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,
2011
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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 29, 2011
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Common Stock, $0.001 par value per share
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171,108,520
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NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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June 30,
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December 31,
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2011
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2010
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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2,533,753
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$
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1,767,501
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Short-term investments
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408,652
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537,539
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Accounts receivable, less allowance for doubtful accounts of
$64,183 and $41,282
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967,988
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788,000
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Handset and accessory inventory
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234,603
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227,191
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Deferred income taxes, net
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250,213
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186,988
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Prepaid expenses and other
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313,986
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393,658
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Total current assets
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4,709,195
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3,900,877
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Property, plant and equipment, less accumulated depreciation
of $2,427,926 and $2,028,266
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3,318,245
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2,960,046
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Intangible assets, less accumulated amortization of $151,711
and $130,847
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1,370,976
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433,208
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Deferred income taxes, net
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450,501
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486,098
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Other assets
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396,979
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410,458
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Total assets
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$
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10,245,896
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$
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8,190,687
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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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216,773
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$
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300,030
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Accrued expenses and other
|
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973,416
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827,253
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Deferred revenues
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177,830
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158,690
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Current portion of long-term debt
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1,413,614
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446,995
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Total current liabilities
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2,781,633
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1,732,968
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Long-term debt
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3,360,681
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2,818,423
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Deferred revenues
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19,900
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20,476
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Deferred credits
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81,127
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88,068
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Other long-term liabilities
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240,351
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211,179
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Total liabilities
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6,483,692
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4,871,114
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Commitments and contingencies (Note 5)
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Stockholders equity
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Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2011 and 2010, no
shares issued or outstanding 2011 and 2010
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Common stock, par value $0.001, 600,000 shares
authorized 2011 and 2010, 171,019 shares issued and
outstanding 2011, 169,661 shares issued and
outstanding 2010
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170
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169
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Paid-in capital
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1,419,296
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1,364,705
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Retained earnings
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2,226,327
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2,015,950
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Accumulated other comprehensive income (loss)
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116,411
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(61,251
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)
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Total stockholders equity
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3,762,204
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3,319,573
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Total liabilities and stockholders equity
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$
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10,245,896
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$
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8,190,687
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
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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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2011
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2010
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2011
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2010
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Operating revenues
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Service and other revenues
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$
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3,216,655
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$
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2,498,302
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$
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1,670,327
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$
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1,280,632
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Digital handset and accessory revenues
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156,295
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|
|
|
136,765
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|
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79,786
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71,289
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|
|
|
|
|
|
|
|
|
|
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|
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3,372,950
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|
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2,635,067
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|
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1,750,113
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|
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1,351,921
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Operating expenses
|
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Cost of service (exclusive of depreciation and amortization
included below)
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893,656
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695,876
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448,779
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346,351
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Cost of digital handsets and accessories
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421,655
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354,936
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210,152
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182,108
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Selling, general and administrative
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|
1,153,649
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894,684
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618,092
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|
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475,258
|
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Depreciation
|
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|
308,623
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|
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247,824
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|
|
|
161,827
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|
|
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127,084
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Amortization
|
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19,416
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|
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16,053
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|
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|
10,293
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|
|
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8,097
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,796,999
|
|
|
|
2,209,373
|
|
|
|
1,449,143
|
|
|
|
1,138,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
575,951
|
|
|
|
425,694
|
|
|
|
300,970
|
|
|
|
213,023
|
|
|
|
|
|
|
|
|
|
|
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Other expense
|
|
|
|
|
|
|
|
|
|
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|
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|
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Interest expense, net
|
|
|
(176,874
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)
|
|
|
(179,000
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)
|
|
|
(95,715
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)
|
|
|
(93,274
|
)
|
Interest income
|
|
|
15,811
|
|
|
|
13,922
|
|
|
|
9,600
|
|
|
|
8,323
|
|
Foreign currency transaction gains (losses), net
|
|
|
24,100
|
|
|
|
(1,052
|
)
|
|
|
15,606
|
|
|
|
24,031
|
|
Other expense, net
|
|
|
(8,358
|
)
|
|
|
(7,863
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)
|
|
|
(3,991
|
)
|
|
|
(3,505
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145,321
|
)
|
|
|
(173,993
|
)
|
|
|
(74,500
|
)
|
|
|
(64,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
430,630
|
|
|
|
251,701
|
|
|
|
226,470
|
|
|
|
148,598
|
|
Income tax provision
|
|
|
(220,253
|
)
|
|
|
(127,748
|
)
|
|
|
(112,851
|
)
|
|
|
(73,107
|
)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income
|
|
$
|
210,377
|
|
|
$
|
123,953
|
|
|
$
|
113,619
|
|
|
$
|
75,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Net income, per common share, basic
|
|
$
|
1.24
|
|
|
$
|
0.74
|
|
|
$
|
0.67
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income, per common share, diluted
|
|
$
|
1.22
|
|
|
$
|
0.73
|
|
|
$
|
0.66
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
170,038
|
|
|
|
167,341
|
|
|
|
170,381
|
|
|
|
167,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
172,752
|
|
|
|
170,834
|
|
|
|
172,963
|
|
|
|
171,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
178,127
|
|
|
$
|
(49,396
|
)
|
|
$
|
103,377
|
|
|
$
|
(78,188
|
)
|
Other
|
|
|
(465
|
)
|
|
|
(1,466
|
)
|
|
|
(977
|
)
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
177,662
|
|
|
|
(50,862
|
)
|
|
|
102,400
|
|
|
|
(77,931
|
)
|
Net income
|
|
|
210,377
|
|
|
|
123,953
|
|
|
|
113,619
|
|
|
|
75,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
388,039
|
|
|
$
|
73,091
|
|
|
$
|
216,019
|
|
|
$
|
(2,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Balance, January 1, 2011
|
|
|
169,661
|
|
|
$
|
169
|
|
|
$
|
1,364,705
|
|
|
$
|
2,015,950
|
|
|
$
|
(61,251
|
)
|
|
$
|
3,319,573
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,377
|
|
|
|
|
|
|
|
210,377
|
|
Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,662
|
|
|
|
177,662
|
|
Exercise of stock options
|
|
|
1,368
|
|
|
|
1
|
|
|
|
22,239
|
|
|
|
|
|
|
|
|
|
|
|
22,240
|
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
30,757
|
|
|
|
|
|
|
|
|
|
|
|
30,757
|
|
Other
|
|
|
(10
|
)
|
|
|
|
|
|
|
1,595
|
|
|
|
|
|
|
|
|
|
|
|
1,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2011
|
|
|
171,019
|
|
|
$
|
170
|
|
|
$
|
1,419,296
|
|
|
$
|
2,226,327
|
|
|
$
|
116,411
|
|
|
$
|
3,762,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210,377
|
|
|
$
|
123,953
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Amortization of debt discount and financing costs
|
|
|
28,504
|
|
|
|
33,098
|
|
Depreciation and amortization
|
|
|
328,039
|
|
|
|
263,877
|
|
Provision for losses on accounts receivable
|
|
|
73,421
|
|
|
|
37,655
|
|
Foreign currency transaction (gains) losses, net
|
|
|
(24,100
|
)
|
|
|
1,052
|
|
Share-based payment expense
|
|
|
30,758
|
|
|
|
36,890
|
|
Other, net
|
|
|
11,903
|
|
|
|
(4,020
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(212,241
|
)
|
|
|
(108,041
|
)
|
Handset and accessory inventory
|
|
|
30,491
|
|
|
|
48,764
|
|
Prepaid expenses and other
|
|
|
13,195
|
|
|
|
(15,592
|
)
|
Other long-term assets
|
|
|
(51,183
|
)
|
|
|
(61,868
|
)
|
Accounts payable, accrued expenses and other
|
|
|
165,084
|
|
|
|
44,454
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
604,248
|
|
|
|
400,222
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(452,542
|
)
|
|
|
(335,871
|
)
|
Purchase of long-term and short-term investments
|
|
|
(1,237,593
|
)
|
|
|
(1,209,455
|
)
|
Proceeds from sales of short-term investments
|
|
|
1,373,700
|
|
|
|
668,969
|
|
Payments for purchases of licenses
|
|
|
(94,222
|
)
|
|
|
(6,722
|
)
|
Transfer from restricted cash
|
|
|
89,360
|
|
|
|
|
|
Transfer to restricted cash
|
|
|
(4,675
|
)
|
|
|
(89,135
|
)
|
Other, net
|
|
|
479
|
|
|
|
(22,166
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(325,493
|
)
|
|
|
(994,380
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
750,000
|
|
|
|
|
|
Purchases of convertible notes
|
|
|
|
|
|
|
(124,342
|
)
|
Borrowings under syndicated loan facilities
|
|
|
|
|
|
|
80,000
|
|
Repayments under syndicated loan facilities and other
transactions
|
|
|
(308,030
|
)
|
|
|
(112,258
|
)
|
Other, net
|
|
|
46,752
|
|
|
|
59,044
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
488,722
|
|
|
|
(97,556
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
(1,225
|
)
|
|
|
7,585
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
766,252
|
|
|
|
(684,129
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,767,501
|
|
|
|
2,504,064
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,533,753
|
|
|
$
|
1,819,935
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
NII
HOLDINGS, INC. AND SUBSIDIARIES
Unaudited
|
|
Note 1.
|
Basis of
Presentation
|
General. Our unaudited condensed
consolidated financial statements have been prepared under the
rules and regulations of the Securities and Exchange Commission,
or the SEC. While they do not include all of the information and
footnotes required by accounting principles generally accepted
in the United States of America for complete financial
statements, they reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation of the results
for interim periods. In addition, the year-end condensed
consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by accounting principles generally accepted in the
United States of America.
You should read these condensed consolidated financial
statements in conjunction with the consolidated financial
statements and notes contained in our annual report on
Form 10-K
for the year ended December 31, 2010 and our quarterly
report on
Form 10-Q
for the three months ended March 31, 2011. You should not
expect results of operations for interim periods to be an
indication of the results for a full year.
Accumulated Other Comprehensive Income
(Loss). The components of our accumulated
other comprehensive income (loss), net of taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
121,794
|
|
|
$
|
(56,333
|
)
|
Other
|
|
|
(5,383
|
)
|
|
|
(4,918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
116,411
|
|
|
$
|
(61,251
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including interest
capitalized on property, plant and equipment
|
|
$
|
452,542
|
|
|
$
|
335,871
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
69,304
|
|
|
|
28,683
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
521,846
|
|
|
$
|
364,554
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
176,874
|
|
|
$
|
179,000
|
|
Interest capitalized
|
|
|
20,954
|
|
|
|
4,396
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
197,828
|
|
|
$
|
183,396
|
|
|
|
|
|
|
|
|
|
|
In June 2011, Nextel Brazil was granted spectrum licenses in the
1.8 GHz and 1.9/2.1 GHz spectrum bands in connection
with its successful bids in the spectrum auction held in
December 2010. The total purchase price of this spectrum was the
equivalent of $910.5 million. Nextel Brazil paid 10% of the
purchase price upon the grant of the license and financed the
remaining amount through deferred payment terms made available
by the Brazilian telecommunications regulator as part of the
auction rules. See Note 3 for further information related
to this financing. As interest is capitalized during the
construction of our third generation network in Brazil, we
expect that
6
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
beginning in the third quarter of 2011, capitalized interest
will increase significantly until construction of our network is
complete.
For the three months ended June 30, 2011 and 2010, we had
$937.5 million and $66.6 million, respectively, in
non-cash financing, primarily related to the long-term financing
of the spectrum that was awarded to Nextel Brazil in June 2011
as described above and in Note 3, the short-term financing
of imported handsets and infrastructure in Brazil and
co-location capital lease obligations on our communication
towers.
Revenue-Based Taxes. We record
revenue-based taxes and other excise taxes on a gross basis as a
component of both service and other revenues and selling,
general and administrative expenses in our condensed
consolidated statement of operations. For the six and three
months ended June 30, 2011, we had $122.9 million and
$64.3 million, respectively, in revenue-based taxes and
other excise taxes. For the six and three months ended
June 30, 2010, we had $87.8 million and
$44.9 million, respectively, in revenue-based taxes and
other excise taxes.
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings, but not securities that are antidilutive, including
stock options with an exercise price greater than the average
market price of our common stock.
As presented for the six and three months ended June 30,
2011, our calculations of diluted net income per share include
common shares issuable upon the potential exercise of stock
options under our stock-based employee compensation plans and
restricted common shares issued under those plans. We did not
include the common shares that could be issued upon conversion
of our 3.125% convertible notes in our calculations of diluted
net income per common share because their effect would have been
antidilutive to our net income per common share for those
periods. Further, for the six and three months ended
June 30, 2011, we did not include 9.6 million common
shares issuable upon exercise of stock options or an immaterial
amount of our restricted common shares in our calculations of
diluted net income per common share because their effect would
also have been antidilutive to our net income per common share
for those periods.
As presented for the six and three months ended June 30,
2010, our calculations of diluted net income per share include
common shares issuable upon the potential exercise of stock
options under our stock-based employee compensation plans and
restricted common shares issued under those plans. We did not
include the common shares that could be issued upon conversion
of our 3.125% convertible notes or our 2.75% convertible notes
in our calculations of diluted net income per common share
because their effect would have been antidilutive to our net
income per common share for those periods. Further, for the six
and three months ended June 30, 2010, we did not include
10.1 million common shares issuable upon exercise of stock
options or an immaterial amount of restricted common shares in
our calculations of diluted net income per common share because
their effect would also have been antidilutive to our net income
per common share for those periods.
7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables provide a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our condensed consolidated
statements of operations for the six and three months ended
June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011
|
|
|
Six Months Ended June 30, 2010
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210,377
|
|
|
|
170,038
|
|
|
$
|
1.24
|
|
|
$
|
123,953
|
|
|
|
167,341
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1
|
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
|
3,074
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
210,378
|
|
|
|
172,752
|
|
|
$
|
1.22
|
|
|
$
|
123,953
|
|
|
|
170,834
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011
|
|
|
Three Months Ended June 30, 2010
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(In thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
113,619
|
|
|
|
170,381
|
|
|
$
|
0.67
|
|
|
$
|
75,491
|
|
|
|
167,859
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
2,318
|
|
|
|
|
|
|
|
|
|
|
|
2,976
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
113,619
|
|
|
|
172,963
|
|
|
$
|
0.66
|
|
|
$
|
75,491
|
|
|
|
171,186
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications. We have reclassified
some prior period amounts in our condensed consolidated
financial statements to conform to our current year presentation.
New Accounting Pronouncements. In
October 2009, the Financial Accounting Standards Board, or the
FASB, updated its authoritative guidance for accounting for
multiple deliverable revenue arrangements. The new guidance
revises the criteria used to determine the separate units of
accounting in a multiple deliverable arrangement and requires
that total consideration received under the arrangement be
allocated over the separate units of accounting based on their
relative selling prices. This guidance also clarifies the
methodology used in determining our best estimate of the selling
price used in this allocation. The applicable revenue
recognition criteria will be considered separately for the
separate units of accounting. We adopted this new guidance on
its effective date of January 1, 2011. Consistent with this
guidance, we allocate revenue from transactions in which we
offer wireless service in conjunction with the sale or rental of
a handset between the two separate units of accounting. We base
this allocation on the relative selling prices of the handset
and the wireless service plan when sold separately. The amount
of revenue that can be allocated to the handset is limited to
amounts that are not contingent on our future provision of
wireless service. The adoption of this guidance did not have a
material impact on our condensed consolidated financial
statements.
8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In May 2011, the FASB updated its authoritative guidance on fair
value measurement and disclosure. The updated guidance limits
the use of valuation assumptions based on the highest and best
use of an asset or liability to non-financial assets and
liabilities. Financial assets and liabilities are presumed to
derive their value from exchange transactions. In addition, the
updated guidance clarifies that the principal market for an
asset or liability is the market which has the greatest volume
and level of activity for that asset or liability, which is not
necessarily the market in which the reporting entity would be
expected to engage in transactions with respect to that asset or
liability. This updated guidance also requires additional
quantitative and qualitative disclosures concerning Level 3
fair value measurement categories, disclosure of the reasoning
for and impact of transfers of assets between Level 1 and
Level 2 fair value measurements and disclosure of the
reasons why a non-financial asset is not being used by the
reporting entity in its highest and best use, if applicable. In
addition, the updated guidance requires that all fair value
measurements, whether recognized on the balance sheet or
included in disclosures, be categorized in the fair value
hierarchy with disclosure of that categorization. This updated
authoritative guidance will become effective for fiscal periods
beginning after December 15, 2011. Early adoption is not
permitted. We do not expect the adoption of this guidance to
have a material impact on our condensed consolidated financial
statements.
In June 2011, the FASB updated its authoritative guidance on the
presentation of comprehensive income. This standard requires
public companies to report other comprehensive income and its
components either together with the presentation of net income
in its statement of operations or as a separate statement of
comprehensive income. The updated guidance eliminates the option
to report other comprehensive income and its components within
the statement of changes in stockholders equity. This
updated authoritative guidance will become effective for fiscal
periods beginning after December 15, 2011. Because we
currently report other comprehensive income and its components
together with the presentation of net income in our condensed
consolidated statement of operations, we do not expect the
adoption of this guidance to have a material impact on our
condensed consolidated financial statements.
|
|
Note 2.
|
Intangible
Assets
|
In June 2011, Nextel Brazil was granted spectrum licenses in the
1.8 GHz and 1.9/2.1 GHz spectrum bands in connection
with its successful bids in the spectrum auction held in
December 2010. The total purchase price of this spectrum was the
equivalent of $910.5 million. We expect to begin amortizing
these spectrum licenses in the second half of 2012 over
15 years, which is the estimated useful life of the
licenses. As a result, we anticipate that amortization expense
will increase significantly in connection with the expected
regulatory launch of our third generation network in Brazil.
