e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
|
THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
For the fiscal year ended
December 31, 2010
|
or
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
|
THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
For the transition period
from to
|
|
|
|
Commission file number 0-32421
|
NII HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
91-1671412
|
(State or other jurisdiction of
|
|
(I.R.S. Employer Identification No.)
|
incorporation or organization)
|
|
|
1875 Explorer Street, Suite 1000
Reston, Virginia
(Address of principal executive offices)
|
|
20190
(Zip Code)
|
Registrants telephone number,
including area code:
(703) 390-5100
Securities registered pursuant
to Section 12(b) of the Act:
|
|
|
Title of each class
|
|
Name of each exchange on which registered
|
|
Common Stock, par value $0.001 per share
|
|
The Nasdaq Stock Market
|
Securities registered pursuant to
Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark 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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer þ
|
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
|
Smaller reporting
company o
|
|
|
|
|
(Do not check if a
smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of
June 30, 2010: $5,460,841,944
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.
|
|
|
|
|
|
|
Number of Shares Outstanding
|
|
Title of Class
|
|
on February 18, 2011
|
|
|
Common Stock, $0.001 par value per share
|
|
|
169,719,080
|
|
Documents
Incorporated by Reference
Portions of the registrants Proxy Statement for the 2011
Annual Meeting of Stockholders are incorporated by reference
into Part III hereof.
NII
HOLDINGS, INC.
TABLE OF
CONTENTS
1
PART I
Overview
We were originally organized in 1995 as a holding company for
the operations of Nextel Communications, Inc. in selected
international markets. The corporation that is currently known
as NII Holdings, Inc. was incorporated in Delaware in 2000 as
Nextel International, Inc. In December 2001, we changed our name
from Nextel International, Inc. to NII Holdings, Inc. Our
principal executive office is located at 1875 Explorer Street,
Suite 1000, Reston, Virginia 20190. Our telephone number at
that location is
(703) 390-5100.
Unless the context requires otherwise, NII Holdings,
Inc., NII Holdings, we,
our, us and the Company
refer to the combined businesses of NII Holdings, Inc. and its
consolidated subsidiaries. We refer to our operating companies
by the countries in which they operate, such as Nextel Mexico,
Nextel Brazil, Nextel Argentina, Nextel Peru and Nextel Chile.
For financial information about our operating companies, see
Note 11 to our consolidated financial statements included
at the end of this annual report on
Form 10-K.
Except as otherwise indicated, all amounts are expressed in
U.S. dollars and references to dollars and
$ are to U.S. dollars. All historical financial
statements contained in this report are prepared in accordance
with accounting principles generally accepted in the United
States.
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 Mexico, Brazil, Argentina, Peru and Chile. We
provide our services in major urban and suburban centers with
high population densities, which we refer to as major business
centers, where we believe there is a concentration of the
countrys business users and economic activity. We believe
that vehicle traffic congestion, low wireline service
penetration and the expanded coverage of wireless networks in
these major business centers encourage the use of the mobile
wireless communications services that we offer. 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
communicate instantly across national borders with Sprint Nextel
subscribers using compatible handsets in the United States and
with TELUS Corporation subscribers using compatible
handsets in Canada;
|
2
|
|
|
|
|
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 data services and
applications on our planned third generation networks. We
currently provide services on iDEN networks in the three 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.
As illustrated in the table below, as of December 31, 2010,
our operating companies had a total of about 9.03 million
handsets in commercial service, an increase of 1.64 million
from the 7.39 million handsets in commercial service as of
December 31, 2009. For purposes of the table, handsets in
commercial service represent all handsets with active customer
accounts on our mobile networks in each of the listed countries.
|
|
|
|
|
|
|
|
|
|
|
Handsets
|
|
|
|
in Commercial
|
|
|
|
Service
|
|
|
|
As of December 31,
|
|
Country
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Brazil
|
|
|
3,319
|
|
|
|
2,483
|
|
Mexico
|
|
|
3,361
|
|
|
|
2,987
|
|
Argentina
|
|
|
1,154
|
|
|
|
1,030
|
|
Peru(1)
|
|
|
1,128
|
|
|
|
841
|
|
Chile
|
|
|
65
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,027
|
|
|
|
7,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes subscribers using both our iDEN and 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. We expect
to begin providing third generation service offerings across
Chile and in certain markets in Mexico in 2011, and we plan to
begin providing third generation services in Brazil in 2012.
Strategy
Our goal is to generate increased revenues and grow our
subscriber base 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 this 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 operate our business with a focus on generating growth in
operating income and cash flow over the long term and enhancing
our profitability by attracting and retaining high value
wireless subscribers while maintaining appropriate controls on
costs. To support this goal, we plan to continue to expand the
capacity of our networks in our existing markets and increase
our existing subscriber base while managing our costs in a
manner designed to support that growth and improve our operating
results. We will seek to add subscribers at rates and other
terms that are competitive with other offerings in the market,
but that are consistent with our strategy of balancing growth
and profitability regardless of the competitive landscape. We
may also explore opportunities to expand our network coverage in
areas that we do not currently serve.
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 and
3
other devices offered, speed of data access and quality of
service. In each of our markets, we compete with at least two
large, well-capitalized competitors with substantial financial
and other resources. Some of these competitors have the ability
to offer bundled telecommunications services that include local,
long distance and data services, and can offer a larger variety
of handsets with a wide range of prices, brands and features.
Although competitive pricing of services and the variety and
pricing of handsets are often important factors in a
customers decision making process, we believe that the
users who primarily make up our targeted customer base are also
likely to base their purchase decisions on quality of service
and customer support, as well as on the availability of
differentiated features and services, like our Direct Connect
services, that make it easier for them to communicate quickly,
efficiently and economically. To address the competitive
pressures we face in some of our markets, we have:
|
|
|
|
|
acquired or participated in auctions to acquire additional
spectrum in some of our markets and have deployed, or begun work
on the development and deployment of, third generation networks
that will allow us to provide new service capabilities such as
high speed internet access, increased network capacity and
reduced costs for voice and data services;
|
|
|
|
launched commercial campaigns offering handsets to new and
existing customers at a lower cost and offering service plans
with prices and terms that are more competitive;
|
|
|
|
implemented customer retention programs that are focused on our
high value customers; and
|
|
|
|
worked with Motorola to develop new handset models and features
supported by our iDEN network.
|
Our overall strategy and the competitive conditions in the
markets where we operate require that we have sufficient radio
spectrum in the geographic areas in which we operate to support
the services that we currently offer and may offer in the
future. To enhance our current service offerings, we are
launching third generation networks utilizing WCMDA technology
in most of our markets. Third generation technologies provide
new service capabilities such as high speed internet access,
increased network capacity and reduced costs for voice and data
services when compared to second generation and other previous
generation technologies. We expect that although we will
continue to focus on our current high value subscriber base, the
introduction of new handsets, service offerings and pricing
plans made possible by a third generation network may enable us
to further expand our customer base.
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(1)
|
|
20 MHz in 11 of 13 regions (includes all major
metropolitan areas)(1)
|
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
|
|
|
|
(1) |
|
Pending anticipated award of spectrum in early 2011. |
We expect to pursue opportunities to acquire additional third
generation spectrum in the future, including through our
participation in the spectrum auction that is expected to be
conducted in Argentina. 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 fund the
deployment of an alternative technology.
Our
Products, Services and Solutions
We offer a wide range of wireless communications services and
related subscriber equipment and a variety of service plans with
different rate structures that are designed to meet the needs of
our targeted customer groups. These services and equipment have
been designed to provide innovative features that meet those
customers needs for fast and reliable voice and data
communications that allow them to conduct business quickly and
efficiently. In
4
addition to more traditional mobile telephony services, we offer
the following services that we believe reflect the significant
points of differentiation of our services from those offered by
our competitors:
1. Nextel Direct
Connect®. One
of our key competitive differentiators is Nextel Direct Connect,
the long-range walkie-talkie service that allows communication
at the touch of one button. The Nextel Direct Connect feature
gives customers the ability to instantly set up a
conference either privately
(one-to-one)
or with a group
(one-to-many)
which allows our customers to initiate and complete
communications much more quickly than is possible using a
traditional mobile telephone call. Nextel Direct Connect service
greatly enhances the instant communication abilities of business
users within their organizations and with suppliers, vendors and
customers, and provides individuals the ability to contact
business colleagues, friends and family instantly. This unique
service is enhanced by our International Direct Connect service,
which allows our subscribers to communicate instantly across
national borders. In addition, our agreement with Sprint Nextel
Corporation allows our subscribers in all of our markets to use
Nextel Direct Connect to communicate with subscribers using
compatible handsets in the United States, and our agreement with
TELUS Corporation allows our subscribers in all of our
markets to use Nextel Direct Connect to communicate with
subscribers using compatible handsets in Canada. Likewise, our
agreement with Intelfon allows our subscribers to communicate
with subscribers using compatible handsets in El Salvador.
In some of our markets, we also offer services that provide our
customers with instant communication capabilities in a variety
of other ways, including a
push-to-email
application that allows a user to send a streaming voice message
from his or her handset to an email recipient using our Direct
Connect feature, Direct
Talktm,
a service available on certain handsets that enables
off-network
walkie-talkie communication, and Desktop Dispatch, a service
that allows users to send Direct Connect messages between Nextel
handsets and any internet connected personal computer. In
addition, we are working with equipment suppliers to develop a
future high performance
push-to-talk
service utilizing WCDMA technology with performance
characteristics that are similar to those provided by our
current Direct Connect service, and we have been successfully
testing this high performance
push-to-talk
technology in field trials in Peru.
Although a number of our competitors have launched or announced
plans to launch services that are designed to compete with
Nextel Direct Connect, we do not believe that the services that
have been deployed by our competitors to date compare favorably
with our service in terms of latency, quality, reliability or
ease of use.
2. Wireless Data Solutions and Mobile Internet
Access. We offer a variety of wireless data
solutions that are designed to help our customers increase their
productivity through the delivery of real-time information to
mobile workers anytime and anywhere, including remote
e-mail
access and mobile messaging services using two-way text and
multimedia communication capabilities and location based
services from their handsets. Accessible via our wireless
handsets, in addition to laptop computers and handheld computing
devices, wireless data solutions enable quick response among
workers in the field and streamline operations through faster
exchanges of information to support workforce mobility. We also
design wireless business solutions to meet the needs of specific
customers based on their industry and individualized business
needs, including a wide array of fleet and workforce management
services that utilize the unique capabilities of our data
network, such as the ability to accurately and in near real
time, locate handsets using Assisted Global Positioning system,
or A-GPS, technology. Our wireless business services are backed
by customer support teams that help customers build, distribute,
and manage wireless applications. In addition, we offer our
customers always-on connectivity to the Internet directly from
their handset through mobile Internet access, which combines the
vast resources of the Internet with convenient mobile content
services. We also offer a range of messaging services, including
email, that are available using our BlackBerry devices, SMS and
multimedia messaging, or MMS, as well as additional mobile data
communications services, including the recent launch of high
speed wireless data services in Peru that are supported by data
air cards utilizing our third generation network there.
We also offer Internet
Nextel®
in Peru, a mobile broadband service that utilizes our
third generation network to provide high-speed internet access
via portable modems. We provide several Internet
Nextel®
service plans that provide connection speeds ranging
from 512 Kbps to 1.5 Mbps. Subscribers can connect to
our Internet Nextel services on a variety of devices including
laptops, netbooks and desktop computers.
3. International Roaming
Services. In addition to offering subscribers
the ability to roam in areas in other countries served by our
operating companies iDEN networks and those operated by
Sprint Nextel in the United
5
States, TELUS in Canada and Intelfon in El Salvador, we offer a
handset that is capable of roaming on networks in other
countries that operate using the global system for mobile
communications, or GSM, standard. The availability of these
services is subject to reaching agreements with the operators of
those networks. Our customers can roam in about 70 countries in
the world. We market these roaming capabilities as Roaming
International
and/or
Nextel
Worldwidesm
services.
With the deployment of our third generation network in Peru and
our expected deployment of similar networks in our other
markets, we plan to enter into roaming arrangements with
operators of WCDMA networks to allow our customers using
services supported by our WCDMA networks to roam in countries
around the world. The availability of these roaming services,
which are expected to be more broadly available than iDEN
roaming due to the wider adoption of the WCDMA technology, is
subject to reaching agreements with the operators of those
networks.
Our
Networks and Wireless Technologies
Our existing and planned networks use two network technologies.
In each of our markets, we currently offer services supported by
networks that utilize the iDEN technology developed and designed
by Motorola, which is a digital technology that is able to
operate on non-contiguous spectrum frequencies, and which
previously were usable only for two-way radio calls. The iDEN
technology substantially increases the capacity of our existing
spectrum channels and permits us to utilize our current holdings
of specialized mobile radio, or SMR, spectrum more efficiently.
This increase in capacity is accomplished in two ways:
|
|
|
|
|
First, our iDEN networks are capable of simultaneously carrying
up to six voice
and/or
control paths on the same frequency channel without causing
interference. Using this feature of the iDEN technology, our
two-way radio dispatch service achieves about six times
improvement over analog SMR in channel utilization capacity and
about three times improvement over analog SMR in channel
utilization capacity for channels used for mobile telephone
service.
|
|
|
|
Second, our networks reuse each channel many times throughout
the market area in a manner similar to that used in the cellular
industry, further improving channel utilization capacity.
|
Most of the iDEN handsets that we offer are not currently
designed to roam onto non-iDEN wireless networks. Although iDEN
offers a number of advantages in relation to other technology
platforms, including the ability to operate on non-contiguous
spectrum like ours and to offer a high performance walkie-talkie
feature, unlike other wireless technologies, it is a proprietary
technology that relies solely on the efforts of Motorola and any
future licensees of this technology for product development and
innovation.
Motorola provides the iDEN infrastructure equipment and handsets
throughout our markets under agreements that set the prices we
must pay to purchase and license this equipment, as well as a
structure to develop new features and make long term
improvements to our networks. We expect Motorola to continue to
be our sole source supplier of iDEN network infrastructure
equipment and most of our iDEN handsets with the exception of
BlackBerry®
devices, which are manufactured by Research in Motion Limited,
or RIM, and other specialized devices, and we expect to continue
to rely on Motorola to provide us with technology improvements
designed to support new features and services and improve the
quality of our services and the efficiency of our iDEN networks.
Motorola also provides integration services in connection with
the deployment of our iDEN network elements. See
Item 1A. Risk Factors 7.
Because we rely on one supplier for equipment used in our iDEN
networks, any failure of that supplier to perform could
adversely affect our operations.
We also currently offer services supported by a network that
utilizes WCDMA technology in Peru. WCDMA is a standards-based
technology being deployed by wireless carriers throughout the
world that provides new service capabilities such as high speed
internet access, increased network capacity and reduced costs
for voice and data services when compared to second generation
and other previous generation technologies. In addition, we have
recently been awarded spectrum licenses in Chile and Mexico and
expect to be awarded spectrum licenses as a result of our
successful participation in a recent auction in Brazil that we
intend to use to support our planned third generation networks
in those countries that will also utilize WCDMA technology.
During 2011, we will continue to develop, build and enhance our
WCDMA networks with significant WCDMA network deployments
expected in
6
Chile, Mexico and Brazil. As a result, we expect that capital
expenditures related to the deployment of our WCDMA networks
will be at substantially higher levels in 2011 compared to 2010.
Network
Implementation, Design and Construction
When we deploy our third generation networks, we seek to
maximize our capital efficiencies by installing our third
generation network sites on pre-existing iDEN towers when
feasible. However, our commercial strategies, differences in the
propagation characteristics of the spectrum bands being used to
support our planned third generation networks and the coverage
requirements associated with the spectrum licenses being
utilized for those networks will result in the need to build out
new transmitter sites and will make it necessary for us to build
a significant number of additional transmitter sites across our
markets in the coming years. Our network construction efforts
incorporate frequency planning and system design process that is
focused on developing a network that will efficiently meet our
coverage requirements and involves the selection of transmitter
sites on the basis of their proximity to targeted customers, the
ability to acquire and build the sites, and frequency
propagation characteristics. Site procurement efforts include
obtaining leases and permits and, in many cases, zoning
approvals. See Item 1A. Risk
Factors 2c. Our operating companies are subject
to local laws and government regulations in the countries in
which they operate, and we are subject to the U.S. Foreign
Corrupt Practices Act, which could limit our growth and
strategic plans and negatively impact our financial
results. The preparation of each site, including
grounding, ventilation, air conditioning and construction, as
well as the installation and optimization of equipment,
typically takes four months. Any scheduled build-out or
expansion may be delayed due to typical permitting, construction
and other delays. These delays can affect the quality or
coverage of our services.
Sales and
Distribution and Customer Care
Our differentiated products and services allow us to target
customers who use our services in their businesses and
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature, and our high level of customer service.
As we deploy third generation networks using WCDMA technology,
we plan to extend our target market to include 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. Our operating
companies use a variety of sales channels as part of our
strategy to increase our customer base. These sales channels may
include direct sales representatives, indirect sales agents,
Nextel stores and kiosks and other customer convenient sales
channels such as web sales. Each of our operating companies is
continuously optimizing the mix of sales channels to take into
consideration the methods that best meet local customer
preferences and facilitate our overall strategy of attracting
and retaining customers in our targeted groups.
Our operating companies employ direct sales representatives who
market our services directly to potential and existing
customers. The focus of our direct sales force is primarily on
businesses that value our industry expertise and differentiated
services, as well as our ability to develop tailored custom
communications capabilities that meet the specific needs of
these customers.
Our operating companies also utilize indirect sales agents,
which mainly consist of local and national non-affiliated
dealers. Dealers are independent contractors that solicit
customers for our service and are generally paid through
commissions. Dealers participate with our operating
companies direct sales forces in varying degrees in
pursuing each of our targeted customer groups.
Our sales channels also include distribution through
customer-convenient channels, including telesales and sales
through our Nextel retail stores, shopping center kiosks and
other locations. In some of our markets, we utilize our website
as a marketing tool that allows customers to compare our various
rate plans and research the suite of our products and services,
including handsets, accessories and special promotions.
Our customer care organization works to improve our
customers experience, with the goal of retaining
subscribers of our wireless services. We believe that the
customer support provided by our customer care organization has
allowed us to achieve higher customer loyalty rates that are
superior to those of many of our competitors and has provided us
with a key competitive advantage.
7
We are currently implementing new systems across our markets
that are designed to support our sales, marketing and customer
management functions. These new systems, which we plan to deploy
in conjunction with our new third generation networks, are
designed to efficiently support the expected growth in our
subscriber base.
Marketing
Our operating companies primarily market their wireless
communications services to targeted customer groups that utilize
our services in their businesses and to individuals that have
medium to high usage patterns, all of whom value our
multi-function handsets and our high level of customer service.
These targeted groups include companies with mobile work forces
that often need to provide their personnel with the ability to
communicate directly with one another. As we deploy our planned
third generation networks, 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.
To meet the needs of these customers, we offer a package of
services and features that combines multiple communications
services in one handset, including Nextel Direct Connect and
International Direct Connect services, which allow our customers
to avoid the long distance and roaming charges that our
competitors may charge for long distance and international long
distance communications.
We offer a variety of pricing options and plans, including plans
designed specifically for our targeted base of customers. Our
services are sold on a postpaid basis pursuant to a service
contract, typically for periods of one to two years, with
services billed on a monthly basis according to the applicable
pricing plan. We also offer hybrid plans that incorporate a
combination of postpaid services and prepaid characteristics
after customers reach certain usage levels. In some markets, we
also offer prepaid services as a means of attracting customers
within our targeted base who may not meet our customer credit
policies, who prefer the flexibility of paying for their service
in advance, or who want to purchase certain services, such as
wireless data services, on a prepaid basis as an add-on service
to their postpaid contract.
Although we market our services using traditional print, radio
and television advertising, we also provide exposure to our
brand and wireless services through various sponsorships. The
goal of these initiatives, together with our other marketing
initiatives, is to increase brand awareness in our targeted
customer base.
Competition
The Latin American mobile communications industry has undergone
significant growth in recent years. We believe that the wireless
communications industry has been and will continue to be
characterized by intense competition on the basis of price, the
types of services offered, variety, features and pricing of
handsets and quality of service. In addition, as we pursue our
plans to extend our target market to include more high-value
consumers, we anticipate that we will increasingly be competing
more directly for customers that are also targeted by our
largest competitors.
In the countries in which we operate, there are principally two
other multinational providers of mobile wireless voice
communications with whom we compete:
|
|
|
|
|
America Movil, which has the largest wireless market share in
Mexico and operates in Brazil, Argentina, Peru and
Chile; and
|
|
|
|
Telefonica Moviles, which has wireless operations throughout
Mexico, Argentina, Peru and Chile, and is the controlling
shareholder of Vivo, the largest wireless operator in Brazil.
|
We also compete with regional or national providers of mobile
wireless voice communications, such as Telemars Oi and
Telecom Italia Mobile, or TIM, in Brazil and Argentina, Entel in
Chile and Iusacell in Mexico.
Many of our competitors have a larger spectrum position than
ours and have greater coverage areas
and/or name
recognition than we do, making it easier for them to expand into
new markets and offer new products and services. Our competitors
typically have more extensive distribution channels than ours or
are able to use their scale advantages to acquire subscribers at
a lower cost than we can, and most of them have launched
networks that utilize
8
a third generation technology, which incorporates high speed
internet access and video telephony into an existing network. We
expect that third generation technologies and future deployments
of new or upgraded technology will support additional services
competitive with those available on our iDEN and third
generation networks including, potentially, services that are
competitive with our Direct Connect service. Additionally, some
competitors operate in the wireline business, which allows them
to offer a bundle of wireline voice, high speed internet and
wireless services to their customers.
We compete with other communications services providers,
including other wireless communications companies and wireline
telephone companies, based primarily on our differentiated
wireless service offerings and products, principally our Direct
Connect service, including International Direct Connect. We also
believe that we differentiate ourselves from our competition by
focusing on the quality of our customer care and service, which
is an important component of our strategy to attract and retain
customers within our targeted customer groups. We expect to
continue to focus on this differentiated approach as we pursue
our plans to extend our target market. Historically, our largest
competitors have focused their marketing efforts primarily on
customers in the retail and consumer segments who purchase
prepaid services largely on the basis of price rather than
quality of service, but recently, those competitors have placed
more emphasis on attracting postpaid customers, which are
considered the premium customer segment in our markets because
they typically generate higher average monthly revenue per
subscriber. With this shift in focus, some of our largest
competitors have recently begun to concentrate on enhancing
their customer service and customer care functions, which may
minimize the value of this point of differentiation and enable
those competitors to compete more effectively with us. Although
pricing is an important factor in potential customers
purchase decisions, we believe that our targeted customers are
also likely to base their purchase decisions on quality of
service and the availability of differentiated features and
services that make it easier for them to communicate quickly and
efficiently. Increased price competition in the customer
segments we target could require us to decrease prices or
increase service and product offerings, which would lower our
revenues, increase our costs or both.
Many of our competitors are owned by or affiliated with large
multinational communications companies. As a result, these
competitors have substantially greater financial resources than
we do, which allows them to spend substantially more than we do
in their advertising/brand awareness campaigns and may enable
them to reduce prices in an effort to gain market share. These
competitors may also use those resources to deploy new services
that could impact our ability to attract or retain customers.
Because the iDEN technology has been adopted by fewer carriers
worldwide and does not benefit from the scale of other more
widely adopted technologies, the cost of our handsets tends to
be higher relative to the comparable handsets offered by our
competitors. In addition, because we plan to continue to use
high performance
push-to-talk
service capabilities as a key differentiator, we expect that the
cost of handsets capable of supporting those differentiated
services on our third generation networks will be higher because
they will not be produced at scale levels comparable with more
standard WCDMA handsets. As a result, we must absorb a
comparatively larger part of the cost of offering handsets to
new and existing customers, which can place us at a competitive
disadvantage with respect to the pricing of our handsets and our
ability to offer new handsets at discounted prices as an
incentive to retain our existing customers. In recent years, the
prices we have been able to charge for our handsets and services
have declined as a result of intensified competition in many of
our markets, including as a result of the introduction by our
competitors of aggressive pricing promotions, such as plans that
allow shared minutes between groups of callers. We expect that
this trend will continue in upcoming years. This increased
competition may also affect our ability to attract and retain
customers.
For a more detailed description of the competitive factors
affecting each operating company, see the
Competition discussion for each of those operating
companies under Operating Companies.
Regulation
The licensing, construction, ownership and operation of wireless
communications systems are regulated by governmental entities in
the markets in which our operating companies conduct business.
The grant, maintenance, and renewal of applicable licenses and
radio frequency allocations are also subject to regulation. In
addition, these matters and other aspects of wireless
communications system operations, including rates charged to
customers, the rates charged by carriers to terminate calls not
originated on their networks and the resale of wireless
communications services, may be subject to regulation in the
jurisdiction in which service is provided. Further, statutes and
9
regulations in some of the markets in which our operating
companies conduct business impose limitations on the ownership
of telecommunications companies by foreign entities. Changes in
the current regulatory environments, the interpretation or
application of current regulations, or future judicial
intervention in those countries could impact our business. These
changes may affect interconnection arrangements that allow our
customers to complete calls to our competitors customers,
requirements for increased capital investments, prices our
operating companies are able to charge for their services, or
foreign ownership limitations, among other things. For a more
detailed description of the regulatory environment in each of
the countries in which our managed operating companies conduct
business, see the Regulatory and Legal Overview
discussion for each of those operating companies under
Operating Companies.
Foreign
Currency Controls and Dividends
In some of the countries in which we operate, the purchase and
sale of foreign currency is subject to governmental control.
Additionally, local law in some of these countries may limit the
ability of our operating companies to declare and pay dividends.
Local law may also impose a withholding tax in connection with
the payment of dividends. For a more detailed description of the
foreign currency controls and dividend limitations and taxes in
each of the countries in which our managed operating companies
conduct business, see the Foreign Currency Controls,
Dividends and Tax Regulation discussion for each of those
operating companies under Operating
Companies.
Operating
Companies
Operating Company Overview. We refer to our
wholly-owned Brazilian operating company,
Nextel Telecomunicacoes Ltda., as Nextel Brazil. Nextel
Brazil provides wireless services under the tradename
Nextel in major business centers, including Rio de
Janeiro, Sao Paulo, Belo Horizonte and Brasilia, along related
transportation corridors and in a number of smaller markets. In
2008 and 2009, we expanded our network coverage to areas in the
northeast region of Brazil, including Salvador, Fortaleza and
Recife, as well as in Vitoria, which is in the southeast region
of Brazil. We believe that this expansion will allow Nextel
Brazil to compete more effectively by offering broader coverage
and by meeting the needs of a wider range of customers who have
significant operations in these new areas. As of
December 31, 2010, Nextel Brazil provided service to
3,319,100 handsets, which we estimate to be about 1.6% of the
total mobile handsets in commercial service in Brazil.
Nextel Brazils operations are headquartered in Sao Paulo,
with branch offices in Rio de Janeiro and various other cities.
As of December 31, 2010, Nextel Brazil had
5,061 employees.
The Brazilian regulatory authorities recently completed a series
of spectrum auctions, including the auction of spectrum that
could be used to support third generation services. Nextel
Brazil participated in these auctions and was the successful
bidder for 20 MHz of spectrum in 1.9/2.1 GHz spectrum
bands in areas covered by 11 of the 13 auction lots offered in
the auction. These areas include approximately 98% of the
Brazilian population. Nextel Brazil expects the licenses
relating to this spectrum to be awarded in early 2011 and plans
to use this spectrum to support a third generation network that
will utilize WCDMA technology. Nextel Brazil was also the
successful bidder for 20 MHz of spectrum in the
1.8 GHz spectrum band covering a significant portion of the
north, northeast and southeast regions of Brazil, including the
state of Rio de Janeiro, but excluding the state of Sao Paolo,
which we intend to use to support our long-term strategy. When
granted, the licenses relating to the spectrum for which Nextel
Brazil was the successful bidder will have a term of
15 years. These licenses are renewable once for an
additional
15-year
period and will require Nextel Brazil to meet specified network
coverage construction requirements within specified timeframes.
Competition. Nextel Brazil competes with
cellular and personal communications services, or PCS,
providers. The largest competitors are Vivo, which is controlled
by Telefonica S.A. and has the largest market share in the Sao
Paulo Metropolitan Area and Rio de Janeiro; Telecom Americas,
which owns Claro and is controlled by America Movil; Telecom
Italia Mobile; and TNL PCS S.A., a subsidiary of Telemar Norte
Leste S.A., Brazils largest wireline incumbent, and which
markets under the brand name Oi. Portugal Telecom,
S.A. recently agreed
10
to acquire an equity stake in Oi. Nextel Brazil also competes
with other regional cellular and wireless operators, the largest
of whom have launched and offer services supported by a third
generation network.
We believe that the most important factors upon which Nextel
Brazil competes are the quality of our customer service and
network, our differentiated brand positioning and our
differentiated services, primarily our Direct Connect service,
which is available throughout all areas where Nextel Brazil
provides wireless services. While its competition generally
targets the prepaid market and competes on the basis of price,
Nextel Brazil primarily targets customers who utilize its
services in their businesses and individuals that have medium to
high usage patterns who are more concerned with the quality of
the customer care and service they receive. Nextel Brazils
focus on the quality of its customer service and care is an
important component of our strategy to attract and retain
customers within our targeted customer groups. Substantially all
of our subscribers in Brazil purchase our services on a postpaid
basis pursuant to contracts that provide for recurring monthly
payments for services for a specified term.
Regulatory and Legal Overview. Prior to 2000,
the Brazilian telecommunications regulations imposed various
restrictions that significantly limited the ability of Nextel
Brazil to provide mobile services to all potential customer
groups. With the changes to the Brazilian regulations enacted by
Brazils telecommunications regulatory agency, Agencia
Nacional de Telecomunicacoes, known as Anatel, in 2000 and in
subsequent years, Brazil began opening its markets to wider
competition in the mobile wireless communications market where
we operate.
Some of the key regulatory changes that have been adopted
include changes to the rules that limit the amount of spectrum
in the 800 MHz band that Nextel Brazil is allowed to hold
in a service area, the adoption of rules relating to the
interconnection of Nextel Brazils networks with those of
other carriers and the calculation of calling party pays
charges. Under the changes to the rules adopted in November
2008, Nextel Brazil may own up to 25 MHz of
800 MHz spectrum, which allows Nextel Brazil to increase
the capacity of its networks more efficiently. Because Nextel
Brazils spectrum holdings were concentrated in the SMR
band, Nextel Brazil was allowed to participate as a new entrant
in the recent auction of 1.9/2.1 GHz spectrum and was the
successful bidder for spectrum in the areas covered by 11 of the
13 auction lots offered in the auction. These areas include
approximately 98% of the Brazilian population. Under the rules
adopted by Anatel relating to interconnection charges, we have
negotiated agreements with all significant fixed line and
wireless operators in Brazil to reflect the additional payments
between carriers as a result of the calling party pays charges.
The calling party pays structure adopted by Anatel permits
Nextel Brazil to compensate other mobile operators for calls
terminated on their network under a formula that reduces the
amount paid to them by allowing a percentage of these calls to
be treated as bill and keep. Since their adoption,
these regulations have resulted in cost savings to Nextel Brazil
in relation to mobile termination charges paid by Nextel Brazil
to other carriers. Finally, Anatel recently announced plans to
reevaluate the current methodology used to determine mobile
termination rates in the calling party pays structure, including
the possibility of implementing a cost-based structure that
would be expected to result in a substantial reduction in the
charges paid by Nextel Brazil to terminate calls on other mobile
carriers networks. It is uncertain if or when any such
changes will be adopted and if such a change would affect the
current partial bill and keep payment structure that applies
only to the settlement of mobile termination charges between SMR
and PCS mobile services.
Anatel is also responsible for the licensing of spectrum rights
in Brazil, including the SMR spectrum that we use in support of
our iDEN services and the spectrum in the 1.9/2.1 GHz bands
and the 1.8 GHz band for which Nextel Brazil was the
successful bidder in the recently completed auctions, and that
we plan to use to support our third generation network. Any
company interested in obtaining new SMR licenses from Anatel
must apply and present documentation demonstrating certain
technical, legal and financial qualifications. Anatel may
communicate its intention to grant new licenses, as well as the
terms and conditions applicable, such as the relevant price.
Before granting any license, Anatel is required to publish an
announcement, and any company willing to respond to
Anatels invitation, or willing to render the applicable
service in a given area claimed by another interested party, may
have the opportunity to obtain a license. Whenever the number of
claimants is larger than the available spectrum, Anatel is
required to conduct competitive bidding to determine which
interested party will be granted the available licenses.
A license for the right to provide SMR services is granted for
an undetermined period of time. While the associated radio
frequencies are licensed for a period of 15 years, they are
renewable only once for an additional
15-year
period. Renewal of the license is subject to rules established
by Anatel. The renewal process must be
11
initiated at least three years before the expiration of the
original term of the license and the decision by Anatel whether
to renew the license must be made within 12 months of the
filing of the request for renewal. Anatel may deny a request for
renewal of the license only if the applicant is not making
rational and adequate use of the frequency, the applicant has
committed repeated breaches in the performance of its
activities, or there is a need to modify the radio frequency
allocation. In 2007, Nextel Brazil renewed licenses for an
additional term of 15 years, which begins from the
respective expiration of each license.
The rules require that Nextel Brazils services comply with
start-up
terms and minimum service availability and quality requirements
detailed in the regulations. In particular, the licenses for
spectrum in the 1.9/2.1 GHz bands and the 1.8 GHz band
that are expected to be awarded to Nextel Brazil as a result of
its successful participation in the auction completed in late
2010 will require Nextel Brazil to meet specified network
coverage construction requirements within certain time frames.
Failure to meet Anatels requirements may result in
forfeiture of the channels and revocation of licenses. We
believe that Nextel Brazil is currently in compliance with the
applicable operational requirements of its licenses in all
material respects.
Nextel Brazil has, from time to time, been the target of
complaints filed with the Brazilian regulatory authorities by
one or more of our competitors in which our competitors seek to
challenge the manner in which we conduct business, and certain
competitors have also petitioned the Brazilian regulators
seeking changes to the regulations applicable to our operations
in an effort to make it more difficult or costly for us to
operate. In this regard, some of our competitors in Brazil,
through Brazils Associacao Nacional das Operadoras
Celulares, or ACEL, recently filed a petition against Anatel to
challenge the partial bill and keep settlement process that
allows us to retain a portion of the amounts we would otherwise
be obligated to pay to other carriers under the calling party
pays structure in Brazil. Because the current settlement process
results in a significant reduction in our overall
interconnection charges, our competitors have sought changes to
these processes in order to increase our payments for call
terminations. The court recently closed this case without any
negative consequences to our business, but we anticipate that
our competitors may initiate other proceedings challenging the
partial bill and keep settlement process. If Anatel eliminates
this settlement process or modifies it to increase the amounts
we pay to terminate calls, those actions could have an adverse
affect on the costs we incur to operate, which could adversely
affect our results of operations. This partial bill and keep
structure is not expected to be available to Nextel Brazil for
calls originating on its planned third generation network.
Foreign Currency Controls, Dividends and Tax
Regulation. The purchase and sale of foreign
currency in Brazil continues to be subject to regulation by the
Central Bank of Brazil despite regulatory changes enacted in
2005 that were designed to reduce the level of government
regulation of foreign currency transactions. Exchange rates are
freely negotiated by the parties, but purchase of currency for
repatriation of capital invested in Brazil and for payment of
dividends to foreign stockholders of Brazilian companies may
only be made if the original investment of foreign capital and
capital increases were registered with the Brazilian Central
Bank. There are no significant restrictions on the repatriation
of registered share capital and remittance of dividends. Nextel
Brazil has registered substantially all of its investments with
the Brazilian Central Bank.
The Nextel Brazil subsidiaries through which any dividend is
expected to flow have applied to the Brazilian Central Bank for
registration of its investments in Nextel Brazil. We intend to
structure future capital contributions to Brazilian subsidiaries
to maximize the amount of share capital and dividends that can
be repatriated through the exchange market.
Brazilian law provides that the Brazilian government may, for a
limited period of time, impose restrictions on the remittance by
Brazilian companies to foreign investors of the proceeds of
investments in Brazil. These restrictions may be imposed
whenever there is a material imbalance or a serious risk of a
material imbalance in Brazils balance of payments. The
Brazilian government may also impose restrictions on the
conversion of Brazilian currency into foreign currency. These
restrictions may hinder or prevent us from purchasing equipment
required to be paid for in any currency other than Brazilian
reais. Under current Brazilian law, a company may pay dividends
from current or accumulated earnings. Dividend payments from
current earnings are not subject to withholding tax. Interest on
foreign loans is generally subject to a 15% withholding tax.
Interest and payments including principal amounts on foreign
loans are generally subject to a 0.38% foreign exchange
transactions tax,
12
except for interest and payments made on loan agreements signed
after October 23, 2008, for which the applicable tax rate
is zero.
Operating Company Overview. We refer to our
wholly-owned Mexican operating company, Comunicaciones Nextel de
Mexico, S.A. de C.V., as Nextel Mexico. Nextel Mexico is
headquartered in Mexico City and has many regional offices
throughout Mexico. As of December 31, 2010, Nextel Mexico
had 4,845 employees.
Nextel Mexico provides wireless services under the trade name
Nextel in major business centers, including Mexico
City, Guadalajara, Puebla, Leon, Monterrey, Toluca, Tijuana,
Torreon, Ciudad Juarez and Cancun, as well as in smaller markets
and along related transportation corridors throughout Mexico. As
of December 31, 2010, Nextel Mexico provided service to
3,361,300 handsets, which we estimate to be about 3.9% of the
total mobile handsets in commercial service in Mexico.
