e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the
quarterly period ended September 30,
2010
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission file number: 0-32421
NII HOLDINGS, INC.
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
|
|
91-1671412
(I.R.S. Employer
Identification No.)
|
|
|
|
1875 Explorer Street, Suite 1000
Reston, Virginia
(Address of Principal
Executive Offices)
|
|
20190
(Zip
Code)
|
(703)
390-5100
(Registrants
Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting company o
|
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.
|
|
|
|
|
Number of Shares Outstanding
|
Title of Class
|
|
on November 5, 2010
|
|
Common Stock, $0.001 par value per share
|
|
169,269,854
|
NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
|
|
Item 1.
|
Financial
Statements.
|
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except par values)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,666,077
|
|
|
$
|
2,504,064
|
|
Short-term investments
|
|
|
559,118
|
|
|
|
116,289
|
|
Accounts receivable, less allowance for doubtful accounts of
$38,498 and $35,148
|
|
|
740,012
|
|
|
|
613,591
|
|
Handset and accessory inventory
|
|
|
162,832
|
|
|
|
188,476
|
|
Deferred income taxes, net
|
|
|
162,748
|
|
|
|
148,498
|
|
Prepaid expenses and other
|
|
|
344,122
|
|
|
|
220,210
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,634,909
|
|
|
|
3,791,128
|
|
Property, plant and equipment, less accumulated depreciation
of $1,868,889 and $1,451,219
|
|
|
2,727,834
|
|
|
|
2,502,189
|
|
Intangible assets, less accumulated amortization of $118,766
and $91,295
|
|
|
408,806
|
|
|
|
337,233
|
|
Deferred income taxes, net
|
|
|
497,981
|
|
|
|
494,343
|
|
Other assets
|
|
|
494,137
|
|
|
|
429,800
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,763,667
|
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
211,126
|
|
|
$
|
186,996
|
|
Accrued expenses and other
|
|
|
709,722
|
|
|
|
641,624
|
|
Deferred revenues
|
|
|
153,099
|
|
|
|
136,533
|
|
Current portion of long-term debt
|
|
|
417,034
|
|
|
|
564,544
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,490,981
|
|
|
|
1,529,697
|
|
Long-term debt
|
|
|
2,806,888
|
|
|
|
3,016,244
|
|
Deferred revenues
|
|
|
20,947
|
|
|
|
22,071
|
|
Deferred credits
|
|
|
74,593
|
|
|
|
93,932
|
|
Other long-term liabilities
|
|
|
207,190
|
|
|
|
145,912
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,600,599
|
|
|
|
4,807,856
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 4)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2010 and 2009, no
shares issued or outstanding 2010 and 2009
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001, 600,000 shares
authorized 2010 and 2009, 169,071 shares issued and
outstanding 2010, 166,730 shares issued and
outstanding 2009
|
|
|
168
|
|
|
|
166
|
|
Paid-in capital
|
|
|
1,336,476
|
|
|
|
1,239,541
|
|
Retained earnings
|
|
|
1,917,363
|
|
|
|
1,674,898
|
|
Accumulated other comprehensive loss
|
|
|
(90,939
|
)
|
|
|
(167,768
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,163,068
|
|
|
|
2,746,837
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
7,763,667
|
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
NII
HOLDINGS, INC. AND SUBSIDIARIES
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended,
|
|
|
Three Months Ended,
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,857,743
|
|
|
$
|
2,980,833
|
|
|
$
|
1,359,441
|
|
|
$
|
1,078,386
|
|
Digital handset and accessory revenues
|
|
|
223,475
|
|
|
|
181,804
|
|
|
|
86,710
|
|
|
|
64,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,081,218
|
|
|
|
3,162,637
|
|
|
|
1,446,151
|
|
|
|
1,142,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
1,090,671
|
|
|
|
861,990
|
|
|
|
394,795
|
|
|
|
316,836
|
|
Cost of digital handsets and accessories
|
|
|
541,729
|
|
|
|
472,666
|
|
|
|
186,793
|
|
|
|
161,679
|
|
Selling, general and administrative
|
|
|
1,396,996
|
|
|
|
1,015,935
|
|
|
|
502,312
|
|
|
|
363,904
|
|
Depreciation
|
|
|
379,981
|
|
|
|
289,034
|
|
|
|
132,157
|
|
|
|
106,112
|
|
Amortization
|
|
|
23,596
|
|
|
|
21,357
|
|
|
|
7,543
|
|
|
|
7,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,432,973
|
|
|
|
2,660,982
|
|
|
|
1,223,600
|
|
|
|
956,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
648,245
|
|
|
|
501,655
|
|
|
|
222,551
|
|
|
|
186,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(262,458
|
)
|
|
|
(145,260
|
)
|
|
|
(83,458
|
)
|
|
|
(58,551
|
)
|
Interest income
|
|
|
23,772
|
|
|
|
19,748
|
|
|
|
9,850
|
|
|
|
3,326
|
|
Foreign currency transaction gains, net
|
|
|
27,354
|
|
|
|
101,332
|
|
|
|
28,406
|
|
|
|
45,094
|
|
Other (expense) income, net
|
|
|
(11,393
|
)
|
|
|
4,258
|
|
|
|
(3,530
|
)
|
|
|
(1,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222,725
|
)
|
|
|
(19,922
|
)
|
|
|
(48,732
|
)
|
|
|
(11,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
425,520
|
|
|
|
481,733
|
|
|
|
173,819
|
|
|
|
174,856
|
|
Income tax provision
|
|
|
(183,055
|
)
|
|
|
(159,823
|
)
|
|
|
(55,307
|
)
|
|
|
(57,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
242,465
|
|
|
$
|
321,910
|
|
|
$
|
118,512
|
|
|
$
|
116,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, basic
|
|
$
|
1.45
|
|
|
$
|
1.94
|
|
|
$
|
0.70
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
1.42
|
|
|
$
|
1.91
|
|
|
$
|
0.68
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
167,780
|
|
|
|
165,948
|
|
|
|
168,645
|
|
|
|
166,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
176,925
|
|
|
|
173,295
|
|
|
|
175,303
|
|
|
|
174,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
78,779
|
|
|
$
|
281,252
|
|
|
$
|
128,175
|
|
|
$
|
79,559
|
|
Other
|
|
|
(1,950
|
)
|
|
|
919
|
|
|
|
(485
|
)
|
|
|
(841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
76,829
|
|
|
|
282,171
|
|
|
|
127,690
|
|
|
|
78,718
|
|
Net income
|
|
|
242,465
|
|
|
|
321,910
|
|
|
|
118,512
|
|
|
|
116,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
319,294
|
|
|
$
|
604,081
|
|
|
$
|
246,202
|
|
|
$
|
195,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the Nine Months Ended September 30, 2010
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Balance, January 1, 2010
|
|
|
166,730
|
|
|
$
|
166
|
|
|
$
|
1,239,541
|
|
|
$
|
1,674,898
|
|
|
$
|
(167,768
|
)
|
|
$
|
2,746,837
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,465
|
|
|
|
|
|
|
|
242,465
|
|
Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76,829
|
|
|
|
76,829
|
|
Exercise of stock options
|
|
|
2,341
|
|
|
|
2
|
|
|
|
42,513
|
|
|
|
|
|
|
|
|
|
|
|
42,515
|
|
Share-based payment expense for equity- based awards
|
|
|
|
|
|
|
|
|
|
|
53,792
|
|
|
|
|
|
|
|
|
|
|
|
53,792
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
|
630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2010
|
|
|
169,071
|
|
|
$
|
168
|
|
|
$
|
1,336,476
|
|
|
$
|
1,917,363
|
|
|
$
|
(90,939
|
)
|
|
$
|
3,163,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the Nine Months Ended September 30, 2010 and 2009
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
242,465
|
|
|
$
|
321,910
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
403,577
|
|
|
|
310,391
|
|
Provision for losses on accounts receivable
|
|
|
54,067
|
|
|
|
68,016
|
|
Foreign currency transaction gains, net
|
|
|
(27,354
|
)
|
|
|
(101,332
|
)
|
Share-based payment expense
|
|
|
54,202
|
|
|
|
51,678
|
|
Other, net
|
|
|
45,181
|
|
|
|
30,703
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(162,956
|
)
|
|
|
(153,726
|
)
|
Handset and accessory inventory
|
|
|
68,179
|
|
|
|
(52,447
|
)
|
Prepaid expenses and other
|
|
|
(34,431
|
)
|
|
|
(22,672
|
)
|
Accounts payable, accrued expenses and other
|
|
|
107,747
|
|
|
|
93,536
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
750,677
|
|
|
|
546,057
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(506,385
|
)
|
|
|
(500,941
|
)
|
Purchase of long-term and short-term investments
|
|
|
(1,587,243
|
)
|
|
|
(625,814
|
)
|
Proceeds from sales of short-term investments
|
|
|
1,015,759
|
|
|
|
696,543
|
|
Transfers to restricted cash
|
|
|
(98,298
|
)
|
|
|
(52,955
|
)
|
Transfers from restricted cash
|
|
|
94,756
|
|
|
|
|
|
Other, net
|
|
|
(53,681
|
)
|
|
|
(14,503
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,135,092
|
)
|
|
|
(497,670
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
762,522
|
|
Purchases of convertible notes
|
|
|
(442,972
|
)
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
80,000
|
|
|
|
|
|
Repayments under syndicated loan facilities and other
transactions
|
|
|
(71,746
|
)
|
|
|
(51,153
|
)
|
Other, net
|
|
|
(28,514
|
)
|
|
|
27,061
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(463,232
|
)
|
|
|
738,430
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
9,660
|
|
|
|
(28,824
|
)
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(837,987
|
)
|
|
|
757,993
|
|
Cash and cash equivalents, beginning of period
|
|
|
2,504,064
|
|
|
|
1,243,251
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,666,077
|
|
|
$
|
2,001,244
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
NII
HOLDINGS, INC. AND SUBSIDIARIES
Unaudited
|
|
Note 1.
|
Basis of
Presentation
|
General. Our unaudited condensed
consolidated financial statements have been prepared under the
rules and regulations of the Securities and Exchange Commission,
or the SEC. While they do not include all of the information and
footnotes required by accounting principles generally accepted
in the United States of America for complete financial
statements, they reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation of the results
for interim periods. In addition, the year-end condensed
consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by accounting principles generally accepted in the
United States of America.
You should read these condensed consolidated financial
statements in conjunction with the consolidated financial
statements and notes contained in our current report on
Form 8-K
filed on March 8, 2010 and our quarterly reports on
Form 10-Q
for the three months ended March 31, 2010 and June 30,
2010. You should not expect results of operations for interim
periods to be an indication of the results for a full year.
Accumulated Other Comprehensive
Loss. The components of our accumulated other
comprehensive loss, net of taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
(86,965
|
)
|
|
$
|
(165,744
|
)
|
Other
|
|
|
(3,974
|
)
|
|
|
(2,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(90,939
|
)
|
|
$
|
(167,768
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
506,385
|
|
|
$
|
500,941
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
34,629
|
|
|
|
58,804
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
541,014
|
|
|
$
|
559,745
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
262,458
|
|
|
$
|
145,260
|
|
Interest capitalized
|
|
|
7,085
|
|
|
|
8,970
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
269,543
|
|
|
$
|
154,230
|
|
|
|
|
|
|
|
|
|
|
6
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the nine months ended September 30, 2010, we had
$98.5 million in non-cash financing activities, primarily
related to the short-term financing of imported handsets and
infrastructure in Brazil and co-location capital lease
obligations on our communication towers. For the nine months
ended September 30, 2009, we had $71.3 million in
non-cash financing activities, primarily related to the
short-term financing of imported handsets and infrastructure in
Brazil, the financing of the mobile switching office in Peru and
co-location capital lease obligations on our communication
towers.
Termination of Televisa Agreement. On
February 15, 2010, NII Holdings, Grupo Televisa, S.A.B., a
Mexican corporation, or Televisa, and our wholly-owned
subsidiaries Nextel Mexico and Nextel International (Uruguay),
LLC, a Delaware limited liability company, entered into an
investment and securities subscription agreement pursuant to
which Televisa would have acquired up to a 30% equity interest
in Nextel Mexico for an aggregate purchase price of
$1.44 billion. On October 18, 2010, NII Holdings and
Televisa announced that they mutually agreed to terminate this
investment agreement. As a result, we wrote off an immaterial
amount of transaction costs in connection with the termination
of this investment agreement.
Revenue-Based Taxes. We record
revenue-based taxes and other excise taxes on a gross basis as a
component of both service and other revenues and selling,
general and administrative expenses in our condensed
consolidated statements of operations. For the nine and three
months ended September 30, 2010, we had $136.9 million
and $49.2 million, respectively, in revenue-based taxes and
other excise taxes. For the nine and three months ended
September 30, 2009, we had $65.4 million and
$26.5 million, respectively, in revenue-based taxes and
other excise taxes.
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings, but not securities that are antidilutive, including
stock options with an exercise price greater than the average
market price of our common stock.
As presented for the nine and three months ended
September 30, 2010, our calculations of diluted net income
per share include common shares resulting from shares issuable
upon the potential exercise of stock options under our
stock-based employee compensation plans and shares of our
restricted common stock. We did not include the common shares
resulting from the potential conversion of our 3.125%
convertible notes in our calculations of diluted net income per
common share because their effect would have been antidilutive
to our net income per common share for those periods. Further,
for the nine and three months ended September 30, 2010, we
did not include 9.9 million in antidilutive stock options
for both periods in our calculations of diluted net income per
common share, nor did we include an immaterial amount of our
restricted stock in our calculation of diluted net income per
common share because their effect would have been antidilutive
to our net income per common share for those periods.
As presented for the nine and three months ended
September 30, 2009, our calculations of diluted net income
per share include common shares resulting from shares issuable
upon the potential exercise of stock options under our
stock-based employee compensation plans, shares of our
restricted common stock and shares of common stock issuable upon
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 calculations
of diluted net income per common share because their effect
would have been antidilutive to our net income per common share
for those periods. For the nine and three months ended
September 30, 2009, we did not include 10.9 million in
antidilutive stock options for both periods in our calculations
of diluted net income per common share, nor did we include an
immaterial amount of our restricted stock in our calculation of
diluted net income per common share because their effect would
have been antidilutive to our net income per common share for
those periods.
7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables provide a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our condensed consolidated
statements of operations for the nine and three months ended
September 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
242,465
|
|
|
|
167,780
|
|
|
$
|
1.45
|
|
|
$
|
321,910
|
|
|
|
165,948
|
|
|
$
|
1.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
2,910
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
242
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
8,186
|
|
|
|
5,857
|
|
|
|
|
|
|
|
9,758
|
|
|
|
6,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
250,651
|
|
|
|
176,925
|
|
|
$
|
1.42
|
|
|
$
|
331,668
|
|
|
|
173,295
|
|
|
$
|
1.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
118,512
|
|
|
|
168,645
|
|
|
$
|
0.70
|
|
|
$
|
116,982
|
|
|
|
166,080
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
2,593
|
|
|
|
|
|
|
|
|
|
|
|
793
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
311
|
|
|
|
|
|
|
|
|
|
|
|
333
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
1,532
|
|
|
|
3,754
|
|
|
|
|
|
|
|
3,164
|
|
|
|
6,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
120,044
|
|
|
|
175,303
|
|
|
$
|
0.68
|
|
|
$
|
120,146
|
|
|
|
174,195
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Accounting Pronouncements. In
October 2009, the FASB updated its authoritative guidance for
accounting for multiple deliverable revenue arrangements. The
new guidance revises the criteria used to determine the separate
units of accounting in a multiple deliverable arrangement and
requires that total consideration received under the arrangement
be allocated over the separate units of accounting based on
their relative selling prices. This guidance also clarifies the
methodology used in determining our best estimate of the selling
price used in this allocation. The applicable revenue
recognition criteria will be considered separately for the
separate units of accounting. The updated authoritative guidance
will be effective and shall be applied prospectively to revenue
arrangements entered into or materially modified in fiscal years
beginning after June 15, 2010. We are currently evaluating
the potential impact, if any, that the adoption of this guidance
will have on our consolidated financial statements. We plan to
adopt this new guidance on its effective date of January 1,
2011.
8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2.
|
Fair
Value Measurements
|
The following tables set forth the classification within the
fair value hierarchy of our financial instruments measured at
fair value on a recurring basis in the accompanying condensed
consolidated balance sheet as of September 30, 2010 and
December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
|
September 30, 2010
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
September 30,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2010
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
55,673
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
55,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
December 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2009
|
|
|
Short-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
116,289
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
116,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities include short-term investments made by Nextel Brazil,
primarily in Brazilian government bonds, long-term, low-risk
bank certificates of deposit and Brazilian corporate debentures.
We account for these securities at fair value in accordance with
the FASBs authoritative guidance surrounding the
accounting for investments in debt and equity securities. The
fair value of the securities is based on the net asset value of
the funds. In our judgment, these securities trade with
sufficient daily observable market activity to support a
Level 1 classification within the fair value hierarchy.
During the nine months ended September 30, 2009, we held
short-term investments in an enhanced cash fund similar to, but
not in the legal form of, a money market fund that invested
primarily in asset-backed securities. During the first nine
months of 2009, we received $43.7 million in distributions
and recorded a pre-tax unrealized gain of $2.0 million in
accumulated other comprehensive income due to a slight increase
in the net asset value of the fund from December 31, 2008.
This fund was liquidated in December 2009. As a result, during
the nine months ended September 30, 2010, we had no
activity with respect to assets or liabilities measured at fair
value on a recurring basis using Level 3 inputs. The
following table summarizes the changes in fair value of our
Level 3 financial instruments measured at fair value on a
recurring basis for the nine and three months ended
September 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2009
|
|
|
Beginning balance
|
|
$
|
53,160
|
|
|
$
|
34,815
|
|
Principal distributions
|
|
|
(43,727
|
)
|
|
|
(23,355
|
)
|
Unrealized gain, included in other comprehensive income
|
|
|
1,994
|
|
|
|
150
|
|
Realized gain on distributions, included in net income
|
|
|
421
|
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
11,848
|
|
|
$
|
11,848
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Instruments.
We estimate the fair value of our financial instruments other
than our
available-for-sale
securities, including cash and cash equivalents,
held-to-maturity
investments, accounts receivable, accounts payable, derivative
instruments and debt. The carrying value of cash and cash
equivalents, accounts receivable, accounts payable and short-
9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
term borrowings contained in the condensed consolidated balance
sheets approximate their fair values due to the short-term
nature of these instruments. The fair values of our derivative
instruments are immaterial.