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Senior notes, net
|
|
$
|
2,030,785
|
|
|
$
|
1,279,524
|
|
Convertible notes, net
|
|
|
1,062,639
|
|
|
|
1,043,236
|
|
Brazil spectrum license financing
|
|
|
819,413
|
|
|
|
|
|
Syndicated loan facilities
|
|
|
249,687
|
|
|
|
458,964
|
|
Tower financing obligations
|
|
|
180,811
|
|
|
|
175,932
|
|
Capital lease obligations
|
|
|
144,006
|
|
|
|
114,303
|
|
Brazil import financing
|
|
|
170,367
|
|
|
|
128,094
|
|
Other
|
|
|
116,587
|
|
|
|
65,365
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
4,774,295
|
|
|
|
3,265,418
|
|
Less: current portion
|
|
|
(1,413,614
|
)
|
|
|
(446,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,360,681
|
|
|
$
|
2,818,423
|
|
|
|
|
|
|
|
|
|
|
9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Brazil Spectrum License Financing. As
discussed above, in June 2011, Nextel Brazil was granted
spectrum licenses in the 1.8 GHz and 1.9/2.1 GHz
spectrum bands in connection with its successful bids in the
spectrum auction held in December 2010. The total purchase price
of this spectrum was the equivalent of $910.5 million.
Nextel Brazil paid 10% of the purchase price upon the grant of
the license and financed the remaining amount through deferred
payment terms made available by the Brazilian telecommunications
regulator as part of the auction terms. The amount borrowed
under the spectrum license financing is payable in six annual
installments beginning in May 2014. Beginning June 1, 2011,
interest accrues on the spectrum license financing at a rate of
1% per month, plus the Brazilian telecommunications industry
index rate. Interest is not required to be paid until May 2014.
Because the spectrum license financing is denominated in
Brazilian reais, the payments for principal and interest will
fluctuate in U.S. dollars based on changes in the exchange
rate of the Brazilian real relative to the U.S. dollar.
7.625% Senior Notes due 2021. In
March 2011, we issued $750.0 million aggregate principal
amount of senior notes for which we received about
$735.6 million in cash proceeds, after deducting
underwriting fees, commissions and offering expenses. We are
amortizing the $14.4 million we incurred in underwriting
discounts and offering expenses into interest expense over the
ten-year term of the notes. The notes are senior unsecured
obligations of NII Capital Corp., a domestic subsidiary that we
wholly own, and are guaranteed by us and by certain of our other
domestic wholly-owned subsidiaries. The notes bear interest at a
rate of 7.625% per year, which is payable semi-annually in
arrears on April 1 and October 1, beginning on
October 1, 2011 and will mature on April 1, 2021.
The notes are not entitled to any mandatory redemption or
sinking fund. Prior to April 1, 2014, up to 35% of the
aggregate principal amount of the notes may be redeemed with the
net cash proceeds from specified equity offerings at a
redemption price of 107.625% of their principal amount, plus
accrued and unpaid interest. Such redemption may only be made
if, after the redemption, at least 65% of the aggregate
principal amount of the notes issued remains outstanding. In
addition, prior to April 1, 2016, NII Capital Corp. may
redeem the notes, in whole or in part, at a redemption price
equal to 100% of the principal amount thereof plus a
make-whole premium and accrued and unpaid interest.
At any time on or after April 1, 2016 and prior to
maturity, the notes will be redeemable, in whole or in part, at
the redemption prices presented below (expressed as percentages
of principal amount), plus accrued and unpaid interest to the
redemption date if redeemed during the
12-month
period beginning on April 1 of the applicable year:
|
|
|
|
|
|
|
Redemption
|
Year
|
|
Price
|
|
2016
|
|
|
103.813
|
%
|
2017
|
|
|
102.541
|
%
|
2018
|
|
|
101.271
|
%
|
2019 and thereafter
|
|
|
100.000
|
%
|
Upon the occurrence of specified events involving a change of
control, holders of the notes may require us to purchase their
notes at a purchase price equal to 101% of the principal amount
of the notes, plus accrued and unpaid interest. The indenture
pursuant to which the notes were issued includes covenants that
are substantially similar to the covenants (including the
related qualifications and exceptions) contained in the
indentures governing NII Capital Corp.s 10.0% senior
notes due 2016 and 8.875% senior notes due 2019.
Convertible
Notes.
3.125% Convertible Notes. If
certain events occur, the 3.125% notes will be convertible
into shares of our common stock at a conversion rate of
8.4517 shares per $1,000 principal amount of notes, or
9,296,870 aggregate common shares, representing a conversion
price of about $118.32 per share. For the fiscal quarter ended
June 30, 2011, the closing sale price of our common stock
did not exceed 120% of the conversion price of $118.32 per share
10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for at least 20 trading days in the 30 consecutive trading days
ending on June 30, 2011. As a result, the conversion
contingency was not met as of June 30, 2011.
Adoption of Authoritative Guidance on Convertible Debt
Instruments. As a result of adopting the
FASBs authoritative guidance on convertible debt
instruments on January 1, 2009, we were required to
separately account for the debt and equity components of our
3.125% convertible notes in a manner that reflects our
nonconvertible debt (unsecured debt) borrowing rate. The debt
and equity components recognized for our 3.125% convertible
notes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
December 31, 2010
|
|
|
3.125% Notes
|
|
3.125% Notes
|
|
|
due 2012
|
|
due 2012
|
|
Principal amount of convertible notes
|
|
$
|
1,100,000
|
|
|
$
|
1,100,000
|
|
Unamortized discount on convertible notes
|
|
|
37,361
|
|
|
|
56,764
|
|
Net carrying amount of convertible notes
|
|
|
1,062,639
|
|
|
|
1,043,236
|
|
Carrying amount of equity component
|
|
|
193,941
|
|
|
|
193,941
|
|
As of June 30, 2011, the unamortized discount on our 3.125%
convertible notes had a remaining recognition period of about
11 months.
The amount of interest expense recognized on our 3.125%
convertible notes and our 2.75% convertible notes and effective
interest rates for the six and three months ended June 30,
2011 and 2010 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
3.125% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
17,188
|
|
|
$
|
18,595
|
|
|
$
|
4,786
|
|
Amortization of discount on convertible notes
|
|
|
19,404
|
|
|
|
19,813
|
|
|
|
6,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
36,592
|
|
|
$
|
38,408
|
|
|
$
|
10,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
3.125% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
8,594
|
|
|
$
|
9,220
|
|
|
$
|
2,380
|
|
Amortization of discount on convertible notes
|
|
|
9,730
|
|
|
|
9,964
|
|
|
|
3,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
18,324
|
|
|
$
|
19,184
|
|
|
$
|
5,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico Equipment Financing. In July
2011, Nextel Mexico entered into a U.S. dollar-denominated
loan agreement with the China Development Bank, under which
Nextel Mexico will receive up to $375.0 million to finance
infrastructure equipment and assist in the deployment of its
third generation network in Mexico. As of June 30, 2011,
this loan agreement was not yet finalized.
11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4.
|
Fair
Value Measurements
|
The following tables set forth the classification within the
fair value hierarchy of our financial instruments measured at
fair value on a recurring basis in the accompanying condensed
consolidated balance sheet as of June 30, 2011 and
December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
|
June 30, 2011
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
June 30,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2011
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
155,836
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
155,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
|
December 31, 2010
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
December 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2010
|
|
|
Short-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
50,778
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Financial Instruments.
We estimate the fair value of our financial instruments other
than our
available-for-sale
securities, including cash and cash equivalents,
held-to-maturity
investments, accounts receivable, accounts payable, derivative
instruments and debt. The carrying value of cash and cash
equivalents, accounts receivable, accounts payable and
short-term borrowings contained in the condensed consolidated
balance sheets approximate their fair values due to the
short-term nature of these instruments. The fair values of our
derivative instruments are immaterial.
Held-to-Maturity
Investments.
We periodically invest some of our cash holdings in certain
securities that we intend to hold to maturity. These
held-to-maturity
securities include investments in U.S. treasury securities,
as well as investments in corporate bonds, which consist of
securities issued by U.S. government agencies and corporate
debt securities backed by the U.S. government with
maturities ranging from one to fourteen months. We account for
held-to-maturity
securities at amortized cost. We determined the fair value of
our
held-to-maturity
investments in U.S. treasury securities based on quoted
market prices for the individual instruments. In our judgment,
these securities trade with sufficient daily observable market
activity to support a Level 1 classification within the
fair value hierarchy. We determined the fair value of our
investments in corporate bonds based on reported trade data in a
broker dealer market for the individual instruments. We consider
these measurements to be Level 2 in the fair value
hierarchy. The gross unrecognized holding gains and losses as of
June 30, 2011 were immaterial. The carrying amounts and
estimated fair values of our
held-to-maturity
investments as of June 30, 2011 and December 31, 2010
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
securities U.S. Treasuries
|
|
$
|
152,385
|
|
|
$
|
153,164
|
|
|
$
|
421,653
|
|
|
$
|
423,613
|
|
Held-to-maturity
securities corporate bonds
|
|
|
100,431
|
|
|
|
100,811
|
|
|
|
65,108
|
|
|
|
65,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
252,816
|
|
|
$
|
253,975
|
|
|
$
|
486,761
|
|
|
$
|
489,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-Term
Debt Instruments.
The carrying amounts and estimated fair values of our long-term
debt instruments as of June 30, 2011 and December 31,
2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Senior notes
|
|
$
|
2,030,785
|
|
|
$
|
2,263,575
|
|
|
$
|
1,279,524
|
|
|
$
|
1,428,000
|
|
Convertible notes
|
|
|
1,062,639
|
|
|
|
1,101,430
|
|
|
|
1,043,236
|
|
|
|
1,078,000
|
|
Brazil license financing
|
|
|
819,413
|
|
|
|
1,097,275
|
|
|
|
|
|
|
|
|
|
Syndicated loan facilities
|
|
|
249,687
|
|
|
|
249,873
|
|
|
|
458,964
|
|
|
|
457,187
|
|
Other
|
|
|
76,342
|
|
|
|
42,296
|
|
|
|
193,460
|
|
|
|
195,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,238,866
|
|
|
$
|
4,754,449
|
|
|
$
|
2,975,184
|
|
|
$
|
3,158,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimated the fair values of our senior notes using quoted
market prices in a broker dealer market and the fair values of
our convertible notes using quoted prices in a traded exchange
market, which may be adjusted for certain factors such as
historical trading levels and market data for our senior notes,
credit default spreads, stock volatility assumptions with
respect to our convertible notes and other corroborating market
or internally generated data. Because our fair value
measurements include assumptions based on market data,
corroborating market data and some broker internally generated
information, we consider these estimates Level 2 in the
fair value hierarchy.
We estimated the fair values of our syndicated loan facilities
and Nextel Brazils 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, U.S. treasury bond rates and credit spreads on
comparable publicly traded bonds.
Other debt consists primarily of Brazilian credit paper and
import financing agreements. We estimated the fair value of the
Brazilian credit paper utilizing primarily Level 3 inputs
such as U.S. treasury security yield curves, prices of
comparable bonds, LIBOR and zero-coupon yield curves, Treasury
bond rates and credit spreads on comparable publicly traded
bonds. We believe that the fair value of our short-term, import
financing agreements approximate their carrying value primarily
because of the short maturities of the agreements prior to
realization and consider these measurements to be Level 3
in the fair value hierarchy.
|
|
Note 5.
|
Commitments
and Contingencies
|
Brazilian
Contingencies.
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on
imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions
disputing these assessments. In some cases, Nextel Brazil has
received favorable decisions, which are currently being appealed
by the respective governmental authority. In other cases, Nextel
Brazils petitions have been denied, and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing various other claims. Nextel Brazil did not reverse
any material accrued liabilities related to contingencies during
the second quarter of 2011.
As of June 30, 2011 and December 31, 2010, Nextel
Brazil had accrued liabilities of $61.6 million and
$56.8 million, respectively, related to contingencies, all
of which were classified in accrued contingencies reported as a
component of other long-term liabilities and none of which
related to unasserted claims. We currently estimate the range of
reasonably possible losses related to matters for which Nextel
Brazil has not accrued liabilities, as they are not deemed
probable, to be between $230.7 million and
$234.7 million as of June 30, 2011. We are continuing
to evaluate the likelihood of probable and reasonably possible
losses, if any, related to all known contingencies. As a
13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
result, future increases or decreases to our accrued liabilities
may be necessary and will be recorded in the period when such
amounts are determined to be probable and reasonably estimable.
Legal
Proceedings.
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. The earliest years that remain subject to examination by
jurisdiction are: Chile 1993; U.S. 1999;
Mexico 2003; Argentina 2004; Peru and
Brazil 2006; Luxembourg, Netherlands and
Spain 2009. We regularly assess the potential
outcome of current and future examinations in each of the taxing
jurisdictions when determining the adequacy of the provision for
income taxes.
The following table shows a reconciliation of our unrecognized
tax benefits according to the FASBs authoritative guidance
on accounting for uncertainty in income taxes, for the six
months ended June 30, 2011 (in thousands):
|
|
|
|
|
Unrecognized tax benefits December 31, 2010
|
|
$
|
102,880
|
|
Additions for current year tax positions
|
|
|
1,431
|
|
Additions for prior year tax positions
|
|
|
|
|
Reductions for current year tax positions
|
|
|
|
|
Reductions for prior year tax positions
|
|
|
(70,653
|
)
|
Lapse of statute of limitations
|
|
|
(1,392
|
)
|
Settlements with taxing authorities
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
2,585
|
|
|
|
|
|
|
Unrecognized tax benefits June 30, 2011
|
|
$
|
34,851
|
|
|
|
|
|
|
The unrecognized tax benefits as of June 30, 2011 and
December 31, 2010 include $6.2 million and
$75.7 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. During the
first quarter of 2011, we reduced the amount of our unrecognized
tax benefits by $70.2 million due to the March 2011
decision by a Mexico court to deny our administrative petition
related to the Federal income tax law covering deductions and
gains from the sale of property.
We assessed the realizability of our deferred tax assets during
the second quarter of 2011, consistent with the methodology we
employed for 2010. 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 this assessment, we increased
the valuation allowance on our U.S. companies
deferred tax assets by $46.0 million, which we recorded as
an increase to income tax expense. For our foreign companies, we
determined that the realizability of their deferred assets had
not changed. We will continue to evaluate the amount of the
valuation allowance for all of our foreign and
U.S. companies throughout the remainder of 2011 to
determine the appropriate level of valuation allowance.
14
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. In
March 2011, we were officially notified that the courts denied
our petition based on the economic substance of our
interpretation. Therefore, during the first quarter of 2011, we
reversed the income tax receivable on the financial statements
and recorded a $14.5 million increase in income tax expense
with respect to this item.
|
|
Note 7.
|
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) Brazil, (2) Mexico,
(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.
15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Brazil
|
|
|
Mexico
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Six Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,719,720
|
|
|
$
|
1,155,314
|
|
|
$
|
311,563
|
|
|
$
|
173,827
|
|
|
$
|
14,873
|
|
|
$
|
(2,347
|
)
|
|
$
|
3,372,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
578,344
|
|
|
$
|
403,610
|
|
|
$
|
86,274
|
|
|
$
|
15,053
|
|
|
$
|
(183,724
|
)
|
|
$
|
4,433
|
|
|
$
|
903,990
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(328,039
|
)
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,100
|
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(169,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
430,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
214,930
|
|
|
$
|
130,570
|
|
|
$
|
29,347
|
|
|
$
|
46,466
|
|
|
$
|
100,533
|
|
|
$
|
|
|
|
$
|
521,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,174,366
|
|
|
$
|
1,033,590
|
|
|
$
|
268,922
|
|
|
$
|
149,197
|
|
|
$
|
10,407
|
|
|
$
|
(1,415
|
)
|
|
$
|
2,635,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
350,400
|
|
|
$
|
389,162
|
|
|
$
|
68,573
|
|
|
$
|
10,242
|
|
|
$
|
(128,806
|
)
|
|
$
|
|
|
|
$
|
689,571
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(263,877
|
)
|
Foreign currency transaction losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,052
|
)
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(172,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
251,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
207,354
|
|
|
$
|
49,835
|
|
|
$
|
22,305
|
|
|
$
|
30,951
|
|
|
$
|
54,109
|
|
|
$
|
|
|
|
$
|
364,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
906,382
|
|
|
$
|
588,308
|
|
|
$
|
160,849
|
|
|
$
|
88,170
|
|
|
$
|
7,468
|
|
|
$
|
(1,064
|
)
|
|
$
|
1,750,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
295,343
|
|
|
$
|
223,263
|
|
|
$
|
42,323
|
|
|
$
|
7,875
|
|
|
$
|
(99,027
|
)
|
|
$
|
3,313
|
|
|
$
|
473,090
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(172,120
|
)
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,606
|
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
226,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
117,342
|
|
|
$
|
93,188
|
|
|
$
|
17,176
|
|
|
$
|
23,524
|
|
|
$
|
52,712
|
|
|
$
|
|
|
|
$
|
303,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
610,539
|
|
|
$
|
524,166
|
|
|
$
|
136,165
|
|
|
$
|
76,318
|
|
|
$
|
5,803
|
|
|
$
|
(1,070
|
)
|
|
$
|
1,351,921
|
|
Segment earnings (losses)
|
|
$
|
173,691
|
|
|
$
|
204,778
|
|
|
$
|
31,974
|
|
|
$
|
6,019
|
|
|
$
|
(68,258
|
)
|
|
$
|
|
|
|
$
|
348,204
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135,181
|
)
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,031
|
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
148,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
122,262
|
|
|
$
|
32,662
|
|
|
$
|
13,490
|
|
|
$
|
22,957
|
|
|
$
|
38,706
|
|
|
$
|
|
|
|
$
|
230,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
4,386,694
|
|
|
$
|
2,077,214
|
|
|
$
|
419,250
|
|
|
$
|
553,818
|
|
|
$
|
2,809,207
|
|
|
$
|
(287
|
)
|
|
$
|
10,245,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
3,036,106
|
|
|
$
|
2,019,550
|
|
|
$
|
393,246
|
|
|
$
|
556,752
|
|
|
$
|
2,185,320
|
|
|
$
|
(287
|
)
|
|
$
|
8,190,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8.
|
Condensed
Consolidating Financial Statements
|
In March 2011, we issued $750.0 million in aggregate
principal amount of 7.625% senior notes due 2021. In
addition, during 2009, we issued senior notes totaling
$1.3 billion in aggregate principal amount comprised of our
10.0% senior notes due 2016 and our 8.875% senior
notes due 2019. We refer to the senior notes issued in 2011 and
2009 collectively as the notes. All of these notes
are senior unsecured obligations of NII Capital Corp., our
wholly-owned subsidiary, and are guaranteed on a senior
unsecured basis by NII Holdings and all of its current and
future first tier and domestic restricted subsidiaries, other
than NII Capital Corp. No foreign subsidiaries will guarantee
the notes unless they are first tier subsidiaries of NII
Holdings. These guarantees are full and unconditional, as well
as joint and several.
