e10vq
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30,
2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 0-32421
NII HOLDINGS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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91-1671412
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1875 Explorer Street, Suite 1000
Reston, Virginia
(Address of Principal
Executive Offices)
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20190
(Zip
Code)
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(703) 390-5100
(Registrants
Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Number of Shares Outstanding
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Title of Class
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on July 31, 2009
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Common Stock, $0.001 par value per share
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166,073,002
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NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except par values)
Unaudited
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June 30,
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December 31,
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2009
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2008
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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1,136,764
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$
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1,243,251
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Short-term investments
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37,517
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82,002
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Accounts receivable, less allowance for doubtful accounts of
$37,690 and $27,875
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549,947
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454,769
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Handset and accessory inventory
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191,052
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139,285
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Deferred income taxes, net
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129,639
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135,265
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Prepaid expenses and other
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193,134
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130,705
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Total current assets
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2,238,053
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2,185,277
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Property, plant and equipment, net
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2,275,871
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1,892,113
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Intangible assets, net
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326,248
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317,878
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Deferred income taxes, net
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486,150
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429,365
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Other assets
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353,192
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265,440
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Total assets
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$
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5,679,514
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$
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5,090,073
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Accounts payable
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$
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171,808
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$
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136,442
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Accrued expenses and other
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472,413
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446,270
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Deferred revenues
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122,834
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116,267
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Accrued interest
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10,462
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13,166
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Current portion of long-term debt
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198,378
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99,054
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Total current liabilities
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975,895
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811,199
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Long-term debt
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2,030,543
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2,034,086
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Deferred revenues
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28,011
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29,616
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Deferred credits
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126,748
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144,397
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Other long-term liabilities
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165,817
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158,652
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Total liabilities
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3,327,014
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3,177,950
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Commitments and contingencies (Note 6)
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Stockholders equity
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Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2009 and 2008, no
shares issued or outstanding 2009 and 2008
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Common stock, par value $0.001, 600,000 shares
authorized 2009 and 2008, 166,061 shares issued
and outstanding 2009, 165,782 shares issued and
outstanding 2008
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166
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166
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Paid-in capital
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1,190,921
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1,158,925
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Retained earnings
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1,498,335
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1,293,407
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Accumulated other comprehensive loss
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(336,922
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)
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(540,375
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)
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Total stockholders equity
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2,352,500
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1,912,123
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Total liabilities and stockholders equity
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$
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5,679,514
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$
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5,090,073
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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
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Six Months Ended
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Three Months Ended
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June 30,
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June 30,
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2009
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2008
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2009
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2008
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Operating revenues
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Service and other revenues
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$
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1,902,447
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$
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1,990,780
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$
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992,140
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$
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1,043,030
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Digital handset and accessory revenues
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117,732
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106,391
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66,725
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60,924
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2,020,179
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2,097,171
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1,058,865
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1,103,954
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Operating expenses
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Cost of service (exclusive of depreciation and amortization
included below)
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545,154
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542,992
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289,255
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284,483
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Cost of digital handsets and accessories
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310,987
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293,398
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165,738
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158,709
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Selling, general and administrative
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652,031
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669,957
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337,005
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355,888
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Depreciation
|
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182,922
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183,062
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96,570
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96,715
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Amortization
|
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|
13,727
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|
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|
16,527
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|
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7,183
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|
|
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8,589
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|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
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1,704,821
|
|
|
|
1,705,936
|
|
|
|
895,751
|
|
|
|
904,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Operating income
|
|
|
315,358
|
|
|
|
391,235
|
|
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|
163,114
|
|
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199,570
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|
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|
|
|
|
|
|
|
|
|
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|
|
|
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Other income (expense)
|
|
|
|
|
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|
|
|
|
|
|
|
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Interest expense, net
|
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(86,709
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)
|
|
|
(102,759
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)
|
|
|
(42,113
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)
|
|
|
(50,805
|
)
|
Interest income
|
|
|
16,422
|
|
|
|
36,528
|
|
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|
3,769
|
|
|
|
17,588
|
|
Foreign currency transaction gains, net
|
|
|
56,238
|
|
|
|
40,306
|
|
|
|
63,552
|
|
|
|
37,401
|
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Other income (expense), net
|
|
|
5,568
|
|
|
|
(5,175
|
)
|
|
|
7,210
|
|
|
|
(646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,481
|
)
|
|
|
(31,100
|
)
|
|
|
32,418
|
|
|
|
3,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
306,877
|
|
|
|
360,135
|
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|
|
195,532
|
|
|
|
203,108
|
|
Income tax provision
|
|
|
(101,949
|
)
|
|
|
(104,525
|
)
|
|
|
(61,242
|
)
|
|
|
(54,562
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)
|
|
|
|
|
|
|
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|
|
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Net income
|
|
$
|
204,928
|
|
|
$
|
255,610
|
|
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$
|
134,290
|
|
|
$
|
148,546
|
|
|
|
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|
|
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|
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|
|
|
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Net income, per common share, basic
|
|
$
|
1.24
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|
$
|
1.52
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|
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$
|
0.81
|
|
|
$
|
0.89
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
1.22
|
|
|
$
|
1.48
|
|
|
$
|
0.79
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
165,882
|
|
|
|
168,129
|
|
|
|
165,980
|
|
|
|
166,907
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
173,086
|
|
|
|
176,883
|
|
|
|
173,312
|
|
|
|
175,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
201,693
|
|
|
$
|
202,568
|
|
|
$
|
281,849
|
|
|
$
|
240,601
|
|
Reclassification for gains on derivatives included in other
income (expense), net
|
|
|
294
|
|
|
|
146
|
|
|
|
216
|
|
|
|
64
|
|
Unrealized gains on derivatives, net
|
|
|
1,466
|
|
|
|
297
|
|
|
|
1,178
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of taxes
|
|
|
203,453
|
|
|
|
203,011
|
|
|
|
283,243
|
|
|
|
240,954
|
|
Net income
|
|
|
204,928
|
|
|
|
255,610
|
|
|
|
134,290
|
|
|
|
148,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
408,381
|
|
|
$
|
458,621
|
|
|
$
|
417,533
|
|
|
$
|
389,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the Six Months Ended June 30,
2009
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Equity
|
|
|
Balance, January 1, 2009
|
|
|
165,782
|
|
|
$
|
166
|
|
|
$
|
1,158,925
|
|
|
$
|
1,293,407
|
|
|
$
|
(540,375
|
)
|
|
$
|
1,912,123
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204,928
|
|
|
|
|
|
|
|
204,928
|
|
Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,453
|
|
|
|
203,453
|
|
Exercise of stock options
|
|
|
279
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
Tax deficiency on current period exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(2,905
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,905
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
34,854
|
|
|
|
|
|
|
|
|
|
|
|
34,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
|
166,061
|
|
|
$
|
166
|
|
|
$
|
1,190,921
|
|
|
$
|
1,498,335
|
|
|
$
|
(336,922
|
)
|
|
$
|
2,352,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the Six Months Ended June 30,
2009 and 2008
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
204,928
|
|
|
$
|
255,610
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Amortization of debt financing costs
|
|
|
3,694
|
|
|
|
3,955
|
|
Depreciation and amortization
|
|
|
196,649
|
|
|
|
199,589
|
|
Provision for losses on accounts receivable
|
|
|
50,011
|
|
|
|
39,211
|
|
Foreign currency transaction gains, net
|
|
|
(56,238
|
)
|
|
|
(40,306
|
)
|
Deferred income tax benefit
|
|
|
(3,374
|
)
|
|
|
(35,266
|
)
|
Share-based payment expense
|
|
|
34,939
|
|
|
|
35,392
|
|
Amortization of discount on convertible notes
|
|
|
24,182
|
|
|
|
22,602
|
|
Excess tax benefit from share-based payment
|
|
|
|
|
|
|
(2,874
|
)
|
(Gain) loss on short-term investments
|
|
|
(183
|
)
|
|
|
2,955
|
|
Accretion of asset retirement obligations
|
|
|
4,262
|
|
|
|
3,643
|
|
Contingency reversals, net of charges
|
|
|
(5,823
|
)
|
|
|
|
|
Other, net
|
|
|
(7,359
|
)
|
|
|
2,019
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(113,658
|
)
|
|
|
(112,927
|
)
|
Handset and accessory inventory
|
|
|
(45,660
|
)
|
|
|
(64,673
|
)
|
Prepaid expenses and other
|
|
|
(43,809
|
)
|
|
|
(15,388
|
)
|
Other long-term assets
|
|
|
(16,882
|
)
|
|
|
(45,577
|
)
|
Accounts payable, accrued expenses and other
|
|
|
56,693
|
|
|
|
55,485
|
|
Current deferred revenue
|
|
|
224
|
|
|
|
13,830
|
|
Deferred revenue and other long-term liabilities
|
|
|
(1,480
|
)
|
|
|
4,766
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
281,116
|
|
|
|
322,046
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(344,350
|
)
|
|
|
(424,735
|
)
|
Payments for purchases of licenses and other
|
|
|
(9,992
|
)
|
|
|
(4,275
|
)
|
Proceeds from sales of short-term investments
|
|
|
425,006
|
|
|
|
355,013
|
|
Purchase of short-term investments
|
|
|
(364,409
|
)
|
|
|
(273,888
|
)
|
Transfers to restricted cash
|
|
|
(44,498
|
)
|
|
|
(521
|
)
|
Other
|
|
|
(1,728
|
)
|
|
|
476
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(339,971
|
)
|
|
|
(347,930
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments to purchase common stock
|
|
|
|
|
|
|
(242,665
|
)
|
Borrowings under credit paper
|
|
|
25,342
|
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
|
|
|
|
125,000
|
|
Repayments under syndicated loan facilities
|
|
|
(24,048
|
)
|
|
|
(31,922
|
)
|
Payments of short-term notes payable
|
|
|
(18,000
|
)
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
47
|
|
|
|
28,639
|
|
Excess tax benefit from share-based payment
|
|
|
|
|
|
|
2,874
|
|
Proceeds from tower financing transactions
|
|
|
|
|
|
|
27,271
|
|
Repayments under capital leases, license financing, tower
financing and other transactions
|
|
|
(5,262
|
)
|
|
|
(5,710
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(21,921
|
)
|
|
|
(96,513
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
(25,711
|
)
|
|
|
32,012
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(106,487
|
)
|
|
|
(90,385
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,243,251
|
|
|
|
1,370,165
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,136,764
|
|
|
$
|
1,279,780
|
|
|
|
|
|
|
|
|
|
|
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. We have evaluated all subsequent
events through August 5, 2009, which is the date our
condensed consolidated financial statements were issued.
You should read these condensed consolidated financial
statements in conjunction with the consolidated financial
statements and notes contained in our 2008 annual report on
Form 10-K
and our quarterly report on
Form 10-Q
for the three months ended March 31, 2009. 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:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
(337,323
|
)
|
|
$
|
(539,016
|
)
|
Unrealized gains (losses) on derivatives and
available-for-sale
securities
|
|
|
401
|
|
|
|
(1,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(336,922
|
)
|
|
$
|
(540,375
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
344,350
|
|
|
$
|
424,735
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
56,571
|
|
|
|
11,509
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
400,921
|
|
|
$
|
436,244
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
86,709
|
|
|
$
|
102,759
|
|
Interest capitalized
|
|
|
5,160
|
|
|
|
5,132
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
91,869
|
|
|
$
|
107,891
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
|
$
|
54,678
|
|
|
$
|
53,650
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
111,504
|
|
|
$
|
127,009
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2009, we had
$61.0 million in non-cash financing activities related to
the short-term financing of imported handsets and infrastructure
in Brazil, the financing of a mobile switching office in Peru
and co-location capital lease obligations on our communication
towers. For the six months ended June 30, 2008, we had
$7.1 million in non-cash financing activities related to
co-location capital lease obligations on our communication
towers.
6
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings, but not securities that are antidilutive, including
stock options with an exercise price greater than the average
market price of our common stock.
As presented for the six and three months ended June 30,
2009 and 2008, our calculation of diluted net income per share
includes shares of common stock issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans, shares of restricted common stock and shares
of common stock issuable upon the potential conversion of our
2.75% convertible notes. We did not include the shares of common
stock issuable upon the potential conversion of our 3.125%
convertible notes in our calculation of diluted net income per
common share because their effect would have been antidilutive
to our net income per common share for those periods. Further,
for the six and three months ended June 30, 2009, we did
not include 16.9 million antidilutive stock options, and
for the six and three months ended June 30, 2008, we did
not include 9.6 million antidilutive stock options.
Finally, we did not include an immaterial amount of antidilutive
restricted stock in our calculation of diluted net income per
common share for those periods.
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 six and three months ended
June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
204,928
|
|
|
|
165,882
|
|
|
$
|
1.24
|
|
|
$
|
255,610
|
|
|
|
168,129
|
|
|
$
|
1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
1,524
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
240
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
6,595
|
|
|
|
6,988
|
|
|
|
|
|
|
|
6,339
|
|
|
|
6,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
211,523
|
|
|
|
173,086
|
|
|
$
|
1.22
|
|
|
$
|
261,949
|
|
|
|
176,883
|
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
134,290
|
|
|
|
165,980
|
|
|
$
|
0.81
|
|
|
$
|
148,546
|
|
|
|
166,907
|
|
|
$
|
0.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
1,584
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
276
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
3,280
|
|
|
|
6,989
|
|
|
|
|
|
|
|
3,166
|
|
|
|
6,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
137,570
|
|
|
|
173,312
|
|
|
$
|
0.79
|
|
|
$
|
151,712
|
|
|
|
175,757
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Purchase of Common Stock. In January
2008, our Board of Directors authorized a program to purchase
shares of our common stock for cash. The Board approved the
purchase of shares having an aggregate market value of up to
$500.0 million, depending on market conditions and factors.
During the six months ended June 30, 2008, we purchased a
total of 5,555,033 shares of our common stock for
$242.7 million. We did not purchase any shares of our
common stock under this program during 2009. We treated
purchases under this program as effective retirements of the
purchased shares and therefore reduced our reported shares
issued and outstanding by the number of shares purchased. In
addition, we recorded the excess of the purchase price over the
par value of the common stock as a reduction to paid-in capital.
Adoption of FSP APB
14-1. On
January 1, 2009, we adopted Financial Accounting Standards
Board, or FASB, Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), or FSP APB
14-1. FSP
APB 14-1
requires that issuers of certain convertible debt instruments
that may be settled in cash upon conversion, including partial
cash settlement, separately account for the liability and equity
components (i.e. the embedded conversion option) of those debt
instruments and recognize the accretion of the resulting
discount on the debt as interest expense. FSP APB
14-1 is
required to be applied retrospectively to convertible debt
instruments within its scope that were outstanding during any
period presented in financial statements issued after its
adoption. The adoption of FSP APB
14-1
affected the accounting for:
|
|
|
|
|
our 2.875% convertible notes issued in 2004 and due 2034, of
which 99.99% were converted into shares of our common stock in
June 2007;
|
|
|
|
our 2.75% convertible notes issued in 2005 and due 2025; and
|
|
|
|
our 3.125% convertible notes issued in 2007 and due 2012.
|
The retroactive application of FSP APB
14-1
resulted primarily in the recognition of additional non-cash
interest expense in the affected prior periods. For the six and
three months ended June 30, 2008, we recognized additional
non-cash interest expense, net of incremental capitalized
interest, of $21.1 million and $10.6 million,
respectively. See Note 5 for further information.
The following table sets forth the effect of the retrospective
application of FSP APB
14-1 on
certain previously reported line items (in thousands, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
As Previously
|
|
|
Effect of
|
|
|
|
|
|
As Previously
|
|
|
Effect of
|
|
Condensed Consolidated Statement of Operations:
|
|
As Adjusted
|
|
|
Reported
|
|
|
Change
|
|
|
As Adjusted
|
|
|
Reported
|
|
|
Change
|
|
|
Operating income
|
|
$
|
391,235
|
|
|
$
|
391,519
|
|
|
$
|
(284
|
)
|
|
$
|
199,570
|
|
|
$
|
199,721
|
|
|
$
|
(151
|
)
|
Net income
|
|
|
255,610
|
|
|
|
268,843
|
|
|
|
(13,233
|
)
|
|
|
148,546
|
|
|
|
155,274
|
|
|
|
(6,728
|
)
|
Net income, per common share, basic
|
|
$
|
1.52
|
|
|
$
|
1.60
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.89
|
|
|
$
|
0.93
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
1.48
|
|
|
$
|
1.52
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.86
|
|
|
$
|
0.88
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Accounting Pronouncements. In March
2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities
An Amendment of FASB Statement No. 133, or
SFAS No. 161, which amends and expands the disclosure
requirements of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.
SFAS No. 161 is effective for financial statements
issued in fiscal years beginning after November 15, 2008.
The adoption of SFAS No. 161 in the first quarter of
2009 did not impact our condensed consolidated financial
statements as the value of our derivative instruments is not
material.
In April 2009, the FASB issued Staff Position
No. 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments, or
FSP 107-1
and APB
28-1.
FSP 107-1
and APB 28-1
require quarterly disclosures of the fair value and carrying
value of all financial instruments aggregated by major category
and disclosures
8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
concerning the methods and assumptions used to estimate the
instruments fair value.
FSP 107-1
and APB 28-1
is effective for interim reporting periods ending after
June 15, 2009. The adoption of
FSP 107-1
and APB 28-1
in the second quarter of 2009 did not have a material impact on
our condensed consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events, or SFAS No. 165.
SFAS No. 165 establishes the accounting for and
disclosure of events and transactions which occur after the
balance sheet date but before financial statements are issued or
available to be issued. This standard requires disclosure of the
date through which such subsequent events have been evaluated.
SFAS No. 165 became effective for interim or annual
reporting periods ending after June 15, 2009. Our adoption
of SFAS No. 165 during the second quarter of 2009 did
not have a material impact on our condensed consolidated
financial statements.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R), or
SFAS No. 167. SFAS No. 167 changes the
consolidation guidance under FASB Interpretation No. 46(R),
or FIN 46, to require an ongoing qualitative assessment to
determine the primary beneficiary of a variable interest entity,
or VIE. SFAS No. 167 also amends the circumstances
that would require a reassessment of whether an entity in which
we had a variable interest qualifies as a VIE and would be
subject to the consolidation guidance in this standard.
SFAS No. 167 will be effective for fiscal years
beginning after November 15, 2009. We are currently
evaluating the potential impact, if any, that the adoption of
this standard will have on our condensed consolidated financial
statements.
|
|
Note 2.
|
Fair
Value Measurements
|
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, or SFAS No. 157,
which defines fair value, establishes a framework for measuring
the fair value of assets and liabilities when other accounting
pronouncements require or permit fair value measurements and
expands related disclosure requirements. On January 1,
2008, we adopted SFAS No. 157 for financial assets and
financial liabilities, except for those that are recognized or
disclosed at fair value on a recurring basis (at least
annually). On January 1, 2009 we adopted
SFAS No. 157 for non-financial assets and
non-financial liabilities as contemplated by FASB Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, or
FSP 157-2,
that was issued in February 2008. As of June 30, 2009, the
adoption of SFAS No. 157 with respect to our
nonfinancial assets and nonfinancial liabilities has not had a
material impact on our condensed consolidated financial
statements.
SFAS No. 157 clarifies that fair value is an exit
price, representing the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a
market-based measurement that is determined based on assumptions
that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions,
SFAS No. 157 utilizes a three-tier fair value
hierarchy, which prioritizes the inputs used to measure fair
value. The three levels in the fair value hierarchy used are
summarized as follows:
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2: Inputs other than quoted prices
in active markets that are observable for the asset or
liability, either directly or indirectly.
Level 3: Unobservable inputs that reflect
the reporting entitys own assumptions.
Considerable judgment is required in interpreting market data to
develop the estimates of fair value. To the extent that the
valuation is based on models or inputs that are less observable
or unobservable in the market, the determination of fair value
requires more judgment. Accordingly, the degree of judgment
exercised in determining fair value is greatest for instruments
categorized in Level 3. The estimates presented below are
not necessarily indicative of the amounts that we could realize
in a current market exchange. The use of different market
assumptions and valuation techniques may have a material effect
on the estimated fair value amounts.
9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a description of the major categories of assets
and liabilities measured at fair value on a recurring basis.
Available-for-Sale
Securities.
Available-for-sale
securities include short-term investments made by Nextel Brazil
and current and long term classifications of our enhanced cash
fund which is invested primarily in asset-backed securities. The
short-term investments by Nextel Brazil are classified as
Level 1 within the fair value hierarchy as these short-term
investments trade regularly in observable markets. The enhanced
cash fund is classified as Level 3 within the fair value
hierarchy at June 30, 2009 since certain significant inputs
for the fair value measurement remain unobservable.
The following table sets forth the classification within the
fair value hierarchy of our financial instruments measured at
fair value on a recurring basis in the accompanying consolidated
balance sheet as of June 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2009
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
June 30,
|
|
|
December 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2009
|
|
|
2008
|
|
|
Short-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
12,084
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,084
|
|
|
$
|
48,858
|
|
Available-for-sale
securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
25,433
|
|
|
|
25,433
|
|
|
|
33,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,084
|
|
|
|
|
|
|
|
25,433
|
|
|
|
37,517
|
|
|
|
82,002
|
|
Long-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Enhanced cash fund
|
|
|
|
|
|
|
|
|
|
|
9,382
|
|
|
|
9,382
|
|
|
|
20,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,084
|
|
|
$
|
|
|
|
$
|
34,815
|
|
|
$
|
46,899
|
|
|
$
|
102,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the changes in fair value of our
Level 3 financial instruments measured at fair value on a
recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
53,160
|
|
|
$
|
38,267
|
|
Principal distributions
|
|
|
(20,372
|
)
|
|
|
(5,136
|
)
|
Unrealized gain, included in other comprehensive income
|
|
|
1,844
|
|
|
|
1,523
|
|
Realized gain on distributions, included in net income
|
|
|
183
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
34,815
|
|
|
$
|
34,815
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2008, we had no
activity with respect to assets or liabilities measured at fair
value on a recurring basis using Level 3 inputs.