Held-to-Maturity
Investments.
In the second quarter of 2010, we invested some of our cash
holdings in certain securities that we intend to hold to
maturity. These
held-to-maturity
securities include investments in U.S. treasury securities,
as well as investments in corporate bonds, which consist of
securities issued by U.S. government agencies and corporate
debt securities backed by the U.S. government with
maturities ranging from 3 to 18 months. We account for
held-to-maturity
securities at amortized cost. We determined the fair value of
our
held-to-maturity
investments in U.S. treasury securities based on quoted
market prices for the individual instruments. In our judgment,
these securities trade with sufficient daily observable market
activity to support a Level 1 classification within the
fair value hierarchy. We determined the fair value of our
investments in corporate bonds based on reported trade data in a
broker dealer market for the individual instruments. We consider
these measurements to be Level 2 in the fair value
hierarchy. The gross unrecognized holding gains and losses as of
September 30, 2010 were immaterial. The carrying amounts
and estimated fair values of our
held-to-maturity
investments as of September 30, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Held-to-maturity
securities U.S. Treasuries
|
|
$
|
463,215
|
|
|
$
|
464,793
|
|
Held-to-maturity
securities corporate bonds
|
|
|
40,229
|
|
|
|
40,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
503,444
|
|
|
|
505,170
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
Held-to-maturity
securities corporate bonds
|
|
|
124,962
|
|
|
|
125,395
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
628,406
|
|
|
$
|
630,565
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt Instruments.
The carrying amounts and estimated fair values of our long-term
debt instruments as of September 30, 2010 and
December 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
Senior notes
|
|
$
|
1,278,919
|
|
|
$
|
1,475,500
|
|
|
$
|
1,277,207
|
|
|
$
|
1,312,165
|
|
Convertible notes
|
|
|
1,033,836
|
|
|
|
1,068,375
|
|
|
|
1,440,040
|
|
|
|
1,447,655
|
|
Syndicated loan facilities
|
|
|
435,301
|
|
|
|
426,724
|
|
|
|
416,081
|
|
|
|
403,079
|
|
Other
|
|
|
185,046
|
|
|
|
186,561
|
|
|
|
157,164
|
|
|
|
158,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,933,102
|
|
|
$
|
3,157,160
|
|
|
$
|
3,290,492
|
|
|
$
|
3,321,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimated the fair values of our senior notes using quoted
market prices in a broker dealer market and the fair values of
our convertible notes using quoted prices in a traded exchange
market, which may be adjusted for certain factors such as
historical trading levels and market data for our senior notes,
credit default spreads, stock volatility assumptions with
respect to our convertible notes and other corroborating market
or internally generated data. Because our fair value
measurements include assumptions based on market data,
corroborating market data and some broker internally generated
information, we consider these estimates Level 2 in the
fair value hierarchy.
10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We estimated the fair values of our syndicated loan facilities
using primarily Level 3 inputs such as U.S. Treasury
yield curves, prices of comparable bonds, LIBOR and zero-coupon
yield curves, U.S. treasury bond rates and credit spreads
on comparable publicly traded bonds.
Other debt consists primarily of Brazilian credit paper and
import financing agreements. We estimated the fair value of the
Brazilian credit paper utilizing primarily Level 3 inputs
such as U.S. treasury security yield curves, prices of
comparable bonds, LIBOR and zero-coupon yield curves, Treasury
bond rates and credit spreads on comparable publicly traded
bonds. We believe that the fair value of our short-term, import
financing agreements approximate their carrying value primarily
because of the short maturities of the agreements prior to
realization and consider these measurements to be Level 3
in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Senior notes, net
|
|
$
|
1,278,919
|
|
|
$
|
1,277,207
|
|
Convertible notes, net
|
|
|
1,033,836
|
|
|
|
1,440,040
|
|
Syndicated loan facilities
|
|
|
435,301
|
|
|
|
416,081
|
|
Other
|
|
|
475,866
|
|
|
|
447,460
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,223,922
|
|
|
|
3,580,788
|
|
Less: current portion
|
|
|
(417,034
|
)
|
|
|
(564,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,806,888
|
|
|
$
|
3,016,244
|
|
|
|
|
|
|
|
|
|
|
Peru Syndicated Loan Facility. In
December 2009, Nextel Peru entered into a $130.0 million
U.S. dollar-denominated syndicated loan agreement. Of the
total amount of this loan agreement, $50.0 million has a
floating interest rate of LIBOR plus 5.75%
(Tranche A 6.04% as of September 30,
2010), $32.5 million has a floating interest rate of LIBOR
plus 5.25%
(Tranche B-1
5.54% as of September 30, 2010), $37.5 million has a
floating interest rate of LIBOR plus 4.75%
(Tranche B-2
5.04% as of September 30, 2010) and
$10.0 million has a floating interest rate of LIBOR plus
5.75%
(Tranche B-3
6.04% as of September 30, 2010). Principal under
Tranche A and
Tranche B-3
is payable quarterly beginning in December 2011, and principal
under
Tranche B-1
and
Tranche B-2
is payable quarterly beginning in December 2010. Tranche A
and
Tranche B-3
mature on December 15, 2016,
Tranche B-1
matures on December 15, 2014 and
Tranche B-2
matures on December 15, 2012. Nextel Peru is subject to
various legal and financial covenants under this syndicated loan
facility that, among other things, require Nextel Peru to
maintain certain financial ratios and may limit the amount of
funds that could be repatriated in certain periods.
In March 2010, Nextel Peru borrowed $60.0 million, and in
June 2010, Nextel Peru borrowed an additional $20.0 million
under this syndicated loan agreement. In October 2010, Nextel
Peru borrowed the remaining $50.0 million under this
syndicated loan facility.
Convertible
Notes.
3.125% Convertible Notes. In June
2010, we purchased $100.0 million face amount of our 3.125%
convertible notes through a series of open market purchases for
an aggregate purchase price of $94.7 million. In connection
with these transactions, we incurred an immaterial amount of
direct external costs, we recognized an immaterial loss on
extinguishment of debt, and we allocated an immaterial amount of
the purchase price to paid-in capital. If certain events occur,
the 3.125% notes will be convertible into shares of our
common stock at a conversion rate of 8.4517 shares per
$1,000 principal amount of notes, or 9,296,870 aggregate common
shares, representing a conversion price of about $118.32 per
share. For the fiscal quarter ended September 30, 2010, the
closing sale price of our common stock did not exceed 120% of
the conversion price of $118.32 per share for at least 20
trading days in
11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the 30 consecutive trading days ending on September 30,
2010. As a result, the conversion contingency was not met as of
September 30, 2010.
2.75% Convertible Notes. In June
2010, we purchased $31.4 million face amount of our 2.75%
convertible notes through a series of open market purchases for
an aggregate purchase price of $31.4 million. In connection
with these transactions, we incurred an immaterial amount of
direct external costs, we recognized an immaterial loss on
extinguishment of debt, and we allocated an immaterial amount of
the purchase price to paid-in capital.
In the third quarter of 2010, the noteholders of our 2.75%
convertible notes executed their put options that required us to
purchase $182.4 million principal amount of these notes at
100% of their par value, plus accrued and unpaid interest. In
addition, we exercised our call option and redeemed the
remaining $136.3 million in outstanding principal amount of
these notes at 100% of their par value, plus accrued and unpaid
interest, during the third quarter of 2010.
Adoption of Authoritative Guidance on Convertible Debt
Instruments. As a result of adopting the
FASBs authoritative guidance on convertible debt
instruments on January 1, 2009, we were required to
separately account for the debt and equity components of our
3.125% convertible notes and our 2.75% convertible notes in a
manner that reflects our nonconvertible debt (unsecured debt)
borrowing rate. The debt and equity components recognized for
our 3.125% convertible notes and our 2.75% convertible notes
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
December 31, 2009
|
|
|
3.125% Notes
|
|
2.75% Notes
|
|
3.125% Notes
|
|
2.75% Notes
|
|
|
due 2012
|
|
due 2025
|
|
due 2012
|
|
due 2025
|
|
Principal amount of convertible notes
|
|
$
|
1,100,000
|
|
|
$
|
|
|
|
$
|
1,200,000
|
|
|
$
|
349,996
|
|
Unamortized discount on convertible notes
|
|
|
66,164
|
|
|
|
|
|
|
|
102,372
|
|
|
|
7,584
|
|
Net carrying amount of convertible notes
|
|
|
1,033,836
|
|
|
|
|
|
|
|
1,097,628
|
|
|
|
342,412
|
|
Carrying amount of equity component
|
|
|
193,941
|
|
|
|
|
|
|
|
194,557
|
|
|
|
53,253
|
|
As of September 30, 2010, the unamortized discount on our
3.125% convertible notes had a remaining recognition period of
about 20 months.
The amount of interest expense recognized on our 3.125%
convertible notes and our 2.75% convertible notes and effective
interest rates for the nine and three months ended
September 30, 2010 and 2009 were as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
27,189
|
|
|
$
|
5,882
|
|
|
$
|
28,125
|
|
|
$
|
7,218
|
|
Amortization of discount on convertible notes
|
|
|
29,158
|
|
|
|
7,402
|
|
|
|
28,005
|
|
|
|
8,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
56,347
|
|
|
$
|
13,284
|
|
|
$
|
56,130
|
|
|
$
|
15,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
8,594
|
|
|
$
|
1,095
|
|
|
$
|
9,375
|
|
|
$
|
2,406
|
|
Amortization of discount on convertible notes
|
|
|
9,345
|
|
|
|
1,344
|
|
|
|
9,514
|
|
|
|
2,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
17,939
|
|
|
$
|
2,439
|
|
|
$
|
18,889
|
|
|
$
|
5,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4.
|
Commitments
and Contingencies
|
Brazilian
Contingencies.
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on
imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions
disputing these assessments. In some cases, Nextel Brazil has
received favorable decisions, which are currently being appealed
by the respective governmental authority. In other cases, Nextel
Brazils petitions have been denied, and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing various other claims. Nextel Brazil did not reverse
any material accrued liabilities related to contingencies during
the nine months ended September 30, 2010.
As of September 30, 2010 and December 31, 2009, Nextel
Brazil had accrued liabilities of $48.1 million and
$13.9 million, respectively, related to contingencies, all
of which were classified in accrued contingencies reported as a
component of other long-term liabilities and none of which
related to unasserted claims. We currently estimate the range of
reasonably possible losses related to matters for which Nextel
Brazil has not accrued liabilities, as they are not deemed
probable, to be between $159.3 million and
$163.3 million as of September 30, 2010. We are
continuing to evaluate the likelihood of probable and reasonably
possible losses, if any, related to all known contingencies. As
a result, future increases or decreases to our accrued
liabilities may be necessary and will be recorded in the period
when such amounts are determined to be probable and reasonably
estimable.
Argentine
Contingencies.
As of September 30, 2010 and December 31, 2009, Nextel
Argentina had accrued liabilities of $32.8 million and
$28.2 million, respectively, related primarily to local
turnover taxes, universal service tax and local government
claims, all of which were classified in accrued contingencies
and accrued non-income taxes reported as components of accrued
expenses and other.
Legal
Proceedings.
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. The earliest years that remain subject to examination by
jurisdiction are: Chile 1993; U.S. 1999;
Argentina and Mexico 2003; Peru and
Brazil 2005. We regularly assess the potential
outcome of current and future examinations in each of the taxing
jurisdictions when determining the adequacy of the provision for
income taxes.
13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table shows a reconciliation of our unrecognized
tax benefits according to the FASBs authoritative guidance
on accounting for uncertainty in income taxes, for the nine
months ended September 30, 2010 (in thousands):
|
|
|
|
|
Unrecognized tax benefits December 31, 2009
|
|
$
|
99,596
|
|
Additions for current year tax positions
|
|
|
9,665
|
|
Additions for prior year tax positions
|
|
|
|
|
Reductions for current year tax positions
|
|
|
(5,737
|
)
|
Reductions for prior year tax positions
|
|
|
(5,117
|
)
|
Lapse of statute of limitations
|
|
|
(523
|
)
|
Settlements with taxing authorities
|
|
|
(909
|
)
|
Foreign currency translation adjustment
|
|
|
3,167
|
|
|
|
|
|
|
Unrecognized tax benefits September 30, 2010
|
|
$
|
100,142
|
|
|
|
|
|
|
The unrecognized tax benefits as of December 31, 2009 and
September 30, 2010 include $75.7 million and
$73.6 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 third quarter of 2010, consistent with the methodology we
employed for 2009, and determined that, in general, 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. Due to an increase in the amount of projected
U.S. taxable income, we were able to release a portion of
our U.S. valuation allowance. We will continue to evaluate
the deferred tax asset valuation allowance balances in all of
our foreign and U.S. companies throughout 2010 to determine
the appropriate level of valuation allowance.
During the first quarter of 2010, we changed our position
regarding the repatriation of current foreign earnings back to
the United States. We anticipate recording a U.S. federal,
state and foreign tax provision during 2010 with respect to
future remittances of certain undistributed earnings of our
subsidiaries in Mexico. As of September 30, 2010, we
recorded a $61.4 million provision for U.S. federal,
state and foreign taxes on these future remittances of current
year earnings. We continue to indefinitely reinvest all other
remaining undistributed earnings of our foreign subsidiaries
outside the United States.
During 2004, Nextel Mexico amended its Mexican Federal income
tax returns in order to reverse a benefit previously claimed for
a disputed provision of the Federal income tax law covering
deductions and gains from the sale of property. We filed the
amended returns in order to avoid potential penalties, and we
also filed administrative petitions seeking clarification of our
right to the tax benefits claimed on the original income tax
returns. The tax authorities constructively denied our
administrative petitions in January 2005, and in May 2005 we
filed an annulment suit challenging the constructive denial.
Resolution of the annulment suit is pending. We believe it is
probable that we will recover this amount. Our condensed
consolidated balance sheets as of September 30, 2010 and
December 31, 2009 include $13.9 million and
$13.3 million, respectively in income taxes receivable,
which are included as components of other non-current assets.
The income tax benefit for this item was related to our income
tax provision for the years ended December 31, 2005, 2004
and 2003.
14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6.
|
Segment
Reporting
|
We have determined that our reportable segments are those that
are based on our method of internal reporting, which
disaggregates our business by geographical location. Our
reportable segments are: (1) Mexico, (2) Brazil,
(3) Argentina and (4) Peru. The operations of all
other businesses that fall below the segment reporting
thresholds are included in the Corporate and other
segment below. This segment includes our Chilean operating
companies and our corporate operations in the U.S. We
evaluate performance of these segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,563,651
|
|
|
$
|
1,863,894
|
|
|
$
|
410,882
|
|
|
$
|
228,204
|
|
|
$
|
17,084
|
|
|
$
|
(2,497
|
)
|
|
$
|
4,081,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
571,977
|
|
|
$
|
565,127
|
|
|
$
|
106,950
|
|
|
$
|
20,606
|
|
|
$
|
(212,838
|
)
|
|
$
|
|
|
|
$
|
1,051,822
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(403,577
|
)
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,354
|
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(250,079
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
425,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,386,824
|
|
|
$
|
1,179,764
|
|
|
$
|
388,840
|
|
|
$
|
198,235
|
|
|
$
|
9,776
|
|
|
$
|
(802
|
)
|
|
$
|
3,162,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
498,349
|
|
|
$
|
321,359
|
|
|
$
|
118,006
|
|
|
$
|
19,615
|
|
|
$
|
(145,283
|
)
|
|
$
|
|
|
|
$
|
812,046
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(310,391
|
)
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,332
|
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(121,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
481,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
530,061
|
|
|
$
|
689,528
|
|
|
$
|
141,960
|
|
|
$
|
79,007
|
|
|
$
|
6,677
|
|
|
$
|
(1,082
|
)
|
|
$
|
1,446,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
182,815
|
|
|
$
|
214,727
|
|
|
$
|
38,377
|
|
|
$
|
10,364
|
|
|
$
|
(84,032
|
)
|
|
$
|
|
|
|
$
|
362,251
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(139,700
|
)
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,406
|
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
173,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
470,841
|
|
|
$
|
473,270
|
|
|
$
|
127,957
|
|
|
$
|
66,823
|
|
|
$
|
3,780
|
|
|
$
|
(213
|
)
|
|
$
|
1,142,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
171,432
|
|
|
$
|
137,916
|
|
|
$
|
34,685
|
|
|
$
|
4,351
|
|
|
$
|
(48,345
|
)
|
|
$
|
|
|
|
$
|
300,039
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(113,742
|
)
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,094
|
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
174,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,577,017
|
|
|
$
|
2,836,427
|
|
|
$
|
376,251
|
|
|
$
|
509,526
|
|
|
$
|
1,464,733
|
|
|
$
|
(287
|
)
|
|
$
|
7,763,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,234,120
|
|
|
$
|
2,530,896
|
|
|
$
|
399,579
|
|
|
$
|
445,828
|
|
|
$
|
1,944,557
|
|
|
$
|
(287
|
)
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7.
|
Condensed
Consolidating Financial Statements
|
In 2009, we issued senior notes totaling $1.3 billion in
aggregate principal amount comprised of our 10.0% senior
notes due 2016 and our 8.875% senior notes due 2019
(collectively, the notes). The notes are senior
unsecured obligations of NII Capital Corp., a wholly-owned
domestic subsidiary, and are guaranteed on a senior unsecured
basis by NII Holdings and all of its current and future first
tier and domestic restricted subsidiaries, other than NII
Capital Corp. No foreign subsidiaries will guarantee the notes
unless they are first tier subsidiaries of NII Holdings. These
guarantees are full and unconditional, as well as joint and
several.
In connection with the issuance of the notes and the guarantees
thereof, we are required to provide certain condensed
consolidating financial information. Included in the tables
below are condensed consolidating balance sheets as of
September 30, 2010 and December 31, 2009, as well as
condensed consolidating statements of operations for the nine
and three months ended September 30, 2010 and 2009 and
condensed consolidating statements of cash flows for the nine
months ended September 30, 2010 and 2009, of: (a) the
parent company, NII Holdings, Inc.; (b) the subsidiary
issuer, NII Capital Corp.; (c) the guarantor subsidiaries
on a combined basis; (d) the non-guarantor subsidiaries on
a combined basis; (e) consolidating adjustments; and
(f) NII Holdings, Inc. and subsidiaries on a consolidated
basis. The condensed consolidating balance sheet as of
December 31, 2009 presented below has been revised to
reflect the inclusion of an additional subsidiary guarantor and
the release of certain guarantors pursuant to the indentures.