Competition. Nextel Mexicos wireless
network competes with cellular and personal communications
services system operators in all of its market areas. Nextel
Mexico competes on a nationwide basis with Radiomovil Dipsa,
S.A. de C.V., known as Telcel, which is a subsidiary of America
Movil, S.A. de C.V. and an affiliate of Telefonos de Mexico,
S.A.B. de C.V., known as Telmex. Telcel holds spectrum and
services licenses throughout Mexico and is the largest provider
of wireless services in Mexico. Nextel Mexico also competes on a
nationwide basis with Telefonica Moviles Mexico, S.A. de C.V.,
which is the second largest wireless operator in the country and
offers wireless services under the Movistar brand, and with
Grupo Iusacell, S.A. de C.V., which offers wireless services
under the Iusacell and Unefon brands.
We believe that the most important factors upon which Nextel
Mexico competes are the quality of our customer service and
network, recognition of our brand and our differentiated
services, primarily our Direct Connect service, which is
available throughout all areas where Nextel Mexico provides
service and International Direct
Connect®
service, which allows customers to communicate across national
borders with other NII Holdings customers and with Sprint Nextel
Corporation customers on compatible handsets, an important
service offering in border regions of Mexico where many
customers travel between Mexico and the United States on a
regular basis. Nextel Mexicos competitors compete
aggressively by offering reduced prices for postpaid wireless
services, offering free or significantly discounted handsets,
offering various incentives to our customers to switch service
providers, including reimbursement of cancellation fees, and
offering bundled telecommunications services that include local,
long distance and data services. Some of these offers have been
designed to target business customers, including some of Nextel
Mexicos largest accounts. In addition, all three of Nextel
Mexicos largest competitors now offer services supported
by a third generation network. Nextel Mexico addresses these
competitive actions by, among other things, offering a wider
range of handsets, offering handsets to new and existing
customers on more favorable terms and by offering more
competitive rate plans, which resulted in a decrease in our
average revenue per subscriber in Mexico during 2008, 2009 and
2010. In addition, Nextel Mexico is building a third generation
network that will enable it to offer a more competitive
portfolio of services and support its differentiated Direct
Connect service. Notwithstanding these actions and plans for the
future, the more intense competitive conditions have made it,
and are expected to continue to make it, more difficult for
Nextel Mexico to attract new customers and retain its existing
customers.
Regulatory and Legal Overview. The Secretary
of Communications and Transportation of Mexico regulates the
telecommunications industry in Mexico. The Mexican
Telecommunications Commission oversees specific aspects of the
telecommunications industry on behalf of the Secretary of
Communications and Transportation.
The existing telecommunications law, which went into effect in
1995, restricts foreign ownership in telecommunications to a
maximum of 49% voting equity interest except for cellular
telephony, which has no such restriction. However, some of the
licenses held by Nextel Mexico prior to 2000 are not subject to
the 49% foreign ownership limitation as these licenses were
originally granted under the old telecommunications law that had
no limitation on foreign ownership.
Other than the licenses described below, licenses acquired by
Nextel Mexico after January 1, 2000 are held through
Inversiones Nextel de Mexico, S.A. de C.V., or Inversiones
Nextel, a corporation with a capital structure
13
known under applicable corporate law as neutral
stock, and in which Nextel Mexico owns approximately
99.99% of the economic interest, but only 49% of the voting
shares, or through Delta Comunicaciones Digitales, S.A. de C.V.,
or Delta Comunicaciones, a subsidiary of Inversiones Nextel. The
remaining 51% of the voting shares in Inversiones Nextel, which
is held by one Mexican shareholder, is subject to a voting trust
agreement and a shareholders agreement between Nextel
Mexico and this shareholder that establish governance controls
and transfer restrictions that are designed to protect Nextel
Mexicos interests.
In March 2009, Inversiones Nextel obtained authorization from
the Secretary of Communications and Transportation to provide
mobile and fixed wireless access, including telephone services
in the 800 MHz band within Mexico. In December 2009,
Inversiones Nextel and Delta Comunicaciones received
authorization to provide these services in some of Mexicos
largest cities, including Mexico City. In addition, 12
authorizations to provide the aforementioned services were
granted in April 2010, and 12 authorizations are pending.
Although Nextel Mexico expects that these renewals will be
granted, there is no guarantee that such renewals will be
granted. If some or all of these renewals are not granted,
Nextel Mexico could experience an adverse effect on its business.
Operadora de Comunicaciones, S.A. de C.V., or Opcom, which is an
indirect subsidiary of Nextel Mexico that holds licenses to
provide mobile and fixed wireless access, including telephone
services, is entitled to reciprocal interconnection terms and
conditions with wireline and wireless public telephone networks.
Opcom has executed
local-to-local
interconnection agreements with a number of local carriers;
local-to-mobile
interconnection agreements with Telmex, which acts as a transit
provider between all of the mobile networks in Mexico, Axtel,
Alestra, Maxcom and others, in which Opcom is considered to be
the mobile carrier; and
local-to-mobile
and
mobile-to-mobile
interconnection agreements with Telcel, Telefonica, Iusacell and
Unefon. Inversiones Nextel is currently utilizing Opcoms
interconnection with other carriers in Mexico in order to
provide its services.
The rates paid by Nextel Mexico to terminate calls on other
carriers networks are negotiated between the parties,
subject to the right of carriers to submit disputes to the
Mexican Federal Commission of Telecommunications, or Cofetel,
for resolution in instances where the carriers are unable to
agree on the rates or other terms. On December 31, 2010,
the agreements between Nextel Mexico and its mobile competitors
that established the applicable rate for mobile termination
expired. Nextel Mexico has agreed to reduced interconnection
rates with several fixed carriers; however, none of Nextel
Mexicos mobile competitors has agreed to these reduced
rates. As a result, Nextel Mexico (through Opcom) has initiated
interconnection disputes before Cofetel. When Cofetel concludes
on the applicable mobile termination rate, it is likely that
Telcel, Movistar and Iusacell will file legal proceedings to
overturn this resolution. During the administrative and judicial
processes regarding the applicable mobile termination rate
during 2011, it is expected that the 2010 mobile termination
rate of one peso per minute, as adjusted for inflation, will
continue to apply to calls terminated on the networks of all
mobile carriers, including Opcom.
On October 1, 2010, a subsidiary of Nextel Mexico, NII
Digital, S. de R.L de C.V., or NII Digital, was awarded a
nationwide license relating to 30 MHz of spectrum in the
1.7 GHz and 2.1 GHz bands following its successful
participation in the auctions relating to that spectrum that
were completed in July 2010. Nextel Mexico plans to use this
spectrum to support the deployment of a third generation network
based on WCDMA technology and expects to begin launching this
network in certain markets in Mexico within the first half of
2011, with a more extensive launch within the next 9 to
18 months. Certain aspects of the auctions, including the
processes used to adopt the rules applicable to the auctions,
the terms of those rules, the implementation of the auction
process, the grant of the spectrum license to Nextel Mexico and
its right to use the spectrum, have been challenged in a number
of legal and administrative proceedings brought primarily by one
of our competitors in Mexico. While we believe that the auction
rules were adopted consistent with applicable legal requirements
in Mexico, the auction process was conducted properly and the
licenses were awarded to Nextel Mexico in accordance with both
the law and the auction rules, it is uncertain whether these
proceedings will affect our ability to use the spectrum granted
pursuant to those licenses. If these proceedings were to result
in a loss of, or the imposition of a significant limitation on
our ability to use, the spectrum awarded to Nextel Mexico, our
plans to deploy the third generation network in Mexico could be
adversely affected, which could have an adverse effect on our
business.
On February 15, 2010, NII Holdings, Grupo Televisa, S.A.B.,
a Mexican corporation, or Televisa, and our wholly-owned
subsidiaries Nextel Mexico and Nextel International (Uruguay),
LLC, a Delaware limited liability
14
company, entered into an investment and securities subscription
agreement pursuant to which Televisa would have acquired up to a
30% equity interest in Nextel Mexico for an aggregate purchase
price of $1.44 billion. Pursuant to that agreement, the
parties participated in the spectrum auctions in Mexico
described above. On October 18, 2010, NII Holdings and
Televisa announced that they mutually agreed to terminate this
investment agreement. NII Digital continues to hold the spectrum
license granted to it in connection with the spectrum auction.
Foreign Currency Controls, Dividends and Tax
Regulation. Because there are no foreign currency
controls in place, Mexican currency is convertible into
U.S. dollars and other foreign currency without
restrictions. Mexican companies may distribute dividends and
profits outside of Mexico if the Mexican company meets specified
distribution and legal reserve requirements. Under Mexican
corporate law, approval of a majority of stockholders attending
an ordinary stockholders meeting of a corporation is
required to pay dividends. Dividends paid out of Nextel
Mexicos accumulated taxable income are not subject to
withholding tax; a tax of up to 43% is imposed on Nextel Mexico
if it pays dividends in excess of this amount. This tax may be
creditable against Nextel Mexicos future tax liability. A
15% withholding tax applies to interest paid by Nextel Mexico to
NII or its U.S. affiliates with respect to intercompany
loans made by NII Holdings or its subsidiaries to Nextel Mexico.
Effective January 1, 2010, the Mexican government modified
the corporate tax rate to 30% for the years 2010 through 2012,
29% for 2013 and 28% for 2014 and subsequent years. Dividends
paid out in excess of the accumulated taxable income are subject
to a tax of up to 43% for 2010 to 2012, 41% for 2013 and 39% for
2014. In addition, effective January 1, 2010, the Mexican
government imposed a new tax of 3% of invoiced charges for
telecommunications services. This telecommunications tax is
applicable to all telecommunications services provided by Nextel
Mexico, with the exception of Internet services and
interconnection services between local and foreign carriers. The
Mexican government also approved tax legislation, effective
January 1, 2010, which increases the value added tax rate
to 11% in border regions and to 16% in non-border regions.
Operating Company Overview. We refer to our
wholly-owned Argentine operating company,
Nextel Communications Argentina S.R.L., as Nextel
Argentina. Nextel Argentina provides wireless services under the
tradename Nextel in major business centers including
Buenos Aires, Cordoba, Rosario and Mendoza, along related
transportation corridors and in a number of smaller markets. As
of December 31, 2010, Nextel Argentina provided service to
1,153,900 handsets, which we estimate to be about 2.2% of the
total mobile handsets in commercial service in Argentina.
Nextel Argentina is headquartered in Buenos Aires and has
regional offices in Mar del Plata, Rosario, Mendoza and Cordoba,
and numerous branches in the Buenos Aires area. As of
December 31, 2010, Nextel Argentina had
1,510 employees.
Competition. There are three mobile service
providers in Argentina with which Nextel Argentina competes: the
Telefonica Moviles Group, commercially known as Movistar; AMX
Argentina S.A., which is commercially known as Claro and which
is owned by America Movil S.A. de C.V.; and Telecom Personal
S.A., or Personal, which is owned by Telecom Argentina S.A. Each
of these companies hold several telecommunications licenses,
which allow them to provide a variety of services, including
mobile voice and data communications throughout Argentina.
We believe that the most important factors upon which Nextel
Argentina competes are the quality of our customer service and
network, brand recognition and our differentiated services,
primarily our Direct Connect service, which is available
throughout all areas where Nextel Argentina provides wireless
services. While its competition generally targets the prepaid
market, Nextel Argentina primarily targets small and
medium-sized businesses with mobile workforces and high-end
individuals. Substantially all of our subscribers in Argentina
are on post-paid contracts.
Regulatory and Legal Overview. The Comision
Nacional de Comunicaciones, referred to as the CNC, the
Secretary of Communications, and the Ministry of Federal
Planning, Public Investments and Services are the Argentine
telecommunications authorities responsible for the
administration and regulation of the telecommunications industry.
15
Licenses enable the rendering of telecommunications services and
are independent of the authorizations to use spectrum. The
regulations establish a single license system that allows the
license holder to offer any and all types of telecommunications
services. The licensee is free to choose the geographic area,
technology and architecture through which its telecommunications
services will be provided. Licenses to provide
telecommunications services and spectrum authorizations may be
revoked for violation of the applicable regulations. Licenses
and spectrum authorizations may not be transferred or assigned,
in whole or in part, without prior written approval of
regulatory authorities. Argentina does not impose any limitation
of foreign ownership of telecom licenses. Under its licenses,
Nextel Argentina is deemed to have registered SMR services,
paging, data transmission and other value added services, as
well as long distance telephony. The tariffs for the services
offered by Nextel Argentina are not subject to regulation and
may be freely established by Nextel Argentina.
The use of the SMR spectrum used by Nextel Argentina in support
of its services is subject to the prior granting of an
authorization to use that spectrum in a specified, limited
geographical area. SMR authorizations granted through the year
2000 have an indefinite term, and those granted beginning in
2001 expire after a 10 year-term. Nextel Argentina holds
licenses to use 1,815 channels, including those covering the
major business markets areas, without expiration term, and 1,760
channels with
10-year
terms, mostly in smaller markets. SMR authorizations are subject
to service launch and subscriber loading requirements.
SMR service providers are assured interconnection with other
operators networks, including the public switched
telephone network, on a nondiscriminatory basis. Interconnection
terms and prices are freely negotiated between the parties,
although the regulations include guidelines that are generally
followed in practice and can be imposed by the Secretary of
Communications if an agreement between the parties is not
reached. All interconnection agreements entered into must be
registered with the CNC. Additional requirements are imposed or
may be imposed on all dominant carriers to ensure that the
Argentine telecommunications market is open to competition.
Nextel Argentina provides services to its subscribers that allow
calls to be completed on other carriers networks under
interconnection agreements with Telefonica de Argentina S.A. and
Telecom Argentina S.A., as well as other smaller local carriers.
Nextel Argentina has also implemented a calling party pays
program with the fixed line carriers with whom it interconnects
under which Nextel Argentina is compensated at agreed rates for
calls made to its subscribers from those networks for those
subscribers who purchase our services under calling party pays
rate plans. Charges recovered by Nextel Argentina for calling
party pays calls originated in fixed lines depend on a reference
price set periodically by the Minister of Federal Planning,
Public Investments and Services.
Effective September 1, 2010, Nextel Argentina notified all
mobile carriers of its decision to terminate its
mobile-to-mobile
calling party pays agreements with those carriers due to the
failure to reach agreements with those carriers regarding the
mobile calling party pays rates. Nextel Argentina continues to
work to renegotiate these rates and has ceased making payments
to the other carriers for mobile call terminations, pending the
resolution of this dispute. We are currently in communications
with Nextel Argentinas regulators regarding this matter
and do not expect the outcome of the negotiations to have a
material impact on our results of operations.
The Argentine government has indicated that it intends to
conduct spectrum auctions in the near future that are expected
to include spectrum suitable for use to support a third
generation network, although the terms and timing of such an
auction have not been formally announced. Nextel Argentina plans
to participate in these auctions, if and when they occur, and
intends to use any spectrum it acquires to offer third
generation services.
Foreign Currency Controls, Dividends and Tax
Regulation. On January 6, 2002, an Argentine
emergency law became effective, and the government formally
declared a public emergency in economic, administrative,
financial and exchange control matters. The law empowered the
Federal Executive Power to regulate those areas until
December 10, 2003, subject to overview by the National
Congress. The Emergency Law amended several provisions of the
1991 Convertibility Law No. 23,928, the most significant of
which was to repeal the peg of the Argentine peso to the
U.S. dollar. The effectiveness of the Argentine Emergency
Law has been extended through December 31, 2011 by the
passing of a subsequent law.
The National Executive Power and the Argentine Central Bank have
placed certain restrictions on the acquisition of foreign
currency by Argentine and non-Argentine residents and on the
inflow and outflow of capital to and from Argentina, including
those for the purposes of repayment of principal and interest,
dividend payments and repatriation of capital. In addition,
there are specific guidelines that must be complied with in
order to make any
16
repayment of principal or interest to foreign creditors.
According to such regulations, payments of profits and dividends
abroad may be carried out as long as they correspond to
financial statements certified by external auditors.
On June 9, 2005, the Federal Executive Power issued a
decree that introduced restrictions to the transfer of funds to
and from Argentina and created a mandatory deposit of 30% of the
funds transferred to Argentina. This decree provides that, under
certain circumstances, both Argentinean and non-Argentinean
residents transferring funds from abroad to Argentina are
obligated to make a
365-day
registered non-transferable non-interest bearing cash deposit
equal to 30% of the funds transferred by them to Argentina.
Among others, foreign direct investment and subscription of
primary issuances of debt or cash securities with public
offering in the capital or stock markets are exempt from such
restricted deposit requirement.
Under applicable Argentine corporate law, a company may pay
dividends only from liquid and realized profits as reported in
the companys financial statements prepared in accordance
with Argentine generally accepted accounting principles and duly
approved by the shareholders meeting. Of those profits, 5% must
be set aside until a reserve of 20% of the companys
capital stock has been established. Subject to these
requirements, the balance of profits may be declared as
dividends and paid in cash upon a majority vote of the
stockholders. Under current law, dividend payments are not
subject to withholding tax, except when the dividend payments
are the result of profits paid out in excess of the accumulated
profits computed for income tax purposes as of the financial
year preceding the date of the distribution of such dividends.
If dividends are paid in this manner, a 35% withholding tax
applies on the amount of the surplus. A withholding tax of 35%
applies to interest paid by Nextel Argentina to NII Holdings or
any of its U.S. subsidiaries with respect to intercompany
loans made by NII Holdings or its subsidiaries to Nextel
Argentina.
Operating Company Overview. We refer to our
wholly-owned Peruvian operating company, Nextel del Peru S.A.,
as Nextel Peru. Nextel Peru provides wireless services under the
tradename Nextel in major business centers,
including Arequipa, Chiclayo, Chimbote, Cuzco, Ica, Lima, Piura,
Tacna, Trujillo and Puno and along related transportation
corridors.
As of December 31, 2010, Nextel Peru provided service to
1,128,200 handsets and other devices, including devices
supported by Nextel Perus recently launched third
generation network. We estimate that these handsets and devices
represent about 4.6% of the total mobile handsets and devices in
commercial service in Peru.
Nextel Peru is headquartered in Lima. As of December 31,
2010, Nextel Peru had 1,400 employees.
In July 2007, Proinversion, the governmental agency that
promotes investment in Peru, awarded a nationwide license of
35 MHz of 1.9 GHz spectrum to Nextel Peru for
$27.0 million through an auction process carried out by the
Peruvian government. In late 2009 and early 2010, we launched
our commercial services utilizing the WCDMA-based third
generation network we deployed to operate on this spectrum.
In October 2009, Nextel Peru acquired nine 6 MHz channels
in the 2.5 GHz spectrum band for a total of 54 MHz in
Lima, as well as some additional 2.5 GHz spectrum outside
of Lima, all of which has been incorporated into Nextel
Perus local carrier license. Nextel Peru launched
operations utilizing its 2.5 GHz spectrum in October 2010
and is required to comply with other license coverage
commitments within the first five years of operation.
In December 2009, Nextel Peru entered into a $130.0 million
syndicated loan agreement, the proceeds of which will be used
for capital expenditures, general corporate purposes and the
repayment of short-term intercompany debt. As of
December 31, 2010, Nextel Peru had borrowed all funds
available under this agreement.
Competition. Nextel Peru competes with all
other providers of mobile services in Peru, including Telefonica
Moviles S.A. and America Movil Peru S.A.C., a subsidiary of
Mexicos America Movil. Telefonica Moviles S.A. provides
nationwide coverage and operates under the brand name
Movistar. America Movil provides nationwide coverage
and operates under the brand name Claro.
We believe that the most important factors upon which Nextel
Peru competes are the quality of our customer service and
network, brand recognition and our differentiated services,
primarily our Direct Connect service, which
17
is available throughout all areas where Nextel Peru provides
wireless services. Nextel Peru primarily targets customers who
utilize its services in their businesses and individuals that
have medium to high usage patterns.
Regulatory and Legal Overview. The Organismo
Supervisor de Inversion Privada en Telecomunicaciones of Peru,
known as OSIPTEL, and the Ministry of Transportation and
Communications of Peru, referred to as the Peruvian Ministry of
Communications, regulate the telecommunications industry in
Peru. OSIPTEL oversees private investments and competition in
the telecommunications industry. The Peruvian Ministry of
Communications grants telecommunications licenses and issues
regulations governing the telecommunications industry. The
Telecommunications Law of Peru, the general regulations under
that law and the regulations issued by OSIPTEL govern the
operation of SMR services in Peru, which are considered public
mobile services in the same category as cellular and personal
communications services.
In Peru, wireless service providers, including SMR service
providers and operators of mobile networks like our third
generation network, are granted
20-year
licenses that may be renewed for an additional
20-year
term, subject to compliance with the terms of the license. Peru
imposes no limitation on foreign ownership of wireless
licensees. Licenses may be revoked before their expiration for
material violations of applicable regulatory and license
requirements. Licensees must also comply with a minimum
expansion plan that establishes the minimum loading and coverage
requirements for the licensees, as well as spectrum targets
under the licenses. Nextel Peru has met its loading and coverage
requirements and has reached its spectrum targets. In addition,
we acquired rights to use 1.9 GHz spectrum in Peru that
require us to deploy new network technology within specified
timeframes throughout Peru, including in areas that we do not
currently serve.
Under the general regulations of Perus telecommunications
law, all public telecommunications service providers have the
right to interconnect to the networks of other providers of
public telecommunications services. Furthermore, interconnection
with these networks must be on an equal and nondiscriminatory
basis. The terms and conditions of interconnection agreements
must be negotiated in good faith between the parties in
accordance with the interconnect regulations and procedures
issued by OSIPTEL, which specify the rates to be charged for
these services. Nextel Peru is presently interconnected with all
major telecommunications operators in Peru. In August 2010,
OSIPTEL adopted regulations that will result in savings in
interconnect rates over a four-year period ending on
September 30, 2014.
Foreign Currency Controls, Dividends and Tax
Regulation. Under current law, Peruvian currency
is freely convertible into U.S. dollars without
restrictions. Peru has a free exchange market for all foreign
currency transactions. On May 31, 2001, Nextel
International (Peru), LLC executed a legal stability agreement
with the Peruvian government, which, among other things,
guaranteed the free conversion in foreign currency of, and free
currency remittances related to, its $100.0 million
investment in Nextel Peru. This agreement has a term of
10 years. In addition, on September 21, 2007, Nextel
International (Peru), LLC entered into a legal stability
agreement under which an investment of $166.5 million was
stabilized under the same conditions as the aforementioned legal
stability agreement until September 20, 2027.
The payment and amount of dividends on Nextel Perus common
stock is subject to the approval of a majority of the
stockholders at a mandatory meeting of its stockholders.
According to Peruvian corporate law, the stockholders may decide
on the distribution of interim dividends or, alternatively,
delegate the decision to the board of directors. Dividends are
also subject to the availability of profits, determined in
accordance with Peruvian generally accepted accounting
principles. Profits are available for distribution only after
10% of pre-tax profits have been allocated for mandatory
employee profit sharing, and 10% of the net profits have been
set aside to constitute a legal reserve. This reserve is not
available for use except to cover losses in the profit and loss
statement. This reserve obligation remains until the legal
reserve constitutes 20% of the capital stock. Once this legal
reserve is met, the balance of the net profits is available for
distribution. A 4.1% withholding tax applies to dividends paid
by Nextel Peru to its foreign shareholders, and a 30%
withholding tax applies to interest paid by Nextel Peru to NII
Holdings or its non-Peruvian subsidiaries with respect to
intercompany loans made by NII Holdings or its subsidiaries to
Nextel Peru.
In December 2008, Nextel Peru entered into a tax stability
agreement with the Peruvian government under which Nextel Peru
has been granted stability of the income tax regime in effect as
of that date, including the new regime for loss carryforwards.
Under this agreement, net operating losses may be offset
alternatively (i) during the
18
four consecutive years as of the year in which the loss was
incurred, or (ii) without limitations, provided that only
50% of the taxable income is offset per year. This agreement
expires on September 20, 2027.
Operating Companies Overview. We refer to our
wholly-owned Chilean operating companies, Centennial Cayman
Corp. Chile S.A. and Multikom, S.A., as Nextel Chile. Nextel
Chile provides iDEN-based wireless services under the tradename
Nextel. These operating companies provide service in
Santiago, Valparaiso and Vina del Mar, along related
transportation corridors and on a limited basis in
San Antonio, Rancagua, Melipilla, Talagante,
San Felipe, Concepcion and Antofagasta. As of
December 31, 2010, Nextel Chile provided services to 65,000
handsets.
Nextel Chile is headquartered in Santiago, Chile. As of
December 31, 2010, Nextel Chile had 385 employees.
In late 2009, Nextel Chile participated in the auctions of third
generation spectrum in Chile and was awarded 60 MHz of
spectrum in the 1.7 GHz and 2.1 GHz bands throughout
Chile. We are in the process of deploying a third generation
network that utilizes WCDMA technology using that spectrum and
have recently been advised by the Chilean regulatory authorities
that we have satisfied the minimum network construction
requirements of the spectrum license. Nextel Chile expects to
begin providing third generation service offerings on this new
network in 2011.
Competition. The three established mobile
telephone service providers, Entel Chile, Telefonica Moviles de
Chile S.A. and Claro S.A. provide services throughout Chile that
compete with Nextel Chiles wireless services. These
competitors also offer third generation mobile services. As a
result of the recent Chilean government auctions of licenses
related to third generation spectrum, VTR Movil S.A. entered the
Chilean wireless telecommunications market.
Regulatory and Legal Overview. The main
regulatory agency of the Chilean telecommunications sector is
the Ministry of Transportation and Telecommunications (the
Ministry), which acts primarily through the Undersecretary of
Telecommunications (the Undersecretary).
Telecommunications concessions granted by the Chilean regulatory
authorities are not limited as to their number, type of service
or geographical area. Therefore, it is possible to grant two or
more concessions for the provision of the same service on the
same location, except where technical limitations exist.
Concessions for the provision of public telecommunications
services are generally granted for a
30-year
period. These concessions may be renewed for additional
30-year
periods if requested by the concessionaire.
In Chile, concessionaires of public telecommunications services
and concessionaires of long distance telephony services are
required by law to establish and accept interconnection with
each other in accordance with regulations adopted by the Chilean
regulatory authorities. Additionally, providers of public
telecommunications services of the same type that are authorized
to be interconnected with public telephone networks are also
able to request the assignment of specific numbering blocks for
their subscribers. Our operating companies have been granted
numbering blocks and are currently interconnected to the public
switched telephone network.
Under Chilean regulations, we may freely determine the fees
charged to our subscribers for services provided on both our
iDEN and third generation networks. However, the fees and
tariffs charged by a telecommunications concessionaire to other
telecommunications concessionaires for the services rendered
through interconnection, including the access fees, are
determined and established by the regulatory authorities in
accordance with a tariff-setting procedure based upon, among
other things, the cost structure, including expansion plans, of
an efficient concessionaire, as set forth in the General
Telecommunications Law. The regulatory authorities periodically
establish the tariff for access to the networks of our three
primary competitors in Chile. The most recent determination of
those rates became effective in January 2009.
Foreign Currency Controls, Dividends and Tax
Regulation. The purchase and sale of foreign
currency in Chile is not subject to governmental control.
Accordingly, any person may freely engage in foreign exchange
transactions. There are two foreign exchange markets in Chile.
The first is the formal exchange market, which is subject to
regulations of the Chilean Central Bank and consists of banks
and other entities authorized to participate
19
in the formal market by the Central Bank. This market is
generally used for trade-related transactions, such as import
and export transactions, regulated foreign currency investments
and other transactions, such as remittances abroad and operates
at floating rates freely negotiated between the participants.
Foreign investments are subject to regulations in Chile that
impose certain requirements that affect the repatriation of
those investments. The investment of capital exceeding $10,000
in Chile and the repatriation of the investment and its profits
must be carried out under either Decree Law No. 600 or
under Chapter XIV of the Compendium of Foreign Exchange
Regulations issued by the Central Bank of Chile under the
Central Bank Act. Foreign funds registered under Decree Law
No. 600 provide specified guarantees with respect to the
ability to repatriate funds and the stability of the applicable
tax regime. Decree Law No. 600 permits foreign investors to
access the formal exchange market to repatriate their
investments and profits. Although the foreign investment
regulations may permit foreign investors to access the formal
exchange market to repatriate their investments and profits,
they do not guarantee that foreign currency will be available in
the market.
Under Chilean corporate law, corporations, such as our Chilean
companies, may distribute dividends among their stockholders
only from the net profits of a specific fiscal year or from
retained profits recognized by balance sheets approved by the
stockholders meeting. However, if the company has
accumulated losses, profits of that corporation must first be
allocated to cover the losses. Losses in a specific fiscal year
must be offset with retained profits, if any.
Unless otherwise agreed at a stockholders meeting by the
unanimous vote of all issued shares, publicly traded
corporations must annually distribute at least 30% of the net
profits of each fiscal year. This distribution must be in the
form of a cash dividend to their stockholders in proportion to
their ownership or as otherwise stated in the bylaws. Privately
held corporations, such as our Chilean operating companies, must
follow the provisions of their bylaws; if the bylaws do not
contain these provisions, the rules described above for the
distribution of profits by publicly traded stock corporations
apply. In any event, the board of directors may distribute
provisional dividends if the corporation has no accumulated
losses, subject to the personal responsibility of the directors
approving the distributions. As a general rule, any dividend
paid by Nextel Chile to its foreign shareholders will be subject
to a 35% withholding tax rate, reduced by a tax credit to
recognize the 17% corporate tax paid by Nextel Chile on the
income distributed or remitted abroad. As a general rule, a 35%
withholding tax applies to interest paid by Nextel Chile to NII
Holdings or its U.S. affiliates with respect to
intercompany loans made by NII Holdings or its subsidiaries to
Nextel Chile.
On July 31, 2010, a temporary increase in the Chilean
corporate income tax rate was published. The 17% corporate tax
rate will be increased to 20% for 2011, adjusted to 18.5% for
2012 and will revert to 17% for 2013 and thereafter.
Employees
As of December 31, 2010, we had about
13,500 employees. Nextel Brazil is a party to a collective
bargaining agreement that covers all of its employees and
expires on April 30, 2011. Although Nextel Mexico is a
party to certain collective bargaining agreements, as of
December 31, 2010, none of Nextel Mexicos employees
have chosen to participate under these agreements. Except for
these agreements with our subsidiaries in Brazil and Mexico,
neither we nor any of our other operating companies is a party
to any collective bargaining agreement although certain of our
operating companies are subject to employment statutes and
regulations that establish collective bargaining arrangements
that are similar in substance to collective bargaining
agreements. We believe that the relationship between us and our
employees, and between each of our operating companies and its
employees, is good.
Access to
Public Filings and Board Committee Charters
We maintain an internet website at www.nii.com. Information
contained on our website is not part of this annual report on
Form 10-K.
Stockholders of the Company and the public may access our annual
reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to these reports filed with or furnished to the
Securities and Exchange Commission under the Securities Exchange
Act of 1934, as amended, through the investor
relations section of our website. This information is
provided by a third party link
20
to the SECs online EDGAR database, is free of charge and
may be reviewed, downloaded and printed from our website at any
time.
We also provide public access to our code of ethics, entitled
the NII Holdings, Inc. Code of Business Conduct and Ethics, and
the charters of the following committees of our Board of
Directors: the Audit Committee, the Compensation Committee and
the Corporate Governance and Nominating Committee. The Code of
Business Conduct and Ethics and committee charters may be viewed
free of charge on the Investor Relations link of our website at
the following address: www.nii.com. You may obtain copies of any
of these documents free of charge by writing to: NII Holdings
Investor Relations, 1875 Explorer Street, Suite 1000,
Reston, Virginia 20190. If a provision of our Code of Business
Conduct and Ethics required under the Nasdaq Global Select
Market corporate governance standards is materially modified, or
if a waiver of our Code of Business Conduct and Ethics is
granted to a director or executive officer, we will post a
notice of such action on the Investor Relations link of our
website at the following address: www.nii.com. Only the Board of
Directors or the Audit Committee may consider a waiver of the
Code of Business Conduct and Ethics for an executive officer or
director.
Investors should be aware that we and our business are subject
to various risks, including the risks described below. Our
business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading
price of our common stock could decline due to any of these
risks, and investors may lose all or part of any investment. Our
actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors,
including the risks faced by us described below and included
elsewhere. Please note that additional risks not presently known
to us or that we currently deem immaterial may also impair our
business and operations.
|
|
1.
|
If we
are not able to compete effectively in the highly competitive
wireless communications industry, our future growth and
operating results will suffer.
|
Our business involves selling wireless communications services
to subscribers, and as a result, our economic success is based
on our ability to attract new subscribers and retain current
subscribers. Our success will depend on the ability of our
operating companies to compete effectively with other
telecommunications services providers, including wireline
companies and other wireless telecommunications companies, in
the markets in which they operate. Our ability to compete
successfully will depend on our ability to anticipate and
respond to various competitive factors affecting the
telecommunications industry, including new services and
technologies, changes in consumer preferences, demographic
trends, economic conditions and discount pricing strategies by
competitors.
|
|
a.
|
The
wireless industries in our markets are highly competitive,
making it difficult for us to attract and retain customers. If
we are unable to attract and retain customers, our financial
performance will be impaired.
|
Competition in our markets has intensified in recent periods,
and we expect that it will continue to intensify in the future
as a result of the entry of new competitors and the development
of new technologies, products and services. We also expect the
current consolidation trend in the wireless industry to continue
as companies respond to the need for cost reduction and
additional spectrum. This trend may result in larger competitors
with greater financial, technical, promotional and other
resources to compete with our businesses. In addition, as we
expand our marketing and sales focus to include a larger segment
of high value consumers, we will be increasingly seeking to
attract the same customers as our competitors, many of which are
larger companies with more extensive networks, financial
resources and benefits of scale that allow them to spend more
money on marketing and advertising than us.
Among other things, our competitors have:
|
|
|
|
|
provided increased handset subsidies;
|
|
|
|
offered higher commissions to distributors;
|
|
|
|
provided discounted or free airtime or other services;
|
21
|
|
|
|
|
expanded their networks to provide more extensive network
coverage;
|
|
|
|
developed and deployed networks that use new technologies and
support new or improved services;
|
|
|
|
offered incentives to larger customers to switch service
providers, including reimbursement of cancellation fees; and
|
|
|
|
offered bundled telecommunications services that include local,
long distance and data services.
|
We anticipate that competition will lead to continued
significant advertising and promotional spending as well as
continued pressure on prices for voice services and handsets. In
addition, portability requirements, which enable customers to
switch wireless providers without changing their wireless
numbers, have been implemented or are proposed to be implemented
in all of our markets. These developments and actions by our
competitors could negatively impact our operating results and
our ability to attract and retain customers. The cost of adding
new customers may increase, reducing profitability even if
customer growth continues. If we are unable to respond to
competition and compensate for declining prices by adding new
customers, increasing usage and offering new services, our
revenues and profitability could decline.
|
|
b.
|
If we do
not keep pace with rapid technological changes, including a
failure to complete the deployment of our third generation
networks and new technology that supports services on these
networks, we may not be able to attract and retain
customers.
|
The wireless telecommunications industry is experiencing
significant technological change. For example, competitors in
each of our markets have launched upgraded third generation
networks designed to support services that use high speed data
transmission capabilities, including internet access and video
telephony. Although not in our markets yet, fourth generation
networks with enhanced data speed and capacity have been
launched in some markets around the world and could be launched
by our competitors in markets in which we operate in the future.
These and other future technological advancements may enable
competitors who use other wireless technologies to offer
features or services we cannot provide or exceed the quality of
our current level of service, thereby making the services we
offer less competitive.
The 800 MHz spectrum that our operating companies are
licensed to use is non-contiguous while the third generation
technology platforms that are currently available operate only
on contiguous spectrum. While in Brazil, Mexico, Chile and Peru
we have rights to use spectrum that supports third generation
technology, we have only recently launched the third generation
services in Peru and are only beginning to develop and deploy
these networks in Brazil, Mexico and Chile, which gives our
competitors a significant
time-to-market
advantage. In addition, in Argentina, we do not hold rights to
use additional spectrum in bands that would facilitate a
transition to a new network technology, which could make it more
difficult or impossible for us to deploy a third generation
network in Argentina.
Deploying the third generation networks in Brazil, Mexico, Chile
and Peru requires a significant amount of time and capital. If
we are unable to acquire additional spectrum in Argentina or are
unsuccessful in our efforts to deploy our planned third
generation networks in Brazil, Mexico, Chile and Peru, or if we
are unable to raise sufficient capital to pay for those efforts,
we will continue to be heavily reliant on Motorola, as the sole
supplier of iDEN technology, to maintain the competitiveness of
our services and customer equipment. If Motorola is unwilling or
unable to upgrade or improve iDEN technology or develop other
technology solutions to meet future advances in competing
technologies on a timely basis, or at an acceptable cost, we
will be less able to compete effectively and could lose
customers to our competitors. For more information, see
3. Costs, regulatory requirements and other problems we
encounter as we deploy our third generation networks could
adversely affect our operations. The deployment of new
technology and service offerings could distract management from
our current business operations or cause network degradation and
loss of customers.