As a result of the issuance of the notes and the related
guarantees, we are required to provide certain condensed
consolidating financial information. Included in the tables
below are condensed consolidating balance sheets as of
June 30, 2011 and December 31, 2010, as well as
condensed consolidating statements of operations and cash flows
for the six and three months ended June 30, 2011 and 2010,
of: (a) the parent company, NII Holdings, Inc.;
(b) the subsidiary issuer, NII Capital Corp.; (c) the
guarantor subsidiaries on a combined basis; (d) the
non-guarantor subsidiaries of NII Holdings, Inc. on a combined
basis; (e) consolidating adjustments; and (f) NII
Holdings, Inc. and subsidiaries on a consolidated basis. The
condensed consolidating statements of operations for the six and
three months ended June 30, 2010 and the condensed
consolidating statement of cash flows for the six months ended
June 30, 2010 presented below were revised to reflect the
proper classification of certain intercompany balances. These
revisions were not material to our financial statements taken as
a whole.
17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of June 30, 2011
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)(1)
|
|
|
Subsidiaries(2)
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,461,180
|
|
|
$
|
1
|
|
|
$
|
9,234
|
|
|
$
|
1,063,338
|
|
|
$
|
|
|
|
$
|
2,533,753
|
|
Short-term investments
|
|
|
252,816
|
|
|
|
|
|
|
|
|
|
|
|
155,836
|
|
|
|
|
|
|
|
408,652
|
|
Accounts receivable, net
|
|
|
15,666
|
|
|
|
54,070
|
|
|
|
116,049
|
|
|
|
973,315
|
|
|
|
(191,112
|
)
|
|
|
967,988
|
|
Handset and accessory inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234,603
|
|
|
|
|
|
|
|
234,603
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
4,599
|
|
|
|
254,519
|
|
|
|
(8,905
|
)
|
|
|
250,213
|
|
Prepaid expenses and other
|
|
|
1,842
|
|
|
|
|
|
|
|
8,899
|
|
|
|
303,257
|
|
|
|
(12
|
)
|
|
|
313,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,731,504
|
|
|
|
54,071
|
|
|
|
138,781
|
|
|
|
2,984,868
|
|
|
|
(200,029
|
)
|
|
|
4,709,195
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
160,247
|
|
|
|
3,158,285
|
|
|
|
(287
|
)
|
|
|
3,318,245
|
|
Investments in and advances to affiliates
|
|
|
3,541,898
|
|
|
|
3,382,737
|
|
|
|
3,465,035
|
|
|
|
|
|
|
|
(10,389,670
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,370,976
|
|
|
|
|
|
|
|
1,370,976
|
|
Deferred income taxes, net
|
|
|
6,005
|
|
|
|
|
|
|
|
|
|
|
|
450,501
|
|
|
|
(6,005
|
)
|
|
|
450,501
|
|
Other assets
|
|
|
2,413,080
|
|
|
|
3,055,279
|
|
|
|
577,507
|
|
|
|
537,683
|
|
|
|
(6,186,570
|
)
|
|
|
396,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,692,487
|
|
|
$
|
6,492,087
|
|
|
$
|
4,341,570
|
|
|
$
|
8,502,313
|
|
|
$
|
(16,782,561
|
)
|
|
$
|
10,245,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,544
|
|
|
$
|
214,229
|
|
|
$
|
|
|
|
$
|
216,773
|
|
Accrued expenses and other
|
|
|
632,264
|
|
|
|
170,135
|
|
|
|
1,597,942
|
|
|
|
1,292,395
|
|
|
|
(2,719,320
|
)
|
|
|
973,416
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,830
|
|
|
|
|
|
|
|
177,830
|
|
Current portion of long-term debt
|
|
|
1,062,639
|
|
|
|
|
|
|
|
12,079
|
|
|
|
338,896
|
|
|
|
|
|
|
|
1,413,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,694,903
|
|
|
|
170,135
|
|
|
|
1,612,565
|
|
|
|
2,023,350
|
|
|
|
(2,719,320
|
)
|
|
|
2,781,633
|
|
Long-term debt
|
|
|
23
|
|
|
|
2,030,785
|
|
|
|
63,908
|
|
|
|
1,265,965
|
|
|
|
|
|
|
|
3,360,681
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,900
|
|
|
|
|
|
|
|
19,900
|
|
Deferred credits
|
|
|
|
|
|
|
|
|
|
|
14,900
|
|
|
|
72,232
|
|
|
|
(6,005
|
)
|
|
|
81,127
|
|
Other long-term liabilities
|
|
|
2,235,357
|
|
|
|
|
|
|
|
10,042
|
|
|
|
1,655,831
|
|
|
|
(3,660,879
|
)
|
|
|
240,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,930,283
|
|
|
|
2,200,920
|
|
|
|
1,701,415
|
|
|
|
5,037,278
|
|
|
|
(6,386,204
|
)
|
|
|
6,483,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,762,204
|
|
|
|
4,291,167
|
|
|
|
2,640,155
|
|
|
|
3,465,035
|
|
|
|
(10,396,357
|
)
|
|
|
3,762,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
7,692,487
|
|
|
$
|
6,492,087
|
|
|
$
|
4,341,570
|
|
|
$
|
8,502,313
|
|
|
$
|
(16,782,561
|
)
|
|
$
|
10,245,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
NII Capital Corp. is the issuer of our 7.625% senior notes
due 2021, our 10.0% senior notes due 2016 and our
8.875% senior notes due 2019. |
|
(2) |
|
Represents our subsidiaries that have provided guarantees of the
obligations of NII Capital Corp. under our 7.625% senior
notes due 2021, our 10.0% senior notes due 2016 and our
8.875% notes due 2019. |
18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
548,197
|
|
|
$
|
28
|
|
|
$
|
122,186
|
|
|
$
|
1,097,090
|
|
|
$
|
|
|
|
$
|
1,767,501
|
|
Short-term investments
|
|
|
486,761
|
|
|
|
|
|
|
|
|
|
|
|
50,778
|
|
|
|
|
|
|
|
537,539
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
797,421
|
|
|
|
(9,421
|
)
|
|
|
788,000
|
|
Handset and accessory inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,191
|
|
|
|
|
|
|
|
227,191
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
4,202
|
|
|
|
182,786
|
|
|
|
|
|
|
|
186,988
|
|
Prepaid expenses and other
|
|
|
2,776
|
|
|
|
|
|
|
|
5,439
|
|
|
|
385,477
|
|
|
|
(34
|
)
|
|
|
393,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,037,734
|
|
|
|
28
|
|
|
|
131,827
|
|
|
|
2,740,743
|
|
|
|
(9,455
|
)
|
|
|
3,900,877
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
107,030
|
|
|
|
2,853,303
|
|
|
|
(287
|
)
|
|
|
2,960,046
|
|
Investments in and advances to affiliates
|
|
|
2,962,830
|
|
|
|
2,905,655
|
|
|
|
2,925,907
|
|
|
|
|
|
|
|
(8,794,392
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
433,208
|
|
|
|
|
|
|
|
433,208
|
|
Deferred income taxes, net
|
|
|
7,712
|
|
|
|
|
|
|
|
|
|
|
|
486,098
|
|
|
|
(7,712
|
)
|
|
|
486,098
|
|
Other assets
|
|
|
2,414,774
|
|
|
|
2,256,448
|
|
|
|
667,301
|
|
|
|
588,572
|
|
|
|
(5,516,637
|
)
|
|
|
410,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,423,050
|
|
|
$
|
5,162,131
|
|
|
$
|
3,832,065
|
|
|
$
|
7,101,924
|
|
|
$
|
(14,328,483
|
)
|
|
$
|
8,190,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,295
|
|
|
$
|
|
|
|
$
|
2,314
|
|
|
$
|
296,421
|
|
|
$
|
|
|
|
$
|
300,030
|
|
Accrued expenses and other
|
|
|
637,597
|
|
|
|
173,263
|
|
|
|
1,599,378
|
|
|
|
1,117,481
|
|
|
|
(2,700,466
|
)
|
|
|
827,253
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,690
|
|
|
|
|
|
|
|
158,690
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
1,729
|
|
|
|
445,266
|
|
|
|
|
|
|
|
446,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
638,892
|
|
|
|
173,263
|
|
|
|
1,603,421
|
|
|
|
2,017,858
|
|
|
|
(2,700,466
|
)
|
|
|
1,732,968
|
|
Long-term debt
|
|
|
1,043,258
|
|
|
|
1,279,524
|
|
|
|
39,334
|
|
|
|
456,307
|
|
|
|
|
|
|
|
2,818,423
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,476
|
|
|
|
|
|
|
|
20,476
|
|
Deferred credits
|
|
|
|
|
|
|
|
|
|
|
21,427
|
|
|
|
74,352
|
|
|
|
(7,711
|
)
|
|
|
88,068
|
|
Other long-term liabilities
|
|
|
1,421,327
|
|
|
|
|
|
|
|
9,773
|
|
|
|
1,607,024
|
|
|
|
(2,826,945
|
)
|
|
|
211,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,103,477
|
|
|
|
1,452,787
|
|
|
|
1,673,955
|
|
|
|
4,176,017
|
|
|
|
(5,535,122
|
)
|
|
|
4,871,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,319,573
|
|
|
|
3,709,344
|
|
|
|
2,158,110
|
|
|
|
2,925,907
|
|
|
|
(8,793,361
|
)
|
|
|
3,319,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
6,423,050
|
|
|
$
|
5,162,131
|
|
|
$
|
3,832,065
|
|
|
$
|
7,101,924
|
|
|
$
|
(14,328,483
|
)
|
|
$
|
8,190,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2011
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,536
|
|
|
$
|
3,372,950
|
|
|
$
|
(1,536
|
)
|
|
$
|
3,372,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
1,315,226
|
|
|
|
|
|
|
|
1,315,311
|
|
Selling, general and administrative
|
|
|
1,776
|
|
|
|
178
|
|
|
|
136,839
|
|
|
|
1,020,825
|
|
|
|
(5,969
|
)
|
|
|
1,153,649
|
|
Management fee and other
|
|
|
(41,799
|
)
|
|
|
|
|
|
|
(64,550
|
)
|
|
|
101,916
|
|
|
|
4,433
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
4,740
|
|
|
|
323,299
|
|
|
|
|
|
|
|
328,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,023
|
)
|
|
|
178
|
|
|
|
77,114
|
|
|
|
2,761,266
|
|
|
|
(1,536
|
)
|
|
|
2,796,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
40,023
|
|
|
|
(178
|
)
|
|
|
(75,578
|
)
|
|
|
611,684
|
|
|
|
|
|
|
|
575,951
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(111,936
|
)
|
|
|
(75,210
|
)
|
|
|
(1,437
|
)
|
|
|
(97,832
|
)
|
|
|
109,541
|
|
|
|
(176,874
|
)
|
Interest income
|
|
|
9,206
|
|
|
|
101,832
|
|
|
|
103
|
|
|
|
14,211
|
|
|
|
(109,541
|
)
|
|
|
15,811
|
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,100
|
|
|
|
|
|
|
|
24,100
|
|
Equity in income of affiliates
|
|
|
253,215
|
|
|
|
337,911
|
|
|
|
340,081
|
|
|
|
|
|
|
|
(931,207
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
40
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(8,392
|
)
|
|
|
|
|
|
|
(8,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,525
|
|
|
|
364,533
|
|
|
|
338,741
|
|
|
|
(67,913
|
)
|
|
|
(931,207
|
)
|
|
|
(145,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
190,548
|
|
|
|
364,355
|
|
|
|
263,163
|
|
|
|
543,771
|
|
|
|
(931,207
|
)
|
|
|
430,630
|
|
Income tax benefit (provision)
|
|
|
19,829
|
|
|
|
(9,026
|
)
|
|
|
(19,627
|
)
|
|
|
(203,690
|
)
|
|
|
(7,739
|
)
|
|
|
(220,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210,377
|
|
|
$
|
355,329
|
|
|
$
|
243,536
|
|
|
$
|
340,081
|
|
|
$
|
(938,946
|
)
|
|
$
|
210,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
768
|
|
|
$
|
2,634,299
|
|
|
$
|
|
|
|
$
|
2,635,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
1,050,760
|
|
|
|
|
|
|
|
1,050,812
|
|
Selling, general and administrative
|
|
|
2,214
|
|
|
|
7
|
|
|
|
100,543
|
|
|
|
791,920
|
|
|
|
|
|
|
|
894,684
|
|
Management fee and other
|
|
|
(37,753
|
)
|
|
|
|
|
|
|
(46,440
|
)
|
|
|
84,193
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
3,492
|
|
|
|
260,385
|
|
|
|
|
|
|
|
263,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,539
|
)
|
|
|
7
|
|
|
|
57,647
|
|
|
|
2,187,258
|
|
|
|
|
|
|
|
2,209,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
35,539
|
|
|
|
(7
|
)
|
|
|
(56,879
|
)
|
|
|
447,041
|
|
|
|
|
|
|
|
425,694
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(144,672
|
)
|
|
|
(63,508
|
)
|
|
|
(583
|
)
|
|
|
(75,962
|
)
|
|
|
105,725
|
|
|
|
(179,000
|
)
|
Interest income
|
|
|
6,269
|
|
|
|
98,604
|
|
|
|
388
|
|
|
|
14,386
|
|
|
|
(105,725
|
)
|
|
|
13,922
|
|
Foreign currency transaction losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,052
|
)
|
|
|
|
|
|
|
(1,052
|
)
|
Equity in income of affiliates
|
|
|
165,909
|
|
|
|
218,253
|
|
|
|
269,319
|
|
|
|
|
|
|
|
(653,481
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
4
|
|
|
|
|
|
|
|
155
|
|
|
|
(8,013
|
)
|
|
|
(9
|
)
|
|
|
(7,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,510
|
|
|
|
253,349
|
|
|
|
269,279
|
|
|
|
(70,641
|
)
|
|
|
(653,490
|
)
|
|
|
(173,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
63,049
|
|
|
|
253,342
|
|
|
|
212,400
|
|
|
|
376,400
|
|
|
|
(653,490
|
)
|
|
|
251,701
|
|
Income tax benefit (provision)
|
|
|
60,904
|
|
|
|
(18,827
|
)
|
|
|
(47,787
|
)
|
|
|
(116,929
|
)
|
|
|
(5,109
|
)
|
|
|
(127,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
123,953
|
|
|
$
|
234,515
|
|
|
$
|
164,613
|
|
|
$
|
259,471
|
|
|
$
|
(658,599
|
)
|
|
$
|
123,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2011
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
768
|
|
|
$
|
1,750,113
|
|
|
$
|
(768
|
)
|
|
$
|
1,750,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
658,891
|
|
|
|
|
|
|
|
658,931
|
|
Selling, general and administrative
|
|
|
865
|
|
|
|
14
|
|
|
|
73,047
|
|
|
|
548,247
|
|
|
|
(4,081
|
)
|
|
|
618,092
|
|
Management fee and other
|
|
|
(21,296
|
)
|
|
|
|
|
|
|
(35,075
|
)
|
|
|
53,058
|
|
|
|
3,313
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
2,657
|
|
|
|
169,463
|
|
|
|
|
|
|
|
172,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,431
|
)
|
|
|
14
|
|
|
|
40,669
|
|
|
|
1,429,659
|
|
|
|
(768
|
)
|
|
|
1,449,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
20,431
|
|
|
|
(14
|
)
|
|
|
(39,901
|
)
|
|
|
320,454
|
|
|
|
|
|
|
|
300,970
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(63,258
|
)
|
|
|
(44,500
|
)
|
|
|
(777
|
)
|
|
|
(49,360
|
)
|
|
|
62,180
|
|
|
|
(95,715
|
)
|
Interest income
|
|
|
4,755
|
|
|
|
58,221
|
|
|
|
52
|
|
|
|
8,752
|
|
|
|
(62,180
|
)
|
|
|
9,600
|
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,606
|
|
|
|
|
|
|
|
15,606
|
|
Equity in income of affiliates
|
|
|
139,431
|
|
|
|
186,683
|
|
|
|
187,726
|
|
|
|
|
|
|
|
(513,840
|
)
|
|
|
|
|
Other expense, net
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(3,985
|
)
|
|
|
|
|
|
|
(3,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,928
|
|
|
|
200,404
|
|
|
|
186,995
|
|
|
|
(28,987
|
)
|
|
|
(513,840
|
)
|
|
|
(74,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
101,359
|
|
|
|
200,390
|
|
|
|
147,094
|
|
|
|
291,467
|
|
|
|
(513,840
|
)
|
|
|
226,470
|
|
Income tax benefit (provision)
|
|
|
12,260
|
|
|
|
(4,680
|
)
|
|
|
(12,462
|
)
|
|
|
(103,741
|
)
|
|
|
(4,228
|
)
|
|
|
(112,851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
113,619
|
|
|
$
|
195,710
|
|
|
$
|
134,632
|
|
|
$
|
187,726
|
|
|
$
|
(518,068
|
)
|
|
$
|
113,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
768
|
|
|
$
|
1,351,153
|
|
|
$
|
|
|
|
$
|
1,351,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
528,442
|
|
|
|
|
|
|
|
528,459
|
|
Selling, general and administrative
|
|
|
1,754
|
|
|
|
3
|
|
|
|
54,481
|
|
|
|
419,020
|
|
|
|
|
|
|
|
475,258
|
|
Management fee and other
|
|
|
(19,197
|
)
|
|
|
|
|
|
|
(23,220
|
)
|
|
|
42,417
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
1,812
|
|
|
|
133,369
|
|
|
|
|
|
|
|
135,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,443
|
)
|
|
|
3
|
|
|
|
33,090
|
|
|
|
1,123,248
|
|
|
|
|
|
|
|
1,138,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
17,443
|
|
|
|
(3
|
)
|
|
|
(32,322
|
)
|
|
|
227,905
|
|
|
|
|
|
|
|
213,023
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(119,582
|
)
|
|
|
(31,750
|
)
|
|
|
(279
|
)
|
|
|
(43,979
|
)
|
|
|
102,316
|
|
|
|
(93,274
|
)
|
Interest income
|
|
|
3,352
|
|
|
|
98,604
|
|
|
|
(145
|
)
|
|
|
8,828
|
|
|
|
(102,316
|
)
|
|
|
8,323
|
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,031
|
|
|
|
|
|
|
|
24,031
|
|
Equity in income of affiliates
|
|
|
130,733
|
|
|
|
121,278
|
|
|
|
152,148
|
|
|
|
|
|
|
|
(404,159
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
4
|
|
|
|
|
|
|
|
40
|
|
|
|
(3,544
|
)
|
|
|
(5
|
)
|
|
|
(3,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,507
|
|
|
|
188,132
|
|
|
|
151,764
|
|
|
|
(14,664
|
)
|
|
|
(404,164
|
)
|
|
|
(64,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
31,950
|
|
|
|
188,129
|
|
|
|
119,442
|
|
|
|
213,241
|
|
|
|
(404,164
|
)
|
|
|
148,598
|
|
Income tax benefit (provision)
|
|
|
43,541
|
|
|
|
(18,827
|
)
|
|
|
(30,112
|
)
|
|
|
(62,395
|
)
|
|
|
(5,314
|
)
|
|
|
(73,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
75,491
|
|
|
$
|
169,302
|
|
|
$
|
89,330
|
|
|
$
|
150,846
|
|
|
$
|
(409,478
|
)
|
|
$
|
75,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2011
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210,377
|
|
|
$
|
355,329
|
|
|
$
|
243,536
|
|
|
$
|
340,081
|
|
|
$
|
(938,946
|
)
|
|
$
|
210,377
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
(115,342
|
)
|
|
|
(332,946
|
)
|
|
|
(230,792
|
)
|
|
|
357,283
|
|
|
|
715,668
|
|
|
|
393,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
95,035
|
|
|
|
22,383
|
|
|
|
12,744
|
|
|
|
697,364
|
|
|
|
(223,278
|
)
|
|
|
604,248
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(61,444
|
)
|
|
|
|
|
|
|
|
|
|
|
(391,098
|
)
|
|
|
|
|
|
|
(452,542
|
)
|
Purchase of long-term and short-term investments
|
|
|
(329,292
|
)
|
|
|
|
|
|
|
|
|
|
|
(908,301
|
)
|
|
|
|
|
|
|
(1,237,593
|
)
|
Proceeds from sales of short-term investments
|
|
|
560,000
|
|
|
|
|
|
|
|
|
|
|
|
813,700
|
|
|
|
|
|
|
|
1,373,700
|
|
Payments for purchases of licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94,222
|
)
|
|
|
|
|
|
|
(94,222
|
)
|
Transfers from restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,360
|
|
|
|
|
|
|
|
89,360
|
|
Intercompany borrowings
|
|
|
(111,486
|
)
|
|
|
(736,860
|
)
|
|
|
|
|
|
|
|
|
|
|
848,346
|
|
|
|
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,196
|
)
|
|
|
|
|
|
|
(4,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
57,778
|
|
|
|
(736,860
|
)
|
|
|
|
|
|
|
(494,757
|
)
|
|
|
848,346
|
|
|
|
(325,493
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750,000
|
|
Repayments under syndicated loan facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(209,408
|
)
|
|
|
|
|
|
|
(209,408
|
)
|
Proceeds from intercompany long-term loan
|
|
|
736,860
|
|
|
|
|
|
|
|
|
|
|
|
27,396
|
|
|
|
(764,256
|
)
|
|
|
|
|
Intercompany dividends
|
|
|
|
|
|
|
(84,139
|
)
|
|
|
(139,139
|
)
|
|
|
|
|
|
|
223,278