Additionally, the condensed consolidating balance sheet as of
December 31, 2009 and the condensed consolidating
statements of operations and cash flows for the nine and three
months ended September 30, 2009 have been revised to
reflect the proper elimination of certain intercompany balances
and transactions between subsidiaries within the combined
financial statements to which they relate. In prior filings,
these intercompany balances and transactions were included in
the Consolidating Adjustments column. These
revisions are not material to our financial statements taken as
a whole.
16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of September 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)(1)
|
|
|
Subsidiaries(2)
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
489,956
|
|
|
$
|
28
|
|
|
$
|
7,701
|
|
|
$
|
1,168,392
|
|
|
$
|
|
|
|
$
|
1,666,077
|
|
Short-term investments
|
|
|
503,445
|
|
|
|
|
|
|
|
|
|
|
|
55,673
|
|
|
|
|
|
|
|
559,118
|
|
Accounts receivable, net
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
741,869
|
|
|
|
(1,892
|
)
|
|
|
740,012
|
|
Handset and accessory inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162,832
|
|
|
|
|
|
|
|
162,832
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
4,116
|
|
|
|
159,414
|
|
|
|
(782
|
)
|
|
|
162,748
|
|
Prepaid expenses and other
|
|
|
3,876
|
|
|
|
4
|
|
|
|
3,386
|
|
|
|
336,890
|
|
|
|
(34
|
)
|
|
|
344,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
997,312
|
|
|
|
32
|
|
|
|
15,203
|
|
|
|
2,625,070
|
|
|
|
(2,708
|
)
|
|
|
3,634,909
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
88,826
|
|
|
|
2,639,295
|
|
|
|
(287
|
)
|
|
|
2,727,834
|
|
Investments in and advances to affiliates
|
|
|
2,739,046
|
|
|
|
2,756,164
|
|
|
|
2,841,979
|
|
|
|
|
|
|
|
(8,337,189
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408,806
|
|
|
|
|
|
|
|
408,806
|
|
Deferred income taxes, net
|
|
|
3,317
|
|
|
|
|
|
|
|
|
|
|
|
497,982
|
|
|
|
(3,318
|
)
|
|
|
497,981
|
|
Other assets
|
|
|
2,489,875
|
|
|
|
2,212,744
|
|
|
|
650,184
|
|
|
|
530,544
|
|
|
|
(5,389,210
|
)
|
|
|
494,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,229,550
|
|
|
$
|
4,968,940
|
|
|
$
|
3,596,192
|
|
|
$
|
6,701,697
|
|
|
$
|
(13,732,712
|
)
|
|
$
|
7,763,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,340
|
|
|
$
|
208,786
|
|
|
$
|
|
|
|
$
|
211,126
|
|
Accrued expenses and other
|
|
|
2,016,983
|
|
|
|
159,303
|
|
|
|
1,571,154
|
|
|
|
1,709,328
|
|
|
|
(4,747,046
|
)
|
|
|
709,722
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153,099
|
|
|
|
|
|
|
|
153,099
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
1,718
|
|
|
|
415,316
|
|
|
|
|
|
|
|
417,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,016,983
|
|
|
|
159,303
|
|
|
|
1,575,212
|
|
|
|
2,486,529
|
|
|
|
(4,747,046
|
)
|
|
|
1,490,981
|
|
Long-term debt
|
|
|
1,033,858
|
|
|
|
1,278,919
|
|
|
|
39,770
|
|
|
|
454,341
|
|
|
|
|
|
|
|
2,806,888
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,947
|
|
|
|
|
|
|
|
20,947
|
|
Deferred credits
|
|
|
|
|
|
|
|
|
|
|
10,714
|
|
|
|
67,197
|
|
|
|
(3,318
|
)
|
|
|
74,593
|
|
Other long-term liabilities
|
|
|
15,641
|
|
|
|
|
|
|
|
9,742
|
|
|
|
830,704
|
|
|
|
(648,897
|
)
|
|
|
207,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,066,482
|
|
|
|
1,438,222
|
|
|
|
1,635,438
|
|
|
|
3,859,718
|
|
|
|
(5,399,261
|
)
|
|
|
4,600,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,163,068
|
|
|
|
3,530,718
|
|
|
|
1,960,754
|
|
|
|
2,841,979
|
|
|
|
(8,333,451
|
)
|
|
|
3,163,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
6,229,550
|
|
|
$
|
4,968,940
|
|
|
$
|
3,596,192
|
|
|
$
|
6,701,697
|
|
|
$
|
(13,732,712
|
)
|
|
$
|
7,763,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
NII Capital Corp. is the issuer of our 10.0% senior notes
due 2016 and our 8.875% senior notes due 2019. |
|
(2) |
|
Represents our subsidiaries that have provided guarantees of the
obligations of NII Capital Corp. under our 10.0% senior
notes due 2016 and our 8.875% notes due 2019. |
17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,702,191
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
801,845
|
|
|
$
|
|
|
|
$
|
2,504,064
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,289
|
|
|
|
|
|
|
|
116,289
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613,344
|
|
|
|
247
|
|
|
|
613,591
|
|
Handset and accessory inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,476
|
|
|
|
|
|
|
|
188,476
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
1,977
|
|
|
|
147,358
|
|
|
|
(837
|
)
|
|
|
148,498
|
|
Prepaid expenses and other
|
|
|
724
|
|
|
|
15
|
|
|
|
4,812
|
|
|
|
214,659
|
|
|
|
|
|
|
|
220,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,702,915
|
|
|
|
43
|
|
|
|
6,789
|
|
|
|
2,081,971
|
|
|
|
(590
|
)
|
|
|
3,791,128
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
57,051
|
|
|
|
2,445,425
|
|
|
|
(287
|
)
|
|
|
2,502,189
|
|
Investments in and advances to affiliates
|
|
|
1,686,513
|
|
|
|
2,375,653
|
|
|
|
2,375,653
|
|
|
|
|
|
|
|
(6,437,819
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
337,233
|
|
|
|
|
|
|
|
337,233
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
31,161
|
|
|
|
494,343
|
|
|
|
(31,161
|
)
|
|
|
494,343
|
|
Other assets
|
|
|
2,237,959
|
|
|
|
940,834
|
|
|
|
676,708
|
|
|
|
918,241
|
|
|
|
(4,343,942
|
)
|
|
|
429,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,627,387
|
|
|
$
|
3,316,530
|
|
|
$
|
3,147,362
|
|
|
$
|
6,277,213
|
|
|
$
|
(10,813,799
|
)
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
997
|
|
|
$
|
185,999
|
|
|
$
|
|
|
|
$
|
186,996
|
|
Accrued expenses and other
|
|
|
1,394,719
|
|
|
|
66,983
|
|
|
|
1,525,867
|
|
|
|
1,137,229
|
|
|
|
(3,483,174
|
)
|
|
|
641,624
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,533
|
|
|
|
|
|
|
|
136,533
|
|
Current portion of long-term debt
|
|
|
342,412
|
|
|
|
|
|
|
|
1,684
|
|
|
|
220,448
|
|
|
|
|
|
|
|
564,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,737,131
|
|
|
|
66,983
|
|
|
|
1,528,548
|
|
|
|
1,680,209
|
|
|
|
(3,483,174
|
)
|
|
|
1,529,697
|
|
Long-term debt
|
|
|
1,097,647
|
|
|
|
1,277,206
|
|
|
|
41,063
|
|
|
|
600,328
|
|
|
|
|
|
|
|
3,016,244
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,071
|
|
|
|
|
|
|
|
22,071
|
|
Deferred credits
|
|
|
33,900
|
|
|
|
18,667
|
|
|
|
|
|
|
|
72,527
|
|
|
|
(31,162
|
)
|
|
|
93,932
|
|
Other long-term liabilities
|
|
|
11,872
|
|
|
|
|
|
|
|
8,871
|
|
|
|
987,876
|
|
|
|
(862,707
|
)
|
|
|
145,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,880,550
|
|
|
|
1,362,856
|
|
|
|
1,578,482
|
|
|
|
3,363,011
|
|
|
|
(4,377,043
|
)
|
|
|
4,807,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,746,837
|
|
|
|
1,953,674
|
|
|
|
1,568,880
|
|
|
|
2,914,202
|
|
|
|
(6,436,756
|
)
|
|
|
2,746,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,627,387
|
|
|
$
|
3,316,530
|
|
|
$
|
3,147,362
|
|
|
$
|
6,277,213
|
|
|
$
|
(10,813,799
|
)
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,536
|
|
|
$
|
4,079,682
|
|
|
$
|
|
|
|
$
|
4,081,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
1,632,333
|
|
|
|
|
|
|
|
1,632,400
|
|
Selling, general and administrative
|
|
|
9,113
|
|
|
|
28
|
|
|
|
157,633
|
|
|
|
1,230,222
|
|
|
|
|
|
|
|
1,396,996
|
|
Management fee and other
|
|
|
(56,893
|
)
|
|
|
|
|
|
|
(69,660
|
)
|
|
|
126,553
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
5,681
|
|
|
|
397,896
|
|
|
|
|
|
|
|
403,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47,780
|
)
|
|
|
28
|
|
|
|
93,721
|
|
|
|
3,387,004
|
|
|
|
|
|
|
|
3,432,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
47,780
|
|
|
|
(28
|
)
|
|
|
(92,185
|
)
|
|
|
692,678
|
|
|
|
|
|
|
|
648,245
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(196,846
|
)
|
|
|
(95,028
|
)
|
|
|
(858
|
)
|
|
|
(123,469
|
)
|
|
|
153,743
|
|
|
|
(262,458
|
)
|
Interest income
|
|
|
13,664
|
|
|
|
142,860
|
|
|
|
441
|
|
|
|
20,549
|
|
|
|
(153,742
|
)
|
|
|
23,772
|
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,354
|
|
|
|
|
|
|
|
27,354
|
|
Equity in income of affiliates
|
|
|
306,596
|
|
|
|
365,932
|
|
|
|
431,194
|
|
|
|
|
|
|
|
(1,103,722
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
4
|
|
|
|
|
|
|
|
158
|
|
|
|
(11,542
|
)
|
|
|
(13
|
)
|
|
|
(11,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,418
|
|
|
|
413,764
|
|
|
|
430,935
|
|
|
|
(87,108
|
)
|
|
|
(1,103,734
|
)
|
|
|
(222,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
171,198
|
|
|
|
413,736
|
|
|
|
338,750
|
|
|
|
605,570
|
|
|
|
(1,103,734
|
)
|
|
|
425,520
|
|
Income tax benefit (provision)
|
|
|
71,267
|
|
|
|
(22,689
|
)
|
|
|
(50,113
|
)
|
|
|
(184,228
|
)
|
|
|
2,708
|
|
|
|
(183,055
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
242,465
|
|
|
$
|
391,047
|
|
|
$
|
288,637
|
|
|
$
|
421,342
|
|
|
$
|
(1,101,026
|
)
|
|
$
|
242,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,162,637
|
|
|
$
|
|
|
|
$
|
3,162,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
133
|
|
|
|
1,334,523
|
|
|
|
|
|
|
|
1,334,656
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
107,824
|
|
|
|
908,111
|
|
|
|
|
|
|
|
1,015,935
|
|
Management fee and other
|
|
|
|
|
|
|
|
|
|
|
(67,491
|
)
|
|
|
67,491
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
5,422
|
|
|
|
304,969
|
|
|
|
|
|
|
|
310,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,888
|
|
|
|
2,615,094
|
|
|
|
|
|
|
|
2,660,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
|
|
|
|
|
|
|
|
(45,888
|
)
|
|
|
547,543
|
|
|
|
|
|
|
|
501,655
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(72,080
|
)
|
|
|
(10,111
|
)
|
|
|
(600
|
)
|
|
|
(81,898
|
)
|
|
|
19,429
|
|
|
|
(145,260
|
)
|
Interest income
|
|
|
2,600
|
|
|
|
|
|
|
|
17,473
|
|
|
|
19,085
|
|
|
|
(19,410
|
)
|
|
|
19,748
|
|
Foreign currency transaction gains, net
|
|
|
3,065
|
|
|
|
|
|
|
|
|
|
|
|
98,267
|
|
|
|
|
|
|
|
101,332
|
|
Equity in income of affiliates
|
|
|
347,634
|
|
|
|
234,038
|
|
|
|
|
|
|
|
|
|
|
|
(581,672
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
421
|
|
|
|
|
|
|
|
(4,883
|
)
|
|
|
8,720
|
|
|
|
|
|
|
|
4,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
281,640
|
|
|
|
223,927
|
|
|
|
11,990
|
|
|
|
44,174
|
|
|
|
(581,653
|
)
|
|
|
(19,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax benefit (provision)
|
|
|
281,640
|
|
|
|
223,927
|
|
|
|
(33,898
|
)
|
|
|
591,717
|
|
|
|
(581,653
|
)
|
|
|
481,733
|
|
Income tax benefit (provision)
|
|
|
40,270
|
|
|
|
358
|
|
|
|
(3,959
|
)
|
|
|
(191,054
|
)
|
|
|
(5,438
|
)
|
|
|
(159,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
321,910
|
|
|
$
|
224,285
|
|
|
$
|
(37,857
|
)
|
|
$
|
400,663
|
|
|
$
|
(587,091
|
)
|
|
$
|
321,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
768
|
|
|
$
|
1,445,383
|
|
|
$
|
|
|
|
$
|
1,446,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
581,573
|
|
|
|
|
|
|
|
581,588
|
|
Selling, general and administrative
|
|
|
6,899
|
|
|
|
20
|
|
|
|
57,090
|
|
|
|
438,303
|
|
|
|
|
|
|
|
502,312
|
|
Management fee and other
|
|
|
(19,140
|
)
|
|
|
|
|
|
|
(23,220
|
)
|
|
|
42,360
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
2,189
|
|
|
|
137,511
|
|
|
|
|
|
|
|
139,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,241
|
)
|
|
|
20
|
|
|
|
36,074
|
|
|
|
1,199,747
|
|
|
|
|
|
|
|
1,223,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
12,241
|
|
|
|
(20
|
)
|
|
|
(35,306
|
)
|
|
|
245,636
|
|
|
|
|
|
|
|
222,551
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(52,174
|
)
|
|
|
(31,520
|
)
|
|
|
(276
|
)
|
|
|
(47,506
|
)
|
|
|
48,018
|
|
|
|
(83,458
|
)
|
Interest income
|
|
|
7,395
|
|
|
|
44,256
|
|
|
|
52
|
|
|
|
6,164
|
|
|
|
(48,017
|
)
|
|
|
9,850
|
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,406
|
|
|
|
|
|
|
|
28,406
|
|
Equity in income of affiliates
|
|
|
140,687
|
|
|
|
147,679
|
|
|
|
161,875
|
|
|
|
|
|
|
|
(450,241
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
(3,529
|
)
|
|
|
(4
|
)
|
|
|
(3,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,908
|
|
|
|
160,415
|
|
|
|
161,654
|
|
|
|
(16,465
|
)
|
|
|
(450,244
|
)
|
|
|
(48,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
108,149
|
|
|
|
160,395
|
|
|
|
126,348
|
|
|
|
229,171
|
|
|
|
(450,244
|
)
|
|
|
173,819
|
|
Income tax benefit (provision)
|
|
|
10,363
|
|
|
|
(3,862
|
)
|
|
|
(2,326
|
)
|
|
|
(67,299
|
)
|
|
|
7,817
|
|
|
|
(55,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
118,512
|
|
|
$
|
156,533
|
|
|
$
|
124,022
|
|
|
$
|
161,872
|
|
|
$
|
(442,427
|
)
|
|
$
|
118,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,142,458
|
|
|
$
|
|
|
|
$
|
1,142,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
478,473
|
|
|
|
|
|
|
|
478,515
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
35,157
|
|
|
|
328,747
|
|
|
|
|
|
|
|
363,904
|
|
Management fee and other
|
|
|
|
|
|
|
|
|
|
|
(21,927
|
)
|
|
|
21,927
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
1,699
|
|
|
|
112,043
|
|
|
|
|
|
|
|
113,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,971
|
|
|
|
941,190
|
|
|
|
|
|
|
|
956,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
|
|
|
|
|
|
|
|
(14,971
|
)
|
|
|
201,268
|
|
|
|
|
|
|
|
186,297
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(23,363
|
)
|
|
|
(10,111
|
)
|
|
|
(216
|
)
|
|
|
(42,315
|
)
|
|
|
17,454
|
|
|
|
(58,551
|
)
|
Interest income
|
|
|
168
|
|
|
|
|
|
|
|
17,292
|
|
|
|
3,320
|
|
|
|
(17,454
|
)
|
|
|
3,326
|
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,094
|
|
|
|
|
|
|
|
45,094
|
|
Equity in income of affiliates
|
|
|
122,604
|
|
|
|
83,772
|
|
|
|
|
|
|
|
|
|
|
|
(206,376
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
237
|
|
|
|
|
|
|
|
(1,760
|
)
|
|
|
213
|
|
|
|
|
|
|
|
(1,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,646
|
|
|
|
73,661
|
|
|
|
15,316
|
|
|
|
6,312
|
|
|
|
(206,376
|
)
|
|
|
(11,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
99,646
|
|
|
|
73,661
|
|
|
|
345
|
|
|
|
207,580
|
|
|
|
(206,376
|
)
|
|
|
174,856
|
|
Income tax benefit (provision)
|
|
|
17,336
|
|
|
|
3,930
|
|
|
|
(6,232
|
)
|
|
|
(71,762
|
)
|
|
|
(1,146
|
)
|
|
|
(57,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
116,982
|
|
|
$
|
77,591
|
|
|
$
|
(5,887
|
)
|
|
$
|
135,818
|
|
|
$
|
(207,522
|
)
|
|
$
|
116,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
242,465
|
|
|
$
|
391,047
|
|
|
$
|
288,637
|
|
|
$
|
421,343
|
|
|
$
|
(1,101,027
|
)
|
|
$
|
242,465
|
|
Adjustments to reconcile net income to net cash (used in)
provided by operating activities
|
|
|
(357,939
|
)
|
|
|
(391,047
|
)
|
|
|
(276,942
|
)
|
|
|
500,203
|
|
|
|
1,033,937
|
|
|
|
508,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(115,474
|
)
|
|
|
|
|
|
|
11,695
|
|
|
|
921,546
|
|
|
|
(67,090
|
)
|
|
|
750,677
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(25,831
|
)
|
|
|
|
|
|
|
|
|
|
|
(480,554
|
)
|
|
|
|
|
|
|
(506,385
|
)
|
Proceeds from sales of short-term investments
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
965,759
|
|
|
|
|
|
|
|
1,015,759
|
|
Transfers to restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98,298
|
)
|
|
|
|
|
|
|
(98,298
|
)
|
Transfers from restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,756
|
|
|
|
|
|
|
|
94,756
|
|
Purchase of long-term and short-term investments
|
|
|
(680,921
|
)
|
|
|
|
|
|
|
|
|
|
|
(906,322
|
)
|
|
|
|
|
|
|
(1,587,243
|
)
|
Intercompany borrowings
|
|
|
(33,285
|
)
|
|
|
|
|
|
|
64,355
|
|
|
|
|
|
|
|
(31,070
|
)
|
|
|
|
|
Other, net
|
|
|
(4,274
|
)
|
|
|
|
|
|
|
|
|
|
|
(53,681
|
)
|
|
|
4,274
|
|
|
|
(53,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(694,311
|
)
|
|
|
|
|
|
|
64,355
|
|
|
|
(478,340
|
)
|
|
|
(26,796
|
)
|
|
|
(1,135,092
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
|
|
80,000
|
|
Repayments under syndicated loan facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,779
|
)
|
|
|
|
|
|
|
(60,779
|
)
|
Repayments under import financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,540
|
)
|
|
|
|
|
|
|
(66,540
|
)
|
Purchases of convertible notes
|
|
|
(442,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(442,972
|
)
|
Intercompany dividends
|
|
|
|
|
|
|
|
|
|
|
(67,090
|
)
|
|
|
|
|
|
|
67,090
|
|
|
|
|
|
Other, net
|
|
|
40,522
|
|
|
|
|
|
|
|
(1,259
|
)
|
|
|
(39,000
|
)
|
|
|
26,796
|
|
|
|
27,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(402,450
|
)
|
|
|
|
|
|
|
(68,349
|
)
|
|
|
(86,319
|
)
|
|
|
93,886
|
|
|
|
(463,232
|
)
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,660
|
|
|
|
|
|
|
|
9,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,212,235
|
)
|
|
|
|
|
|
|
7,701
|
|
|
|
366,547
|
|
|
|
|
|
|
|
(837,987
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,702,191
|
|
|
|
28
|
|
|
|
|
|
|
|
801,845
|
|
|
|
|
|
|
|
2,504,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
489,956
|
|
|
$
|
28
|
|
|
$
|
7,701
|
|
|
$
|
1,168,392
|
|
|
$
|
|
|
|
$
|
1,666,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
321,910
|
|
|
$
|
224,285
|
|
|
$
|
(37,857
|
)
|
|
$
|
400,663
|
|
|
$
|
(587,091
|
)
|
|
$
|
321,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
|
|
|
(163,648
|
)
|
|
|
(224,285
|
)
|
|
|
37,857
|
|
|
|
137,769
|
|
|
|
436,454
|
|
|
|
224,147
|
|
Net cash provided by operating activities
|
|
|
158,262
|
|
|
|
|
|
|
|
|
|
|
|
538,432
|
|
|
|
(150,637
|
)
|
|
|
546,057
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(4,637
|
)
|
|
|
|
|
|
|
|
|
|
|
(496,304
|
)
|
|
|
|
|
|
|
(500,941
|
)
|
Proceeds from sales of short-term investments
|
|
|
43,727
|
|
|
|
|
|
|
|
|
|
|
|
652,816
|
|
|
|
|
|
|
|
696,543
|
|
Purchases of short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(625,814
|
)
|
|
|
|
|
|
|
(625,814
|
)
|
Transfers to restricted cash
|
|
|
(3,611
|
)
|
|
|
|
|
|
|
|
|
|
|
(49,344
|
)
|
|
|
|
|
|
|
(52,955
|
)
|
Intercompany borrowings
|
|
|
(157,058
|
)
|
|
|
(762,476
|
)
|
|
|
|
|
|
|
|
|
|
|
919,534
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,503
|
)
|
|
|
|
|
|
|
(14,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(121,579
|
)
|
|
|
(762,476
|
)
|
|
|
|
|
|
|
(533,149
|
)
|
|
|
919,534
|
|
|
|
(497,670
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
762,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
762,522
|
|
Intercompany investments
