified as a component of stockholders equity
should not be accounted for as derivative instruments.
EITF 07-5
provides that an entity should use a two-step approach in
evaluating whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including
evaluating the instruments contingent exercise and
settlement provisions.
EITF 07-5
is effective for fiscal years beginning after December 15,
2008. The adoption of
EITF 07-5
did not impact our condensed 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
45
requires only additional disclosures concerning derivatives and
hedging activities. The adoption of SFAS No. 161 in
the first quarter of 2009 did not have a material impact on our
condensed consolidated financial statements.
In April 2008, the FASB issued Staff Position
No. 142-3,
Determination of the Useful Life of Intangible
Assets, or
FSP 142-3.
FSP 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 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 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years and applies to intangible assets
acquired on or after January 1, 2009. The adoption of
FSP 142-3
did not impact our condensed consolidated financial statements.
In April 2009, the FASB issued Staff Position
No. 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments, or
FSP 107-1
and APB
28-1.
FSP 107-1
and APB 28-1
require quarterly disclosures of the fair value and carrying
value of all financial instruments aggregated by major category
and disclosures concerning the methods and assumptions used to
estimate the instruments fair value.
FSP 107-1
and APB 28-1
will be effective for interim reporting periods ending after
June 15, 2009. We will adopt
FSP 107-1
and APB 28-1
in the second quarter of 2009 and do not expect the adoption of
FSP 107-1
and APB 28-1
to have a material impact on our condensed consolidated
financial statements.
In April 2009, the FASB issued Staff Position
No. 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly, or
FSP 157-4,
which provides guidance for determining when a market is no
longer active and when market transactions may not be
representative of fair value, which could impact the assumptions
used in determining the fair value of financial instruments.
FSP 157-4
will be effective for interim and annual reporting periods
ending after June 15, 2009. We will adopt
FSP 157-4
in the second quarter of 2009 and do not expect the adoption of
FSP 157-4
to have a material impact on our condensed consolidated
financial statements.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Our revenues are primarily denominated in foreign currencies,
while a significant portion of our operations are financed in
U.S. dollars through our convertible notes, 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.
We occasionally enter into derivative transactions for hedging
or risk management purposes. We have not and will not enter into
any derivative transactions for speculative or profit generating
purposes. As of March 31, 2009, we have not entered into
any derivative transactions to hedge our foreign currency
transaction risk during the first quarter of 2009 or any future
period.
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 March 31,
2009, $1,821.9 million, or 79%, of our total consolidated
debt was fixed rate debt, and the remaining $475.6 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.
46
The table below presents principal amounts, related interest
rates by year of maturity and aggregate amounts as of
March 31, 2009 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 $350.0 million repayment of
the principal balance of our 2.75% convertible notes due 2025 is
included in the table below in the column labeled
thereafter. However, in accordance with the terms of
these notes, if the notes are not converted, the noteholders
have the right to require us to repurchase the notes in August
2010 at a repurchase price equal to 100% of their principal
amount plus accrued and unpaid interest.
The changes in the fair values of our consolidated debt compared
to their fair values as of December 31, 2008 reflect
changes in applicable market conditions during the first quarter
of 2009. All of the information in the table is presented in
U.S. dollar equivalents, which is our reporting currency.
The actual cash flows associated with our consolidated long-term
debt are denominated in U.S. dollars (US$), Mexican pesos
(MP) and Brazilian reais (BR).
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Year of Maturity
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March 31, 2009
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December 31, 2008
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1 Year
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2 Years
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3 Years
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4 Years
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5 Years
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Thereafter
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Total
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Fair Value
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Total
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Fair Value
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(dollars in thousands)
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Long-Term Debt:
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|
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|
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Fixed Rate (US$)
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$
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17,237
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$
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3,064
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$
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22,313
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$
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1,201,191
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|
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$
|
1,191
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$
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350,019
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|
|
$
|
1,595,015
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|
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$
|
1,201,422
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|
|
$
|
1,579,600
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|
|
$
|
1,066,131
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Average Interest Rate
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4.2
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%
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|
|
8.9
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%
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|
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9.9
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%
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3.1
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%
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7.3
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%
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|
|
2.8
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%
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3.2
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%
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3.2
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%
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Fixed Rate (MP)
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$
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32,131
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$
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5,306
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|
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$
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6,246
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|
|
$
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7,362
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|
|
$
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8,689
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|
|
$
|
88,701
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|
|
$
|
148,435
|
|
|
$
|
90,166
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|
|
$
|
158,104
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|
|
$
|
95,870
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Average Interest Rate