|
|
|
|
|
|
Other, net
|
|
|
23,310
|
|
|
|
48,589
|
|
|
|
13,443
|
|
|
|
(53,122
|
)
|
|
|
(84,090
|
)
|
|
|
(51,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
760,170
|
|
|
|
714,450
|
|
|
|
(125,696
|
)
|
|
|
(235,134
|
)
|
|
|
(625,068
|
)
|
|
|
488,722
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,225
|
)
|
|
|
|
|
|
|
(1,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
912,983
|
|
|
|
(27
|
)
|
|
|
(112,952
|
)
|
|
|
(33,752
|
)
|
|
|
|
|
|
|
766,252
|
|
Cash and cash equivalents, beginning of period
|
|
|
548,197
|
|
|
|
28
|
|
|
|
122,186
|
|
|
|
1,097,090
|
|
|
|
|
|
|
|
1,767,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,461,180
|
|
|
$
|
1
|
|
|
$
|
9,234
|
|
|
$
|
1,063,338
|
|
|
$
|
|
|
|
$
|
2,533,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Intercompany
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
123,953
|
|
|
$
|
234,515
|
|
|
$
|
164,613
|
|
|
$
|
259,471
|
|
|
$
|
(658,599
|
)
|
|
$
|
123,953
|
|
Adjustments to reconcile net income to net cash (used in)
provided by operating activities
|
|
|
(196,662
|
)
|
|
|
(234,515
|
)
|
|
|
(161,042
|
)
|
|
|
276,978
|
|
|
|
591,510
|
|
|
|
276,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(72,709
|
)
|
|
|
|
|
|
|
3,571
|
|
|
|
536,449
|
|
|
|
(67,089
|
)
|
|
|
400,222
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(10,874
|
)
|
|
|
|
|
|
|
|
|
|
|
(324,997
|
)
|
|
|
|
|
|
|
(335,871
|
)
|
Proceeds from sales of short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668,969
|
|
|
|
|
|
|
|
668,969
|
|
Proceeds from intercompany long-term loan
|
|
|
15,645
|
|
|
|
|
|
|
|
64,355
|
|
|
|
|
|
|
|
(80,000
|
)
|
|
|
|
|
Transfers to restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89,135
|
)
|
|
|
|
|
|
|
(89,135
|
)
|
Purchase of long-term and short-term investments
|
|
|
(630,930
|
)
|
|
|
|
|
|
|
|
|
|
|
(578,525
|
)
|
|
|
|
|
|
|
(1,209,455
|
)
|
Other, net
|
|
|
(59,904
|
)
|
|
|
|
|
|
|
|
|
|
|
(28,888
|
)
|
|
|
59,904
|
|
|
|
(28,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(686,063
|
)
|
|
|
|
|
|
|
64,355
|
|
|
|
(352,576
|
)
|
|
|
(20,096
|
)
|
|
|
(994,380
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
|
|
80,000
|
|
Repayments under syndicated loan facilities and other
transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,519
|
)
|
|
|
|
|
|
|
(40,519
|
)
|
Repayments under import financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,786
|
)
|
|
|
|
|
|
|
(50,786
|
)
|
Purchases of convertible notes
|
|
|
(124,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124,342
|
)
|
Proceeds from intercompany long-term loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,370
|
)
|
|
|
24,370
|
|
|
|
|
|
Other, net
|
|
|
28,331
|
|
|
|
|
|
|
|
(67,926
|
)
|
|
|
14,871
|
|
|
|
62,815
|
|
|
|
38,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(96,011
|
)
|
|
|
|
|
|
|
(67,926
|
)
|
|
|
(20,804
|
)
|
|
|
87,185
|
|
|
|
(97,556
|
)
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,585
|
|
|
|
|
|
|
|
7,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(854,783
|
)
|
|
|
|
|
|
|
|
|
|
|
170,654
|
|
|
|
|
|
|
|
(684,129
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,702,191
|
|
|
|
28
|
|
|
|
|
|
|
|
801,845
|
|
|
|
|
|
|
|
2,504,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
847,408
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
972,499
|
|
|
$
|
|
|
|
$
|
1,819,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
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
|
|
|
|
|
|
|
|
27
|
|
|
|
|
27
|
|
|
|
|
31
|
|
|
|
|
31
|
|
|
|
|
32
|
|
|
|
|
34
|
|
|
|
|
37
|
|
|
|
|
40
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
49
|
|
|
|
|
49
|
|
26
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition as of June 30, 2011
and December 31, 2010 and our consolidated results of
operations for the six- and three-month periods ended
June 30, 2011 and 2010; and
|
|
|
|
significant factors which we believe could affect our
prospective financial condition and results of operations.
|
You should read this discussion in conjunction with our annual
report on
Form 10-K
and our quarterly report on
Form 10-Q
for the three months ended March 31, 2011, including, but
not limited to, the discussion regarding our critical accounting
policies and estimates, as described below. Historical results
may not indicate future performance. See Forward Looking
Statements and Item 1A. Risk
Factors in our annual report on
Form 10-K
for risks and uncertainties that may impact our future
performance.
We refer to our operating companies by the countries in which
they operate, such as Nextel Mexico, Nextel Brazil, Nextel
Argentina, Nextel Peru and Nextel Chile.
Business
Overview
We provide wireless communication services, primarily targeted
at meeting the needs of customers who use our services in their
businesses and individuals that have medium to high usage
patterns, both of whom value our multi function handsets,
including our Nextel Direct
Connect®
feature, and our high level of customer service. As we deploy
our planned third generation networks using wideband code
division multiple access, or WCDMA, technology in our markets,
we plan to extend our target market to additional corporate
customers and high-value consumers who exhibit above average
usage, revenue and loyalty characteristics and who we believe
will be attracted to the services supported by our new networks
and the quality of our customer service.
We provide our services under the
Nexteltm
brand through operating companies located in selected Latin
American markets, with our principal operations located in major
business centers and related transportation corridors of Brazil,
Mexico, Argentina, Peru and Chile. We provide our services in
major urban and suburban centers with high population densities
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. Our planned third generation networks
are expected to serve both these major business centers and a
broader geographic area in order to reach more potential
customers and to meet the requirements of our spectrum licenses.
Our current networks utilize integrated digital enhanced
network, or iDEN, technology developed by Motorola, Inc. to
provide our mobile services on the 800 MHz spectrum
holdings in all of our markets. Our existing third generation
network in Peru utilizes, and our planned third generation
networks in Brazil, Mexico and Chile will utilize, WCDMA
technology, which is a standards-based technology that is being
deployed by carriers throughout the world. These technologies
allow 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;
|
|
|
|
mobile broadband services in markets where we have deployed
third generation networks;
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers who use our iDEN network to
talk to each other instantly, on a
push-to-talk
basis, for private
one-to-one
calls or group calls;
|
|
|
|
International Direct
Connect®
service, which allows subscribers who use our iDEN network to
talk to each other instantly across national borders, including
Sprint Nextel subscribers using compatible handsets in the
United States and with TELUS Corporation subscribers using
compatible handsets in Canada;
|
27
|
|
|
|
|
data services, including text messaging services, mobile
internet services,
e-mail
services, an Android-based open operating system, location-based
services, which include the use of Global Positioning System, or
GPS, technologies, digital media services and advanced
Javatm
enabled business applications; and
|
|
|
|
international roaming services.
|
We plan to offer similar and additional voice and data services
and applications on our planned third generation networks. We
currently provide services on iDEN networks in the largest
metropolitan areas in each of Mexico, Brazil, Argentina, Peru
and Chile, as well as in various other cities in each of these
countries. In addition, we also provide services on WCDMA
networks in various metropolitan areas in Peru.
Our goal is to generate increased revenues in our Latin American
markets by providing differentiated wireless communications
services that are valued by our customers while improving our
profitability and cash flow over the long term. Our strategy for
achieving that goal is based on several core principles,
including targeting high value customers, providing
differentiated services and delivering superior customer
service. We will also achieve this goal by offering new and
expanded products and services supported by our existing and
planned third generation networks and by expanding our
distribution channels by opening new, more cost effective points
of sales and service.
We commercially launched our third generation network in Peru in
2010 and are currently in the process of designing and building
third generation networks in Brazil, Chile and Mexico using
spectrum licensed to us in Chile and Mexico in 2010 and spectrum
licensed to us in Brazil in 2011. We expect to begin offering
third generation services in Chile later this year and in Brazil
and Mexico in 2012.
We may also explore financially attractive opportunities to
expand our network coverage in areas that we do not currently
serve or plan to 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, speed of data access
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. Our planned third
generation networks are expected to serve both these major
business centers and a broader geographic area in order to reach
more potential customers and to meet the requirements of our
spectrum licenses. 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
prospective 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.
28
Targeting High Value Customers. Our main focus
is on customers who purchase services under contract and
primarily use our services in their businesses and on
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature and our high level of customer service.
In our current customer base, our typical customer has between 3
and 30 handsets, and some of our largest customers have over 500
handsets; however, new customers that we have recently acquired
generally have a lower number of handsets per customer, and we
expect this trend to continue. As we deploy our planned third
generation networks using WCDMA technology in our markets, we
plan to extend our target market to additional corporate
customers and high-value consumers who exhibit above average
usage, revenue and loyalty characteristics and who we believe
will be attracted to the services supported by our new networks
and the quality of our customer service.
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 completing our
testing of a high performance
push-to-talk
service that utilizes WCDMA technology in an effort to
continually provide differentiated service to our customers as
we deploy our planned WCDMA-based networks. Our competitors have
introduced competitive
push-to-talk
over cellular products, but we believe that the quality of our
Direct Connect service is superior at this time. We add further
value by customizing data applications that enhance the
productivity of our business customers, such as vehicle and
delivery tracking, order entry processing and workforce
monitoring applications.
Delivering Superior Customer Service. In
addition to our unique service offerings, we seek to further
differentiate ourselves by providing a higher level of customer
service than our competitors. We work proactively with our
customers to match them with service plans that offer greater
value based on the customers usage patterns. After
analyzing customer usage and expense data, we strive to minimize
a customers per minute costs while increasing overall
usage of our array of services, thereby providing higher value
to our customers while increasing our monthly revenues. This
goal is also furthered by our efforts during and after the sales
process to educate customers about our services, multi-function
handsets and rate plans. We have also implemented proactive
customer retention programs in an effort to increase customer
satisfaction and retention. In addition, we are currently making
investments to improve the quality and scalability of our
customer relationship management systems as part of our effort
to provide superior customer service to our growing customer
base.
Selectively Expanding our Service Areas. We
believe that we have significant opportunities to grow through
selective expansion of our service into additional areas in some
of the countries in which we currently operate, particularly in
Brazil where we have made significant additional investments to
expand our service areas, including expansion into the northeast
region of the country, and to add more capacity to Nextel
Brazils network to support its growth. Such expansion may
involve building out certain areas in which we already have
spectrum, obtaining additional spectrum in new areas which would
enable us to expand our network service areas, and further
developing our business in key urban areas. Our planned third
generation networks are expected to serve both our existing
major business centers and a broader geographic area in order to
reach more potential customers and to meet the requirements of
our spectrum licenses. We may also consider selectively
expanding into other Latin American countries where we do not
currently operate. See Future Capital Needs and
Resources Capital Expenditures for a
discussion of the factors that drive our capital spending.
Preserving the iDEN Opportunity. The iDEN
networks that we operate allow us to offer differentiated
services like Direct Connect while offering high quality voice
telephony and other innovative services. The iDEN technology is
unique in that it is the only widespread, commercially available
technology that operates on non-contiguous spectrum, which is
important to us because much of the spectrum that our operating
companies currently utilize 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.
29
In the past, Nextel Communications, a subsidiary of Sprint
Nextel, was one of the largest purchasers of iDEN technology and
provided significant support with respect to new product
development for that technology. Sprint Nextels recently
announced plans to decommission its iDEN network over the next
several years could affect Motorolas ability or
willingness to provide support for the development of new iDEN
handset models or enhancements to the features and functionality
of our iDEN networks without us funding that development or
agreeing to significant purchase commitments. 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. Motorola recently completed a
separation of its mobile devices and home division into two
separate public entities: Motorola Mobility, Inc., to which our
iDEN handset supply agreements have been assigned; and Motorola
Solutions, Inc., to which our iDEN network infrastructure supply
agreements have been assigned. In addition, we have entered into
arrangements with Motorola that are designed to provide us with
a continued source of iDEN network equipment and handsets in an
environment in which Sprint Nextels purchases and support
of future development of that equipment have declined. Examples
of these arrangements include:
|
|
|
|
|
Agreements we entered into with Motorola in September 2006 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.
|
|
|
|
An agreement we signed with Motorola, Inc., now Motorola
Solutions, Inc., in October 2010, which provided for the
extension of the terms of the iDEN network infrastructure
agreement with Motorola until December 31, 2014. The
extension of this infrastructure agreement will not impact any
handset pricing terms or commitments.
|
|
|
|
An agreement we entered into with Motorola Mobility, Inc. in
March 2011, which provided for the extension of the agreement
under which Motorola will supply iDEN handsets to NII Holdings
through 2014. In addition, we agreed to handset volume purchase
commitments with respect to certain handset models and pricing
parameters linked to the volume of our handset purchases. This
agreement provided that Motorola Mobility, Inc. will continue to
develop and deliver new handsets using the iDEN platform as we
develop our third generation networks over coming years.
|
In addition, in July 2010, Motorola Solutions announced that it
reached an agreement to sell certain of its operations relating
to the manufacture of network equipment to Nokia Siemens
Networks. Motorola Solutions has announced that the sale does
not include its iDEN business, but it is uncertain whether
Motorola Solutions sale of its other network equipment
businesses could affect its ability to support the iDEN
infrastructure business. The obligations of both Motorola
entities 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 and deploy 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 expanding our offering of
third generation voice and broadband data services in the
future. This focus on offering innovative and differentiated
services makes it important that we continue to invest in,
evaluate and, if appropriate, deploy new services and
enhancements to our existing services.