|
|
|
762,476
|
|
|
|
|
|
|
|
|
|
|
|
157,058
|
|
|
|
(919,534
|
)
|
|
|
|
|
Intercompany dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,637
|
)
|
|
|
150,637
|
|
|
|
|
|
Other, net
|
|
|
1,438
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
(25,489
|
)
|
|
|
|
|
|
|
(24,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
763,914
|
|
|
|
762,481
|
|
|
|
|
|
|
|
(19,068
|
)
|
|
|
(768,897
|
)
|
|
|
738,430
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,824
|
)
|
|
|
|
|
|
|
(28,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
800,597
|
|
|
|
5
|
|
|
|
|
|
|
|
(42,609
|
)
|
|
|
|
|
|
|
757,993
|
|
Cash and cash equivalents, beginning of period
|
|
|
490,795
|
|
|
|
|
|
|
|
|
|
|
|
752,456
|
|
|
|
|
|
|
|
1,243,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,291,392
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
709,847
|
|
|
$
|
|
|
|
$
|
2,001,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
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
|
|
|
|
|
|
|
|
26
|
|
|
|
|
26
|
|
|
|
|
30
|
|
|
|
|
31
|
|
|
|
|
31
|
|
|
|
|
33
|
|
|
|
|
36
|
|
|
|
|
39
|
|
|
|
|
41
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45
|
|
|
|
|
48
|
|
|
|
|
49
|
|
25
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition as of September 30,
2010 and December 31, 2009 and our consolidated results of
operations for the nine- and three-month periods ended
September 30, 2010 and 2009; and
|
|
|
|
significant factors which we believe could affect our
prospective financial condition and results of operations.
|
You should read this discussion in conjunction with our annual
report on
Form 10-K,
as supplemented by our current report on
Form 8-K
filed on March 8, 2010, and our quarterly reports on
Form 10-Q
for the quarters ended March 31, 2010 and June 30,
2010, including, but not limited to, the discussion regarding
our critical accounting policies and estimates, as described
below. Historical results may not indicate future performance.
See Forward Looking Statements and
Item 1A. Risk Factors in our annual
report on
Form 10-K
for risks and uncertainties that may impact our future
performance.
We refer to our operating companies by the countries in which
they operate, such as Nextel Mexico, Nextel Brazil, Nextel
Argentina, Nextel Peru and Nextel Chile.
Business
Overview
We provide wireless communication services, primarily targeted
at meeting the needs of customers who use our services in their
businesses and individuals that have medium to high usage
patterns, both of whom value our multi-function handsets,
including our Nextel Direct
Connect®
feature, and our high level of customer service. We provide
these services through operating companies located in selected
Latin American markets under the
Nexteltm
brand, with our principal operations located in major business
centers and related transportation corridors of Mexico, Brazil,
Argentina, Peru and Chile. We provide our services in major
urban and suburban centers with high population densities, which
we refer to as major business centers, where we believe there is
a concentration of the countrys business users and
economic activity. We believe that vehicle traffic congestion,
low wireline service penetration and the expanded coverage of
wireless networks in these major business centers encourage the
use of the mobile wireless communications services that we offer.
We use a wireless transmission technology called integrated
digital enhanced network, or iDEN, developed by Motorola, Inc.
to provide our digital mobile services on 800 MHz spectrum
holdings in all of our markets. This technology, which is the
only digital technology currently available that can be used on
non-contiguous spectrum like ours, allows us to use our spectrum
efficiently and offer multiple wireless services integrated into
a variety of handset devices. The services we offer include:
|
|
|
|
|
mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a
push-to-talk
basis, for private
one-to-one
calls or group calls;
|
|
|
|
International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
subscribers using compatible handsets in the United States and
with TELUS subscribers using compatible handsets in Canada;
|
|
|
|
|
|
text messaging services, mobile internet services,
e-mail
services including
Blackberrytm
services, an Android-based open operating system, location-based
services, which include the use of Global Positioning System, or
GPS, technologies, digital media services and advanced
Javatm
enabled business applications; and
|
|
|
|
|
|
international roaming services.
|
Our goal is to generate increased revenues in our Latin American
markets by providing differentiated wireless communications
services that are valued by our customers, while improving our
profitability and cash flow over the long term. We plan to
continue to expand the coverage and capacity of our networks in
our existing markets and
26
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
Factors in our annual report on
Form 10-K
for information on risks and uncertainties that could affect our
ability to reach these goals and the other objectives described
below.
We have also acquired licenses of spectrum outside the
800 MHz band in Peru and Chile that can be used to support
other wireless technologies in the future. We intend to use that
spectrum to support the deployment of a new third generation
network that utilizes WCDMA technology. Nextel Peru launched
third generation service in December 2009, and Nextel Chile is
currently in the process of constructing its third generation
network. Nextel Chile expects to begin providing third
generation service offerings in 2011.
On October 1, 2010, a subsidiary of Nextel Mexico was
awarded a nationwide license relating to 30 MHz of spectrum
in the 1.7 GHz and 2.1 GHz bands following its
successful participation in the auctions relating to that
spectrum that were completed in July 2010. Nextel Mexico plans
to use this spectrum to support the deployment of a third
generation network based on wideband CDMA, or WCDMA, technology
in Mexico and expects to begin launching this network in certain
markets in Mexico within the next six months, with a more
extensive launch within the next 12 to 18 months. Certain
aspects of the auctions, including the processes used to adopt
the rules applicable to the auctions, the terms of those rules,
the implementation of the auction process, the grant of the
spectrum license to Nextel Mexico and its right to use the
spectrum, have been challenged in a number of legal and
administrative proceedings brought primarily by our competitors
in Mexico. While we believe that the auction rules were adopted
consistent with applicable legal requirements in Mexico, the
auction process was conducted properly and the licenses were
awarded to Nextel Mexico in accordance with the auction rules,
it is uncertain whether these proceedings will affect our
ability to use the spectrum granted pursuant to those licenses.
If these proceedings were to result in a loss of, or the
imposition of a significant limitation on our ability to use,
the spectrum awarded to Nextel Mexico, our plans to deploy the
third generation network in Mexico could be adversely affected,
which could have an adverse effect on our business.
On February 15, 2010, NII Holdings, Grupo Televisa, S.A.B.,
a Mexican corporation, or Televisa, and our wholly-owned
subsidiaries Nextel Mexico and Nextel International (Uruguay),
LLC, a Delaware limited liability company, entered into an
investment and securities subscription agreement pursuant to
which Televisa would have acquired up to a 30% equity interest
in Nextel Mexico for an aggregate purchase price of
$1.44 billion. Pursuant to that agreement, the parties
participated in the spectrum auctions in Mexico described above.
On October 18, 2010, NII Holdings and Televisa announced
that they mutually agreed to terminate this investment
agreement. A subsidiary of Nextel Mexico continues to hold the
spectrum license granted to it in connection with the spectrum
auction.
We may also explore financially attractive opportunities to
expand our network coverage in areas that we do not currently
serve. Based on market data that continues to show lower
wireless penetration in our markets relative to other regions of
the world and our current market share in those markets, we
believe that we can continue to generate growth in our
subscriber base and revenues while improving our profitability
and cash flow over the long term.
We believe that the wireless communications industry in the
markets in which we operate has been and will continue to be
highly competitive on the basis of price, the types of services
offered, the diversity of handsets offered and the quality of
service. In each of our markets, we compete with at least two
large, well-capitalized competitors with substantial financial
and other resources. Some of these competitors have the ability
to offer bundled telecommunications services that include local,
long distance and data services, and can offer a larger variety
of handsets with a wide range of prices, brands and features.
Although competitive pricing of services and the variety and
pricing of handsets are often important factors in a
customers decision making process, we believe that the
users who primarily make up our targeted customer base are also
likely to base their purchase decisions on quality of service
and customer support, as well as on the availability of
differentiated features and services, like our Direct Connect
services, that make it easier for them to communicate quickly,
efficiently and economically.
27
We have implemented a strategy that we believe will position us
to achieve our long-term goal of generating profitable growth.
The key components of that strategy are as follows:
Focusing on Major Business Centers in Key Latin American
Markets. We operate primarily in large urban
markets, including five of the six largest cities in Latin
America, which have a concentration of medium to high usage
business customers and consumers. We target these markets
because we believe they have favorable long- term growth
prospects for our wireless communications services while
offering the cost benefits associated with providing services in
more concentrated population centers. In addition, the cities in
which we operate account for a high proportion of total economic
activity in each of their respective countries and provide us
with a large potential market. We believe that there are
significant opportunities for growth in these markets due to the
high demand for wireless communications services and the large
number of potential customers within our targeted customer
groups.
Targeting High Value Customers. Our main focus
is on customers who purchase services under contract and
primarily use our services in their businesses and on
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature and our high level of customer service.
In our current customer base, our typical customer has between 3
and 30 handsets, and some of our largest customers have over 500
handsets; however, new customers that we have recently acquired
generally have a lower number of handsets per customer, and we
expect this trend to continue. We expect that although we will
continue to focus on our current high value subscriber base, the
introduction of new handsets, service offerings and pricing
plans made possible in markets where we launch services
supported by a third generation network may enable us to further
expand our targeted customer groups in those markets.
Providing Differentiated Services. We
differentiate ourselves from our competitors by offering unique
services like our
push-to-talk
service, which we refer to as Direct Connect. This service,
which is available throughout our service areas, provides
significant value to our customers by eliminating the long
distance and domestic roaming fees charged by other wireless
service providers, while also providing added functionality due
to the near-instantaneous nature of the communication and the
ability to communicate on a
one-to-many
basis. In addition, we are in the process of developing a high
performance
push-to-talk
service that utilizes WCDMA technology in an effort to
continually provide differentiated service to our customers as
we acquire spectrum rights and deploy WCDMA-based networks. Our
competitors have introduced competitive
push-to-talk
over cellular products, but we believe that the quality of our
Direct Connect service is superior at this time. We add further
value by customizing data applications that enhance the
productivity of our business customers, such as vehicle and
delivery tracking, order entry processing and workforce
monitoring applications.
Delivering Superior Customer Service. In
addition to our unique service offerings, we seek to further
differentiate ourselves by providing a higher level of customer
service than our competitors. We work proactively with our
customers to match them with service plans that offer greater
value based on the customers usage patterns. After
analyzing customer usage and expense data, we strive to minimize
a customers per minute costs while increasing overall
usage of our array of services, thereby providing higher value
to our customers while increasing our monthly revenues. This
goal is also furthered by our efforts during and after the sales
process to educate customers about our services, multi-function
handsets and rate plans. In addition, we have implemented
proactive customer retention programs to increase customer
satisfaction and retention.
Selectively Expanding our Service Areas. We
believe that we have significant opportunities to grow through
selective expansion of our service into additional areas in some
of the countries in which we currently operate, particularly in
Brazil where we made significant additional investments in 2008,
2009 and into 2010 in order to expand our service areas,
including expansion into the northeast region of the country,
and to add more capacity to Nextel Brazils network to
support its growth. 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. See Future Capital Needs and
Resources Capital Expenditures for a
discussion of the factors that drive our capital spending.
Preserving the iDEN Opportunity. The iDEN
networks that we operate allow us to offer differentiated
services like Direct Connect while offering high quality voice
telephony and other innovative services. The iDEN technology is
unique in that it is the only widespread, commercially available
technology that operates on non-
28
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.
Although Sprint Nextel is the largest customer of Motorola with
respect to iDEN technology, Sprint Nextel has not participated
in the development of new iDEN handsets and features in recent
years, and there has been a decline in the number of handsets
purchased by them. We have increased our effort and support of
iDEN handset product development and now lead the majority of
that development activity in support of our customers
needs. In addition, we have entered into arrangements with
Motorola that are designed to provide us with a continued source
of iDEN network equipment and handsets in an environment in
which Sprint Nextels purchases and support of future
development of that equipment have declined. Specifically, in
September 2006, we entered into agreements to extend our
relationship with Motorola for the supply of iDEN handsets and
iDEN network infrastructure through December 31, 2011.
Under these agreements, Motorola agreed to maintain an adequate
supply of the iDEN handsets and equipment used in our business
for the term of the agreement and to continue to invest in the
development of new iDEN devices and infrastructure features. In
addition, we agreed to annually escalating handset volume
purchase commitments and certain pricing parameters for handsets
and infrastructure linked to the volume of our purchases. If we
do not meet the specified handset volume commitments, we would
be required to pay an additional amount based on any shortfall
of actual purchased handsets compared to the related annual
volume commitment. In October 2010, we extended the terms of the
iDEN network infrastructure agreement with Motorola until
December 31, 2014. The extension of this infrastructure
agreement will not impact any handset pricing terms or
commitments. In February 2010, Motorola announced plans to
separate its mobile devices and home division into a separate
public entity. In addition, in July 2010, Motorola announced
that it had reached an agreement to sell certain of its
operations relating to the manufacture of network equipment to
Nokia Siemens Networks. Although Motorola has announced that the
sale does not include its iDEN business, it is uncertain whether
or to what extent the sale by Motorola of its other network
equipment businesses could impact Motorolas ability to
support its iDEN business. Accordingly, while we cannot
determine the impact of Motorolas planned separation of
the mobile devices business or the sale of its other network
equipment businesses on its iDEN business, Motorolas
obligations under our existing agreements, including the
obligation to supply us with iDEN handsets and network
equipment, remain in effect.
Planning for the Future. Another key component
in our overall strategy is to expand and improve the innovative
and differentiated services we offer and evaluate the
technologies necessary to provide those services. One such
initiative is to develop and offer a broader range of data
services on our networks, including evaluating the feasibility
of expanding our offering of third generation voice and
broadband data services in the future. This focus on offering
innovative and differentiated services makes it important that
we continue to invest in, evaluate and, if appropriate, deploy
new services and enhancements to our existing services. In some
cases, we will consider and pursue acquisitions of assets that
include spectrum licenses to deploy these services, including in
auctions of newly available spectrum and through transactions
involving acquisitions of existing spectrum rights.