Other
Financial Instruments
We estimate the fair value of our financial instruments other
than our
available-for-sale
securities, including cash and cash equivalents, accounts
receivable, accounts payable, derivative instruments and debt.
The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and short-term borrowings contained
in
10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the condensed consolidated balance sheets approximate their fair
values due to the short-term nature of these instruments. The
fair values of our derivative instruments are immaterial.
The carrying amounts and estimated fair values of our long-term
debt instruments at June 30, 2009 and December 31,
2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
Convertible notes
|
|
$
|
1,415,028
|
|
|
$
|
1,255,599
|
|
|
$
|
1,390,847
|
|
|
$
|
1,036,526
|
|
Syndicated loan facilities
|
|
|
481,859
|
|
|
|
461,097
|
|
|
|
505,863
|
|
|
|
456,848
|
|
Tower financing obligations
|
|
|
168,352
|
|
|
|
53,965
|
|
|
|
157,262
|
|
|
|
58,027
|
|
Brazil spectrum license financing
|
|
|
6,546
|
|
|
|
4,184
|
|
|
|
6,660
|
|
|
|
4,649
|
|
Brazil credit paper
|
|
|
25,620
|
|
|
|
26,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,097,405
|
|
|
$
|
1,801,491
|
|
|
$
|
2,060,632
|
|
|
$
|
1,556,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimated the fair values of our convertible notes using
quoted market prices in a broker dealer market which are
adjusted for certain factors such as historical trading levels
and market data for our notes, credit default spreads, stock
volatility assumptions and other corroborating market or
internally generated data. Because our fair value measurement
includes market data, corroborating market data and some broker
internally generated information, we consider this Level 2
in the fair value hierarchy.
We estimated the fair values of our syndicated loan facilities,
towers financing obligations and Brazil spectrum license
financing using primarily Level 3 inputs such as
U.S. Treasury yield curves, prices of comparable bonds,
LIBOR and zero-coupon yield curves, Treasury bond rates and
credit spreads on comparable publicly traded bonds.
The Brazil credit paper is a $25.6 million working capital
loan from a Brazilian bank, which we entered into in May 2009.
We estimated the fair value of the loan by discounting the
expected cash flows utilizing primarily Level 3 inputs such
as a forward zero-coupon curve of the U.S. Treasury bonds
and an appropriate credit spread based on comparable publicly
traded bonds.
|
|
Note 3.
|
Property,
Plant and Equipment
|
The components of our property, plant and equipment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Land
|
|
$
|
7,099
|
|
|
$
|
6,600
|
|
Leasehold improvements
|
|
|
94,380
|
|
|
|
84,663
|
|
Digital mobile network equipment and network software
|
|
|
2,723,078
|
|
|
|
2,216,212
|
|
Office equipment, furniture and fixtures and other
|
|
|
376,699
|
|
|
|
329,352
|
|
Corporate aircraft capital lease
|
|
|
31,450
|
|
|
|
31,450
|
|
Less: Accumulated depreciation and amortization
|
|
|
(1,181,632
|
)
|
|
|
(928,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,051,074
|
|
|
|
1,739,909
|
|
Construction in progress
|
|
|
224,797
|
|
|
|
152,204
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,275,871
|
|
|
$
|
1,892,113
|
|
|
|
|
|
|
|
|
|
|
11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4.
|
Intangible
Assets
|
Our intangible assets consist of our licenses and trade name,
all of which have finite useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
398,322
|
|
|
$
|
(72,074
|
)
|
|
$
|
326,248
|
|
|
$
|
373,315
|
|
|
$
|
(55,437
|
)
|
|
$
|
317,878
|
|
Trade name and other
|
|
|
1,547
|
|
|
|
(1,547
|
)
|
|
|
|
|
|
|
1,412
|
|
|
|
(1,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
399,869
|
|
|
$
|
(73,621
|
)
|
|
$
|
326,248
|
|
|
$
|
374,727
|
|
|
$
|
(56,849
|
)
|
|
$
|
317,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based solely on the carrying amount of amortizable intangible
assets existing as of June 30, 2009 and current foreign
currency exchange rates, we estimate amortization expense for
each of the next five years ending December 31 to be as follows
(in thousands):
|
|
|
|
|
|
|
Estimated
|
|
|
|
Amortization
|
|
Years
|
|
Expense
|
|
|
2009
|
|
$
|
28,161
|
|
2010
|
|
|
28,869
|
|
2011
|
|
|
28,869
|
|
2012
|
|
|
28,869
|
|
2013
|
|
|
28,782
|
|
Actual amortization expense to be reported in future periods
could differ from these estimates as a result of additional
acquisitions of intangibles, as well as changes in foreign
currency exchange rates and other relevant factors. During the
three months ended June 30, 2009 and 2008, we did not
acquire, dispose of or write down any goodwill or intangible
assets with indefinite useful lives.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
3.125% convertible notes due 2012, net
|
|
$
|
1,078,488
|
|
|
$
|
1,059,997
|
|
2.75% convertible notes due 2025, net
|
|
|
336,540
|
|
|
|
330,850
|
|
Brazil syndicated loan facility
|
|
|
300,000
|
|
|
|
300,000
|
|
Mexico syndicated loan facility
|
|
|
181,859
|
|
|
|
205,863
|
|
Tower financing obligations
|
|
|
168,352
|
|
|
|
157,262
|
|
Capital lease obligations
|
|
|
72,028
|
|
|
|
68,167
|
|
Brazil import financing
|
|
|
53,470
|
|
|
|
|
|
Brazil credit paper
|
|
|
25,620
|
|
|
|
|
|
Brazil spectrum license financing
|
|
|
6,546
|
|
|
|
6,660
|
|
Other
|
|
|
6,018
|
|
|
|
4,341
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,228,921
|
|
|
|
2,133,140
|
|
Less: current portion
|
|
|
(198,378
|
)
|
|
|
(99,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,030,543
|
|
|
$
|
2,034,086
|
|
|
|
|
|
|
|
|
|
|
12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Convertible
Notes.
3.125% Convertible Notes. The
3.125% notes are convertible into shares of our common
stock at a conversion rate of 8.4517 shares per $1,000
principal amount of notes, or 10,142,040 aggregate common
shares, representing a conversion price of about $118.32 per
share. For the fiscal quarter ended June 30, 2009, the
closing sale price of our common stock did not exceed 120% of
the conversion price of $118.32 per share for at least 20
trading days in the 30 consecutive trading days ending on
June 30, 2009. As a result, the conversion contingency was
not met as of June 30, 2009.
2.75% Convertible Notes. The
2.75% notes are convertible, at the option of the holder,
into shares of our common stock at an adjusted conversion rate
of 19.967 shares per $1,000 principal amount of notes, or
6,988,370 aggregate common shares, representing a conversion
price of about $50.08 per share. For the fiscal quarter ended
June 30, 2009, the closing sale price of our common stock
did not exceed 120% of the conversion price of $50.08 per share
for at least 20 trading days in the 30 consecutive trading days
ending on June 30, 2009. As a result, the conversion
contingency was not met as of June 30, 2009.
As a result of the adoption of FSP APB
14-1 on
January 1, 2009, we were required to separately account for
the debt and equity components of our 3.125% convertible notes
and our 2.75% convertible notes in a manner that reflects our
nonconvertible debt (unsecured debt) borrowing rate. The debt
and equity components recognized for our 3.125% convertible
notes and our 2.75% convertible notes were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Principal amount of convertible notes
|
|
$
|
1,200,000
|
|
|
$
|
349,996
|
|
|
$
|
1,200,000
|
|
|
$
|
349,996
|
|
Unamortized discount on convertible notes
|
|
|
121,512
|
|
|
|
13,456
|
|
|
|
140,003
|
|
|
|
19,146
|
|
Net carrying amount of convertible notes
|
|
|
1,078,488
|
|
|
|
336,540
|
|
|
|
1,059,997
|
|
|
|
330,850
|
|
Carrying amount of equity component
|
|
|
194,557
|
|
|
|
53,253
|
|
|
|
194,557
|
|
|
|
53,253
|
|
13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of June 30, 2009, the unamortized discount on our 3.125%
convertible notes and our 2.75% convertible notes had remaining
recognition periods of approximately 35 months and
14 months, respectively.
The amount of interest expense recognized on our 3.125%
convertible notes and our 2.75% convertible notes and effective
interest rates for the six and three months ended June 30,
2009 and 2008 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
18,750
|
|
|
$
|
4,812
|
|
|
$
|
18,750
|
|
|
$
|
4,812
|
|
Amortization of discount on convertible notes
|
|
|
18,491
|
|
|
|
5,690
|
|
|
|
17,257
|
|
|
|
5,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
37,241
|
|
|
$
|
10,502
|
|
|
$
|
36,007
|
|
|
$
|
10,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
9,375
|
|
|
$
|
2,406
|
|
|
$
|
9,375
|
|
|
$
|
2,406
|
|
Amortization of discount on convertible notes
|
|
|
9,299
|
|
|
|
2,867
|
|
|
|
8,679
|
|
|
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
18,674
|
|
|
$
|
5,273
|
|
|
$
|
18,054
|
|
|
$
|
5,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated Loan Facilities. In
September 2007, Nextel Brazil entered into a $300.0 million
syndicated loan facility. Of the total amount of the facility,
$45.0 million is denominated in U.S. dollars with a
floating interest rate based on LIBOR plus a specified margin
ranging from 2.00% to 2.50% (Tranche A 2.60%
and 3.43% as of June 30, 2009 and December 31, 2008,
respectively). The remaining $255.0 million is denominated
in U.S. dollars with a floating interest rate based on
LIBOR plus a specified margin ranging from 1.75% to 2.25%
(Tranche B 2.35% and 3.18% as of June 30,
2009 and December 31, 2008, respectively). Tranche A
matures on September 14, 2014, and Tranche B matures
on September 14, 2012.
In addition, a portion of Nextel Mexicos syndicated loan
facility bears a floating interest rate based on LIBOR plus a
specified margin. The interest rate on the portions of both the
Brazil and Mexico syndicated loan facilities that have interest
rates based on LIBOR are reset each quarter. If the LIBOR rate
increases, Nextel Brazil and Nextel Mexico will incur increased
interest expense related to their syndicated loans.
Brazil Import Financing. In March 2009,
Nextel Brazil began financing certain equipment mainly purchased
from Motorola and Research in Motion, or RIM, that is imported
into Brazil through agreements with several Brazilian banks.
Each tranche of these financings matures within a six to
twelve-month period.
Brazil Credit Paper. In May 2009,
Nextel Brazil entered into a $25.6 million working capital
loan with a Brazilian bank. Interest is payable quarterly for
the first twelve months beginning August 2009 and monthly for
the remaining six months, and the principal matures beginning in
June 2010 through November 2010 with six equal consecutive
payments.
14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6.
|
Commitments
and Contingencies
|
Brazilian
Contingencies.
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on
imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions
disputing these assessments. In some cases, Nextel Brazil has
received favorable decisions, which are currently being appealed
by the respective governmental authority. In other cases, Nextel
Brazils petitions have been denied, and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing various other claims. As a result of a favorable
ruling by the state tax authority in Brazil, during the three
months ended June 30, 2009, Nextel Brazil reversed
$10.5 million in accrued liabilities, of which we recorded
$5.8 million as other income.
As of June 30, 2009 and December 31, 2008, Nextel
Brazil had accrued liabilities of $11.6 million and
$18.3 million, respectively, related to contingencies, all
of which were classified in accrued contingencies reported as a
component of other long-term liabilities. Of the total accrued
liabilities as of June 30, 2009 and December 31, 2008,
Nextel Brazil had $0.3 million and $9.2 million in
unasserted claims. We currently estimate the range of reasonably
possible losses related to matters for which Nextel Brazil has
not accrued liabilities, as they are not deemed probable, to be
between $95.6 million and $99.6 million as of
June 30, 2009. We are continuing to evaluate the likelihood
of probable and reasonably possible losses, if any, related to
all known contingencies. As a result, future increases or
decreases to our accrued liabilities may be necessary and will
be recorded in the period when such amounts are determined to be
probable and estimable.
Argentine
Contingencies.
As of June 30, 2009 and December 31, 2008, Nextel
Argentina had accrued liabilities of $26.8 million and
$35.0 million, respectively, related primarily to local
turnover taxes, universal service tax and local government
claims, all of which were classified in accrued contingencies
and accrued non-income taxes reported as components of accrued
expenses and other.
Turnover Tax. The government of the city of
Buenos Aires imposes a turnover tax rate of 6% of revenues for
cellular companies while maintaining a 3% rate for other
telecommunications services. From a regulatory standpoint, we
are not considered a cellular company, although, the city of
Buenos Aires made claims to the effect that the higher turnover
tax rate should apply to our services. As a result, until April
2006, Nextel Argentina paid the turnover tax at a rate of 3% and
recorded a liability and related expense for the differential
between the higher rate applicable to cellular carriers and the
3% rate, plus interest. In April 2006, following some adverse
decisions by the city of Buenos Aires, Nextel Argentina decided
to pay under protest $18.8 million, which represented the
total amount of principal and interest, related to the
citys turnover tax claims and subsequently paid an
additional $4.2 million under protest for the period April
2006 through December 2006 related to this tax. Nextel Argentina
filed a lawsuit against the city of Buenos Aires to pursue the
reimbursement of the $18.8 million paid under protest in
April 2006, as well as an administrative claim for the remaining
$4.2 million for the period April 2006 through December
2006.
In December 2006, the city of Buenos Aires issued new laws that
support Nextel Argentinas position that it should be taxed
at the general 3% rate and not at the 6% cellular rate.
Beginning in January 2007, Nextel Argentina determined that it
would continue to accrue and pay only the 3% general turnover
tax rate and would continue with its efforts to obtain
reimbursement of amounts previously paid under protest in excess
of that level.
In 2007, Nextel Argentina received a $4.2 million tax
refund, plus interest, as the result of a resolution issued by
the tax authorities of the city of Buenos Aires with respect to
the amounts paid from April 2006 through December 2006 relating
to this tax. In June 2009, the city of Buenos Aires agreed to
refund by tax credit an additional $18.9 million to Nextel
Argentina related to the $18.8 million in turnover tax
principal and interest paid
15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
under protest, plus additional interest. In addition, Nextel
Argentina unconditionally and unilaterally committed to donate
$5.7 million to charitable organizations.
Separately, in June 2009, another provincial government that had
made a similar case for a higher turnover tax rate finalized an
examination that supported Nextel Argentinas position that
its turnover tax obligations should be taxed at the 3% general
turnover tax rate. Nextel Argentina previously accrued a
liability for the difference between the higher rate and the
general turnover tax rate. As a result of this indirect
confirmation, Nextel Argentina reversed $9.2 million in
accrued liabilities related to this contingency during June 2009.
Legal
Proceedings.
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. The earliest years that remain subject to examination by
jurisdiction are: Chile 1993; U.S. 1995;
Mexico 2001; Argentina 2002; Peru and
Brazil 2004. We regularly assess the potential
outcome of current and future examinations in each of the taxing
jurisdictions when determining the adequacy of the provision for
income taxes.
The following table shows a reconciliation of our unrecognized
tax benefits according to FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
interpretation of FASB Statement No. 109, or
FIN No. 48, for the six months ended June 30,
2009 (in thousands):
|
|
|
|
|
Unrecognized tax benefits December 31, 2008
|
|
$
|
85,886
|
|
Additions for current year tax positions
|
|
|
1,594
|
|
Additions for prior year tax positions
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(577
|
)
|
Settlements with taxing authorities
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
1,576
|
|
|
|
|
|
|
Unrecognized tax benefits June 30, 2009
|
|
$
|
88,479
|
|
|
|
|
|
|
The unrecognized tax benefits as of December 31, 2008 and
June 30, 2009 include $63.2 million and
$65.8 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 second quarter of 2009, consistent with the methodology we
employed for 2008, and determined that the realizability of
those deferred assets has not changed for the markets in which
we operate. In that assessment, we considered the reversal of
existing temporary differences associated with deferred tax
assets and liabilities, future taxable income, tax planning
strategies and historical and future pre-tax book income (as
adjusted for permanent differences between financial and tax
accounting items) in order to determine if it is
more-likely-than-not that the deferred tax asset
will be realized. As a result of the retrospective adoption of
FSP APB 14-1 on January 1, 2009, we recorded additional
U.S. deferred tax liabilities, allowing us to record a
smaller valuation allowance against our U.S. deferred tax
assets and increase the amount of recognized U.S. deferred
tax benefit. We believe it is reasonably possible that, within
the next year, we will release some portion of the
U.S. valuation allowance. The character of the valuation
allowance that would likely be released would result in a
reduction to the income tax expense.
16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 June 30, 2009 and
December 31, 2008 include $13.2 and $12.8 million,
respectively, in income taxes receivable, which are included as
components of other non-current assets. The income tax benefit
for this item was related to our income tax provision for the
years ended December 31, 2005, 2004 and 2003.
|
|
Note 8.