As we deploy our third generation networks, we must develop,
test and deploy new supporting technologies, software
applications and systems intended to enhance our competitiveness
both by supporting services our customers have come to expect
like
push-to-talk
services and new services and features and by reducing the costs
associated with providing these services. Successful deployment
and implementation of new services and technology on our WCDMA
networks depend, in part, on the willingness and ability of
third parties to develop
22
successful new applications in a timely manner. We may not be
able to successfully complete the development and deployment of
new technology and related features or services in a timely
manner, and the features and services we do develop may not be
widely accepted by our subscribers or may not be profitable,
which could result in us failing to recover our investment in
this new technology. Any resulting subscriber dissatisfaction
could affect our ability to retain subscribers and could have an
adverse effect on our results of operations and growth prospects.
|
|
c.
|
Some of
our competitors are financially stronger than we are, which may
limit our ability to compete based on price.
|
Because of their size, scale and resources, and in some cases
ownership by larger companies, some of our competitors may be
able to offer services to customers at prices that are below the
prices that our operating companies can offer for comparable
services. Many of our competitors are well-established companies
that have:
|
|
|
|
|
substantially greater financial and marketing resources;
|
|
|
|
larger customer bases;
|
|
|
|
larger spectrum positions; and
|
|
|
|
larger coverage areas than those of our operating companies.
|
If we cannot compete effectively based on the price of our
service offerings and related cost structure, our results of
operations may be adversely affected.
|
|
d.
|
The
network and subscriber equipment we currently use and expect to
use is more expensive than the equipment used by our
competitors, which may limit our ability to compete.
|
Our iDEN networks utilize a proprietary technology developed and
designed by Motorola that relies solely on the efforts of
Motorola and any current or future licensees of this technology
for product development and innovation. Additionally, Motorola
is the primary supplier for the network equipment and handsets
we sell for use on our iDEN networks. In contrast, all of our
competitors use infrastructure and customer equipment that are
based on standard technologies like the global system for mobile
communications standard, or GSM, and WCDMA, which are
substantially more widely used technologies than iDEN, are
available from a significant number of suppliers and are
produced in much larger quantities for a worldwide base of
customers. As a result, our competitors benefit from economies
of scale and lower costs for handsets and infrastructure
equipment than are available to us for services on our iDEN
network. In addition, because we plan to continue to use high
performance
push-to-talk
service capabilities as a key differentiator, we expect that the
cost of handsets capable of supporting those differentiated
services on our third generation networks will be higher because
they will not be produced at scale levels comparable with more
standard WCDMA handsets. These factors, as well as the higher
cost of our handsets and other equipment may make it more
difficult for us to attract or retain customers, and may require
us to absorb a comparatively larger cost of offering handsets to
new and existing customers. The combination of these factors may
place us at a competitive disadvantage and may reduce our growth
and profitability.
|
|
e.
|
Our
operating companies may face disadvantages when competing
against formerly government-owned incumbent wireline operators
or wireless operators affiliated with them.
|
In some markets, our operating companies may not be able to
compete effectively against a formerly government-owned monopoly
telecommunications operator, which today enjoys a near monopoly
on the provision of wireline telecommunications services and may
have a wireless affiliate or may be controlled by shareholders
who also control a wireless operator. For example, Telcel, which
is one of our largest competitors in Mexico, is an affiliate of
Telefonos de Mexico, S.A.B. de C.V., which provides wireline
services in Mexico and was formerly a government-owned monopoly.
Similarly, in Peru, we compete with Telefonica Moviles, which is
an affiliate of the Telefonica del Peru, S.A.A., which operates
wireline services in Peru and was formerly a government-owned
monopoly. Our operating companies may be at a competitive
disadvantage in these markets because formerly government-owned
incumbents or affiliated competitors may have:
|
|
|
|
|
close ties with national regulatory authorities;
|
23
|
|
|
|
|
control over connections to local telephone lines; or
|
|
|
|
the ability to subsidize competitive services with revenues
generated from services they provide on a monopoly or
near-monopoly basis.
|
Our operating companies may encounter obstacles and setbacks if
local governments adopt policies favoring these competitors or
otherwise afford them preferential treatment. As a result, our
operating companies may be at a competitive disadvantage to
incumbent providers, particularly as our operating companies
seek to offer new telecommunications services.
|
|
f.
|
Our
coverage is not as extensive as those of other wireless service
providers in our markets, which may limit our ability to attract
and retain customers.
|
We have recently expanded the coverage of our iDEN networks,
particularly in Mexico and Brazil, and we are either deploying
or planning to deploy WCDMA networks in Brazil, Mexico, Chile
and Peru that are generally expected to serve a wider coverage
area than our iDEN networks, but our current networks do not
offer nationwide coverage in the countries in which we operate
and our iDEN technology limits our potential roaming partners
for customers solely on iDEN networks. As a result, we may not
be able to compete effectively with competitors that operate
mobile networks with more extensive areas of service.
Additionally, many of our competitors have entered into
reciprocal roaming agreements that permit their customers to
roam on the other parties networks. The iDEN technology
that we currently use in our networks is not compatible with the
technology used by our competitors. Although some of the handset
models that we sell are compatible with both iDEN 800 MHz
and GSM 900/1800 MHz systems, we offer very few of these models
and, as such, we are more limited in our ability to offer the
breadth of roaming capabilities of our competitors. In addition,
our customers are not able to roam on other carriers
networks where we do not have roaming agreements. These factors
may limit our ability to attract and retain certain customers.
To date, we have not entered into roaming agreements with
respect to GSM or WCDMA-based third generation services offered
in the countries in which our operating companies conduct
business, but have entered into agreements that allow our
customers to utilize roaming services in other countries using
the handsets that are compatible with iDEN
and/or GSM
systems. For handsets that operate on our WCDMA-based third
generation network in Peru, we have entered into similar
agreements with providers in a more limited group of countries
that allow our Peruvian third generation customers to utilize
roaming services in those countries.
|
|
g.
|
If our
current customer turnover rate increases, our business could be
negatively affected.
|
In recent years, we have experienced a higher consolidated
customer turnover rate compared to earlier periods, which
resulted primarily from the combined impact of weaker economic
conditions and the more competitive sales environments in the
markets in which we operate. While this trend reversed to some
extent in 2010 as we took steps and incurred expenses in our
effort to maintain and improve subscriber retention and reduce
our customer turnover rate, there can be no assurance that our
efforts will maintain or lower our customer turnover rates.
Subscriber losses adversely affect our business, financial
condition and results of operations because these losses result
in lost revenues and cash flow. Although attracting new
subscribers and retaining existing subscribers are both
important to the financial viability of our business, there is
an added focus on retaining existing subscribers because the
cost of acquiring a new customer is much higher. Accordingly, an
increase in customer deactivations could have a negative impact
on our results, even if we are able to attract new customers at
a rate sufficient to offset those deactivations. If we
experience an increase in our customer turnover rate, our
ability to achieve revenue growth and our profitability could be
impaired.
|
|
h.
|
We may be
limited in our ability to grow unless we successfully deploy our
third generation networks, expand network capacity and address
increased demands on our business systems and
processes.
|
Our customer base continues to grow rapidly. To continue to
successfully increase our number of customers and pursue our
business plan, we must economically:
|
|
|
|
|
deploy our planned third generation networks;
|
24
|
|
|
|
|
expand the capacity of our iDEN networks and the capacity and
coverage of our third generation networks;
|
|
|
|
secure sufficient transmitter and receiver sites at appropriate
locations to meet planned system coverage and capacity targets;
|
|
|
|
obtain adequate quantities of base radios and other system
infrastructure equipment; and
|
|
|
|
obtain an adequate volume and mix of handsets to meet customer
demand.
|
In particular, the deployment of our planned third generation
networks will require us to deploy a significant number of new
transmitter sites to meet the expanded coverage requirements for
those networks resulting from differences in our commercial
strategies, differences in the propagation characteristics of
the spectrum bands being used to support those networks and the
coverage requirements associated with the spectrum licenses
being utilized for those networks. The effort required to locate
and build a significant number of additional transmitter sites
across our markets in coming years will be substantial, and our
failure to meet this demand could delay or impair the deployment
of our third generation networks, which would adversely affect
our business.
We have experienced significant subscriber growth in recent
years, which has put demands on the capacity of our networks and
our supporting systems. Our operating performance and ability to
retain new customers may be adversely affected if we are not
able to timely and efficiently meet the demands for our services
and address any increased demands on our customer service,
billing and other back-office functions. In addition, we are
deploying new systems that are designed to support our sales,
marketing and customer management functions, but the
implementation of these new systems could heighten these risks
or could distract managements focus from
day-to-day
operations and goals. Problems we may encounter in deploying
these new systems could have a material adverse effect on our
business.
|
|
i.
|
If our
networks do not perform in a manner that meets customer
expectations, we will be unable to attract and retain
customers.
|
Customer acceptance of the services we offer on our networks is
and will continue to be affected by technology-based differences
and by the operational performance and reliability of these
networks. We may have difficulty attracting and retaining
customers if we are unable to satisfactorily address and resolve
performance or other transmission quality issues as they arise
or if these issues limit our ability to deploy or expand our
network capacity as currently planned or place us at a
competitive disadvantage to other wireless providers in our
markets.
|
|
2.
|
We
operate exclusively in foreign markets, and our assets,
customers and cash flows are concentrated in Latin America,
which presents risks to our operating plans.
|
|
|
a.
|
A decline
in foreign exchange rates for currencies in our markets may
adversely affect our growth and our operating results.
|
Historically, in the countries in which we do business, the
values of the local currencies in relation to the
U.S. dollar have been volatile. The unstable global
economic environment and recent weakness in the economies of
some of the countries where we operate led to increased
volatility in these currencies. Nearly all of our revenues are
earned in non U.S. currencies, but we report our results in
U.S. dollars. As a result, fluctuations in foreign currency
exchange rates can have a significant impact on our reported
results that are unrelated to the operating trends in our
business. In addition, a significant portion of our outstanding
debt is denominated in U.S. dollars. A decline in the
values of the local currencies in the markets in which we
operate makes it more costly for us to service our
U.S. dollar-denominated debt obligations and affects our
operating results because we generate nearly all of our revenues
in foreign currencies, but we pay for some of our operating
expenses and capital expenditures in U.S. dollars. Further,
because we report our results of operations in
U.S. dollars, declines in the value of local currencies in
our markets relative to the U.S. dollar result in
reductions in our reported revenues, operating income and
earnings, as well as a reduction in the carrying value of our
assets, including the value of cash investments held in local
currencies. Depreciation of the local currencies also results in
increased costs to us for imported equipment. Accordingly, if
the values of local currencies in the countries in which our
operating companies conduct business depreciate relative to the
U.S. dollar, we would expect our operating results in
future periods, and the value of our assets held in local
currencies, to be adversely affected.
25
|
|
b.
|
We face
economic and political risks in our markets, which may limit our
ability to implement our strategy and our financial flexibility
and may disrupt our operations or hurt our
performance.
|
Our operations depend on the economies of the markets in which
our operating companies conduct business, all of which are
considered to be emerging markets. These markets are in
countries with economies in various stages of development, some
of which are subject to volatile economic cycles and
significant, rapid fluctuations in terms of commodity prices,
local consumer prices, employment levels, gross domestic
product, interest rates and inflation rates, which have been
generally higher, and in prior years, significantly higher than
the inflation rate in the United States. If these economic
fluctuations and higher inflation rates make it more difficult
for customers to pay for our products and services, we may
experience lower demand for our products and services and a
decline in the growth of their customer base and in revenues.
In recent years, the economies in some of the markets in which
we operate have also been negatively affected by volatile
political conditions and, in some instances, by significant
intervention by the relevant government authorities relating to
economic and currency exchange policies. We are unable to
predict the impact that local or national elections and the
associated transfer of power from incumbent officials or
political parties to newly elected officials or parties may have
on the local economy or the growth and development of the local
telecommunications industry. Changes in leadership or in the
ruling party in the countries in which we operate may affect the
economic programs developed under the prior administration,
which in turn, may adversely affect the economies in the
countries in which we operate. Other risks associated with
political instability could include the risk of expropriation or
nationalization of our assets by the governments in the markets
where we operate. Although political, economic and social
conditions differ in each country in which we currently operate,
political and economic developments in one country or in the
United States may affect our business as a whole, including our
access to international capital markets.
|
|
c.
|
Our
operating companies are subject to local laws and government
regulations in the countries in which they operate, and we are
subject to the U.S. Foreign Corrupt Practices Act, which could
limit our growth and strategic plans and negatively impact our
financial results.
|
Our operations are subject to local laws and regulations in the
countries in which we operate, which may differ from those in
the United States. We could become subject to legal penalties in
foreign countries if we do not comply with local laws and
regulations, which may be substantially different from those in
the United States. In some foreign countries, particularly
in those with developing economies, persons may engage in
business practices that are prohibited by United States
regulations applicable to us such as the Foreign Corrupt
Practices Act, or the FCPA. The FCPA prohibits us from providing
anything of value to foreign officials for the purpose of
influencing official decisions or obtaining or retaining
business. Our employees and agents interact with government
officials on our behalf, including interactions necessary to
obtain licenses and other regulatory approvals necessary to
operate our business and through contracts to provide wireless
service to government entities, creating a risk of payment that
would violate the FCPA. Although we have implemented policies
and procedures designed to ensure compliance with local laws and
regulations as well as U.S. laws and regulations, including
the FCPA, there can be no assurance that all of our employees,
consultants, contractors and agents will abide by our policies.
The penalties for violating the FCPA can be severe. Any
violations of law, even if prohibited by our policies, could
have a material adverse effect on our business.
In addition, in each market in which we operate, one or more
regulatory entities regulate the licensing, construction,
acquisition, ownership and operation of our wireless
communications systems. Adoption of new regulations, changes in
the current telecommunications laws or regulations or changes in
the manner in which they are interpreted or applied could
adversely affect our operations. In some markets, we are unable,
or have limitations on our ability, to provide some types of
services we have planned to offer. These limitations, or similar
regulatory prohibitions or limitations on our services that may
arise in the future could increase our costs, reduce our
revenues or make it more difficult for us to compete.
The regulatory schemes in the countries in which we operate
allow third parties, including our competitors, to challenge our
actions. If our competitors are successful in pursuing claims
such as these, or if the regulators in our markets take actions
against us in response to actions initiated by our competitors,
our ability to pursue our business
26
plans and our results of operations could be adversely affected.
For example, in Mexico, certain aspects of the auctions,
including the processes used to adopt the rules applicable to
the auctions, the terms of those rules, the implementation of
the auction process, the grant of the spectrum license to Nextel
Mexico and its right to use the spectrum have been challenged in
a number of legal and administrative proceedings brought
primarily by our competitors in Mexico. While we believe that
the auction rules were adopted consistent with applicable legal
requirements in Mexico, the auction process was conducted
properly and the licenses were awarded to Nextel Mexico in
accordance with the auction rules, it is uncertain whether these
proceedings will affect our ability to use the spectrum granted
pursuant to those licenses. If these proceedings were to result
in a loss of, or the imposition of a significant limitation of
our ability to use, the spectrum awarded to Nextel Mexico, our
plans to deploy the third generation network in Mexico could be
adversely affected, which could have an adverse effect on our
business. Similar challenges could arise with respect to future
spectrum auctions in which we are a participant, and these
challenges could adversely affect our ability to acquire the
rights to use spectrum that would provide us with the ability to
deploy new technologies that support new services that would
position us to compete more effectively.
Finally, rules and regulations affecting tower placement and
construction affect our ability to operate in each of our
markets, and therefore impact our business strategies. In some
of our markets, local governments have adopted very stringent
rules and regulations related to the placement and construction
of wireless towers, or have placed embargoes on some of the cell
sites owned by our operating companies, which can significantly
impede the planned expansion of our service coverage area,
eliminate existing towers, result in unplanned costs, negatively
impact network performance and impose new and onerous taxes and
fees. Our licenses to use spectrum in some of our markets
require us to build our networks within proscribed time periods,
and rules and regulations affecting tower placement and
construction could make it difficult to meet our build
requirements in a timely manner or at all, which could lead us
to incur unplanned costs or result in the loss of spectrum
licenses.
|
|
d.
|
We pay
significant import duties on our network equipment and handsets,
and any increases could impact our financial results.
|
Our operations are highly dependent upon the successful and
cost-efficient importation of network equipment and handsets
from North America and, to a lesser extent, from Europe and
Asia. Network equipment and handsets may be subject to
significant import duties and other taxes in the countries in
which our operating companies conduct business. Any significant
increase in import duties in the future could significantly
increase our costs. To the extent we cannot pass these costs on
to our customers, our financial results will be negatively
impacted.
|
|
e.
|
We are
subject to foreign taxes in the countries in which we operate,
which may reduce amounts we receive from our operating companies
or may increase our tax costs.
|
Many of the foreign countries in which we operate have
increasingly turned to new taxes, as well as aggressive
interpretations of current taxes, as a method of increasing
revenue. For example, the Mexican government has enacted an
excise tax on telecommunications services, increased the
value-added tax rate and enacted an increase to the corporate
income tax rate. In addition, our operating company in Brazil is
required to pay two types of income taxes, which include a
corporate income tax and a social contribution tax and is
subject to various types of non-income related taxes, including
value-added tax, excise tax, service tax, importation tax and
property tax. In addition, the reduction in tax revenues
resulting from the recent economic downturn has led to proposals
and new laws in some of our markets that increase the taxes
imposed on sales of handsets and on telecommunications services.
The provisions of new tax laws may attempt to prohibit us from
passing these taxes on to our customers. These taxes may reduce
the amount of earnings that we can generate from our services or
in some cases may result in operating losses.
Distributions of earnings and other payments, including
interest, received from our operating companies may be subject
to withholding taxes imposed by some countries in which these
entities operate. Any of these taxes will reduce the amount of
after-tax cash we can receive from those operating companies.
See Part I. Operating Companies for more
information.
In general, a U.S. corporation may claim a foreign tax
credit against its Federal income tax expense for foreign
withholding taxes and, under certain circumstances, for its
share of foreign income taxes paid directly by foreign
27
corporate entities in which the company owns 10% or more of the
voting stock. Our ability to claim foreign tax credits is,
however, subject to numerous limitations, and we may incur
incremental tax costs as a result of these limitations or
because we do not have U.S. Federal taxable income.
We may also be required to include in our income for
U.S. Federal income tax purposes our proportionate share of
specified earnings of our foreign corporate subsidiaries that
are classified as controlled foreign corporations, without
regard to whether distributions have been actually received from
these subsidiaries.
Nextel Brazil has received tax assessment notices from state and
federal Brazilian tax authorities asserting deficiencies in tax
payments related primarily to value added taxes, import duties
and matters surrounding the definition and classification of
equipment and services. Nextel Brazil has filed various
petitions disputing these assessments. In some cases we have
received favorable decisions, which are currently being appealed
by the respective governmental authorities. In other cases, our
petitions have been denied and we are currently appealing those
decisions. See Note 7 to our consolidated financial
statements for more information regarding our potential tax
obligations in Brazil.
|
|
f.
|
We have
entered into a number of agreements that are subject to
enforcement in foreign countries, which may limit efficient
dispute resolution.
|
A number of the agreements that we and our operating companies
enter into with third parties are governed by the laws of, and
are subject to dispute resolution in the courts of or through
arbitration proceedings in, the countries or regions in which
the operations are located. We cannot accurately predict whether
these forums will provide effective and efficient means of
resolving disputes that may arise. Even if we are able to obtain
a satisfactory decision through arbitration or a court
proceeding, we could have difficulty enforcing any award or
judgment on a timely basis. Our ability to obtain or enforce
relief in the United States is also uncertain.
|
|
3.
|
Costs,
regulatory requirements and other problems we encounter as we
deploy our third generation networks could adversely affect our
operations. The deployment of new technology and service
offerings could distract management from our current business
operations or cause network degradation and loss of
customers.
|
We have acquired or successfully bid for new spectrum rights and
have deployed or begun to deploy new third generation networks
using that spectrum so that we may offer our customers new
services supported by those networks. The rights to use this new
spectrum come with significant regulatory requirements governing
the coverage of our new networks and the timing of deployment of
these networks. If we fail to meet these regulatory
requirements, the applicable regulators could take action to
revoke our spectrum rights. In addition, our deployment of these
new networks will require significant capital expenditures and
will result in incremental operating expenses prior to fully
launching services. Costs could increase beyond expected levels
in the event of unforeseen delays, cost overruns, unanticipated
expenses, regulatory changes, engineering design changes,
problems with network or systems compatibility, equipment
unavailability and technological or other complications. In
addition, our ability to attract and support customers that use
these new networks could be adversely affected if we are unable
to successfully coordinate the deployment of those networks with
our customer care, billing, order fulfillment and other
back-office operations. In addition, we are deploying new
systems that are designed to support our sales, marketing and
customer management functions. The efforts associated with the
deployment of our new networks and these supporting systems will
require substantial management time and attention, which could
distract managements focus from our
day-to-day
operations and goals, which could have an adverse effect on our
results of operations.
Deployment of new technology supporting new service offerings
may also adversely affect the performance or reliability of our
networks with respect to both the new and existing services and
may require us to take action like curtailing new customers in
certain markets. Any resulting customer dissatisfaction could
affect our ability to retain customers and have an adverse
effect on our results of operations and growth prospects.
Additionally, we will need to raise additional funds in order to
finance the costs associated with the development and deployment
of our new networks. To do so, we may issue shares of common
stock or incur new debt. Our ability to raise additional capital
on acceptable terms to meet our funding needs will depend on the
28
conditions in the financial markets. See 4. We are
dependent on external financing to meet our future funding needs
and debt service requirements, and adverse changes in economic
conditions could negatively impact our access to the capital
markets. If we are unable to obtain financing when needed and on
terms acceptable to us, our business may be adversely
affected. and 5. Our current and future debt
may limit our flexibility and increase our risk of
default. for more information.
|
|
4.
|
We are
dependent on external financing to meet our future funding needs
and debt service requirements, and adverse changes in economic
conditions could negatively impact our access to the capital
markets. If we are unable to obtain financing when needed and on
terms acceptable to us, our business may be adversely
affected.
|
We are dependent on external financing to meet our future
funding needs and debt service requirements. Our current plans
to deploy and operate new third generation networks, as well as
the costs associated with marketing and distribution of our
related services requires substantial capital. In addition, we
have significant outstanding indebtedness that will mature over
the next five years, including most of the $459.0 million
in our outstanding loan facilities and $1.1 billion in
convertible debt that is scheduled to mature in 2012. Based on
the level of capital needed to support our current plans, we
believe it will be necessary for us to refinance or replace a
significant portion of this indebtedness.
Our funding needs may also increase to pursue one or more of the
following opportunities:
|
|
|
|
|
acquisitions of spectrum licenses, either through government
sponsored auctions, including auctions of spectrum that are
expected to occur in Argentina, or through acquisitions of third
parties, acquisitions of assets or businesses or other strategic
transactions;
|
|
|
|
a decision by us to deploy new network technologies, in addition
to the planned third generation network deployments in Brazil,
Mexico, Peru and Chile, or to offer new communications services
in one or more of our markets; or
|
|
|
|
our expansion into new markets or further geographic expansion
in our existing markets, including the construction of
additional portions of our network.
|
Our funding needs could also be affected by changes in economic
conditions in any of our markets generally, or by changes to
competitive practices in the mobile wireless telecommunications
industry from those currently prevailing or those now
anticipated, or by other presently unexpected circumstances that
may arise that have a material effect on the cash flow or
profitability of our business. In addition, upon the occurrence
of certain kinds of change of control events, we may be required
to repurchase or repay a significant portion of our outstanding
debt. Any of these events or circumstances could involve
significant additional funding needs in excess of the currently
available sources and could require us to raise additional
capital to meet those needs.
It will be necessary for us to access the credit and capital
markets to support the combined funding requirements relating
to: (i) the growth of our business, (ii) the
acquisition of additional spectrum, (iii) capital
expenditures in connection with the expansion and improvement of
our wireless networks and the deployment of our planned third
generation networks in Brazil, Mexico and Chile and
(iv) the repayment of our existing indebtedness. While we
believe that our current cash balances, the funds we expect to
generate in our business and the funding opportunities that we
believe are currently available to us will be sufficient to meet
these funding needs, if there is an adverse change in capital
market conditions similar to what occurred in 2008 and early
2009, our access to the necessary funding may be limited and the
cost of funding could increase, which could make it more
difficult for us to raise the capital we need to support our
plan. If this occurs, our cash, cash equivalent and investment
balances could be significantly depleted by the end of 2012. Our
ability to obtain additional capital is subject to a variety of
additional factors that we cannot presently predict with
certainty, including the commercial success of our operations,
volatility and demand of the capital markets and future market
prices of our securities. If we fail to obtain suitable
financing when its required, it could, among other things,
result in our inability to implement our current or future
business plans and negatively impact our results of operations.
29
|
|
5.
|
Our
current and future debt may limit our flexibility and increase
our risk of default.
|
As of December 31, 2010, the total outstanding principal
amount of our debt was $3,342.7 million. We may, over time
and as market conditions permit, incur significant additional
indebtedness for various purposes, which may include, without
limitation, expansion of our existing network, the acquisition
of telecommunications spectrum licenses or other assets, the
deployment of new network technologies and the refinancing,
repayment or repurchase of outstanding indebtedness. The terms
of the indentures governing our senior notes and the agreements
governing our other indebtedness permit us, subject to specified
limitations, to incur additional indebtedness, including secured
indebtedness.
Our existing debt and debt we may incur in the future could:
|
|
|
|
|
limit our flexibility in planning for, or reacting to, changes
in our business and the industries in which we compete and
increase our vulnerability to general adverse economic and
industry conditions;
|
|
|
|
limit our ability to obtain additional financing that we may
need to fund our business; and
|
|
|
|
place us at a disadvantage compared to our competitors that have
less indebtedness.
|
Furthermore, the indentures relating to our senior notes and
certain of our financing agreements include covenants that
impose restrictions on our business and, in some instances,
require us and our subsidiaries to maintain specified financial
ratios and satisfy financial tests. Similar restrictions may be
contained in future financing agreements. If we or our
subsidiaries are not able to meet the applicable ratios and
satisfy other tests, or if we fail to comply with any of the
other restrictive covenants that are contained in our current or
future financing agreements, we will be in default with respect
to one or more of the applicable financing agreements, which in
turn may result in defaults under the remaining financing
arrangements, giving our lenders and the holders of our debt
securities the right to require us to repay all amounts then
outstanding. In addition, these covenants and restrictions may
prevent us from raising additional financing, competing
effectively or taking advantage of new business opportunities,
which may affect our ability to generate revenues and profits.
Our ability to meet our existing or future debt obligations and
to reduce our indebtedness will depend on our future performance
and the other cash requirements of our business. Our
performance, to a certain extent, is subject to general economic
conditions and financial, business, political and other factors
that are beyond our control. We cannot assure you that we will
continue to generate cash flow from operations at or above
current levels, that we will be able to meet our cash interest
payments on all of our debt or that the related assets currently
owned by us will continue to benefit us in the future.
|
|
6.
|
The
costs we incur to connect our operating companies networks
with those of other carriers are subject to local laws in the
countries in which they operate and may increase, which could
adversely impact our financial results.
|
Our operating companies must connect their telecommunication
networks with those of other carriers in order to provide the
services we offer. We incur costs relating to these
interconnection arrangements and for local and long distance
transport services relating to the connection of our transmitter
sites and other network equipment. These costs include
interconnection charges and fees, charges for terminating calls
on the other carriers networks and transport costs, most
of which are measured based on the level of our use of the
related services. We are able to recover a portion of these
costs through revenues earned from charges we are entitled to
bill other carriers for terminating calls on our network, but
because users of mobile telecommunications services who purchase
those services under contract generally, and business customers
like ours in particular, tend to make more calls that terminate
on other carriers networks and because we have a smaller
number of customers than most other carriers, we incur more
charges than we are entitled to receive under these
arrangements. The terms of the interconnection and transport
arrangements, including the rates that we pay, are subject to
varying degrees of local regulation in most of the countries in
which we operate, and often require us to negotiate agreements
with the other carriers, most of whom are our competitors, in
order to provide our services. In some instances, other carriers
offer their services to some of their subscribers at prices that
are near or lower than the rates that we pay to terminate calls
on their networks, which may make it more difficult for us to
compete profitably. Our costs relating to these interconnection
and transport arrangements are subject to fluctuation both as a
result of changes in regulations in the countries in
30
which we operate and the negotiations with the other carriers.
Changes in our customers calling patterns that result in
more of our customers calls terminating on our
competitors networks and changes in the interconnection
arrangements either as a result of regulatory changes or
negotiated terms that are less favorable to us could result in
increased costs for the related services that we may not be able
to recover through increased revenues, which could adversely
impact our financial results.
|
|
7.
|
Because
we rely on one supplier for equipment used in our iDEN networks,
any failure of that supplier to perform could adversely affect
our operations.
|
Much of the spectrum that our operating companies are licensed
to use, other than the spectrum that we have recently acquired
and plan to use to support our third generation networks, is
non-contiguous, and Motorolas iDEN technology is the only
widespread, commercially available technology that operates on
non-contiguous spectrum. As a result, Motorola is the primary
supplier for the network equipment and handsets we sell for use
on our iDEN networks. If Motorola fails to deliver system
infrastructure equipment and handsets or enhancements to the
features and functionality of our networks and handsets on a
timely, cost-effective basis, we may not be able to adequately
service our existing customers or attract new customers. Nextel
Communications, a subsidiary of Sprint Nextel, is currently the
largest customer of Motorola with respect to iDEN technology
and, in the past, has provided significant support with respect
to new product development for that technology. Sprint
Nextels recently announced plans to decommission its iDEN
network over the coming 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.
This decommissioning could make it more difficult or costly for
us to compete effectively in markets where we have not yet
deployed our planned third generation networks. Lower levels of
iDEN equipment purchases by Sprint Nextel could also increase
our costs for network equipment and new network features, affect
the development of new handsets and could impact Motorolas
willingness to support iDEN technology beyond their current
commitments. We expect to continue to rely principally on
Motorola for the manufacture of a substantial portion of the
equipment necessary to construct, enhance and maintain our
iDEN-based networks and for the manufacture of iDEN compatible
handsets. Accordingly, if Motorola is unable to, or determines
not to, continue supporting or enhancing our iDEN-based
infrastructure and handsets, including potentially as a result
of adverse developments affecting Motorolas operations,
profitability, and financial condition or other business
developments, we will be materially adversely affected.
Motorola recently completed a separation of its mobile devices
and home division into a separate public entity called Motorola
Solutions, Inc., to which our agreements have been assigned. In
addition, in July 2010, Motorola announced that it had reached
an agreement to sell certain of its operations relating to the
manufacture of network equipment to Nokia Siemens Networks.
Although Motorola has announced that the sale does not include
its iDEN business, it is uncertain whether or to what extent the
sale by Motorola of its other network equipment businesses could
impact Motorolas ability to support its iDEN business.
While we cannot currently determine the impact of
Motorolas recently completed separation of the mobile
devices business on its iDEN business, Motorolas
obligations under our existing agreements, including the
obligation to supply us with iDEN handsets and network
equipment, remain in effect.
|
|
8.
|
Our
reliance on indirect distribution channels for a significant
portion of our sales exposes us to the risk that our sales could
decline or cost of sales could increase if there are adverse
changes in our relationships with, or the condition of, our
indirect dealers.
|
Our business depends heavily upon third party distribution
channels for securing a substantial portion of the new customers
to our services. In some of our markets, a significant portion
of our sales through these indirect distribution channels is
concentrated in a small number of third party dealers. Because
these third party dealers are a primary contact between us and
the customer in many instances, they also play an important role
in customer retention. As a result, the volume of our new
customer additions and our ability to retain customers could be
adversely affected if these third party dealers terminate their
relationship with us, if there are adverse changes in our
relationships with these dealers or if the financial condition
of these dealers deteriorates. In addition, our
31
profitability could be adversely affected if we increase
commissions to these dealers or make other changes to our
compensation arrangements with them.
|
|
9.
|
If our
licenses to provide mobile services are not renewed, or are
modified or revoked, our business may be
restricted.
|
Wireless communications licenses and spectrum allocations are
subject to ongoing review and, in some cases, to modification or
early termination for failure to comply with applicable
regulations. If our operating companies fail to comply with the
terms of their licenses and other regulatory requirements,
including installation deadlines and minimum loading or service
availability requirements, their licenses could be revoked. This
is particularly true with respect to the grants of licenses for
spectrum we plan to use to support our third generation
networks, most of which impose strict deadlines for the
construction of network infrastructure and supporting systems as
a condition of this license. Further, compliance with these
requirements is a condition for eligibility for license renewal.
Most of our wireless communications licenses have fixed terms
and are not renewed automatically. Because governmental
authorities have discretion as to the grant or renewal of
licenses, our licenses may not be renewed or, if renewed,
renewal may not be on acceptable economic terms. For example,
under existing regulations, our licenses in Brazil and Peru are
renewable once, and no regulations presently exist regarding how
or whether additional renewals will be granted in future
periods. In Mexico, we have filed applications to renew 31 of
our licenses, all of which expired prior to their renewal.
Nextel Mexico subsequently received renewals of 19 of the
expired licenses. While we expect that the remainder of these
renewals will be granted, if some or all of these renewals are
not granted, it could have an adverse effect on our business. In
addition, the regulatory schemes in the countries in which we
operate allow third parties, including our competitors, to
challenge the award and use of our licenses. If our competitors
are successful in pursuing claims such as these, or if
regulators in our markets take actions modifying or revoking our
licenses in response to these claims, our ability to pursue our
business plans, including our plans to deploy third generation
networks, and our results of operations could be adversely
affected.
|
|
10.
|
Any
modification or termination of our trademark license with Nextel
Communications could increase our costs.
|
Nextel Communications has licensed to us the right to use
Nextel and other of its trademarks on a perpetual
royalty-free basis in Latin America. However, that license is
limited to the use of the trademarks in connection with the
offering of specified services, which may not include all of the
services we propose to offer in the future, and Nextel
Communications may terminate the license on 60 days notice
if we commit one of several specified defaults (namely, failure
to maintain agreed quality controls or a change in control of
NII Holdings). If there is a change in control of one of our
subsidiaries, upon 30 days notice, Nextel Communications
may terminate the sublicense granted by us to the subsidiary
with respect to the licensed marks. The loss of the use of the
Nextel name and trademark could have a material
adverse effect on our operations.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Our principal executive and administrative offices are located
in Reston, Virginia, where we lease about 110,000 square
feet of office space under a lease expiring in February 2020. In
addition, each of our operating companies own and lease office
space and transmitter and receiver sites in each of the
countries where they conduct business.
Each operating company leases transmitter and receiver sites for
the transmission of radio service under various individual site
leases. As of December 31, 2010, our operating companies
had constructed sites at leased
32
and owned locations for their business, including those
constructed for both our iDEN and third generation networks, as
shown below:
|
|
|
|
|
|
|
Number
|
|
Operating Company
|
|
of Sites
|
|
|
Brazil
|
|
|
3,683
|
|
Mexico
|
|
|
2,817
|
|
Argentina
|
|
|
954
|
|
Peru
|
|
|
650
|
|
Chile
|
|
|
93
|
|
|
|
|
|
|
Total
|
|
|
8,197
|
|
|
|
|
|
|
|
|
Item 3.
|
Legal
Proceedings
|
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows. See Note 7 to our consolidated financial statements
at the end of this annual report on
Form 10-K
for more information.
Executive
Officers of the Registrant
The following people were serving as our executive officers as
of February 18, 2011. These executive officers were elected
to serve until their successors are elected. There is no family
relationship between any of our executive officers or between
any of these officers and any of our directors.
Steven M. Shindler, 48, has been a director on the board
of NII Holdings since 1997, chief executive officer from 2000
until February 2008 and chairman of the board since
November 12, 2002. In February 2008, he became executive
chairman of NII Holdings. Mr. Shindler also served as
executive vice president and chief financial officer of Nextel
Communications from 1996 until 2000. From 1987 to 1996,
Mr. Shindler was an officer with Toronto Dominion Bank, a
bank where he was a managing director in its communications
finance group.
Steven P. Dussek, 54, has been a director on the board of
NII Holdings since 1999 and has been chief executive officer of
NII Holdings since February 2008. Prior to joining NII Holdings,
Mr. Dussek served as president and chief executive officer
of Dobson Communications Corporation, a publicly traded wireless
telecommunications company, from April 2005 until November 2007
when AT&T Wireless Services acquired Dobson Communications.
From 1999 to 2000, Mr. Dussek was the chief executive
officer of NII Holdings and was the president and chief
operating officer of NII Holdings from March 1999 until
September 1999. From 1996 to 2001, Mr. Dussek served in
various senior management positions with Nextel Communications,
most recently as executive vice president and chief operating
officer. From 1995 to 1996, Mr. Dussek served as vice
president and general manager of the northeast region for the
PCS division of AT&T Wireless Services. From 1993 to 1995,
Mr. Dussek served as senior vice president and chief
operating officer of Paging Networks, Inc., a paging company.
Mr. Dussek served on the board of directors of Dobson
Communications from 2006 to 2007.
Gokul Hemmady, 50, is currently the executive vice
president and chief financial officer of NII Holdings. Prior to
February 2011, Mr. Hemmady served as vice president and
chief financial officer since joining NII Holdings in June 2007.
From June 1998 to June 2007, Mr. Hemmady served in various
positions with ADC Telecommunications, Inc., a provider of
global network infrastructure products and services, including
as vice president and chief financial officer from August 2003
through June 2007, as vice president and treasurer from June
1998 through August 2003 and as controller from May 2002 through
August 2003. Mr. Hemmady joined ADC as assistant treasurer
in October 1997. Prior to 1997, he was employed by
U.S. West International, a communications service provider,
where he served as director of international finance.
Gary D. Begeman, 52, is currently the executive vice
president and general counsel of NII Holdings. Prior to February
2011, Mr. Begeman served as vice president and general
counsel since February 2007, having joined NII Holdings as vice
president and deputy general counsel in November 2006. From 2005
through 2006, he served as
33
senior vice president and deputy general counsel of Sprint
Nextel Corporation, and was vice president and deputy general
counsel of Nextel Communications, Inc. from 2003 until its
merger with Sprint in 2005. From 1999 through 2003, he was
senior vice president and general counsel of XO Communications,
Inc. From 1997 to 1999, Mr. Begeman was vice president and
deputy general counsel of Nextel Communications, Inc. From 1991
until he joined Nextel, Mr. Begeman was a partner with the
law firm of Jones, Day, Reavis & Pogue.
Ruben Butvilofsky, 58, has served as president of Nextel
Argentina since August 2005. From 1998 to August 2005,
Mr. Butvilofsky served as Nextel Argentinas vice
president of commercial operations. Prior to joining Nextel
Argentina, Mr. Butvilofsky was the sales director of
Liberty ART, a subsidiary of Liberty Mutual, in their Argentina
operations. Before joining Liberty ART, he was a direct sales
manager for Bellsouth (Movicom) and an indirect channel manager
for IBM Argentina.
Sergio Borges Chaia, 45, has served as president and
chief executive officer of Nextel Brazil since January 2007.
From 1996 until he joined Nextel Brazil in 2007, Mr. Chaia
held various management positions with Sodexho Pass Brazil,
including president, chief executive officer and managing
director.