Consistent with this strategy of pursuing new spectrum and
technology opportunities, in July 2007, we participated in a
spectrum auction and were awarded a nationwide license of
35 MHz of 1.9 GHz spectrum in Peru for a term of
20 years. The license under which the spectrum rights were
granted requires us to deploy new network technology within
specified timeframes throughout Peru, including in areas that we
do not currently serve. We have deployed a third generation
network in Peru that utilizes WCDMA technology and will operate
on this spectrum, and in the fourth quarter of 2009, we launched
high speed wireless data services using air cards supported by
our third generation network in Peru. In addition, in April
2010, we also launched voice services utilizing our third
generation network in Peru. Similarly, in September 2009, we
participated in a spectrum auction in Chile in which we were the
successful bidder for 60 MHz of spectrum in the
1.7 GHz and 2.1 GHz bands. In July 2010, we were
awarded the rights to this spectrum. We plan to deploy a third
generation network based on WCDMA technology that will operate
on this spectrum in Chile beginning in 2011. Finally, as
discussed above, a subsidiary of Nextel Mexico was recently
awarded a nationwide license for 30 MHz of spectrum in the
1.7 GHz and 2.1 GHz bands. We intend to utilize this
spectrum to develop and deploy a third generation network in
Mexico.
29
We also plan to pursue future opportunities to acquire
additional spectrum in our other markets, including through
participating in the spectrum auctions that are expected to be
conducted in Brazil and Argentina, to the extent new spectrum
can be obtained at a reasonable cost with available financing
and consistent with our overall technology strategy. We believe
that the deployment of third generation networks using this
spectrum will enable us to offer new and differentiated services
to a larger base of potential customers.
As part of our ongoing assessment of our ability to meet our
customers current and future needs, we continually review
alternate technologies to assess their technical performance,
cost and functional capabilities. These reviews may involve the
deployment of the technologies under consideration on a trial
basis in order to evaluate their capabilities and the market
demand for the supported services. Our decision whether to
acquire rights to use additional spectrum, as well as our choice
of alternative technologies to be deployed on any spectrum we
acquire, would likely be affected by a number of factors,
including:
|
|
|
|
|
the types of features and services supported by the technology
and our assessment of the demand for those features and services;
|
|
|
|
the availability and pricing of related equipment, whether that
equipment is designed to operate or can be modified to operate
on the spectrum bands we are licensed to use or that are
available for purchase in our markets, and whether other
wireless carriers are operating or plan to operate a particular
technology;
|
|
|
|
the spectrum bands available for purchase in our markets and the
expected cost of acquiring that spectrum;
|
|
|
|
our need to continue to support iDEN-based services for our
existing customer base either on an ongoing or transitional
basis; and
|
|
|
|
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.
|
Global Economic Environment. During 2008 and
continuing into 2009, the global economic environment was
characterized by a significant decline in economic growth rates
and a marked increase in the volatility of foreign currency
exchange rates. The effects of these changes were particularly
severe in our Latin American markets during the first half of
2009 when we experienced significant reductions in our
operational performance due to the reduction in customer demand
and in our reported financial results due to both the economic
downturn and the substantial decline in local currency values
relative to the U.S. dollar. During the second half of 2009
and through September 30, 2010, we have experienced
stabilizing or improving economic conditions, as well as
strengthening local currency exchange rates in some of our
markets, but there is no assurance that these improvements will
continue. Future declines in the economic growth rates and
volatility of foreign currency exchange rates globally and in
our markets could negatively impact our operations and our
operating and financial results.
See Forward Looking Statements and
Item 1A. Risk Factors in our annual report on
Form 10-K
for information on risks and uncertainties that could affect the
above objectives.
Handsets
in Commercial Service
The table below provides an overview of our total handsets in
commercial service in the countries indicated as of
September 30, 2010 and December 31, 2009. For purposes
of the table, handsets in commercial service represent all
handsets with active customer accounts on the networks in each
of the listed countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Handsets in commercial service
December 31, 2009
|
|
|
2,987
|
|
|
|
2,483
|
|
|
|
1,030
|
|
|
|
842
|
|
|
|
44
|
|
|
|
7,386
|
|
Net subscriber additions
|
|
|
285
|
|
|
|
629
|
|
|
|
87
|
|
|
|
187
|
|
|
|
17
|
|
|
|
1,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handsets in commercial service
September 30, 2010
|
|
|
3,272
|
|
|
|
3,112
|
|
|
|
1,117
|
|
|
|
1,029
|
|
|
|
61
|
|
|
|
8,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Critical
Accounting Policies and Estimates
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses and related disclosures of contingent assets and
liabilities in the condensed consolidated financial statements
and accompanying notes. Although we believe that our estimates,
assumptions and judgments are reasonable, they are based upon
presently available information. Due to the inherent uncertainty
involved in making those estimates, actual results reported in
future periods could differ from those estimates.
As described in more detail in our annual report on
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations, we consider
the following accounting policies to be the most important to
our financial position and results of operations or policies
that require us to exercise significant judgment
and/or
estimates:
|
|
|
|
|
revenue recognition;
|
|
|
|
allowance for doubtful accounts;
|
|
|
|
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 nine months ended
September 30, 2010 compared to those discussed under
Managements Discussion and Analysis of Financial
Condition and Results of Operations in our annual report
on
Form 10-K.
Results
of Operations
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of handsets and
accessories. Service revenues primarily include fixed monthly
access charges for mobile telephone service and two-way radio
and other services, including revenues from calling party pays
programs and variable charges for airtime and two-way radio
usage in excess of plan minutes, long-distance charges and
international roaming revenues derived from calls placed by our
customers. Digital handset and accessory revenues represent
revenues we earn on the sale of digital handsets and accessories
to our customers.
In addition, we also have other less significant sources of
revenues. These revenues primarily include revenues generated
from our handset maintenance programs, roaming revenues
generated from other companies customers that roam on our
networks and co-location rental revenues from third-party
tenants that rent space on our towers.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of handset and accessory sales.
Cost of providing service consists largely of costs of
interconnection with local exchange carrier facilities and
direct switch and transmitter and receiver site costs, including
property taxes, expenses related to our handset maintenance
programs, insurance costs, utility costs, maintenance costs,
spectrum license fees and rent for the network switches and
transmitter sites used to operate our mobile networks.
Interconnection costs have fixed and variable components. The
fixed component of interconnection costs consists of monthly
flat-rate fees for facilities leased from local exchange
carriers, primarily for circuits required to connect our
transmitter sites to our network switches and to connect our
switches. The variable component of interconnection costs, which
fluctuates in relation to the volume and duration of wireless
calls, generally consists of per-minute use fees charged by
wireline and wireless providers for wireless calls from our
handsets terminating on their networks. Cost of digital handset
and
31
accessory sales consists largely of the cost of the handset and
accessories, order fulfillment and installation-related
expenses, as well as write-downs of digital handset and related
accessory inventory for shrinkage or obsolescence.
Our service and other revenues and the variable component of our
cost of service are primarily driven by the number of handsets
in service and not necessarily by the number of customers, as
one customer may purchase one or many handsets. Our digital
handset and accessory revenues and cost of digital handset and
accessory sales are primarily driven by the number of new
handsets placed into service, as well as handset upgrades
provided to existing customers during the year.
Selling and marketing expenses includes all of the expenses
related to acquiring customers. General and administrative
expenses include expenses related to revenue-based taxes,
billing, customer care, collections including bad debt, repairs
and maintenance of management information systems, spectrum
license fees, corporate overhead and share-based payment for
stock options and restricted stock.
In accordance with accounting principles generally accepted in
the United States, we translated the results of operations of
our operating segments using the average exchange rates for the
nine and three months ended September 30, 2010 and 2009.
The following table presents the average exchange rates we used
to translate the results of operations of our operating
segments, as well as changes from the average exchange rates
utilized in the prior period. Because the U.S. dollar is
the functional currency in Peru, Nextel Perus results of
operations are not significantly impacted by changes in the
U.S. dollar to Peruvian sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2010
|
|
2009
|
|
Percent Change
|
|
Mexican peso
|
|
|
12.72
|
|
|
|
13.67
|
|
|
|
7
|
%
|
Brazilian real
|
|
|
1.78
|
|
|
|
2.08
|
|
|
|
14
|
%
|
Argentine peso
|
|
|
3.89
|
|
|
|
3.70
|
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
2010
|
|
2009
|
|
Percent Change
|
|
Mexican peso
|
|
|
12.81
|
|
|
|
13.27
|
|
|
|
3
|
%
|
Brazilian real
|
|
|
1.75
|
|
|
|
1.87
|
|
|
|
6
|
%
|
Argentine peso
|
|
|
3.94
|
|
|
|
3.83
|
|
|
|
(3
|
)%
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,857,743
|
|
|
|
95
|
%
|
|
$
|
2,980,833
|
|
|
|
94
|
%
|
|
$
|
876,910
|
|
|
|
29
|
%
|
Digital handset and accessory revenues
|
|
|
223,475
|
|
|
|
5
|
%
|
|
|
181,804
|
|
|
|
6
|
%
|
|
|
41,671
|
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,081,218
|
|
|
|
100
|
%
|
|
|
3,162,637
|
|
|
|
100
|
%
|
|
|
918,581
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(1,090,671
|
)
|
|
|
(27
|
)%
|
|
|
(861,990
|
)
|
|
|
(27
|
)%
|
|
|
(228,681
|
)
|
|
|
27
|
%
|
Cost of digital handset and accessory sales
|
|
|
(541,729
|
)
|
|
|
(13
|
)%
|
|
|
(472,666
|
)
|
|
|
(15
|
)%
|
|
|
(69,063
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,632,400
|
)
|
|
|
(40
|
)%
|
|
|
(1,334,656
|
)
|
|
|
(42
|
)%
|
|
|
(297,744
|
)
|
|
|
22
|
%
|
Selling and marketing expenses
|
|
|
(485,369
|
)
|
|
|
(12
|
)%
|
|
|
(370,598
|
)
|
|
|
(12
|
)%
|
|
|
(114,771
|
)
|
|
|
31
|
%
|
General and administrative expenses
|
|
|
(911,627
|
)
|
|
|
(22
|
)%
|
|
|
(645,337
|
)
|
|
|
(20
|
)%
|
|
|
(266,290
|
)
|
|
|
41
|
%
|
Depreciation and amortization
|
|
|
(403,577
|
)
|
|
|
(10
|
)%
|
|
|
(310,391
|
)
|
|
|
(10
|
)%
|
|
|
(93,186
|
)
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
648,245
|
|
|
|
16
|
%
|
|
|
501,655
|
|
|
|
16
|
%
|
|
|
146,590
|
|
|
|
29
|
%
|
Interest expense, net
|
|
|
(262,458
|
)
|
|
|
(6
|
)%
|
|
|
(145,260
|
)
|
|
|
(5
|
)%
|
|
|
(117,198
|
)
|
|
|
81
|
%
|
Interest income
|
|
|
23,772
|
|
|
|
0
|
%
|
|
|
19,748
|
|
|
|
1
|
%
|
|
|
4,024
|
|
|
|
20
|
%
|
Foreign currency transaction gains, net
|
|
|
27,354
|
|
|
|
0
|
%
|
|
|
101,332
|
|
|
|
3
|
%
|
|
|
(73,978
|
)
|
|
|
(73
|
)%
|
Other (expense) income, net
|
|
|
(11,393
|
)
|
|
|
(0
|
)%
|
|
|
4,258
|
|
|
|
0
|
%
|
|
|
(15,651
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
425,520
|
|
|
|
10
|
%
|
|
|
481,733
|
|
|
|
15
|
%
|
|
|
(56,213
|
)
|
|
|
(12
|
)%
|
Income tax provision
|
|
|
(183,055
|
)
|
|
|
(4
|
)%
|
|
|
(159,823
|
)
|
|
|
(5
|
)%
|
|
|
(23,232
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
242,465
|
|
|
|
6
|
%
|
|
$
|
321,910
|
|
|
|
10
|
%
|
|
$
|
(79,445
|
)
|
|
|
(25
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,359,441
|
|
|
|
94
|
%
|
|
$
|
1,078,386
|
|
|
|
94
|
%
|
|
$
|
281,055
|
|
|
|
26
|
%
|
Digital handset and accessory revenues
|
|
|
86,710
|
|
|
|
6
|
%
|
|
|
64,072
|
|
|
|
6
|
%
|
|
|
22,638
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,446,151
|
|
|
|
100
|
%
|
|
|
1,142,458
|
|
|
|
100
|
%
|
|
|
303,693
|
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(394,795
|
)
|
|
|
(27
|
)%
|
|
|
(316,836
|
)
|
|
|
(28
|
)%
|
|
|
(77,959
|
)
|
|
|
25
|
%
|
Cost of digital handset and accessory sales
|
|
|
(186,793
|
)
|
|
|
(13
|
)%
|
|
|
(161,679
|
)
|
|
|
(14
|
)%
|
|
|
(25,114
|
)
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(581,588
|
)
|
|
|
(40
|
)%
|
|
|
(478,515
|
)
|
|
|
(42
|
)%
|
|
|
(103,073
|
)
|
|
|
22
|
%
|
Selling and marketing expenses
|
|
|
(169,555
|
)
|
|
|
(12
|
)%
|
|
|
(136,216
|
)
|
|
|
(12
|
)%
|
|
|
(33,339
|
)
|
|
|
24
|
%
|
General and administrative expenses
|
|
|
(332,757
|
)
|
|
|
(23
|
)%
|
|
|
(227,688
|
)
|
|
|
(20
|
)%
|
|
|
(105,069
|
)
|
|
|
46
|
%
|
Depreciation and amortization
|
|
|
(139,700
|
)
|
|
|
(10
|
)%
|
|
|
(113,742
|
)
|
|
|
(10
|
)%
|
|
|
(25,958
|
)
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
222,551
|
|
|
|
15
|
%
|
|
|
186,297
|
|
|
|
16
|
%
|
|
|
36,254
|
|
|
|
19
|
%
|
Interest expense, net
|
|
|
(83,458
|
)
|
|
|
(6
|
)%
|
|
|
(58,551
|
)
|
|
|
(5
|
)%
|
|
|
(24,907
|
)
|
|
|
43
|
%
|
Interest income
|
|
|
9,850
|
|
|
|
1
|
%
|
|
|
3,326
|
|
|
|
0
|
%
|
|
|
6,524
|
|
|
|
196
|
%
|
Foreign currency transaction gains, net
|
|
|
28,406
|
|
|
|
2
|
%
|
|
|
45,094
|
|
|
|
4
|
%
|
|
|
(16,688
|
)
|
|
|
(37
|
)%
|
Other expense, net
|
|
|
(3,530
|
)
|
|
|
(0
|
)%
|
|
|
(1,310
|
)
|
|
|
(0
|
)%
|
|
|
(2,220
|
)
|
|
|
169
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
173,819
|
|
|
|
12
|
%
|
|
|
174,856
|
|
|
|
15
|
%
|
|
|
(1,037
|
)
|
|
|
(1
|
)%
|
Income tax provision
|
|
|
(55,307
|
)
|
|
|
(4
|
)%
|
|
|
(57,874
|
)
|
|
|
(5
|
)%
|
|
|
2,567
|
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
118,512
|
|
|
|
8
|
%
|
|
$
|
116,982
|
|
|
|
10
|
%
|
|
$
|
1,530
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first nine months of 2010, we expanded our subscriber
base across all of our markets with much of this growth
concentrated in Brazil and Mexico. We also experienced a lower
consolidated customer turnover rate in the third quarter of 2010
compared to the third quarter of 2009, which resulted primarily
from improving economic conditions, as well as the initiatives
we implemented in 2009 to stabilize customer turnover rates in
our markets.
33
We continued to invest in coverage expansion and network
improvements during the first nine months of 2010, resulting in
consolidated capital expenditures of $541.0 million, which
represented a 3% decrease from the first nine months of 2009.
The majority of this investment occurred in Brazil where we
continued to expand our coverage areas and enhance the quality
and capacity of our networks, consistent with our plans to
increase our customer base in that market. Under our current
business plan, we expect that the amounts invested in Brazil for
the expansion of our network coverage and the improvement of our
network quality and capacity will continue to represent the
majority of our consolidated capital expenditure investments for
the remainder of 2010 as we focus more resources on expansion in
that market. In addition, our deployment of a third generation
network in Peru has required and will continue to require
significant additional capital expenditures as will our planned
deployment of third generation networks in Mexico and Chile. We
will also incur significant additional capital expenditures if
we are awarded spectrum as a result of the auctions that are
expected to take place in Brazil in late 2010 or early 2011 and
in Argentina in 2011, and if we proceed with our plans to deploy
third generation networks in those markets. Assuming we are
successful in acquiring spectrum in these auctions, we will
likely need to raise significant capital to fund these spectrum
purchases and our plans to deploy third generation networks in
those markets. See Future Capital Needs and
Resources Capital Expenditures for more
information.
We believe that the deployment of third generation networks in
Mexico and Chile will enable us to offer new and differentiated
services to a larger base of customers in these markets.
However, we expect to incur significant expenses associated with
the deployment phase of these networks in Mexico and Chile,
particularly general and administrative and selling and
marketing expenses; however, we do not expect a corresponding
increase in operating revenues during this deployment phase.
The average values of the local currencies in Brazil and Mexico
appreciated relative to the U.S. dollar during the nine and
three months ended September 30, 2010 compared to the nine
and three months ended September 30, 2009. Conversely, the
average value of the Argentine peso depreciated relative to the
U.S. dollar during the nine and three months ended
September 30, 2010 compared to the same periods in 2009.
The $876.9 million, or 29%, and $281.1 million, or
26%, increases in consolidated service and other revenues from
the nine and three months ended September 30, 2009 to the
same periods in 2010 are primarily due to 21% and 22% increases
in the average number of total digital handsets in service,
which resulted from both the continued demand for our services
and the balanced growth and expansion strategies in our markets.
These increases were also the result of increases in
consolidated average revenues per subscriber, primarily due to
the appreciation in the average value of the Brazilian real.