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12.0
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%
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|
|
15.5
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%
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|
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15.5
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%
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|
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15.5
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%
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|
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15.5
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%
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|
|
15.4
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%
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14.8
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%
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|
|
|
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14.7
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%
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|
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Fixed Rate (BR)
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$
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2,928
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$
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3,409
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|
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$
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4,153
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|
|
$
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4,975
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|
|
$
|
6,086
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|
|
$
|
56,925
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|
|
$
|
78,476
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|
|
$
|
31,855
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|
|
$
|
77,924
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|
|
$
|
38,414
|
|
Average Interest Rate
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|
|
19.5
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%
|
|
|
20.2
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%
|
|
|
20.6
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%
|
|
|
21.3
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%
|
|
|
21.9
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%
|
|
|
24.0
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%
|
|
|
23.1
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%
|
|
|
|
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23.2
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%
|
|
|
|
|
Variable Rate (US$)
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|
$
|
60,779
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|
|
$
|
81,039
|
|
|
$
|
237,639
|
|
|
$
|
62,825
|
|
|
$
|
10,227
|
|
|
$
|
4,091
|
|
|
$
|
456,600
|
|
|
$
|
428,930
|
|
|
$
|
456,600
|
|
|
$
|
408,776
|
|
Average Interest Rate
|
|
|
3.0
|
%
|
|
|
3.0
|
%
|
|
|
2.6
|
%
|
|
|
3.0
|
%
|
|
|
3.0
|
%
|
|
|
3.0
|
%
|
|
|
2.8
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%
|
|
|
|
|
|
|
2.9
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%
|
|
|
|
|
Variable Rate (MP)
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|
$
|
18,955
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|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,955
|
|
|
$
|
18,828
|
|
|
$
|
20,066
|
|
|
$
|
19,372
|
|
Average Interest Rate
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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9.0
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%
|
|
|
|
|
|
|
9.0
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%
|
|
|
|
|
Interest Rate Swap:
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|
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|
|
|
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|
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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Variable to Fixed
|
|
$
|
13,301
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|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,301
|
|
|
$
|
(134
|
)
|
|
$
|
13,301
|
|
|
$
|
(124
|
)
|
Average Pay Rate
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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10.8
|
%
|
|
|
|
|
|
|
10.8
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%
|
|
|
|
|
Average Receive Rate
|
|
|
9.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.0
|
%
|
|
|
|
|
|
|
9.0
|
%
|
|
|
|
|
|
|
Item 4.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods required by the Securities and
Exchange Commission and that such information is accumulated and
communicated to the Companys management, including our
chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
As of March 31, 2009, an evaluation of the effectiveness of
the design and operation of our disclosure controls and
procedures was carried out under the supervision and with the
participation of our management teams in the United States and
in our operating companies, including our chief executive
officer and chief financial officer. Based on and as of the date
of such evaluation, our chief executive officer and chief
financial officer concluded that the design and operation of our
disclosure controls and procedures were effective.
Changes
in Internal Control over Financial Reporting
There have been no changes in the Companys internal
control over financial reporting during the most recently
completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
47
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings.
|
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
For information on our various loss contingencies, see
Note 6 to our condensed consolidated financial statements
above.
With regard to the risk factor described in our 2008 annual
report on
Form 10-K
under 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 and
increases in the cost of capital may adversely affect our growth
and our operating results, during the first quarter
and continuing into the second quarter of 2009, economic
activity continued to weaken in Mexico and in the other markets
in which we operate, causing a decline in subscriber additions
in Mexico and some of our other markets compared to 2008 levels.
In addition, in the second quarter of 2009, the Mexican
government and businesses in Mexico have taken measures as part
of the effort to contain the spread of influenza caused by the
H1N1 influenza virus that have contributed and may further
contribute to this decline and the overall slowing of economic
activity in Mexico. It is uncertain how long these or other
similar measures will remain in effect. If these or similar
measures remain in effect in Mexico, or if similar steps are
taken in our other markets in response to a spread of the H1N1
influenza virus, it could result in a further weakening of the
economies in our markets, which may adversely affect our results
of operations.
Except as noted above, there have been no material changes in
our risk factors from those disclosed in our 2008 annual report
on Form 10-K.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.1
|
|
Form of Executive Officer Restricted Stock Award Agreement
(incorporated by reference to Exhibit 10.1 to NII
Holdings
Form 8-K,
filed on April 22, 2009).
|
|
10
|
.2
|
|
Form of Employee Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 10.2 to NII
Holdings
Form 8-K,
filed on April 22, 2009).
|
|
10
|
.3
|
|
Form of Director Restricted Stock Award Agreement.
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
48
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
By:
|
/s/ CATHERINE
E. NEEL
|
Catherine E. Neel
Vice President and Controller
(on behalf of the registrant and as
chief accounting officer)
Date: May 6, 2009
49
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.1
|
|
Form of Executive Officer Restricted Stock Award Agreement
(incorporated by reference to Exhibit 10.1 to NII Holdings
Form 8-K, filed on April 22, 2009).
|
|
10
|
.2
|
|
Form of Employee Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 10.2 to NII Holdings
Form 8-K, filed on April 22, 2009).
|
|
10
|
.3
|
|
Form of Director Restricted Stock Award Agreement.
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1
|
|
Statement of Chief Executive Officer Pursuant to Rule 13a-14(a).
|
|
31
|
.2
|
|
Statement of Chief Financial Officer Pursuant to Rule 13a-14(a).
|
|
32
|
.1
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
50