During 2009 and 2010, we participated in spectrum auctions in
Chile, Mexico and Brazil in order to acquire spectrum required
to support our planned third generation networks. We
commercially launched our third generation network in Peru in
2010 and are currently in the process of designing and building
third generation networks in Brazil, Chile and Mexico using
spectrum licensed to us. We expect to begin offering third
generation services in Chile later this year and in Brazil and
Mexico in 2012. In addition, the Argentine government has
30
announced plans to hold an auction of spectrum that would
support a third generation network in December 2011, and we have
notified the government of our interest in participating in this
auction.
The following chart details our current material third
generation spectrum holdings in each of our markets.
|
|
|
|
|
Country
|
|
Spectrum Band
|
|
Amount/Coverage
|
|
Brazil
|
|
1.9 GHz/2.1 GHz
|
|
20 MHz in 11 of 13 regions
(includes all major metropolitan areas)
|
Mexico
|
|
1.7 GHz/2.1 GHz
|
|
30 MHz nationwide
|
Peru
|
|
1.9 GHz
|
|
35 MHz nationwide
|
Chile
|
|
1.7 GHz/2.1 GHz
|
|
60 MHz nationwide
|
We expect to pursue opportunities to acquire additional third
generation spectrum in the future. Our decision whether to
acquire rights to use additional spectrum would likely be
affected by a number of factors, including the spectrum bands
available for purchase, the expected cost of acquiring that
spectrum and the availability and terms of any financing that we
would be required to raise in order to acquire the spectrum and
build the networks that will provide services that use that
spectrum.
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, 2011 and December 31, 2010. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil
|
|
|
Mexico
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Handsets in commercial service December 31, 2010
|
|
|
3,319
|
|
|
|
3,361
|
|
|
|
1,154
|
|
|
|
1,128
|
|
|
|
65
|
|
|
|
9,027
|
|
Net subscriber additions
|
|
|
394
|
|
|
|
142
|
|
|
|
65
|
|
|
|
178
|
|
|
|
6
|
|
|
|
785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handsets in commercial service
June 30, 2011
|
|
|
3,713
|
|
|
|
3,503
|
|
|
|
1,219
|
|
|
|
1,306
|
|
|
|
71
|
|
|
|
9,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies and Estimates
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses and related disclosures of contingent assets and
liabilities in the condensed consolidated financial statements
and accompanying notes. Although we believe that our estimates,
assumptions and judgments are reasonable, they are based upon
presently available information. Due to the inherent uncertainty
involved in making those estimates, actual results reported in
future periods could differ from those estimates.
As described in more detail in our annual report on
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations, we consider
the following accounting policies to be the most important to
our financial position and results of operations or policies
that require us to exercise significant judgment
and/or
estimates:
|
|
|
|
|
revenue recognition;
|
|
|
|
allowance for doubtful accounts;
|
|
|
|
depreciation of property, plant and equipment;
|
|
|
|
amortization of intangible assets;
|
|
|
|
asset retirement obligations;
|
|
|
|
foreign currency;
|
|
|
|
loss contingencies;
|
31
|
|
|
|
|
stock-based compensation; and
|
|
|
|
income taxes.
|
There have been no material changes to our critical accounting
policies and estimates during the six months ended June 30,
2010 compared to those discussed under Managements
Discussion and Analysis of Financial Condition and Results of
Operations in our annual report on
Form 10-K.
Results
of Operations
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of handsets and
accessories. Service revenues primarily include fixed monthly
access charges for mobile telephone service and two-way radio
and other services, including revenues from calling party pays
programs and variable charges for airtime and two-way radio
usage in excess of plan minutes, long-distance charges,
international roaming revenues derived from calls placed by our
customers and revenues generated from broadband data services we
provide on our third generation networks. Digital handset and
accessory revenues represent revenues we earn on the sale of
handsets and accessories to our customers.
In addition, we also have other less significant sources of
revenues. These revenues primarily include revenues generated
from our handset maintenance programs, roaming revenues
generated from other companies customers that roam on our
networks and co-location rental revenues from third-party
tenants that rent space on our towers.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of handset and accessory sales.
Cost of providing service consists of:
|
|
|
|
|
costs of interconnection with local exchange carrier facilities;
|
|
|
|
costs relating to terminating calls originated on our network on
other carriers networks;
|
|
|
|
direct switch, transmitter and receiver site costs, including
property taxes;
|
|
|
|
expenses related to our handset maintenance programs; and
|
|
|
|
insurance costs, utility costs, maintenance costs, spectrum
license fees and rent for the network switches and transmitter
sites used to operate our mobile networks.
|
Interconnection costs have fixed and variable components. The
fixed component of interconnection costs consists of monthly
flat-rate fees for facilities leased from local exchange
carriers, primarily for circuits required to connect our
transmitter sites to our network switches and to connect our
switches. The variable component of interconnection costs, which
fluctuates in relation to the volume and duration of wireless
calls, generally consists of per-minute use fees charged by
wireline and wireless carriers relating to wireless calls from
our handsets that terminate on their networks. Cost of digital
handset and accessory sales consists largely of the cost of the
handset and accessories, order fulfillment and
installation-related expenses, as well as write-downs of digital
handset and related accessory inventory for shrinkage or
obsolescence.
Our service and other revenues and the variable component of our
cost of service are primarily driven by the number of handsets
in service and not necessarily by the number of customers, as
one customer may purchase one or many handsets. Our digital
handset and accessory revenues and cost of digital handset and
accessory sales are primarily driven by the number of new
handsets placed into service, as well as handset upgrades
provided to existing customers.
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.
In accordance with accounting principles generally accepted in
the United States, we translated the results of operations of
our operating segments using the average currency exchange rates
for the six and three months ended June 30, 2011 and 2010.
The following table presents the average currency exchange rates
we used to translate the
32
results of operations of our operating segments into
U.S. dollars, as well as changes from the average exchange
rates utilized in prior periods. Because we treat the
U.S. dollar as the functional currency in Peru, Nextel
Perus results of operations are not significantly impacted
by changes in the U.S. dollar to Nuevo sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2011
|
|
2010
|
|
Percent Change
|
|
Mexican peso
|
|
|
11.91
|
|
|
|
12.68
|
|
|
|
6
|
%
|
Brazilian real
|
|
|
1.63
|
|
|
|
1.80
|
|
|
|
9
|
%
|
Argentine peso
|
|
|
4.05
|
|
|
|
3.87
|
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
2011
|
|
2010
|
|
Percent Change
|
|
Mexican peso
|
|
|
11.73
|
|
|
|
12.55
|
|
|
|
7
|
%
|
Brazilian real
|
|
|
1.60
|
|
|
|
1.79
|
|
|
|
11
|
%
|
Argentine peso
|
|
|
4.08
|
|
|
|
3.90
|
|
|
|
(5
|
)%
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Change from Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,216,655
|
|
|
|
95
|
%
|
|
$
|
2,498,302
|
|
|
|
95
|
%
|
|
$
|
718,353
|
|
|
|
29
|
%
|
Digital handset and accessory revenues
|
|
|
156,295
|
|
|
|
5
|
%
|
|
|
136,765
|
|
|
|
5
|
%
|
|
|
19,530
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,372,950
|
|
|
|
100
|
%
|
|
|
2,635,067
|
|
|
|
100
|
%
|
|
|
737,883
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(893,656
|
)
|
|
|
(26
|
)%
|
|
|
(695,876
|
)
|
|
|
(26
|
)%
|
|
|
(197,780
|
)
|
|
|
28
|
%
|
Cost of digital handset and accessory sales
|
|
|
(421,655
|
)
|
|
|
(13
|
)%
|
|
|
(354,936
|
)
|
|
|
(14
|
)%
|
|
|
(66,719
|
)
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,315,311
|
)
|
|
|
(39
|
)%
|
|
|
(1,050,812
|
)
|
|
|
(40
|
)%
|
|
|
(264,499
|
)
|
|
|
25
|
%
|
Selling and marketing expenses
|
|
|
(363,172
|
)
|
|
|
(11
|
)%
|
|
|
(315,814
|
)
|
|
|
(12
|
)%
|
|
|
(47,358
|
)
|
|
|
15
|
%
|
General and administrative expenses
|
|
|
(790,477
|
)
|
|
|
(23
|
)%
|
|
|
(578,870
|
)
|
|
|
(22
|
)%
|
|
|
(211,607
|
)
|
|
|
37
|
%
|
Depreciation and amortization
|
|
|
(328,039
|
)
|
|
|
(10
|
)%
|
|
|
(263,877
|
)
|
|
|
(10
|
)%
|
|
|
(64,162
|
)
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
575,951
|
|
|
|
17
|
%
|
|
|
425,694
|
|
|
|
16
|
%
|
|
|
150,257
|
|
|
|
35
|
%
|
Interest expense, net
|
|
|
(176,874
|
)
|
|
|
(5
|
)%
|
|
|
(179,000
|
)
|
|
|
(7
|
)%
|
|
|
2,126
|
|
|
|
(1
|
)%
|
Interest income
|
|
|
15,811
|
|
|
|
|
|
|
|
13,922
|
|
|
|
1
|
%
|
|
|
1,889
|
|
|
|
14
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
24,100
|
|
|
|
1
|
%
|
|
|
(1,052
|
)
|
|
|
|
|
|
|
25,152
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(8,358
|
)
|
|
|
|
|
|
|
(7,863
|
)
|
|
|
|
|
|
|
(495
|
)
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
430,630
|
|
|
|
13
|
%
|
|
|
251,701
|
|
|
|
10
|
%
|
|
|
178,929
|
|
|
|
71
|
%
|
Income tax provision
|
|
|
(220,253
|
)
|
|
|
(7
|
)%
|
|
|
(127,748
|
)
|
|
|
(5
|
)%
|
|
|
(92,505
|
)
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
210,377
|
|
|
|
6
|
%
|
|
$
|
123,953
|
|
|
|
5
|
%
|
|
$
|
86,424
|
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,670,327
|
|
|
|
95
|
%
|
|
$
|
1,280,632
|
|
|
|
95
|
%
|
|
$
|
389,695
|
|
|
|
30
|
%
|
Digital handset and accessory revenues
|
|
|
79,786
|
|
|
|
5
|
%
|
|
|
71,289
|
|
|
|
5
|
%
|
|
|
8,497
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,750,113
|
|
|
|
100
|
%
|
|
|
1,351,921
|
|
|
|
100
|
%
|
|
|
398,192
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(448,779
|
)
|
|
|
(26
|
)%
|
|
|
(346,351
|
)
|
|
|
(26
|
)%
|
|
|
(102,428
|
)
|
|
|
30
|
%
|
Cost of digital handset and accessory sales
|
|
|
(210,152
|
)
|
|
|
(12
|
)%
|
|
|
(182,108
|
)
|
|
|
(13
|
)%
|
|
|
(28,044
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(658,931
|
)
|
|
|
(38
|
)%
|
|
|
(528,459
|
)
|
|
|
(39
|
)%
|
|
|
(130,472
|
)
|
|
|
25
|
%
|
Selling and marketing expenses
|
|
|
(196,699
|
)
|
|
|
(11
|
)%
|
|
|
(165,425
|
)
|
|
|
(12
|
)%
|
|
|
(31,274
|
)
|
|
|
19
|
%
|
General and administrative expenses
|
|
|
(421,393
|
)
|
|
|
(24
|
)%
|
|
|
(309,833
|
)
|
|
|
(23
|
)%
|
|
|
(111,560
|
)
|
|
|
36
|
%
|
Depreciation and amortization
|
|
|
(172,120
|
)
|
|
|
(10
|
)%
|
|
|
(135,181
|
)
|
|
|
(10
|
)%
|
|
|
(36,939
|
)
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
300,970
|
|
|
|
17
|
%
|
|
|
213,023
|
|
|
|
16
|
%
|
|
|
87,947
|
|
|
|
41
|
%
|
Interest expense, net
|
|
|
(95,715
|
)
|
|
|
(5
|
)%
|
|
|
(93,274
|
)
|
|
|
(7
|
)%
|
|
|
(2,441
|
)
|
|
|
3
|
%
|
Interest income
|
|
|
9,600
|
|
|
|
|
|
|
|
8,323
|
|
|
|
|
|
|
|
1,277
|
|
|
|
15
|
%
|
Foreign currency transaction gains, net
|
|
|
15,606
|
|
|
|
1
|
%
|
|
|
24,031
|
|
|
|
2
|
%
|
|
|
(8,425
|
)
|
|
|
(35
|
)%
|
Other expense, net
|
|
|
(3,991
|
)
|
|
|
|
|
|
|
(3,505
|
)
|
|
|
|
|
|
|
(486
|
)
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
226,470
|
|
|
|
13
|
%
|
|
|
148,598
|
|
|
|
11
|
%
|
|
|
77,872
|
|
|
|
52
|
%
|
Income tax provision
|
|
|
(112,851
|
)
|
|
|
(7
|
)%
|
|
|
(73,107
|
)
|
|
|
(5
|
)%
|
|
|
(39,744
|
)
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
113,619
|
|
|
|
6
|
%
|
|
$
|
75,491
|
|
|
|
6
|
%
|
|
$
|
38,128
|
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
During the first half of 2011, we expanded our subscriber base
across all of our markets with much of this growth concentrated
in Brazil, Mexico and Peru. We continued to invest in coverage
expansion and network improvements during the first half of
2011, resulting in consolidated capital expenditures of
$521.8 million, which represented a 43% increase from the
first half of 2010. Almost half 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
34
plans to increase our customer base in that market, with a
significant portion of the remainder invested in our development
and deployment of third generation networks in both Brazil and
Mexico. Under our current business plan, we expect to incur
significant additional capital expenditures through the
remainder of 2011, in 2012 and in 2013 as we pursue our strategy
of building our planned third generation networks in Brazil,
Mexico and Chile. In addition, we expect to continue to incur
capital expenditures related to the expansion of the coverage
and improvement of the quality and capacity of our iDEN
networks. We may incur additional capital expenditures if we are
able to acquire spectrum and deploy a third generation network
in Argentina.
We believe that our planned deployment of third generation
networks will enable us to offer new and differentiated services
to a larger base of customers. We expect to incur significant
expenses associated with the deployment phase of these networks,
particularly general and administrative and selling and
marketing expenses, but we do not expect a corresponding
increase in operating revenues during the deployment phase. As a
result, we anticipate our operating margins will likely be lower
during the network deployment phase, particularly during the
initial stages of deployment.
The average values of the local currencies in Brazil and Mexico
appreciated relative to the U.S. dollar during the six and
three months ended June 30, 2011 compared to the same
periods in 2010. Conversely, the average value of the Argentine
peso depreciated relative to the U.S. dollar during the six
and three months ended June 30, 2011 compared to the same
periods in 2010. As a result, the components of our consolidated
results of operations for the six and three months ended
June 30, 2011, after translation into U.S. dollar,
reflect more significant increases in U.S. dollar revenues
and expenses than would have occurred if these currencies had
not appreciated relative to the U.S. dollar.
The $718.4 million, or 29%, and $389.7 million, or
30%, increases in consolidated service and other revenues in the
six and three months ended June 30, 2011 compared to the
same periods in 2010 are primarily the result of 21% increases
in the average number of total handsets in service over both
periods, which resulted from the continued demand for our
services and the balanced growth and expansion strategies in our
markets. These increases were also the result of increases in
consolidated average revenue per subscriber, which resulted
primarily from the appreciation in the average value of the
Brazilian real and the Mexican peso, as well as from increases
in average revenue per subscriber on a local currency basis in
Brazil driven by higher usage and increases in the prices
charged for various rate plans.
Significant factors contributing to the $197.8 million, or
28%, and $102.4 million, or 30%, increases in consolidated
cost of service in the six and three months ended June 30,
2011 compared to the same periods in 2010 included:
|
|
|
|
|
$101.3 million, or 29%, and $36.9 million, or 20%,
increases in consolidated interconnect costs, primarily in
Brazil, resulting from increases in subscribers and the relative
amount of minutes of use for calls that terminate on other
carriers networks and require the payment of call
termination charges, partially offset by a reduction in mobile
termination rates in Mexico that was ordered by the Mexican
regulatory authorities in May 2011 and applied retroactively to
January 1, 2011;
|
|
|
|
$48.9 million, or 28%, and $40.8 million, or 54%,
increases in consolidated site and switch expenses, due to a
one-time $22.4 million refund of excess fees paid for
spectrum use that Nextel Mexico received in the second quarter
of 2010;
|
|
|
|
$30.3 million, or 163%, and $7.5 million, or 40%,
increases in consolidated managed services costs, primarily in
Brazil, related to certain engineering activities managed by
third-party vendors; and
|
|
|
|
$19.2 million, or 15%, and $11.9 million, or 19%,
increases in consolidated service and repair costs, mostly in
Brazil, resulting from increases in the number of customers
participating in Nextel Brazils handset maintenance
program.
|
35
The $66.7 million, or 19%, and $28.0 million, or 15%,
increases in consolidated cost of digital handset and accessory
revenues in the six and three months ended June 30, 2011
compared to the same periods in 2010 is principally due to
increases in handset upgrades for existing subscribers and, to a
lesser extent, increases in the sale of higher cost handsets to
new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $47.4 million, or 15%, and $31.3 million, or 19%,
increases in consolidated selling and marketing expenses in the
six and three months ended June 30, 2011 compared to the
same periods in 2010 principally as a result of
$34.0 million, or 28%, and $21.6 million, or 34%,
increases in consolidated direct commissions and payroll
expenses, mostly in Brazil and Mexico, due to increases in gross
subscriber additions by internal market sales personnel, as well
as increases in the number of sales and marketing personnel.
|
|
4.
|
General and
administrative expenses
|
Significant factors contributing to the $211.6 million, or
37%, and $111.6 million, or 36%, increases in consolidated
general and administrative expenses in the six and three months
ended June 30, 2011 compared to the same periods in 2010
included:
|
|
|
|
|
$103.8 million, or 35%, and $56.0 million, or 36%,
increases in consolidated general corporate costs, largely
related to increases in revenue-based taxes in Brazil and higher
personnel and consulting costs in some of our markets, which are
primarily related to the development and deployment of our third
generation networks and related initiatives;
|
|
|
|
$46.3 million, or 30%, and $26.0 million, or 31%,
increases in consolidated customer care and billing operations
expenses, mostly in Brazil, as a result of increases in customer
care personnel necessary to support larger customer bases in our
markets; and
|
|
|
|
$35.8 million, or 95%, and $23.5 million, or 130%,
increases in consolidated bad debt expense, principally related
to Nextel Brazils revenue growth and lower collection
rates in Brazil resulting from changes to our credit procedures
that resulted in the addition of some customers whose credit
histories were less established.
|
|
|
5.
|
Depreciation
and amortization
|
The $64.2 million, or 24%, and $36.9 million, or 27%,
increases in consolidated depreciation and amortization in the
six and three months ended June 30, 2011 compared to the
same periods in 2010 are the result of increases in consolidated
property, plant and equipment in service caused by the continued
expansion of the capacity of our iDEN network, as well as the
deployment of our third generation networks.
|
|
6.
|
Foreign
currency transaction gains, net
|
Foreign currency transaction gains of $24.1 million and
$15.6 million during the six and three months ended
June 30, 2011 are primarily the result of the impact of the
appreciation in the value of the Brazilian real relative to the
U.S. dollar on Nextel Brazils net liabilities,
primarily its syndicated loan facility.