|
Segment
Reporting
|
We have determined that our reportable segments are those that
are based on our method of internal reporting, which
disaggregates our business by geographical location. Our
reportable segments are: (1) Mexico, (2) Brazil,
(3) Argentina and (4) Peru. The operations of all
other businesses that fall below the segment reporting
thresholds are included in the Corporate and other
segment below. This segment includes our Chilean operating
companies and our corporate operations in the U.S. We
evaluate performance of these segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element of operational
performance, we recognize share-based payment expense at the
corporate level and exclude it when evaluating the business
performance of our segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
877,648
|
|
|
$
|
657,498
|
|
|
$
|
243,582
|
|
|
$
|
118,340
|
|
|
$
|
5,968
|
|
|
$
|
(589
|
)
|
|
$
|
1,902,447
|
|
Digital handset and accessory revenues
|
|
|
38,335
|
|
|
|
48,996
|
|
|
|
17,301
|
|
|
|
13,072
|
|
|
|
28
|
|
|
|
|
|
|
|
117,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
915,983
|
|
|
$
|
706,494
|
|
|
$
|
260,883
|
|
|
$
|
131,412
|
|
|
$
|
5,996
|
|
|
$
|
(589
|
)
|
|
$
|
2,020,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
326,917
|
|
|
$
|
183,443
|
|
|
$
|
83,321
|
|
|
$
|
15,264
|
|
|
$
|
(96,938
|
)
|
|
$
|
|
|
|
$
|
512,007
|
|
Management fee
|
|
|
(15,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,900
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(80,902
|
)
|
|
|
(74,655
|
)
|
|
|
(19,480
|
)
|
|
|
(14,853
|
)
|
|
|
(6,759
|
)
|
|
|
|
|
|
|
(196,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
230,115
|
|
|
|
108,788
|
|
|
|
63,841
|
|
|
|
411
|
|
|
|
(87,797
|
)
|
|
|
|
|
|
|
315,358
|
|
Interest expense, net
|
|
|
(22,867
|
)
|
|
|
(22,482
|
)
|
|
|
5,890
|
|
|
|
(287
|
)
|
|
|
(49,101
|
)
|
|
|
2,138
|
|
|
|
(86,709
|
)
|
Interest income
|
|
|
13,044
|
|
|
|
2,332
|
|
|
|
368
|
|
|
|
202
|
|
|
|
2,614
|
|
|
|
(2,138
|
)
|
|
|
16,422
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(20,653
|
)
|
|
|
69,716
|
|
|
|
5,340
|
|
|
|
(281
|
)
|
|
|
2,116
|
|
|
|
|
|
|
|
56,238
|
|
Other (expense) income, net
|
|
|
(268
|
)
|
|
|
5,902
|
|
|
|
3,747
|
|
|
|
1
|
|
|
|
(3,814
|
)
|
|
|
|
|
|
|
5,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
199,371
|
|
|
$
|
164,256
|
|
|
$
|
79,186
|
|
|
$
|
46
|
|
|
$
|
(135,982
|
)
|
|
$
|
|
|
|
$
|
306,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
57,400
|
|
|
$
|
246,688
|
|
|
$
|
20,130
|
|
|
$
|
64,972
|
|
|
$
|
11,731
|
|
|
$
|
|
|
|
$
|
400,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,024,101
|
|
|
$
|
616,584
|
|
|
$
|
241,121
|
|
|
$
|
105,639
|
|
|
$
|
3,981
|
|
|
$
|
(646
|
)
|
|
$
|
1,990,780
|
|
Digital handset and accessory revenues
|
|
|
39,231
|
|
|
|
34,887
|
|
|
|
23,395
|
|
|
|
8,855
|
|
|
|
23
|
|
|
|
|
|
|
|
106,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,063,332
|
|
|
$
|
651,471
|
|
|
$
|
264,516
|
|
|
$
|
114,494
|
|
|
$
|
4,004
|
|
|
$
|
(646
|
)
|
|
$
|
2,097,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
391,480
|
|
|
$
|
175,248
|
|
|
$
|
81,817
|
|
|
$
|
22,630
|
|
|
$
|
(80,351
|
)
|
|
$
|
|
|
|
$
|
590,824
|
|
Management fee
|
|
|
(16,752
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,800
|
|
|
|
(48
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
(96,168
|
)
|
|
|
(69,047
|
)
|
|
|
(18,507
|
)
|
|
|
(9,955
|
)
|
|
|
(5,792
|
)
|
|
|
(120
|
)
|
|
|
(199,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
278,560
|
|
|
|
106,201
|
|
|
|
63,310
|
|
|
|
12,675
|
|
|
|
(69,343
|
)
|
|
|
(168
|
)
|
|
|
391,235
|
|
Interest expense, net
|
|
|
(31,732
|
)
|
|
|
(26,075
|
)
|
|
|
(1,387
|
)
|
|
|
(36
|
)
|
|
|
(47,718
|
)
|
|
|
4,189
|
|
|
|
(102,759
|
)
|
Interest income
|
|
|
21,852
|
|
|
|
3,260
|
|
|
|
1,867
|
|
|
|
618
|
|
|
|
13,120
|
|
|
|
(4,189
|
)
|
|
|
36,528
|
|
Foreign currency transaction gains (losses), net
|
|
|
16,515
|
|
|
|
25,467
|
|
|
|
(2,673
|
)
|
|
|
(162
|
)
|
|
|
1,111
|
|
|
|
48
|
|
|
|
40,306
|
|
Other (expense) income, net
|
|
|
(159
|
)
|
|
|
(1,552
|
)
|
|
|
44
|
|
|
|
|
|
|
|
(3,508
|
)
|
|
|
|
|
|
|
(5,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
285,036
|
|
|
$
|
107,301
|
|
|
$
|
61,161
|
|
|
$
|
13,095
|
|
|
$
|
(106,338
|
)
|
|
$
|
(120
|
)
|
|
$
|
360,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
126,709
|
|
|
$
|
219,310
|
|
|
$
|
40,788
|
|
|
$
|
22,991
|
|
|
$
|
26,446
|
|
|
$
|
|
|
|
$
|
436,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
450,241
|
|
|
$
|
360,208
|
|
|
$
|
119,411
|
|
|
$
|
59,408
|
|
|
$
|
3,193
|
|
|
$
|
(321
|
)
|
|
$
|
992,140
|
|
Digital handset and accessory revenues
|
|
|
20,713
|
|
|
|
30,205
|
|
|
|
9,306
|
|
|
|
6,479
|
|
|
|
22
|
|
|
|
|
|
|
|
66,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
470,954
|
|
|
$
|
390,413
|
|
|
$
|
128,717
|
|
|
$
|
65,887
|
|
|
$
|
3,215
|
|
|
$
|
(321
|
)
|
|
$
|
1,058,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
172,757
|
|
|
$
|
95,419
|
|
|
$
|
41,448
|
|
|
$
|
5,897
|
|
|
$
|
(48,654
|
)
|
|
$
|
|
|
|
$
|
266,867
|
|
Management fee
|
|
|
(7,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,950
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(41,893
|
)
|
|
|
(41,267
|
)
|
|
|
(9,629
|
)
|
|
|
(7,581
|
)
|
|
|
(3,383
|
)
|
|
|
|
|
|
|
(103,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
122,914
|
|
|
|
54,152
|
|
|
|
31,819
|
|
|
|
(1,684
|
)
|
|
|
(44,087
|
)
|
|
|
|
|
|
|
163,114
|
|
Interest expense, net
|
|
|
(10,792
|
)
|
|
|
(11,978
|
)
|
|
|
4,828
|
|
|
|
(223
|
)
|
|
|
(24,394
|
)
|
|
|
446
|
|
|
|
(42,113
|
)
|
Interest income
|
|
|
2,188
|
|
|
|
1,093
|
|
|
|
160
|
|
|
|
162
|
|
|
|
612
|
|
|
|
(446
|
)
|
|
|
3,769
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(11,113
|
)
|
|
|
67,321
|
|
|
|
259
|
|
|
|
(172
|
)
|
|
|
7,257
|
|
|
|
|
|
|
|
63,552
|
|
Other (expense) income, net
|
|
|
(200
|
)
|
|
|
7,219
|
|
|
|
3,745
|
|
|
|
1
|
|
|
|
(3,555
|
)
|
|
|
|
|
|
|
7,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
102,997
|
|
|
$
|
117,807
|
|
|
$
|
40,811
|
|
|
$
|
(1,916
|
)
|
|
$
|
(64,167
|
)
|
|
$
|
|
|
|
$
|
195,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
31,683
|
|
|
$
|
132,770
|
|
|
$
|
10,100
|
|
|
$
|
49,242
|
|
|
$
|
7,648
|
|
|
$
|
|
|
|
$
|
231,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
530,786
|
|
|
$
|
330,268
|
|
|
$
|
126,154
|
|
|
$
|
53,943
|
|
|
$
|
2,199
|
|
|
$
|
(320
|
)
|
|
$
|
1,043,030
|
|
Digital handset and accessory revenues
|
|
|
24,174
|
|
|
|
19,718
|
|
|
|
12,330
|
|
|
|
4,693
|
|
|
|
9
|
|
|
|
|
|
|
|
60,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
554,960
|
|
|
$
|
349,986
|
|
|
$
|
138,484
|
|
|
$
|
58,636
|
|
|
$
|
2,208
|
|
|
$
|
(320
|
)
|
|
$
|
1,103,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
199,728
|
|
|
$
|
93,858
|
|
|
$
|
42,439
|
|
|
$
|
10,569
|
|
|
$
|
(41,720
|
)
|
|
$
|
|
|
|
$
|
304,874
|
|
Management fee
|
|
|
(8,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,402
|
|
|
|
(48
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
(50,063
|
)
|
|
|
(37,071
|
)
|
|
|
(9,768
|
)
|
|
|
(5,000
|
)
|
|
|
(3,184
|
)
|
|
|
(218
|
)
|
|
|
(105,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
141,311
|
|
|
|
56,787
|
|
|
|
32,671
|
|
|
|
5,569
|
|
|
|
(36,502
|
)
|
|
|
(266
|
)
|
|
|
199,570
|
|
Interest expense, net
|
|
|
(15,670
|
)
|
|
|
(12,810
|
)
|
|
|
(729
|
)
|
|
|
(19
|
)
|
|
|
(23,798
|
)
|
|
|
2,221
|
|
|
|
(50,805
|
)
|
Interest income
|
|
|
11,283
|
|
|
|
2,263
|
|
|
|
600
|
|
|
|
327
|
|
|
|
5,336
|
|
|
|
(2,221
|
)
|
|
|
17,588
|
|
Foreign currency transaction gains (losses), net
|
|
|
12,355
|
|
|
|
27,214
|
|
|
|
(3,103
|
)
|
|
|
29
|
|
|
|
858
|
|
|
|
48
|
|
|
|
37,401
|
|
Other (expense) income, net
|
|
|
(80
|
)
|
|
|
(355
|
)
|
|
|
16
|
|
|
|
(1
|
)
|
|
|
(226
|
)
|
|
|
|
|
|
|
(646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
149,199
|
|
|
$
|
73,099
|
|
|
$
|
29,455
|
|
|
$
|
5,905
|
|
|
$
|
(54,332
|
)
|
|
$
|
(218
|
)
|
|
$
|
203,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
76,649
|
|
|
$
|
115,911
|
|
|
$
|
23,960
|
|
|
$
|
13,981
|
|
|
$
|
13,815
|
|
|
$
|
|
|
|
$
|
244,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
692,713
|
|
|
$
|
1,062,877
|
|
|
$
|
194,023
|
|
|
$
|
201,465
|
|
|
$
|
125,080
|
|
|
$
|
(287
|
)
|
|
$
|
2,275,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,135,139
|
|
|
$
|
2,084,031
|
|
|
$
|
387,621
|
|
|
$
|
346,977
|
|
|
$
|
726,033
|
|
|
$
|
(287
|
)
|
|
$
|
5,679,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
687,839
|
|
|
$
|
725,892
|
|
|
$
|
212,908
|
|
|
$
|
151,034
|
|
|
$
|
114,727
|
|
|
$
|
(287
|
)
|
|
$
|
1,892,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,122,133
|
|
|
$
|
1,492,260
|
|
|
$
|
450,781
|
|
|
$
|
291,397
|
|
|
$
|
733,789
|
|
|
$
|
(287
|
)
|
|
$
|
5,090,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
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
|
|
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|
|
|
|
21
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|
|
|
|
21
|
|
|
|
|
26
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|
|
26
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|
|
|
|
27
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|
|
|
|
27
|
|
|
|
|
28
|
|
|
|
|
33
|
|
|
|
|
36
|
|
|
|
|
39
|
|
|
|
|
41
|
|
|
|
|
43
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|
|
|
|
44
|
|
|
|
|
45
|
|
|
|
|
48
|
|
|
|
|
50
|
|
20
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition and results of operations
for the six- and three-month periods ended June 30, 2009
and 2008; and
|
|
|
|
significant factors which we believe could affect our
prospective financial condition and results of operations.
|
You should read this discussion in conjunction with our 2008
annual report on
Form 10-K,
our quarterly report on
Form 10-Q
for the quarter ended March 31, 2009 and the discussion
regarding our critical accounting judgments included below and
in our 2008 annual report on
Form 10-K.
Historical results may not indicate future performance. See
Forward Looking Statements for risks and
uncertainties that may impact our future performance.
We provide wireless communication services, primarily targeted
at meeting the needs of customers who use our services in their
businesses and individuals that have medium to high usage
patterns, both of whom value our multi-function handsets,
including our Nextel Direct
Connect®
feature, and our high level of customer service. We provide
these services through operating companies located in selected
Latin American markets under the
Nexteltm
brand, with our principal operations located in major business
centers and related transportation corridors of Mexico, Brazil,
Argentina, Peru and Chile. We provide our services in major
urban and suburban centers with high population densities, which
we refer to as major business centers, where we believe there is
a concentration of the countrys business users and
economic activity. We believe that vehicle traffic congestion,
low wireline service penetration and the expanded coverage of
wireless networks in these major business centers encourage the
use of the mobile wireless communications services that we offer.
We use a wireless transmission technology called integrated
digital enhanced network, or iDEN, developed by Motorola, Inc.
to provide our digital mobile services on 800 MHz spectrum
holdings in all of our markets. This technology, which is the
only digital technology currently available that can be used on
non-contiguous spectrum like ours, allows us to use our spectrum
efficiently and offer multiple wireless services integrated into
a variety of handset devices. The services we offer include:
|
|
|
|
|
mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a
push-to-talk
basis, private
one-to-one
call or group call;
|
|
|
|
International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers using compatible handsets in the United
States and with TELUS subscribers using compatible handsets in
Canada;
|
|
|
|
text messaging services, mobile internet services,
e-mail
services including
Blackberrytm
services, location-based services, which include the use of
Global Positioning System (GPS) technologies, digital media
services and advanced
Javatm
enabled business applications; and
|
|
|
|
international roaming services.
|
Our goal is to generate increased revenues in our Latin American
markets by providing differentiated wireless communications
services that are valued by our customers, while improving our
profitability and cash flow over the long term. We plan to
continue to expand the coverage and capacity of our networks in
our existing markets and increase our existing subscriber base
while managing our costs in a manner designed to support that
growth and improve our operating results. We will seek to add
subscribers at rates and other terms that are competitive with
other offerings in the market, but that are consistent with our
strategy of finding the optimal balance of growth and
profitability regardless of the competitive landscape. See
Forward Looking Statements and
Item 1A. Risk
21
Factors in our 2008 annual report on
Form 10-K
for information on risks and uncertainties that could affect our
ability to reach these goals and the other objectives described
below.
We may also explore financially attractive opportunities to
expand our network coverage in areas that we do not currently
serve. Based on market data that continues to show lower
wireless penetration in our markets relative to other regions of
the world and our current market share in those markets, we
believe that we can continue to generate growth in our
subscriber base and revenues while improving our profitability
and cash flow over the long term.
We believe that the wireless communications industry in the
markets in which we operate has been and will continue to be
highly competitive on the basis of price, the types of services
offered, the diversity of handsets offered and the quality of
service. In each of our markets, we compete with at least two
large, well-capitalized competitors with substantial financial
and other resources. Some of these competitors have the ability
to offer bundled telecommunications services that include local,
long distance and data services, and can offer a larger variety
of handsets with a wide range of prices, brands and features.
Although competitive pricing of services and the variety and
pricing of handsets are often important factors in a
customers decision making process, we believe that the
users who primarily make up our targeted customer base are also
likely to base their purchase decisions on quality of service
and customer support, as well as on the availability of
differentiated features and services, like our Direct Connect
services, that make it easier for them to communicate quickly,
efficiently and economically.
We have implemented a strategy that we believe will position us
to achieve our long-term goal of generating profitable growth.
The key components of that strategy are as follows:
Focusing on Major Business Centers in Key Latin American
Markets. We operate primarily in large urban
markets, including five of the six largest cities in Latin
America, which have a concentration of medium to high usage
business customers and consumers. We target these markets
because we believe they have favorable long-term growth
prospects for our wireless communications services while
offering the cost benefits associated with providing services in
more concentrated population centers. In addition, the cities in
which we operate account for a high proportion of total economic
activity in each of their respective countries and provide us
with a large potential market. We believe that there are
significant opportunities for growth in these markets due to the
high demand for wireless communications services and the large
number of potential customers within our targeted customer
groups.
Targeting High Value Customers. Our main focus
is on customers who purchase services under contract and
primarily use our services in their businesses and on
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature and our high level of customer service.
In our current customer base, our typical customer has between 3
and 30 handsets, and some of our largest customers have over 500
handsets; however, new customers that we have recently acquired
generally have a lower number of handsets per customer.
Providing Differentiated Services. We
differentiate ourselves from our competitors by offering unique
services like our
push-to-talk
service, which we refer to as Direct Connect. This service,
which is available throughout our service areas, provides
significant value to our customers by eliminating the long
distance and domestic roaming fees charged by other wireless
service providers, while also providing added functionality due
to the near-instantaneous nature of the communication and the
ability to communicate on a
one-to-many
basis. In addition, we are in the process of developing a high
performance
push-to-talk
service that utilizes wideband CDMA, or WCDMA, technology in an
effort to continually provide differentiated service to our
customers as we acquire spectrum rights and deploy WCDMA-based
networks. Our competitors have introduced competitive
push-to-talk
over cellular products, but we believe that the quality of our
Direct Connect service is superior at this time. We add further
value by customizing data applications that enhance the
productivity of our business customers, such as vehicle and
delivery tracking, order entry processing and workforce
monitoring applications.
Delivering Superior Customer Service. In
addition to our unique service offerings, we seek to further
differentiate ourselves by providing a higher level of customer
service than our competitors. We work proactively with our
customers to match them with service plans that offer greater
value based on the
22
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 our coverage is not as extensive as in our other
markets. Such expansion may involve building out certain areas
in which we already have spectrum, obtaining additional spectrum
in new areas which would enable us to expand our network service
areas, and further developing our business in key urban areas.
In addition, we may consider selectively expanding into other
Latin American countries where we do not currently operate. We
have made significant additional investments in Brazil in order
to expand our service areas, including expansion into the
northeast region of the country, and add more capacity to Nextel
Brazils network to support its growth. See Future
Capital Needs and Resources Capital
Expenditures for a discussion of the factors that drive
our capital spending.
Preserving the iDEN Opportunity. The iDEN
networks that we operate allow us to offer differentiated
services like Direct Connect while offering high quality voice
telephony and other innovative services. The iDEN technology is
unique in that it is the only widespread, commercially available
technology that operates on non-contiguous spectrum, which is
important to us because much of the spectrum that our operating
companies hold in each of the markets we serve is
non-contiguous. Because Motorola is the sole supplier of iDEN
technology, we are dependent on Motorolas support of the
evolution of the iDEN technology and of the development of new
features, functionality and handset models.
Sprint Nextel Corporation is the largest customer of Motorola
with respect to iDEN technology and, in the past, has provided
significant support with respect to new product development for
that technology. In recent years, Sprint Nextel Corporation has
reduced its commitment to the development of new iDEN handsets
and features, and there has been a decline in the number of
handsets purchased by them; however, there has recently been an
increase in the level of Sprint Nextel Corporations
advertising and promotion of iDEN services, including its Boost
branded prepaid services. In light of the reduction in Sprint
Nextel Corporations development efforts, we have increased
our effort and support of iDEN handset product development and
now lead the majority of that development activity in support of
our customers needs. In addition, we have entered into
arrangements with Motorola that are designed to provide us with
a continued source of iDEN network equipment and handsets in an
environment in which Sprint Nextels purchases and support
of future development of that equipment may decline.
Specifically, in September 2006, we entered into agreements to
extend our relationship with Motorola for the supply of iDEN
handsets and iDEN network infrastructure through
December 31, 2011. Under these agreements, Motorola agreed
to maintain an adequate supply of the iDEN handsets and
equipment used in our business for the term of the agreement and
to continue to invest in the development of new iDEN devices and
infrastructure features. In addition, we agreed to annually
escalating handset volume purchase commitments and certain
pricing parameters for handsets and infrastructure linked to the
volume of our purchases. If we do not meet the specified handset
volume commitments, we would be required to pay an additional
amount based on any shortfall of actual purchased handsets
compared to the related annual volume commitment.
During the first quarter of 2008, Motorola announced plans to
separate its mobile devices division into a separate public
entity through a spin-off of that division; however, in October
2008, Motorola announced its intention to delay this spin-off.
While we cannot determine the impact of Motorolas planned
separation of the mobile devices business on its iDEN business,
Motorolas obligations under our existing agreements,
including the obligation to supply us with iDEN handsets and
network equipment, remain in effect.
Planning for the Future. Another key component
in our overall strategy is to expand and improve the innovative
and differentiated services we offer and evaluate the
technologies necessary to provide those services. One such
initiative is to develop and offer a broader range of data
services on our networks, including
23
evaluating the feasibility of offering next generation voice and
broadband data services in the future. This focus on offering
innovative and differentiated services requires that we continue
to invest in, evaluate and, if appropriate, deploy new services
and enhancements to our existing services. In some cases, we
will consider and pursue acquisitions of assets that include
spectrum licenses to deploy these services, including in
auctions of newly available spectrum and through transactions
involving acquisitions of existing spectrum rights. We currently
plan to participate in auctions and other transactions of this
nature, particularly in Brazil, Mexico and Chile, to the extent
new spectrum can be obtained at a reasonable cost with available
financing and consistent with our overall technology strategy.
As part of our ongoing assessment of our ability to meet our
customers current and future needs, we continually review
alternate technologies to assess their technical performance,
cost and functional capabilities. These reviews may involve the
deployment of the technologies under consideration on a trial
basis in order to evaluate their capabilities and the market
demand for the supported services. We will deploy a new
technology beyond the minimum levels required by the terms of
our spectrum licenses only if it is warranted by expected
customer demand and when the anticipated benefits of services
supported by the new technology outweigh the costs of providing
those services. Our decision whether and how to deploy
alternative technologies, as well as our choice of alternative
technologies, would likely be affected by a number of factors,
including:
|
|
|
|
|
types of features and services supported by the technology and
our assessment of the demand for those features and services;
|
|
|
|
the availability and pricing of related equipment, the spectrum
bands available in our markets and whether other wireless
carriers are operating or plan to operate a particular
technology in those spectrum bands;
|
|
|
|
our need to continue to support iDEN-based services for our
existing customer base either on an ongoing or transitional
basis; and
|
|
|
|
the availability and terms of any financing that we would be
required to raise in order to acquire the spectrum and fund the
deployment of an alternative technology. See Future
Capital Needs and Resources for more information.
|
Consistent with this strategy of pursuing new spectrum and
technology opportunities, in July 2007, we participated in a
spectrum auction and were awarded a nationwide license of
35 MHz of 1.9 GHz spectrum in Peru for a term of
20 years. The license under which the spectrum rights were
granted requires us to deploy new network technology within
specified timeframes throughout Peru, including in areas that we
do not currently serve. We are deploying a third generation
network in Peru that utilizes WCDMA technology and will operate
on this spectrum. We believe that the deployment of this next
generation network will enable us to significantly increase the
size of our opportunity in Peru by allowing us to offer new and
differentiated services to a larger base of potential customers.
During 2008 and continuing into the first half of 2009, the
global economic environment was characterized by a significant
decline in economic growth rates, a marked increase in the
volatility of foreign currency exchange rates, disruptions in
the capital markets and a reduction in the availability of
financing. These conditions are expected to continue at least
for the remainder of 2009 with most economists predicting a
significant slowing, and possibly a contraction, of economic
growth both globally and in the markets in which we operate. We
have also seen an increase in the inflation rates in some
markets in which we operate, particularly in Argentina. While we
believe that we will be able to continue to expand our business
in this environment, these economic trends could affect our
business in a number of ways by:
|
|
|
|
|
reducing the demand for our services resulting from reduced
discretionary spending;
|
|
|
|
increasing the level of competition among the other wireless
service providers as we compete for a smaller number of
potential customers, which could require us to offer more
competitive service plans that could result in lower average
revenue per subscriber; and
|
24
|
|
|
|
|
increasing the level of voluntary customer turnover due to
increased competition and simultaneously increasing the levels
of involuntary customer turnover and bad debt expense as
customers find it more difficult to pay for services.
|
Historically, the value of the currencies of the countries in
which we do business in relation to the U.S. dollar have
been volatile. Recent weakness in the economies of those
countries has led to increased volatility in these currencies.