The $228.7 million, or 27%, and $78.0 million, or 25%,
increases in consolidated cost of service from the nine and
three months ended September 30, 2009 to the same periods
in 2010 are principally a result of the following:
|
|
|
|
|
increases in consolidated interconnect costs, mostly in Brazil,
resulting from increases in the relative amount of minutes of
use for calls that terminate on other carriers networks
and require the payment of call termination charges; and
|
|
|
|
increases in consolidated service and repair costs, also
primarily in Brazil, caused by increases in repair costs per
subscriber related to a change in the mix of handsets in Brazil
toward more mid and high tier handsets, as well as increases in
the number of customers participating in the handset maintenance
programs in our markets.
|
34
|
|
3.
|
Selling and
marketing expenses
|
The $114.8 million, or 31%, and $33.3 million, or 24%,
increases in consolidated selling and marketing expenses from
the nine and three months ended September 30, 2009 to the
same periods in 2010 are largely a result of the following:
|
|
|
|
|
increases in consolidated direct commissions and payroll
expenses, mostly in Brazil, due to increases in gross subscriber
additions by internal sales personnel, as well as increases in
sales and marketing personnel;
|
|
|
|
increases in consolidated indirect commissions, primarily in
Brazil and Mexico, due to increases in gross subscriber
additions generated by external sales personnel in Brazil and
higher commissions per gross subscriber addition in
Mexico; and
|
|
|
|
increases in consolidated advertising costs, primarily in Brazil
and Mexico, related to promotions for new rate plans that were
launched during the first nine months of 2010.
|
|
|
4.
|
General and
administrative expenses
|
The $266.3 million, or 41%, and $105.1 million, or
46%, increases in consolidated general and administrative
expenses from the nine and three months ended September 30,
2009 to the same periods in 2010 are primarily due to the
following:
|
|
|
|
|
increases in consolidated general corporate costs, principally
related to increases in revenue-based taxes in Brazil and higher
personnel and consulting costs in some of our markets, both of
which are largely related to the commencement of some of our new
technology initiatives; and
|
|
|
|
increases in consolidated customer care and billing operations
expenses as a result of increases in customer care personnel
necessary to support larger customer bases in our markets.
|
|
|
5.
|
Depreciation
and amortization
|
The $93.2 million, or 30%, and $26.0 million, or 23%,
increases in consolidated depreciation and amortization from the
nine and three months ended September 30, 2009 to the same
periods in 2010 are the result of more consolidated property,
plant and equipment in service, which resulted from the
continued expansion of the coverage and capacity of our
networks, primarily in Brazil.
The $117.2 million, or 81%, and $24.9 million, or 43%,
increases in consolidated net interest expense from the nine and
three months ended September 30, 2009 to the same periods
in 2010 are largely the result of interest incurred in
connection with the issuance of our 10.0% senior notes in
August 2009 and our 8.875% senior notes in December 2009.
|
|
7.
|
Foreign
currency transaction gains, net
|
Consolidated foreign currency transaction gains of
$101.3 million and $45.1 million for the nine and
three months ended September 30, 2009 are primarily the
result of the impact of the appreciation in the value of the
Brazilian real relative to the U.S. dollar on Nextel
Brazils net liabilities, primarily its syndicated loan
facility.
The $23.2 million, or 15%, increase in the consolidated
income tax provision from the nine months ended
September 30, 2009 to the same period in 2010 is
principally due to an increase in the income tax withholding on
intercompany service fees and royalties implemented at the end
of 2009, as well as an increase in the amount of foreign income
subject to United States tax in 2010, partially offset by a
reversal of income tax reserves for uncertain income tax
positions in one of our markets.
35
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. The results of Nextel
Chile are included in Corporate and other. A
discussion of the results of operations for each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,494,008
|
|
|
|
96
|
%
|
|
$
|
1,328,714
|
|
|
|
96
|
%
|
|
$
|
165,294
|
|
|
|
12
|
%
|
Digital handset and accessory revenues
|
|
|
69,643
|
|
|
|
4
|
%
|
|
|
58,110
|
|
|
|
4
|
%
|
|
|
11,533
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,563,651
|
|
|
|
100
|
%
|
|
|
1,386,824
|
|
|
|
100
|
%
|
|
|
176,827
|
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(269,874
|
)
|
|
|
(17
|
)%
|
|
|
(262,300
|
)
|
|
|
(19
|
)%
|
|
|
(7,574
|
)
|
|
|
3
|
%
|
Cost of digital handset and accessory sales
|
|
|
(303,934
|
)
|
|
|
(20
|
)%
|
|
|
(267,144
|
)
|
|
|
(19
|
)%
|
|
|
(36,790
|
)
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(573,808
|
)
|
|
|
(37
|
)%
|
|
|
(529,444
|
)
|
|
|
(38
|
)%
|
|
|
(44,364
|
)
|
|
|
8
|
%
|
Selling and marketing expenses
|
|
|
(199,434
|
)
|
|
|
(12
|
)%
|
|
|
(165,895
|
)
|
|
|
(12
|
)%
|
|
|
(33,539
|
)
|
|
|
20
|
%
|
General and administrative expenses
|
|
|
(218,432
|
)
|
|
|
(14
|
)%
|
|
|
(193,136
|
)
|
|
|
(14
|
)%
|
|
|
(25,296
|
)
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
571,977
|
|
|
|
37
|
%
|
|
$
|
498,349
|
|
|
|
36
|
%
|
|
$
|
73,628
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
503,289
|
|
|
|
95
|
%
|
|
$
|
451,066
|
|
|
|
96
|
%
|
|
$
|
52,223
|
|
|
|
12
|
%
|
Digital handset and accessory revenues
|
|
|
26,772
|
|
|
|
5
|
%
|
|
|
19,775
|
|
|
|
4
|
%
|
|
|
6,997
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
530,061
|
|
|
|
100
|
%
|
|
|
470,841
|
|
|
|
100
|
%
|
|
|
59,220
|
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(107,918
|
)
|
|
|
(20
|
)%
|
|
|
(90,170
|
)
|
|
|
(19
|
)%
|
|
|
(17,748
|
)
|
|
|
20
|
%
|
Cost of digital handset and accessory sales
|
|
|
(103,025
|
)
|
|
|
(20
|
)%
|
|
|
(87,913
|
)
|
|
|
(19
|
)%
|
|
|
(15,112
|
)
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(210,943
|
)
|
|
|
(40
|
)%
|
|
|
(178,083
|
)
|
|
|
(38
|
)%
|
|
|
(32,860
|
)
|
|
|
18
|
%
|
Selling and marketing expenses
|
|
|
(65,286
|
)
|
|
|
(13
|
)%
|
|
|
(59,775
|
)
|
|
|
(13
|
)%
|
|
|
(5,511
|
)
|
|
|
9
|
%
|
General and administrative expenses
|
|
|
(71,017
|
)
|
|
|
(13
|
)%
|
|
|
(61,551
|
)
|
|
|
(13
|
)%
|
|
|
(9,466
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
182,815
|
|
|
|
34
|
%
|
|
$
|
171,432
|
|
|
|
36
|
%
|
|
$
|
11,383
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel Mexico comprised 38% of our consolidated operating
revenues and generated a 37% segment earnings margin for the
first nine months of 2010, which is slightly higher than the
margin reported for the first nine months of 2009. Nextel
Mexicos segment earnings for the nine months ended
September 30, 2010 include a $22.4 million refund of
excess fees paid for spectrum use while Nextel Mexicos
applications to renew some of its
36
spectrum licenses were pending. With the grant of these
renewals, Nextel Mexicos licenses became subject to a new
reduced fee structure, which resulted in the receipt of this
refund in the second quarter of 2010. Nextel Mexico has obtained
renewals on 19 spectrum licenses, and renewals on 12 additional
licenses are pending. Although Nextel Mexico expects that these
renewals will be granted, there is no guarantee that such
renewals will be granted. If some or all of these renewals are
not granted, Nextel Mexico could experience an adverse effect on
its business. During the third quarter of 2010, Nextel
Mexicos results of operations also reflected slightly
lower average revenues per subscriber compared to the third
quarter of 2009 primarily caused by the implementation of lower
cost rate plans in response to the competitive environment in
Mexico, partially offset by the appreciation in the average
value of the peso relative to the U.S. dollar and the
overall improvement in Mexicos economy.
The average value of the Mexican peso for the nine and three
months ended September 30, 2010 appreciated relative to the
U.S. dollar by 7% and 3%, respectively, compared to the
average rate that prevailed during the same periods in 2009. As
a result, the components of Nextel Mexicos results of
operations for the nine and three months ended
September 30, 2010 after translation into U.S. dollars
reflect higher U.S. dollar-denominated revenues and
expenses than would have occurred if it were not for the impact
of the appreciation in the average value of the peso relative to
the U.S. dollar.
Beginning in 2007, some of Nextel Mexicos competitors
significantly lowered their prices for postpaid wireless
services, offered free or significantly discounted handsets,
specifically targeted some of Nextel Mexicos largest
corporate customers, offered various incentives to Nextel
Mexicos customers to switch service providers, including
reimbursement of cancellation fees, and offered bundled
telecommunications services that include local, long distance
and data services. These competitive actions and practices
largely remained in place during the first nine months of 2010.
Nextel Mexico is addressing these competitive actions by, among
other things, launching attractive commercial campaigns and
offering both handsets and more competitive and controlled rate
plans to new and existing customers. These competitive rate
plans are designed to encourage increased usage of the Direct
Connect feature, but have resulted in slightly lower average
revenues per subscriber. In order to continue to expand and
improve its customer base, beginning in 2009, Nextel Mexico
implemented more stringent credit requirements for new
customers. If these efforts prove unsuccessful, gross subscriber
additions in Mexico could be adversely affected in future
periods.
Coverage expansion and network improvements in Mexico resulted
in capital expenditures totaling $81.9 million for the
first nine months of 2010, which represents 15% of our
consolidated total capital expenditures for the nine months
ended September 30, 2010 and which increased slightly
compared to the same period in 2009. As a result of the recent
spectrum auctions in Mexico, a subsidiary of Nextel Mexico was
awarded a nationwide license for 30 MHz of spectrum in the
1.7 GHz and 2.1 GHz bands and a regional license for
10 MHz of spectrum in the 1.9 GHz band that covers
Monterrey. We intend to utilize this spectrum to develop and
deploy a third generation network in Mexico, and we expect to
begin launching this third generation network in certain markets
in Mexico within the next six months, with a more extensive
launch within the next 12 to 18 months. Development and
deployment of a third generation network in Mexico will require
significant investments in capital expenditures in Mexico. See
Future Capital Needs and Resources Capital
Expenditures for more information.
We believe that the deployment of a third generation network in
Mexico will enable us to offer new and differentiated services
to a larger base of customers in this market. We expect to incur
significant expenses associated with the deployment phase of
this network, particularly general and administrative and
selling and marketing expenses; however, we do not expect a
corresponding increase in operating revenues during this
deployment phase.
Nextel Mexicos segment earnings increased
$73.6 million, or 15%, and $11.4 million, or 7%, from
the nine and three months ended September 30, 2009 to the
same periods in 2010 as a result of the following:
The $165.3 million, or 12%, and $52.2 million, or 12%,
increases in service and other revenues from the nine and three
months ended September 30, 2009 to the same periods in 2010
are primarily due to increases in the average number of digital
handsets in service resulting from subscriber growth across
Nextel Mexicos existing
37
markets and the general improvement in Mexicos economy,
partially offset by a slight decrease in average revenues per
subscriber.
The $7.6 million, or 3%, and $17.7 million, or 20%,
increases in cost of service from the nine and three months
ended September 30, 2009 to the same periods in 2010 are
largely due to increases in the proportion of
mobile-to-mobile
minutes of use, which generally have a higher cost per minute,
partially offset by a $22.4 million refund of excess fees
paid for spectrum use while Nextel Mexicos applications to
renew some of its spectrum licenses were pending, which affected
the nine-month increase.
The $36.8 million, or 14%, and $15.1 million, or 17%,
increases in cost of digital handset and accessory revenues from
the nine and three months ended September 30, 2009 to the
same periods in 2010 are largely due to increases in handset
upgrades for existing subscribers, and, to a lesser extent,
increases in handset sales to new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $33.5 million, or 20%, and $5.5 million, or 9%,
increases in selling and marketing expenses from the nine and
three months ended September 30, 2009 to the same periods
in 2010 are principally the result of the following:
|
|
|
|
|
increases in indirect commissions per gross subscriber addition
resulting from fewer charge-backs in 2010 compared to 2009, as
well as higher commissions targets paid to obtain higher value
customers, and
|
|
|
|
increases in advertising expenses resulting from World Cup
advertising campaigns, the launch of new rate plans in 2010 and
the sponsorship and promotion of several events.
|
|
|
4.
|
General and
administrative expenses
|
The $25.3 million, or 13%, and $9.5 million, or 15%,
increases in general and administrative expenses from the nine
and three months ended September 30, 2009 to the same
periods in 2010 are primarily due to the recognition of
revenue-based taxes beginning in January 2010, partially offset
by decreases in bad debt expense related to the overall
improvement in the Mexican economy, the launch of new control
rate plans and the implementation of more stringent credit
requirements for new customers.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,766,464
|
|
|
|
95
|
%
|
|
$
|
1,103,382
|
|
|
|
94
|
%
|
|
$
|
663,082
|
|
|
|
60
|
%
|
Digital handset and accessory revenues
|
|
|
97,430
|
|
|
|
5
|
%
|
|
|
76,382
|
|
|
|
6
|
%
|
|
|
21,048
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,863,894
|
|
|
|
100
|
%
|
|
|
1,179,764
|
|
|
|
100
|
%
|
|
|
684,130
|
|
|
|
58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(606,077
|
)
|
|
|
(33
|
)%
|
|
|
(400,247
|
)
|
|
|
(34
|
)%
|
|
|
(205,830
|
)
|
|
|
51
|
%
|
Cost of digital handset and accessory sales
|
|
|
(132,268
|
)
|
|
|
(7
|
)%
|
|
|
(113,556
|
)
|
|
|
(10
|
)%
|
|
|
(18,712
|
)
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(738,345
|
)
|
|
|
(40
|
)%
|
|
|
(513,803
|
)
|
|
|
(44
|
)%
|
|
|
(224,542
|
)
|
|
|
44
|
%
|
Selling and marketing expenses
|
|
|
(196,184
|
)
|
|
|
(11
|
)%
|
|
|
(132,855
|
)
|
|
|
(11
|
)%
|
|
|
(63,329
|
)
|
|
|
48
|
%
|
General and administrative expenses
|
|
|
(364,238
|
)
|
|
|
(19
|
)%
|
|
|
(211,747
|
)
|
|
|
(18
|
)%
|
|
|
(152,491
|
)
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
565,127
|
|
|
|
30
|
%
|
|
$
|
321,359
|
|
|
|
27
|
%
|
|
$
|
243,768
|
|
|
|
76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
650,031
|
|
|
|
94
|
%
|
|
$
|
445,884
|
|
|
|
94
|
%
|
|
$
|
204,147
|
|
|
|
46
|
%
|
Digital handset and accessory revenues
|
|
|
39,497
|
|
|
|
6
|
%
|
|
|
27,386
|
|
|
|
6
|
%
|
|
|
12,111
|
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
689,528
|
|
|
|
100
|
%
|
|
|
473,270
|
|
|
|
100
|
%
|
|
|
216,258
|
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(215,355
|
)
|
|
|
(31
|
)%
|
|
|
(160,404
|
)
|
|
|
(34
|
)%
|
|
|
(54,951
|
)
|
|
|
34
|
%
|
Cost of digital handset and accessory sales
|
|
|
(46,224
|
)
|
|
|
(7
|
)%
|
|
|
(39,816
|
)
|
|
|
(8
|
)%
|
|
|
(6,408
|
)
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(261,579
|
)
|
|
|
(38
|
)%
|
|
|
(200,220
|
)
|
|
|
(42
|
)%
|
|
|
(61,359
|
)
|
|
|
31
|
%
|
Selling and marketing expenses
|
|
|
(72,379
|
)
|
|
|
(11
|
)%
|
|
|
(50,499
|
)
|
|
|
(11
|
)%
|
|
|
(21,880
|
)
|
|
|
43
|
%
|
General and administrative expenses
|
|
|
(140,843
|
)
|
|
|
(20
|
)%
|
|
|
(84,635
|
)
|
|
|
(18
|
)%
|
|
|
(56,208
|
)
|
|
|
66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
214,727
|
|
|
|
31
|
%
|
|
$
|
137,916
|
|
|
|
29
|
%
|
|
$
|
76,811
|
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 46% of
consolidated operating revenues for the nine months ended
September 30, 2010 compared to 37% in the same period
during 2009. Nextel Brazil has continued to experience growth in
its existing markets and has continued to make investments in
its newer markets as a result of increased demand for its
services. Consistent with the expansion plans that we announced
in 2007 and 2008, we continued to invest in Brazil throughout
the first nine months of 2010 in order to expand the geographic
coverage of Nextel Brazils network and to add capacity to
and improve the quality of the network to support its growth. As
a result, Nextel Brazils capital expenditures represented
53% of consolidated total capital expenditures for the first
nine months of 2010. We believe that Nextel Brazils
quality improvements and network expansion are contributing
factors to its low customer turnover rate and increased
subscriber growth.
The average values of the Brazilian real for the nine and three
months ended September 30, 2010 appreciated relative to the
U.S. dollar by 14% and 6% from the nine and three months
ended September 30, 2009. As a result, the components of
Nextel Brazils results of operations for the nine and
three months ended September 30, 2010, after
39
translation into U.S. dollars, reflect more significant
increases in U.S. dollar revenues and expenses in our
results than would have occurred if the Brazilian real had not
appreciated relative to the U.S. dollar.
Nextel Brazils segment earnings increased
$243.8 million, or 76%, and $76.8 million, or 56%,
from the nine and three months ended September 30, 2009 to
the same periods in 2010 as a result of the following:
1. Operating
revenues
The $663.1 million, or 60%, and $204.1 million, or
46%, increase in service and other revenues from the nine and
three months ended September 30, 2009 to the same periods
in 2010 are a result of increases in the average number of
digital handsets in service resulting from growth in Nextel
Brazils existing markets and the expansion of service
coverage into newer markets, as well as increases in average
revenues per subscriber, primarily resulting from the
appreciation of the real.