Foreign currency transaction gains of $24.0 million during
the second quarter of 2010 are largely the result of the impact
of the appreciation in the value of the Mexican peso relative to
the U.S. dollar on corporate peso-denominated receivables
due from Nextel Mexico.
The $92.5 million, or 72%, and $39.7 million, or 54%,
increases in the consolidated income tax provision in the six
and three months ended June 30, 2011 compared to the same
periods in 2010 are primarily due to $178.9 million and
$77.9 million increases in consolidated income before tax
provision and the reversal of a $14.5 million income tax
benefit recognized on the sale of certain fixed assets based on
an administrative ruling in Mexico, which we recorded entirely
during the first quarter of 2011.
36
Segment
Results
We evaluate performance of our segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. The results of Nextel
Chile are included in Corporate and other. A
discussion of the results of operations for each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Change from Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,647,511
|
|
|
|
96
|
%
|
|
$
|
1,116,433
|
|
|
|
95
|
%
|
|
$
|
531,078
|
|
|
|
48
|
%
|
Digital handset and accessory revenues
|
|
|
72,209
|
|
|
|
4
|
%
|
|
|
57,933
|
|
|
|
5
|
%
|
|
|
14,276
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,719,720
|
|
|
|
100
|
%
|
|
|
1,174,366
|
|
|
|
100
|
%
|
|
|
545,354
|
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(507,429
|
)
|
|
|
(30
|
)%
|
|
|
(390,722
|
)
|
|
|
(33
|
)%
|
|
|
(116,707
|
)
|
|
|
30
|
%
|
Cost of digital handset and accessory sales
|
|
|
(128,881
|
)
|
|
|
(7
|
)%
|
|
|
(86,044
|
)
|
|
|
(8
|
)%
|
|
|
(42,837
|
)
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(636,310
|
)
|
|
|
(37
|
)%
|
|
|
(476,766
|
)
|
|
|
(41
|
)%
|
|
|
(159,544
|
)
|
|
|
33
|
%
|
Selling and marketing expenses
|
|
|
(146,426
|
)
|
|
|
(8
|
)%
|
|
|
(123,805
|
)
|
|
|
(10
|
)%
|
|
|
(22,621
|
)
|
|
|
18
|
%
|
General and administrative expenses
|
|
|
(358,640
|
)
|
|
|
(21
|
)%
|
|
|
(223,395
|
)
|
|
|
(19
|
)%
|
|
|
(135,245
|
)
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
578,344
|
|
|
|
34
|
%
|
|
$
|
350,400
|
|
|
|
30
|
%
|
|
$
|
227,944
|
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
869,177
|
|
|
|
96
|
%
|
|
$
|
578,383
|
|
|
|
95
|
%
|
|
$
|
290,794
|
|
|
|
50
|
%
|
Digital handset and accessory revenues
|
|
|
37,205
|
|
|
|
4
|
%
|
|
|
32,156
|
|
|
|
5
|
%
|
|
|
5,049
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
906,382
|
|
|
|
100
|
%
|
|
|
610,539
|
|
|
|
100
|
%
|
|
|
295,843
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(266,782
|
)
|
|
|
(30
|
)%
|
|
|
(200,152
|
)
|
|
|
(33
|
)%
|
|
|
(66,630
|
)
|
|
|
33
|
%
|
Cost of digital handset and accessory sales
|
|
|
(64,305
|
)
|
|
|
(7
|
)%
|
|
|
(48,159
|
)
|
|
|
(8
|
)%
|
|
|
(16,146
|
)
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(331,087
|
)
|
|
|
(37
|
)%
|
|
|
(248,311
|
)
|
|
|
(41
|
)%
|
|
|
(82,776
|
)
|
|
|
33
|
%
|
Selling and marketing expenses
|
|
|
(82,734
|
)
|
|
|
(9
|
)%
|
|
|
(68,436
|
)
|
|
|
(11
|
)%
|
|
|
(14,298
|
)
|
|
|
21
|
%
|
General and administrative expenses
|
|
|
(197,218
|
)
|
|
|
(22
|
)%
|
|
|
(120,101
|
)
|
|
|
(20
|
)%
|
|
|
(77,117
|
)
|
|
|
64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
295,343
|
|
|
|
32
|
%
|
|
$
|
173,691
|
|
|
|
28
|
%
|
|
$
|
121,652
|
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 51% of our
consolidated operating revenues for the six months ended
June 30, 2011 compared to 45% in the same period during
2010 and generated segment earnings margins of 34% in the first
half of 2011 compared to 30% in the first half of 2010. Nextel
Brazil has continued to experience growth in its existing
markets and has continued to make investments in its newer
markets as a result of increased demand for its services.
We continued to invest in Brazil throughout the first half of
2011 in order to expand the geographic coverage of Nextel
Brazils existing iDEN network and to add capacity to and
improve the quality of this network to support its growth. As a
result of both Nextel Brazils iDEN network expansion and
the development of its third generation
37
network mentioned below, Nextel Brazils capital
expenditures represented 41% of consolidated total capital
expenditures during the first half of 2011. We believe that the
quality and capacity of Nextel Brazils network, as well as
its expanded coverage are contributing factors to its low
customer turnover rate and increased subscriber growth.
In late 2010, Nextel Brazil participated in a series of spectrum
auctions and was the successful bidder for 20 MHz of
spectrum in 1.9/2.1 GHz spectrum bands in 11 of the 13
auction lots covering approximately 98% of the Brazilian
population for $714.4 million. Nextel Brazil also
successfully bid on 20 MHz of spectrum in the 1.8 GHz
band in Rio de Janeiro for a total bid price of approximately
$121.7 million. Nextel Brazil plans to use the
1.9/2.1 GHz spectrum to support a third generation network
that will utilize WCDMA technology and the 1.8 GHz spectrum
to support its long-term strategy. The licenses relating to the
spectrum won by Nextel Brazil in the auction were granted in
June 2011. The development and deployment of a third generation
network in Brazil using this spectrum will require us to make
significant investments in capital expenditures. See
Future Capital Needs and Resources Capital
Expenditures for more information.
We believe that our planned deployment of a third generation
network will enable us to offer new and differentiated services
to a larger base of customers in Brazil. We expect to incur
significant expenses associated with the deployment phase of
this network, particularly general and administrative and
selling and marketing expenses, but do not expect a
corresponding increase in operating revenues during the
deployment phase. As a result, we anticipate that Nextel
Brazils operating margins will be lower during the network
deployment phase, particularly during the initial stages of
deployment.
The average value of the Brazilian real for the six and three
months ended June 30, 2011 appreciated relative to the
U.S. dollar by 9% and 11%, respectively, compared to the
average rate that prevailed during the six and three months
ended June 30, 2010. As a result, the components of Nextel
Brazils results of operations for the six and three months
ended June 30, 2011, after translation into
U.S. dollars, reflect more significant increases in
U.S. dollar revenues and expenses than would have occurred
if the Brazilian real had not appreciated relative to the
U.S. dollar.
Nextel Brazils segment earnings increased
$227.9 million, or 65%, and $121.7 million, or 70%, in
the six and three months ended June 30, 2011 compared to
the same periods in 2010 as a result of the following:
Significant factors contributing to the $531.1 million, or
48%, and $290.8 million, or 50%, increases in service and
other revenues in the six and three months ended June 30,
2011 compared to the same periods in 2010 included increases in
the average number of handsets in service, as well as increases
in average revenues per subscriber, resulting from the combined
effect of the appreciation of the Brazilian real and targeted
price increases.
The $116.7 million, or 30%, and $66.6 million, or 33%,
increases in cost of service in the six and three months ended
June 30, 2011 compared to the same periods in 2010 are
primarily due to the $70.6 million, or 34%, and
$38.6 million, or 36%, increases in interconnect costs due
to an increase in the size of our subscriber base, as well as an
increase in interconnect minutes of use for calls that terminate
on other carriers networks. Despite these increases,
Nextel Brazils cost of service as a percentage of its
total operating revenues decreased from 33% in six and three
months ended June 30, 2010 to 30% and 29% in the same
periods in 2011, primarily due to increases in less costly
mobile-to-mobile
minutes of use as a result of Nextel Brazils
implementation of rate plans that encouraged more
in-network
calling.
Increases in handset upgrades for existing subscribers and, to a
lesser extent, increases in the number of handset sales to new
subscribers were key factors that contributed to the
$42.8 million, or 50%, and $16.1 million, or 34%,
increases in cost of digital handset and accessory revenues in
the six and three months ended June 30, 2011 compared to
the same periods in 2010.
38
|
|
3.
|
General and
administrative expenses
|
Significant factors contributing to the $135.2 million, or
61%, and $77.1 million, or 64%, increases in general and
administrative expenses in the six and three months ended
June 30, 2011 compared to the same periods in 2010 included:
|
|
|
|
|
$61.4 million, or 60%, and $36.4 million, or 68%,
increases in other general corporate costs due to increases in
revenue-based taxes and general and administrative personnel;
|
|
|
|
$30.1 million, or 40%, and $17.7 million, or 44%,
increases in customer care and billing operations due to
increases in customer care personnel; and
|
|
|
|
$35.8 million, or 149%, and $21.9 million, or 181%,
increases in bad debt expense related to Nextel Brazils
operating revenue growth and decreases in collection rates
resulting from changes to our credit procedures that resulted in
the addition of some customers whose credit histories were less
established. The higher levels of bad debt expense reflect the
impact of these changes and, relative to operating revenues,
represent increases from historic levels. We have made further
adjustments to our credit procedures that are designed to
address some of the factors that led to the increases in bad
debt expense, but we do not expect future bad debt levels to
return to those experienced in prior periods.
|
The changes in Nextel Brazils selling and marketing
expenses in the six and three months ended June 30, 2011
compared to the same periods in 2010 were immaterial.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Change from Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,113,192
|
|
|
|
96
|
%
|
|
$
|
990,719
|
|
|
|
96
|
%
|
|
$
|
122,473
|
|
|
|
12
|
%
|
Digital handset and accessory revenues
|
|
|
42,122
|
|
|
|
4
|
%
|
|
|
42,871
|
|
|
|
4
|
%
|
|
|
(749
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,155,314
|
|
|
|
100
|
%
|
|
|
1,033,590
|
|
|
|
100
|
%
|
|
|
121,724
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(227,937
|
)
|
|
|
(20
|
)%
|
|
|
(161,956
|
)
|
|
|
(16
|
)%
|
|
|
(65,981
|
)
|
|
|
41
|
%
|
Cost of digital handset and accessory sales
|
|
|
(210,795
|
)
|
|
|
(18
|
)%
|
|
|
(200,909
|
)
|
|
|
(19
|
)%
|
|
|
(9,886
|
)
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(438,732
|
)
|
|
|
(38
|
)%
|
|
|
(362,865
|
)
|
|
|
(35
|
)%
|
|
|
(75,867
|
)
|
|
|
21
|
%
|
Selling and marketing expenses
|
|
|
(142,812
|
)
|
|
|
(12
|
)%
|
|
|
(134,148
|
)
|
|
|
(13
|
)%
|
|
|
(8,664
|
)
|
|
|
6
|
%
|
General and administrative expenses
|
|
|
(170,160
|
)
|
|
|
(15
|
)%
|
|
|
(147,415
|
)
|
|
|
(14
|
)%
|
|
|
(22,745
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
403,610
|
|
|
|
35
|
%
|
|
$
|
389,162
|
|
|
|
38
|
%
|
|
$
|
14,448
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
567,615
|
|
|
|
96
|
%
|
|
$
|
502,798
|
|
|
|
96
|
%
|
|
$
|
64,817
|
|
|
|
13
|
%
|
Digital handset and accessory revenues
|
|
|
20,693
|
|
|
|
4
|
%
|
|
|
21,368
|
|
|
|
4
|
%
|
|
|
(675
|
)
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
588,308
|
|
|
|
100
|
%
|
|
|
524,166
|
|
|
|
100
|
%
|
|
|
64,142
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(101,134
|
)
|
|
|
(17
|
)%
|
|
|
(75,511
|
)
|
|
|
(15
|
)%
|
|
|
(25,623
|
)
|
|
|
34
|
%
|
Cost of digital handset and accessory sales
|
|
|
(103,709
|
)
|
|
|
(18
|
)%
|
|
|
(100,160
|
)
|
|
|
(19
|
)%
|
|
|
(3,549
|
)
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(204,843
|
)
|
|
|
(35
|
)%
|
|
|
(175,671
|
)
|
|
|
(34
|
)%
|
|
|
(29,172
|
)
|
|
|
17
|
%
|
Selling and marketing expenses
|
|
|
(74,380
|
)
|
|
|
(13
|
)%
|
|
|
(68,057
|
)
|
|
|
(13
|
)%
|
|
|
(6,323
|
)
|
|
|
9
|
%
|
General and administrative expenses
|
|
|
(85,822
|
)
|
|
|
(14
|
)%
|
|
|
(75,660
|
)
|
|
|
(14
|
)%
|
|
|
(10,162
|
)
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
223,263
|
|
|
|
38
|
%
|
|
$
|
204,778
|
|
|
|
39
|
%
|
|
$
|
18,485
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel Mexico comprised 34% of our consolidated operating
revenues and generated a 35% segment earnings margin for the
first half of 2011, which is lower than the margin reported for
the first half of 2010. This
year-over-year
decrease in Nextel Mexicos segment earnings margin is
largely the result of an increase in Nextel Mexicos cost
of service, which reflects increases in interconnect minutes of
use, as well as the impact on Nextel Mexicos site and
switch expenses of the receipt of a one-time refund of excess
fees paid for spectrum use in the second quarter of 2010. In
addition, during the second quarter of 2011, the Mexican Federal
Commission of Telecommunications, or Cofetel, ordered a
reduction in the rates that we pay to terminate calls on the
networks of other mobile carriers. This reduction in mobile
termination rates was made retroactive to January 1, 2011
and resulted in an additional $16.6 million reduction to
interconnect expense in the second quarter of 2011 related to
the application of the reduced rates to those paid in the first
quarter of 2011. The Cofetels reduction in mobile
termination rates could be contested by other mobile operators.
Coverage expansion and network improvements in Mexico resulted
in capital expenditures of $130.6 million for the first
half of 2011, which represents 25% of our consolidated total
capital expenditures, a significant increase when compared to
the same period in 2010. In 2010, Nextel Mexico was awarded a
nationwide license for 30 MHz of spectrum in the
1.7 GHz and 2.1 GHz bands. We acquired this spectrum
to enable Nextel Mexico to develop and deploy a third generation
network in Mexico. We began offering limited services on our
third generation network in
40
two cities in Mexico in early 2011, and we plan to begin
providing third generation service offerings on a more
widespread basis in Mexico in 2012. Continued development and
deployment of a third generation network in Mexico will require
significant investments in capital expenditures in Mexico. See
Future Capital Needs and Resources Capital
Expenditures for more information.
We believe that our deployment of a third generation network
will enable us to offer new and differentiated services to a
larger base of customers in Mexico. We expect to incur
significant expenses associated with the deployment phase of
this network, particularly general and administrative and
selling and marketing expenses, but do not expect a
corresponding increase in operating revenues during the
deployment phase. As a result, we anticipate that our operating
margins will be lower during the network deployment phase,
particularly during the initial stages of deployment.
The average value of the Mexican peso for the six and three
months ended June 30, 2011 appreciated relative to the
U.S. dollar by 6% and 7% compared to the average rate that
prevailed during the six and three months ended June 30,
2010. As a result, the components of Nextel Mexicos
results of operations for the six and three months ended
June 30, 2011 after translation into U.S. dollars
reflect higher U.S. dollar-denominated revenues and
expenses than would have occurred if it were not for the impact
of the appreciation in the average value of the peso relative to
the U.S. dollar.
Nextel Mexicos segment earnings margin increased
$14.4 million, or 4%, and $18.5 million, or 9%, in the
six and three months ended June 30, 2011 compared to the
same periods in 2010 as a result of the following:
The $122.5 million, or 12%, and $64.8 million, or 13%,
increases in service and other revenues from the six and three
months ended June 30, 2011 compared to the same periods in
2010 are primarily due to increases in the average number of
handsets in service resulting from subscriber growth across
Nextel Mexicos markets and the overall improvement in
Mexicos economy, partially offset by slightly lower
average revenue per subscriber compared to the six and three
months ended June 30, 2010 caused by the implementation of
lower cost rate plans in response to the competitive environment
in Mexico.
Significant factors contributing to the $66.0 million, or
41%, and $25.6 million, or 34%, increases in cost of
service in the six and three months ended June 30, 2011
compared to the same periods in 2010 are primarily the result of
higher interconnect minutes of use and increases in site and
switch expenses due to a one-time $22.4 million refund of
excess fees paid for spectrum use that Nextel Mexico received in
the second quarter of 2010. These increases in cost of revenues
in the six and three months ended June 30, 2011 were also
driven by increases in interconnect minutes of use and related
call termination charges, partially offset by a reduction in
mobile termination rates in Mexico that was adopted in May 2011
but applied retroactively to January 1, 2011.