Because a significant portion of our outstanding debt is
denominated in U.S. dollars and we report our results in
U.S. dollars, significant fluctuations in foreign currency
exchange rates can affect our reported results. For example,
from September 30, 2008 to March 31, 2009, the
exchange rate for the Mexican peso increased from 10.79 pesos
per U.S. dollar to 14.33 pesos per U.S. dollar. These
changes, as well as changes in the exchange rate for the
Brazilian real, resulted in foreign currency transaction losses
of $104.4 million during the fourth quarter of 2008 and
$7.3 million during the first quarter of 2009. While the
average values of the Brazilian real and the Mexican peso
appreciated relative to the U.S. dollar during the second
quarter of 2009 compared to the first quarter of 2009, which
contributed to consolidated foreign currency transaction gains
of $63.6 million for the second quarter of 2009, those
values remained at levels substantially below those that
prevailed during the second quarter of 2008. Depreciation in the
values of the local currencies in the markets where we operate
makes it more costly for us to service our
U.S. dollar-denominated debt obligations and affects our
operating results because we generate nearly all of our revenues
in foreign currencies, but we pay for some of our operating
expenses and capital expenditures in U.S. dollars. Further,
because we report our results of operations in
U.S. dollars, changes in relative foreign currency
valuations have resulted in reductions in our reported revenues,
operating income and earnings, as well as a reduction in the
carrying value of our assets, including the value of cash
investments held in local currencies during the fourth quarter
of 2008 and the first two quarters of 2009 compared to the
relevant prior year periods. Accordingly, if the values of local
currencies in the countries in which our operating companies
conduct business depreciate further relative to the
U.S. dollar, we would expect our operating results in
future periods, and the value of our assets held in local
currencies, to continue to be adversely affected.
Deteriorating conditions in the economy and the capital markets
have also resulted in significant increases in the cost of
capital and have made it increasingly difficult for companies
with operations in emerging markets to obtain debt or equity
financing on acceptable terms. While a number of governments
have taken actions in an effort to address liquidity issues in
the financial markets and have undertaken various other
initiatives designed to help relieve the credit crisis, the
overall effects of these and other efforts on the financial
markets are uncertain, and they may not have the intended
effects. While we believe that our current cash balances and the
funds we expect to generate in our business are sufficient to
support our existing iDEN business and our current business
plans, we have in the past and likely will in the future depend
upon access to the credit and capital markets to help fund the
growth of our business, for the acquisition of additional
spectrum and for capital expenditures in connection with the
expansion and improvement of our wireless networks and the
deployment of new network technologies. If the present financial
market conditions continue, we expect that our borrowing costs
will increase to the extent that we incur new debt at
comparatively higher interest rates and as a result of increases
in the interest rates on our variable rate debt obligations, and
it may be difficult for us to obtain funding on terms that are
acceptable. These market conditions may limit our access to
funding that may be needed to pursue our expansion plans and to
acquire rights to use spectrum and deploy networks that use new
technologies in our markets.
We have taken a number of actions to address the potential
impact of these changes in the economic environment and capital
markets, including:
|
|
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|
|
implementing strategies designed to conserve our liquidity by
increasing the cash generated by our operations;
|
|
|
|
developing and implementing strategies to target, capture and
retain profitable customers;
|
|
|
|
managing our subscriber and revenue growth consistent with our
long term strategy of expanding our business while improving our
profitability and cash flow generation;
|
|
|
|
improving our efficiency by managing our growth in headcount and
other expenses at levels consistent with our expectations
regarding subscriber and revenue growth; and
|
25
|
|
|
|
|
developing and implementing network expansion plans that target
our capital expenditures in areas with greater growth
opportunities consistent with our long term strategy of meeting
our customers demand for innovative high quality services
while remaining consistent with our goal of preserving liquidity
in light of the uncertain conditions in the capital markets.
|
We expect to continue to pursue these and other strategies as
necessary to adapt our business plans in order to meet our long
term business goals in a manner that takes into account the
uncertainty of the current economic environment.
See Forward Looking Statements for information on
risks and uncertainties that could affect the above objectives.
Handsets
in Commercial Service
The table below provides an overview of our total handsets in
commercial service in the countries indicated as of
June 30, 2009 and December 31, 2008. For purposes of
the table, handsets in commercial service represent all handsets
with active customer accounts on the networks in each of the
listed countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Handsets in commercial service December 31, 2008
|
|
|
2,726
|
|
|
|
1,812
|
|
|
|
967
|
|
|
|
669
|
|
|
|
26
|
|
|
|
6,200
|
|
Net subscriber additions
|
|
|
109
|
|
|
|
294
|
|
|
|
19
|
|
|
|
79
|
|
|
|
7
|
|
|
|
508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handsets in commercial service June 30, 2009
|
|
|
2,835
|
|
|
|
2,106
|
|
|
|
986
|
|
|
|
748
|
|
|
|
33
|
|
|
|
6,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies and Estimates
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses and related disclosures of contingent assets and
liabilities in the consolidated financial statements and
accompanying notes. Although we believe that our estimates,
assumptions and judgments are reasonable, they are based upon
presently available information. Due to the inherent uncertainty
involved in making those estimates, actual results reported in
future periods could differ from those estimates.
As described in more detail in our 2008 Annual Report on
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations, we consider
the following accounting policies to be the most important to
our financial position and results of operations or policies
that require us to exercise significant judgment
and/or
estimates:
|
|
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|
|
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.
|
26
There have been no material changes to our critical accounting
policies and estimates during the six months ended June 30,
2009 compared to those discussed in our 2008 annual report of
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations.
Ratio of
Earnings to Fixed Charges
|
|
|
|
|
Three Months
|
|
Ended
|
|
June 30,
|
|
2009
|
|
2008
|
|
|
4.34x
|
|
|
3.99x
|
|
For the purpose of computing the ratio of earnings to fixed
charges, earnings consist of income from continuing operations
before income taxes plus fixed charges and amortization of
capitalized interest less capitalized interest. Fixed charges
consist of:
|
|
|
|
|
interest on all indebtedness, amortization of debt financing
costs and amortization of original issue discount;
|
|
|
|
interest capitalized; and
|
|
|
|
the portion of rental expense we believe is representative of
interest.
|
Results
of Operations
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of digital
handsets and accessories. Service revenues primarily include
fixed monthly access charges for mobile telephone service and
digital two-way radio and other services, including revenues
from calling party pays programs and variable charges for
airtime and digital two-way radio usage in excess of plan
minutes, long-distance charges and international roaming
revenues derived from calls placed by our customers. Digital
handset and accessory revenues represent revenues we earn on the
sale of digital handsets and accessories to our customers.
In addition, we also have other less significant sources of
revenues. These revenues primarily include revenues generated
from our handset maintenance programs, roaming revenues
generated from other companies customers that roam on our
networks and co-location rental revenues from third-party
tenants that rent space on our towers.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of digital handset and accessory
sales. Cost of providing wireless service consists largely of
costs of interconnection with local exchange carrier facilities
and direct switch and transmitter and receiver site costs,
including property taxes, expenses related to our handset
maintenance programs, insurance costs, utility costs,
maintenance costs, spectrum license fees and rent for the
network switch sites and transmitter sites used to operate our
networks. Interconnection costs have fixed and variable
components. The fixed component of interconnection costs
consists of monthly flat-rate fees for facilities leased from
local exchange carriers, primarily for circuits required to
connect our transmitter sites to our network switches and to
connect our switches to each other. The variable component of
interconnection costs, which fluctuates in relation to the
volume and duration of wireless calls, generally consists of
per-minute use fees charged by wireline and wireless providers
for wireless calls from our digital handsets that terminate on
those providers networks. Cost of digital handset and
accessory sales consists largely of the cost of the handset and
accessories, order fulfillment and installation-related
expenses, as well as write-downs of digital handset and related
accessory inventory for shrinkage or obsolescence.
Our service and other revenues and the variable component of our
cost of service are primarily driven by the number of digital
handsets in service and not necessarily by the number of
customers, as one customer may purchase one or many digital
handsets. Our digital handset and accessory revenues and cost of
digital handset and accessory sales are primarily driven by the
number of new handsets placed into service, as well as handset
upgrades provided to existing customers during the year.
Selling and marketing expenses include all of the expenses
related to acquiring customers. General and administrative
expenses include expenses related to revenue-based taxes,
billing, customer care, collections including bad debt, repairs
and maintenance of management information systems, spectrum
license fees, corporate overhead and share-based payment for
stock options and restricted stock.
27
As further discussed in the notes to our condensed consolidated
financial statements, we adjusted our condensed consolidated
financial statements for the six and three months ended
June 30, 2008 for the retrospective application of
Financial Accounting Standards Board, or FASB, Staff Position
No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), or FSP APB
14-1.
In accordance with accounting principles generally accepted in
the United States, we translated the results of operations of
our operating segments using the average exchange rates for the
six and three months ended June 30, 2009 and 2008. The
following table presents the average exchange rates we used to
translate the results of operations of our operating segments,
as well as changes from the average exchange rates utilized in
the prior period. Because the U.S. dollar is the functional
currency in Peru, Nextel Perus results of operations are
not significantly impacted by changes in the U.S. dollar to
Peruvian sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
13.87
|
|
|
|
10.63
|
|
|
|
(30.5
|
)%
|
Brazilian real
|
|
|
2.19
|
|
|
|
1.70
|
|
|
|
(28.8
|
)%
|
Argentine peso
|
|
|
3.64
|
|
|
|
3.14
|
|
|
|
(15.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
13.37
|
|
|
|
10.44
|
|
|
|
(28.1
|
)%
|
Brazilian real
|
|
|
2.07
|
|
|
|
1.66
|
|
|
|
(24.7
|
)%
|
Argentine peso
|
|
|
3.73
|
|
|
|
3.12
|
|
|
|
(19.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,902,447
|
|
|
|
94
|
%
|
|
$
|
1,990,780
|
|
|
|
95
|
%
|
|
$
|
(88,333
|
)
|
|
|
(4
|
)%
|
Digital handset and accessory revenues
|
|
|
117,732
|
|
|
|
6
|
%
|
|
|
106,391
|
|
|
|
5
|
%
|
|
|
11,341
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,020,179
|
|
|
|
100
|
%
|
|
|
2,097,171
|
|
|
|
100
|
%
|
|
|
(76,992
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(545,154
|
)
|
|
|
(27
|
)%
|
|
|
(542,992
|
)
|
|
|
(26
|
)%
|
|
|
(2,162
|
)
|
|
|
|
|
Cost of digital handsets and accessories
|
|
|
(310,987
|
)
|
|
|
(15
|
)%
|
|
|
(293,398
|
)
|
|
|
(14
|
)%
|
|
|
(17,589
|
)
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(856,141
|
)
|
|
|
(42
|
)%
|
|
|
(836,390
|
)
|
|
|
(40
|
)%
|
|
|
(19,751
|
)
|
|
|
2
|
%
|
Selling and marketing expenses
|
|
|
(234,382
|
)
|
|
|
(11
|
)%
|
|
|
(276,974
|
)
|
|
|
(13
|
)%
|
|
|
42,592
|
|
|
|
(15
|
)%
|
General and administrative expenses
|
|
|
(417,649
|
)
|
|
|
(21
|
)%
|
|
|
(392,983
|
)
|
|
|
(19
|
)%
|
|
|
(24,666
|
)
|
|
|
6
|
%
|
Depreciation and amortization
|
|
|
(196,649
|
)
|
|
|
(10
|
)%
|
|
|
(199,589
|
)
|
|
|
(9
|
)%
|
|
|
2,940
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
315,358
|
|
|
|
16
|
%
|
|
|
391,235
|
|
|
|
19
|
%
|
|
|
(75,877
|
)
|
|
|
(19
|
)%
|
Interest expense, net
|
|
|
(86,709
|
)
|
|
|
(4
|
)%
|
|
|
(102,759
|
)
|
|
|
(5
|
)%
|
|
|
16,050
|
|
|
|
(16
|
)%
|
Interest income
|
|
|
16,422
|
|
|
|
1
|
%
|
|
|
36,528
|
|
|
|
1
|
%
|
|
|
(20,106
|
)
|
|
|
(55
|
)%
|
Foreign currency transaction gains, net
|
|
|
56,238
|
|
|
|
2
|
%
|
|
|
40,306
|
|
|
|
2
|
%
|
|
|
15,932
|
|
|
|
40
|
%
|
Other income (expense), net
|
|
|
5,568
|
|
|
|
|
|
|
|
(5,175
|
)
|
|
|
|
|
|
|
10,743
|
|
|
|
(208
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
306,877
|
|
|
|
15
|
%
|
|
|
360,135
|
|
|
|
17
|
%
|
|
|
(53,258
|
)
|
|
|
(15
|
)%
|
Income tax provision
|
|
|
(101,949
|
)
|
|
|
(5
|
)%
|
|
|
(104,525
|
)
|
|
|
(5
|
)%
|
|
|
2,576
|
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
204,928
|
|
|
|
10
|
%
|
|
$
|
255,610
|
|
|
|
12
|
%
|
|
$
|
(50,682
|
)
|
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
992,140
|
|
|
|
94
|
%
|
|
$
|
1,043,030
|
|
|
|
94
|
%
|
|
$
|
(50,890
|
)
|
|
|
(5
|
)%
|
Digital handset and accessory revenues
|
|
|
66,725
|
|
|
|
6
|
%
|
|
|
60,924
|
|
|
|
6
|
%
|
|
|
5,801
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,058,865
|
|
|
|
100
|
%
|
|
|
1,103,954
|
|
|
|
100
|
%
|
|
|
(45,089
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(289,255
|
)
|
|
|
(27
|
)%
|
|
|
(284,483
|
)
|
|
|
(26
|
)%
|
|
|
(4,772
|
)
|
|
|
2
|
%
|
Cost of digital handsets and accessories
|
|
|
(165,738
|
)
|
|
|
(16
|
)%
|
|
|
(158,709
|
)
|
|
|
(14
|
)%
|
|
|
(7,029
|
)
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(454,993
|
)
|
|
|
(43
|
)%
|
|
|
(443,192
|
)
|
|
|
(40
|
)%
|
|
|
(11,801
|
)
|
|
|
3
|
%
|
Selling and marketing expenses
|
|
|
(121,169
|
)
|
|
|
(11
|
)%
|
|
|
(149,750
|
)
|
|
|
(14
|
)%
|
|
|
28,581
|
|
|
|
(19
|
)%
|
General and administrative expenses
|
|
|
(215,836
|
)
|
|
|
(20
|
)%
|
|
|
(206,138
|
)
|
|
|
(19
|
)%
|
|
|
(9,698
|
)
|
|
|
5
|
%
|
Depreciation and amortization
|
|
|
(103,753
|
)
|
|
|
(10
|
)%
|
|
|
(105,304
|
)
|
|
|
(9
|
)%
|
|
|
1,551
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
163,114
|
|
|
|
15
|
%
|
|
|
199,570
|
|
|
|
18
|
%
|
|
|
(36,456
|
)
|
|
|
(18
|
)%
|
Interest expense, net
|
|
|
(42,113
|
)
|
|
|
(4
|
)%
|
|
|
(50,805
|
)
|
|
|
(5
|
)%
|
|
|
8,692
|
|
|
|
(17
|
)%
|
Interest income
|
|
|
3,769
|
|
|
|
|
|
|
|
17,588
|
|
|
|
2
|
%
|
|
|
(13,819
|
)
|
|
|
(79
|
)%
|
Foreign currency transaction gains, net
|
|
|
63,552
|
|
|
|
6
|
%
|
|
|
37,401
|
|
|
|
3
|
%
|
|
|
26,151
|
|
|
|
70
|
%
|
Other income (expense), net
|
|
|
7,210
|
|
|
|
1
|
%
|
|
|
(646
|
)
|
|
|
|
|
|
|
7,856
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
195,532
|
|
|
|
18
|
%
|
|
|
203,108
|
|
|
|
18
|
%
|
|
|
(7,576
|
)
|
|
|
(4
|
)%
|
Income tax provision
|
|
|
(61,242
|
)
|
|
|
(5
|
)%
|
|
|
(54,562
|
)
|
|
|
(5
|
)%
|
|
|
(6,680
|
)
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
134,290
|
|
|
|
13
|
%
|
|
$
|
148,546
|
|
|
|
13
|
%
|
|
$
|
(14,256
|
)
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
During the first half of 2009, we continued to expand our
subscriber base across all of our markets with most of this
growth concentrated in Brazil. We also experienced a higher
consolidated customer turnover rate, which resulted primarily
from the combined impact of weaker economic conditions in Mexico
and Argentina during the first half of 2009 and the more
competitive sales environment in Mexico that arose during 2008.
While we have implemented initiatives designed to stabilize our
customer turnover rate, the economic environment and competitive
conditions we face in our markets has adversely affected, and
may continue to adversely affect, our ability to retain
customers, particularly in Mexico.
We continued to invest in coverage expansion and network
improvements in the first half of 2009, resulting in
consolidated capital expenditures of $400.9 million, which
represented a $35.3 million decrease from the first half of
2008. The majority of this investment occurred in Brazil where
we continued to expand our coverage areas and enhance the
quality and capacity of our networks, consistent with our plans
to increase our customer base in that market. We expect that the
amounts invested in Brazil to expand our network coverage and
improve network quality and capacity will continue to represent
the majority of our consolidated capital expenditure investments
for 2009 as we focus more resources on expansion in that market.
In addition, our deployment of a next generation network in Peru
will require additional significant capital expenditures. We
will also incur additional significant capital expenditures if
we pursue our plans to acquire spectrum and deploy next
generation networks in any of our other markets. See
Future Capital Needs and Resources Capital
Expenditures for more information.
The average values of the local currencies in each of our
markets depreciated relative to the U.S. dollar during the
six and three months ended June 30, 2009 compared to the
same periods in 2008. Our operating results for the remainder of
2009 will be adversely affected in comparison to prior periods
if the values of the local currencies relative to the
U.S. dollar remain at the average levels that prevailed
during the six and three months ended June 30, 2009 or if
those values depreciate further.
29
The $88.3 million, or 4%, and $50.9 million, or 5%,
decreases in consolidated service and other revenues from the
six and three months ended June 30, 2008 to the same
periods in 2009 are primarily due to declines in average
consolidated revenues per subscriber resulting from the
depreciation in the average values of the local currencies in
each of our markets relative to the U.S. dollar, continued
competitive pressures in Mexico and an increase in the
percentage of subscribers purchasing prepaid rate plans in Peru.
These decreases were partially offset by 27% and 26% increases
in the average number of total handsets in service from the six
and three months ended June 30, 2008 to the same periods in
2009, which resulted from both the continued strong demand for
our services and our balanced growth and expansion strategy,
primarily in Brazil.
The $17.6 million, or 6%, and $7.0 million, or 4%,
increases in consolidated cost of digital handset and accessory
sales from the six and three months ended June 30, 2008 to
the same periods in 2009 is principally due to increases in
consolidated handset upgrades for existing subscribers,
primarily in Mexico, and, to a lesser extent, an increase in
sales of higher cost handsets to new subscribers, primarily in
Brazil.
|
|
3.
|
Selling and
marketing expenses
|
The $42.6 million, or 15%, and $28.6 million, or 19%,
decreases in consolidated selling and marketing expenses from
the six and three months ended June 30, 2008 to the same
periods in 2009 are mostly the result of $35.7 million, or
30%, and $23.9 million, or 37%, decreases in consolidated
indirect commissions caused by lower gross subscriber additions,
primarily in Mexico, and $8.8 million, or 9%, and
$6.1 million, or 11%, decreases in consolidated payroll
expenses and direct commissions resulting from decreases in
commission rates per gross subscriber addition, primarily in
Mexico.
|
|
4.
|
General and
administrative expenses
|
The $24.7 million, or 6%, and $9.7 million, or 5%,
increases in consolidated general and administrative expenses
from the six and three months ended June 30, 2008 to the
same periods in 2009 are primarily due to the following:
|
|
|
|
|
$10.8 million, or 28%, and $3.2 million, or 16%,
increases in consolidated bad debt expense, primarily as a
result of the weaker economic environment in Mexico;
|
|
|
|
$7.4 million, or 73%, and $4.2 million, or 71%,
increases in consolidated engineering management expenses
related to some of our new technology and other
initiatives; and
|
|
|
|
$7.4 million, or 21%, and $3.4 million, or 18%,
increases in consolidated information technology expenses
resulting from increases in information technology personnel and
higher systems maintenance costs, both of which are related to
our deployment of new billing systems in some of our markets.
|
The $16.1 million, or 16%, and $8.7 million, or 17%,
decreases in consolidated interest expense from the six and
three months ended June 30, 2008 to the same periods in
2009 are primarily related to a refund of interest paid on
turnover taxes in Argentina, as well as decreases in interest
incurred under Nextel Mexicos syndicated loan facility as
a result of the repayment of a portion of the loans under that
facility in 2008 and 2009.
See Note 5 to our condensed consolidated financial
statements for further information on the impact of the adoption
of FSP APB
14-1 on our
net interest expense.
The $20.1 million, or 55%, and $13.8 million, or 79%,
decreases in consolidated interest income from the six and three
months ended June 30, 2008 to the same periods in 2009 are
principally due to lower average interest rates, as well as
decreases in average consolidated cash balances over the same
periods.
30
|
|
7.
|
Foreign
currency transaction gains, net
|
Consolidated foreign currency transaction gains of
$56.2 million and $63.6 million for the six and three
months ended June 30, 2009 are largely 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, during the
three months ended June 30, 2009, partially offset by the
impact of the depreciation in the value of the Mexican peso
relative to the U.S. dollar on Nextel Mexicos
U.S. dollar-denominated net assets during the same periods.