Peter A. Foyo, 45, has served as president of Nextel
Mexico since 1998. From 1988 to 1998, Mr. Foyo held various
senior management positions with AT&T Corp., including
corporate strategy director of Alestra, S.A. de C.V., a joint
venture between AT&T and a local Mexican partner, and
president of AT&T Argentina.
Daniel E. Freiman, 39, has been our vice president and
treasurer since October 2008. Mr. Freiman was our vice
president and controller from April 2005 to September 2008.
Mr. Freiman was our director of investor relations from
June 2004 to April 2005, director of external financial
reporting from November 2002 to June 2004 and senior manager of
external financial reporting from September 2000 to November
2002. Prior to September 2000, he was a manager in the audit
practice of PricewaterhouseCoopers LLP in Washington, D.C.
Teresa S. Gendron, 41, has been our vice president and
controller (chief accounting officer) since January 2010.
Ms. Gendron was our vice president and assistant controller
from 2008 to December 2009. Prior to 2008, Ms. Gendron was
our vice president of financial compliance from 2005 to 2008 and
our management director and assistant controller from 2002 to
2005.
Claudio A. Hidalgo, 40, has served as president of Nextel
Chile since February 2010. From 2009 through 2010,
Mr. Hidalgo was vice president, mobile business and third
generation project for VTR, a Chilean telecommunications company
and subsidiary of Liberty Global, Inc. From 2007 through 2010,
Mr. Hidalgo was an entrepreneur with several new companies,
including Contiggo S.A., a financing company; Tonica S.A., an
advertising company; A7 S.A., an events promotion company; and
Intellity Consulting/Telecom, a consulting company. From 2004
through 2007, Mr. Hidalgo served as president and chief
executive officer of Telefonica Moviles Panama and Nicaragua
together, and from 1999 to 2004, Mr. Hidalgo was the
president and chief executive officer of Movistar Puerto Rico.
Alfonso Martinez, 49, is currently the executive vice
president of human resources of NII Holdings. Prior to February
2011, Mr. Martinez served as vice president of human
resources since joining NII Holdings in December 2008. From 2005
to November 2008, Mr. Martinez held various management
positions with Sodexho, an integrated food and facilities
management service provider, and was most recently the group
vice president of global talent. From 2003 to 2005,
Mr. Martinez was the chief executive officer of the
Hispanic Association on Corporate Responsibility. Prior to 2003,
Mr. Martinez held various positions with Marriott
International.
John McMahon, 46, is currently the executive vice
president of business operations of NII Holdings. Prior to
February 2011, Mr. McMahon served as vice president of
business operations since joining NII Holdings in 1999. Prior to
that, Mr. McMahon served as vice president of finance and
business operations, north region, for Nextel Communications
from 1997 to 1999, and as director of finance for the
mid-Atlantic region from 1995 to 1997.
Miguel E. Rivera, 58, has served as president of Nextel
Peru since 2000. Previously, Mr. Rivera was the general
manager of the Lima Stock Exchange from 1999 to 2000. From 1986
to 1998, Mr. Rivera held various executive positions with
IBM, most recently as general manager of Manufacturing Industry,
IBM Latin America.
Gregory J. Santoro, 48, is currently the executive vice
president and chief marketing and strategy officer of NII
Holdings. Prior to February 2011, Mr. Santoro served as
vice president and chief marketing and strategy officer
34
since joining NII Holdings in February 2007. From 2000 until
2006, Mr. Santoro was the vice president of products and
services at Nextel Communications, Inc. and most recently as the
vice president of product innovation at Sprint Nextel
Corporation. Before Nextel, Mr. Santoro served as the vice
president of internet services at Bellsouth.net where he was
responsible for launching Bellsouths narrowband and
broadband internet services.
Alan Strauss, 51, is currently the executive vice
president and chief technology and engineering officer of NII
Holdings. Prior to February 2011, Mr. Strauss served as
vice president and chief technology and engineering officer
since joining NII Holdings in 2001. From 1998 until 2001,
Mr. Strauss was the vice president and general manager of
Nextel Communications strategic business operations group.
From 1994 to 1998, Mr. Strauss held various positions with
Nextel Communications.
35
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
|
|
1.
|
Market
for Common Stock
|
Our common stock trades on the Nasdaq Global Select Market under
the trading symbol NIHD. The following table sets
forth on a per share basis the reported high and low sales
prices for our common stock, as reported on the market at the
time, for the quarters indicated.
|
|
|
|
|
|
|
|
|
|
|
Price Range of
|
|
|
Common Stock
|
|
|
High
|
|
Low
|
|
2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
24.49
|
|
|
$
|
10.23
|
|
Second Quarter
|
|
|
21.39
|
|
|
|
12.87
|
|
Third Quarter
|
|
|
31.39
|
|
|
|
17.98
|
|
Fourth Quarter
|
|
|
35.08
|
|
|
|
26.12
|
|
2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
42.19
|
|
|
$
|
30.00
|
|
Second Quarter
|
|
|
43.95
|
|
|
|
32.41
|
|
Third Quarter
|
|
|
42.49
|
|
|
|
32.36
|
|
Fourth Quarter
|
|
|
46.32
|
|
|
|
35.64
|
|
|
|
2.
|
Number
of Stockholders of Record
|
As of February 18, 2011, there were approximately 6 holders
of record of our common stock, including the Depository
Trust Corporation, which acts as a clearinghouse for
multiple brokerage and custodial accounts.
We have not paid any dividends on our common stock and do not
plan to pay dividends on our common stock for the foreseeable
future. In addition, some of our financing documents contain and
future financing agreements may contain restrictions on the
payment of dividends. We anticipate that for the foreseeable
future any cash flow generated from our operations will be used
to develop and expand our business and operations and make
contractual payments under our debt facilities in accordance
with our business plan.
|
|
4.
|
Issuer
Purchases of Equity Securities
|
We did not repurchase any of our equity securities during the
fourth quarter of 2010.
36
Performance
Graph
The following graph presents the cumulative total stockholder
return on our common stock from December 31, 2005, when we
were listed on the Nasdaq National Market, through July 3,
2006, when we moved to the Nasdaq Global Select Market, until
December 31, 2010. This graph also compares our common
stock to the cumulative total stockholder return on the Nasdaq
100 Index, the common stock of America Movil, S.A. de C.V. and
Millicom International Cellular S.A. The graph assumes an
initial investment of $100 in our common stock as of
December 31, 2005 and in each of the comparative indices or
peer issuers, and that all dividends were reinvested.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
12/31/2005
|
|
12/31/2006
|
|
12/31/2007
|
|
12/31/2008
|
|
12/31/2009
|
|
12/31/2010
|
|
NII Holdings
|
|
$
|
100.00
|
|
|
$
|
147.53
|
|
|
$
|
110.62
|
|
|
$
|
41.62
|
|
|
$
|
76.88
|
|
|
$
|
102.24
|
|
Nasdaq 100
|
|
$
|
100.00
|
|
|
$
|
106.81
|
|
|
$
|
126.75
|
|
|
$
|
73.60
|
|
|
$
|
113.21
|
|
|
$
|
134.77
|
|
America Movil
|
|
$
|
100.00
|
|
|
$
|
158.18
|
|
|
$
|
222.81
|
|
|
$
|
113.66
|
|
|
$
|
176.84
|
|
|
$
|
217.38
|
|
Millicom International
|
|
$
|
100.00
|
|
|
$
|
229.66
|
|
|
$
|
439.42
|
|
|
$
|
170.82
|
|
|
$
|
280.59
|
|
|
$
|
396.56
|
|
37
|
|
Item 6.
|
Selected
Financial Data
|
The tables below set forth selected consolidated financial data
for the periods or as of the dates indicated and should be read
in conjunction with the consolidated financial statements and
notes thereto in Item 8. of this report and
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7. of
this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
5,601,316
|
|
|
$
|
4,397,599
|
|
|
$
|
4,269,380
|
|
|
$
|
3,296,295
|
|
|
$
|
2,371,340
|
|
Foreign currency transaction gains (losses), net
|
|
$
|
52,374
|
|
|
$
|
104,866
|
|
|
$
|
(120,572
|
)
|
|
$
|
19,008
|
|
|
$
|
3,557
|
|
Net income
|
|
$
|
341,052
|
|
|
$
|
381,491
|
|
|
$
|
341,955
|
|
|
$
|
353,748
|
|
|
$
|
284,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, basic
|
|
$
|
2.03
|
|
|
$
|
2.30
|
|
|
$
|
2.05
|
|
|
$
|
2.12
|
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, diluted
|
|
$
|
1.99
|
|
|
$
|
2.27
|
|
|
$
|
2.02
|
|
|
$
|
2.02
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,190,687
|
|
|
$
|
7,554,693
|
|
|
$
|
5,090,073
|
|
|
$
|
5,436,205
|
|
|
$
|
3,298,681
|
|
Long-term debt, including current portion
|
|
$
|
3,265,418
|
|
|
$
|
3,580,788
|
|
|
$
|
2,133,140
|
|
|
$
|
2,061,381
|
|
|
$
|
1,078,698
|
|
Foreign Currency Transaction Gains (Losses),
Net. Consolidated foreign currency
transaction gains of $52.4 million for the year ended
December 31, 2010 are primarily related to 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. Consolidated foreign currency
transaction gains of $104.9 million for the year ended
December 31, 2009 are primarily related to the impact of
the significant appreciation in the value of the Brazilian real
relative to the U.S. dollar during 2009 on Nextel
Brazils syndicated loan facility, which is denominated in
U.S. dollars. Consolidated foreign currency transaction
losses of $120.6 million for the year ended
December 31, 2008 are primarily due to $80.2 million
in losses related to the impact of the significant depreciation
in the value of the Brazilian real relative to the
U.S. dollar during the second half of 2008 on Nextel
Brazils syndicated loan facility, which is denominated in
U.S. dollars, as well as $44.8 million in losses
related to the depreciation in the value of the Mexican peso
relative to the U.S. dollar on Nextel Mexicos
U.S. dollar-denominated net liabilities during the same
period. See Critical Accounting Policies and
Estimates Foreign Currency. for more
information.
38
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
INDEX TO
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
Forward Looking Statements
|
|
|
40
|
|
Introduction
|
|
|
41
|
|
A. Executive Overview
|
|
|
41
|
|
B. Results of Operations
|
|
|
50
|
|
1. Year Ended December 31, 2010 vs. Year Ended
December 31, 2009
|
|
|
52
|
|
a. Consolidated
|
|
|
52
|
|
b. Nextel Brazil
|
|
|
54
|
|
c. Nextel Mexico
|
|
|
56
|
|
d. Nextel Argentina
|
|
|
58
|
|
e. Nextel Peru
|
|
|
59
|
|
f. Corporate and other
|
|
|
60
|
|
2. Year Ended December 31, 2009 vs. Year Ended
December 31, 2008
|
|
|
61
|
|
a. Consolidated
|
|
|
61
|
|
b. Nextel Brazil
|
|
|
63
|
|
c. Nextel Mexico
|
|
|
65
|
|
d. Nextel Argentina
|
|
|
66
|
|
e. Nextel Peru
|
|
|
67
|
|
f. Corporate and other
|
|
|
68
|
|
C. Liquidity and Capital Resources
|
|
|
68
|
|
D. Future Capital Needs and Resources
|
|
|
70
|
|
E. Effect of Inflation and Foreign Currency Exchange
|
|
|
75
|
|
F. Effect of New Accounting Standards
|
|
|
75
|
|
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk
|
|
|
75
|
|
39
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.
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;
|
40
|
|
|
|
|
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.
|
The words may, could,
estimate, project, forecast,
intend, expect, believe,
target, plan, providing
guidance and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are found
throughout this Managements Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in
this report. The reader should not place undue reliance on
forward-looking statements, which speak only as of the date of
this report. 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.
Introduction
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition for the years ended
December 31, 2010 and 2009 and our consolidated results of
operations for the years ended December 31, 2010, 2009 and
2008; and
|
|
|
|
significant factors which we believe could affect our
prospective financial condition and results of operations.
|
Historical results may not indicate future performance. See
Item 1A. Risk Factors for risks and
uncertainties that may impact our future performance.
We refer to our operating companies by the countries in which
they operate, such as Nextel Brazil, Nextel Mexico, 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
41
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
communicate instantly across national borders with Sprint Nextel
subscribers using compatible handsets in the United States and
with TELUS Corporation subscribers using compatible
handsets in Canada;
|
|
|
|
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 data services and
applications on our planned third generation networks. We
currently provide services on iDEN networks in the three 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
for which we were the successful bidder in Brazil in 2010 and
which we expect to be awarded to us in early 2011. We expect to
begin providing third generation service offerings across Chile
and in certain markets in Mexico in 2011, and we plan to begin
providing third generation services in Brazil 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
42
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.
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 developing and
testing 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 made significant additional investments in 2008,
2009 and into 2010 in order to expand our service areas,
including expansion into the northeast region of the country,
and to add more capacity to Nextel Brazils network to
support its growth. Such expansion may involve building out
certain areas in which we
43
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 hold in each of the markets we serve is
non-contiguous. Because Motorola is the sole supplier of iDEN
technology, we are dependent on Motorolas support of the
evolution of the iDEN technology and of the development of new
features, functionality and handset models.
Nextel Communications, a subsidiary of Sprint Nextel, is
currently Motorolas largest customer with respect to iDEN
technology and, in the past, has provided significant support
with respect to new product development for that technology.
Sprint Nextels recently announced plans to decommission
its iDEN network over the coming 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. In
addition, we have entered into arrangements with Motorola that
are designed to provide us with a continued source of iDEN
network equipment and handsets in an environment in which Sprint
Nextels purchases and support of future development of
that equipment have declined. Specifically, in September 2006,
we entered into agreements to extend our relationship with
Motorola for the supply of iDEN handsets and iDEN network
infrastructure through December 31, 2011. Under these
agreements, Motorola agreed to maintain an adequate supply of
the iDEN handsets and equipment used in our business for the
term of the agreement and to continue to invest in the
development of new iDEN devices and infrastructure features. In
addition, we agreed to annually escalating handset volume
purchase commitments and certain pricing parameters for handsets
and infrastructure linked to the volume of our purchases. If we
do not meet the specified handset volume commitments, we would
be required to pay an additional amount based on any shortfall
of actual purchased handsets compared to the related annual
volume commitment. In October 2010, we extended the terms
of the iDEN network infrastructure agreement with Motorola until
December 31, 2014. The extension of this infrastructure
agreement will not impact any handset pricing terms or
commitments. Motorola recently completed a separation of its
mobile devices and home division into a separate public entity
called Motorola Solutions, Inc., to which our agreements have
been assigned. In addition, in July 2010, Motorola announced
that it had reached an agreement to sell certain of its
operations relating to the manufacture of network equipment to
Nokia Siemens Networks. Although Motorola has announced that the
sale does not include its iDEN business, it is uncertain whether
or to what extent the sale by Motorola of its other network
equipment businesses could impact Motorolas ability to
support its iDEN business. Accordingly, while we cannot
currently determine the impact of Motorolas recently
completed separation of the mobile devices business or the sale
of its other network equipment businesses on its iDEN business,
Motorolas obligations under our existing agreements,
including the obligation to supply us with iDEN handsets and
network equipment, remain in effect.
Planning for the Future. Another key component
in our overall strategy is to expand and improve the innovative
and differentiated services we offer and evaluate 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 in Chile and Mexico in 2010 and spectrum
for
44
which we were the successful bidder in Brazil in 2010 and which
we expect to be awarded to us in 2011. We expect to begin
providing third generation service offerings across Chile and in
certain markets in Mexico in 2011, and we plan to begin
providing third generation services in Brazil in 2012.
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(1)
|
|
20 MHz in 11 of 13 regions (includes all major metropolitan
areas)(1)
|
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
|
|
|
|
(1) |
|
Pending anticipated award of spectrum in early 2011. |
We expect to pursue opportunities to acquire additional third
generation spectrum in the future, including through our
participation in the spectrum auction that is expected to be
conducted in Argentina. 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
December 31, 2010 and 2009. For purposes of the table,
handsets in commercial service represent all handsets with
active customer accounts on our mobile networks in each of the
listed countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil
|
|
|
Mexico
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Handsets in commercial service
December 31, 2009
|
|
|
2,483
|
|
|
|
2,987
|
|
|
|
1,030
|
|
|
|
842
|
|
|
|
44
|
|
|
|
7,386
|
|
Net subscriber additions
|
|
|
836
|
|
|
|
374
|
|
|
|
124
|
|
|
|
286
|
|
|
|
21
|
|
|
|
1,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handsets in commercial service
December 31, 2010
|
|
|
3,319
|
|
|
|
3,361
|
|
|
|
1,154
|
|
|
|
1,128
|
|
|
|
65
|
|
|
|
9,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Exposure
Nearly all of our revenues are denominated in
non-U.S. currencies,
although a significant portion of our capital and operating
expenditures, including imported network equipment and handsets,
and a substantial portion of our outstanding debt, are
denominated in U.S. dollars. Accordingly, fluctuations in
exchange rates relative to the U.S. dollar could have a
material adverse effect on our earnings and assets.
Historically, the value of the currencies of the countries in
which we do business in relation to the U.S. dollar have
been volatile. Recent volatility in the worldwide economy and in
the economies of some of those countries has led to increased
volatility in these currencies. We translate the results of
operations for our
non-U.S. subsidiaries
and affiliates from the designated functional currency to the
U.S. dollar using average exchange rates during the
relevant period. In addition, changes in exchange rates
associated with U.S. dollar-denominated assets and
liabilities result in foreign currency transaction gains or
losses.
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
45
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 year
ended December 31, 2010.
As of December 31, 2010 and 2009, Nextel Brazil had accrued
liabilities of $56.8 million and $13.9 million,
respectively, related to contingencies, all of which were
classified in accrued contingencies reported as a component of
other long-term liabilities and none of which related to
unasserted claims. We currently estimate the range of reasonably
possible losses related to matters for which Nextel Brazil has
not accrued liabilities, as they are not deemed probable, to be
between $182.6 million and $186.6 million as of
December 31, 2010. We are continuing to evaluate the
likelihood of probable and reasonably possible losses, if any,
related to all known contingencies. As a result, future
increases or decreases to our accrued liabilities may be
necessary and will be recorded in the period when such amounts
are determined to be probable and reasonably estimable.
Argentine
Contingencies
As of December 31, 2010 and 2009, Nextel Argentina had
accrued liabilities of $35.1 million and
$28.2 million, respectively, related primarily to local
turnover taxes, universal service tax and local government
claims, all of which were classified in accrued contingencies
and accrued non-income taxes reported as components of accrued
expenses and other.
Critical
Accounting Policies and Estimates
The preparation of our consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires us to make estimates and judgments that
affect the amounts reported in those financial statements and
accompanying notes. We consider the accounting policies and
estimates addressed below the most important to our financial
position and results of operations, either because of the
significance of the financial statement item or because they
require the exercise of significant judgment
and/or use
of significant estimates. Although we believe that the
estimates, we use are reasonable, due to the inherent
uncertainty involved in making those estimates, actual results
reported in future periods could differ from those estimates.
For additional information, see Note 1 to our consolidated
financial statements included at the end of this annual report
on
Form 10-K.
Revenue Recognition. While our revenue
recognition policy does not require the exercise of significant
judgment or the use of significant estimates, we believe that
our policy is significant as revenue is a key component of our
results of operations.
Operating revenues primarily consist of service revenues and
revenues generated from the sale and rental of handsets and
accessories. We present our operating revenues net of
value-added taxes, but we include certain revenue-based taxes
that are our primary obligation. Service revenues primarily
consist of fixed monthly access charges for mobile telephone
service and two-way radio service. Other components of service
revenue include revenues from calling party pays programs where
applicable and variable charges for airtime and two-way radio
usage in excess of plan minutes, long-distance charges,
international roaming revenues derived from calls placed by our
customers on other carriers networks and revenues
generated from broadband data services we provide on our third
generation networks.
We recognize revenue for access charges and other services
charged at fixed amounts ratably over the service period, net of
credits and adjustments for service discounts and value-added
taxes. We recognize excess usage, local, long distance and
calling party pays revenue at contractual rates per minute as
minutes are used. We record cash received in excess of revenues
earned as deferred revenues.
We bill excess usage to our customers in arrears. In order to
recognize the revenues originating from excess usage subsequent
to customer invoicing, we estimate the unbilled portion based on
the usage that the handset had during the part of the month
already billed, and we use this actual usage to estimate the
unbilled usage for the rest of the month taking into
consideration working days and seasonality. Our estimates are
based on our experience in each market. We periodically evaluate
our estimates by comparing them to actual excess usage revenue
billed the
46
following month. While our estimates have been consistent with
our actual results, actual usage in future periods could differ
from our estimates.
Other revenues primarily include amounts generated from our
handset maintenance programs, roaming revenues generated from
other companies customers that roam on our networks and
co-location rental revenues from third party tenants that rent
space on our towers. We recognize revenue generated from our
handset maintenance programs on a monthly basis at fixed amounts
over the service period. We recognize roaming revenues at
contractual rates per minute as minutes are used. We recognize
co-location revenues from third party tenants on a monthly basis
based on the terms set by the underlying agreements.
We recognize revenue from handset and accessory sales when title
and risk of loss passes upon delivery of the handset or
accessory to the customer as this is considered a separate
earnings process from the sale of wireless services.
Allowance for Doubtful Accounts. We
establish an allowance for doubtful accounts receivable
sufficient to cover probable and reasonably estimated losses.
Our methodology for determining our allowance for doubtful
accounts receivable requires significant estimates. Since we
have over one million accounts, it is impracticable to review
the collectibility of each individual account when we determine
the amount of our allowance for doubtful accounts receivable
each period. Therefore, we consider a number of factors in
establishing the allowance on a
market-by-market
basis, including historical collection experience, current
economic trends, forecasted write-offs, age of the accounts
receivable portfolio and other factors. Actual write-offs in the
future could be impacted by general economic and business
conditions that are difficult to predict and therefore may
differ from our estimates. See Item 1A. Risk Factors
2a. A decline in foreign exchange rates for currencies in our
markets may adversely affect our growth and our operating
results.
Depreciation of Property, Plant and
Equipment. The operation of wireless
communications networks is a capital intensive business. We
record at cost our network assets and other improvements that in
our opinion, extend the useful lives of the underlying assets,
and depreciate those assets over their estimated useful lives.
We calculate depreciation using the straight-line method based
on estimated useful lives ranging from 3 to 20 years for
mobile network equipment and network software and 3 to
10 years for office equipment, furniture and fixtures, and
other, which includes
non-network
internal use software. We depreciate our corporate aircraft
under capital lease using the straight-line method based on the
lease term of 10 years. We amortize leasehold improvements
over the shorter of the lease terms or the useful lives of the
improvements. Our networks are highly complex and, due to
constant innovation and enhancements, certain components of
those networks may lose their utility sooner than anticipated.
We periodically reassess the economic life of these components
and make adjustments to their useful lives after considering
historical experience and capacity requirements, consulting with
the vendor and assessing new product and market demands and
other factors. When our assessment indicates that the economic
life of a network component is shorter than originally
anticipated, we depreciate its remaining book value over its
revised useful life. Further, the deployment of any new
technologies could adversely affect the estimated remaining
useful lives of our network assets, which could significantly
impact future results of operations.
Amortization of Intangible
Assets. Intangible assets primarily consist
of our telecommunications licenses. We calculate amortization on
our licenses using the straight-line method based on estimated
useful lives of 3 to 20 years. While the terms of our
licenses, including renewals, range from 10 to 40 years,
the political and regulatory environments in the markets we
serve are continuously changing and, as a result, the cost of
renewing our licenses could be significant. Therefore, we do not
view the renewal of our licenses to be perfunctory. In addition,
the wireless telecommunications industry is experiencing
significant technological change, and the commercial life of any
particular technology is difficult to predict. Most of our
licenses give us the right to use 800 MHz spectrum that is
non-contiguous, and the iDEN technology is the only widespread,
commercially available technology that operates on
non-contiguous spectrum. As a result, our ability to deploy new
technologies using 800MHz spectrum may be limited. In light of
these uncertainties we classify our licenses as finite lived
intangible assets. Our licenses are subject to renewal after the
initial term, provided that we have complied with applicable
rules and policies in each of our markets. We intend to comply,
and believe we have complied, with these rules and policies in
all material respects. However, because governmental authorities
have discretion as to the renewal of licenses, our licenses may
not be renewed or we may be required to pay significant renewal
fees, either of which could have a
47
significant impact on the estimated useful lives of our
licenses, which could significantly impact future results of
operations.
Asset Retirement Obligations. We record
an asset retirement obligation, or ARO, and an associated asset
retirement cost, or ARC, when we have a legal obligation in
connection with the retirement of tangible long-lived assets.
Our obligations under the FASBs authoritative guidance on
asset retirement obligations arise from certain of our leases
and relate primarily to the cost of removing our network
infrastructure and administrative assets from the leased space
where these assets are located at the end of the lease.
Estimating these obligations requires us to make certain
assumptions that are highly judgmental in nature. The
significant assumptions used in estimating our asset retirement
obligations include the following: the probability that our
assets with asset retirement obligations will be removed at the
lessors directive; expected settlement dates that coincide
with lease expiration dates plus estimates of lease extensions;
removal costs that are indicative of what third party vendors
would charge us to remove the assets; expected inflation rates;
and credit-adjusted risk-free rates that approximate our
incremental borrowing rates. We periodically review these
assumptions to ensure that the estimates are reasonable. Any
change in the assumptions used could significantly affect the
amounts recorded with respect to our asset retirement
obligations.
Foreign Currency. We translate the
results of operations for our
non-U.S. subsidiaries
from the designated functional currency to the U.S. dollar
using average exchange rates for the relevant period. We
translate assets and liabilities using the exchange rate in
effect at the relevant reporting date. We report the resulting
gains or losses from translating foreign currency financial
statements as other comprehensive income or loss. Because we
translate the operations of our
non-U.S. subsidiaries
using average exchange rates, our operating companies
trends may be impacted by the translation.
We report the effect of changes in exchange rates on
U.S. dollar-denominated assets and liabilities as foreign
currency transaction gains or losses. We report the effect of
changes in exchange rates on intercompany transactions of a
long-term investment nature as part of the cumulative foreign
currency translation adjustment in our consolidated financial
statements. The intercompany transactions that, in our view, are
of a long-term investment nature include certain intercompany
loans and advances from our U.S. subsidiaries to Nextel
Brazil and Nextel Chile and an intercompany payable to Nextel
Mexico. In contrast, we report the effect of exchange rates on
U.S. dollar-denominated intercompany loans and advances to
our foreign subsidiaries that are due, or for which repayment is
anticipated in the foreseeable future, as foreign currency
transaction gains or losses in our consolidated statements of
operations. As a result, our determination of whether
intercompany loans and advances are of a long-term investment
nature can have a significant impact on how we report foreign
currency transaction gains and losses in our consolidated
financial statements.
Loss Contingencies. We account for and
disclose loss contingencies such as pending litigation and
actual or possible claims and assessments in accordance with the
FASBs authoritative guidance on accounting for
contingencies. We accrue for loss contingencies if it is
probable that a loss will occur and if the loss can be
reasonably estimated. We disclose, but do not accrue for, loss
contingencies if it is reasonably possible that a loss will
occur or if the loss can be reasonably estimated. We do not
accrue for or disclose loss contingencies if there is only a
remote possibility that the loss will occur. The FASBs
authoritative guidance requires us to make judgments regarding
future events, including an assessment relating to the
likelihood that a loss may occur and an estimate of the amount
of such loss. In assessing loss contingencies, we often seek the
assistance of our legal counsel and in some instances, of third
party legal counsel. As a result of the significant judgment
required in assessing and estimating loss contingencies, actual
losses realized in future periods could differ significantly
from our estimates.
Stock-Based Compensation. On
January 1, 2006, we adopted the fair value recognition
provisions of the FASBs updated authoritative guidance on
share-based payments, which requires the measurement and
recognition of compensation expense, based on estimated fair
values, for all share-based awards, made to employees and
directors, including stock options and restricted stock. We used
the modified prospective transition method and therefore did not
restate our prior periods results. As a result, our
consolidated statements of operations for the years ended
December 31, 2009, 2008 and 2007 include share-based
compensation expense for awards granted (i) prior to, but
not yet vested as of January 1, 2006, based on the grant
date fair value estimated in accordance with the provisions of
the FASBs authoritative guidance on accounting for
stock-based compensation and (ii) subsequent
48
to January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of the FASBs
updated authoritative guidance on share-based payments.
We use the Black-Scholes-Merton option pricing model, which we
refer to as the Black-Scholes Model, for purposes of determining
the estimated fair value of share-based payment awards on the
date of grant under the FASBs updated authoritative
guidance. The Black-Scholes Model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, the
Black-Scholes-Model requires the input of highly subjective
assumptions, including expected stock price volatility and
exercise behavior, as well as other assumptions including the
average risk free interest rate and expected dividend yield.
The assumptions we use in the Black-Scholes Model represent our
best estimates, but these estimates involve inherent
uncertainties and the application of management judgment.
Consequently, there is a risk that our estimates of the fair
values of our stock option awards on the grant dates may bear
little resemblance to the actual values realized upon the
exercise, expiration, early termination or forfeiture of those
stock option awards in the future. For example, certain stock
option awards may expire worthless or otherwise result in zero
intrinsic value as compared to the fair values originally
estimated on the grant date and reported in our financial
statements. Alternatively, value may be realized from a stock
option award that is significantly in excess of the fair value
originally estimated on the grant date and reported in our
financial statements. Additionally, the use of alternative
assumptions could produce significantly different estimates of
the fair value of stock option awards and consequently, the
related amounts recognized in the consolidated statements of
operations. Currently, there is no other practical application
to verify the reliability and accuracy of the estimates from
option-pricing valuation models such as Black-Scholes. Although
the fair value of stock option awards is determined in
accordance with the FASBs authoritative guidance on
share-based payments, using the Black-Scholes Model, the fair
value may not be indicative of the fair value observed in a
willing buyer/willing seller market transaction. Because stock
options granted to employees have characteristics significantly
different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair
value estimate, we believe that the existing models, including
the Black-Scholes model, do not necessarily provide a reliable
single measure of the fair value of the stock options.
Income Taxes. We account for income
taxes using the asset and liability method, under which we
recognize deferred income taxes for the tax consequences
attributable to differences between the financial statement
carrying amounts and the tax bases of existing assets and
liabilities, as well as for tax loss carryforwards and tax
credit carryforwards. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recoverable or settled. We recognize the effect
on deferred taxes of a change in tax rates in income in the
period that includes the enactment date. We provide a valuation
allowance against deferred tax assets if, based upon the weight
of available evidence, we do not believe it is
more-likely-than-not that some or all of the
deferred tax assets will be realized. We report remeasurement
gains and losses related to deferred tax assets and liabilities
in our income tax provision.
Historically, a substantial portion of our deferred tax asset
valuation allowance related to deferred tax assets that, if
realized, would not result in a benefit to our income tax
provision. In accordance with the FASBs authoritative
guidance on financial reporting by entities in reorganization
under the bankruptcy code, we recognize decreases in the
valuation allowance existing at the reorganization date first as
a reduction in the carrying value of intangible assets existing
at the reorganization date of October 31, 2002 and then as
an increase to paid-in capital. As of December 31, 2004, we
reduced to zero the carrying value of our intangible assets
existing at the reorganization date. In accordance with the
FASBs updated authoritative guidance on business
combinations, effective beginning in 2009, we will record the
future decreases, if any, of the valuation allowance existing on
the reorganization date as a reduction to income tax expense. We
will also record decreases, if any, of the post-reorganization
valuation allowance as a reduction to our income tax expense.
Realization of deferred tax assets in any of our markets depends
on various factors, including continued future profitability in
these markets. Our ability to generate the expected amounts of
taxable income from future operations is dependent upon general
economic conditions, technology trends, political uncertainties,
competitive pressures and other factors beyond managements
control. If our operations continue to demonstrate
profitability, we may further reverse additional deferred tax
asset valuation allowance balances during 2011. We will continue
to
49
evaluate the deferred tax asset valuation allowance balances in
all of our foreign and U.S. companies throughout 2011 to
determine the appropriate level of valuation allowances.
We continued to assert our prior position regarding the
repatriation of historical foreign earnings back to the U.S.,
and during the first quarter of 2010, we determined that we will
repatriate a total of $200 million of 2010 undistributed
earnings back to the U.S. in a taxable manner over the next
three years. As of December 31, 2009, we included a
$19.4 million provision in deferred tax liability for
U.S. federal, state and foreign taxes with respect to
future remittances of certain undistributed earnings (other than
income that has been previously taxed in the U.S. under the
subpart F rules) of certain of our foreign subsidiaries. This
deferred tax liability increased by a net tax effect of
$61.6 million in 2010 due to: (1) an increase
resulting from our plan to repatriate an additional
$200 million ($77.8 million tax effected) of
undistributed earnings in the next three years, (2) a
decrease from a $19.4 million tax effect on the
distribution received from our Mexico subsidiaries, and
(3) a $3.2 million increase due to the strengthening
in the Mexican exchange rate against the U.S. dollar. As of
December 31, 2010 this deferred tax liability was
$81.0 million. Except for the earnings associated with this
$81.0 million provision and income that has been previously
taxed in the U.S. under the subpart F rules and can be
remitted to the U.S. without incurring additional income
taxes, we currently have no intention to remit any additional
undistributed earnings of our foreign subsidiaries in a taxable
manner. Should additional amounts of our foreign
subsidiaries undistributed earnings be remitted to the
U.S. as dividends, we may be subject to additional
U.S. income taxes (net of allowable foreign tax credits)
and foreign withholding taxes. It is not practicable to estimate
the amount of any additional taxes which may be payable on the
remaining undistributed earnings.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. We regularly assess the potential outcome of current and
future examinations in each of the taxing jurisdictions when
determining the adequacy of the provision for income taxes. We
have only recorded financial statement benefits for tax
positions which we believe reflect the
more-likely-than-not criteria of the FASBs
authoritative guidance on accounting for uncertainty in income
taxes, and we have established income tax reserves in accordance
with this guidance where necessary. Once a financial statement
benefit for a tax position is recorded or a tax reserve is
established, we adjust it only when there is more information
available or when an event occurs necessitating a change. While
we believe that the amount of the recorded financial statement
benefits and tax reserves reflect the more-likely-than-not
criteria, it is possible that the ultimate outcome of current or
future examinations may result in a reduction to the tax
benefits previously recorded on our consolidated financial
statements or may exceed the current income tax reserves in
amounts that could be material.
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of handsets and
accessories. Service revenues primarily include fixed monthly
access charges for mobile telephone service and two-way radio
and other services, including revenues from calling party pays
programs and variable charges for airtime and two-way radio
usage in excess of plan minutes, long-distance charges,
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
digital handsets and accessories to our customers.
In addition, we also have other less significant sources of
revenues. These revenues primarily include revenues generated
from our handset maintenance programs, roaming revenues
generated from other companies customers that roam on our
networks and co-location rental revenues from third-party
tenants that rent space on our towers.
See Revenue Recognition above and Note 1 to our
consolidated financial statements included at the end of this
annual report on
Form 10-K
for a description of our revenue recognition methodology.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of handset and accessory sales.
Cost of providing service consists largely of costs of
interconnection with local exchange carrier facilities and costs
relating to terminating calls originated on our network on other
carriers networks and direct switch, as well as
transmitter and receiver site costs, including property taxes,
expenses related to our handset maintenance programs, insurance
costs, utility costs, maintenance costs, spectrum license fees
and rent for the network switches and
50
transmitter sites used to operate our mobile networks.
Interconnection costs have fixed and variable components. The
fixed component of interconnection costs consists of monthly
flat-rate fees for facilities leased from local exchange
carriers, primarily for circuits required to connect our
transmitter sites to our network switches and to connect our
switches. The variable component of interconnection costs, which
fluctuates in relation to the volume and duration of wireless
calls, generally consists of per-minute use fees charged by
wireline and wireless providers for wireless calls from our
handsets terminating on their networks. Cost of digital handset
and accessory sales consists largely of the cost of the handset
and accessories, order fulfillment and installation-related
expenses, as well as write-downs of digital handset and related
accessory inventory for shrinkage or obsolescence.
Our service and other revenues and the variable component of our
cost of service are primarily driven by the number of handsets
in service and not necessarily by the number of customers, as
one customer may purchase one or many handsets. Our digital
handset and accessory revenues and cost of digital handset and
accessory sales are primarily driven by the number of new
handsets placed into service, as well as handset upgrades
provided to existing customers during the year.
Selling and marketing expenses includes all of the expenses
related to acquiring customers. General and administrative
expenses include expenses related to revenue-based taxes,
billing, customer care, collections including bad debt, repairs
and maintenance of management information systems, spectrum
license fees, corporate overhead and share-based payment for
stock options and restricted stock.
As further discussed in the notes to our condensed consolidated
financial statements, we adjusted our consolidated financial
statements for the year ended December 31, 2008 for the
retrospective application of the Financial Accounting Standards
Boards, or FASBs, authoritative guidance for
convertible debt instruments.