2. Cost
of revenues
The $205.8 million, or 51%, and $55.0 million, or 34%,
increases in cost of service from the nine and three months
ended September 30, 2009 to the same periods in 2010 are
primarily due to the following:
|
|
|
|
|
increases in interconnect costs due to increases in interconnect
minutes of use for calls that terminate on other carriers
networks;
|
|
|
|
increases in service and repair costs due to increases in the
number of customers participating in Nextel Brazils
handset maintenance program, as well as increases in repair
costs per subscriber related to a change in the mix of handsets
toward more mid and high tier handsets; and
|
|
|
|
increases in direct switch and transmitter and receiver site
costs from the nine and three months ended September 30,
2009 to the same periods in 2010 due to a 16% increase in the
number of cell sites in service in Brazil from
September 30, 2009 to September 30, 2010.
|
|
|
3.
|
Selling and
marketing expenses
|
The $63.3 million, or 48%, and $21.9 million, or 43%,
increases in selling and marketing expenses from the nine and
three months ended September 30, 2009 to the same periods
in 2010 are due primarily to the following:
|
|
|
|
|
increases in direct commissions and payroll expenses due to
increases in new handset sales by internal sales personnel and
increases in selling and marketing personnel necessary to
support Nextel Brazils growing subscriber base;
|
|
|
|
increases in indirect commissions due to increases in new
handset sales made by indirect dealers; and
|
|
|
|
increases in advertising expenses as a result of more television
advertising campaigns during the first nine months of 2010.
|
|
|
4.
|
General and
administrative expenses
|
The $152.5 million, or 72%, and $56.2 million, or 66%,
increases in general and administrative expenses from the nine
and three months ended September 30, 2009 to the same
periods in 2010 are due to the following:
|
|
|
|
|
increases in other general corporate costs due to increases in
revenue-based taxes and increases in general and administrative
personnel; and
|
|
|
|
increases in customer care and billing operations costs due to
increases in customer care personnel.
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
376,572
|
|
|
|
92
|
%
|
|
$
|
361,540
|
|
|
|
93
|
%
|
|
$
|
15,032
|
|
|
|
4
|
%
|
Digital handset and accessory revenues
|
|
|
34,310
|
|
|
|
8
|
%
|
|
|
27,300
|
|
|
|
7
|
%
|
|
|
7,010
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
410,882
|
|
|
|
100
|
%
|
|
|
388,840
|
|
|
|
100
|
%
|
|
|
22,042
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(131,645
|
)
|
|
|
(32
|
)%
|
|
|
(129,776
|
)
|
|
|
(34
|
)%
|
|
|
(1,869
|
)
|
|
|
1
|
%
|
Cost of digital handset and accessory sales
|
|
|
(56,586
|
)
|
|
|
(14
|
)%
|
|
|
(47,431
|
)
|
|
|
(12
|
)%
|
|
|
(9,155
|
)
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188,231
|
)
|
|
|
(46
|
)%
|
|
|
(177,207
|
)
|
|
|
(46
|
)%
|
|
|
(11,024
|
)
|
|
|
6
|
%
|
Selling and marketing expenses
|
|
|
(36,259
|
)
|
|
|
(9
|
)%
|
|
|
(31,744
|
)
|
|
|
(8
|
)%
|
|
|
(4,515
|
)
|
|
|
14
|
%
|
General and administrative expenses
|
|
|
(79,442
|
)
|
|
|
(19
|
)%
|
|
|
(61,883
|
)
|
|
|
(16
|
)%
|
|
|
(17,559
|
)
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
106,950
|
|
|
|
26
|
%
|
|
$
|
118,006
|
|
|
|
30
|
%
|
|
$
|
(11,056
|
)
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
128,856
|
|
|
|
91
|
%
|
|
$
|
117,958
|
|
|
|
92
|
%
|
|
$
|
10,898
|
|
|
|
9
|
%
|
Digital handset and accessory revenues
|
|
|
13,104
|
|
|
|
9
|
%
|
|
|
9,999
|
|
|
|
8
|
%
|
|
|
3,105
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141,960
|
|
|
|
100
|
%
|
|
|
127,957
|
|
|
|
100
|
%
|
|
|
14,003
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(44,052
|
)
|
|
|
(31
|
)%
|
|
|
(41,981
|
)
|
|
|
(33
|
)%
|
|
|
(2,071
|
)
|
|
|
5
|
%
|
Cost of digital handset and accessory sales
|
|
|
(20,408
|
)
|
|
|
(14
|
)%
|
|
|
(18,410
|
)
|
|
|
(14
|
)%
|
|
|
(1,998
|
)
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,460
|
)
|
|
|
(45
|
)%
|
|
|
(60,391
|
)
|
|
|
(47
|
)%
|
|
|
(4,069
|
)
|
|
|
7
|
%
|
Selling and marketing expenses
|
|
|
(12,925
|
)
|
|
|
(9
|
)%
|
|
|
(11,563
|
)
|
|
|
(9
|
)%
|
|
|
(1,362
|
)
|
|
|
12
|
%
|
General and administrative expenses
|
|
|
(26,198
|
)
|
|
|
(19
|
)%
|
|
|
(21,318
|
)
|
|
|
(17
|
)%
|
|
|
(4,880
|
)
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
38,377
|
|
|
|
27
|
%
|
|
$
|
34,685
|
|
|
|
27
|
%
|
|
$
|
3,692
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over the course of the last several years, the inflation rate in
Argentina has risen significantly, and we expect that it may
continue to remain elevated in future years. The higher
inflation rate has affected costs that are incurred in Argentine
pesos, including personnel costs in particular. If the higher
inflation rates in Argentina continue, Nextel Argentinas
results of operations may be adversely affected.
The average values of the Argentine peso for the nine and three
months ended September 30, 2010 depreciated relative to the
U.S. dollar by 5% and 3% from the nine and three months
ended September 30, 2009. As a result, the components of
Nextel Argentinas results of operations for the nine and
three months ended September 30, 2010 after translation
into U.S. dollars reflect 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.
41
Segment earnings decreased 9% from the nine months ended
September 30, 2009 to the same period in 2010 primarily due
to a 4% increase in service and other revenues and a 28%
increase in general and administrative expenses. In the second
quarter of 2009, Argentina received a turnover tax refund from
the city of Buenos Aires, which benefited general and
administrative expenses in that quarter. The increase in general
and administrative expenses for the nine months ended
September 30, 2010 primarily reflects the impact of the
turnover tax refund received in the second quarter of 2009, as
well as increases in salaries and other employee benefits.
The change in Nextel Argentinas cost of revenues and
selling and marketing expenses as a percentage of its operating
revenues, from the nine and three months ended
September 30, 2009 to the same periods in 2010 were
immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
206,198
|
|
|
|
90
|
%
|
|
$
|
178,287
|
|
|
|
90
|
%
|
|
$
|
27,911
|
|
|
|
16
|
%
|
Digital handset and accessory revenues
|
|
|
22,006
|
|
|
|
10
|
%
|
|
|
19,948
|
|
|
|
10
|
%
|
|
|
2,058
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,204
|
|
|
|
100
|
%
|
|
|
198,235
|
|
|
|
100
|
%
|
|
|
29,969
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(74,512
|
)
|
|
|
(32
|
)%
|
|
|
(64,533
|
)
|
|
|
(33
|
)%
|
|
|
(9,979
|
)
|
|
|
15
|
%
|
Cost of digital handset and accessory sales
|
|
|
(44,988
|
)
|
|
|
(20
|
)%
|
|
|
(41,887
|
)
|
|
|
(21
|
)%
|
|
|
(3,101
|
)
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(119,500
|
)
|
|
|
(52
|
)%
|
|
|
(106,420
|
)
|
|
|
(54
|
)%
|
|
|
(13,080
|
)
|
|
|
12
|
%
|
Selling and marketing expenses
|
|
|
(37,258
|
)
|
|
|
(17
|
)%
|
|
|
(27,591
|
)
|
|
|
(14
|
)%
|
|
|
(9,667
|
)
|
|
|
35
|
%
|
General and administrative expenses
|
|
|
(50,840
|
)
|
|
|
(22
|
)%
|
|
|
(44,609
|
)
|
|
|
(22
|
)%
|
|
|
(6,231
|
)
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
20,606
|
|
|
|
9
|
%
|
|
$
|
19,615
|
|
|
|
10
|
%
|
|
$
|
991
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
71,696
|
|
|
|
91
|
%
|
|
$
|
59,947
|
|
|
|
90
|
%
|
|
$
|
11,749
|
|
|
|
20
|
%
|
Digital handset and accessory revenues
|
|
|
7,311
|
|
|
|
9
|
%
|
|
|
6,876
|
|
|
|
10
|
%
|
|
|
435
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,007
|
|
|
|
100
|
%
|
|
|
66,823
|
|
|
|
100
|
%
|
|
|
12,184
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(24,423
|
)
|
|
|
(31
|
)%
|
|
|
(22,182
|
)
|
|
|
(33
|
)%
|
|
|
(2,241
|
)
|
|
|
10
|
%
|
Cost of digital handset and accessory sales
|
|
|
(15,199
|
)
|
|
|
(19
|
)%
|
|
|
(14,550
|
)
|
|
|
(22
|
)%
|
|
|
(649
|
)
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39,622
|
)
|
|
|
(50
|
)%
|
|
|
(36,732
|
)
|
|
|
(55
|
)%
|
|
|
(2,890
|
)
|
|
|
8
|
%
|
Selling and marketing expenses
|
|
|
(12,351
|
)
|
|
|
(16
|
)%
|
|
|
(9,764
|
)
|
|
|
(15
|
)%
|
|
|
(2,587
|
)
|
|
|
26
|
%
|
General and administrative expenses
|
|
|
(16,670
|
)
|
|
|
(21
|
)%
|
|
|
(15,976
|
)
|
|
|
(24
|
)%
|
|
|
(694
|
)
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
10,364
|
|
|
|
13
|
%
|
|
$
|
4,351
|
|
|
|
6
|
%
|
|
$
|
6,013
|
|
|
|
138
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2009, we launched a third generation network in Peru
using 1.9 GHz spectrum we acquired in 2007. We continue to
develop and deploy transmitter and receiver sites in conjunction
with the continued build-out of this network, and in April 2010,
we launched voice service on this network. We believe that the
deployment of this third generation network will enable us to
offer new and differentiated services to a larger base of
potential customers in Peru. We expect to continue to incur
significant expenses associated with the deployment phase of
this
42
third generation network in Peru, particularly general and
administrative and selling and marketing expenses; however, we
do not expect a corresponding increase in operating revenues
during this deployment phase.
Because the U.S. dollar is Nextel Perus functional
currency, results of operations are not significantly impacted
by changes in the U.S. dollar to Peruvian sol exchange rate.
Segment earnings for the nine months ended September 30,
2010 did not change significantly from the nine months ended
September 30, 2009. Segment earnings increased 138% from
the three months ended September 30, 2009 to the same
period in 2010 primarily as a result of a 20% increase in
service and other revenues largely attributable to a 29%
increase in average digital subscribers, partially offset by a
decrease in average revenue per subscriber.
The change in Nextel Perus cost of revenues, selling and
marketing expenses, and the change in Nextel Perus general
and administrative expenses as a percentage of its operating
revenues, from the three months ended September 30, 2009 to
the same period in 2010 were immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
and other
|
|
|
Change from
|
|
|
|
September 30,
|
|
|
Operating
|
|
|
September 30,
|
|
|
Operating
|
|
|
Previous
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
16,998
|
|
|
|
99
|
%
|
|
$
|
9,712
|
|
|
|
99
|
%
|
|
$
|
7,286
|
|
|
|
75
|
%
|
Digital handset and accessory revenues
|
|
|
86
|
|
|
|
1
|
%
|
|
|
64
|
|
|
|
1
|
%
|
|
|
22
|
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,084
|
|
|
|
100
|
%
|
|
|
9,776
|
|
|
|
100
|
%
|
|
|
7,308
|
|
|
|
75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(9,525
|
)
|
|
|
(56
|
)%
|
|
|
(5,936
|
)
|
|
|
(61
|
)%
|
|
|
(3,589
|
)
|
|
|
60
|
%
|
Cost of digital handset and accessory sales
|
|
|
(3,953
|
)
|
|
|
(23
|
)%
|
|
|
(2,648
|
)
|
|
|
(27
|
)%
|
|
|
(1,305
|
)
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,478
|
)
|
|
|
(79
|
)%
|
|
|
(8,584
|
)
|
|
|
(88
|
)%
|
|
|
(4,894
|
)
|
|
|
57
|
%
|
Selling and marketing expenses
|
|
|
(16,234
|
)
|
|
|
(95
|
)%
|
|
|
(12,513
|
)
|
|
|
(128
|
)%
|
|
|
(3,721
|
)
|
|
|
30
|
%
|
General and administrative expenses
|
|
|
(200,210
|
)
|
|
|
NM
|
|
|
|
(133,962
|
)
|
|
|
NM
|
|
|
|
(66,248
|
)
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
$
|
(212,838
|
)
|
|
|
NM
|
|
|
$
|
(145,283
|
)
|
|
|
NM
|
|
|
$
|
(67,555
|
)
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
6,651
|
|
|
|
100
|
%
|
|
$
|
3,744
|
|
|
|
99
|
%
|
|
$
|
2,907
|
|
|
|
78
|
%
|
Digital handset and accessory revenues
|
|
|
26
|
|
|
|
0
|
%
|
|
|
36
|
|
|
|
1
|
%
|
|
|
(10
|
)
|
|
|
(28
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,677
|
|
|
|
100
|
%
|
|
|
3,780
|
|
|
|
100
|
%
|
|
|
2,897
|
|
|
|
77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(3,362
|
)
|
|
|
(50
|
)%
|
|
|
(2,312
|
)
|
|
|
(61
|
)%
|
|
|
(1,050
|
)
|
|
|
45
|
%
|
Cost of digital handset and accessory sales
|
|
|
(1,937
|
)
|
|
|
(29
|
)%
|
|
|
(990
|
)
|
|
|
(26
|
)%
|
|
|
(947
|
)
|
|
|
96
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,299
|
)
|
|
|
(79
|
)%
|
|
|
(3,302
|
)
|
|
|
(87
|
)%
|
|
|
(1,997
|
)
|
|
|
60
|
%
|
Selling and marketing expenses
|
|
|
(6,614
|
)
|
|
|
(99
|
)%
|
|
|
(4,615
|
)
|
|
|
(122
|
)%
|
|
|
(1,999
|
)
|
|
|
43
|
%
|
General and administrative expenses
|
|
|
(78,796
|
)
|
|
|
NM
|
|
|
|
(44,208
|
)
|
|
|
NM
|
|
|
|
(34,588
|
)
|
|
|
78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
$
|
(84,032
|
)
|
|
|
NM
|
|
|
$
|
(48,345
|
)
|
|
|
NM
|
|
|
$
|
(35,687
|
)
|
|
|
74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the nine and three months ended September 30, 2010 and
2009, corporate and other operating revenues and cost of
revenues primarily represent the results of operations reported
by Nextel Chile. In September 2009, we
43
participated in a spectrum auction in Chile in which we were the
successful bidder for 60 MHz of spectrum in the
1.7 GHz and 2.1 GHz bands. In July 2010, we were
awarded the rights to this spectrum. We plan to deploy a third
generation network based on WCDMA technology that will operate
on this spectrum in Chile. We believe that the deployment of
this third generation network will enable us to offer new and
differentiated services to a larger base of potential customers
in Chile. Deployment and expansion of this third generation
network in Chile resulted in capital expenditures totaling
$51.4 million for the first nine months of 2010, which
represents 10% of our consolidated total capital expenditures
for the nine months ended September 30, 2010. Deployment of
our third generation network and other planned network
expansions in Chile will require significant investments in
capital expenditures in Chile over the next several years.
Segment losses increased from the nine and three months ended
September 30, 2009 to the same periods in 2010 primarily
due to increases in general and administrative expenses
resulting from increases in corporate personnel expenses and
increased consulting costs, both of which are largely related to
the commencement of some of our new technology initiatives. We
expect that our general and administrative expenses will
continue to increase along with other operating expenses as we
continue with our expansion plans in Chile and our new
technology initiatives in Chile and in some of our other markets.
Liquidity
and Capital Resources
We derive our liquidity and capital resources primarily from
cash we raise in connection with external financings and cash
flows from our operations. As of September 30, 2010, we had
working capital, which is defined as total current assets less
total current liabilities, of $2,143.9 million, a
$117.5 million decrease compared to working capital of
$2,261.4 million as of December 31, 2009. The decrease
in working capital was primarily a result of the
reclassification of the outstanding amount due in June 2011
under Nextel Mexicos syndicated loan facility as a current
portion of long-term debt. Our working capital includes
$1,666.1 million in cash and cash equivalents as of
September 30, 2010, of which about $311.2 million was
held in currencies other than U.S. dollars with 82% of that
amount held in Mexican pesos, and $559.1 million of
short-term investments, the majority of which was held in
U.S. dollars. A substantial portion of our cash and cash
equivalents held in U.S. dollars is maintained in money
market funds and U.S. treasury securities, and our cash and
cash equivalents held in local currencies are typically
maintained in a combination of money market funds,
U.S. treasury securities, highly liquid overnight
securities and fixed income investment funds.
We recognized net income of $242.5 million and
$118.5 million for the nine and three months ended
September 30, 2010, respectively, compared to
$321.9 million and $117.0 million for the nine and
three months ended September 30, 2009, respectively. During
the nine months ended September 30, 2010 and 2009, our
operating revenues more than offset our operating expenses,
excluding depreciation and amortization, and cash capital
expenditures.
Our long-term business strategy contemplates the ongoing
expansion of the coverage and capacity of our iDEN networks and
the deployment of new third generation networks in markets where
we have acquired spectrum rights that support that technology.
Consistent with this strategy, we have expanded substantially
the coverage of our iDEN network in Brazil, have made
significant capital investments to enhance the quality and
capacity of our iDEN networks in all of our markets, have
deployed and launched services using a WCDMA-based third
generation network in Peru and are in the process of deploying a
similar network in Chile. In addition, as discussed in more
detail above, a subsidiary of Nextel Mexico was recently awarded
a nationwide license for 30 MHz of spectrum in the
1.7 GHz and 2.1 GHz bands that will support our
planned deployment of a new third generation network in Mexico.
We believe our current cash and investment balances and
anticipated future cash flows will be adequate to meet our
funding needs to support our current business plan, which
contemplates the deployment of third generation networks in
Mexico, Peru and Chile. However, we are evaluating various
financing alternatives that could be used to provide funding to
support both our current business plan and our plans to acquire
spectrum and deploy new third generation networks in our other
markets such as Brazil and Argentina. If we acquire spectrum in
connection with the upcoming auctions that are expected to occur
in Brazil and Argentina, we will likely need to raise further
funding for the acquisition of this spectrum and to build the
related third generation networks consistent with applicable
regulatory requirements and our business strategy.