Consolidated foreign currency transaction gains of
$40.3 million and $37.4 million for the six and three
months ended June 30, 2008 are primarily the result of the
appreciation in the value of the Mexican peso and the Brazilian
real relative to the U.S. dollar on Nextel Mexicos
and Nextel Brazils U.S. dollar-denominated
liabilities, primarily Nextel Brazils syndicated loan
facility during those periods.
|
|
8.
|
Other income
(expense), net
|
Consolidated other income of $5.6 million and
$7.2 million for the six and three months ended
June 30, 2009 primarily represents the reversal of
contingencies in Brazil, as well as a gain we recorded in
Argentina in connection with the turnover tax refund agreement
with the city of Buenos Aires.
The $2.6 million, or 2%, decrease in the consolidated
income tax provision from the six months ended June 30,
2008 to the same period in 2009 is primarily due to the
$53.3 million, or 15%, decrease in consolidated income
before taxes. The $6.7 million, or 12%, increase in the
consolidated income tax provision from the second quarter of
2008 to the second quarter of 2009 is primarily due to the tax
expense from the additional valuation allowance recorded against
the corporate deferred tax assets and an increase in income
before taxes in Brazil, partially offset by a $7.6 million,
or 4%, decrease in consolidated income before taxes.
Segment
Results
We evaluate performance of our segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element of operational
performance, we recognize share-based payment expense at the
corporate level and exclude it when evaluating the business
performance of our segments. The tables below provide a summary
of the components of our consolidated segments for the six and
three months ended June 30, 2009 and 2008. The results of
Nextel Chile are included in Corporate and other.
Both Nextel Mexico and Nextel Brazils results of
operations were significantly affected by the decline in the
average values of the Mexican peso and the Brazilian real during
the six and three months ended June 30, 2009 compared to
the average values of those currencies during the same periods
in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Six Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2009
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nextel Mexico
|
|
$
|
915,983
|
|
|
|
45
|
%
|
|
$
|
(351,361
|
)
|
|
|
41
|
%
|
|
$
|
(237,705
|
)
|
|
|
37
|
%
|
|
$
|
326,917
|
|
Nextel Brazil
|
|
|
706,494
|
|
|
|
35
|
%
|
|
|
(313,583
|
)
|
|
|
37
|
%
|
|
|
(209,468
|
)
|
|
|
32
|
%
|
|
|
183,443
|
|
Nextel Argentina
|
|
|
260,883
|
|
|
|
13
|
%
|
|
|
(116,816
|
)
|
|
|
14
|
%
|
|
|
(60,746
|
)
|
|
|
9
|
%
|
|
|
83,321
|
|
Nextel Peru
|
|
|
131,412
|
|
|
|
7
|
%
|
|
|
(69,688
|
)
|
|
|
8
|
%
|
|
|
(46,460
|
)
|
|
|
7
|
%
|
|
|
15,264
|
|
Corporate and other
|
|
|
5,996
|
|
|
|
|
|
|
|
(5,282
|
)
|
|
|
|
|
|
|
(97,652
|
)
|
|
|
15
|
%
|
|
|
(96,938
|
)
|
Intercompany eliminations
|
|
|
(589
|
)
|
|
|
|
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
2,020,179
|
|
|
|
100
|
%
|
|
$
|
(856,141
|
)
|
|
|
100
|
%
|
|
$
|
(652,031
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Three Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2009
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nextel Mexico
|
|
$
|
470,954
|
|
|
|
45
|
%
|
|
$
|
(179,449
|
)
|
|
|
39
|
%
|
|
$
|
(118,748
|
)
|
|
|
35
|
%
|
|
$
|
172,757
|
|
Nextel Brazil
|
|
|
390,413
|
|
|
|
37
|
%
|
|
|
(179,159
|
)
|
|
|
39
|
%
|
|
|
(115,835
|
)
|
|
|
34
|
%
|
|
|
95,419
|
|
Nextel Argentina
|
|
|
128,717
|
|
|
|
12
|
%
|
|
|
(58,574
|
)
|
|
|
13
|
%
|
|
|
(28,695
|
)
|
|
|
9
|
%
|
|
|
41,448
|
|
Nextel Peru
|
|
|
65,887
|
|
|
|
6
|
%
|
|
|
(35,139
|
)
|
|
|
8
|
%
|
|
|
(24,851
|
)
|
|
|
7
|
%
|
|
|
5,897
|
|
Corporate and other
|
|
|
3,215
|
|
|
|
|
|
|
|
(2,993
|
)
|
|
|
1
|
%
|
|
|
(48,876
|
)
|
|
|
15
|
%
|
|
|
(48,654
|
)
|
Intercompany eliminations
|
|
|
(321
|
)
|
|
|
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,058,865
|
|
|
|
100
|
%
|
|
$
|
(454,993
|
)
|
|
|
100
|
%
|
|
$
|
(337,005
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Six Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2008
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nextel Mexico
|
|
$
|
1,063,332
|
|
|
|
51
|
%
|
|
$
|
(376,630
|
)
|
|
|
45
|
%
|
|
$
|
(295,222
|
)
|
|
|
44
|
%
|
|
$
|
391,480
|
|
Nextel Brazil
|
|
|
651,471
|
|
|
|
31
|
%
|
|
|
(277,310
|
)
|
|
|
33
|
%
|
|
|
(198,913
|
)
|
|
|
30
|
%
|
|
|
175,248
|
|
Nextel Argentina
|
|
|
264,516
|
|
|
|
13
|
%
|
|
|
(120,716
|
)
|
|
|
14
|
%
|
|
|
(61,983
|
)
|
|
|
9
|
%
|
|
|
81,817
|
|
Nextel Peru
|
|
|
114,494
|
|
|
|
5
|
%
|
|
|
(58,495
|
)
|
|
|
7
|
%
|
|
|
(33,369
|
)
|
|
|
5
|
%
|
|
|
22,630
|
|
Corporate and other
|
|
|
4,004
|
|
|
|
|
|
|
|
(3,885
|
)
|
|
|
1
|
%
|
|
|
(80,470
|
)
|
|
|
12
|
%
|
|
|
(80,351
|
)
|
Intercompany eliminations
|
|
|
(646
|
)
|
|
|
|
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
2,097,171
|
|
|
|
100
|
%
|
|
$
|
(836,390
|
)
|
|
|
100
|
%
|
|
$
|
(669,957
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Three Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2008
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Nextel Mexico
|
|
$
|
554,960
|
|
|
|
50
|
%
|
|
$
|
(199,808
|
)
|
|
|
45
|
%
|
|
$
|
(155,424
|
)
|
|
|
44
|
%
|
|
$
|
199,728
|
|
Nextel Brazil
|
|
|
349,986
|
|
|
|
32
|
%
|
|
|
(148,779
|
)
|
|
|
34
|
%
|
|
|
(107,349
|
)
|
|
|
30
|
%
|
|
|
93,858
|
|
Nextel Argentina
|
|
|
138,484
|
|
|
|
13
|
%
|
|
|
(62,448
|
)
|
|
|
14
|
%
|
|
|
(33,597
|
)
|
|
|
9
|
%
|
|
|
42,439
|
|
Nextel Peru
|
|
|
58,636
|
|
|
|
5
|
%
|
|
|
(30,253
|
)
|
|
|
7
|
%
|
|
|
(17,814
|
)
|
|
|
5
|
%
|
|
|
10,569
|
|
Corporate and other
|
|
|
2,208
|
|
|
|
|
|
|
|
(2,224
|
)
|
|
|
|
|
|
|
(41,704
|
)
|
|
|
12
|
%
|
|
|
(41,720
|
)
|
Intercompany eliminations
|
|
|
(320
|
)
|
|
|
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,103,954
|
|
|
|
100
|
%
|
|
$
|
(443,192
|
)
|
|
|
100
|
%
|
|
$
|
(355,888
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
A discussion of the results of operations for each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
877,648
|
|
|
|
96
|
%
|
|
$
|
1,024,101
|
|
|
|
96
|
%
|
|
$
|
(146,453
|
)
|
|
|
(14
|
)%
|
Digital handset and accessory revenues
|
|
|
38,335
|
|
|
|
4
|
%
|
|
|
39,231
|
|
|
|
4
|
%
|
|
|
(896
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915,983
|
|
|
|
100
|
%
|
|
|
1,063,332
|
|
|
|
100
|
%
|
|
|
(147,349
|
)
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(172,130
|
)
|
|
|
(19
|
)%
|
|
|
(199,032
|
)
|
|
|
(19
|
)%
|
|
|
26,902
|
|
|
|
(14
|
)%
|
Cost of digital handsets and accessories
|
|
|
(179,231
|
)
|
|
|
(19
|
)%
|
|
|
(177,598
|
)
|
|
|
(16
|
)%
|
|
|
(1,633
|
)
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(351,361
|
)
|
|
|
(38
|
)%
|
|
|
(376,630
|
)
|
|
|
(35
|
)%
|
|
|
25,269
|
|
|
|
(7
|
)%
|
Selling and marketing expenses
|
|
|
(106,120
|
)
|
|
|
(12
|
)%
|
|
|
(156,456
|
)
|
|
|
(15
|
)%
|
|
|
50,336
|
|
|
|
(32
|
)%
|
General and administrative expenses
|
|
|
(131,585
|
)
|
|
|
(14
|
)%
|
|
|
(138,766
|
)
|
|
|
(13
|
)%
|
|
|
7,181
|
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
326,917
|
|
|
|
36
|
%
|
|
|
391,480
|
|
|
|
37
|
%
|
|
|
(64,563
|
)
|
|
|
(16
|
)%
|
Management fee
|
|
|
(15,900
|
)
|
|
|
(2
|
)%
|
|
|
(16,752
|
)
|
|
|
(2
|
)%
|
|
|
852
|
|
|
|
(5
|
)%
|
Depreciation and amortization
|
|
|
(80,902
|
)
|
|
|
(9
|
)%
|
|
|
(96,168
|
)
|
|
|
(9
|
)%
|
|
|
15,266
|
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
230,115
|
|
|
|
25
|
%
|
|
|
278,560
|
|
|
|
26
|
%
|
|
|
(48,445
|
)
|
|
|
(17
|
)%
|
Interest expense, net
|
|
|
(22,867
|
)
|
|
|
(2
|
)%
|
|
|
(31,732
|
)
|
|
|
(3
|
)%
|
|
|
8,865
|
|
|
|
(28
|
)%
|
Interest income
|
|
|
13,044
|
|
|
|
1
|
%
|
|
|
21,852
|
|
|
|
2
|
%
|
|
|
(8,808
|
)
|
|
|
(40
|
)%
|
Foreign currency transaction (losses) gains, net
|
|
|
(20,653
|
)
|
|
|
(2
|
)%
|
|
|
16,515
|
|
|
|
2
|
%
|
|
|
(37,168
|
)
|
|
|
(225
|
)%
|
Other expense, net
|
|
|
(268
|
)
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
(109
|
)
|
|
|
69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
199,371
|
|
|
|
22
|
%
|
|
$
|
285,036
|
|
|
|
27
|
%
|
|
$
|
(85,665
|
)
|
|
|
(30
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
450,241
|
|
|
|
96
|
%
|
|
$
|
530,786
|
|
|
|
96
|
%
|
|
$
|
(80,545
|
)
|
|
|
(15
|
)%
|
Digital handset and accessory revenues
|
|
|
20,713
|
|
|
|
4
|
%
|
|
|
24,174
|
|
|
|
4
|
%
|
|
|
(3,461
|
)
|
|
|
(14
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
470,954
|
|
|
|
100
|
%
|
|
|
554,960
|
|
|
|
100
|
%
|
|
|
(84,006
|
)
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(88,541
|
)
|
|
|
(19
|
)%
|
|
|
(101,695
|
)
|
|
|
(18
|
)%
|
|
|
13,154
|
|
|
|
(13
|
)%
|
Cost of digital handsets and accessories
|
|
|
(90,908
|
)
|
|
|
(19
|
)%
|
|
|
(98,113
|
)
|
|
|
(18
|
)%
|
|
|
7,205
|
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(179,449
|
)
|
|
|
(38
|
)%
|
|
|
(199,808
|
)
|
|
|
(36
|
)%
|
|
|
20,359
|
|
|
|
(10
|
)%
|
Selling and marketing expenses
|
|
|
(52,396
|
)
|
|
|
(11
|
)%
|
|
|
(83,391
|
)
|
|
|
(15
|
)%
|
|
|
30,995
|
|
|
|
(37
|
)%
|
General and administrative expenses
|
|
|
(66,352
|
)
|
|
|
(14
|
)%
|
|
|
(72,033
|
)
|
|
|
(13
|
)%
|
|
|
5,681
|
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
172,757
|
|
|
|
37
|
%
|
|
|
199,728
|
|
|
|
36
|
%
|
|
|
(26,971
|
)
|
|
|
(14
|
)%
|
Management fee
|
|
|
(7,950
|
)
|
|
|
(2
|
)%
|
|
|
(8,354
|
)
|
|
|
(2
|
)%
|
|
|
404
|
|
|
|
(5
|
)%
|
Depreciation and amortization
|
|
|
(41,893
|
)
|
|
|
(9
|
)%
|
|
|
(50,063
|
)
|
|
|
(9
|
)%
|
|
|
8,170
|
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
122,914
|
|
|
|
26
|
%
|
|
|
141,311
|
|
|
|
25
|
%
|
|
|
(18,397
|
)
|
|
|
(13
|
)%
|
Interest expense, net
|
|
|
(10,792
|
)
|
|
|
(2
|
)%
|
|
|
(15,670
|
)
|
|
|
(3
|
)%
|
|
|
4,878
|
|
|
|
(31
|
)%
|
Interest income
|
|
|
2,188
|
|
|
|
|
|
|
|
11,283
|
|
|
|
2
|
%
|
|
|
(9,095
|
)
|
|
|
(81
|
)%
|
Foreign currency transaction (losses) gains, net
|
|
|
(11,113
|
)
|
|
|
(2
|
)%
|
|
|
12,355
|
|
|
|
3
|
%
|
|
|
(23,468
|
)
|
|
|
(190
|
)%
|
Other expense, net
|
|
|
(200
|
)
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
(120
|
)
|
|
|
150
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
102,997
|
|
|
|
22
|
%
|
|
$
|
149,199
|
|
|
|
27
|
%
|
|
$
|
(46,202
|
)
|
|
|
(31
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Nextel Mexico continues to be our largest and most profitable
market segment, comprising 45% of our consolidated operating
revenues and generating a 36% segment earnings margin for the
six months ended June 30, 2009, which was slightly lower
than the margin reported for the six months ended June 30,
2008. During the six months ended June 30, 2009, Nextel
Mexicos results of operations reflected lower average
revenues per subscriber, as well as increased costs on a local
currency basis, including network, personnel and other expenses,
incurred in connection with the expansion of the quality and
capacity of its network to support subscriber growth during the
period.
The average value of the Mexican peso for the six months ended
June 30, 2009 depreciated relative to the U.S. dollar
by 30% compared to the average rates that prevailed during the
six months ended June 30, 2008. While the average exchange
rate of the Mexican peso continued to decline subsequent to
December 31, 2008, the majority of this depreciation
occurred during the fourth quarter of 2008. As a result, the
components of Nextel Mexicos results of operations for the
six months ended June 30, 2009 after translation into
U.S. dollars reflect substantially lower
U.S. dollar-denominated revenues and expenses than would
have occurred if it were not for the impact of the depreciation
in the average value of the peso relative to the
U.S. dollar. Nextel Mexicos results will continue to
be adversely affected in future periods if the average value of
the Mexican peso relative to the U.S. dollar remains at its
current levels or if the peso depreciates further.
During 2008, some of Nextel Mexicos competitors
significantly lowered their prices for postpaid wireless
services, offered free or significantly discounted handsets,
specifically targeted some of Nextel Mexicos largest
corporate customers, offered various incentives to Nextel
Mexicos customers to switch service providers, including
reimbursement of cancellation fees, and offered bundled
telecommunications services that include local, long distance
and data services. These competitive actions and practices
largely remained in place during the first two quarters of 2009.
Nextel Mexico is addressing these competitive actions by, among
other things, launching attractive commercial campaigns and
offering both handsets and more competitive rate plans to new
and existing customers. These competitive rate plans are
designed to encourage increased usage of the Direct Connect
feature, but have resulted in lower average revenues per
subscriber. In addition, during the second quarter of 2009,
Nextel Mexico experienced lower gross subscriber additions and
increased deactivations as a result of the downturn in economic
conditions in Mexico, which was compounded by the closing of
businesses and cancellation of other activities in response to
the outbreak of the H1N1 influenza virus. The weaker economic
conditions and more competitive environment in Mexico resulted
in a higher customer turnover rate during 2009 compared to 2008
and in the addition of more subscribers with limited credit
histories or higher credit risk. As Nextel Mexico continues to
expand its customer base and continues to address a more
competitive sales environment, Nextel Mexicos average
revenue per subscriber could continue to decline on a local
currency basis during 2009. In addition, while we have
implemented initiatives that were designed to stabilize the
customer turnover rate in Mexico, the pressures of the weaker
economic environment combined with the competitive conditions we
face there may adversely affect our ability to retain or attract
customers.
Coverage expansion and network improvements in Mexico resulted
in capital expenditures totaling $57.4 million for the six
months ended June 30, 2009, which represents 14% of our
consolidated capital expenditures for the first six months of
2009 and which is a decrease from 29% of consolidated capital
expenditures during the first six months of 2008.
The $146.5 million, or 14%, and $80.5 million, or 15%,
decreases in service and other revenues from the six and three
months ended June 30, 2008 to the same periods in 2009 are
primarily due to decreases in average service revenue per
subscriber resulting from our reduction in plan rates in
response to competitive offerings and the depreciation of the
Mexican peso. These decreases were partially offset by 22% and
20% increases in the average number of digital handsets in
service resulting from growth in Nextel Mexicos existing
markets and the expansion of service coverage into new markets.
The $0.9 million and $3.5 million decreases in digital
handset and accessory revenues from the six and three months
ended June 30, 2008 to the same periods in 2009 are
primarily due to decreases in handset sales to new
34
subscribers over both periods, decreases in average revenue per
handset upgrade and the depreciation of the Mexican peso,
partially offset by increases in the number of units upgraded
for those periods.
The $26.9 million, or 14%, and $13.2 million, or 13%,
decreases in cost of service from the six and three months ended
June 30, 2008 to the same periods in 2009 are principally a
result of the following:
|
|
|
|
|
$14.2 million, or 15%, and $6.6 million, or 13%,
decreases in interconnect costs, largely as a result of the
depreciation of the Mexican peso, partially offset by increases
in the proportion of
mobile-to-mobile
minutes of use, which generally have higher costs per
minute; and
|
|
|
|
$8.8 million, or 13%, and $4.8 million, or 14%,
decreases in direct switch and transmitter and receiver site
costs resulting from the depreciation of the Mexican peso,
partially offset by a 4% increase in the number of sites in
service from June 30, 2008 to June 30, 2009.
|
The $7.2 million, or 7%, decrease in cost of digital
handset and accessory sales from the three months ended
June 30, 2008 to the same period in 2009 is primarily due
to a decrease in handset sales and the depreciation of the
Mexican peso, partially offset by an increase in handset upgrade
costs.
|
|
3.
|
Selling and
marketing expenses
|
The $50.4 million, or 32%, and $31.0 million, or 37%,
decreases in selling and marketing expenses from the six and
three months ended June 30, 2008 to the same periods in
2009 are primarily a result of the following:
|
|
|
|
|
$33.5 million, or 41%, and $22.5 million, or 51%,
decreases in indirect commissions, primarily due to 15% and 33%
decreases in gross subscriber additions generated by Nextel
Mexicos external sales channels, higher commission charge
backs to external sales personnel and the depreciation of the
Mexican peso; and
|
|
|
|
$12.2 million, or 27%, and $7.7 million, or 32%,
decreases in direct commissions and payroll expenses,
principally due to 9% and 22% decreases in gross subscriber
additions generated by Nextel Mexicos internal sales
personnel, higher commission charge backs to internal sales
personnel and the depreciation of the Mexican peso.
|
|
|
4.
|
General and
administrative expenses
|
The $7.2 million, or 5%, and $5.7 million, or 8%,
decreases in general and administrative expenses from the six
and three months ended June 30, 2008 to the same periods in
2009 are largely a result of the following:
|
|
|
|
|
$6.4 million, or 12%, and $3.4 million, or 13%,
decreases in customer care expenses, primarily due to the
depreciation of the Mexican peso, partially offset by increases
in customer care personnel and facilities expenses necessary to
support a growing customer base;
|
|
|
|
$6.4 million, or 13%, and $2.6 million, or 11%,
decreases in other general and administrative costs resulting
from the depreciation of the Mexican peso, partially offset by
an increase in general and administrative personnel; partially
offset by
|
|
|
|
a $4.9 million, or 19%, increase in bad debt expense from
the six months ended June 30, 2008 to the same period in
2009, which increased as a percentage of revenue from 2.4% to
3.3%, due to a decline in the credit worthiness of some
customers and decreased collections related to the weaker
economic conditions in Mexico.
|
|
|
5.
|
Depreciation
and amortization
|
The $15.3 million, or 16%, and $8.2 million, or 16%,
decreases in depreciation and amortization from the six and
three months ended June 30, 2008 to the same periods in
2009 are primarily due to the depreciation of the Mexican peso.
35
The $8.9 million, or 28%, and $4.9 million, or 31%,
decreases in interest expense from the six and three months
ended June 30, 2008 to the same periods in 2009 are
primarily a result of the repayment of a portion of the loans
under Nextel Mexicos syndicated loan facility in 2008 and
2009 and the depreciation of the Mexican peso.