In accordance with accounting principles generally accepted in
the United States, we translated the results of operations of
our operating segments using the average exchange rates for the
years ended December 31, 2010, 2009 and 2008. The following
table presents the average exchange rates we used to translate
the results of operations of our operating segments, as well as
changes from the average exchange rates utilized in prior
periods. Because the U.S. dollar is the functional currency
in Peru, Nextel Perus results of operations are not
significantly impacted by changes in the U.S. dollar to
Nuevo sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Percent Change
|
|
|
Percent Change
|
|
|
Brazilian real
|
|
|
1.76
|
|
|
|
2.00
|
|
|
|
1.83
|
|
|
|
12.0
|
%
|
|
|
(9.3
|
)%
|
Mexican peso
|
|
|
12.64
|
|
|
|
13.52
|
|
|
|
11.13
|
|
|
|
6.5
|
%
|
|
|
(21.5
|
)%
|
Argentine peso
|
|
|
3.91
|
|
|
|
3.73
|
|
|
|
3.16
|
|
|
|
(4.8
|
)%
|
|
|
(18.0
|
)%
|
51
|
|
1.
|
Year
Ended December 31, 2010 vs. Year Ended December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2010
|
|
|
Revenues
|
|
|
|
2009
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
5,347,724
|
|
|
|
95
|
|
%
|
|
$
|
4,153,548
|
|
|
|
94
|
|
%
|
|
$
|
1,194,176
|
|
|
|
29
|
|
%
|
Digital handset and accessory revenues
|
|
|
253,592
|
|
|
|
5
|
|
%
|
|
|
244,051
|
|
|
|
6
|
|
%
|
|
|
9,541
|
|
|
|
4
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,601,316
|
|
|
|
100
|
|
%
|
|
|
4,397,599
|
|
|
|
100
|
|
%
|
|
|
1,203,717
|
|
|
|
27
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(1,506,019
|
)
|
|
|
(27
|
)
|
%
|
|
|
(1,225,222
|
)
|
|
|
(28
|
)
|
%
|
|
|
(280,797
|
)
|
|
|
23
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(723,115
|
)
|
|
|
(13
|
)
|
%
|
|
|
(623,733
|
)
|
|
|
(14
|
)
|
%
|
|
|
(99,382
|
)
|
|
|
16
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,229,134
|
)
|
|
|
(40
|
)
|
%
|
|
|
(1,848,955
|
)
|
|
|
(42
|
)
|
%
|
|
|
(380,179
|
)
|
|
|
21
|
|
%
|
Selling and marketing expenses
|
|
|
(680,434
|
)
|
|
|
(12
|
)
|
%
|
|
|
(536,150
|
)
|
|
|
(12
|
)
|
%
|
|
|
(144,284
|
)
|
|
|
27
|
|
%
|
General and administrative expenses
|
|
|
(1,261,355
|
)
|
|
|
(22
|
)
|
%
|
|
|
(902,313
|
)
|
|
|
(21
|
)
|
%
|
|
|
(359,042
|
)
|
|
|
40
|
|
%
|
Depreciation and amortization
|
|
|
(552,980
|
)
|
|
|
(10
|
)
|
%
|
|
|
(433,304
|
)
|
|
|
(10
|
)
|
%
|
|
|
(119,676
|
)
|
|
|
28
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
877,413
|
|
|
|
16
|
|
%
|
|
|
676,877
|
|
|
|
15
|
|
%
|
|
|
200,536
|
|
|
|
30
|
|
%
|
Interest expense, net
|
|
|
(342,204
|
)
|
|
|
(6
|
)
|
%
|
|
|
(218,844
|
)
|
|
|
(5
|
)
|
%
|
|
|
(123,360
|
)
|
|
|
56
|
|
%
|
Interest income
|
|
|
28,841
|
|
|
|
|
|
|
|
|
25,586
|
|
|
|
1
|
|
%
|
|
|
3,255
|
|
|
|
13
|
|
%
|
Foreign currency transaction gains, net
|
|
|
52,374
|
|
|
|
1
|
|
%
|
|
|
104,866
|
|
|
|
2
|
|
%
|
|
|
(52,492
|
)
|
|
|
(50
|
)
|
%
|
Other expense, net
|
|
|
(18,686
|
)
|
|
|
|
|
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
|
(16,378
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
597,738
|
|
|
|
11
|
|
%
|
|
|
586,177
|
|
|
|
13
|
|
%
|
|
|
11,561
|
|
|
|
2
|
|
%
|
Income tax provision
|
|
|
(256,686
|
)
|
|
|
(5
|
)
|
%
|
|
|
(204,686
|
)
|
|
|
(4
|
)
|
%
|
|
|
(52,000
|
)
|
|
|
25
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
341,052
|
|
|
|
6
|
|
%
|
|
$
|
381,491
|
|
|
|
9
|
|
%
|
|
$
|
(40,439
|
)
|
|
|
(11
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
During 2010, we expanded our subscriber base across all of our
markets with much of this growth concentrated in Brazil and
Mexico. We also experienced a lower consolidated customer
turnover rate in 2010 compared 2009, which resulted primarily
from improving economic conditions, as well as the initiatives
we implemented in 2009 and continued throughout 2010 to
stabilize customer turnover rates in our markets.
We continued to invest in coverage expansion and network
improvements during 2010, resulting in consolidated capital
expenditures of $876.0 million, which represented a 20%
increase from 2009. 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 plans to increase our customer base in that market.
Under our current business plan, we expect that the amounts
invested to deploy our planned third generation networks in
Brazil, Mexico and Chile and to expand the coverage and improve
the quality and capacity of our iDEN networks will continue to
represent the majority of our consolidated capital expenditure
investments for 2011. We expect to incur significant additional
capital expenditures in 2011 and 2012 as we pursue our strategy
of building third generation networks, and 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 be lower during
the network deployment phase, particularly during the initial
stages of deployment in 2011 and 2012.
52
The average values of the local currencies in Brazil and Mexico
appreciated relative to the U.S. dollar during the year
ended December 31, 2010 compared to 2009. Conversely, the
average value of the Argentine peso depreciated relative to the
U.S. dollar during 2010 compared to 2009.
The $1,194.2 million, or 29%, increase in consolidated
service and other revenues from 2009 to 2010 is primarily due to
a 21% increase in the average number of total digital handsets
in service, which resulted from the continued demand for our
services, the balanced growth and expansion strategies in our
markets and an improvement in customer retention. These
increases were also the result of an increase in consolidated
average revenue per subscriber, largely due to the appreciation
in the average value of the Brazilian real.
The $280.8 million, or 23%, increase in consolidated cost
of service from 2009 to 2010 is principally a result of the
following:
|
|
|
|
|
a $173.1 million, or 28%, increase in consolidated
interconnect costs, mostly in Brazil, resulting from an increase
in the relative amount of minutes of use for calls that
terminate on other carriers networks and require the
payment of call termination charges;
|
|
|
|
a $66.6 million, or 38%, increase in consolidated service
and repair costs, also primarily in Brazil, caused by an
increase in repair cost per subscriber related to a change in
the mix of handsets in Brazil toward more mid and high tier
handsets, as well as an increase in the number of customers
participating in the handset maintenance programs in our markets.
|
The $99.4 million, or 16%, increase in consolidated cost of
digital handset and accessory sales from 2009 to 2010 is largely
the result of an increase in handset upgrades for existing
subscribers and, to a lesser extent, an increase in the sale of
higher cost handsets to new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $144.3 million, or 27%, increase in consolidated
selling and marketing expenses from 2009 to 2010 is principally
a result of the following:
|
|
|
|
|
a $57.2 million, or 28%, increase in consolidated direct
commissions and payroll expenses, mostly in Brazil, due to an
increase in gross subscriber additions by internal sales
personnel, as well as an increase in consolidated sales and
marketing personnel;
|
|
|
|
a $49.5 million, or 27%, increase in consolidated indirect
commissions, primarily in Brazil and Mexico, due to an increase
in gross subscriber additions generated by external sales
personnel in Brazil and higher indirect commissions per gross
subscriber addition in Mexico; and
|
|
|
|
a $31.7 million, or 26%, increase in consolidated
advertising expenses, primarily in Brazil, related to promotions
for new rate plans that were launched in 2010.
|
|
|
4.
|
General and
administrative expenses
|
The $359.0 million, or 40%, increase in consolidated
general and administrative expenses from 2009 to 2010 is largely
due to the following:
|
|
|
|
|
a $219.8 million, or 51%, increase in consolidated general
corporate costs, principally related to increases in
revenue-based taxes in Brazil and higher personnel and
consulting costs in some of our markets, both of which are
largely related to the commencement of some of our third
generation initiatives; and
|
|
|
|
a $90.1 million, or 36%, increase in consolidated customer
care and billing operations expenses as a result of an increase
in customer care personnel necessary to support larger customer
bases in our markets.
|
53
|
|
5.
|
Depreciation
and amortization
|
The $119.7 million, or 28%, increase in consolidated
depreciation and amortization from 2009 to 2010 is the result of
more consolidated property, plant and equipment in service,
which resulted from the continued expansion of the coverage and
capacity of both our iDEN and third generation networks.
The $123.4 million, or 56%, increase in consolidated net
interest expense from 2009 to 2010 is principally the result of
interest incurred in connection with the issuance of our
10.0% senior notes in August 2009 and our
8.875% senior notes in December 2009.
|
|
7.
|
Foreign
currency transaction gains, net
|
Consolidated foreign currency transaction gains of
$52.4 million and $104.9 million for the years ended
December 31, 2010 and 2009 are largely the result of the
impact of the appreciation in the value of the Brazilian real
relative to the U.S. dollar on Nextel Brazils
U.S. dollar-denominated net liabilities, primarily its
syndicated loan facility.
The $52.0 million, or 25% increase in consolidated income
tax provision from 2009 to 2010 is primarily due to a
$77.8 million U.S. tax provision for the future
remittances of certain undistributed earnings from our Mexican
subsidiaries, partially offset by an increase in tax deductible
dividends declared by one of our markets.
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 in each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
2,504,469
|
|
|
|
97
|
%
|
|
$
|
1,631,156
|
|
|
|
94
|
%
|
|
$
|
873,313
|
|
|
|
54
|
%
|
Digital handset and accessory revenues
|
|
|
86,802
|
|
|
|
3
|
%
|
|
|
103,481
|
|
|
|
6
|
%
|
|
|
(16,679
|
)
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,591,271
|
|
|
|
100
|
%
|
|
|
1,734,637
|
|
|
|
100
|
%
|
|
|
856,634
|
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(822,320
|
)
|
|
|
(32
|
)%
|
|
|
(588,076
|
)
|
|
|
(34
|
)%
|
|
|
(234,244
|
)
|
|
|
40
|
%
|
Cost of digital handset and accessory sales
|
|
|
(177,156
|
)
|
|
|
(7
|
)%
|
|
|
(139,489
|
)
|
|
|
(8
|
)%
|
|
|
(37,667
|
)
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(999,476
|
)
|
|
|
(39
|
)%
|
|
|
(727,565
|
)
|
|
|
(42
|
)%
|
|
|
(271,911
|
)
|
|
|
37
|
%
|
Selling and marketing expenses
|
|
|
(273,816
|
)
|
|
|
(10
|
)%
|
|
|
(198,091
|
)
|
|
|
(11
|
)%
|
|
|
(75,725
|
)
|
|
|
38
|
%
|
General and administrative expenses
|
|
|
(512,287
|
)
|
|
|
(20
|
)%
|
|
|
(313,656
|
)
|
|
|
(18
|
)%
|
|
|
(198,631
|
)
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
805,692
|
|
|
|
31
|
%
|
|
$
|
495,325
|
|
|
|
29
|
%
|
|
$
|
310,367
|
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over the last several years, Nextel Brazils subscriber
base has grown as a result of its continued focus on customer
service and the expansion of the geographic coverage of its
network. As a result, Nextel Brazil contributed 46% of
consolidated operating revenues in both 2010 and 2009, and
generated segment earnings margins of 31% and 29% in 2010 and
2009, respectively. 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.
54
We continued to invest in Brazil throughout 2010 in order to
expand the geographic coverage of Nextel Brazils
network and to add capacity to and improve the quality of the
network to support its growth. As a result, Nextel Brazils
capital expenditures represented 49% of consolidated total
capital expenditures during 2010. 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.
The Brazilian regulatory authorities recently completed a series
of spectrum auctions, including the auction of spectrum that
could be used to support third generation services. Nextel
Brazil participated in these 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 auction rules
for these licenses provide that the successful bidder has the
option to defer 90% of the purchase price for three years. The
remainder of the purchase price is due in equal annual
installments over the following six years at an interest rate of
1% per month, plus an inflation factor. The licenses relating to
the spectrum won by Nextel Brazil in the auction is expected to
be granted in early 2011 and will require Nextel Brazil to meet
specified network coverage construction requirements within
specified timeframes. In addition, development and deployment of
a third generation network in Brazil will require 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 in 2011 and 2012.
The average values of the Brazilian real for the year ended
December 31, 2010 appreciated relative to the
U.S. dollar by 12% compared to the average rates that
prevailed during the year ended December 31, 2009. As a
result, the components of Nextel Brazils results of
operations for 2010, after translation into U.S. dollars,
reflect more significant increases in U.S. dollar revenues
and expenses in our results than would have occurred if the
Brazilian real had not appreciated relative to the
U.S. dollar.
Nextel Brazils segment earnings increased
$310.4 million, or 63%, from the year ended
December 31, 2009 to the same period in 2010 as a result of
the following:
The $873.3 million, or 54%, increase in service and other
revenues from 2009 to 2010 is mostly the result of an increase
in the average number of digital handsets in service resulting
from growth in Nextel Brazils existing markets and the
expansion of service coverage into newer markets, as well as an
increase in average revenues per subscriber, primarily resulting
from the appreciation of the real.
The $234.2 million, or 40%, increase in cost of service
from 2009 to the same period in 2010 is primarily due to the
following:
|
|
|
|
|
a $137.5 million, or 42%, increase in interconnect costs
due to an increase in interconnect minutes of use for calls that
terminate on other carriers networks;
|
|
|
|
a $46.0 million, or 60%, increase in service and repair
costs due to an increase in the number of customers
participating in Nextel Brazils handset maintenance
program, as well as an increase in repair costs per subscriber
related to a change in the mix of handsets toward more mid and
high tier handsets; and
|
55
|
|
|
|
|
a $42.2 million, or 27%, increase in direct switch and
transmitter and receiver site costs due to an increase in the
number of cell sites in service in Brazil from December 31,
2009 to December 31, 2010.
|
The $37.7 million, or 27%, increase in cost of digital
handset and accessory revenues from 2009 to 2010 is mostly due
to an increase in handset upgrades for existing subscribers and,
to a lesser extent, an increase in the number of handset sales
to new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $75.7 million, or 38%, increase in selling and
marketing expenses from 2009 to 2010 is primarily due to the
following:
|
|
|
|
|
a $30.5 million, or 35%, increase in direct commissions and
payroll expenses due to an increase in gross subscriber
additions by internal sales personnel and selling and marketing
personnel necessary to support Nextel Brazils growing
subscriber base;
|
|
|
|
a $23.4 million, or 49%, increase in indirect commissions
due to an increase in new handset sales by indirect
dealers; and
|
|
|
|
a $20.3 million, or 37%, increase in advertising expenses
as a result of increased magazine and television campaigns
during 2010.
|
|
|
4.
|
General and
administrative expenses
|
The $198.6 million, or 63%, increase in general and
administrative expenses from 2009 to 2010 is principally due to
the following:
|
|
|
|
|
a $90.2 million, or 60%, increase in other general
corporate costs due to an increase in revenue-based taxes and
general and administrative personnel;
|
|
|
|
a $58.7 million, or 56%, increase in customer care and
billing operations due to an increase in customer care
personnel; and
|
|
|
|
a $23.4 million, or 81%, increase in bad debt expense
related to Nextel Brazils operating revenue growth and a
decrease in collection rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
2,023,129
|
|
|
|
96
|
%
|
|
$
|
1,785,230
|
|
|
|
96
|
%
|
|
$
|
237,899
|
|
|
|
13
|
%
|
Digital handset and accessory revenues
|
|
|
90,633
|
|
|
|
4
|
%
|
|
|
76,634
|
|
|
|
4
|
%
|
|
|
13,999
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,113,762
|
|
|
|
100
|
%
|
|
|
1,861,864
|
|
|
|
100
|
%
|
|
|
251,898
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(391,671
|
)
|
|
|
(19
|
)%
|
|
|
(360,755
|
)
|
|
|
(19
|
)%
|
|
|
(30,916
|
)
|
|
|
9
|
%
|
Cost of digital handset and accessory sales
|
|
|
(402,687
|
)
|
|
|
(19
|
)%
|
|
|
(359,425
|
)
|
|
|
(19
|
)%
|
|
|
(43,262
|
)
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(794,358
|
)
|
|
|
(38
|
)%
|
|
|
(720,180
|
)
|
|
|
(38
|
)%
|
|
|
(74,178
|
)
|
|
|
10
|
%
|
Selling and marketing expenses
|
|
|
(275,513
|
)
|
|
|
(13
|
)%
|
|
|
(235,224
|
)
|
|
|
(13
|
)%
|
|
|
(40,289
|
)
|
|
|
17
|
%
|
General and administrative expenses
|
|
|
(298,736
|
)
|
|
|
(14
|
)%
|
|
|
(253,350
|
)
|
|
|
(14
|
)%
|
|
|
(45,386
|
)
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
745,155
|
|
|
|
35
|
%
|
|
$
|
653,110
|
|
|
|
35
|
%
|
|
$
|
92,045
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel Mexico comprised 38% of our consolidated operating
revenues and generated a 35% segment earnings margin in 2010,
which is consistent with the margin reported for 2009. Nextel
Mexicos segment earnings in 2010 include a
$22.4 million refund of excess fees paid for spectrum use
while Nextel Mexicos applications to renew some of its
spectrum licenses were pending. With the grant of these
renewals, Nextel Mexicos licenses became
56
subject to a new reduced fee structure, which resulted in the
receipt of this refund in the second quarter of 2010. During
2010, Nextel Mexicos results of operations also reflected
slightly lower average revenues per subscriber compared to 2009
primarily caused by the implementation of lower cost rate plans
in response to the competitive environment in Mexico, partially
offset by the appreciation in the average value of the peso
relative to the U.S. dollar and the overall improvement in
Mexicos economy.
Beginning in 2007, some of Nextel Mexicos competitors
significantly lowered their prices for postpaid wireless
services, offered free or significantly discounted handsets,
specifically targeted some of Nextel Mexicos largest
corporate customers, offered various incentives to Nextel
Mexicos customers to switch service providers, including
reimbursement of cancellation fees, and offered bundled
telecommunications services that include local, long distance
and data services. These competitive actions and practices
largely remained in place during 2010. Nextel Mexico is
addressing these competitive actions by, among other things,
launching attractively priced service plans, offering handsets
at discounted prices and offering controlled rate plans to new
and existing customers that provide for lower monthly rates for
more limited service packages as part of the base plan and
require customers to prepay for services beyond levels
contemplated by the base plan. These competitive rate plans are
also designed to encourage increased usage of the Direct Connect
feature, which lowers expenses because it does not require the
payment of call termination charges, but have resulted in
slightly lower average revenues per subscriber. If these efforts
to design more attractive plans prove unsuccessful, gross
subscriber additions in Mexico could be adversely affected.
Coverage expansion and network improvements in Mexico resulted
in capital expenditures totaling $128.6 million in 2010,
which represents 15% of our consolidated total capital
expenditures in 2010 and which increased slightly compared to
2009. As a result of the recent spectrum auctions in Mexico, a
subsidiary of Nextel Mexico was awarded a nationwide license for
30 MHz of spectrum in the 1.7 GHz and 2.1 GHz
bands. We intend to utilize this spectrum to develop and deploy
a third generation network in Mexico, and we expect to begin
launching this third generation network in certain markets in
Mexico in coming months, with a more extensive launch within the
next 9 to 18 months. Development and deployment of a third
generation network in Mexico will require significant
investments in capital expenditures in Mexico. See Future
Capital Needs and Resources Capital
Expenditures for more information.
We believe that our planned 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 in 2011 and
2012.
The average value of the Mexican peso for the year ended
December 31, 2010 appreciated relative to the
U.S. dollar by 7% compared to the average rate that
prevailed during the year ended December 31, 2009. As a
result, the components of Nextel Mexicos results of
operations in 2010 after translation into U.S. dollars
reflect higher U.S. dollar-denominated revenues and
expenses than would have occurred if it were not for the impact
of the appreciation in the average value of the peso relative to
the U.S. dollar.
Nextel Mexicos segment earnings increased
$92.0 million, or 14%, from 2009 to 2010 as a result of the
following:
The $237.9 million, or 13%, increase in service and other
revenues from 2009 to 2010 is primarily due to an increase in
the average number of digital handsets in service resulting from
subscriber growth across Nextel Mexicos existing
markets and the general improvement in Mexicos economy,
partially offset by a slight decrease in average revenue per
subscriber.
57
The $30.9 million, or 9%, increase in cost of service from
2009 to 2010 is largely due to an increase in the proportion of
interconnect minutes of use for calls that terminate on other
carriers networks, which generally have a higher cost per
minute, partially offset by a $22.4 million refund that
Nextel Mexico received in 2010 for excess fees paid for spectrum
use while Nextel Mexicos applications to renew some of its
spectrum licenses were pending.
The $43.3 million, or 12%, increase in cost of digital
handset and accessory revenues from 2009 to 2010 is largely due
to an increase in handset upgrades for existing subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $40.3 million, or 17%, increase in selling and
marketing expenses from 2009 to 2010 is principally the result
of the following:
|
|
|
|
|
a $20.1 million, or 19%, increase in indirect commissions
per gross subscriber addition resulting from fewer charge-backs
in 2010 compared to 2009, as well as higher commissions paid to
obtain higher value customers, and
|
|
|
|
a $13.4 million, or 19%, increase in direct commissions
resulting from higher direct commission per gross subscriber
addition.
|
|
|
4.
|
General and
administrative expenses
|
The $45.4 million, or 18%, increase in general and
administrative expenses from 2009 to 2010 is primarily due to
$41.9 million in revenue-based taxes that Nextel Mexico
began recognizing in January 2010, partially offset by a
decrease in bad debt expense related to the launch of new
control rate plans and the overall improvement in the Mexican
economy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
517,432
|
|
|
|
92
|
%
|
|
$
|
482,985
|
|
|
|
93
|
%
|
|
$
|
34,447
|
|
|
|
7
|
%
|
Digital handset and accessory revenues
|
|
|
46,027
|
|
|
|
8
|
%
|
|
|
36,735
|
|
|
|
7
|
%
|
|
|
9,292
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,459
|
|
|
|
100
|
%
|
|
|
519,720
|
|
|
|
100
|
%
|
|
|
43,739
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(178,276
|
)
|
|
|
(32
|
)%
|
|
|
(176,011
|
)
|
|
|
(34
|
)%
|
|
|
(2,265
|
)
|
|
|
1
|
%
|
Cost of digital handset and accessory sales
|
|
|
(74,781
|
)
|
|
|
(13
|
)%
|
|
|
(65,137
|
)
|
|
|
(12
|
)%
|
|
|
(9,644
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(253,057
|
)
|
|
|
(45
|
)%
|
|
|
(241,148
|
)
|
|
|
(46
|
)%
|
|
|
(11,909
|
)
|
|
|
5
|
%
|
Selling and marketing expenses
|
|
|
(51,259
|
)
|
|
|
(9
|
)%
|
|
|
(43,430
|
)
|
|
|
(8
|
)%
|
|
|
(7,829
|
)
|
|
|
18
|
%
|
General and administrative expenses
|
|
|
(110,219
|
)
|
|
|
(20
|
)%
|
|
|
(86,339
|
)
|
|
|
(17
|
)%
|
|
|
(23,880
|
)
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
148,924
|
|
|
|
26
|
%
|
|
$
|
148,803
|
|
|
|
29
|
%
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 year ended
December 31, 2010 depreciated relative to the
U.S. dollar by 5% from 2009. As a result, the components of
Nextel Argentinas results of operations for 2010 after
translation into U.S. dollars reflect lower
U.S. dollar-denominated revenues and expenses than would
have occurred if the Argentine peso had not depreciated relative
to the U.S. dollar.
58
Nextel Argentinas segment earnings did not change
significantly from 2009 to 2010; however, Nextel
Argentinas segment earnings margin decreased 3% from 2009
to 2010 primarily due to a $23.9 million, or 28%, increase
in general and administrative expenses. The increase in general
and administrative expenses primarily reflects the impact of a
one-time turnover tax refund from the city of Buenos Aires
received in the second quarter of 2009, as well as an increase
in salaries and other employee benefits.
The changes in Nextel Argentinas cost of revenues and
selling and marketing expenses as percentages of its operating
revenues from 2009 to 2010 were immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
281,995
|
|
|
|
90
|
%
|
|
$
|
241,282
|
|
|
|
90
|
%
|
|
$
|
40,713
|
|
|
|
17
|
%
|
Digital handset and accessory revenues
|
|
|
30,021
|
|
|
|
10
|
%
|
|
|
27,103
|
|
|
|
10
|
%
|
|
|
2,918
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312,016
|
|
|
|
100
|
%
|
|
|
268,385
|
|
|
|
100
|
%
|
|
|
43,631
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(100,048
|
)
|
|
|
(32
|
)%
|
|
|
(92,037
|
)
|
|
|
(34
|
)%
|
|
|
(8,011
|
)
|
|
|
9
|
%
|
Cost of digital handset and accessory sales
|
|
|
(62,810
|
)
|
|
|
(20
|
)%
|
|
|
(56,156
|
)
|
|
|
(21
|
)%
|
|
|
(6,654
|
)
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162,858
|
)
|
|
|
(52
|
)%
|
|
|
(148,193
|
)
|
|
|
(55
|
)%
|
|
|
(14,665
|
)
|
|
|
10
|
%
|
Selling and marketing expenses
|
|
|
(55,783
|
)
|
|
|
(18
|
)%
|
|
|
(40,866
|
)
|
|
|
(15
|
)%
|
|
|
(14,917
|
)
|
|
|
37
|
%
|
General and administrative expenses
|
|
|
(71,112
|
)
|
|
|
(23
|
)%
|
|
|
(64,721
|
)
|
|
|
(24
|
)%
|
|
|
(6,391
|
)
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
22,263
|
|
|
|
7
|
%
|
|
$
|
14,605
|
|
|
|
6
|
%
|
|
$
|
7,658
|
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2009, we commercially launched a third generation
network in Peru using 1.9 GHz spectrum we acquired in 2007.
We continue to develop and deploy transmitter and receiver sites
in conjunction with the continued build-out of this network, and
in April 2010, we commercially launched voice service on this
network. We believe that the deployment of this third generation
network will enable us to offer new and differentiated services
to a larger base of potential customers in Peru. Coverage
expansion and the build-out of Nextel Perus third
generation network resulted in capital expenditures totaling
$94.0 million in 2010, which represents 11% of our
consolidated total capital expenditures in 2010. We expect to
continue to incur significant expenses associated with the
deployment phase of this third generation network in Peru,
particularly general and administrative and selling and
marketing expenses; however, we do not expect a corresponding
increase in operating revenues during this deployment phase.
Because the U.S. dollar is Nextel Perus functional
currency, results of operations are not significantly impacted
by changes in the U.S. dollar to Peruvian sol exchange rate.
Nextel Perus segment earnings increased 52% from the year
ended December 31, 2009 to the same period in 2010 due to a
$40.7 million, or 17%, increase in service and other
revenues largely attributable to a 30% increase in average
digital subscribers, partially offset by a decrease in average
revenue per subscriber. This increase in Nextel Perus
service and other revenues was partially offset by a
$14.9 million, or 37%, increase in selling and marketing
expenses primarily resulting from more advertising campaigns in
Peru throughout 2010.
The changes in Nextel Perus cost of revenues and general
and administrative expenses as percentages of its operating
revenues from 2009 to 2010 were immaterial.
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
and other
|
|
|
Year Ended
|
|
|
and other
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
24,382
|
|
|
|
100
|
%
|
|
$
|
13,988
|
|
|
|
99
|
%
|
|
$
|
10,394
|
|
|
|
74
|
%
|
Digital handset and accessory revenues
|
|
|
109
|
|
|
|
|
|
|
|
98
|
|
|
|
1
|
%
|
|
|
11
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,491
|
|
|
|
100
|
%
|
|
|
14,086
|
|
|
|
100
|
%
|
|
|
10,405
|
|
|
|
74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(15,083
|
)
|
|
|
(62
|
)%
|
|
|
(9,436
|
)
|
|
|
(67
|
)%
|
|
|
(5,647
|
)
|
|
|
60
|
%
|
Cost of digital handset and accessory sales
|
|
|
(5,681
|
)
|
|
|
(23
|
)%
|
|
|
(3,526
|
)
|
|
|
(25
|
)%
|
|
|
(2,155
|
)
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,764
|
)
|
|
|
(85
|
)%
|
|
|
(12,962
|
)
|
|
|
(92
|
)%
|
|
|
(7,802
|
)
|
|
|
60
|
%
|
Selling and marketing expenses
|
|
|
(24,087
|
)
|
|
|
(98
|
)%
|
|
|
(18,539
|
)
|
|
|
(132
|
)%
|
|
|
(5,548
|
)
|
|
|
30
|
%
|
General and administrative expenses
|
|
|
(278,700
|
)
|
|
|
NM
|
|
|
|
(184,247
|
)
|
|
|
NM
|
|
|
|
(94,453
|
)
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
$
|
(299,060
|
)
|
|
|
NM
|
|
|
$
|
(201,662
|
)
|
|
|
NM
|
|
|
$
|
(97,398
|
)
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the year ended December 31, 2010 and 2009, corporate
and other operating revenues and cost of revenues primarily
represent the results of operations reported by Nextel Chile. In
September 2009, we participated in a spectrum auction in Chile
in which we were the successful bidder for 60 MHz of
spectrum in the 1.7 GHz and 2.1 GHz bands. In July
2010, we were awarded the rights to this spectrum. We plan to
deploy a third generation network based on WCDMA technology that
will operate on this spectrum in Chile. We believe that the
deployment of this third generation network will enable us to
offer new and differentiated services to a larger base of
potential customers in Chile. Deployment and expansion of this
third generation network in Chile resulted in capital
expenditures totaling $124.1 million for 2010, which
represents 14% of our consolidated total capital expenditures
for 2010. Deployment of our third generation network and other
planned network expansions in Chile will require significant
investments in capital expenditures in Chile over the next
several years.
Segment losses increased from the year ended December 31,
2009 to the same period in 2010 primarily due to a
$94.5 million increase in general and administrative
expenses, which included a $44.6 million increase in
corporate consulting costs and increased employee expenses, and
a $15.6 million increase in corporate engineering
management costs, all 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 our general and administrative
expenses will continue to increase along with other operating
expenses as we continue with our expansion plans and our new
technology initiatives in Chile and in some of our other markets.
60
|
|
2.
|
Year
Ended December 31, 2009 vs. Year Ended December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
4,153,548
|
|
|
|
94
|
%
|
|
$
|
4,048,466
|
|
|
|
95
|
%
|
|
$
|
105,082
|
|
|
|
3
|
%
|
Digital handset and accessory revenues
|
|
|
244,051
|
|
|
|
6
|
%
|
|
|
220,914
|
|
|
|
5
|
%
|
|
|
23,137
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,397,599
|
|
|
|
100
|
%
|
|
|
4,269,380
|
|
|
|
100
|
%
|
|
|
128,219
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(1,225,222
|
)
|
|
|
(28
|
)%
|
|
|
(1,110,927
|
)
|
|
|
(26
|
)%
|
|
|
(114,295
|
)
|
|
|
10
|
%
|
Cost of digital handset and accessory sales
|
|
|
(623,733
|
)
|
|
|
(14
|
)%
|
|
|
(585,391
|
)
|
|
|
(14
|
)%
|
|
|
(38,342
|
)
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,848,955
|
)
|
|
|
(42
|
)%
|
|
|
(1,696,318
|
)
|
|
|
(40
|
)%
|
|
|
(152,637
|
)
|
|
|
9
|
%
|
Selling and marketing expenses
|
|
|
(536,150
|
)
|
|
|
(12
|
)%
|
|
|
(568,864
|
)
|
|
|
(13
|
)%
|
|
|
32,714
|
|
|
|
(6
|
)%
|
General and administrative expenses
|
|
|
(902,313
|
)
|
|
|
(21
|
)%
|
|
|
(831,778
|
)
|
|
|
(20
|
)%
|
|
|
(70,535
|
)
|
|
|
8
|
%
|
Depreciation and amortization
|
|
|
(433,304
|
)
|
|
|
(10
|
)%
|
|
|
(405,120
|
)
|
|
|
(9
|
)%
|
|
|
(28,184
|
)
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
676,877
|
|
|
|
15
|
%
|
|
|
767,300
|
|
|
|
18
|
%
|
|
|
(90,423
|
)
|
|
|
(12
|
)%
|
Interest expense, net
|
|
|
(218,844
|
)
|
|
|
(5
|
)%
|
|
|
(205,516
|
)
|
|
|
(5
|
)%
|
|
|
(13,328
|
)
|
|
|
6
|
%
|
Interest income
|
|
|
25,586
|
|
|
|
1
|
%
|
|
|
68,411
|
|
|
|
2
|
%
|
|
|
(42,825
|
)
|
|
|
(63
|
)%
|
Foreign currency transaction gains (losses), net
|
|
|
104,866
|
|
|
|
2
|
%
|
|
|
(120,572
|
)
|
|
|
(3
|
)%
|
|
|
225,438
|
|
|
|
(187
|
)%
|
Other expense, net
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
(28,806
|
)
|
|
|
(1
|
)%
|
|
|
26,498
|
|
|
|
(92
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
586,177
|
|
|
|
13
|
%
|
|
|
480,817
|
|
|
|
11
|
%
|
|
|
105,360
|
|
|
|
22
|
%
|
Income tax provision
|
|
|
(204,686
|
)
|
|
|
(4
|
)%
|
|
|
(138,862
|
)
|
|
|
(3
|
)%
|
|
|
(65,824
|
)
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
381,491
|
|
|
|
9
|
%
|
|
$
|
341,955
|
|
|
|
8
|
%
|
|
$
|
39,536
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average values of the local currencies in each of our
markets depreciated relative to the U.S. dollar during the
year ended December 31, 2009 compared to the year ended
December 31, 2008.
The $105.1 million, or 3%, increase in consolidated service
and other revenues from 2008 to 2009 is primarily due to a 24%
increase in the average number of total handsets in service from
2008 to 2009, which resulted from both the continued strong
demand for our services and our balanced growth and expansion
strategy, primarily in Brazil. This increase was partially
offset by a decrease in average consolidated revenues per
subscriber resulting from the depreciation in the average values
of the local currencies in each of our markets relative to the
U.S. dollar, reductions in the average revenue per
subscriber due to continued competitive pressures in Mexico and
an increase in the percentage of subscribers purchasing lower
priced prepaid rate plans in Peru.
The $23.1 million, or 10% increase in consolidated digital
handset and accessory revenues from 2008 to 2009 is largely due
to an increase in consolidated handset upgrades for existing
subscribers and, to a lesser extent, an increase in the sale of
higher cost handsets to new subscribers.
The $114.3 million, or 10%, increase in consolidated cost
of service from 2008 to 2009 is mostly due to the following:
|
|
|
|
|
an increase in consolidated service and repair costs, primarily
in Brazil, resulting from increased cost of repair per
subscriber related to a change in the mix of handsets in Brazil
toward more mid and high tier handsets;
|
61
|
|
|
|
|
an increase in consolidated interconnect costs, principally in
Brazil, resulting from an increase in consolidated interconnect
minutes of use;
|
|
|
|
an increase in consolidated direct switch and transmitter and
receiver site costs resulting from an increase in the
consolidated number of cell sites in service from
December 31, 2008 to December 31, 2009; and
|
|
|
|
an increase in consolidated payroll and employee related costs
primarily related to severance costs we incurred in the fourth
quarter of 2009 in connection with the expected transition of
certain employees to outsourcing vendors that will provide
network and information technology management services.
|
The $38.3 million, or 7%, increase in cost of digital
handset and accessory sales from 2008 to 2009 is largely due to
an increase in consolidated handset upgrades for existing
subscribers and, to a lesser extent, an increase in the sale of
higher cost handsets to new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $32.7 million, or 6%, decrease in consolidated selling
and marketing expenses from 2008 to 2009 is primarily the result
of a decrease in consolidated indirect commissions resulting
from lower indirect commission per gross subscriber addition,
principally due to the depreciation of the Mexican peso,
partially offset by an increase in consolidated advertising
expenses, mostly in Brazil.
|
|
4.
|
General and
administrative expenses
|
The $70.5 million, or 8%, increase in consolidated general
and administrative expenses from 2008 to 2009 is mostly due to
the following:
|
|
|
|
|
an increase in consolidated information technology expenses
resulting from an increase in information technology personnel
and higher systems maintenance costs, both of which are related
to the implementation of new billing systems in some of our
markets and the development and deployment of the third
generation network in Peru;
|
|
|
|
an increase in consolidated customer care expenses, primarily in
Brazil, related to an increase in customer care personnel
necessary to support a growing customer base; and
|
|
|
|
an increase in consolidated engineering management expenses
related to some of our new technology and other initiatives.
|
|
|
5.
|
Depreciation
and amortization
|
The $28.2 million, or 7%, increase in consolidated
depreciation and amortization from 2008 to 2009 is largely due
to an increase in consolidated property, plant and equipment in
service, primarily in Brazil, resulting from the continued
build-out of Nextel Brazils network.
The $13.3 million, or 6%, increase in consolidated interest
expense from 2008 to 2009 is primarily attributable to interest
incurred in connection with the issuance of our
10.0% senior notes in August 2009, partially offset by a
decrease in interest incurred under Nextel Mexico and Nextel
Brazils syndicated loan facilities as a result of the
repayment of a portion of the loans under those facilities in
2009.
See Note 5 to our consolidated financial statements for
further information on the impact of the adoption of the
FASBs authoritative guidance on convertible debt
instruments on our net interest expense.
The $42.8 million, or 63%, decrease in consolidated
interest income from 2008 to 2009 is largely the result of a
decrease in short-term investments, as well as lower average
interest rates over the same period.
62
|
|
8.
|
Foreign
currency transaction gains (losses), net
|
Consolidated foreign currency transaction gains of
$104.9 million for 2009 are primarily the result of the
impact of the appreciation in the value of the Brazilian real
relative to the U.S. dollar during the second half of 2009
on Nextel Brazils U.S. dollar-denominated net
liabilities, primarily its syndicated loan facility.
Consolidated foreign currency transaction losses of
$120.6 million for 2008 are mostly the result of the impact
of the depreciation in the value of the Brazilian real and the
Mexican peso relative to the U.S. dollar during the second
half of 2008 on Nextel Brazil and Nextel Mexicos
U.S. dollar-denominated net liabilities, primarily their
syndicated loan facilities.
The $28.8 million in net consolidated other expense for
2008 primarily represents losses that we recognized in
connection with the decline in the value of our investment in a
U.S. short-term investment fund resulting from the
deteriorated market conditions at that time.