The changes in Nextel Mexicos cost of digital handset and
accessory revenues, selling and marketing expenses and general
and administrative expenses in the six and three months ended
June 30, 2011 compared to the same periods in 2010 were
immaterial.
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Change from Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
286,275
|
|
|
|
92
|
%
|
|
$
|
247,716
|
|
|
|
92
|
%
|
|
$
|
38,559
|
|
|
|
16
|
%
|
Digital handset and accessory revenues
|
|
|
25,288
|
|
|
|
8
|
%
|
|
|
21,206
|
|
|
|
8
|
%
|
|
|
4,082
|
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311,563
|
|
|
|
100
|
%
|
|
|
268,922
|
|
|
|
100
|
%
|
|
|
42,641
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(91,588
|
)
|
|
|
(30
|
)%
|
|
|
(87,593
|
)
|
|
|
(33
|
)%
|
|
|
(3,995
|
)
|
|
|
5
|
%
|
Cost of digital handset and accessory sales
|
|
|
(41,094
|
)
|
|
|
(13
|
)%
|
|
|
(36,178
|
)
|
|
|
(13
|
)%
|
|
|
(4,916
|
)
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(132,682
|
)
|
|
|
(43
|
)%
|
|
|
(123,771
|
)
|
|
|
(46
|
)%
|
|
|
(8,911
|
)
|
|
|
7
|
%
|
Selling and marketing expenses
|
|
|
(26,406
|
)
|
|
|
(8
|
)%
|
|
|
(23,334
|
)
|
|
|
(9
|
)%
|
|
|
(3,072
|
)
|
|
|
13
|
%
|
General and administrative expenses
|
|
|
(66,201
|
)
|
|
|
(21
|
)%
|
|
|
(53,244
|
)
|
|
|
(20
|
)%
|
|
|
(12,957
|
)
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
86,274
|
|
|
|
28
|
%
|
|
$
|
68,573
|
|
|
|
25
|
%
|
|
$
|
17,701
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
147,699
|
|
|
|
92
|
%
|
|
$
|
125,837
|
|
|
|
92
|
%
|
|
$
|
21,862
|
|
|
|
17
|
%
|
Digital handset and accessory revenues
|
|
|
13,150
|
|
|
|
8
|
%
|
|
|
10,328
|
|
|
|
8
|
%
|
|
|
2,822
|
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
160,849
|
|
|
|
100
|
%
|
|
|
136,165
|
|
|
|
100
|
%
|
|
|
24,684
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(46,711
|
)
|
|
|
(29
|
)%
|
|
|
(43,273
|
)
|
|
|
(32
|
)%
|
|
|
(3,438
|
)
|
|
|
8
|
%
|
Cost of digital handset and accessory sales
|
|
|
(21,673
|
)
|
|
|
(14
|
)%
|
|
|
(17,693
|
)
|
|
|
(13
|
)%
|
|
|
(3,980
|
)
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68,384
|
)
|
|
|
(43
|
)%
|
|
|
(60,966
|
)
|
|
|
(45
|
)%
|
|
|
(7,418
|
)
|
|
|
12
|
%
|
Selling and marketing expenses
|
|
|
(14,706
|
)
|
|
|
(9
|
)%
|
|
|
(12,652
|
)
|
|
|
(9
|
)%
|
|
|
(2,054
|
)
|
|
|
16
|
%
|
General and administrative expenses
|
|
|
(35,436
|
)
|
|
|
(22
|
)%
|
|
|
(30,573
|
)
|
|
|
(23
|
)%
|
|
|
(4,863
|
)
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
42,323
|
|
|
|
26
|
%
|
|
$
|
31,974
|
|
|
|
23
|
%
|
|
$
|
10,349
|
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over the course of the last several years, the inflation rate in
Argentina has risen significantly, and we expect that it may
continue to remain elevated in future years. The higher
inflation rate has affected costs that are incurred in Argentine
pesos, including personnel costs in particular. If the higher
inflation rates in Argentina continue, Nextel Argentinas
results of operations may be adversely affected.
The average values of the Argentine peso for the six and three
months ended June 30, 2011 depreciated relative to the
U.S. dollar by 5% when compared to the same periods in
2010. As a result, the components of Nextel Argentinas
results of operations for the six and three months ended
June 30, 2011 after translation into U.S. dollars
reflect lower U.S. dollar-denominated revenues and expenses
than would have occurred if the Argentine peso had not
depreciated relative to the U.S. dollar.
Nextel Argentinas segment earnings increased 26% and 32%
in the six and three months ended June 30, 2011 compared to
the same periods in 2010, primarily due to $38.6 million,
or 16%, and $21.9 million, or 17%, increases in service and
other revenues caused by increases in the average number of
handsets in service, as well as increases in average revenue per
subscriber, partially offset by increased general and
administrative expenses caused by increases in salaries due to
the higher rate of inflation in Argentina and a higher turnover
tax rate.
42
The changes in Nextel Argentinas cost of revenues and
selling and marketing expenses in the six and three months ended
June 30, 2011 compared to the same periods in 2010 were
immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Change from Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
157,205
|
|
|
|
90
|
%
|
|
$
|
134,502
|
|
|
|
90
|
%
|
|
$
|
22,703
|
|
|
|
17
|
%
|
Digital handset and accessory revenues
|
|
|
16,622
|
|
|
|
10
|
%
|
|
|
14,695
|
|
|
|
10
|
%
|
|
|
1,927
|
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173,827
|
|
|
|
100
|
%
|
|
|
149,197
|
|
|
|
100
|
%
|
|
|
24,630
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(52,358
|
)
|
|
|
(30
|
)%
|
|
|
(50,089
|
)
|
|
|
(34
|
)%
|
|
|
(2,269
|
)
|
|
|
5
|
%
|
Cost of digital handset and accessory sales
|
|
|
(38,512
|
)
|
|
|
(22
|
)%
|
|
|
(29,789
|
)
|
|
|
(20
|
)%
|
|
|
(8,723
|
)
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90,870
|
)
|
|
|
(52
|
)%
|
|
|
(79,878
|
)
|
|
|
(54
|
)%
|
|
|
(10,992
|
)
|
|
|
14
|
%
|
Selling and marketing expenses
|
|
|
(31,373
|
)
|
|
|
(18
|
)%
|
|
|
(24,907
|
)
|
|
|
(16
|
)%
|
|
|
(6,466
|
)
|
|
|
26
|
%
|
General and administrative expenses
|
|
|
(36,531
|
)
|
|
|
(21
|
)%
|
|
|
(34,170
|
)
|
|
|
(23
|
)%
|
|
|
(2,361
|
)
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
15,053
|
|
|
|
9
|
%
|
|
$
|
10,242
|
|
|
|
7
|
%
|
|
$
|
4,811
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
79,466
|
|
|
|
90
|
%
|
|
$
|
68,902
|
|
|
|
90
|
%
|
|
$
|
10,564
|
|
|
|
15
|
%
|
Digital handset and accessory revenues
|
|
|
8,704
|
|
|
|
10
|
%
|
|
|
7,416
|
|
|
|
10
|
%
|
|
|
1,288
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,170
|
|
|
|
100
|
%
|
|
|
76,318
|
|
|
|
100
|
%
|
|
|
11,852
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(26,358
|
)
|
|
|
(30
|
)%
|
|
|
(24,432
|
)
|
|
|
(32
|
)%
|
|
|
(1,926
|
)
|
|
|
8
|
%
|
Cost of digital handset and accessory sales
|
|
|
(19,292
|
)
|
|
|
(22
|
)%
|
|
|
(14,905
|
)
|
|
|
(20
|
)%
|
|
|
(4,387
|
)
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,650
|
)
|
|
|
(52
|
)%
|
|
|
(39,337
|
)
|
|
|
(52
|
)%
|
|
|
(6,313
|
)
|
|
|
16
|
%
|
Selling and marketing expenses
|
|
|
(15,974
|
)
|
|
|
(18
|
)%
|
|
|
(12,342
|
)
|
|
|
(16
|
)%
|
|
|
(3,632
|
)
|
|
|
29
|
%
|
General and administrative expenses
|
|
|
(18,671
|
)
|
|
|
(21
|
)%
|
|
|
(18,620
|
)
|
|
|
(24
|
)%
|
|
|
(51
|
)
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
7,875
|
|
|
|
9
|
%
|
|
$
|
6,019
|
|
|
|
8
|
%
|
|
$
|
1,856
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2009, we launched a third generation network in Peru
using 1.9 GHz spectrum we acquired in 2007. We continue to
develop and deploy transmitter and receiver sites in conjunction
with the build-out of this network. Although we commercially
launched voice service on this network in April 2010, we expect
to incur significant expenses associated with our continued
deployment, particularly general and administrative expenses, as
we launch services in more markets and incorporate additional
services in existing markets in Peru, including high performance
push-to-talk
services; however, we do not expect a corresponding increase in
operating revenues during this deployment phase. We believe that
the deployment of this third generation network will enable us
to offer new and differentiated services to a larger base of
potential customers in Peru.
Because the U.S. dollar is Nextel Perus functional
currency, results of operations are not significantly impacted
by changes in the U.S. dollar to Peruvian sol exchange rate.
Segment earnings increased 47% and 31% in the six and three
months ended June 30, 2011 compared to the same periods in
2010, primarily due to $22.7 million, or 17%, and
$10.6 million, or 15%, increases in service and other
revenues largely attributable to 35% increases in average
digital subscribers for both periods, partially offset
43
by decreases in average revenues per subscriber. The increases
in Nextel Perus service and other revenues were partially
offset by slight increases to cost of digital handset and
accessory sales, and selling and marketing expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
and other
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Change from Previous
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
14,819
|
|
|
|
100
|
%
|
|
$
|
10,347
|
|
|
|
99
|
%
|
|
$
|
4,472
|
|
|
|
43
|
%
|
Digital handset and accessory revenues
|
|
|
54
|
|
|
|
|
|
|
|
60
|
|
|
|
1
|
%
|
|
|
(6
|
)
|
|
|
(10
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,873
|
|
|
|
100
|
%
|
|
|
10,407
|
|
|
|
100
|
%
|
|
|
4,466
|
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(15,155
|
)
|
|
|
(102
|
)%
|
|
|
(6,163
|
)
|
|
|
(59
|
)%
|
|
|
(8,992
|
)
|
|
|
146
|
%
|
Cost of digital handset and accessory sales
|
|
|
(2,373
|
)
|
|
|
(16
|
)%
|
|
|
(2,016
|
)
|
|
|
(20
|
)%
|
|
|
(357
|
)
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,528
|
)
|
|
|
(118
|
)%
|
|
|
(8,179
|
)
|
|
|
(79
|
)%
|
|
|
(9,349
|
)
|
|
|
114
|
%
|
Selling and marketing expenses
|
|
|
(16,155
|
)
|
|
|
(109
|
)%
|
|
|
(9,620
|
)
|
|
|
(92
|
)%
|
|
|
(6,535
|
)
|
|
|
68
|
%
|
General and administrative expenses
|
|
|
(164,914
|
)
|
|
|
NM
|
|
|
|
(121,414
|
)
|
|
|
NM
|
|
|
|
(43,500
|
)
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
$
|
(183,724
|
)
|
|
|
NM
|
|
|
$
|
(128,806
|
)
|
|
|
NM
|
|
|
$
|
(54,918
|
)
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
7,434
|
|
|
|
100
|
%
|
|
$
|
5,782
|
|
|
|
100
|
%
|
|
$
|
1,652
|
|
|
|
29
|
%
|
Digital handset and accessory revenues
|
|
|
34
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
13
|
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,468
|
|
|
|
100
|
%
|
|
|
5,803
|
|
|
|
100
|
%
|
|
|
1,665
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(8,090
|
)
|
|
|
(108
|
)%
|
|
|
(3,285
|
)
|
|
|
(57
|
)%
|
|
|
(4,805
|
)
|
|
|
146
|
%
|
Cost of digital handset and accessory sales
|
|
|
(1,173
|
)
|
|
|
(16
|
)%
|
|
|
(1,191
|
)
|
|
|
(20
|
)%
|
|
|
18
|
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,263
|
)
|
|
|
(124
|
)%
|
|
|
(4,476
|
)
|
|
|
(77
|
)%
|
|
|
(4,787
|
)
|
|
|
107
|
%
|
Selling and marketing expenses
|
|
|
(8,905
|
)
|
|
|
(119
|
)%
|
|
|
(3,938
|
)
|
|
|
(68
|
)%
|
|
|
(4,967
|
)
|
|
|
126
|
%
|
General and administrative expenses
|
|
|
(88,327
|
)
|
|
|
NM
|
|
|
|
(65,647
|
)
|
|
|
NM
|
|
|
|
(22,680
|
)
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
$
|
(99,027
|
)
|
|
|
NM
|
|
|
$
|
(68,258
|
)
|
|
|
NM
|
|
|
$
|
(30,769
|
)
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the six and three months ended June 30, 2011 and 2010,
corporate and other operating revenues and cost of revenues
primarily represent the results of operations reported by Nextel
Chile. We are deploying a third generation network in Chile,
which we believe will enable us to offer new and differentiated
services to a larger base of potential customers. Deployment and
expansion of this network in Chile resulted in capital
expenditures totaling $42.6 million for the six months
ended June 30, 2011, which represented 8% of our
consolidated total capital expenditures for the first half of
2011. Deployment of our third generation network and other
planned network expansions in Chile will require significant
investments in capital expenditures over the next several years.
Segment losses increased from the six and three months ended
June 30, 2010 to the same periods in 2011 primarily due to
$43.5 million and $22.7 million increases in general
and administrative expenses, largely due to increases in
consulting expenses and, to a lesser extent, increases in
corporate information technology costs, both of which are
largely related to the planned launch of third generation
networks and supporting systems in our markets, as well as other
technology-related initiatives. We expect that corporate general
and administrative expenses will
44
continue to increase along with other operating expenses as we
progress with the expansion plans and new technology initiatives
in some of our markets.
Liquidity
and Capital Resources
We derive our liquidity and capital resources primarily from
cash we raise in connection with external financings and cash
flows from our operations. As of June 30, 2011, we had
working capital, which is defined as total current assets less
total current liabilities, of $1,927.6 million, a
$240.3 million decrease compared to working capital of
$2,167.9 million as of December 31, 2010. The decrease
in working capital was primarily a result of the
reclassification of $1.1 billion of our 3.125% convertible
notes, which will mature in June 2012, as a current portion of
long-term debt, partially offset by about $735.6 million in
net proceeds received from the issuance of our
7.625% senior notes in March 2011. As of June 30,
2011, our working capital includes $2,533.8 million in cash
and cash equivalents, of which $152.9 million was held in
currencies other than U.S. dollars, with 55% of that amount
held in Mexican pesos. As of June 30, 2011, our working
capital also includes $408.7 million in short-term
investments, the majority of which was held in
U.S. dollars. A substantial portion of our cash, cash
equivalents and short-term U.S. dollar investments are held
in money market funds and U.S. treasury securities, and our
cash, cash equivalents and short-term investments held in local
currencies are typically maintained in a combination of money
market funds, highly liquid overnight securities and fixed
income investments.
We recognized net income of $210.4 million and
$113.6 million for the six and three months ended
June 30, 2011, respectively, compared to
$124.0 million and $75.5 million for the six and three
months ended June 30, 2010. During the six and three months
ended June 30, 2011 and 2010, our operating revenues more
than offset our operating expenses, excluding depreciation and
amortization, and cash capital expenditures.
In March 2011, we issued senior notes with $750.0 million
aggregate principal amount due at maturity that bear interest at
a rate of 7.625% per year, which is payable semi-annually in
arrears on April 1 and October 1, beginning on
October 1, 2011. The notes will mature on April 1,
2021 when the entire principal amount will be due.
In June 2011, Nextel Brazil was granted spectrum licenses in the
1.8 GHz and 1.9/2.1 GHz spectrum bands in connection
with its successful bids in the spectrum auction held in
December 2010. The total purchase price of this spectrum was the
equivalent of $910.5 million. Nextel Brazil paid 10% of the
purchase price upon the grant of the license and financed the
remaining amount through deferred payment terms made available
by the Brazilian telecommunications regulator as part of the
auction terms. The amount borrowed under the spectrum license
financing is payable in six annual installments beginning in May
2014. Beginning June 1, 2011, interest accrues on the
spectrum license financing at a rate of 1% per month, plus the
Brazilian telecommunications industry index rate. Interest
payments are not required to be paid until May 2014.
In addition, in July 2011, Nextel Mexico entered into a
U.S. dollar-denominated loan agreement with the China
Development Bank, under which Nextel Mexico will receive up to
$375.0 million to finance infrastructure equipment and
assist in the deployment of its third generation network in
Mexico. This equipment financing has a final maturity of ten
years, with a three-year drawdown period and a seven-year
repayment term. To date, we have not borrowed any amounts under
this facility.
We expect our current sources of funding, including our cash,
cash equivalent and investment balances, our new equipment
financing facility in Mexico, committed financings and other
anticipated future cash flows will together be sufficient to
meet our funding needs to support our current business and our
planned deployment of third generation networks. Nonetheless, we
plan to continue to evaluate funding opportunities and, if
appropriate, access the credit and capital markets in order to
reduce our capital costs, optimize our capital structure, and
maintain or enhance our liquidity position. To meet these goals,
we expect to pursue various financing alternatives, including
U.S. capital market transactions, as well as locally-based
vendor and bank financing opportunities. We would need to obtain
additional funding beyond our current sources to fund the
deployment of a third generation network in Argentina if we are
able to acquire spectrum licenses there.
45
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
1,767,501
|
|
|
$
|
2,504,064
|
|
|
$
|
(736,563
|
)
|
Net cash provided by operating activities
|
|
|
604,248
|
|
|
|
400,222
|
|
|
|
204,026
|
|
Net cash used in investing activities
|
|
|
(325,493
|
)
|
|
|
(994,380
|
)
|
|
|
668,887
|
|
Net cash provided by (used in) financing activities
|
|
|
488,722
|
|
|
|
(97,556
|
)
|
|
|
586,278
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(1,225
|
)
|
|
|
7,585
|
|
|
|
(8,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,533,753
|
|
|
$
|
1,819,935
|
|
|
$
|
713,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $604.2 million of
cash during the first half of 2011, a $204.0 million, or
51%, increase from the first half of 2010, primarily due to
higher operating income resulting from our profitable growth
strategy and the impact of favorable changes in exchange rates.