The $8.8 million, or 40%, and $9.1 million, or 81%,
decreases in interest income from the six and three months ended
June 30, 2008 to the same periods in 2009 are primarily the
result of lower average cash balances and reduced interest
rates, as well as the depreciation of the Mexican peso.
|
|
8.
|
Foreign
currency transaction (losses) gains, net
|
Consolidated foreign currency transaction losses of
$20.7 million and $11.1 million for the six and three
months ended June 30, 2009 are largely the result of the
impact of the depreciation in the value of the Mexican peso
relative to the U.S. dollar during 2009 compared to the
levels during 2008 on Nextel Mexicos
U.S. dollar-denominated
net assets.
Consolidated foreign currency transaction gains of
$16.5 million and $12.4 million for the six and three
months ended June 30, 2008 are primarily the result of the
appreciation in the value of the Mexican peso relative to the
U.S. dollar during 2008 compared to the levels during 2007
on Nextel Mexicos U.S. dollar-denominated net
liabilities, primarily its syndicated loan facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
657,498
|
|
|
|
93
|
%
|
|
$
|
616,584
|
|
|
|
95
|
%
|
|
$
|
40,914
|
|
|
|
7
|
%
|
|
|
|
|
Digital handset and accessory revenues
|
|
|
48,996
|
|
|
|
7
|
%
|
|
|
34,887
|
|
|
|
5
|
%
|
|
|
14,109
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
706,494
|
|
|
|
100
|
%
|
|
|
651,471
|
|
|
|
100
|
%
|
|
|
55,023
|
|
|
|
8
|
%
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(239,843
|
)
|
|
|
(34
|
)%
|
|
|
(218,581
|
)
|
|
|
(34
|
)%
|
|
|
(21,262
|
)
|
|
|
10
|
%
|
|
|
|
|
Cost of digital handsets and accessories
|
|
|
(73,740
|
)
|
|
|
(10
|
)%
|
|
|
(58,729
|
)
|
|
|
(9
|
)%
|
|
|
(15,011
|
)
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(313,583
|
)
|
|
|
(44
|
)%
|
|
|
(277,310
|
)
|
|
|
(43
|
)%
|
|
|
(36,273
|
)
|
|
|
13
|
%
|
|
|
|
|
Selling and marketing expenses
|
|
|
(82,356
|
)
|
|
|
(12
|
)%
|
|
|
(78,930
|
)
|
|
|
(12
|
)%
|
|
|
(3,426
|
)
|
|
|
4
|
%
|
|
|
|
|
General and administrative expenses
|
|
|
(127,112
|
)
|
|
|
(18
|
)%
|
|
|
(119,983
|
)
|
|
|
(18
|
)%
|
|
|
(7,129
|
)
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
183,443
|
|
|
|
26
|
%
|
|
|
175,248
|
|
|
|
27
|
%
|
|
|
8,195
|
|
|
|
5
|
%
|
|
|
|
|
Depreciation and amortization
|
|
|
(74,655
|
)
|
|
|
(11
|
)%
|
|
|
(69,047
|
)
|
|
|
(11
|
)%
|
|
|
(5,608
|
)
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
108,788
|
|
|
|
15
|
%
|
|
|
106,201
|
|
|
|
16
|
%
|
|
|
2,587
|
|
|
|
2
|
%
|
|
|
|
|
Interest expense, net
|
|
|
(22,482
|
)
|
|
|
(3
|
)%
|
|
|
(26,075
|
)
|
|
|
(4
|
)%
|
|
|
3,593
|
|
|
|
(14
|
)%
|
|
|
|
|
Interest income
|
|
|
2,332
|
|
|
|
|
|
|
|
3,260
|
|
|
|
|
|
|
|
(928
|
)
|
|
|
(28
|
)%
|
|
|
|
|
Foreign currency transaction gains, net
|
|
|
69,716
|
|
|
|
10
|
%
|
|
|
25,467
|
|
|
|
4
|
%
|
|
|
44,249
|
|
|
|
174
|
%
|
|
|
|
|
Other income (expense), net
|
|
|
5,902
|
|
|
|
1
|
%
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
7,454
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
164,256
|
|
|
|
23
|
%
|
|
$
|
107,301
|
|
|
|
16
|
%
|
|
$
|
56,955
|
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
360,208
|
|
|
|
92
|
%
|
|
$
|
330,268
|
|
|
|
94
|
%
|
|
$
|
29,940
|
|
|
|
9
|
%
|
|
|
|
|
Digital handset and accessory revenues
|
|
|
30,205
|
|
|
|
8
|
%
|
|
|
19,718
|
|
|
|
6
|
%
|
|
|
10,487
|
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390,413
|
|
|
|
100
|
%
|
|
|
349,986
|
|
|
|
100
|
%
|
|
|
40,427
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(134,747
|
)
|
|
|
(35
|
)%
|
|
|
(118,112
|
)
|
|
|
(34
|
)%
|
|
|
(16,635
|
)
|
|
|
14
|
%
|
|
|
|
|
Cost of digital handsets and accessories
|
|
|
(44,412
|
)
|
|
|
(11
|
)%
|
|
|
(30,667
|
)
|
|
|
(9
|
)%
|
|
|
(13,745
|
)
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(179,159
|
)
|
|
|
(46
|
)%
|
|
|
(148,779
|
)
|
|
|
(43
|
)%
|
|
|
(30,380
|
)
|
|
|
20
|
%
|
|
|
|
|
Selling and marketing expenses
|
|
|
(44,657
|
)
|
|
|
(12
|
)%
|
|
|
(43,598
|
)
|
|
|
(12
|
)%
|
|
|
(1,059
|
)
|
|
|
2
|
%
|
|
|
|
|
General and administrative expenses
|
|
|
(71,178
|
)
|
|
|
(18
|
)%
|
|
|
(63,751
|
)
|
|
|
(18
|
)%
|
|
|
(7,427
|
)
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
95,419
|
|
|
|
24
|
%
|
|
|
93,858
|
|
|
|
27
|
%
|
|
|
1,561
|
|
|
|
2
|
%
|
|
|
|
|
Depreciation and amortization
|
|
|
(41,267
|
)
|
|
|
(10
|
)%
|
|
|
(37,071
|
)
|
|
|
(11
|
)%
|
|
|
(4,196
|
)
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
54,152
|
|
|
|
14
|
%
|
|
|
56,787
|
|
|
|
16
|
%
|
|
|
(2,635
|
)
|
|
|
(5
|
)%
|
|
|
|
|
Interest expense, net
|
|
|
(11,978
|
)
|
|
|
(3
|
)%
|
|
|
(12,810
|
)
|
|
|
(4
|
)%
|
|
|
832
|
|
|
|
(6
|
)%
|
|
|
|
|
Interest income
|
|
|
1,093
|
|
|
|
|
|
|
|
2,263
|
|
|
|
1
|
%
|
|
|
(1,170
|
)
|
|
|
(52
|
)%
|
|
|
|
|
Foreign currency transaction gains, net
|
|
|
67,321
|
|
|
|
17
|
%
|
|
|
27,214
|
|
|
|
8
|
%
|
|
|
40,107
|
|
|
|
147
|
%
|
|
|
|
|
Other income (expense), net
|
|
|
7,219
|
|
|
|
2
|
%
|
|
|
(355
|
)
|
|
|
|
|
|
|
7,574
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
117,807
|
|
|
|
30
|
%
|
|
$
|
73,099
|
|
|
|
21
|
%
|
|
$
|
44,708
|
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Over the last several years, Nextel Brazils subscriber
base has grown as a result of its continued focus on customer
service and the expansion of the geographic coverage of its
network. As a result, Nextel Brazil contributed 35% of
consolidated revenues in the first six months of 2009 compared
to 31% for the same period in 2008. Nextel Brazil has
continued to experience growth in its existing markets and has
made significant investments in new markets as a result of
increased demand for its services. Consistent with the expansion
plans that we announced in 2007 and 2008, we have recently made
significant investments in Brazil in order to expand the
geographic coverage of Nextel Brazils network and to add
capacity to and improve the quality of the network to support
its growth. Specifically, Nextel Brazil launched several large
markets in its northeast region during the first half of 2009.
Coverage expansion and network improvements in Brazil resulted
in capital expenditures of $246.7 million for the first
half of 2009, which represented 62% of our consolidated capital
expenditure investments during that period, compared to 50% in
the first half of 2008. We believe that Nextel Brazils
quality improvements and network expansion are contributing
factors to its low customer turnover rate and increased
subscriber growth.
The average exchange rates of the Brazilian real for the six and
three months ended June 30, 2009 depreciated relative to
the U.S. dollar by 29% and 25% compared to the average
rates that prevailed during the six and three months ended
June 30, 2008. As a result, the components of Nextel
Brazils results of operations for the six and three months
ended June 30, 2009, after translation into
U.S. dollars, reflect significantly lower
U.S. dollar-denominated revenues and expenses with respect
to revenues that are earned and expenses that are paid in
Brazilian reais than would have occurred if the Brazilian real
had not depreciated relative to the U.S. dollar. The
majority of this currency depreciation occurred during the
fourth quarter of 2008. The average exchange rate of the
Brazilian real during the second quarter of 2009 appreciated
compared to the average exchange rates that prevailed during the
fourth quarter of 2008 and the first quarter of 2009.
37
The $40.9 million, or 7%, and $29.9 million, or 9%,
increases in service and other revenues from the six and three
months ended June 30, 2008 to the same periods in 2009 are
primarily a result of the following:
|
|
|
|
|
39% and 38% 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 new
markets in connection with its balanced growth and expansion
objectives; partially offset by
|
|
|
|
a decline in average revenue per subscriber primarily due to the
depreciation in the Brazilian real.
|
The $14.1 million, or 40%, and $10.5 million, or 53%,
increases in digital handset and accessory revenues from the six
and three months ended June 30, 2008 to the same periods in
2009 are primarily due to increases in handset upgrades for
existing subscribers, as well as increases in handset sales to
new subscribers.
The $21.3 million, or 10%, and $16.6 million, or 14%,
increases in cost of service from the six and three months ended
June 30, 2008 to the same periods in 2009 are primarily due
to the following:
|
|
|
|
|
$10.9 million, or 9%, and $8.0 million, or 12%,
increases in interconnect costs resulting from 50% increases in
interconnect minutes of use over both periods;
|
|
|
|
$6.5 million, or 26%, and $4.7 million, or 32%,
increases in service and repair costs largely due to increases
in the cost of repair per subscriber related to a change in the
mix of handsets toward more mid and high tier handsets as well
as increased percentage of Nextel Brazils subscriber base
participating in its handset maintenance program; and
|
|
|
|
$3.4 million, or 5%, and $3.8 million, or 12%,
increases in direct switch and transmitter and receiver site
costs resulting from a 32% increase in the number of sites in
service from June 30, 2008 to June 30, 2009.
|
All of these increases were partially offset by the depreciation
of the Brazilian real relative to the U.S. dollar.
The $15.0 million, or 26%, and $13.7 million, or 45%,
increases in cost of digital handset and accessory sales from
the six and three months ended June 30, 2008 to the same
periods in 2009 are primarily due to increases in handset
upgrades and cost per handset upgrade for existing customers and
increases in handset sales to new subscribers, partially offset
by decreases in cost per handset sold to new subscribers as a
larger proportion of these sales were sales of SIM cards.
|
|
3.
|
General and
administrative expenses
|
The $7.1 million, or 6%, and $7.4 million, or 12%,
increases in general and administrative expenses from the six
and three months ended June 30, 2008 to the same periods in
2009 are primarily a result of the following:
|
|
|
|
|
$4.2 million, or 11%, and $3.3 million, or 16%,
increases in customer care expenses resulting from increases in
customer care personnel necessary to support a larger customer
base, as well as increases in the number of retail
stores; and
|
|
|
|
$2.3 million, or 22%, and $1.5 million, or 26%,
increases in bad debt expense as a result of the increases in
Nextel Brazils operating revenues. Bad debt expense as a
percentage of consolidated operating revenues increased from
1.6% for the six and three months ended June 30, 2008 to
1.8% for the same periods in 2009.
|
All of these increases were partially offset by the depreciation
of the Brazilian real relative to the U.S. dollar.
|
|
4.
|
Depreciation
and amortization
|
The $5.6 million, or 8%, and $4.2 million, or 11%,
increases in depreciation and amortization from the six and
three months ended June 30, 2008 to the same periods in
2009 are primarily due to an increase in Nextel Brazils
property, plant and equipment in service resulting from the
continued build-out of Nextel Brazils network, partially
offset by the depreciation of the Brazilian real against the
U.S. dollar.
38
|
|
5.
|
Foreign
currency transaction gains, net
|
The $44.2 million and $40.1 million increases in net
foreign currency transaction gains from the six and three months
ended June 30, 2008 to the same periods in 2009 are the
result of the impact of the appreciation of the value of the
Brazilian real against the U.S. dollar during 2009 compared
to the levels during 2008 on Nextel Brazils
U.S. dollar-denominated liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
243,582
|
|
|
|
93
|
%
|
|
$
|
241,121
|
|
|
|
91
|
%
|
|
$
|
2,461
|
|
|
|
1
|
%
|
Digital handset and accessory revenues
|
|
|
17,301
|
|
|
|
7
|
%
|
|
|
23,395
|
|
|
|
9
|
%
|
|
|
(6,094
|
)
|
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260,883
|
|
|
|
100
|
%
|
|
|
264,516
|
|
|
|
100
|
%
|
|
|
(3,633
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(87,795
|
)
|
|
|
(34
|
)%
|
|
|
(85,287
|
)
|
|
|
(32
|
)%
|
|
|
(2,508
|
)
|
|
|
3
|
%
|
Cost of digital handsets and accessories
|
|
|
(29,021
|
)
|
|
|
(11
|
)%
|
|
|
(35,429
|
)
|
|
|
(13
|
)%
|
|
|
6,408
|
|
|
|
(18
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(116,816
|
)
|
|
|
(45
|
)%
|
|
|
(120,716
|
)
|
|
|
(45
|
)%
|
|
|
3,900
|
|
|
|
(3
|
)%
|
Selling and marketing expenses
|
|
|
(20,181
|
)
|
|
|
(8
|
)%
|
|
|
(21,152
|
)
|
|
|
(8
|
)%
|
|
|
971
|
|
|
|
(5
|
)%
|
General and administrative expenses
|
|
|
(40,565
|
)
|
|
|
(15
|
)%
|
|
|
(40,831
|
)
|
|
|
(16
|
)%
|
|
|
266
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
83,321
|
|
|
|
32
|
%
|
|
|
81,817
|
|
|
|
31
|
%
|
|
|
1,504
|
|
|
|
2
|
%
|
Depreciation and amortization
|
|
|
(19,480
|
)
|
|
|
(8
|
)%
|
|
|
(18,507
|
)
|
|
|
(7
|
)%
|
|
|
(973
|
)
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
63,841
|
|
|
|
24
|
%
|
|
|
63,310
|
|
|
|
24
|
%
|
|
|
531
|
|
|
|
1
|
%
|
Interest expense, net
|
|
|
5,890
|
|
|
|
2
|
%
|
|
|
(1,387
|
)
|
|
|
(1
|
)%
|
|
|
7,277
|
|
|
|
NM
|
|
Interest income
|
|
|
368
|
|
|
|
|
|
|
|
1,867
|
|
|
|
1
|
%
|
|
|
(1,499
|
)
|
|
|
(80
|
)%
|
Foreign currency transaction gains (losses), net
|
|
|
5,340
|
|
|
|
2
|
%
|
|
|
(2,673
|
)
|
|
|
(1
|
)%
|
|
|
8,013
|
|
|
|
(300
|
)%
|
Other income, net
|
|
|
3,747
|
|
|
|
2
|
%
|
|
|
44
|
|
|
|
|
|
|
|
3,703
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
79,186
|
|
|
|
30
|
%
|
|
$
|
61,161
|
|
|
|
23
|
%
|
|
$
|
18,025
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
119,411
|
|
|
|
93
|
%
|
|
$
|
126,154
|
|
|
|
91
|
%
|
|
$
|
(6,743
|
)
|
|
|
(5
|
)%
|
Digital handset and accessory revenues
|
|
|
9,306
|
|
|
|
7
|
%
|
|
|
12,330
|
|
|
|
9
|
%
|
|
|
(3,024
|
)
|
|
|
(25
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,717
|
|
|
|
100
|
%
|
|
|
138,484
|
|
|
|
100
|
%
|
|
|
(9,767
|
)
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(43,022
|
)
|
|
|
(34
|
)%
|
|
|
(43,931
|
)
|
|
|
(32
|
)%
|
|
|
909
|
|
|
|
(2
|
)%
|
Cost of digital handsets and accessories
|
|
|
(15,552
|
)
|
|
|
(12
|
)%
|
|
|
(18,517
|
)
|
|
|
(13
|
)%
|
|
|
2,965
|
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,574
|
)
|
|
|
(46
|
)%
|
|
|
(62,448
|
)
|
|
|
(45
|
)%
|
|
|
3,874
|
|
|
|
(6
|
)%
|
Selling and marketing expenses
|
|
|
(10,079
|
)
|
|
|
(8
|
)%
|
|
|
(11,489
|
)
|
|
|
(8
|
)%
|
|
|
1,410
|
|
|
|
(12
|
)%
|
General and administrative expenses
|
|
|
(18,616
|
)
|
|
|
(14
|
)%
|
|
|
(22,108
|
)
|
|
|
(16
|
)%
|
|
|
3,492
|
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
41,448
|
|
|
|
32
|
%
|
|
|
42,439
|
|
|
|
31
|
%
|
|
|
(991
|
)
|
|
|
(2
|
)%
|
Depreciation and amortization
|
|
|
(9,629
|
)
|
|
|
(7
|
)%
|
|
|
(9,768
|
)
|
|
|
(7
|
)%
|
|
|
139
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
31,819
|
|
|
|
25
|
%
|
|
|
32,671
|
|
|
|
24
|
%
|
|
|
(852
|
)
|
|
|
(3
|
)%
|
Interest expense, net
|
|
|
4,828
|
|
|
|
4
|
%
|
|
|
(729
|
)
|
|
|
(1
|
)%
|
|
|
5,557
|
|
|
|
NM
|
|
Interest income
|
|
|
160
|
|
|
|
|
|
|
|
600
|
|
|
|
|
|
|
|
(440
|
)
|
|
|
(73
|
)%
|
Foreign currency transaction gains (losses), net
|
|
|
259
|
|
|
|
|
|
|
|
(3,103
|
)
|
|
|
(2
|
)%
|
|
|
3,362
|
|
|
|
(108
|
)%
|
Other income, net
|
|
|
3,745
|
|
|
|
3
|
%
|
|
|
16
|
|
|
|
|
|
|
|
3,729
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
40,811
|
|
|
|
32
|
%
|
|
$
|
29,455
|
|
|
|
21
|
%
|
|
$
|
11,356
|
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
39
Over the course of the last two years, the inflation rate in
Argentina has risen significantly, and we expect that it may
continue to remain elevated over the next several years. The
higher inflation rate has affected costs that are incurred in
Argentine pesos, including personnel costs in particular. In
addition, in recent quarters, Nextel Argentinas
customer turnover rate has increased because of the adverse
changes in the economic environment in Argentina. If the weaker
economic conditions in Argentina continue or worsen, Nextel
Argentinas results of operations may be adversely affected.
The average values of the Argentine peso for the six and three
months ended June 30, 2009 depreciated relative to the
U.S. dollar by 16% and 20% from the six and three months
ended June 30, 2008. As a result, the components of Nextel
Argentinas results of operations for the six and three
months ended June 30, 2009 after translation into
U.S. dollars reflect significantly lower
U.S. dollar-denominated revenues and expenses than would
have occurred if the Argentine peso had not depreciated relative
to the U.S. dollar.
The $6.7 million, or 5%, decrease in service and other
revenues from the three months ended June 30, 2008 to the
same period in 2009 is primarily the result of a decline in
average revenue per subscriber mainly due to the depreciation in
the value of the Argentine peso relative to the
U.S. dollar, partially offset by a 12% increase in the
average number of digital handsets in service, resulting mostly
from growth in Nextel Argentinas existing markets.
The $6.1 million, or 26%, and $3.0 million, or 25%,
decreases in digital handset and accessory revenues from the six
and three months ended June 30, 2008 to the same periods in
2009 are primarily due to decreases in handset upgrades to
existing subscribers, slight decreases in handset sales to new
subscribers and the depreciation of the Argentine peso relative
to the U.S. dollar.
The $6.4 million, or 18%, and $3.0 million, or 16%,
decreases in cost of digital handset and accessory sales from
the six and three months ended June 30, 2008 to the same
periods in 2009 are primarily due to decreases in handset
upgrades to existing subscribers, slight decreases in handset
sales to new subscribers and the depreciation of the Argentine
peso relative to the U.S. dollar.
|
|
3.
|
General and
administrative expenses
|
The $3.5 million, or 16%, decrease in general and
administrative expenses from the three months ended
June 30, 2008 to the same periods in 2009 is primarily due
to the $4.5 million, or 38%, decrease in general corporate
costs primarily as a result of the city of Buenos Aires turnover
tax refund agreement, partially offset by a $0.9 million,
or 75%, increase in bad debt expense primarily due to an
increase in customer turnover resulting from a decrease in
customer collections.
The $7.3 million and $5.6 million decreases in net
interest expense from the six and three months ended
June 30, 2008 to the same periods in 2009 are primarily due
to the refund of interest paid on turnover taxes by the city of
Buenos Aires.
|
|
5.
|
Foreign
currency transaction gains (losses), net
|
Foreign currency transaction gains of $5.3 million for the
six months ended June 30, 2009 are mostly due to the impact
of the depreciation of the value of the Argentine peso against
the U.S. dollar on the Nextel Argentinas
U.S. dollar-denominated net assets.