The $65.8 million, or 47%, increase in the consolidated
income tax provision is mainly due to a $105.4 million, or
22%, increase in income before taxes and a $22.8 million
increase in income tax withholding on intercompany payments.
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 in each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,631,156
|
|
|
|
94
|
%
|
|
$
|
1,262,838
|
|
|
|
95
|
%
|
|
$
|
368,318
|
|
|
|
29
|
%
|
Digital handset and accessory revenues
|
|
|
103,481
|
|
|
|
6
|
%
|
|
|
68,081
|
|
|
|
5
|
%
|
|
|
35,400
|
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,734,637
|
|
|
|
100
|
%
|
|
|
1,330,919
|
|
|
|
100
|
%
|
|
|
403,718
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(588,076
|
)
|
|
|
(34
|
)%
|
|
|
(443,900
|
)
|
|
|
(33
|
)%
|
|
|
(144,176
|
)
|
|
|
32
|
%
|
Cost of digital handset and accessory sales
|
|
|
(139,489
|
)
|
|
|
(8
|
)%
|
|
|
(106,070
|
)
|
|
|
(8
|
)%
|
|
|
(33,419
|
)
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(727,565
|
)
|
|
|
(42
|
)%
|
|
|
(549,970
|
)
|
|
|
(41
|
)%
|
|
|
(177,595
|
)
|
|
|
32
|
%
|
Selling and marketing expenses
|
|
|
(198,091
|
)
|
|
|
(11
|
)%
|
|
|
(163,402
|
)
|
|
|
(12
|
)%
|
|
|
(34,689
|
)
|
|
|
21
|
%
|
General and administrative expenses
|
|
|
(313,656
|
)
|
|
|
(18
|
)%
|
|
|
(247,578
|
)
|
|
|
(19
|
)%
|
|
|
(66,078
|
)
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
495,325
|
|
|
|
29
|
%
|
|
$
|
369,969
|
|
|
|
28
|
%
|
|
$
|
125,356
|
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average exchange rates of the Brazilian real for the year
ended December 31, 2009 depreciated relative to the
U.S. dollar by 9% compared to the average rates that
prevailed during the year ended December 31, 2008. As a
result, the components of Nextel Brazils results of
operations for 2009, after translation into U.S. dollars,
reflect significantly lower U.S. dollar-denominated
revenues and expenses with respect to revenues that are earned
and expenses that are paid in Brazilian reais than would have
occurred if the Brazilian real had not depreciated relative to
the U.S. dollar. The majority of this currency depreciation
occurred during the fourth quarter of 2008. The
63
average exchange rate of the Brazilian real during the second
half of 2009 appreciated compared to the average exchange rates
that prevailed during the fourth quarter of 2008 and the first
half of 2009.
The $368.3 million, or 29%, increase in service and other
revenues from 2008 to 2009 is primarily a result of a 38%
increase in the average number of digital handsets in service
resulting from growth in Nextel Brazils existing markets
and the expansion of service coverage into new markets in
connection with its balanced expansion and growth objectives.
This increase was partially offset by a decrease in average
revenue per subscriber caused by the depreciation in the average
value of the Brazilian real.
The $35.4 million, or 52%, increase in digital handset and
accessory revenues from 2008 to 2009 is largely due to an
increase in handset upgrades for existing subscribers and, to a
lesser extent, an increase in the sale of higher cost handsets
to new subscribers.
The $144.2 million, or 32%, increase in cost of service
from 2008 to 2009 is primarily due to the following:
|
|
|
|
|
an increase in interconnect costs principally due to a 51%
increase in interconnect minutes of use resulting from Nextel
Brazils growing subscriber base;
|
|
|
|
an increase in direct switch and transmitter and receiver site
costs resulting from a 25% increase in the number of cell sites
in service in Brazil from December 31, 2008 to
December 31, 2009; and
|
|
|
|
an increase in service and repair costs largely due to an
increase in the cost of repair per subscriber related to a
change in the mix of handsets toward more mid and high tier
handsets, as well as an increase in the numbers of customers
participating in Nextel Brazils handset maintenance
program.
|
The $33.4 million, or 32%, increase in cost of digital
handset and accessory revenues from 2008 to 2009 is mostly due
to an increase in handset upgrades for existing subscribers and,
to a lesser extent, an increase in the sale of higher cost
handsets to new subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $34.7 million, or 21%, increase in selling and
marketing expenses from 2008 to 2009 is primarily due to an
increase in advertising costs, as well as an increase in selling
and marketing personnel necessary to support Nextel
Brazils growing subscriber base.
|
|
4.
|
General and
administrative expenses
|
The $66.1 million, or 27%, increase in general and
administrative expenses from 2008 to 2009 is mostly due to the
following:
|
|
|
|
|
an increase in customer care personnel necessary to support
Nextel Brazils larger customer base;
|
|
|
|
an increase in the number of retail stores in Brazil;
|
|
|
|
an increase in information technology expenses mostly related to
higher consulting costs; and
|
|
|
|
an increase in bad debt expense related to Nextel Brazils
subscriber growth.
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,785,230
|
|
|
|
96
|
%
|
|
$
|
2,047,113
|
|
|
|
96
|
%
|
|
$
|
(261,883
|
)
|
|
|
(13
|
)%
|
Digital handset and accessory revenues
|
|
|
76,634
|
|
|
|
4
|
%
|
|
|
86,128
|
|
|
|
4
|
%
|
|
|
(9,494
|
)
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,861,864
|
|
|
|
100
|
%
|
|
|
2,133,241
|
|
|
|
100
|
%
|
|
|
(271,377
|
)
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(360,755
|
)
|
|
|
(19
|
)%
|
|
|
(401,846
|
)
|
|
|
(19
|
)%
|
|
|
41,091
|
|
|
|
(10
|
)%
|
Cost of digital handset and accessory sales
|
|
|
(359,425
|
)
|
|
|
(19
|
)%
|
|
|
(360,828
|
)
|
|
|
(17
|
)%
|
|
|
1,403
|
|
|
|
(0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(720,180
|
)
|
|
|
(38
|
)%
|
|
|
(762,674
|
)
|
|
|
(36
|
)%
|
|
|
42,494
|
|
|
|
(6
|
)%
|
Selling and marketing expenses
|
|
|
(235,224
|
)
|
|
|
(13
|
)%
|
|
|
(317,620
|
)
|
|
|
(15
|
)%
|
|
|
82,396
|
|
|
|
(26
|
)%
|
General and administrative expenses
|
|
|
(253,350
|
)
|
|
|
(14
|
)%
|
|
|
(288,603
|
)
|
|
|
(13
|
)%
|
|
|
35,253
|
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
653,110
|
|
|
|
35
|
%
|
|
$
|
764,344
|
|
|
|
36
|
%
|
|
$
|
(111,234
|
)
|
|
|
(15
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average value of the Mexican peso for 2009 depreciated
relative to the U.S. dollar by 21%, compared to the average
rates that prevailed during 2008. While the average exchange
rate of the Mexican peso continued to decline subsequent to
December 31, 2008, the majority of this depreciation
occurred during the fourth quarter of 2008. As a result, the
components of Nextel Mexicos results of operations for
2009 after translation into U.S. dollars reflect
substantially lower U.S. dollar-denominated revenues and
expenses than would have occurred if it were not for the impact
of the depreciation in the average value of the peso relative to
the U.S. dollar.
The $261.9 million, or 13%, decrease in service and other
revenues from 2008 to 2009 is primarily due to a decrease in
average service revenue per subscriber resulting from our
reduction in plan rates in response to competitive offerings,
the migration of a portion of Nextel Mexicos subscriber
base to lower cost rate plans and the depreciation of the
Mexican peso. These decreases were partially offset by an
increase in the average number of digital handsets in service
resulting from growth in Nextel Mexicos existing markets.
The $41.1 million, or 10%, decrease in cost of service from
2008 to 2009 is principally a result of the following:
|
|
|
|
|
$31.8 million, or 16%, decrease in interconnect costs,
largely as a result of the depreciation of the Mexican peso and
a decrease in interconnect minutes of use, partially offset by
an increase in the proportion of mobile-to mobile minutes of
use, which generally have a higher cost per minute; and
|
|
|
|
13% decrease in direct switch and transmitter and receiver site
costs resulting from the depreciation of the Mexican peso,
partially offset by an increase in the number of sites in
service from 2008 to 2009.
|
|
|
3.
|
Selling and
marketing expenses
|
The $82.4 million, or 26%, decrease in selling and
marketing expenses from 2008 to 2009 is primarily a result of
the following:
|
|
|
|
|
$56.2 million, or 35%, decrease in indirect commissions,
primarily due to the depreciation of the Mexican peso, and a
decrease in gross subscriber additions generated by Nextel
Mexicos external sales channels; and
|
|
|
|
$21.0 million, or 23%, decrease in direct commissions and
payroll expenses, principally due to a decrease in gross
subscriber additions generated by Nextel Mexicos internal
sales personnel and the depreciation of the Mexican peso.
|
65
|
|
4.
|
General and
administrative expenses
|
The $35.3 million, or 12%, decrease in general and
administrative expenses from 2008 to 2009 is primarily due to
the depreciation of the Mexican peso.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
482,985
|
|
|
|
93
|
%
|
|
$
|
508,227
|
|
|
|
92
|
%
|
|
$
|
(25,242
|
)
|
|
|
(5
|
)%
|
Digital handset and accessory revenues
|
|
|
36,735
|
|
|
|
7
|
%
|
|
|
46,097
|
|
|
|
8
|
%
|
|
|
(9,362
|
)
|
|
|
(20
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
519,720
|
|
|
|
100
|
%
|
|
|
554,324
|
|
|
|
100
|
%
|
|
|
(34,604
|
)
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(176,011
|
)
|
|
|
(34
|
)%
|
|
|
(179,349
|
)
|
|
|
(32
|
)%
|
|
|
3,338
|
|
|
|
(2
|
)%
|
Cost of digital handset and accessory sales
|
|
|
(65,137
|
)
|
|
|
(12
|
)%
|
|
|
(70,954
|
)
|
|
|
(13
|
)%
|
|
|
5,817
|
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(241,148
|
)
|
|
|
(46
|
)%
|
|
|
(250,303
|
)
|
|
|
(45
|
)%
|
|
|
9,155
|
|
|
|
(4
|
)%
|
Selling and marketing expenses
|
|
|
(43,430
|
)
|
|
|
(8
|
)%
|
|
|
(45,585
|
)
|
|
|
(8
|
)%
|
|
|
2,155
|
|
|
|
(5
|
)%
|
General and administrative expenses
|
|
|
(86,339
|
)
|
|
|
(17
|
)%
|
|
|
(87,581
|
)
|
|
|
(16
|
)%
|
|
|
1,242
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
148,803
|
|
|
|
29
|
%
|
|
$
|
170,855
|
|
|
|
31
|
%
|
|
$
|
(22,052
|
)
|
|
|
(13
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average value of the Argentine peso for the year ended
December 31, 2009 depreciated relative to the
U.S. dollar by 18% from 2008. As a result, the components
of Nextel Argentinas results of operations for the year
ended December 31, 2009 after translation into
U.S. dollars reflect significantly lower
U.S. dollar-denominated revenues and expenses than would
have occurred if the Argentine peso had not depreciated relative
to the U.S. dollar.
The $25.2 million, or 5%, decrease in service and other
revenues from 2008 to 2009 is primarily attributable to the
following:
|
|
|
|
|
a decrease in average revenue per subscriber mainly due to the
depreciation in the value of the Argentine peso relative to the
U.S. dollar; partially offset by
|
|
|
|
an 11% increase in the average number of handsets in service,
resulting mostly from subscriber growth in Nextel
Argentinas existing markets.
|
The 20% decrease in digital handset and accessory revenues from
2008 to 2009 is mostly the result of a decrease in handset
upgrades to existing subscribers, a slight decrease in handset
sales to new subscribers, a decrease in the average sale price
of new handsets and the depreciation of the Argentine peso
relative to the U.S. dollar.
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Year Ended
|
|
|
Perus
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
241,282
|
|
|
|
90
|
%
|
|
$
|
222,819
|
|
|
|
92
|
%
|
|
$
|
18,463
|
|
|
|
8
|
%
|
Digital handset and accessory revenues
|
|
|
27,103
|
|
|
|
10
|
%
|
|
|
20,571
|
|
|
|
8
|
%
|
|
|
6,532
|
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268,385
|
|
|
|
100
|
%
|
|
|
243,390
|
|
|
|
100
|
%
|
|
|
24,995
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(92,037
|
)
|
|
|
(34
|
)%
|
|
|
(80,804
|
)
|
|
|
(33
|
)%
|
|
|
(11,233
|
)
|
|
|
14
|
%
|
Cost of digital handset and accessory sales
|
|
|
(56,156
|
)
|
|
|
(21
|
)%
|
|
|
(45,220
|
)
|
|
|
(19
|
)%
|
|
|
(10,936
|
)
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148,193
|
)
|
|
|
(55
|
)%
|
|
|
(126,024
|
)
|
|
|
(52
|
)%
|
|
|
(22,169
|
)
|
|
|
18
|
%
|
Selling and marketing expenses
|
|
|
(40,866
|
)
|
|
|
(15
|
)%
|
|
|
(30,340
|
)
|
|
|
(12
|
)%
|
|
|
(10,526
|
)
|
|
|
35
|
%
|
General and administrative expenses
|
|
|
(64,721
|
)
|
|
|
(24
|
)%
|
|
|
(44,469
|
)
|
|
|
(18
|
)%
|
|
|
(20,252
|
)
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
14,605
|
|
|
|
6
|
%
|
|
$
|
42,557
|
|
|
|
18
|
%
|
|
$
|
(27,952
|
)
|
|
|
(66
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Because the U.S. dollar is Nextel Perus functional
currency, results of operations are not significantly impacted
by changes in the U.S. dollar to Peruvian sol exchange rate.
The 8% increase in service and other revenues from 2008 to 2009
is primarily due to an increase in the average number of digital
handsets in service, partially offset by a decrease in average
revenue per subscriber mainly resulting from an increase in
sales of prepaid rate plans, which have lower average monthly
revenues per subscriber.
The 14% increase in cost of service from 2008 to 2009 is the
result of an increase in direct switch and transmitter and
receiver site costs due to an increase in the number of sites in
service from December 31, 2008 to December 31, 2009,
an increase in service and repair costs mainly resulting from an
increase in the number of subscribers participating in Nextel
Perus handset maintenance program and a change in the mix
of handsets repaired toward higher cost handsets. This increase
was also attributable to severance costs incurred during the
fourth quarter of 2009 related to a reduction in engineering
personnel. These increases were partially offset by a decrease
in interconnect costs due to lower rates charged for
interconnect minutes of use.
|
|
3.
|
Selling and
marketing expenses
|
The 35% increase in selling and marketing expenses from 2008 to
2009 is largely the result of an increase in direct commissions
and payroll expenses, principally due to an increase in sales
and marketing personnel and higher advertising costs.
|
|
4.
|
General and
administrative expenses
|
The $20.3 million, or 46%, increase in general and
administrative expenses from 2008 to 2009 is primarily due to an
increase in costs related to our third generation technology
initiatives and increases in customer care personnel and
facilities expenses necessary to support a growing customer base.
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
and Other
|
|
|
Year Ended
|
|
|
and Other
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
December 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
13,988
|
|
|
|
99
|
%
|
|
$
|
8,704
|
|
|
|
100
|
%
|
|
$
|
5,284
|
|
|
|
61
|
%
|
Digital handset and accessory revenues
|
|
|
98
|
|
|
|
1
|
%
|
|
|
37
|
|
|
|
|
|
|
|
61
|
|
|
|
165
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,086
|
|
|
|
100
|
%
|
|
|
8,741
|
|
|
|
100
|
%
|
|
|
5,345
|
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(9,436
|
)
|
|
|
(67
|
)%
|
|
|
(6,263
|
)
|
|
|
(72
|
)%
|
|
|
(3,173
|
)
|
|
|
51
|
%
|
Cost of digital handset and accessory sales
|
|
|
(3,526
|
)
|
|
|
(25
|
)%
|
|
|
(2,319
|
)
|
|
|
(26
|
)%
|
|
|
(1,207
|
)
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,962
|
)
|
|
|
(92
|
)%
|
|
|
(8,582
|
)
|
|
|
(98
|
)%
|
|
|
(4,380
|
)
|
|
|
51
|
%
|
Selling and marketing expenses
|
|
|
(18,539
|
)
|
|
|
(132
|
)%
|
|
|
(11,917
|
)
|
|
|
(136
|
)%
|
|
|
(6,622
|
)
|
|
|
56
|
%
|
General and administrative expenses
|
|
|
(184,247
|
)
|
|
|
NM
|
|
|
|
(163,547
|
)
|
|
|
NM
|
|
|
|
(20,700
|
)
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
$
|
(201,662
|
)
|
|
|
NM
|
|
|
$
|
(175,305
|
)
|
|
|
NM
|
|
|
$
|
(26,357
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the years ended December 31, 2009 and 2008, corporate
and other operating revenues and cost of revenues primarily
represent the results of operations reported by Nextel Chile.
The $20.7 million, or 13%, increase in general and
administrative expenses from 2008 to 2009 is primarily due to an
increase in corporate personnel expenses and increased
consulting costs, both of which are largely related to the
commencement of some of our new technology and other initiatives.
|
|
C.
|
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 December 31, 2010, we had
working capital, which is defined as total current assets less
total current liabilities, of $2,167.9 million, a
$93.5 million decrease compared to working capital of
$2,261.4 million as of December 31, 2009. The decrease
in working capital was primarily a result of the
reclassification of $156.6 million in principal amount
outstanding under Nextel Mexicos syndicated loan facility,
which is due in June 2011, as a current portion of long-term
debt. As of December 31, 2010, our working capital includes
$1,767.5 million in cash and cash equivalents, of which
$210.0 million was held in currencies other than
U.S. dollars, with 72% of that amount held in Mexican
pesos. As of December 31, 2010, our working capital also
includes $537.5 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 investments
held in U.S. dollars is maintained 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 $341.1 million for the year
ended December 31, 2010 compared to $381.5 for the year
ended December 31, 2009. During the years ended
December 31, 2010 and 2009, our operating revenues more
than offset our operating expenses, excluding depreciation and
amortization, and cash capital expenditures.
Our long-term business strategy contemplates the ongoing
expansion of the 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, have made significant
capital investments to enhance the quality and capacity of our
iDEN networks in all of our markets, have deployed and launched
services using a WCDMA-based third generation network in Peru
and are in the process of deploying a similar network in Chile.
In addition, as discussed in more detail above, we have also
commenced our efforts to develop and deploy third generation
networks in Brazil and Mexico, and we plan to commercially
launch services in those markets and in Chile over the next
18 months. We expect our capital expenditures will
materially increase in 2011 and 2012 as we
68
pursue our strategy of building third generation networks, and
we may incur additional capital expenditures if we are able to
acquire spectrum and deploy a third generation network in
Argentina. We expect our current cash, cash equivalent and
investment balances and anticipated future cash flows will be
sufficient to meet our funding needs to support our current
business and our planned deployment of third generation networks
in 2011. We believe that it will be necessary for us to access
the credit and capital markets in subsequent years to fund our
requirements beyond 2011, meet our repayment obligations with
respect to our existing indebtedness, pay the purchase price for
spectrum we expect to be awarded in Brazil and, if applicable,
acquire spectrum and deploy a third generation network in
Argentina. We are pursuing various financing alternatives,
including U.S. capital market transactions, vendor
financing, license financing offered in connection with the
award of spectrum in Brazil and local bank financing, all of
which can be used to provide funding to support both our planned
deployment of third generation networks and our debt service
obligations. We expect to raise additional funding using one or
more of these alternatives in 2011.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Change from
|
|
|
Change from
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009 to 2010
|
|
|
2008 to 2009
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents, beginning of year
|
|
$
|
2,504,064
|
|
|
$
|
1,243,251
|
|
|
$
|
1,370,165
|
|
|
$
|
1,260,813
|
|
|
$
|
(126,914
|
)
|
Net cash provided by operating activities
|
|
|
890,814
|
|
|
|
864,755
|
|
|
|
796,423
|
|
|
|
26,059
|
|
|
|
68,332
|
|
Net cash used in investing activities
|
|
|
(1,176,737
|
)
|
|
|
(796,360
|
)
|
|
|
(690,541
|
)
|
|
|
(380,377
|
)
|
|
|
(105,819
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(461,163
|
)
|
|
|
1,215,306
|
|
|
|
(106,181
|
)
|
|
|
(1,676,469
|
)
|
|
|
1,321,487
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
10,523
|
|
|
|
(22,888
|
)
|
|
|
(126,615
|
)
|
|
|
33,411
|
|
|
|
103,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,767,501
|
|
|
$
|
2,504,064
|
|
|
$
|
1,243,251
|
|
|
$
|
(736,563
|
)
|
|
$
|
1,260,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $890.8 million of
cash during 2010, a $26.1 million, or 3%, increase from
2009. Our operating activities provided us with
$864.8 million of cash during 2009, a $68.3 million,
or 9%, increase from 2008. Both increases were primarily due to
higher operating income resulting from our profitable growth
strategy, partially offset by increases in working capital
investments due to the continued growth of our business, as well
as higher interest expense primarily associated with the
$1.3 billion principal amount of senior notes we issued in
2009.
We used $1,176.7 million of cash in our investing
activities during 2010, a $380.4 million increase from
2009, primarily due to a $418.5 million increase in cash
used to purchase investments, net of proceeds from sales.
We used $796.4 million of cash in our investing activities
during 2009, a $105.8 million increase from 2008, primarily
due to a $132.0 million net increase in the purchase of
short-term investments in Brazil, partially offset by a
$157.0 million decrease in cash capital expenditures,
mostly in Mexico, and a $55.3 million increase in
distributions we received in connection with our investment in
an enhanced cash fund.
We used $461.2 million of cash in our financing activities
during 2010, primarily due to $443.0 million in purchases
of our convertible notes, as well as repayments of our
short-term financings in Brazil, partially offset by
$130.0 million in borrowings under Nextel Perus
syndicated loan facility and borrowings under our short-term
financings in Brazil.
Our financing activities provided us with $1,215.3 million
of cash during 2009, primarily due to $1,249.1 million in
cash we received in connection with the issuance of our
10% senior notes and our 8.875% senior notes and
69
$70.1 million in short-term borrowings in Brazil, partially
offset by $89.7 million in repayments under our syndicated
loan facilities in Mexico and Brazil and $18.0 million in
repayments under short-term notes payable in Peru.
|
|
D.
|
Future
Capital Needs and Resources
|
Capital Resources. Our ongoing capital
resources consist of funds that are available to us from a
number of sources and are affected by a variety of factors,
including amounts of our existing cash and cash equivalents
balances, the value of our short-term investments, the extent of
cash flows generated by our operating companies and the
availability of funding from external financial sources. The
availability of funding from external sources, including the
availability of funding from vendor financing, other debt
financings or equity issuances can be affected by a number of
factors, including capital market conditions.
Our ability to generate sufficient net cash from our operating
activities is dependent upon, among other things:
|
|
|
|
|
the amount of revenue we are able to generate and collect from
our customers;
|
|
|
|
the amount of operating expenses required to provide our
services;
|
|
|
|
the cost of acquiring and retaining customers, including sales
commissions and the subsidies we incur to provide handsets to
both our new and existing customers;
|
|
|
|
our ability to continue to increase the size of our subscriber
base; and
|
|
|
|
fluctuations in foreign exchange rates.
|
Financing Activities. During much of
2008, the capital markets were largely unavailable or
unattractive to raise capital because of the global economic
recession. As a result, we did not pursue any new financing
initiatives during 2008. Beginning in the first quarter of 2009,
we began executing a number of smaller, short-term financing
initiatives in Brazil to provide capital in that market. As the
global economic conditions improved during the year, the
U.S. high yield market began to open to a larger number of
potential issuers. We took advantage of this opportunity, and in
the second half of 2009, we issued $1.3 billion of senior
notes through two transactions. We are pursuing various
financing alternatives, including U.S. capital market
transactions, vendor financing, license financing offered in
connection with the award of spectrum in Brazil and local bank
financing, all of which can be used to provide funding to
support both our planned deployment of third generation networks
and our debt service obligations. We expect to raise additional
funding using one or more of these alternatives in 2011.
The following is a summary of the significant financing
transactions we have executed over the last three years. We
currently intend to use the proceeds we raised from these
transactions to support the continued growth of our business and
to fund our third generation business plan.
In September 2007, Nextel Brazil entered into a
$300.0 million syndicated loan facility. Of the total
amount of the facility, $45.0 million is denominated in
U.S. dollars with a floating interest rate based on LIBOR
plus a specified margin ranging from 2.00% to 2.50%
(Tranche A 2.30% and 2.25% as of
December 31, 2010 and 2009, respectively). The remaining
$255.0 million is denominated in U.S. dollars with a
floating interest rate based on LIBOR plus a specified margin
ranging from 1.75% to 2.25% (Tranche B 2.05%
and 2.00% as of December 31, 2010 and 2009, respectively).
Tranche A matures on September 14, 2014, and
Tranche B matures on September 14, 2012. During the
fourth quarter of 2007 and the first quarter of 2008, Nextel
Brazil borrowed all of the amounts available under its
syndicated loan facility.
In August 2009, we issued senior notes with $800.0 million
aggregate principal amount due at maturity for total cash
proceeds of $762.5 million, after deducting original issue
discount and commissions. The notes bear interest at a rate of
10% per year, which is payable semi-annually in arrears on
February 15 and August 15, beginning on February 15,
2010. The notes will mature on August 15, 2016 when the
entire principal amount of $800.0 million will be due.
In December 2009, we issued senior notes with
$500.0 million aggregate principal amount due at maturity
for total cash proceeds of about $486.6 million, after
deducting original issue discount and commissions. The notes
bear interest at a rate of 8.875% per year, which is payable
semi-annually in arrears on June 15 and December 15,
70
beginning on June 15, 2010. The notes will mature on
December 15, 2019 when the entire principal amount of
$500.0 million will be due.
In December 2009, Nextel Peru entered into a $130.0 million
syndicated loan agreement, the proceeds of which will be used
for capital expenditures, general corporate purposes and the
repayment of short-term intercompany debt. During 2010, Nextel
Peru borrowed all amounts available under this facility.
Throughout 2009 and 2010, Nextel Brazil also entered into a
number of short-term working capital financing arrangements,
including the financing of imported handsets and infrastructure
in Brazil. Funding for both types of arrangements was provided
by lenders based in Brazil.
In June 2010, we purchased $100.0 million face amount of
our 3.125% convertible notes through a series of open market
purchases for an aggregate purchase price of $94.7 million.
Also in June 2010, we purchased $31.4 million face amount
of our 2.75% convertible notes through a series of open market
purchases for an aggregate purchase price of $31.4 million.
In the third quarter of 2010, the noteholders of our 2.75%
convertible notes executed their put options that required us to
purchase $182.4 million principal amount of these notes. In
addition, we exercised our call option and redeemed the
remaining $136.3 million in outstanding principal amount of
these notes during the third quarter of 2010.
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;
|
|
|
|
debt service requirements, including significant upcoming
maturities in the next two years, and obligations relating to
our tower financing and capital lease obligations;
|
|
|
|
cash taxes; and
|
|
|
|
other general corporate expenditures.
|
In making assessments regarding our future capital needs and the
capital resources available to meet those needs, we do not
consider events that have not occurred like success in any
particular auction and the costs of acquiring that spectrum or
the costs of the related network deployment, other than in
Mexico, Brazil, Peru and Chile, and we do not assume the
availability of external sources of funding that may be
available for these future events, including potential equity
investments, vendor financing or other available financing.
The following table sets forth the amounts and timing of
contractual payments for our most significant contractual
obligations determined as of December 31, 2010. The
information in the table reflects future unconditional payments
and is based upon, among other things, the current terms of the
relevant agreements and certain assumptions, such as future
interest rates. Future events could cause actual payments to
differ
71
significantly from these amounts. See Forward Looking
Statements. Except as required by law, we disclaim any
obligation to modify or update the information contained in the
table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
Contractual Obligations
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Convertible notes(1)
|
|
$
|
37,500
|
|
|
$
|
1,218,750
|
|
|
$
|
|
|
|
$
|
23
|
|
|
$
|
1,256,273
|
|
Senior notes(1)
|
|
|
124,375
|
|
|
|
248,750
|
|
|
|
248,750
|
|
|
|
1,557,500
|
|
|
|
2,179,375
|
|
Tower financing obligations(1)
|
|
|
62,386
|
|
|
|
124,844
|
|
|
|
125,019
|
|
|
|
222,986
|
|
|
|
535,235
|
|
Syndicated loan facilities(2)
|
|
|
276,475
|
|
|
|
154,189
|
|
|
|
41,995
|
|
|
|
11,838
|
|
|
|
484,497
|
|
Capital lease obligations(3)
|
|
|
21,194
|
|
|
|
42,382
|
|
|
|
39,093
|
|
|
|
121,950
|
|
|
|
224,619
|
|
Spectrum fees(4)
|
|
|
37,738
|
|
|
|
229,952
|
|
|
|
229,952
|
|
|
|
1,499,873
|
|
|
|
1,997,515
|
|
Operating lease(5)
|
|
|
180,938
|
|
|
|
297,968
|
|
|
|
241,831
|
|
|
|
334,370
|
|
|
|
1,055,107
|
|
Purchase obligations(6)
|
|
|
1,597,457
|
|
|
|
95,254
|
|
|
|
49,100
|
|
|
|
7,793
|
|
|
|
1,749,604
|
|
Import financing(7)
|
|
|
130,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,515
|
|
Brazil credit paper(8)
|
|
|
42,117
|
|
|
|
23,589
|
|
|
|
|
|
|
|
|
|
|
|
65,706
|
|
Other long-term obligations(9)
|
|
|
30,797
|
|
|
|
36,834
|
|
|
|
52,523
|
|
|
|
203,820
|
|
|
|
323,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual commitments
|
|
$
|
2,541,492
|
|
|
$
|
2,472,512
|
|
|
$
|
1,028,263
|
|
|
$
|
3,960,153
|
|
|
$
|
10,002,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts include estimated principal and interest payments
over the full term of the obligation, assuming the current
payment schedule. |
|
(2) |
|
These amounts include principal and interest payments associated
with Nextel Mexico, Nextel Brazil and Nextel Perus
syndicated loan facilities. |
|
(3) |
|
These amounts represent principal and interest payments due
under our co-location agreements, including with American Tower
Corporation, or American Tower, and our corporate aircraft
lease. The amounts related to our aircraft lease exclude amounts
that are contingently due in the event of our default under the
lease, but do include remaining amounts due under the letter of
credit provided for our corporate aircraft. |
|
(4) |
|
These amounts do not include fees related to the third
generation spectrum licenses in Brazil that have not yet been
granted, nor do they include variable fees based on certain
operating revenues, and are subject to increases in the Mexican
Consumer Pricing Index. |
|
(5) |
|
These amounts principally include future lease costs related to
our transmitter and receiver sites and switches and office
facilities. |
|
(6) |
|
These amounts include maximum contractual purchase obligations
under various agreements with our vendors. |
|
(7) |
|
This amount represents principal and interest payments due under
our import financing agreements in Brazil. |
|
(8) |
|
These amounts represent principal and interest payments due
under our working capital loans with certain Brazilian banks. |
|
(9) |
|
These amounts include our current estimates of asset retirement
obligations based on our expectations as to future retirement
costs, inflation rates and timing of retirements, as well as
amounts related to our uncertain income tax positions. |
In addition to these contractual obligations, as discussed in
Note 7 to the accompanying consolidated financial
statements, we entered into an agreement with Motorola in
September 2006, which requires us to purchase a minimum number
of handsets each year through December 31, 2011. Prices for
handsets that will be purchased in years subsequent to 2011 were
not stipulated in the agreement as they will be negotiated
annually. As a result, we are not able to quantify the dollar
amount of minimum purchases required under this agreement for
years subsequent to 2011 until each years prices and
handset mix are negotiated, and therefore, they are not included
in the table above.
Once awarded, we will also be obligated to pay the purchase
price for the spectrum licenses in Brazil for which we were the
successful bidder in the auctions completed in December 2010.
The total U.S. dollar equivalent purchase price for
licenses that we won is $836.1 million, payable in
Brazilian reais. The auction rules for these
72
licenses provide that the successful bidder has the option to
defer 90% of the purchase price for three years. The remainder
of the purchase price is due in equal annual installments over
the following six years at an interest rate of 1% per month,
plus an inflation factor.
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$876.0 million for the year ended December 31, 2010,
$733.2 million for the year ended December 31, 2009
and $832.9 million for the year ended December 31,
2008. In each of these years, a substantial portion of our
capital expenditures was invested in the expansion of the
coverage and capacity of our networks in Mexico and Brazil and,
for 2009 and 2010, for the deployment of our third generation
network in Peru.
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 in 2011 and 2012, with
the amount and timing of those additional capital expenditures
dependent on, among other things, 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.
We expect to finance our capital spending for our existing and
future network needs using the most effective combination of
cash from operations, cash on hand, cash from the sale or
maturity of our short- and long-term investments and proceeds
from external financing sources that are or may become
available. We may also consider entering into strategic
relationships with third parties that will provide additional
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 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 in 2011 and 2012
as we pursue our strategy of building third generation networks,
and we may incur additional capital expenditures if we are able
to acquire spectrum and deploy a third generation network in
Argentina. We expect our current cash, cash equivalents and
investment balances and anticipated future cash flows will be
sufficient to meet our funding needs to support our current
business and our planned deployment of third generation networks
in 2011. We believe that it will be necessary for us to access
the credit and capital markets in subsequent years to fund our
requirements beyond 2011, meet our repayment obligations with
respect to our existing indebtedness, pay the purchase price for
spectrum we expect to be awarded in Brazil and, if applicable,
acquire spectrum and deploy a third generation network in
Argentina.
73
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 matures in June 2012 and most
of the $459.0 million in syndicated loan facilities due
during the next five years.
We are pursuing various financing alternatives, including
U.S. capital market transactions, vendor financing, license
financing offered in connection with the award of spectrum in
Brazil and local bank financing, that can be used to provide
funding to support both our planned deployment of third
generation networks and our debt service obligations. We expect
to raise additional funding using one or more of these
alternatives in 2011. The indebtedness that we may incur in 2011
and in subsequent years in order to fund our business plans and
for refinancing 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 the spectrum
for which we were the successful bidder in the recently
completed spectrum auctions in Brazil;
|
|
|
|
the anticipated level of capital expenditures, including to meet
minimum build-out requirements, relating to our planned
deployment of the 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.
|
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
74
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 improved in the
second half of 2009 and throughout 2010, 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. See Item 1A. Risk Factors
4. We are dependent on external financing to meet our future
funding needs and debt service requirements, and adverse changes
in economic conditions could negatively impact our access to the
capital markets. If we are unable to obtain financing when
needed and on terms acceptable to us, our business may be
adversely affected. and 5. Our current and
future debt may limit our flexibility and increase our risk of
default.
|
|
E.
|
Effect of
Inflation and Foreign Currency Exchange
|
Our net assets are subject to foreign currency exchange risks
since they are primarily maintained in local currencies.
Additionally, a significant portion of our long-term debt,
including some long-term debt incurred by our operating
subsidiaries, is denominated entirely in U.S. dollars,
which exposes us to foreign currency exchange risks. We conduct
business in countries in which the rate of inflation has
historically been significantly higher than that of the United
States. We seek to protect our earnings from inflation and
possible currency depreciation by periodically adjusting the
local currency prices charged by each operating company for
sales of handsets and services to its customers. We routinely
monitor our foreign currency exposure and the cost effectiveness
of hedging instruments.
Inflation is not currently a material factor affecting our
business, although rates of inflation in some of the countries
in which we operate have been historically volatile. In the last
two years, the inflation rate in Argentina has risen
significantly, and we expect that it may continue to rise in the
next several years, which will increase our costs and could
reduce our profitability in Argentina. General operating
expenses such as salaries, employee benefits and lease costs
are, however, subject to normal inflationary pressures. From
time to time, we may experience price changes in connection with
the purchase of system infrastructure equipment and handsets,
but we do not currently believe that any of these price changes
will be material to our business.
|
|
F.
|
Effect of
New Accounting Standards
|
In October 2009, the FASB updated its authoritative guidance for
accounting for multiple deliverable revenue arrangements. The
new guidance revises the criteria used to determine the separate
units of accounting in a multiple deliverable arrangement and
requires that total consideration received under the arrangement
be allocated over the separate units of accounting based on
their relative selling prices. This guidance also clarifies the
methodology used in determining our best estimate of the selling
price used in this allocation. The applicable revenue
recognition criteria will be considered separately for the
separate units of accounting. The updated authoritative guidance
will be effective and shall be applied prospectively to revenue
arrangements entered into or materially modified in fiscal years
beginning after June 15, 2010. Early adoption is permitted
but must be applied on a retroactive basis. We adopted this new
guidance on its effective date of January 1, 2011, and we
are currently evaluating the potential impact, if any, that the
adoption of this guidance will have on our consolidated
financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our revenues are primarily denominated in foreign currencies,
while a significant portion of our operations are financed in
U.S. dollars through our convertible notes, our senior
notes, the remainder of our syndicated loan facility in Mexico
and our syndicated loan facilities in Brazil and Peru. As a
result, fluctuations in exchange rates relative to the
U.S. dollar expose us to foreign currency exchange risks.
These risks include the impact of translating our local currency
reported earnings into U.S. dollars when the
U.S. dollar strengthens against the local currencies of our
foreign operations. In addition, Nextel Mexico, Nextel Brazil,
Nextel Argentina and Nextel Chile pay the purchase price for
some capital assets and the majority of handsets in
U.S. dollars, but generate revenue from their operations in
local currency.
75
We occasionally enter into derivative transactions for hedging
or risk management purposes. We have not and will not enter into
any derivative transactions for speculative or profit generating
purposes. During 2010, Nextel Mexico and Nextel Brazil entered
into hedge agreements to manage foreign currency risk on certain
forecasted transactions. The values of these instruments are not
material.