We used $325.5 million of cash in our investing activities
during the first half of 2011, a $668.9 million, or 67%,
decrease from the first half of 2010, primarily due to a
$676.6 million net decrease in the purchase of short-term
investments in both Brazil and at the corporate level and the
return of $77.2 million in cash that secured performance
bonds related to our spectrum acquisition in Chile, partially
offset by a $116.7 million increase in cash capital
expenditures and $94.2 million in payments for the purchase
of licenses, the majority of which was related to the spectrum
licenses Nextel Brazil was granted in June 2011.
Our financing activities provided us with $488.7 million of
cash during the first half of 2011, primarily due to
$750.0 million in gross proceeds that we received from the
issuance of our 7.625% senior notes, partially offset by
the repayment of $209.4 million under our syndicated loan
facilities in Mexico, Brazil and Peru and debt financing costs
related to our 7.625% senior notes. We used
$97.6 million of cash in our financing activities during
the first half of 2010, primarily due to $124.3 million in
purchases of our 3.125% convertible notes and our 2.75%
convertible notes, as well as repayments of our short-term
borrowings in Brazil, partially offset by $80.0 million in
borrowings under Nextel Perus syndicated loan facility and
borrowings under our short-term financings in Brazil.
Future
Capital Needs and Resources
Our business strategy contemplates the ongoing expansion of the
capacity of our iDEN networks and the deployment of new third
generation networks. Consistent with this strategy, we have:
substantially expanded the coverage of our iDEN network,
particularly in Brazil; made significant capital investments to
enhance the quality and capacity of our iDEN networks in all of
our markets; and deployed and commercially launched services
using a WCDMA-based third generation network in Peru. In
addition, as discussed in more detail above, we plan to begin
offering third generation services in Chile later this year and
in Brazil and Mexico in 2012. We expect our capital expenditures
will increase significantly in 2011, 2012 and 2013 as we invest
in these networks.
Capital Resources. Our ongoing capital
resources depend on a variety of factors, including our existing
cash, cash equivalents and investment balances, our new
equipment financing agreement in Mexico, committed financings,
cash flows generated by our operating companies and external
financial sources that may be available. Our ongoing capital
resources may also be affected by the availability of funding
from external sources, including the availability of funding
from the U.S. capital markets and from local vendor and
bank financing or similar arrangements.
Our ability to generate sufficient net cash from our operating
activities is dependent upon, among other things:
|
|
|
|
|
the amount of revenue we are able to generate and collect from
our customers;
|
46
|
|
|
|
|
the amount of operating expenses required to provide our
services;
|
|
|
|
the cost of acquiring and retaining customers, including the
subsidies we incur to provide handsets to both our new and
existing customers;
|
|
|
|
our ability to continue to increase the size of our subscriber
base; and
|
|
|
|
changes in foreign currency exchange rates.
|
Capital Needs and Contractual
Obligations. We currently anticipate that our
future capital needs will principally consist of funds required
for:
|
|
|
|
|
operating expenses relating to our networks;
|
|
|
|
capital expenditures to expand and enhance our networks, as
discussed below under Capital Expenditures;
|
|
|
|
operating expenses and capital expenditures related to the
deployment of third generation networks in Brazil, Mexico, Peru
and Chile and, if we are successful in acquiring spectrum, in
Argentina;
|
|
|
|
payments in connection with existing and future spectrum
purchases, including ongoing fees for spectrum use;
|
|
|
|
debt service requirements, including significant upcoming
maturities on obligations such as our convertible notes that are
due in 2012, as well as obligations relating to our tower
financings and capital leases;
|
|
|
|
cash taxes; and
|
|
|
|
other general corporate expenditures.
|
In making assessments regarding our future capital needs and the
capital resources available to meet those needs, we do not
consider events that have not occurred like success in any
particular auction and the costs of acquiring that spectrum or
the costs of the related network deployment, other than in
Brazil, Mexico, Peru and Chile, and we do not assume the
availability of external sources of funding that may be
available for these future events, including vendor financing or
other available financing.
Other than Nextel Brazils spectrum license financing and
the issuance of our 7.625% senior notes described above in
the discussion of our capital resources, during the six months
ended June 30, 2011, there were no material changes to our
contractual obligations as described in our annual report on
Form 10-K
for the year ended December 31, 2010.
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$521.8 million for the six months ended June 30, 2011
and $364.6 million for the six months ended June 30,
2010. In both years, a substantial portion of our capital
expenditures was invested in the expansion of the coverage and
improvement of the quality and capacity of our iDEN networks in
Brazil and Mexico, as well as for the deployment of our third
generation networks in Peru (primarily in 2010) and in
Mexico and Brazil (primarily in 2011).
Our business strategy contemplates the ongoing expansion of the
capacity of our iDEN networks and the deployment of new third
generation networks. Consistent with this strategy, we have
made, and will continue to make, substantial capital investments
in our iDEN networks in all of our markets. We also have
deployed and launched services using a WCDMA-based third
generation network in Peru and are in the process of deploying
similar networks in Chile, Brazil and Mexico. In addition, we
plan to participate in the spectrum auction that is expected to
be conducted in Argentina, and if we are successful in acquiring
spectrum in that auction, we plan to deploy a third generation
network there consistent with applicable regulatory requirements
and our business strategy. The purchase of spectrum and
deployment of new third generation networks across our markets,
as well as our expansion of the capacity of our iDEN networks,
will result in a significant increase in our capital
expenditures in the applicable markets throughout the remainder
of 2011, in 2012 and in 2013, with the amount and timing of
those additional capital expenditures dependent on, among other
things, our business plans, the payment rules associated with
the spectrum 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.
47
We expect to finance our capital spending for our existing and
future network needs using the most effective combination of
cash from operations, cash on hand, cash from the sale or
maturity of our short- and long-term investments, borrowings
under our new equipment financing facility in Mexico and
proceeds from external financing sources that are or may become
available. We may also consider entering into strategic
relationships with third parties that will provide additional
funding to support our business plans. Our capital spending is
expected to be driven by several factors, including:
|
|
|
|
|
the extent to which we expand the coverage of our networks in
new or existing market areas;
|
|
|
|
the number of additional transmitter and receiver sites we build
in order to increase system capacity and maintain system quality
and the costs associated with the installation of related
switching equipment in some of our existing market areas;
|
|
|
|
the extent to which we must add capacity to our networks to meet
the demand of our growing customer base;
|
|
|
|
the amount we spend to deploy the third generation networks in
Brazil, Mexico, Peru and Chile;
|
|
|
|
the costs we incur in connection with future spectrum
acquisitions and the development and deployment of any third
generation networks in Argentina; and
|
|
|
|
the costs we incur in connection with
non-network
related information technology projects.
|
Our future capital expenditures may also be affected by future
technology improvements and technology choices.
Future Outlook. Our long-term business
strategy contemplates the ongoing expansion of the capacity of
our iDEN networks and the deployment of new third generation
networks in Brazil, Mexico, Peru and Chile. We expect our
capital expenditures will increase materially during the
remainder of 2011, in 2012 and in 2013 as we invest in these
networks. We expect our current cash, cash equivalents and
investment balances, our new equipment financing facility in
Mexico, committed financings and other anticipated future cash
flows will together be sufficient to meet our funding needs to
support our current business and our planned deployment of third
generation networks. However, we would need to obtain additional
funding beyond our current sources to fund the deployment of a
third generation network in Argentina if we are able to acquire
spectrum licenses there.
The timing and amount of our future funding needs will also be
affected by the need to repay or refinance our existing
indebtedness, including $1.1 billion principal amount of
our 3.125% convertible notes that mature in June 2012 and most
of the $249.7 million in syndicated loan facilities due
during the next five years.
We are evaluating and pursuing various financing alternatives,
including U.S. capital market transactions, as well as
locally-based vendor and bank financing opportunities, that can
be used to reduce our capital costs, optimize our capital
structure, and maintain or enhance our liquidity position. We
expect to continue to raise additional funding using one or more
of these alternatives. Any indebtedness that we may incur during
the remainder of 2011 and in subsequent years may be significant.
In making this assessment of our funding needs under our current
business plans, we have considered:
|
|
|
|
|
cash and cash equivalents on hand and short- and long-term
investments available to fund our operations;
|
|
|
|
expected cash flows from operations;
|
|
|
|
the cost and timing of spectrum payments, including ongoing fees
for spectrum use;
|
|
|
|
the anticipated level of capital expenditures required to meet
both minimum build-out requirements and our business plans for
our planned deployment of third generation networks in Brazil,
Mexico, Peru and Chile;
|
|
|
|
our assumption that there will not be significant fluctuations
in values of the currencies in the countries in which we conduct
business relative to the U.S. dollar;
|
|
|
|
our scheduled debt service, which includes significant
maturities in the next several years; and
|
|
|
|
income taxes.
|
48
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,
could change significantly:
|
|
|
|
|
if our plans change;
|
|
|
|
if we decide to expand into new markets or expand our geographic
coverage or network capacity in our existing markets beyond our
current plans, as a result of the construction of additional
portions of our networks or the acquisition of competitors or
others;
|
|
|
|
if currency values in our markets depreciate relative to the
U.S. dollar in a manner contrary to our expectations;
|
|
|
|
if economic conditions in any of our markets change;
|
|
|
|
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
business.
|
Any of these events or circumstances could result in significant
funding needs beyond those contemplated by our current plans as
described above, and could require us to raise even more capital
than currently anticipated to meet those needs. Our ability to
seek additional capital is subject to a variety of additional
factors that we cannot presently predict with certainty,
including:
|
|
|
|
|
the commercial success of our operations;
|
|
|
|
the volatility and demand of the capital markets; and
|
|
|
|
the future market prices of our securities.
|
Market conditions in debt and equity markets in the United
States and global markets during 2008 and part of 2009 resulted
in a substantial decline in the amount of funding available to
corporate borrowers compared to prior periods as the global
economic downturn affected both the availability and terms of
financing. Although conditions in the debt and equity markets in
the United States have improved, volatility in those markets
could make it more difficult or more costly for us to raise
additional capital in order to meet our future capital needs,
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 included in our annual
report on
Form 10-K.
Effect of
New Accounting Standards
There were no new accounting standards issued during the
six months ended June 30, 2011 that materially
impacted our condensed consolidated financial statements.
Forward-Looking
Statements
We include certain estimates, projections and other
forward-looking statements in our annual, quarterly and current
reports, as well as in other publicly available material.
Statements regarding expectations, including forecasts regarding
operating results and performance assumptions and estimates
relating to capital requirements, as well as other statements
that are not historical facts, are forward-looking statements.
These statements reflect managements judgments based on
currently available information and involve a number of risks
and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. With
respect to these forward-looking statements, management has made
assumptions regarding, among other things, customer and network
usage, customer growth and retention, pricing, operating costs,
the timing of various events, the economic and regulatory
environment and the foreign currency exchange rates of
currencies in the countries in which our operating companies
conduct business relative to the U.S. dollar.
49
Future performance cannot be assured. Actual results may differ
materially from those in the forward-looking statements. Some
factors that could cause actual results to differ include:
|
|
|
|
|
our ability to attract and retain customers;
|
|
|
|
our ability to meet the operating goals established by our
business plan;
|
|
|
|
general economic conditions in the United States or in Latin
America and in the market segments that we are targeting for our
services, including the impact of the current uncertainties in
global economic conditions;
|
|
|
|
the political and social conditions in the countries in which we
operate, including political instability, which may affect the
economies of our markets and the regulatory schemes in these
countries;
|
|
|
|
the impact of foreign currency exchange rate volatility in our
markets when compared to the U.S. dollar and related
currency depreciation in countries in which our operating
companies conduct business;
|
|
|
|
our ability to access sufficient debt or equity capital to meet
any future operating and financial needs;
|
|
|
|
reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of digital two-way mobile data or Internet
connectivity services in our markets;
|
|
|
|
the availability of adequate quantities of system infrastructure
and subscriber equipment and components at reasonable pricing to
meet our service deployment and marketing plans and customer
demand;
|
|
|
|
Motorolas ability and willingness to provide handsets and
related equipment and software applications or to develop new
technologies or features for us for use on our iDEN network,
including the timely development and availability of new
handsets with expanded applications and features;
|
|
|
|
the risk of deploying new third generation networks, including
the potential need for additional funding to support that
deployment, the risk that new services supported by the new
networks will not attract enough subscribers to support the
related costs of deploying or operating the new networks, the
need to significantly increase our employee base and the
potential distraction of management;
|
|
|
|
our ability to successfully scale our billing, collection,
customer care and similar back-office operations to keep pace
with customer growth, increased system usage rates and growth or
to successfully deploy new systems that support those functions;
|
|
|
|
the success of efforts to improve and satisfactorily address any
issues relating to our network performance;
|
|
|
|
future legislation or regulatory actions relating to our SMR
services, other wireless communications services or
telecommunications generally and the costs
and/or
potential customer impacts of compliance with regulatory
mandates;
|
|
|
|
the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our network business;
|
|
|
|
the quality and price of similar or comparable wireless
communications services offered or to be offered by our
competitors, including providers of cellular services and
personal communications services;
|
|
|
|
market acceptance of our new service offerings;
|
|
|
|
equipment failure, natural disasters, terrorist acts or other
breaches of network or information technology security; and
|
|
|
|
other risks and uncertainties described in this annual report on
Form 10-K,
including in Part I, Item 1A. Risk
Factors, and in our other reports filed with the
Securities and Exchange Commission, or the SEC.
|
The words may, could,
estimate, project, forecast,
intend, expect, believe,
target, plan, providing
guidance and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are found
throughout this Managements Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in
this report. The reader should not place undue reliance on
forward-looking
50
statements, which speak only as of the date of this report.
Except as otherwise provided by law, we are not obligated to
publicly release any revisions to forward-looking statements to
reflect events after the date of this report, including
unforeseen events.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
In March 2011, we issued U.S. dollar-denominated fixed rate
senior notes with $750.0 million aggregate principal amount
due at maturity that bear interest at a rate of 7.625% per year,
which is payable semi-annually in arrears on April 1 and
October 1, beginning on October 1, 2011. The notes
will mature on April 1, 2021 when the entire principal
amount will be due.
In addition, in June 2011, Nextel Brazil was granted spectrum
licenses in the 1.8 GHz and 1.9/2.1 GHz spectrum bands
in connection with its successful bids in the spectrum auction
held in December 2010. The total purchase price of this spectrum
was the equivalent of $910.5 million. Nextel Brazil paid
10% of the purchase price upon the grant of the license and
financed the remaining amount through deferred payment terms
made available by the Brazilian telecommunications regulator as
part of the auction terms. The amount borrowed under the
spectrum license financing is payable in six annual installments
beginning in May 2014. Beginning June 1, 2011, interest
accrues on the spectrum license financing at a rate of 1% per
month, plus the Brazilian telecommunications industry index
rate. Interest is not required to be paid until May 2014.
Because the spectrum license financing is denominated in
Brazilian reais, the payments for principal and interest will
fluctuate in U.S. dollars based on changes in the exchange
rate of the Brazilian real relative to the U.S. dollar.
Other than Nextel Brazils spectrum license financing and
the issuance of our 7.625% senior notes, during the six
months ended June 30, 2011, there were no material changes
to our market risk policies or our market risk sensitive
instruments and positions as described in our annual report on
Form 10-K
for the year ended December 31, 2010.
|
|
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 SEC 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, 2011, 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 not effective due to a
material weakness in the Companys internal controls over
financial reporting. The material weakness we identified, which
is more fully described in Item 9A. Controls and
Procedures of our annual report on
Form 10-K
for the year ended December 31, 2010, related to the
failure of the controls in our Brazil operating segment over the
communication and incorporation of changes in Brazilian
value-added tax laws into our reporting procedures. The
underlying factors contributing to the control failure related
to insufficient staffing, documentation and training, and
underinvestment in systems, resulting in inappropriate reliance
on manual procedures. The remediation plan that we have
developed and are following addresses both the specific areas of
the financial close process related to the errors that were
identified in 2010, as well as the underlying factors
contributing to the errors.
Changes
in Internal Control over Financial Reporting
During the second quarter of 2011, management made significant
progress with regard to its remediation of the material weakness
in our Brazil operating segment discussed in more detail above
and in our quarterly report on
Form 10-Q
for the three months ended September 30, 2010. We have
redesigned the areas of the financial close
51
process related to the error identified in 2010, significantly
increased our staffing levels, finalized documentation related
to roles and responsibilities during the close process and
provided training to facilitate our compliance with the ongoing
and new procedures. We continue to develop and plan the
implementation of system improvements that are expected to
reduce our reliance on manual procedures. Until these system
improvements can be finalized and implemented, we are using
compensating controls, including additional validations and
reviews performed on a monthly basis, to ensure the accuracy of
our financial information. We plan to test these compensating
controls in order to evaluate their reliability in upcoming
quarters. Because the implementation of the remediation plan is
ongoing, we have not remediated the material weakness as of the
end of the period covered by this quarterly report on
Form 10-Q.
Other than as noted above, there have been no changes in the
Companys internal control over financial reporting during
the most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
52
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 5 to our condensed consolidated financial statements
above.
There have been no material changes in our risk factors from
those disclosed in our annual report on
Form 10-K
dated February 24, 2011.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
12
|
.1*
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1*
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2*
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1*
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2*
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
101*
|
|
|
The following materials from the NII Holdings, Inc. Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2011 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. |
53
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
By:
|
/s/ TERESA
S. GENDRON
|
Teresa S. Gendron
Vice President and Controller
(on behalf of the registrant and as
chief accounting officer)
Date: August 4, 2011
54
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
12
|
.1*
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1*
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2*
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1*
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2*
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
101*
|
|
|
The following materials from the NII Holdings, Inc. Quarterly
Report on
Form 10-Q
for the quarter ended June 30, 2011 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. |