Other income, net, of $3.7 million for the six and three
months ended June 30, 2009 primarily represents a gain we
recorded in connection with the turnover tax refund agreement
with the city of Buenos Aires.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
118,340
|
|
|
|
90
|
%
|
|
$
|
105,639
|
|
|
|
92
|
%
|
|
$
|
12,701
|
|
|
|
12
|
%
|
Digital handset and accessory revenues
|
|
|
13,072
|
|
|
|
10
|
%
|
|
|
8,855
|
|
|
|
8
|
%
|
|
|
4,217
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131,412
|
|
|
|
100
|
%
|
|
|
114,494
|
|
|
|
100
|
%
|
|
|
16,918
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(42,351
|
)
|
|
|
(32
|
)%
|
|
|
(37,879
|
)
|
|
|
(33
|
)%
|
|
|
(4,472
|
)
|
|
|
12
|
%
|
Cost of digital handsets and accessories
|
|
|
(27,337
|
)
|
|
|
(21
|
)%
|
|
|
(20,616
|
)
|
|
|
(18
|
)%
|
|
|
(6,721
|
)
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69,688
|
)
|
|
|
(53
|
)%
|
|
|
(58,495
|
)
|
|
|
(51
|
)%
|
|
|
(11,193
|
)
|
|
|
19
|
%
|
Selling and marketing expenses
|
|
|
(17,827
|
)
|
|
|
(14
|
)%
|
|
|
(13,829
|
)
|
|
|
(12
|
)%
|
|
|
(3,998
|
)
|
|
|
29
|
%
|
General and administrative expenses
|
|
|
(28,633
|
)
|
|
|
(22
|
)%
|
|
|
(19,540
|
)
|
|
|
(17
|
)%
|
|
|
(9,093
|
)
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
15,264
|
|
|
|
12
|
%
|
|
|
22,630
|
|
|
|
20
|
%
|
|
|
(7,366
|
)
|
|
|
(33
|
)%
|
Depreciation and amortization
|
|
|
(14,853
|
)
|
|
|
(11
|
)%
|
|
|
(9,955
|
)
|
|
|
(9
|
)%
|
|
|
(4,898
|
)
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
411
|
|
|
|
|
|
|
|
12,675
|
|
|
|
11
|
%
|
|
|
(12,264
|
)
|
|
|
(97
|
)%
|
Interest expense, net
|
|
|
(287
|
)
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
(251
|
)
|
|
|
NM
|
|
Interest income
|
|
|
202
|
|
|
|
|
|
|
|
618
|
|
|
|
|
|
|
|
(416
|
)
|
|
|
(67
|
)%
|
Foreign currency transaction losses, net
|
|
|
(281
|
)
|
|
|
|
|
|
|
(162
|
)
|
|
|
|
|
|
|
(119
|
)
|
|
|
73
|
%
|
Other income, net
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
46
|
|
|
|
|
|
|
$
|
13,095
|
|
|
|
11
|
%
|
|
$
|
(13,049
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
59,408
|
|
|
|
90
|
%
|
|
$
|
53,943
|
|
|
|
92
|
%
|
|
$
|
5,465
|
|
|
|
10
|
%
|
Digital handset and accessory revenues
|
|
|
6,479
|
|
|
|
10
|
%
|
|
|
4,693
|
|
|
|
8
|
%
|
|
|
1,786
|
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,887
|
|
|
|
100
|
%
|
|
|
58,636
|
|
|
|
100
|
%
|
|
|
7,251
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(21,251
|
)
|
|
|
(32
|
)%
|
|
|
(19,411
|
)
|
|
|
(33
|
)%
|
|
|
(1,840
|
)
|
|
|
9
|
%
|
Cost of digital handsets and accessories
|
|
|
(13,888
|
)
|
|
|
(21
|
)%
|
|
|
(10,842
|
)
|
|
|
(19
|
)%
|
|
|
(3,046
|
)
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,139
|
)
|
|
|
(53
|
)%
|
|
|
(30,253
|
)
|
|
|
(52
|
)%
|
|
|
(4,886
|
)
|
|
|
16
|
%
|
Selling and marketing expenses
|
|
|
(9,691
|
)
|
|
|
(15
|
)%
|
|
|
(7,561
|
)
|
|
|
(13
|
)%
|
|
|
(2,130
|
)
|
|
|
28
|
%
|
General and administrative expenses
|
|
|
(15,160
|
)
|
|
|
(23
|
)%
|
|
|
(10,253
|
)
|
|
|
(17
|
)%
|
|
|
(4,907
|
)
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
5,897
|
|
|
|
9
|
%
|
|
|
10,569
|
|
|
|
18
|
%
|
|
|
(4,672
|
)
|
|
|
(44
|
)%
|
Depreciation and amortization
|
|
|
(7,581
|
)
|
|
|
(12
|
)%
|
|
|
(5,000
|
)
|
|
|
(8
|
)%
|
|
|
(2,581
|
)
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(1,684
|
)
|
|
|
(3
|
)%
|
|
|
5,569
|
|
|
|
10
|
%
|
|
|
(7,253
|
)
|
|
|
(130
|
)%
|
Interest expense, net
|
|
|
(223
|
)
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
(204
|
)
|
|
|
NM
|
|
Interest income
|
|
|
162
|
|
|
|
|
|
|
|
327
|
|
|
|
|
|
|
|
(165
|
)
|
|
|
(50
|
)%
|
Foreign currency transaction (losses) gains, net
|
|
|
(172
|
)
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
(201
|
)
|
|
|
NM
|
|
Other income (expense), net
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
2
|
|
|
|
(200
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax
|
|
$
|
(1,916
|
)
|
|
|
(3
|
)%
|
|
$
|
5,905
|
|
|
|
10
|
%
|
|
$
|
(7,821
|
)
|
|
|
(132
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
41
We are developing and deploying a third generation network in
Peru in 2009 using 1.9 GHz spectrum we acquired in 2007. We
believe that these plans will enable us to significantly
increase the size of our opportunity in Peru by allowing us to
offer new and differentiated services to a larger base of
potential customers.
Because the U.S. dollar is Nextel Perus functional
currency, results of operations are not significantly impacted
by changes in the U.S. dollar to Peruvian sol exchange rate.
The $12.7 million, or 12%, and $5.5 million, or 10%,
increases in service and other revenues from the six and three
months ended June 30, 2008 to the same periods in 2009 are
primarily due to 35% and 33% increases in the average number of
digital handsets in service, partially offset by decreases in
average revenue per subscriber mainly resulting from an increase
in sales of prepaid rate plans, which have lower average monthly
revenues per subscriber.
The $4.2 million, or 48%, and $1.8 million, or 38%,
increases in digital handset and accessory revenues from the six
and three months ended June 30, 2008 to the same periods in
2009 are primarily due to increases in handset upgrades to
existing subscribers, as well as increases in handset sales to
new subscribers.
The $4.5 million, or 12%, and $1.8 million, or 9%,
increases in cost of service from the six and three months ended
June 30, 2008 to the same periods in 2009 are largely the
result of increases in service and repair costs related to more
service and repair personnel, a change in the mix of handsets
repaired toward higher cost handsets and increases in direct
switch and transmitter and receiver site costs due to a 23%
increase in the number of sites in service from June 30,
2008 to June 30, 2009. These increases were partially
offset by decreases in interconnect costs due to lower rates
charged for interconnect minutes of use.
The $6.7 million, or 33%, and $3.0 million, or 28%,
increases in cost of digital handset and accessory sales from
the six and three months ended June 30, 2008 to the same
periods in 2009 are primarily due to increases in handset
upgrades for existing subscribers, as well as increases in
handset sales to new customers.
|
|
3.
|
Selling and
marketing expenses
|
The $4.0 million, or 29%, and $2.1 million, or 28%,
increases in selling and marketing expenses from the six and
three months ended June 30, 2008 to the same periods in
2009 are largely the result of increases in direct commissions
and payroll expenses principally due to increases in sales and
marketing personnel and higher advertising costs.
|
|
4.
|
General and
administrative expenses
|
The $9.1 million, or 47%, and $4.9 million, or 48%,
increases in general and administrative expenses from the six
and three months ended June 30, 2008 to the same periods in
2009 are primarily due to $4.4 million, or 133%, and
$2.7 million, or 161%, increases in expenses resulting from
costs related to our new technology initiative.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
and other
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
5,968
|
|
|
|
100
|
%
|
|
$
|
3,981
|
|
|
|
99
|
%
|
|
$
|
1,987
|
|
|
|
50
|
%
|
Digital handset and accessory revenues
|
|
|
28
|
|
|
|
|
|
|
|
23
|
|
|
|
1
|
|
|
|
5
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,996
|
|
|
|
100
|
%
|
|
|
4,004
|
|
|
|
100
|
%
|
|
|
1,992
|
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(3,624
|
)
|
|
|
(60
|
)%
|
|
|
(2,859
|
)
|
|
|
(71
|
)%
|
|
|
(765
|
)
|
|
|
27
|
%
|
Cost of digital handsets and accessories
|
|
|
(1,658
|
)
|
|
|
(28
|
)%
|
|
|
(1,026
|
)
|
|
|
(26
|
)%
|
|
|
(632
|
)
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,282
|
)
|
|
|
(88
|
)%
|
|
|
(3,885
|
)
|
|
|
(97
|
)%
|
|
|
(1,397
|
)
|
|
|
36
|
%
|
Selling and marketing expenses
|
|
|
(7,898
|
)
|
|
|
(132
|
)%
|
|
|
(6,607
|
)
|
|
|
(165
|
)%
|
|
|
(1,291
|
)
|
|
|
20
|
%
|
General and administrative expenses
|
|
|
(89,754
|
)
|
|
|
NM
|
|
|
|
(73,863
|
)
|
|
|
NM
|
|
|
|
(15,891
|
)
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(96,938
|
)
|
|
|
NM
|
|
|
|
(80,351
|
)
|
|
|
NM
|
|
|
|
(16,587
|
)
|
|
|
21
|
%
|
Management fee
|
|
|
15,900
|
|
|
|
265
|
%
|
|
|
16,800
|
|
|
|
NM
|
|
|
|
(900
|
)
|
|
|
(5
|
)%
|
Depreciation and amortization
|
|
|
(6,759
|
)
|
|
|
(113
|
)%
|
|
|
(5,792
|
)
|
|
|
(145
|
)%
|
|
|
(967
|
)
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(87,797
|
)
|
|
|
NM
|
|
|
|
(69,343
|
)
|
|
|
NM
|
|
|
|
(18,454
|
)
|
|
|
27
|
%
|
Interest expense, net
|
|
|
(49,101
|
)
|
|
|
NM
|
|
|
|
(47,718
|
)
|
|
|
NM
|
|
|
|
(1,383
|
)
|
|
|
3
|
%
|
Interest income
|
|
|
2,614
|
|
|
|
44
|
%
|
|
|
13,120
|
|
|
|
NM
|
|
|
|
(10,506
|
)
|
|
|
(80
|
)%
|
Foreign currency transaction gains, net
|
|
|
2,116
|
|
|
|
35
|
%
|
|
|
1,111
|
|
|
|
28
|
%
|
|
|
1,005
|
|
|
|
90
|
%
|
Other expense, net
|
|
|
(3,814
|
)
|
|
|
(64
|
)%
|
|
|
(3,508
|
)
|
|
|
(88
|
)%
|
|
|
(306
|
)
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(135,982
|
)
|
|
|
NM
|
|
|
$
|
(106,338
|
)
|
|
|
NM
|
|
|
$
|
(29,644
|
)
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,193
|
|
|
|
99
|
%
|
|
$
|
2,199
|
|
|
|
100
|
%
|
|
$
|
994
|
|
|
|
45
|
%
|
Digital handset and accessory revenues
|
|
|
22
|
|
|
|
1
|
%
|
|
|
9
|
|
|
|
|
|
|
|
13
|
|
|
|
144
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,215
|
|
|
|
100
|
%
|
|
|
2,208
|
|
|
|
100
|
%
|
|
|
1,007
|
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(2,015
|
)
|
|
|
(63
|
)%
|
|
|
(1,654
|
)
|
|
|
(75
|
)%
|
|
|
(361
|
)
|
|
|
22
|
%
|
Cost of digital handsets and accessories
|
|
|
(978
|
)
|
|
|
(30
|
)%
|
|
|
(570
|
)
|
|
|
(26
|
)%
|
|
|
(408
|
)
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,993
|
)
|
|
|
(93
|
)%
|
|
|
(2,224
|
)
|
|
|
(101
|
)%
|
|
|
(769
|
)
|
|
|
35
|
%
|
Selling and marketing expenses
|
|
|
(4,346
|
)
|
|
|
(135
|
)%
|
|
|
(3,711
|
)
|
|
|
(168
|
)%
|
|
|
(635
|
)
|
|
|
17
|
%
|
General and administrative expenses
|
|
|
(44,530
|
)
|
|
|
NM
|
|
|
|
(37,993
|
)
|
|
|
NM
|
|
|
|
(6,537
|
)
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(48,654
|
)
|
|
|
NM
|
|
|
|
(41,720
|
)
|
|
|
NM
|
|
|
|
(6,934
|
)
|
|
|
17
|
%
|
Management fee
|
|
|
7,950
|
|
|
|
247
|
%
|
|
|
8,402
|
|
|
|
NM
|
|
|
|
(452
|
)
|
|
|
(5
|
)%
|
Depreciation and amortization
|
|
|
(3,383
|
)
|
|
|
(105
|
)%
|
|
|
(3,184
|
)
|
|
|
(144
|
)%
|
|
|
(199
|
)
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(44,087
|
)
|
|
|
NM
|
|
|
|
(36,502
|
)
|
|
|
NM
|
|
|
|
(7,585
|
)
|
|
|
21
|
%
|
Interest expense, net
|
|
|
(24,394
|
)
|
|
|
NM
|
|
|
|
(23,798
|
)
|
|
|
NM
|
|
|
|
(596
|
)
|
|
|
3
|
%
|
Interest income
|
|
|
612
|
|
|
|
19
|
%
|
|
|
5,336
|
|
|
|
242
|
%
|
|
|
(4,724
|
)
|
|
|
(89
|
)%
|
Foreign currency transaction gains, net
|
|
|
7,257
|
|
|
|
226
|
%
|
|
|
858
|
|
|
|
39
|
%
|
|
|
6,399
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(3,555
|
)
|
|
|
(110
|
)%
|
|
|
(226
|
)
|
|
|
(10
|
)%
|
|
|
(3,329
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(64,167
|
)
|
|
|
NM
|
|
|
$
|
(54,332
|
)
|
|
|
NM
|
|
|
$
|
(9.835
|
)
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
43
For the six and three months ended June 30, 2009 and 2008,
corporate and other operating revenues and cost of revenues
primarily represent the results of operations reported by Nextel
Chile. We are currently participating in the spectrum licensing
process in Chile and submitted our proposals to acquire spectrum
in July 2009. This process contemplates the award of spectrum
licenses based on the attractiveness of participants
network deployment proposals with key factors in that evaluation
being the scope of the proposed coverage and speed of the
deployment. Although this process does not require initial
payments for the spectrum unless two proposals are deemed
equivalent under the Chilean regulations, successful
participants are required to meet the network build-out
requirements as outlined in their proposals. If we are
successful in the spectrum award process in Chile, our planned
network expansion over the next several years will require
additional investments in capital expenditures.
|
|
1.
|
General and
administrative expenses
|
The $15.9 million, or 22%, and $6.5 million, or 17%,
increases in general and administrative expenses from the six
and three months ended June 30, 2008 to the same periods in
2009 are primarily due to increases in corporate personnel
expenses and increased consulting costs, both of which are
largely related to the commencement of some of our new
technology and other initiatives.
The $10.5 million, or 80%, and $4.7 million, or 89%,
decreases in interest income from the six and three months ended
June 30, 2008 to the same periods in 2009 are the result of
lower average cash balances and a decrease in short-term
investments.
|
|
3.
|
Foreign
currency transaction gains, net
|
Foreign currency transaction gains for the six and three months
ended June 30, 2009 are primarily due to the impact of the
appreciation of the value of the Mexican peso during the 2009
periods relative to the U.S. dollar on the Mexican
peso-denominated management fee due from Nextel Mexico.
Liquidity
and Capital Resources
We derive our liquidity and capital resources primarily from
cash flows from our operations. As of June 30, 2009, we had
working capital, which is defined as total current assets less
total current liabilities, of $1,262.2 million, a
$111.9 million decrease compared to working capital of
$1,374.1 million as of December 31, 2008, due to a
combination of our use of cash for capital expenditures and a
reduction in the value of our cash held in local currencies as a
result of the decline in the value of those currencies relative
to the U.S. dollar. Our working capital includes
$1,136.8 million in cash and cash equivalents as of
June 30, 2009, of which about 13% was held in currencies
other than U.S. dollars, primarily Mexican pesos, and
$37.5 million of short-term investments. A substantial
portion of our cash and cash equivalents held in
U.S. dollars is maintained in U.S. treasury security
funds, and our cash and cash equivalents held in local
currencies is typically maintained in highly liquid overnight
securities and certificates of deposit.
We recognized net income of $204.9 million for the six
months ended June 30, 2009 compared to $255.6 million
for the six months ended June 30, 2008. During the six
months ended June 30, 2009 and 2008, our operating revenues
more than offset our operating expenses, excluding depreciation
and amortization, and our cash capital expenditures.
Because we report our results of operations in
U.S. dollars, the declines in relative currency valuations
that occurred during the six months ended June 30, 2009
compared to the valuations as of December 31, 2008 resulted
in reductions in some of the reported values of our assets,
including the values of cash and cash equivalents held in local
currencies. The effect of exchange rate changes on consolidated
cash and cash equivalents as of June 30, 2009 was a
$25.7 million loss in the value of those assets. If the
values of the currencies in the countries in which our operating
companies conduct business relative to the U.S. dollar
depreciate further, we would expect the reported value of these
assets held in local currencies to decrease further.
44
We believe our current working capital and anticipated future
cash flows will be adequate to meet our cash needs for ongoing
operations and capital expenditures, but our funding needs could
be affected by a number of factors. Specifically, our liquidity
could be negatively affected by a decrease in operating revenues
resulting from a decline in demand for our products and services
due to the significant downturn in the global economy or from a
decline in the values of the currencies in the countries in
which we conduct our business relative to the U.S. dollar
among other factors. See Future Capital Needs and
Resources Future Outlook.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Cash and cash equivalents, beginning of year
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
|
$
|
(126,914
|
)
|
Net cash provided by operating activities
|
|
|
281,116
|
|
|
|
322,046
|
|
|
|
(40,930
|
)
|
Net cash used in investing activities
|
|
|
(339,971
|
)
|
|
|
(347,930
|
)
|
|
|
7,959
|
|
Net cash used in financing activities
|
|
|
(21,921
|
)
|
|
|
(96,513
|
)
|
|
|
74,592
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(25,711
|
)
|
|
|
32,012
|
|
|
|
(57,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,136,764
|
|
|
$
|
1,279,780
|
|
|
$
|
(143,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $281.1 million of
cash during the six months ended June 30, 2009, a
$40.9 million, or 13%, decrease from the same period in
2008. The decrease in cash generated from operating activities
was primarily due to the effect of depreciating foreign
currencies in the markets where we do business on the value of
cash in U.S. dollars and increased cash used for working
capital.
We used $340.0 million of cash in our investing activities
during the first half of 2009, an $8.0 million decrease
from the first half of 2008, primarily due to an
$80.4 million decrease in cash capital expenditures and a
$20.4 million increase in distributions we received in
connection with our investment in an enhanced cash fund,
partially offset by a $90.5 million increase in short-term
investments purchased in Brazil. Cash capital expenditures
decreased from $424.7 million in the first half of 2008 to
$344.4 million in the first half of 2009. For the six
months ended June 30, 2009, about 62% of our total capital
expenditures were focused in Brazil in connection with the
implementation of our expansion plans. In addition, during the
second quarter of 2009, our total capital expenditures included
$36.3 million related to investments in our new network in
Peru.
We used $21.9 million of cash in our financing activities
during the second quarter of 2009, primarily due to
$24.0 million in repayments under Nextel Mexicos
syndicated loan facility, $18.0 million in repayments under
short-term notes payable in Peru and $5.3 million in
repayments under capital leases, license financing, tower
financing and other transactions, partially offset by
$25.3 million in short-term borrowings in Brazil. We used
$96.5 million of cash in our financing activities during
the second quarter of 2008, primarily due to $242.7 million
in cash we used to purchase our common stock and
$31.9 million in repayments under Nextel Mexicos
syndicated loan facility, partially offset by
$125.0 million in borrowings under Nextel Brazils
syndicated loan facility, $28.6 million in proceeds we
received from stock option exercise and $27.3 million in
proceeds from our towers financing transactions in Mexico and
Brazil.
Future
Capital Needs and Resources
Capital Resources. Our ongoing capital
resources depend on a variety of factors, including our existing
cash and cash equivalents balances, the value of our short-term
investments, cash flows generated by our operating companies and
external financing sources that may be available.