Interest rate changes expose our fixed rate long-term borrowings
to changes in fair value and expose our variable rate long-term
borrowings to changes in future cash flows. Nextel Mexico has
entered into an interest rate swap agreement to hedge its
exposure to interest rate risk. The values of this instrument is
not material. As of December 31, 2010,
$2,696.2 million, or 81%, of our total consolidated debt
was fixed rate debt, and the remaining $646.4 million, or
19%, of our total consolidated debt was variable rate debt.
The table below presents principal amounts, related interest
rates by year of maturity and aggregate amounts as of
December 31, 2010 for our fixed rate debt obligations,
including our convertible notes, our senior notes, our
syndicated loan facilities in Mexico, Brazil and Peru, our tower
financing obligations and our interest rate swap, as well as the
notional amounts of our purchased currency call options and
written currency put options, all of which have been determined
at their fair values.
The changes in the fair values of our consolidated debt compared
to their fair values as of December 31, 2009 reflect
changes in applicable market conditions during 2010. All of the
information in the table is presented in U.S. dollar
equivalents, which is our reporting currency. The actual cash
flows associated with our consolidated long-term debt are
denominated in U.S. dollars (US$), Mexican pesos (MP) and
Brazilian reais (BR).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
2010
|
|
2009
|
|
|
1 Year
|
|
2 Years
|
|
3 Years
|
|
4 Years
|
|
5 Years
|
|
Thereafter
|
|
Total
|
|
Fair Value
|
|
Total
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate (US$)
|
|
$
|
4,489
|
|
|
$
|
1,104,749
|
|
|
$
|
5,028
|
|
|
$
|
5,324
|
|
|
$
|
2,252
|
|
|
$
|
1,331,636
|
|
|
$
|
2,453,478
|
|
|
$
|
2,559,478
|
|
|
$
|
2,988,604
|
|
|
$
|
2,898,424
|
|
Average Interest Rate
|
|
|
5.5%
|
|
|
|
3.1%
|
|
|
|
5.6%
|
|
|
|
5.6%
|
|
|
|
2.6%
|
|
|
|
9.4%
|
|
|
|
6.6%
|
|
|
|
|
|
|
|
6.0%
|
|
|
|
|
|
Fixed Rate (MP)
|
|
$
|
6,917
|
|
|
$
|
8,172
|
|
|
$
|
9,667
|
|
|
$
|
11,454
|
|
|
$
|
13,592
|
|
|
$
|
81,913
|
|
|
$
|
131,715
|
|
|
$
|
131,715
|
|
|
$
|
129,482
|
|
|
$
|
129,482
|
|
Average Interest Rate
|
|
|
15.7%
|
|
|
|
15.7%
|
|
|
|
15.7%
|
|
|
|
15.7%
|
|
|
|
15.7%
|
|
|
|
15.6%
|
|
|
|
15.6%
|
|
|
|
|
|
|
|
15.8%
|
|
|
|
|
|
Fixed Rate (BR)
|
|
$
|
5,673
|
|
|
$
|
6,784
|
|
|
$
|
8,264
|
|
|
$
|
8,484
|
|
|
$
|
10,952
|
|
|
$
|
70,899
|
|
|
$
|
111,056
|
|
|
$
|
111,056
|
|
|
$
|
179,378
|
|
|
$
|
181,039
|
|
Average Interest Rate
|
|
|
20.1%
|
|
|
|
20.9%
|
|
|
|
21.5%
|
|
|
|
24.0%
|
|
|
|
24.1%
|
|
|
|
22.8%
|
|
|
|
22.7%
|
|
|
|
|
|
|
|
17.9%
|
|
|
|
|
|
Variable Rate (US$)
|
|
$
|
392,904
|
|
|
$
|
116,781
|
|
|
$
|
27,258
|
|
|
$
|
27,258
|
|
|
$
|
11,429
|
|
|
$
|
11,428
|
|
|
$
|
587,058
|
|
|
$
|
585,281
|
|
|
$
|
416,081
|
|
|
$
|
403,079
|
|
Average Interest Rate
|
|
|
2.1%
|
|
|
|
3.2%
|
|
|
|
4.6%
|
|
|
|
4.6%
|
|
|
|
5.7%
|
|
|
|
5.7%
|
|
|
|
2.7%
|
|
|
|
|
|
|
|
1.9%
|
|
|
|
|
|
Variable Rate (BR)
|
|
$
|
37,012
|
|
|
$
|
22,341
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
59,353
|
|
|
$
|
61,509
|
|
|
$
|
|
|
|
$
|
|
|
Average Interest Rate
|
|
|
12.1%
|
|
|
|
12.1%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
0.0%
|
|
|
|
12.1%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
Interest Rate Swap:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
|
|
$
|
156,600
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
156,600
|
|
|
$
|
(1,190)
|
|
|
$
|
156,600
|
|
|
$
|
(1,246)
|
|
Average Pay Rate
|
|
|
1.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6%
|
|
|
|
|
|
|
|
1.4%
|
|
|
|
|
|
Average Receive Rate
|
|
|
2.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.7%
|
|
|
|
|
|
|
|
2.0%
|
|
|
|
|
|
Foreign Currency Exchange Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
$
|
159,075
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
159,075
|
|
|
$
|
142
|
|
|
$
|
139,000
|
|
|
$
|
1,620
|
|
Average Strike Price
|
|
$
|
0.07 - 0.54
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.07 - 0.54
|
|
|
|
|
|
|
$
|
0.07 - 0.08
|
|
|
|
|
|
76
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
We have listed the consolidated financial statements required
under this Item in Part IV, Item 15(a)(1) of this
annual report on
Form 10-K.
We have listed the financial statement schedule required under
Regulation S-X
in Part IV, Item 15(a)(2) of this annual report on
Form 10-K.
The financial statements and schedule appear following the
signature page of this annual report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods required by the Securities and
Exchange Commission, or 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 December 31, 2010, an evaluation of the effectiveness
of the design and operation of our disclosure controls and
procedures was carried out under the supervision and with the
participation of our management teams in the United States and
in our operating companies, including our chief executive
officer and chief financial officer. Based on and as of the date
of such evaluation, 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 as described below.
Managements
Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rule 13a-15(f)
and
Rule 15d-15(f)
under the Securities Exchange Act of 1934, as amended). Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
In order to evaluate the effectiveness of internal control over
financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act, management conducted an assessment using the
criteria established in Internal Control
Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO. Based on this
assessment and the determination that a material weakness
exists, as described below, management has concluded that as of
December 31, 2010, our internal control over financial
reporting was not effective. A material weakness is a
deficiency, or a combination of deficiencies, in internal
control over financial reporting that results in a reasonable
possibility that a material misstatement of annual or interim
consolidated financial statements will not be prevented or
detected in a timely manner.
The effectiveness of the Companys internal control over
financial reporting as of December 31, 2010 has been
audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their Report of Independent
Registered Public Accounting Firm.
During the fourth quarter of 2010, we identified accounting
errors in our Brazil operating segment related to the incorrect
recording of payments for, and our right to seek reimbursement
for, certain value-added taxes, or VAT. In October 2009, changes
in tax laws in Brazil resulted in our Brazil operating segment
no longer being able to request reimbursement from its customers
for certain VAT payments due to the Brazilian government with
respect to subscriber equipment sold to those customers.
Historically, the payment of VAT had not been recorded as an
expense by our Brazil operating segment because those taxes were
offset by collections from our customers to
77
whom the subscriber equipment was sold. When the change in tax
law took effect, our Brazil operating segment correctly
discontinued its past practice of recovering the VAT payments
from its customers, but failed to properly record an expense for
the unrecovered VAT payments. Accordingly, we concluded that the
operation of our controls over the communication and
incorporation of changes in tax laws into our internal reporting
procedures failed. These errors, which were attributable to the
results included in our condensed consolidated financial
statements for the three month and year to date periods ended
March 31, June 30, and September 30, 2010 and, to
a lesser degree, for the year ended December 31, 2009, were
identified and recorded as an
out-of-period
adjustment of $25.6 million during the three months ended
December 31, 2010.
In addition, as disclosed in our quarterly report on
Form 10-Q
for the three months ended September 30, 2010, management
concluded that our disclosure controls and procedures were not
effective at that time as a result of our inclusion of
$27.6 million in revenue-based tax credits in the results
for our Brazil operating segment in our press release issued on
October 28, 2010, which reported certain of our operating
and financial results for the three months ended
September 30, 2010. Subsequent to the issuance of this
press release and prior to the filing of our quarterly report on
Form 10-Q
for the three months ended September 30, 2010, we
determined that we did not, at that time, have sufficient
documentation to support the recognition of credits in the
reported amounts, and accordingly eliminated their impact in our
financial statements included in our quarterly report on
Form 10-Q
for the three months ended September 30, 2010. During the
fourth quarter of 2010, we obtained the additional documentation
necessary to support the recognition of approximately
$9.0 million of revenue-based tax credits in Brazil, the
impact of which is reflected in our results for the three months
ended December 31, 2010 and for the year ended
December 31, 2010 included in this annual report on
Form 10-K.
The errors in recording VAT expense and the reporting in our
press release of the revenue-based tax credits without
sufficient supporting documentation were not material and did
not require adjustments to, or restatements of, our financial
statements for the prior periods; nevertheless, we determined
that our controls were not effective at preventing what could
have been material errors in our financial statements.
Accordingly, we concluded that circumstances identified below as
underlying factors contributing to these errors in recording VAT
expense and the reporting in our press release of the
revenue-based tax credits without sufficient supporting
documentation constitute a material weakness in our internal
controls over financial reporting.
The Company has completed an assessment related to the control
failure and the underlying factors contributing to the errors in
recording VAT expense identified in the fourth quarter of 2010
and the improper reporting of revenue-based tax credits
identified in the third quarter of 2010 in our Brazil operating
segment. These factors, which relate solely to our Brazil
operating segment, include:
|
|
|
|
|
understaffing and turnover of personnel in key job functions
within the accounting department;
|
|
|
|
lack of documentation of key procedures related to the financial
close process;
|
|
|
|
insufficient training for newly hired personnel; and
|
|
|
|
underinvestment in systems resulting in increased and
inappropriate reliance on manual spreadsheets and procedures.
|
In light of the material weakness identified and the underlying
factors that increase the level of risk related to financial
reporting, we have performed additional procedures, including
reviews and validations by groups other than those performing
the financial close procedures in our Brazil operating segment,
to ensure that the financial results are reliable.
Plan
for Remediation of Material Weakness that Existed as of
December 31, 2010
In order to remediate the material weakness discussed above, the
Company, led by our chief financial officer and our vice
president, chief accounting officer and controller, has taken
and is taking the following actions in our Brazil operating
segment:
|
|
|
|
|
instituting a more rigorous process related to the incorporation
of the impact of changes in tax law into the financial close
process;
|
78
|
|
|
|
|
redesigning the organizational structure within the accounting
department, significantly expanding the number of employees
within the department and adding an additional layer of
management review;
|
|
|
|
modifying the compensation structure in order to improve the
retention of key personnel;
|
|
|
|
preparing detailed documentation reflecting the actions to be
taken in connection with the financial close process, including
clearly defining key tasks and actions and the positions
responsible for those tasks and actions;
|
|
|
|
providing training to the accounting department staff related to
the use and operation of reporting systems and to departmental
operating procedures, including with respect to the financial
close process; and
|
|
|
|
identifying and implementing the tools and system modifications
needed to reduce reliance on manual procedures and increase the
number of preventive controls built into our financial close
process.
|
While some of the remediation actions in our Brazil operating
segment have already occurred, we expect that the remaining
actions will be completed during the first and second quarters
of 2011. We believe the underlying factors that resulted in the
improper reporting of the impact of certain revenue-based tax
credits in the third quarter of 2010 are the same as those that
led to the errors in recording VAT expense identified in the
fourth quarter of 2010, and that the actions we have taken and
are continuing to take as discussed in our plan for remediation
will address the underlying factors that led to both the
improper reporting of revenue-based tax credits and the errors
in recording VAT expense in our Brazil operating segment.
Changes
in Internal Control over Financial Reporting
As discussed in more detail above and in our quarterly report on
Form 10-Q
for the three months ended September 30, 2010, management
concluded that our disclosure controls and procedures were not
effective at that time due to the improper reporting of the
impact of certain revenue-based tax credits in the results for
our Brazil operating segment in our press release issued on
October 28, 2010.
In response to this matter, during the fourth quarter of 2010 we
performed additional procedures, including reviews and
validations by groups other than those performing the financial
close procedures in our Brazil operating segment, to ensure that
the financial results are reliable; provided training to the
accounting department staff in our Brazil operating segment
related to the use and operation of reporting systems and
departmental operating procedures, including with respect to the
financial close process; and allocated additional resources from
other parts of the Company to assist with the financial
reporting and close process in Brazil.
There were no additional actions taken in the fourth quarter of
2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
79
PART III
|
|
Item 10.
|
Directors,
Executive Officers of the Registrant and Corporate
Governance
|
Except as to certain information regarding executive officers
included in Part I hereof and incorporated herein by
reference, the information required by this item will be
provided by being incorporated herein by reference to the
Companys definitive proxy statement for the 2011 Annual
Meeting of Stockholders.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2011 Annual Meeting of
Stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2011 Annual Meeting of
Stockholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2011 Annual Meeting of
Stockholders.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2011 Annual Meeting of
Stockholders.
80
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules.
|
(a)(1) Financial Statements. Financial statements and report of
independent registered public accounting firm filed as part of
this report are listed below:
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Balance Sheets As of December 31,
2010 and 2009
|
|
|
F-3
|
|
Consolidated Statements of Operations For the Years
Ended December 31, 2010, 2009 and 2008
|
|
|
F-4
|
|
Consolidated Statements of Changes in Stockholders
Equity For the Years Ended December 31, 2010,
2009 and 2008
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows For the Years
Ended December 31, 2010, 2009 and 2008
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
|
|
|
|
(2)
|
Financial Statement Schedule. The following financial statement
schedule is filed as part of this report. Schedules other than
the schedule listed below are omitted because they are either
not required or not applicable.
|
|
|
|
|
|
|
|
Page
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
F-52
|
|
|
|
|
|
(3)
|
List of Exhibits. The exhibits filed as part of this report are
listed in the Exhibit Index, which is incorporated in this
item by reference.
|
(b) Exhibits. See Item 15(a)(3) above.
(c) Financial Statement Schedule. See Item 15(a)(2)
above.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NII HOLDINGS, INC.
|
|
|
|
By:
|
/s/ Teresa
S. Gendron
|
Teresa S. Gendron
Vice President and Controller
(On behalf of the registrant and as
Principal Accounting Officer)
February 24, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
February 24, 2011.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Steven
M. Shindler
Steven
M. Shindler
|
|
Executive Chairman of the Board of Directors
|
|
|
|
/s/ Steven
P. Dussek
Steven
P. Dussek
|
|
Chief Executive Officer and Director
|
|
|
|
/s/ Gokul
Hemmady
Gokul
Hemmady
|
|
Vice President and Chief Financial Officer (Principal Financial
Officer)
|
|
|
|
/s/ Kevin
L. Beebe
Kevin
L. Beebe
|
|
Director
|
|
|
|
/s/ Raymond
P. Dolan
Raymond
P. Dolan
|
|
Director
|
|
|
|
/s/ Donald
Guthrie
Donald
Guthrie
|
|
Director
|
|
|
|
/s/ Charles
M. Herington
Charles
M. Herington
|
|
Director
|
|
|
|
/s/ Carolyn
Katz
Carolyn
Katz
|
|
Director
|
|
|
|
/s/ Rosendo
G. Parra
Rosendo
G. Parra
|
|
Director
|
|
|
|
/s/ John
W. Risner
John
W. Risner
|
|
Director
|
82
NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
|
F-2
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
|
|
|
F-52
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of NII Holdings, Inc.
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of NII Holdings,
Inc. and its subsidiaries at December 31, 2010 and 2009,
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2010 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing
under Item 15(a)(2) presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
Also in our opinion, the Company did not maintain, in all
material respects, effective internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) because a
material weakness in internal control over financial reporting
related to the Brazil operating segment existed as of that date.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will
not be prevented or detected on a timely basis. The material
weakness referred to above is described in Managements
Report on Internal Control over Financial Reporting appearing
under Item 9A. We considered this material weakness in
determining the nature, timing, and extent of audit tests
applied in our audit of the December 31, 2010 consolidated
financial statements and our opinion regarding the effectiveness
of the Companys internal control over financial reporting
does not affect our opinion on those consolidated financial
statements. The Companys management is responsible for
these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting included in managements report
referred to above. Our responsibility is to express opinions on
these financial statements, on the financial statement schedule,
and on the Companys internal control over financial
reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement and whether effective internal control
over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
The Company changed the manner in which it measures fair value
for financial assets and liabilities in 2008 and the Company
changed the manner in which it accounts for convertible debt
instruments that may be settled in cash upon conversion
(including partial cash settlement) in 2009.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
McLean, Virginia
February 24, 2011
F-2
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except par values)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,767,501
|
|
|
$
|
2,504,064
|
|
Short-term investments
|
|
|
537,539
|
|
|
|
116,289
|
|
Accounts receivable, less allowance for doubtful accounts of
$41,282 and $35,148
|
|
|
788,000
|
|
|
|
613,591
|
|
Handset and accessory inventory
|
|
|
227,191
|
|
|
|
188,476
|
|
Deferred income taxes, net
|
|
|
186,988
|
|
|
|
148,498
|
|
Prepaid expenses and other
|
|
|
393,658
|
|
|
|
220,210
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,900,877
|
|
|
|
3,791,128
|
|
Property, plant and equipment, net
|
|
|
2,960,046
|
|
|
|
2,502,189
|
|
Intangible assets, net
|
|
|
433,208
|
|
|
|
337,233
|
|
Deferred income taxes, net
|
|
|
486,098
|
|
|
|
494,343
|
|
Other assets
|
|
|
410,458
|
|
|
|
429,800
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
8,190,687
|
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
300,030
|
|
|
$
|
186,996
|
|
Accrued expenses and other
|
|
|
827,253
|
|
|
|
641,624
|
|
Deferred revenues
|
|
|
158,690
|
|
|
|
136,533
|
|
Current portion of long-term debt
|
|
|
446,995
|
|
|
|
564,544
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,732,968
|
|
|
|
1,529,697
|
|
Long-term debt
|
|
|
2,818,423
|
|
|
|
3,016,244
|
|
Deferred revenues
|
|
|
20,476
|
|
|
|
22,071
|
|
Deferred credits
|
|
|
88,068
|
|
|
|
93,932
|
|
Other long-term liabilities
|
|
|
211,179
|
|
|
|
145,912
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,871,114
|
|
|
|
4,807,856
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2010 and 2009, no
shares issued or outstanding 2010 and 2009
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001, 600,000 shares
authorized 2010 and 2009, 169,661 shares issued and
outstanding 2010, 166,730 shares issued and
outstanding 2009
|
|
|
169
|
|
|
|
166
|
|
Paid-in capital
|
|
|
1,364,705
|
|
|
|
1,239,541
|
|
Retained earnings
|
|
|
2,015,950
|
|
|
|
1,674,898
|
|
Accumulated other comprehensive loss
|
|
|
(61,251
|
)
|
|
|
(167,768
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,319,573
|
|
|
|
2,746,837
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
8,190,687
|
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except per share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
5,347,724
|
|
|
$
|
4,153,548
|
|
|
$
|
4,048,466
|
|
Digital handset and accessory revenues
|
|
|
253,592
|
|
|
|
244,051
|
|
|
|
220,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,601,316
|
|
|
|
4,397,599
|
|
|
|
4,269,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
1,506,019
|
|
|
|
1,225,222
|
|
|
|
1,110,927
|
|
Cost of digital handsets and accessories
|
|
|
723,115
|
|
|
|
623,733
|
|
|
|
585,391
|
|
Selling, general and administrative
|
|
|
1,941,789
|
|
|
|
1,438,463
|
|
|
|
1,400,642
|
|
Depreciation
|
|
|
518,774
|
|
|
|
404,062
|
|
|
|
372,542
|
|
Amortization
|
|
|
34,206
|
|
|
|
29,242
|
|
|
|
32,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,723,903
|
|
|
|
3,720,722
|
|
|
|
3,502,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
877,413
|
|
|
|
676,877
|
|
|
|
767,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(342,204
|
)
|
|
|
(218,844
|
)
|
|
|
(205,516
|
)
|
Interest income
|
|
|
28,841
|
|
|
|
25,586
|
|
|
|
68,411
|
|
Foreign currency transaction gains (losses), net
|
|
|
52,374
|
|
|
|
104,866
|
|
|
|
(120,572
|
)
|
Other expense, net
|
|
|
(18,686
|
)
|
|
|
(2,308
|
)
|
|
|
(28,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(279,675
|
)
|
|
|
(90,700
|
)
|
|
|
(286,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
597,738
|
|
|
|
586,177
|
|
|
|
480,817
|
|
Income tax provision
|
|
|
(256,686
|
)
|
|
|
(204,686
|
)
|
|
|
(138,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
341,052
|
|
|
$
|
381,491
|
|
|
$
|
341,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, basic
|
|
$
|
2.03
|
|
|
$
|
2.30
|
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
1.99
|
|
|
$
|
2.27
|
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
168,160
|
|
|
|
166,042
|
|
|
|
166,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
175,709
|
|
|
|
174,014
|
|
|
|
175,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
Cumulative
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
and
|
|
|
Translation
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Investments
|
|
|
Adjustment
|
|
|
Equity
|
|
|
Balance, January 1, 2008
|
|
|
169,910
|
|
|
$
|
170
|
|
|
$
|
1,296,405
|
|
|
$
|
951,452
|
|
|
$
|
(1,901
|
)
|
|
$
|
74,633
|
|
|
$
|
2,320,759
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341,955
|
|
|
|
|
|
|
|
|
|
|
|
341,955
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(613,649
|
)
|
|
|
(613,649
|
)
|
Other losses on
available-for-sale
securities and derivatives, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
542
|
|
|
|
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(271,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of common stock
|
|
|
(5,555
|
)
|
|
|
(5
|
)
|
|
|
(242,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(242,670
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
71,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,414
|
|
Exercise of stock options
|
|
|
1,427
|
|
|
|
1
|
|
|
|
33,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
165,782
|
|
|
|
166
|
|
|
|
1,158,925
|
|
|
|
1,293,407
|
|
|
|
(1,359
|
)
|
|
|
(539,016
|
)
|
|
|
1,912,123
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
381,491
|
|
|
|
|
|
|
|
|
|
|
|
381,491
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
373,272
|
|
|
|
373,272
|
|
Other losses on
available-for-sale
securities and derivatives, net of incomes taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(665
|
)
|
|
|
|
|
|
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
754,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax deficiency on current period exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(5,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,267
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
70,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,213
|
|
Exercise of stock options
|
|
|
948
|
|
|
|
|
|
|
|
15,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
166,730
|
|
|
|
166
|
|
|
|
1,239,541
|
|
|
|
1,674,898
|
|
|
|
(2,024
|
)
|
|
|
(165,744
|
)
|
|
|
2,746,837
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
341,052
|
|
|
|
|
|
|
|
|
|
|
|
341,052
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,411
|
|
|
|
109,411
|
|
Other losses on
available-for-sale
securities and derivatives, net of incomes taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,894
|
)
|
|
|
|
|
|
|
(2,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
65,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,853
|
|
Exercise of stock options
|
|
|
2,931
|
|
|
|
3
|
|
|
|
57,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,685
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
1,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
169,661
|
|
|
$
|
169
|
|
|
$
|
1,364,705
|
|
|
$
|
2,015,950
|
|
|
$
|
(4,918
|
)
|
|
$
|
(56,333
|
)
|
|
$
|
3,319,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
341,052
|
|
|
$
|
381,491
|
|
|
$
|
341,955
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount and financing costs
|
|
|
63,136
|
|
|
|
58,402
|
|
|
|
53,828
|
|
Depreciation and amortization
|
|
|
552,980
|
|
|
|
433,304
|
|
|
|
405,120
|
|
Provision for losses on accounts receivable
|
|
|
75,904
|
|
|
|
86,961
|
|
|
|
80,628
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(52,374
|
)
|
|
|
(104,866
|
)
|
|
|
120,572
|
|
Deferred income tax benefit
|
|
|
(27,750
|
)
|
|
|
(24,783
|
)
|
|
|
(76,175
|
)
|
Share-based payment expense
|
|
|
66,285
|
|
|
|
70,716
|
|
|
|
71,279
|
|
Other, net
|
|
|
23,711
|
|
|
|
(5,338
|
)
|
|
|
24,277
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(223,259
|
)
|
|
|
(184,640
|
)
|
|
|
(207,630
|
)
|
Handset and accessory inventory
|
|
|
37,299
|
|
|
|
(7,284
|
)
|
|
|
(58,623
|
)
|
Prepaid expenses and other
|
|
|
(4,492
|
)
|
|
|
(44,644
|
)
|
|
|
(13,030
|
)
|
Other long-term assets
|
|
|
(137,751
|
)
|
|
|
2,054
|
|
|
|
(63,365
|
)
|
Accounts payable, accrued expenses and other
|
|
|
176,073
|
|
|
|
203,382
|
|
|
|
117,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
890,814
|
|
|
|
864,755
|
|
|
|
796,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(691,759
|
)
|
|
|
(649,578
|
)
|
|
|
(806,610
|
)
|
Purchase of long-term and short-term investments
|
|
|
(1,840,193
|
)
|
|
|
(964,489
|
)
|
|
|
(672,875
|
)
|
Proceeds from sales of long-term and short-term investments
|
|
|
1,416,545
|
|
|
|
959,368
|
|
|
|
799,730
|
|
Transfers to restricted cash
|
|
|
(98,542
|
)
|
|
|
(124,822
|
)
|
|
|
(2,940
|
)
|
Transfers from restricted cash
|
|
|
99,100
|
|
|
|
17,752
|
|
|
|
605
|
|
Payments for acquisitions, purchases of licenses and other
|
|
|
(61,888
|
)
|
|
|
(34,591
|
)
|
|
|
(8,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,176,737
|
)
|
|
|
(796,360
|
)
|
|
|
(690,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
1,249,078
|
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
130,000
|
|
|
|
|
|
|
|
125,000
|
|
Proceeds from other borrowings
|
|
|
45,029
|
|
|
|
78,857
|
|
|
|
45,271
|
|
Proceeds from stock option exercise
|
|
|
57,685
|
|
|
|
15,671
|
|
|
|
33,772
|
|
Payments to purchase common stock
|
|
|
|
|
|
|
|
|
|
|
(242,665
|
)
|
Purchases of convertible notes
|
|
|
(442,972
|
)
|
|
|
|
|
|
|
|
|
Repayments under syndicated loan facilities
|
|
|
(87,117
|
)
|
|
|
(89,673
|
)
|
|
|
(57,744
|
)
|
Repayments of import financing
|
|
|
(80,606
|
)
|
|
|
(5,535
|
)
|
|
|
|
|
Repayments of other borrowings
|
|
|
(83,182
|
)
|
|
|
(33,092
|
)
|
|
|
(9,815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(461,163
|
)
|
|
|
1,215,306
|
|
|
|
(106,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
10,523
|
|
|
|
(22,888
|
)
|
|
|
(126,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(736,563
|
)
|
|
|
1,260,813
|
|
|
|
(126,914
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
2,504,064
|
|
|
|
1,243,251
|
|
|
|
1,370,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,767,501
|
|
|
$
|
2,504,064
|
|
|
$
|
1,243,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
NII
HOLDINGS, INC. AND SUBSIDIARIES
|
|
1.
|
Summary
of Operations and Significant Accounting Policies
|
Operations. We provide wireless communication
services, primarily targeted at meeting the needs of customers
who use our services in their businesses and individuals that
have medium to high usage patterns, both of whom value our multi
function handsets, including our Nextel Direct
Connect®
feature, and our high level of customer service. 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 Mexico,
Brazil, Argentina, Peru and Chile. We provide our services in
major urban and suburban centers with high population densities,
which we refer to as major business centers, where we believe
there is a concentration of the countrys business users
and economic activity. We believe that vehicle traffic
congestion, low wireline service penetration and the expanded
coverage of wireless networks in these major business centers
encourage the use of the mobile wireless communications services
that we offer. 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 meet the requirements of our spectrum licenses.
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
communicate instantly across national borders with Sprint Nextel
subscribers using compatible handsets in the United States and
with TELUS Corporation subscribers using compatible
handsets in Canada;
|
|
|
|
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 data services and
applications on our planned third generation networks. We
currently provide services on iDEN networks in the three 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.
Out-of-Period
Adjustment. During the fourth quarter of 2010, we
identified accounting errors in our Brazil operating segment
related to the recognition throughout 2010 of certain
value-added tax credits, which we later determined were not
recoverable. These errors, which were attributable to the
results included in our condensed consolidated financial
statements for the three months ended March 31,
June 30, and September 30, 2010 and, to a lesser
degree, for the year ended December 31, 2009, were
identified and corrected as
out-of-period
adjustments during the three months ended December 31,
2010. The effect of correcting these errors as
out-of-period
adjustments understated net income by approximately
$16.9 million and net income per basic and diluted common
share by approximately $0.10 and $0.10, respectively, for the
three months ended December 31, 2010. The correction of
these errors was not material to our condensed consolidated
financial statements as of and for the three months ended
March 31, June 30, and September 30, 2010 nor was
this correction material to our consolidated financial
statements as of and for the year ended December 31, 2009.
F-7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
Use of Estimates. The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Due to the
inherent uncertainty involved in making estimates, actual
results to be reported in future periods could differ from our
estimates.
Principles of Consolidation. The consolidated
financial statements include the accounts of NII Holdings, Inc.
and our wholly-owned subsidiaries. Our decision to consolidate
an entity is based on our direct and indirect majority interest
in the entity. We eliminate all significant intercompany
transactions, including intercompany profits and losses, in
consolidation.
We refer to our subsidiaries by the countries in which they
operate, such as Nextel Mexico, Nextel Brazil, Nextel Argentina,
Nextel Peru and Nextel Chile.
Concentrations of Risk. Substantially all of
our revenues are generated from our operations located in
Mexico, Brazil, Argentina and Peru. Regulatory entities in each
country regulate the licensing, construction, acquisition,
ownership and operation of our networks, and certain other
aspects of our business, including some of the rates we charge
our customers. Changes in the current telecommunications
statutes or regulations in any of these countries could
adversely affect our business. In addition, as of
December 31, 2010 and 2009, approximately
$5,055.7 million and $4,765.0 million, respectively,
of our assets were owned by Nextel Mexico and Nextel Brazil.
Political, financial and economic developments in Mexico and
Brazil could impact the recoverability of our assets.
Motorola is the primary supplier for the network equipment and
handsets we sell for use on our iDEN networks. If Motorola fails
to deliver system infrastructure equipment and handsets or
enhancements to the features and functionality of our networks
and handsets on a timely, cost-effective basis, we may not be
able to adequately service our existing customers or attract new
customers. Nextel Communications, a subsidiary of Sprint Nextel,
is currently the largest customer of Motorola with respect to
iDEN technology and, in the past, has provided significant
support with respect to new product development for that
technology. Sprint Nextels recently announced plans to
decommission its iDEN network over the coming 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. This decommissioning could make it more difficult
or costly for us to compete effectively in markets where we have
not yet deployed our planned third generation networks. Lower
levels of iDEN equipment purchases by Sprint Nextel could also
increase our costs for network equipment and new network
features, affect the development of new handsets and could
impact Motorolas willingness to support iDEN technology
beyond their current commitments. We expect to continue to rely
principally on Motorola for the manufacture of a substantial
portion of the equipment necessary to construct, enhance and
maintain our iDEN-based networks and for the manufacture of iDEN
compatible handsets. Accordingly, if Motorola is unable to, or
determines not to, continue supporting or enhancing our
iDEN-based infrastructure and handsets, including potentially as
a result of adverse developments affecting Motorolas
operations, profitability, and financial condition or other
business developments, our business will be materially adversely
affected. See Note 7 for more information.
Financial instruments that potentially subject us to significant
amounts of credit risk consist of cash, cash equivalents,
short-term investments and accounts receivable. Our cash and
cash equivalents are deposited with high-quality financial
institutions. At times, we maintain cash balances in excess of
Federal Deposit Insurance Corporation (or the foreign country
equivalent institution) limits. Our short-term investments are
composed of investments made by Nextel Brazil in two different
investment funds. See Note 6 for further information. Our
accounts receivable are generally unsecured. In some cases, for
certain higher risk customers, we require a customer
F-8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
deposit. We routinely assess the financial strength of our
customers and maintain allowances for anticipated losses, where
necessary.
Foreign Currency. In Mexico, Brazil, Argentina
and Chile, the functional currency is the local currency, while
in Peru the functional currency is the U.S. dollar since it
is the currency used for substantially all transactions. We
translate the results of operations for our
non-U.S. subsidiaries
and affiliates from the designated functional currency to the
U.S. dollar using average exchange rates during the
relevant period, while we translate assets and liabilities at
the exchange rate in effect at the reporting date. We translate
equity balances at historical rates. We report the resulting
gains or losses from translating foreign currency financial
statements as other comprehensive income or loss. We remeasure
Nextel Perus financial statements into U.S. dollars
and record remeasurement gains and losses in the statement of
operations. For the years ended December 31, 2010 and 2009,
we reported remeasurement gains in our income tax provision of
$2.5 million and $5.5 million, respectively, both of
which were related to Nextel Perus deferred tax assets and
liabilities. For the year ended December 31, 2008, we
reported remeasurement losses in our income tax provision of
$3.2 million.
In general, monetary assets and liabilities designated in
U.S. dollars give rise to foreign currency realized and
unrealized transaction gains and losses, which we record in the
consolidated statement of operations as foreign currency
transaction gains, net. We report the effects of changes in
exchange rates associated with certain
U.S. dollar-denominated intercompany loans and advances to
our foreign subsidiaries that are of a long-term investment
nature as other comprehensive income or loss in our consolidated
financial statements.
We have determined that certain U.S. dollar-denominated
intercompany loans and advances to Nextel Brazil and Nextel
Chile and an intercompany payable due to Nextel Mexico are of a
long-term investment nature.
Supplemental Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
691,759
|
|
|
$
|
649,578
|
|
|
$
|
806,610
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
184,234
|
|
|
|
83,579
|
|
|
|
26,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
875,993
|
|
|
$
|
733,157
|
|
|
$
|
832,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
342,204
|
|
|
$
|
218,844
|
|
|
$
|
205,516
|
|
Interest capitalized
|
|
|
10,814
|
|
|
|
12,472
|
|
|
|
10,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
353,018
|
|
|
$
|
231,316
|
|
|
$
|
215,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of assets and business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
56,013
|
|
|
$
|
28,158
|
|
|
$
|
10,579
|
|
Less: liabilities assumed and deferred tax liabilities incurred
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: cash acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,013
|
|
|
$
|
28,158
|
|
|
$
|
10,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
|
$
|
250,122
|
|
|
$
|
105,804
|
|
|
$
|
118,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
351,627
|
|
|
$
|
219,333
|
|
|
$
|
247,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
For the year ended December 31, 2010, we had
$135.2 million in non-cash financing primarily related to
the short-term financing of imported handsets and infrastructure
in Brazil and co-location capital lease obligations on our
communication towers. For the year ended December 31, 2009,
we had $134.2 million in non-cash financing primarily
related to the short-term financing of imported handsets and
infrastructure in both Brazil and Argentina and the financing of
our corporate aircraft. For the year ended December 31,
2008, we did not have any material non-cash financing activities.
Managed Services Agreements. In 2009, we
entered into an agreement with Nokia Siemens Networks to manage
our network operations infrastructure and a separate agreement
with Hewlett Packard to manage our information technology
infrastructure throughout Latin America. In connection with
these agreements, about 10% of our employees became employees of
these service providers during 2010. As a result, we recorded a
pre-tax charge of $26.9 million in the fourth quarter of
2009 for severance benefits under ASC 712,
Compensation Non-Retirement Post-Employment
Benefits, related to the workforce transition. Of the
$26.9 million total pre-tax charge, we recorded
$20.7 million in cost of service and $6.2 million in
selling, general and administrative costs. The employee
transition, as well as the cash payments for severance, occurred
mostly during the first half of 2010.
Cash and Cash Equivalents. We consider all
highly liquid investments with an original maturity of three
months or less at the time of purchase to be cash equivalents.
Cash equivalents primarily consist of money market funds and
other similarly structured funds.
Restricted Cash. As of December 31, 2010,
we had $152.6 million in restricted cash,
$88.1 million of which was included in other current assets
and was largely comprised of cash collateral supporting the
issuance of a performance bond that was required in connection
with our spectrum acquisition in Chile and the remainder of
which was included in other long-term assets.
As of December 31, 2009, we had $144.9 million in
restricted cash, $135.2 million of which was included in
other long-term assets and was largely comprised of a debt
service reserve account related to Nextel Brazils
syndicated loan in Brazil and cash collateral supporting the
issuance of a performance bond that was required in connection
with our spectrum acquisition in Chile. The remainder of our
restricted cash was included in other current assets as of
December 31, 2009.
Short-Term Investments. Our short-term
investments consist of investments in U.S. treasury
securities, investments in corporate bonds, which consist of
securities issued by U.S. government agencies and corporate
debt securities backed by the U.S. government with
maturities ranging from 3 to 18 months, as well as
investments made by Nextel Brazil in two different investment
funds. During 2008, our short-term investments also included the
current portion of an investment in an enhanced cash fund
similar to, but not in the legal form of, a money market fund
that invests primarily in asset backed securities. We classify
investments in debt securities as
available-for-sale
as of the balance sheet date and report them at fair value. We
record unrealized gains and losses, net of income tax, as other
comprehensive income or loss. During the years ended
December 31, 2010, 2009 and 2008, we did not have any
material unrealized gains or losses for
available-for-sale
securities. We report realized gains or losses, as determined on
a specific identification basis, and
other-than-temporary
declines in value, if any, in net other expense in our
consolidated statement of operations. We assess declines in the
value of individual investments to determine whether the decline
is
other-than-temporary
and thus the investment is impaired. We make these assessments
by considering available evidence, including changes in general
market conditions, specific industry and individual company
data, the length of time and the extent to which the market
value has been less than cost, the financial condition and
near-term prospects of the individual company and our intent and
ability to hold the investment. See Note 6 for additional
information.