44
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
2,504,064
|
|
|
$
|
1,243,251
|
|
|
$
|
1,260,813
|
|
Net cash provided by operating activities
|
|
|
750,677
|
|
|
|
546,057
|
|
|
|
204,620
|
|
Net cash used in investing activities
|
|
|
(1,135,092
|
)
|
|
|
(497,670
|
)
|
|
|
(637,422
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(463,232
|
)
|
|
|
738,430
|
|
|
|
(1,201,662
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
9,660
|
|
|
|
(28,824
|
)
|
|
|
38,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,666,077
|
|
|
$
|
2,001,244
|
|
|
$
|
(335,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $750.7 million of
cash during the nine months ended September 30, 2010, a
$204.6 million, or 37%, increase from the nine months ended
September 30, 2009, primarily due to higher operating
income resulting from our profitable growth strategy.
We used $1,135.1 million of cash in our investing
activities during the nine months ended September 30, 2010,
a $637.4 million increase in cash used from the nine months
ended September 30, 2009, primarily due to the purchase of
$1,587.2 in long-term and short-term investments during the nine
months ended September 30, 2010.
We used $463.2 million of cash in our financing activities
during the nine months ended September 30, 2010, primarily
due to $443.0 million in purchases of our 3.125%
convertible notes and our 2.75% convertible notes, as well as
repayments of our short-term borrowings in Brazil, partially
offset by $80.0 million in borrowings under Nextel
Perus syndicated loan facility and borrowings under our
short-term financings in Brazil. Our financing activities
provided us with $738.4 million during the nine months
ended September 30, 2009 primarily due to cash we received
in connection with the issuance of our 10.0% senior notes.
Future
Capital Needs and Resources
Capital Resources. Our ongoing capital
resources consist of funds that are available to us from a
number of sources and are affected by a variety of factors,
including amounts of our existing cash and cash equivalents
balances, the value of our short-term and long-term investments,
the extent of cash flows generated by our operating companies
and the availability of funding from external financial sources.
The availability of funding from external sources, including the
availability of funding from vendor financing, other debt
financings or equity issuances can be affected by a number of
factors, including capital market conditions.
Our ability to generate sufficient net cash from our operating
activities is dependent upon, among other things:
|
|
|
|
|
the amount of revenue we are able to generate and collect from
our customers;
|
|
|
|
the amount of operating expenses required to provide our
services;
|
|
|
|
the cost of acquiring and retaining customers, including the
subsidies we incur to provide handsets to both our new and
existing customers;
|
|
|
|
our ability to continue to increase the size of our subscriber
base; and
|
|
|
|
fluctuations in foreign exchange rates.
|
Capital Needs and Contractual
Obligations. We currently anticipate that our
future capital needs will principally consist of funds required
for:
|
|
|
|
|
operating expenses relating to our networks;
|
|
|
|
capital expenditures to expand and enhance our networks, as
discussed below under Capital Expenditures;
|
45
|
|
|
|
|
operating and capital expenditures related to the deployment of
third generation networks in Mexico, Peru and Chile;
|
|
|
|
future spectrum purchases;
|
|
|
|
operating expenses and capital expenditures related to the
deployment of third generation networks in our other markets
where we are successful in acquiring spectrum;
|
|
|
|
debt service requirements, including significant upcoming
maturities in the next two years, and obligations relating to
our tower financing and capital lease obligations;
|
|
|
|
cash taxes; and
|
|
|
|
other general corporate expenditures.
|
In making assessments regarding our future capital needs and the
capital resources available to meet those needs, we do not
consider events that have not occurred like success in any
particular auction and the costs of acquiring that spectrum or
the costs of the related network deployment, other than in
Mexico, Peru and Chile, and we do not assume the availability of
external sources of funding that may be available for these
future events, including potential equity investments or vendor
financing.
During the nine and three months ended September 30, 2010,
there were no material changes to our contractual obligations as
described in our annual report on
Form 10-K
for the year ended December 31, 2009.
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$541.0 million for the nine months ended September 30,
2010 and $559.7 million for the nine months ended
September 30, 2009. In both years, a substantial portion of
our capital expenditures was invested in the expansion of the
coverage and capacity of our network in Brazil. We expect to
continue to focus our capital spending in this market in order
to add more capacity to Nextel Brazils network, support
its growth and expand its geographic coverage.
Our business strategy contemplates the ongoing expansion of the
coverage and capacity of our iDEN networks and the deployment of
new third generation networks in markets where we have acquired
spectrum rights that support that technology. Consistent with
this strategy, we have made, and will continue to make,
substantial capital investments in our iDEN networks in all of
our markets. We also have deployed and launched services using a
WCDMA-based third generation network in Peru and are in the
process of deploying a similar network in Chile. In addition, a
subsidiary of Nextel Mexico was recently awarded a nationwide
spectrum license in Mexico, and we plan to participate in the
spectrum auctions that are expected to be conducted in Brazil
and Argentina. We intend to develop and deploy a third
generation network in Mexico, and if we are successful in
acquiring spectrum in the auctions in Brazil and Argentina, we
plan to deploy third generation networks in those markets
consistent with applicable regulatory requirements and our
business strategy. The purchase of spectrum in these auctions
and deployment of new third generation networks across our
markets 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 grant of
the licenses relating to spectrum won in those 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- and long-term investments and proceeds
from external financing sources that are or may become
available. We may also consider entering into strategic
relationships with third parties that will provide additional
equity or other funding to support our business plans. 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 must add capacity to our networks to meet
the demand of our growing customer base;
|
46
|
|
|
|
|
the amount we spend to deploy the third generation networks in
Mexico, Peru and Chile;
|
|
|
|
the costs we incur in connection with future spectrum
acquisitions and the development and deployment of any third
generation networks in our other markets; and
|
|
|
|
the costs we incur in connection with
non-network
related information technology projects.
|
Our future capital expenditures may be affected by future
technology improvements and technology choices, as well as the
acquisition of spectrum relating to, and the deployment of, next
generation networks in markets other than Mexico, Peru and
Chile, among other things.
Future Outlook. We believe that our
current business plans, which contemplate expansion of the
coverage and capacity of our iDEN networks across our markets,
and the construction of third generation networks in Mexico,
Peru and Chile, do not require us to raise additional external
funding to enable us to operate and grow our business while
servicing our debt obligations and that our current working
capital and anticipated cash flows will be adequate to meet our
cash needs to support our existing business plans.
However, we are evaluating various financing alternatives to
support our existing business plans. Our funding needs could be
significantly affected if we are successful in future auctions
of spectrum rights that are expected to be conducted in Brazil
and Argentina and we pursue our plans to deploy third generation
networks in those markets. These plans in Brazil and Argentina,
which are consistent with our business strategy of providing
differentiated services to our customers, would likely require
us to obtain additional funding to purchase spectrum rights and
deploy the third generation networks consistent with our plans
and the applicable regulatory requirements, particularly if we
are pursuing those plans in Brazil. The amounts and timing of
those additional funding requirements, which could be
significant, would be affected by, among other things:
|
|
|
|
|
the timing of the auctions, whether we are successful in
acquiring spectrum in those auctions, and the amounts paid for
the spectrum rights if we are successful;
|
|
|
|
the nature and extent of any regulatory requirements that may be
imposed regarding the timing and scope of the deployment of the
new networks; and
|
|
|
|
our assessment of market conditions and their impact on both the
business opportunities supported by the new networks and the
availability of funding to support their construction.
|
Our funding needs will also be affected by the need to repay or
refinance our existing indebtedness, including the
$1.1 billion principal amount of our 3.125% convertible
notes that mature in June 2012.
We will continue to assess opportunities to obtain additional
funding that could be used, among other purposes, to meet those
requirements, to refinance our existing obligations or to meet
the funding needs of our business plans. The indebtedness that
we may incur in 2010 and in subsequent years in order to fund
our business plans and for refinancing may be significant. See
Forward Looking Statements and
Item 1A. Risk Factors in our annual
report on
Form 10-K.
In making this assessment of our funding needs under our current
plans and under our plans that contemplate the acquisition of
spectrum and the deployment of third generation networks, we
have considered:
|
|
|
|
|
cash and cash equivalents on hand and short- and long-term
investments available to fund our operations;
|
|
|
|
expected cash flows from operations;
|
|
|
|
the anticipated level of capital expenditures, including minimum
build-out requirements, relating to the deployment of the third
generation networks that utilize the spectrum we acquired in
Mexico, Peru and Chile;
|
|
|
|
our expectation of the values of the currencies in the countries
in which we conduct business relative to the U.S. dollar;
|
|
|
|
our scheduled debt service, which includes significant
maturities in the next several years; and
|
|
|
|
income taxes.
|
47
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 relative to the
U.S. dollar;
|
|
|
|
if economic conditions in any of our markets change generally;
|
|
|
|
if competitive practices in the mobile wireless
telecommunications industry in certain of our markets change
materially from those currently prevailing or from those now
anticipated; or
|
|
|
|
if other presently unexpected circumstances arise that have a
material effect on the cash flow or profitability of our mobile
wireless business.
|
Any of these events or circumstances could result in significant
funding needs beyond those contemplated by our current plans as
described above, and those funding needs could exceed our
currently available funding sources, which could require us to
raise additional capital to meet those needs. Our ability to
seek additional capital, if necessary, is subject to a variety
of additional factors that we cannot presently predict with
certainty, including:
|
|
|
|
|
the commercial success of our operations;
|
|
|
|
the volatility and demand of the capital markets; and
|
|
|
|
the future market prices of our securities.
|
Market conditions in debt and equity markets in the United
States and global markets during 2008 and 2009 resulted in a
substantial decline in the amount of funding available to
corporate borrowers compared to prior periods as the global
economic downturn affected both the availability and terms of
financing. Since that time, available funding for corporate
borrowers has been and continues to be both more costly and
provided on terms that are less favorable to borrowers than were
previously available. Although conditions in the debt and equity
markets in the United States improved in the second half of 2009
and through September 30, 2010, volatility in those markets
could make it more difficult or more costly for us to raise
additional capital in order to meet our cash needs that result
from the factors identified above including those that may
result from our acquisition of spectrum and deployment of third
generation networks, and the related additional costs and terms
of any financing we raise could impose restrictions that limit
our flexibility in responding to business conditions and our
ability to obtain additional financing. If new indebtedness is
added to our current levels of indebtedness, the related risks
that we now face could intensify. See
Item 1A. Risk Factors 3.
Our funding needs and debt service requirements could make us
more dependent on external financing. If we are unable to obtain
financing, our business may be adversely affected. and
4. Our current and future debt may limit
our flexibility and increase our risk of default. in
our annual report on
Form 10-K.
Effect of
New Accounting Standards
In October 2009, the FASB updated its authoritative guidance for
accounting for multiple deliverable revenue arrangements. The
new guidance revises the criteria used to determine the separate
units of accounting in a multiple deliverable arrangement and
requires that total consideration received under the arrangement
be allocated over the separate units of accounting based on
their relative selling prices. This guidance also clarifies the
methodology used in determining our best estimate of the selling
price used in this allocation. The applicable revenue
recognition criteria will be considered separately for the
separate units of accounting. The updated authoritative guidance
will be effective and shall be applied prospectively to revenue
arrangements entered into or materially modified in fiscal years
beginning after June 15, 2010. We are currently evaluating
the potential impact, if any, that the adoption of this guidance
will have on our consolidated financial statements. We plan to
adopt this new guidance on its effective date of January 1,
2011.
48
Forward-Looking
Statements
We include certain estimates, projections and other
forward-looking statements in our annual, quarterly and current
reports, as well as in other publicly available material.
Statements regarding expectations, including forecasts regarding
operating results and performance assumptions and estimates
relating to capital requirements, as well as other statements
that are not historical facts, are forward-looking statements.
These statements reflect managements judgments based on
currently available information and involve a number of risks
and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. With
respect to these forward-looking statements, management has made
assumptions regarding, among other things, network usage,
customer growth and retention, pricing, operating costs, the
timing of various events, the economic and regulatory
environment and the foreign currency exchange rates of
currencies in the countries in which our operating companies
conduct business relative to the U.S. dollar.
Future performance cannot be assured. Actual results may differ
materially from those in the forward-looking statements. Some
factors that could cause actual results to differ include:
|
|
|
|
|
our ability to attract and retain customers;
|
|
|
|
our ability to meet the operating goals established by our
business plan;
|
|
|
|
general economic conditions in the United States or in Latin
America and in the market segments that we are targeting for our
services, including the impact of the current uncertainties in
global economic conditions;
|
|
|
|
the political and social conditions in the countries in which we
operate, including political instability, which may affect the
economies of our markets and the regulatory schemes in these
countries;
|
|
|
|
the impact of foreign currency exchange rate volatility in our
markets when compared to the U.S. dollar and related
currency depreciation in countries in which our operating
companies conduct business;
|
|
|
|
our ability to access sufficient debt or equity capital to meet
any future operating and financial needs;
|
|
|
|
reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of digital two-way mobile data or Internet
connectivity services in our markets;
|
|
|
|
the availability of adequate quantities of system infrastructure
and subscriber equipment and components at reasonable pricing to
meet our service deployment and marketing plans and customer
demand;
|
|
|
|
Motorolas ability and willingness to provide handsets and
related equipment and software applications or to develop new
technologies or features for us, including the timely
development and availability of new handsets with expanded
applications and features;
|
|
|
|
the risk of deploying new technologies, including the potential
need for additional funding to support that deployment, the risk
that new services supported by the new technology will not
attract enough subscribers to support the related costs of
deploying or operating the new technology, the need to
significantly increase our employee base and the potential
distraction of management;
|
|
|
|
our ability to successfully scale our billing, collection,
customer care and similar back-office operations to keep pace
with customer growth, increased system usage rates and growth or
to successfully deploy new systems that support those functions;
|
|
|
|
the success of efforts to improve and satisfactorily address any
issues relating to our network performance;
|
|
|
|
future legislation or regulatory actions relating to our SMR
services, other wireless communications services or
telecommunications generally and the costs
and/or
potential customer impacts of compliance with regulatory
mandates;
|
|
|
|
the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our network business;
|
49
|
|
|
|
|
the quality and price of similar or comparable wireless
communications services offered or to be offered by our
competitors, including providers of cellular services and
personal communications services;
|
|
|
|
market acceptance of our new service offerings;
|
|
|
|
unexpected results of litigation;
|
|
|
|
equipment failure, natural disasters, terrorist acts or other
breaches of network or information technology security; and
|
|
|
|
other risks and uncertainties described in this quarterly report
on
Form 10-Q
and in our other reports filed with the Securities and Exchange
Commission, including in Part I, Item 1A. Risk
Factors, of our annual report on
Form 10-K.
|
The words may, could,
estimate, project, forecast,
intend, expect, believe,
target, plan, providing
guidance and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are found
throughout this Managements Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in
this report. The reader should not place undue reliance on
forward-looking statements, which speak only as of the date of
this report. We are not obligated to publicly release any
revisions to forward-looking statements to reflect events after
the date of this report, including unforeseen events.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
During the nine and three months ended September 30, 2010,
there were no material changes to our market risk policies or
our market risk sensitive instruments and positions as described
in our annual report on
Form 10-K
for the year ended December 31, 2009.
|
|
Item 4.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods required by the Securities and
Exchange Commission and that such information is accumulated and
communicated to the Companys management, including our
chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
As of September 30, 2010, an evaluation of the
effectiveness of the design and operation of our disclosure
controls and procedures was carried out under the supervision
and with the participation of our management teams in the United
States and in our operating companies, including our chief
executive officer and chief financial officer. Based on and as
of the date of such evaluation, these officers concluded that
our disclosure controls and procedures were not effective for
the reason described in the following paragraph.
As of September 30, 2010, our wholly owned subsidiary,
Nextel Brazil, recorded $27.6 million in revenue-based tax
credits that were reflected in the press release that was issued
on October 28, 2010 and included as an exhibit to our
Current Report on
Form 8-K
filed with the Commission on October 28, 2010 (the
October 28 Press Release). During the course of our
internal review process in connection with the preparation of
this Quarterly Report on
Form 10-Q,
we identified certain errors in our calculation of those
revenue-based tax credits and determined that at this time we do
not have the documentation required to support the recognition
of those revenue-based tax credits. Accordingly, we have
eliminated the impact of these revenue-based tax credits in the
financial statements and related disclosures included in this
Form 10-Q.
We have concluded that the error in the October 28 Press Release
represents a material weakness solely with regard to the
recognition of these Brazil tax credits. Management is in the
process of implementing measures to remediate the control
failure which include adding additional review procedures with
regard to significant nonrecurring transactions in Brazil.
50
Changes
in Internal Control over Financial Reporting
Except for the impact of the material weakness described above,
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.
51
|
|
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 4 to our condensed consolidated financial statements
above.
There have been no material changes in our risk factors from
those disclosed in our annual report on
Form 10-K
dated February 25, 2010.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
101**
|
|
|
The following materials from the NII Holdings, Inc. Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2010 formatted in
eXtensible Business Reporting Language (XBRL):
(i) Condensed Consolidated Balance Sheets,
(ii) Condensed Consolidated Statements of Operations and
Comprehensive Income, (iii) Condensed Consolidated
Statement of Changes in Stockholders Equity,
(iv) Condensed Consolidated Statements of Cash Flows and
(v) Notes to Condensed Consolidated Financial Statements.**
|
|
|
|
** |
|
Submitted electronically herewith. |
52
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/ TERESA
S. GENDRON
|
Teresa S. Gendron
Vice President and Controller
(on behalf of the registrant and as
chief accounting officer)
Date: November 9, 2010
53
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
101**
|
|
|
The following materials from the NII Holdings, Inc. Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2010 formatted in
eXtensible Business Reporting Language (XBRL):
(i) Condensed Consolidated Balance Sheets,
(ii) Condensed Consolidated Statements of Operations and
Comprehensive Income, (iii) Condensed Consolidated
Statement of Changes in Stockholders Equity,
(iv) Condensed Consolidated Statements of Cash Flows and
(v) Notes to Condensed Consolidated Financial Statements.
|
|
|
|
** |
|
Submitted electronically herewith. |
54