45
Our ability to generate net cash from our operating activities
is dependent upon, among other things:
|
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|
|
the amount of revenue we are able to generate and collect from
our customers;
|
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|
|
the amount of operating expenses required to provide our
services;
|
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|
|
the cost of acquiring and retaining customers, including the
commissions we pay in connection with the acquisition of new
customers and the subsidies we incur to provide handsets to both
our new and existing customers;
|
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|
|
our ability to continue to increase the size of our subscriber
base; and
|
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|
|
fluctuations in foreign currency exchange rates.
|
Capital Needs and Contractual
Obligations. We currently anticipate that our
future capital needs will principally consist of funds required
for:
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|
|
operating expenses relating to our business;
|
|
|
|
capital expenditures to expand and enhance our networks, as
discussed below under Capital Expenditures;
|
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|
operating and capital expenditures related to the deployment of
a next generation network in Peru;
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|
the costs relating to any future spectrum purchases;
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|
|
operating expenses and capital expenditures related to the
deployment of next generation networks in our other markets if
we are successful in acquiring spectrum;
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|
debt service requirements, including tower financing and capital
lease obligations;
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|
cash taxes; and
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|
other general corporate expenditures.
|
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$400.9 million for the six months ended June 30, 2009
and $436.2 million for the six months ended June 30,
2008. In each of these years, a substantial portion of our
capital expenditures was invested in the expansion of the
coverage and capacity of our networks in Mexico and Brazil. In
addition, during the second quarter of 2009, our total capital
expenditures included $36.3 million related to investments
in our new network in Peru. We expect to continue to focus our
capital spending in these markets, particularly in Brazil, as we
significantly expand the geographic coverage of Nextel
Brazils network, including expansion into the northeast
region of the country, and as we expand that networks
capacity to support Nextel Brazils growth.
In addition, we have participated in and plan to participate in
spectrum auctions and similar processes in our markets,
including the pending spectrum licensing process in Chile and
the auctions that are expected to be conducted in Brazil and
Mexico. If we are successful in acquiring spectrum in those
auctions, we plan to deploy next generation networks in those
markets consistent with applicable regulatory requirements and
our business strategy. The purchase of spectrum in these
auctions and deployment of new next generation networks would
result in a significant increase in our capital expenditures in
the applicable markets although the amount and timing of those
additional capital expenditures is dependent on, among other
things, the timing of the auctions and the nature and extent of
any regulatory requirements that may be imposed regarding the
timing and scope of the deployment of the new networks.
We expect to finance our capital spending for our existing and
future network needs using the most effective combination of
cash from operations, cash on hand, cash from the sale or
maturity of our short-term investments and proceeds from
external financing sources that are or may become available. Our
capital spending is expected to be driven by several factors,
including:
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|
the extent to which we expand the coverage of our networks in
new or existing market areas;
|
46
|
|
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|
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;
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|
the amount we spend to deploy the next generation network in
Peru that utilizes the 1.9 GHz spectrum that we acquired in
2007;
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|
the costs we incur in connection with future spectrum
acquisitions and the development and deployment of any future
next generation networks in our other markets; and
|
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|
the costs we incur in connection with
non-network
related information technology projects.
|
Our future capital expenditures may be affected by future
technology improvements and technology choices. For example, we
have experienced voice quality problems related to certain types
of calls made using the 6:1 voice coder technology, an upgrade
to the iDEN technology used in our mobile network, and in some
markets, we have adjusted the network software to reduce the
number of calls completed using the 6:1 voice coder technology
in order to balance our network capacity needs with the need to
maintain voice quality. Because we have not used the 6:1 voice
coder technology to its full capacity, we have invested more
capital in our infrastructure to satisfy our network capacity
needs than would have been necessary if we had been able to
complete a higher percentage of calls using the technology, and
we may make similar investments in the future as we optimize our
network to meet our capacity and voice quality requirements. If
we were to decide to significantly curtail the use of the 6:1
voice coder technology in all of our markets, these investments
could be significant. See Forward Looking Statements.
Future Outlook. We believe that our
current business plans, which contemplate significant expansion
of our iDEN network in Brazil, continued coverage and capacity
expansion of our iDEN networks in Mexico, Argentina and Chile,
and the construction of a new, complementary next generation
network in Peru, do not require us to raise additional external
funding to enable us to operate and grow our business while
servicing our debt obligations and that our current working
capital and anticipated cash flows will be adequate to meet our
cash needs to support our existing business.
Our funding needs could, however, be significantly affected by
our participation in auctions of spectrum rights and other
spectrum licensing processes in our markets including our
participation in the pending spectrum licensing process in Chile
and our plans to participate in the auctions that are expected
to be conducted in Brazil and Mexico and by our plans to deploy
next generation networks in those markets if we are successful
in acquiring those spectrum rights. These plans, which are
consistent with our business strategy of providing
differentiated services to our customers, would require us to
raise significant additional funding. The amounts and timing of
those additional funding requirements would be affected by,
among other things:
|
|
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|
|
the timing of the auctions and other spectrum licensing
processes, whether we are successful in acquiring spectrum in
those auctions or processes, and the amounts paid for the
spectrum rights if we are successful;
|
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|
|
the nature and extent of any regulatory requirements that may be
imposed regarding the timing and scope of the deployment of new
networks; and
|
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|
|
our assessment of market conditions and their impact on both the
business opportunities supported by the new networks and the
availability of funding to support their construction.
|
Although we currently anticipate that most of those additional
funding requirements will not arise until after 2009, we will
continue to assess opportunities to raise additional funding as
market conditions permit during the remainder of 2009 that could
be used, among other purposes, to meet those requirements or to
refinance our existing obligations. The indebtedness that we may
incur in connection with these business expansion activities and
for refinancing may be significant.
In making this assessment of our funding needs under our current
plans and under our plans that contemplate the acquisition of
spectrum and the deployment of next generation networks, we have
considered:
|
|
|
|
|
cash and cash equivalents on hand and short-term-investments
available to fund our operations;
|
|
|
|
expected cash flows from operations;
|
47
|
|
|
|
|
the anticipated level of capital expenditures, including minimum
build-out requirements, relating to the deployment of the next
generation network that utilizes the 1.9 GHz spectrum we
acquired in Peru;
|
|
|
|
our expectation of the values of the currencies in the countries
in which we conduct business relative to the U.S. dollar;
|
|
|
|
our scheduled debt service; and
|
|
|
|
income taxes.
|
In addition to the factors described above, the anticipated cash
needs of our business, as well as the conclusions presented
herein as to the adequacy of the available sources of cash and
timing on our ability to generate net income, could change
significantly:
|
|
|
|
|
if our plans change;
|
|
|
|
if we decide to expand into new markets or expand our geographic
coverage or network capacity in our existing markets beyond our
current plans, as a result of the construction of additional
portions of our networks or the acquisition of competitors or
others;
|
|
|
|
if currency values in our markets depreciate further relative to
the U.S. dollar;
|
|
|
|
if economic conditions in any of our markets change generally;
|
|
|
|
if competitive practices in the mobile wireless
telecommunications industry in certain of our markets change
materially from those currently prevailing or from those now
anticipated; or
|
|
|
|
if other presently unexpected circumstances arise that have a
material effect on the cash flow or profitability of our mobile
wireless business.
|
Any of these events or circumstances could result in significant
funding needs beyond those contemplated by our current plans as
described above, and those funding needs could exceed our
currently available funding sources, which could require us to
raise additional capital to meet those needs. Our ability to
seek additional capital, if necessary, is subject to a variety
of additional factors that we cannot presently predict with
certainty, including:
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|
|
|
the commercial success of our operations;
|
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|
|
the volatility and demand of the capital markets; and
|
|
|
|
the future market prices of our securities.
|
Recent financial market conditions in debt and equity markets in
the United States and global markets have resulted in
substantial decline in the amount of funding available to
corporate borrowers. As a result, available funding is both more
costly and provided on terms that are less favorable to
borrowers than were previously available. If these conditions
continue or worsen, it could be difficult or more costly for us
to raise additional capital in order to meet our cash needs that
result from the factors identified above including those that
may result from our acquisition of spectrum and deployment of
next generation networks, and the related additional costs and
terms of any financing we raise could impose restrictions that
limit our flexibility in responding to business conditions and
our ability to obtain additional financing. If new indebtedness
is added to our current levels of indebtedness, the related
risks that we now face could intensify. For more information,
see Item 1A. Risk Factors 4. Our funding needs and
debt service requirements could make us more dependent on
external financing. If we are unable to obtain financing, our
business may be adversely affected. and 5.
Our current and future debt may limit our flexibility and
increase our risk of default. in our 2008 annual
report on
Form 10-K.
Forward
Looking Statements
Safe Harbor Statement under the Private
Securities Litigation Reform Act of
1995. Certain statements made in this
quarterly report on
Form 10-Q
are not historical or current facts, but deal with potential
future circumstances and developments. They can be identified by
the use of forward-looking words such as believes,
expects, intends, plans,
may, will, would,
could, should or anticipates
or other comparable words, or by discussions of strategy that
involve risks and uncertainties. We caution you that these
forward-looking statements are only predictions, which are
subject to risks and uncertainties, including technical
uncertainties,
48
financial variations and changes in the regulatory environment,
industry growth and trend predictions. We have attempted to
identify, in context, some of the factors that we currently
believe may cause actual future experience and results to differ
from our current expectations regarding the relevant matter or
subject area. The operation and results of our wireless
communications business also may be subject to the effects of
other risks and uncertainties in addition to the other
qualifying factors identified in this Item, including, but not
limited to:
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|
|
|
|
our ability to meet the operating goals established by our
business plan;
|
|
|
|
general economic conditions in the United States or in Latin
America and in the market segments that we are targeting for our
services, including the impact of the current uncertainties in
global economic conditions;
|
|
|
|
the political and social conditions in the countries in which we
operate, including political instability, which may affect the
economies of our markets and the regulatory schemes in these
countries;
|
|
|
|
the impact of foreign exchange volatility in our markets as
compared to the U.S. dollar and related currency
depreciation in countries in which our operating companies
conduct business;
|
|
|
|
our ability to access sufficient debt or equity capital to meet
any future operating and financial needs, including the impact
of the recent disruption in global capital markets that have
made it more difficult or costly to obtain funding on acceptable
terms;
|
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|
|
reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of our mobile services in our markets;
|
|
|
|
the availability of adequate quantities of system infrastructure
and subscriber equipment and components at reasonable pricing to
meet our service deployment and marketing plans and customer
demand;
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|
|
Motorolas ability and willingness to provide handsets and
related equipment and software applications or to develop new
technologies or features for us, including the timely
development and availability of new handsets with expanded
applications and features;
|
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|
|
the risk of deploying new technologies, including the potential
need for additional funding to support that deployment, the risk
that new services supported by the new technology will not
attract enough subscribers to support the related costs of
deploying or operating the new technology, the need to
significantly increase our employee base and the potential
distraction of management;
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|
|
our ability to successfully scale our billing, collection,
customer care and similar back-office operations to keep pace
with customer growth, increased system usage rates and growth or
to successfully deploy new systems that support those functions;
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|
the success of efforts to improve and satisfactorily address any
issues relating to our network performance;
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|
|
|
future legislation or regulatory actions relating to our SMR
services, other wireless communications services or
telecommunications generally;
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|
|
the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our network business;
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|
|
|
the quality and price of similar or comparable wireless
communications services offered or to be offered by our
competitors, including providers of cellular services and
personal communications services;
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|
|
market acceptance of our new service offerings; and
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|
|
other risks and uncertainties described in this quarterly report
on
Form 10-Q
and from time to time in our other reports filed with the
Securities and Exchange Commission, including in our 2008 annual
report on
Form 10-K.
|
49
Effect of
New Accounting Standards
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities An Amendment of FASB Statement
No. 133, or SFAS No. 161, which amends and
expands the disclosure requirements of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 161 is effective for
financial statements issued in fiscal years beginning after
November 15, 2008. The adoption of SFAS No. 161
in the first quarter of 2009 did not impact our condensed
consolidated financial statements as the value of our derivative
instruments is not material.
In April 2009, the FASB issued Staff Position
No. 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments, or
FSP 107-1
and APB
28-1.
FSP 107-1
and APB 28-1
require quarterly disclosures of the fair value and carrying
value of all financial instruments aggregated by major category
and disclosures concerning the methods and assumptions used to
estimate the instruments fair value.
FSP 107-1
and APB 28-1
is effective for interim reporting periods ending after
June 15, 2009. The adoption of
FSP 107-1
and APB 28-1
in the second quarter of 2009 did not have a material impact on
our condensed consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events, or SFAS No. 165.
SFAS No. 165 establishes the accounting for and
disclosure of events and transactions which occur after the
balance sheet date but before financial statements are issued or
available to be issued. This standard requires disclosure of the
date through which such subsequent events have been evaluated.
SFAS No. 165 became effective for interim or annual
reporting periods ending after June 15, 2009. Our adoption
of SFAS No. 165 during the second quarter of 2009 did
not have a material impact on our condensed consolidated
financial statements.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R), or
SFAS No. 167. SFAS No. 167 changes the
consolidation guidance under FASB Interpretation No. 46(R),
or FIN 46, to require an ongoing qualitative assessment to
determine the primary beneficiary of a variable interest entity,
or VIE. SFAS No. 167 also amends the circumstances
that would require a reassessment of whether an entity in which
we had a variable interest qualifies as a VIE and would be
subject to the consolidation guidance in this standard.
SFAS No. 167 will be effective for fiscal years
beginning after November 15, 2009. We are currently
evaluating the potential impact, if any, that the adoption of
this standard will have on our condensed consolidated financial
statements.
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Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Our revenues are primarily denominated in foreign currencies,
while a significant portion of our operations are financed in
U.S. dollars through our convertible notes, a portion of
our syndicated loan facility in Mexico and our syndicated loan
facility in Brazil. As a result, fluctuations in exchange rates
relative to the U.S. dollar expose us to foreign currency
exchange risks. These risks include the impact of translating
our local currency reported earnings into U.S. dollars when
the U.S. dollar strengthens against the local currencies of
our foreign operations. In addition, Nextel Mexico, Nextel
Brazil, Nextel Argentina and Nextel Chile purchase some capital
assets and the majority of handsets in U.S. dollars, but
generate revenue from their operations in local currency.
We occasionally enter into derivative transactions for hedging
or risk management purposes. We have not and will not enter into
any derivative transactions for speculative or profit generating
purposes. During 2009, Nextel Mexico entered into a hedge
agreement to manage foreign currency risk on certain forecasted
transactions. The value of this instrument is not material.
Interest rate changes expose our fixed rate long-term borrowings
to changes in fair value and expose our variable rate long-term
borrowings to changes in future cash flows. As of June 30,
2009, $1,897.0 million, or 80%, of our total consolidated
debt was fixed rate debt, and the remaining $466.9 million,
or 20%, of our total consolidated debt was variable rate debt.
Nextel Mexico has entered into interest rate swap agreements to
hedge its exposure to interest rate risk. The values of these
instruments are not material.
50
The table below presents principal amounts, related interest
rates by year of maturity and aggregate amounts as of
June 30, 2009 for our fixed rate debt obligations,
including our convertible notes, our syndicated loan facilities
in Mexico and Brazil, our tower financing obligations and our
interest rate swap, as well as the notional amounts of our
purchased call options and written put options, all of which
have been determined at their fair values. In addition, the
$350.0 million repayment of the principal balance of our
2.75% convertible notes due 2025 is included in the table below
in the column labeled thereafter. However, in
accordance with the terms of these notes, if the notes are not
converted, the noteholders have the right to require us to
repurchase the notes in August 2010 at a repurchase price equal
to 100% of their principal amount plus accrued and unpaid
interest.
The changes in the fair values of our consolidated debt compared
to their fair values as of December 31, 2008 reflect
changes in applicable market conditions during the second
quarter of 2009. All of the information in the table is
presented in U.S. dollar equivalents, which is our
reporting currency. The actual cash flows associated with our
consolidated long-term debt are denominated in U.S. dollars
(US$), Mexican pesos (MP) and Brazilian reais (BR).
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
1 Year
|
|
|
2 Years
|
|
|
3 Years
|
|
|
4 Years
|
|
|
5 Years
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate (US$)
|
|
$
|
79,089
|
|
|
$
|
1,192
|
|
|
$
|
1,201,192
|
|
|
$
|
1,191
|
|
|
$
|
1,191
|
|
|
$
|
350,019
|
|
|
$
|
1,633,874
|
|
|
$
|
1,339,454
|
|
|
$
|
1,579,600
|
|
|
$
|
1,066,131
|
|
Average Interest Rate
|
|
|
8.4
|
%
|
|
|
7.3
|
%
|
|
|
3.1
|
%
|
|
|
7.3
|
%
|
|
|
7.3
|
%
|
|
|
2.8
|
%
|
|
|
3.3
|
%
|
|
|
|
|
|
|
3.2
|
%
|
|
|
|
|
Fixed Rate (MP)
|
|
$
|
20,098
|
|
|
$
|
5,952
|
|
|
$
|
7,010
|
|
|
$
|
8,267
|
|
|
$
|
9,761
|
|
|
$
|
93,916
|
|
|
$
|
145,004
|
|
|
$
|
83,709
|
|
|
$
|
158,104
|
|
|
$
|
95,870
|
|
Average Interest Rate
|
|
|
12.4
|
%
|
|
|
15.5
|
%
|
|
|
15.5
|
%
|
|
|
15.5
|
%
|
|
|
15.5
|
%
|
|
|
15.4
|
%
|
|
|
15.1
|
%
|
|
|
|
|
|
|
14.7
|
%
|
|
|
|
|
Fixed Rate (BR)
|
|
$
|
7,864
|
|
|
$
|
25,714
|
|
|
$
|
5,161
|
|
|
$
|
6,219
|
|
|
$
|
6,192
|
|
|
$
|
66,977
|
|
|
$
|
118,127
|
|
|
$
|
63,177
|
|
|
$
|
77,924
|
|
|
$
|
38,414
|
|
Average Interest Rate
|
|
|
16.3
|
%
|
|
|
14.6
|
%
|
|
|
20.8
|
%
|
|
|
21.4
|
%
|
|
|
24.4
|
%
|
|
|
23.9
|
%
|
|
|
21.1
|
%
|
|
|
|
|
|
|
23.2
|
%
|
|
|
|
|
Variable Rate (US$)
|
|
$
|
81,039
|
|
|
$
|
237,639
|
|
|
$
|
81,039
|
|
|
$
|
44,610
|
|
|
$
|
8,182
|
|
|
$
|
4,091
|
|
|
$
|
456,600
|
|
|
$
|
436,853
|
|
|
$
|
456,600
|
|
|
$
|
408,776
|
|
Average Interest Rate
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
2.9
|
%
|
|
|
|
|
Variable Rate (MP)
|
|
$
|
10,288
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,288
|
|
|
$
|
9,795
|
|
|
$
|
20,066
|
|
|
$
|
19,372
|
|
Average Interest Rate
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
9.0
|
%
|
|
|
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
|
|
$
|
6,651
|
|
|
$
|
156,600
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
163,251
|
|
|
$
|
689
|
|
|
$
|
13,301
|
|
|
$
|
(124
|
)
|
Average Pay Rate
|
|
|
10.8
|
%
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
10.8
|
%
|
|
|
|
|
Average Receive Rate
|
|
|
7.0
|
%
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
9.0
|
%
|
|
|
|
|
Foreign Currency Exchange Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
$
|
166,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
166,000
|
|
|
$
|
1,130
|
|
|
$
|
|
|
|
$
|
|
|
Average Strike Price
|
|
$
|
0.07 0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.07 0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2009, an evaluation of the effectiveness of
the design and operation of our disclosure controls and
procedures was carried out under the supervision and with the
participation of our management teams in the United States and
in our operating companies, including our chief executive
officer and chief financial officer. Based on and as of the date
of such evaluation, our chief executive officer and chief
financial officer concluded that the design and operation of our
disclosure controls and procedures were effective.
Changes
in Internal Control over Financial Reporting
There have been no changes in the Companys internal
control over financial reporting during the most recently
completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
51
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings.
|
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
For information on our various loss contingencies, see
Note 6 to our condensed consolidated financial statements
above.
There have been no material changes in our risk factors from
those disclosed in our 2008 annual report on
Form 10-K.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
(a) Our Annual Meeting of Stockholders was held on Tuesday,
May 12, 2009.
(c) The common stockholders voted for the election of three
directors to serve for terms of three years each, expiring on
the date of the annual meeting in 2012 or until their successors
are elected. The results of the voting in these elections are
set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes
|
|
|
Broker
|
|
Nominee
|
|
Votes For
|
|
|
Withheld
|
|
|
Non Votes
|
|
|
George A. Cope
|
|
|
96,161,706
|
|
|
|
55,633,251
|
|
|
|
N/A
|
|
Raymond P. Dolan
|
|
|
149,681,220
|
|
|
|
2,113,737
|
|
|
|
N/A
|
|
Carolyn Katz
|
|
|
141,939,768
|
|
|
|
9,855,189
|
|
|
|
N/A
|
|
In addition, the stockholders voted to ratify the appointment of
PricewaterhouseCoopers LLP as our independent registered public
accounting firm for fiscal year 2009. The results of the voting
are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes
|
|
|
Votes
|
|
|
Broker
|
|
Nominee
|
|
Votes For
|
|
|
Against
|
|
|
Withheld
|
|
|
Non Votes
|
|
|
Ratification of Independent Registered Public Accounting Firm
|
|
|
150,815,379
|
|
|
|
905,359
|
|
|
|
74,219
|
|
|
|
N/A
|
|
No other matters were voted upon at the Annual Meeting or during
the quarter covered by this report.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.1
|
|
Employment Agreement of Steven M. Shindler dated June 8,
2009 (incorporated by reference to Exhibit 10.1 to N11
Holdings Form 8-K, filed on June 9, 2009).
|
|
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 June 30, 2009 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/ CATHERINE
E. NEEL
|
Catherine E. Neel
Vice President and Controller
(on behalf of the registrant and as
chief accounting officer)
Date: August 5, 2009
53
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.1
|
|
Employment Agreement of Steven M. Shindler dated June 8,
2009 (incorporated by reference to Exhibit 10.1 to NII
Holdings
Form 8-K,
filed on June 9, 2009).
|
|
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 June 30, 2009 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