Handset and Accessory Inventory. We record
handsets and accessories at the lower of cost or market. We
determine cost by the weighted average costing method. We
expense handset costs at the time of sale and classify such
costs in cost of digital handset and accessory sales. We write
down our inventory to cover losses related to
F-10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
obsolete and slow moving inventory. For the years ended
December 31, 2010, 2009 and 2008, our provision for
inventory losses was $1.8 million, $0.3 million and
$5.2 million, respectively.
Property, Plant and Equipment. We record
property, plant and equipment, including improvements that
extend useful lives or enhance functionality, at cost, while we
charge maintenance and repairs to operations as incurred. We
capitalize internal and external costs incurred to develop
internal-use software, which consist primarily of costs related
to configuration, interfaces, installation and testing. We also
capitalize internal and external costs incurred to develop
specified upgrades and enhancements if they result in
significant additional functionalities for our existing
software. We expense all costs related to evaluation of software
needs, data conversion, training, maintenance and other
post-implementation operating activities.
We calculate depreciation using the straight-line method based
on estimated useful lives ranging from 3 to 20 years for
network equipment and software and 3 to 10 years for office
equipment, furniture and fixtures, and other, which includes
non-network
internal use software. We depreciate our corporate aircraft
capital lease using the straight-line method based on the lease
term of 10 years. We include depreciation expense on our
corporate aircraft capital lease and other capital leases in
accumulated depreciation. We amortize leasehold improvements
over the shorter of the lease terms or the useful lives of the
improvements.
Construction in progress includes internal and external labor,
materials, transmission and related equipment, engineering, site
development, interest and other costs relating to the
construction and development of our digital wireless networks.
We do not depreciate assets under construction until they are
ready for their intended use. We capitalize interest and other
costs, including labor and software upgrades, which are
applicable to the construction of, and significant improvements
that enhance functionality to, our network equipment.
We periodically review the depreciation method, useful lives and
estimated salvage value of our property, plant and equipment and
revise those estimates if current estimates are significantly
different from previous estimates.
Asset Retirement Obligations. We record an
asset retirement obligation and an associated asset retirement
cost when we have a legal obligation in connection with the
retirement of tangible long-lived assets. Our obligations arise
from certain of our leases and relate primarily to the cost of
removing our equipment from such leased sites. We report asset
retirement obligations and related asset retirement costs at
fair value computed using discounted cash flow techniques. In
addition, we review the adequacy of asset retirement obligations
on a regular basis and more often if changes in events or
circumstances warrant it. As of December 31, 2010 and 2009,
our asset retirement obligations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance, January 1
|
|
$
|
63,047
|
|
|
$
|
49,701
|
|
New asset retirement obligations
|
|
|
5,165
|
|
|
|
5,071
|
|
Accretion
|
|
|
10,890
|
|
|
|
8,961
|
|
Settlement of asset retirement obligation
|
|
|
(137
|
)
|
|
|
(4
|
)
|
Foreign currency translation and other
|
|
|
(4,440
|
)
|
|
|
(682
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
74,525
|
|
|
$
|
63,047
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments. We enter
into derivative transactions for hedging or risk management
purposes only. We have not and will not enter into any
derivative transactions for speculative or profit generating
purposes. We formally document all relationships between hedging
instruments and hedged items, as well as our risk management
objectives for undertaking various hedge transactions before
entering into the transaction.
We record our derivative financial instruments at fair value as
either assets or liabilities. We recognize changes in fair value
either in earnings or equity, depending on the nature of the
underlying exposure being hedged and how
F-11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
effective the derivatives are at offsetting price movements and
the underlying exposure. We evaluate the effectiveness of our
hedging relationships both at the hedge inception and on an
ongoing basis. Our derivative instruments are designated as
cash-flow hedges and are considered to be highly effective. We
record the changes in fair value of our derivatives financial
instruments as other comprehensive income or loss until the
underlying hedged item is recognized in earnings. We recognize
in earnings immediately any ineffective portion of a
derivatives change in fair value.
Valuation of Long-Lived Assets. We review for
impairment long-lived assets such as property, plant and
equipment and identifiable intangible assets with definite
useful lives, which includes our licenses, whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. If the total of the expected undiscounted
future cash flows of the asset or asset group is less than the
carrying amount of the asset, we recognize a loss, if any, for
the difference between the fair value and carrying value of the
asset.
Intangible Assets. Our intangible assets are
composed of wireless telecommunications licenses and a trade
name.
We amortize our intangible assets using the straight-line method
over the estimated period benefited. We amortize licenses
acquired after our emergence from reorganization in 2002 over
their estimated useful lives of 3 to 20 years. In the
countries in which we operate, licenses are customarily issued
conditionally for specified periods of time ranging from 10 to
40 years, including renewals. The licenses are generally
renewable provided the licensee has complied with applicable
rules and policies. We believe we have complied with these
standards in all material respects. However, the political and
regulatory environments in the markets we serve are continuously
changing and, in many cases, the renewal fees could be
significant. Therefore, we do not view the renewal of our
licenses to be perfunctory. In addition, the wireless
telecommunications industry is experiencing significant
technological change, and the commercial life of any particular
technology is difficult to predict. Most of our licenses give us
the right to use 800 MHz spectrum that is non-contiguous,
and the iDEN technology is the only widespread, commercially
available digital technology that operates on non-contiguous
spectrum. As a result, our ability to deploy new technologies on
our licensed 800MHz spectrum is limited. In light of the
uncertainty regarding the availability of alternative
technologies and regarding the commercial life of any
technology, including the iDEN technology, our ability to use
our 800MHz spectrum for an indefinite period cannot be assured.
As a result, we classify our licenses as finite lived assets.
Revenue Recognition. Operating revenues
primarily consist of service revenues and revenues generated
from the sale and rental of digital handsets and accessories. We
present our operating revenues net of value-added taxes, but we
include certain revenue-based taxes for which we are the primary
obligor. Service revenues primarily include fixed monthly access
charges for mobile telephone service and digital two-way radio
and other services, including revenues from calling party pays
programs where applicable and variable charges for airtime and
digital two-way radio usage in excess of plan minutes, long
distance charges, international roaming revenues derived from
calls placed by our customers on other carriers networks
and revenues generated from broadband data services we provide
on our third generation networks.
We also have other sources of revenues. Other revenues primarily
include amounts generated from our handset maintenance programs,
roaming revenues generated from other companies customers
that roam on our networks and co-location rental revenues from
third party tenants that rent space on our towers.
We recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sale price is fixed and
determinable and collectibility is reasonably assured. The
following are the policies applicable to our major categories of
revenue transactions.
We recognize revenue for access charges and other services
charged at fixed amounts ratably over the service period, net of
credits and adjustments for service discounts and value-added
taxes. We recognize excess usage,
F-12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
local, long distance and calling party pays revenue at
contractual rates per minute as minutes are used. We record cash
received in excess of revenues earned as deferred revenues.
We recognize revenue generated from our handset maintenance
programs on a monthly basis at fixed amounts over the service
period. We recognize roaming revenues at contractual rates per
minute as minutes are used. We recognize co-location revenues
from third party tenants on a monthly basis based on the terms
set by the underlying agreements.
We bill excess usage to our customers in arrears. In order to
recognize the revenues originated from excess usage subsequent
to customer invoicing through the end of the reporting period,
we estimate the unbilled portion based on the usage that the
handset had during the part of the month already billed, and we
use the actual usage to estimate the unbilled usage for the rest
of the month taking into consideration working days and
seasonality. Our estimates are based on our experience in each
market. We periodically evaluate our estimation process by
comparing our estimates to actual excess usage revenue billed
the following month. As a result, actual usage could differ from
our estimates.
We recognize revenue from handset and accessory sales when title
and risk of loss passes upon delivery of the handset or
accessory to the customer as this is considered to be a separate
earnings process from the sale of wireless services.
We recognized the proceeds received from our spectrum use and
build-out agreement with Nextel Communications as deferred
revenues. We amortize this amount into revenue on a
straight-line basis over 15.5 years, which represents the
average remaining useful life of our licenses in the Baja region
of Mexico as of the date we began providing service under this
agreement.
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 consolidated financial
statements. For the years ended December 31, 2010 and 2009,
we had $192.2 million and $96.8 million, respectively,
in revenue-based taxes and other excise taxes.
Handsets Provided Under Leases. Our operating
companies periodically provide handsets to our customers under
lease agreements. We evaluate each lease agreement at its
inception to determine whether the agreement represents a
capital lease or an operating lease. Under capital lease
agreements, we expense the full cost of the handset at the
inception of the lease term and recognize digital handset sales
revenue upon delivery of the handset to the customer and
collection of the up-front rental payment, which corresponds to
the inception of the lease term. Under operating lease
agreements, we expense the cost of the handset in excess of the
sum of the minimum contractual revenues associated with the
handset lease. We recognize revenue ratably over the lease term.
Revenue generated under the operating lease arrangement relates
primarily to the up-front rental payments required at the
inception of lease terms.
Allowance for Doubtful Accounts. We establish
an allowance for doubtful accounts receivable sufficient to
cover probable and reasonably estimated losses. Our methodology
for determining our allowance for doubtful accounts receivable
requires significant estimates. Since we have over three million
accounts, it is impracticable to review the collectibility of
all individual accounts when we determine the amount of our
allowance for doubtful accounts receivable each period.
Therefore, we consider a number of factors in establishing the
allowance on a
market-by-market
basis, including historical collection experience, current
economic trends, estimates of forecasted write-offs, agings of
the accounts receivable portfolio and other factors. While we
believe that the estimates we use are reasonable, actual results
could differ from those estimates.
Customer Related Direct Costs. We recognize
all costs of handset sales when title and risk of loss passes
upon delivery of the handset to the customer.
F-13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
Advertising Costs. We expense costs related to
advertising and other promotional expenditures as incurred.
Advertising costs totaled $155.1 million,
$123.4 million and $109.9 million during the years
ended December 31, 2010, 2009 and 2008, respectively.
Stock-Based Compensation. Effective
January 1, 2006, we adopted the Financial Accounting
Standards Boards, or the FASBs, authoritative
guidance surrounding share-based payments. In accordance with
this guidance, we used the modified prospective transition
method and therefore did not restate our prior periods
results. Share-based payment expense for all share-based payment
awards granted after January 1, 2006 is estimated in
accordance with the FASBs authoritative guidance. We
recognize these compensation costs net of actual forfeitures for
only those shares expected to vest on a straight-line basis over
the requisite service period of the award. See Note 10 for
more information.
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings.
As presented for the year ended December 31, 2010, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.75%
convertible notes. During the third quarter of 2010, certain
noteholders of our 2.75% convertible notes required us to
purchase a portion of these notes. Subsequently, we exercised
our call option and redeemed the remaining outstanding principal
amount of these notes in the third quarter of 2010. We did not
include the common shares resulting from the potential
conversion of our 3.125% convertible notes in our calculation of
diluted net income per common share because their effect would
have been antidilutive to our net income per common share for
that period. Further, for the year ended December 31, 2010,
we did not include 9.3 million in antidilutive stock
options nor did we include an immaterial amount of our
restricted stock in our calculation of diluted net income per
common share because their effect would also have been
antidilutive to our net income per common share for that period.
As presented for the year ended December 31, 2009, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.75%
convertible notes. We did not include the common shares
resulting from the potential conversion of our 3.125%
convertible notes in our calculation of diluted net income per
common share because their effect would have been antidilutive
to our net income per common share for that period. Further, for
the year ended December 31, 2009, we did not include
10.3 million in antidilutive stock options nor did we
include an immaterial amount of our restricted stock in our
calculation of diluted net income per common share because their
effect would also have been antidilutive to our net income per
common share for that period.
As presented for the year ended December 31, 2008, our
calculation of diluted net income per share includes common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.75%
convertible notes. We did not include the common shares
resulting from the potential conversion of our 3.125%
convertible notes in our calculation of diluted net income per
common share because their effect would have been antidilutive
to our net income per common share for that period. Further, for
the year ended December 31, 2008, we did not include
9.1 million in antidilutive stock options nor did we
include an immaterial amount of our restricted stock in our
calculation of diluted net income per common share because their
effect would also have been antidilutive to our net income per
common share for that period.
F-14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (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 consolidated statements of
operations for the years ended December 31, 2010, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
341,052
|
|
|
|
168,160
|
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
2,796
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
372
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
8,056
|
|
|
|
4,381
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
349,108
|
|
|
|
175,709
|
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
381,491
|
|
|
|
166,042
|
|
|
$
|
2.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
707
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
277
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
13,076
|
|
|
|
6,988
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
394,567
|
|
|
|
174,014
|
|
|
$
|
2.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
341,955
|
|
|
|
166,927
|
|
|
$
|
2.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
1,121
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
252
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
12,805
|
|
|
|
6,990
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
354,760
|
|
|
|
175,290
|
|
|
$
|
2.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
Purchase of Common Stock. In January 2008, our
Board of Directors authorized a program to purchase shares of
our common stock for cash. The Board approved the purchase of
shares having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. During the year ended December 31, 2008, we
purchased a total of 5,555,033 shares of our common stock
for $242.7 million. We did not purchase any shares of our
common stock during the years ended December 31, 2010 and
2009. We treat purchases of our common stock under this program
as effective retirements of the purchased shares and therefore
reduce our reported shares issued and outstanding by the number
of shares purchased. In addition, we record the excess of the
purchase price over the par value of the common stock as a
reduction to paid-in capital.
Income Taxes. We account for income taxes
using the asset and liability method, under which we recognize
deferred income taxes for the tax consequences attributable to
differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities, as well as for
tax loss carryforwards and tax credit carryforwards. We measure
deferred tax assets and liabilities using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recoverable or settled.
We recognize the effect on deferred taxes of a change in tax
rates in income in the period that includes the enactment date.
We provide a valuation allowance against deferred tax assets if,
based upon the weight of available evidence, we do not believe
it is more-likely-than-not that some or all of the
deferred tax assets will be realized. We report remeasurement
gains and losses related to deferred tax assets and liabilities
in our income tax provision.
Historically, a substantial portion of our deferred tax asset
valuation allowance related to deferred tax assets that, if
realized, would not result in a benefit to our income tax
provision. In accordance with the FASBs authoritative
guidance on financial reporting by entities in reorganization
under the bankruptcy code, we recognize decreases in the
valuation allowance existing at the reorganization date first as
a reduction in the carrying value of intangible assets existing
at the reorganization date of October 31, 2002 and then as
an increase to paid-in capital. As of December 31, 2004, we
reduced to zero the carrying value of our intangible assets
existing at the reorganization date. In accordance with the
FASBs updated authoritative guidance on business
combinations, effective beginning in 2009, we will record the
future decreases, if any, of the valuation allowance existing on
the reorganization date as a reduction to income tax expense. We
will also record decreases, if any, of the post-reorganization
valuation allowance as a reduction to our income tax expense.
Realization of deferred tax assets in any of our markets depends
on various factors, including continued future profitability in
these markets. Our ability to generate the expected amounts of
taxable income from future operations is dependent upon general
economic conditions, technology trends, political uncertainties,
competitive pressures and other factors beyond managements
control. If our operations continue to demonstrate
profitability, we may further reverse additional deferred tax
asset valuation allowance balances during 2011. We will continue
to evaluate the deferred tax asset valuation allowance balances
in all of our foreign and U.S. companies throughout 2011 to
determine the appropriate level of valuation allowances.
We continued to assert our prior position regarding the
repatriation of historical foreign earnings back to the U.S.,
and during the first quarter of 2010, we determined that we will
repatriate a total of $200 million of 2010 undistributed
earnings back to the U.S. in a taxable manner over the next
three years. As of December 31, 2009, we included a
$19.4 million provision in deferred tax liability for
U.S. federal, state and foreign taxes with respect to
future remittances of certain undistributed earnings (other than
income that has been previously taxed in the U.S. under the
subpart F rules) of certain of our foreign subsidiaries. This
deferred tax liability increased by a net tax effect of
$61.6 million in 2010 due to: (1) an increase
resulting from our plan to repatriate an additional
$200 million ($77.8 million tax effected) of
undistributed earnings in the next three years, (2) a
decrease from a $19.4 million tax effect on the
distribution received from our Mexico subsidiaries, and
(3) a $3.2 million increase due to the strengthening
in the Mexican exchange rate against the U.S. dollar. As of
December 31, 2010 this deferred tax liability was
$81.0 million. Except for the earnings associated with this
$81.0 million provision and income that has been previously
taxed in the U.S. under the subpart F rules and can be
remitted to the U.S. without incurring
F-16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
Summary
of Operations and Significant Accounting
Policies (Continued)
|
additional income taxes, we currently have no intention to remit
any additional undistributed earnings of our foreign
subsidiaries in a taxable manner. Should additional amounts of
our foreign subsidiaries undistributed earnings be
remitted to the U.S. as dividends, we may be subject to
additional U.S. income taxes (net of allowable foreign tax
credits) and foreign withholding taxes. It is not practicable to
estimate the amount of any additional taxes which may be payable
on the remaining undistributed earnings.
Reclassifications. We have reclassified some
prior period amounts in our consolidated financial statements to
conform to our current year presentation.
New Accounting Pronouncements. In October
2009, the FASB updated its authoritative guidance for accounting
for multiple deliverable revenue arrangements. The new guidance
revises the criteria used to determine the separate units of
accounting in a multiple deliverable arrangement and requires
that total consideration received under the arrangement be
allocated over the separate units of accounting based on their
relative selling prices. This guidance also clarifies the
methodology used in determining our best estimate of the selling
price used in this allocation. The applicable revenue
recognition criteria will be considered separately for the
separate units of accounting. The updated authoritative guidance
will be effective and shall be applied prospectively to revenue
arrangements entered into or materially modified in fiscal years
beginning after June 15, 2010. Early adoption is permitted
but must be applied on a retroactive basis. We adopted this new
guidance on its effective date of January 1, 2011, and we
are currently evaluating the potential impact, if any, that the
adoption of this guidance will have on our consolidated
financial statements.
|
|
2.
|
Property,
Plant and Equipment
|
The components of our property, plant and equipment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Land
|
|
$
|
7,719
|
|
|
$
|
7,365
|
|
Leasehold improvements
|
|
|
146,305
|
|
|
|
122,364
|
|
Digital mobile network equipment and network software
|
|
|
3,889,973
|
|
|
|
3,144,673
|
|
Office equipment, furniture and fixtures and other
|
|
|
648,521
|
|
|
|
487,051
|
|
Corporate aircraft capital lease
|
|
|
42,747
|
|
|
|
42,747
|
|
Less: Accumulated depreciation and amortization
|
|
|
(2,028,266
|
)
|
|
|
(1,451,219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,706,999
|
|
|
|
2,352,981
|
|
Construction in progress
|
|
|
253,047
|
|
|
|
149,208
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,960,046
|
|
|
$
|
2,502,189
|
|
|
|
|
|
|
|
|
|
|
F-17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our intangible assets consist of our licenses, customer base and
trade name, all of which have finite useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
559,895
|
|
|
$
|
(129,124
|
)
|
|
$
|
430,771
|
|
|
$
|
426,888
|
|
|
$
|
(89,655
|
)
|
|
$
|
337,233
|
|
Trade name and other
|
|
|
4,160
|
|
|
|
(1,723
|
)
|
|
|
2,437
|
|
|
|
1,640
|
|
|
|
(1,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
564,055
|
|
|
$
|
(130,847
|
)
|
|
$
|
433,208
|
|
|
$
|
428,528
|
|
|
$
|
(91,295
|
)
|
|
$
|
337,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying value of our licenses as of December 31,
2010 primarily represents the licenses we acquired in connection
with our purchase of Cosmofrecuencias in Mexico during 2006.
Based solely on the carrying amount of amortizable intangible
assets existing as of December 31, 2010 and current
exchange rates, we estimate amortization expense for each of the
next five years ending December 31 to be as follows (in
thousands):
|
|
|
|
|
|
|
Estimated
|
|
|
Amortization
|
Years
|
|
Expense
|
|
2011
|
|
$
|
36,893
|
|
2012
|
|
|
38,706
|
|
2013
|
|
|
38,706
|
|
2014
|
|
|
38,706
|
|
2015
|
|
|
38,499
|
|
Actual amortization expense to be reported in future periods
could differ from these estimates as a result of additional
acquisitions of intangibles, as well as changes in exchange
rates and other relevant factors. We anticipate that
amortization expense will increase significantly in the future
in association with our recent successful bid for spectrum in
Brazil, which we expect will be awarded in early 2011. During
the years ended December 31, 2010 and 2009, we did not
acquire, dispose of or write down any material amounts of
goodwill or intangible assets with indefinite useful lives.
F-18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued
Expenses and Other.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Non-income based taxes
|
|
$
|
147,290
|
|
|
$
|
133,298
|
|
Payroll related items and commissions
|
|
|
104,505
|
|
|
|
114,517
|
|
Network system and information technology
|
|
|
120,610
|
|
|
|
77,281
|
|
Capital expenditure
|
|
|
168,796
|
|
|
|
70,357
|
|
Accrued interest
|
|
|
39,115
|
|
|
|
42,415
|
|
Other
|
|
|
246,937
|
|
|
|
203,756
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
827,253
|
|
|
$
|
641,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Senior notes, net
|
|
$
|
1,279,524
|
|
|
$
|
1,277,207
|
|
Convertible notes, net
|
|
|
1,043,236
|
|
|
|
1,440,040
|
|
Syndicated loan facilities
|
|
|
458,964
|
|
|
|
416,081
|
|
Tower financing obligations
|
|
|
175,932
|
|
|
|
174,497
|
|
Capital lease obligations
|
|
|
114,303
|
|
|
|
110,063
|
|
Brazil import financing
|
|
|
128,094
|
|
|
|
76,392
|
|
Other
|
|
|
65,365
|
|
|
|
86,508
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
3,265,418
|
|
|
|
3,580,788
|
|
Less: current portion
|
|
|
(446,995
|
)
|
|
|
(564,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,818,423
|
|
|
$
|
3,016,244
|
|
|
|
|
|
|
|
|
|
|
Senior
Notes.
10.0% Senior Notes due 2016. In
August 2009, we issued senior notes with $800.0 million
aggregate principal amount due at maturity for total cash
proceeds of $762.5 million, after deducting original issue
discount and commissions. We also incurred $0.9 million in
offering expenses related to the issuance of the notes, which we
will amortize into interest expense over the 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. These guarantees are full and unconditional, as
well as joint and several. Subject to certain exceptions, the
notes are equal in right of payment with any future unsecured,
unsubordinated indebtedness of NII Capital Corp. and of the
guarantors of the notes, including, but not limited to, with
respect to NII Holdings guarantee, NII Holdings
3.125% convertible notes. The notes will also be senior to any
of NII Capital Corp.s future subordinated indebtedness. In
addition, the notes are effectively subordinated to all NII
Capital Corp.s existing and future secured indebtedness,
as well as to all existing and future indebtedness of our
subsidiaries that are not guarantors of the notes, including the
foreign subsidiaries that operate in each of our markets. The
notes bear interest at a rate of 10% per year, which is payable
semi-annually in arrears on February 15
F-19
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and August 15, beginning on February 15, 2010. The
notes will mature on August 15, 2016 when the entire
principal amount of $800.0 million will be due.
The notes are not entitled to any mandatory redemption or
sinking fund. Prior to August 15, 2013, 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 August 15, 2013 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 August 15 of the applicable year:
|
|
|
|
|
|
|
Redemption
|
Year
|
|
Price
|
|
2013
|
|
|
105.00
|
%
|
2014
|
|
|
102.50
|
%
|
2015 and thereafter
|
|
|
100.00
|
%
|
Prior to August 15, 2012, 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 110% 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.
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 governing the notes, among other things, limits
our ability and the ability of some of our subsidiaries to:
|
|
|
|
|
incur additional indebtedness and issue preferred stock;
|
|
|
|
create liens or other encumbrances;
|
|
|
|
place limitations on distributions from some of our subsidiaries;
|
|
|
|
pay dividends, acquire shares of our capital stock or make
investments;
|
|
|
|
prepay subordinated indebtedness or make other restricted
payments;
|
|
|
|
issue or sell capital stock of some of our subsidiaries;
|
|
|
|
issue guarantees;
|
|
|
|
sell or exchange assets;
|
|
|
|
enter into transactions with affiliates; and
|
|
|
|
merge or consolidate with another entity.
|
These covenants are subject to a number of qualifications and
exceptions.
8.875% Senior Notes due 2019. In
December 2009, we issued senior notes with $500.0 million
aggregate principal amount due at maturity for total cash
proceeds of about $486.6 million, after deducting original
issue discount and commissions. We also incurred
$0.5 million in offering expenses related to the issuance
of the notes, which we will amortize into interest expense over
the term of the notes. The notes are senior unsecured
obligations of NII Capital Corp. and are guaranteed by us and by
certain of our other domestic wholly-owned subsidiaries. These
guarantees are full and unconditional, as well as joint and
several. Subject to certain exceptions, the notes are equal in
right of payment with any future unsecured, unsubordinated
indebtedness of NII Capital Corp. and of the guarantors of the
notes, including, but not limited to, with respect to NII
Holdings guarantee, NII Capital Corp.s
10.0% senior notes, NII Holdings 3.125% convertible
notes. The notes will also be senior to any of NII Capital
F-20
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Corp.s future subordinated indebtedness. In addition, the
notes are effectively subordinated to all NII Capital
Corp.s existing and future secured indebtedness, as well
as to all existing and future indebtedness of our subsidiaries
that are not guarantors of the notes, including the foreign
subsidiaries that operate in each of our markets. The notes bear
interest at a rate of 8.875% per year, which is payable
semi-annually in arrears on June 15 and December 15,
beginning on June 15, 2010. The notes will mature on
December 15, 2019 when the entire principal amount of
$500.0 million will be due.
The notes are not entitled to any mandatory redemption or
sinking fund. Prior to December 15, 2014, 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 December 15, 2014 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 December 15 of the applicable year:
|
|
|
|
|
|
|
Redemption
|
Year
|
|
Price
|
|
2014
|
|
|
104.438
|
%
|
2015
|
|
|
102.958
|
%
|
2016
|
|
|
101.479
|
%
|
2017 and thereafter
|
|
|
100.000
|
%
|
Prior to December 15, 2012, 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 108.875% 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. The remainder of the terms
under our 8.875% senior notes are identical to the terms
contained in our 10.0% senior notes described above.
Convertible
Notes.
3.125% Convertible Notes. In May
2007, we privately placed $1.0 billion aggregate principal
amount of 3.125% convertible notes due 2012, which we refer to
as the 3.125% notes, and we received total gross proceeds
of $1.2 billion. We also incurred direct issuance costs of
$22.8 million, which we recorded as a deferred financing
cost that we are amortizing into interest expense over the term
of the 3.125% notes. Our 3.125% notes are senior
unsecured obligations and rank equal in right of payment with
all of our other existing and future senior unsecured debt.
The 3.125% notes bear interest at a rate of 3.125% per
annum on the principal amount of the notes, payable
semi-annually in arrears in cash on June 15 and December 15 of
each year, beginning December 15, 2007, and will mature on
June 15, 2012, when the entire principal balance will be
due. In addition, and subject to specified exceptions, the
noteholders have the right to require us to purchase the notes
at a purchase price equal to 100% of their principal amount,
plus any accrued and unpaid interest (including additional
amounts, if any) up to, but excluding, the purchase date upon
the occurrence of a fundamental change.
The 3.125% notes are convertible into shares of our common
stock at a conversion rate of 8.4517 shares per $1,000
principal amount of notes, or 10,142,040 aggregate common
shares, representing a conversion price of $118.32 per share.
The 3.125% notes are convertible, subject to adjustment,
prior to the close of business on the final maturity date under
any of the following circumstances:
|
|
|
|
|
during any fiscal quarter commencing after September 30,
2007, if the closing sale price of our common stock exceeds 120%
of the conversion price of $118.32 for at least 20 trading days
in the 30 consecutive trading days ending on the last trading
day of the preceding fiscal quarter;
|
F-21
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
prior to May 15, 2012, during the five business day period
after any five consecutive trading day period in which the
trading price per note for each day of such period was less than
98% of the product of the closing sale price of our common stock
and the number of shares issuable upon conversion of $1,000
principal amount of notes, or 10,142,040 aggregate common shares;
|
|
|
|
at any time on or after May 15, 2012; or
|
|
|
|
upon the occurrence of specified corporate events.
|
For the fiscal quarter ended December 31, 2010, the closing
sale price of our common stock did not exceed 120% of the
conversion price of $118.32 per share for at least 20 trading
days in the 30 consecutive trading days ending on
December 31, 2010. As a result, the conversion contingency
was not met as of December 31, 2010. We have the option to
satisfy the conversion of the 3.125% notes in shares of our
common stock, in cash or a combination of both.
The conversion feature related to the trading price per note
meets the criteria of an embedded derivative in accordance with
the FASBs authoritative guidance for derivatives. As a
result, we are required to separate the value of the conversion
feature from the notes and record a liability on our
consolidated balance sheet. As of December 31, 2010, the
conversion feature had a nominal value, and therefore it did not
have a material impact on our financial position or results of
operations. We will continue to evaluate the materiality of the
value of this conversion feature on a quarterly basis and record
the resulting adjustment, if any, in our consolidated balance
sheet and statement of operations.
The conversion rate of the 3.125% notes is subject to
adjustment if any of the following events occur:
|
|
|
|
|
we issue common stock as a dividend or distribution on our
common stock;
|
|
|
|
we issue to all holders of common stock certain rights or
warrants to purchase our common stock;
|
|
|
|
we subdivide or combine our common stock;
|
|
|
|
we distribute to all holders of our common stock shares of our
capital stock, evidences of indebtedness or assets, including
cash or securities but excluding the rights, warrants, dividends
or distributions specified above;
|
|
|
|
we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the
extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
current market price per share of common stock on the trading
day next succeeding the last date on which tenders or exchanges
may be made pursuant to this tender or exchange offer; or
|
|
|
|
someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of
the closing date of the offer, our board of directors is not
recommending the rejection of the offer, subject to certain
conditions.
|
Neither we, nor any of our subsidiaries, are subject to any
financial covenants under our 3.125% notes. In addition,
the indenture governing our 3.125% notes does not restrict
us or any of our subsidiaries from paying dividends, incurring
debt, or issuing or repurchasing our securities.
In June 2010, we purchased $100.0 million face amount of
our 3.125% convertible notes through a series of open market
purchases for an aggregate purchase price of $94.7 million.
In connection with these transactions, we incurred an immaterial
amount of direct external costs, we recognized an immaterial
loss on extinguishment of debt, and we allocated an immaterial
amount of the purchase price to paid-in capital.
F-22
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As presented for the years ended December 31, 2010, 2009
and 2008, our calculation of diluted net income per share does
not include the common shares resulting from the potential
conversion of our 3.125% convertible notes since their effect
would have been antidilutive to our net income per share for
those periods.
2.75% Convertible Notes. In the
third quarter of 2005, we privately placed $350.0 million
aggregate principal amount of 2.75% convertible notes due 2025,
which we refer to as our 2.75% notes. We also incurred
direct issuance costs of $9.0 million, which we recorded as
deferred financing costs on our consolidated balance sheet and
amortized over five years.
In June 2010, we purchased $31.4 million face amount of our
2.75% convertible notes through a series of open market
purchases for an aggregate purchase price of $31.4 million.
In connection with these transactions, we incurred an immaterial
amount of direct external costs, we recognized an immaterial
loss on extinguishment of debt, and we allocated an immaterial
amount of the purchase price to paid-in capital.
In the third quarter of 2010, certain noteholders of our 2.75%
convertible notes executed their put options that required us to
purchase $182.4 million principal amount of these notes at
100% of their par value, plus accrued and unpaid interest. In
addition, we exercised our call option and redeemed the
remaining $136.3 million in outstanding principal amount of
these notes at 100% of their par value, plus accrued and unpaid
interest, during the third quarter of 2010.
Adoption of Authoritative Guidance on Convertible Debt
Instruments. As a result of adopting the
FASBs authoritative guidance on convertible debt
instruments, we are required to separately account for the debt
and equity components of our 3.125% convertible notes and our
2.75% convertible notes in a manner that reflects our
nonconvertible debt (unsecured debt) borrowing rate. The debt
and equity components recognized for our 3.125% convertible
notes and our 2.75% convertible notes were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
|
3.125% Notes
|
|
2.75% Notes
|
|
3.125% Notes
|
|
2.75% Notes
|
|
|
due 2012
|
|
due 2025
|
|
due 2012
|
|
due 2025
|
|
Principal amount of convertible notes
|
|
$
|
1,100,000
|
|
|
$
|
|
|
|
$
|
1,200,000
|
|
|
$
|
349,996
|
|
Unamortized discount on convertible notes
|
|
|
56,764
|
|
|
|
|
|
|
|
102,372
|
|
|
|
7,584
|
|
Net carrying amount of convertible notes
|
|
|
1,043,236
|
|
|
|
|
|
|
|
1,097,628
|
|
|
|
342,412
|
|
Carrying amount of equity component
|
|
|
193,941
|
|
|
|
|
|
|
|
194,557
|
|
|
|
53,253
|
|
As of December 31, 2010, the unamortized discount on our
3.125% convertible notes had a remaining recognition period of
about 17 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 years ended December 31, 2010 and
2009 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
35,783
|
|
|
$
|
5,882
|
|
|
$
|
37,500
|
|
|
$
|
9,625
|
|
|
$
|
37,500
|
|
|
$
|
9,625
|
|
Amortization of discount on convertible notes
|
|
|
38,557
|
|
|
|
7,402
|
|
|
|
37,631
|
|
|
|
11,561
|
|
|
|
35,120
|
|
|
|
10,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
74,340
|
|
|
$
|
13,284
|
|
|
$
|
75,131
|
|
|
$
|
21,186
|
|
|
$
|
72,620
|
|
|
$
|
20,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Peru Syndicated Loan Facility. In
December 2009, Nextel Peru entered into a $130.0 million
U.S. dollar-denominated syndicated loan agreement. Of the
total amount of this loan agreement, $50.0 million has a
floating interest rate of LIBOR plus 5.75%
(Tranche A 6.05% as of December 31, 2010),
$32.5 million has a floating interest rate of LIBOR plus
5.25%
(Tranche B-1
5.55% as of December 31, 2010), $37.5 million has a
floating interest rate of LIBOR plus 4.75%
(Tranche B-2
5.05% as of December 31, 2010) and
$10.0 million has a floating interest rate of LIBOR plus
5.75%
(Tranche B-3
6.05% as of December 31, 2010). Principal under
Tranche A and
Tranche B-3
is payable quarterly beginning in December 2011, and principal
under
Tranche B-1
and
Tranche B-2
is payable quarterly beginning in December 2010. Tranche A
and
Tranche B-3
mature on December 15, 2016,
Tranche B-1
matures on December 15, 2014 and
Tranche B-2
matures on December 15, 2012. Nextel Perus
obligations under its syndicated loan facility are secured by a
pledge of the outstanding equity interests in Nextel Peru. In
addition, Nextel Peru is subject to various legal and financial
covenants under this syndicated loan facility that, among other
things, require Nextel Peru to maintain certain financial ratios
and may limit the amount of funds that could be repatriated in
certain periods. During the year ended December 31, 2010,
Nextel Peru borrowed all amounts available under its syndicated
loan facility and utilized these borrowings for capital
expenditures and general corporate purposes.
In March 2010, Nextel Peru borrowed $60.0 million, and in
June 2010, Nextel Peru borrowed an additional $20.0 million
under this syndicated loan agreement. In October 2010, Nextel
Peru borrowed the remaining $50.0 million under this
syndicated loan facility.
Brazil Syndicated Loan Facility. In
September 2007, Nextel Brazil entered into a $300.0 million
syndicated loan facility. Of the total amount of the facility,
$45.0 million is denominated in U.S. dollars with a
floating interest rate based on LIBOR plus a specified margin
ranging from 2.00% to 2.50% (Tranche A 2.30%
and 2.25% as of December 31, 2010 and 2009, respectively).
The remaining $255.0 million is denominated in
U.S. dollars with a floating interest rate based on LIBOR
plus a specified margin ranging from 1.75% to 2.25%
(Tranche B 2.05% and 2.00% as of
December 31, 2010 and 2009, respectively). Tranche A
matures on September 14, 2014, and Tranche B matures
on September 14, 2012. Nextel Brazils obligations
under the syndicated loan facility agreement are guaranteed by
all of its material operating subsidiaries and are secured by a
pledge of the outstanding equity interests in Nextel Brazil and
those subsidiaries. In addition, Nextel Brazil is subject to
various legal and financial covenants under the syndicated loan
facility that, among other things, require Nextel Brazil to
maintain certain financial ratios and may limit the amount of
funds that could be repatriated in certain periods. Nextel
Brazil has utilized borrowings under this syndicated loan
facility for capital expenditures, general corporate purposes
and the repayment of specified short-term intercompany debt.
Mexico Syndicated Loan Facility. In
October 2004, we entered into a $250.0 million, five year
syndicated loan facility in Mexico. Of the total amount of the
facility, $129.0 million was denominated in
U.S. dollars with a floating interest rate based on LIBOR,
$31.0 million was denominated in Mexican pesos with a
floating interest rate based on the Mexican reference interest
rate TIIE, and $90.0 million was denominated in Mexican
pesos, at an interest rate fixed at the time of funding. In
2005, we borrowed the entire $250.0 million available under
this facility. The agreement relating to this syndicated loan
facility requires Nextel Mexico to comply with various legal and
financial covenants that, among other things, require Nextel
Mexico to maintain certain financial ratios and may limit the
amount of funds that could be repatriated in certain periods.
In June 2006, Nextel Mexico entered into an agreement to
refinance its syndicated loan. The loan principal was increased
from the original $250.0 million to $296.6 million.
The refinanced loans provide for the same variable (i.e. LIBOR
and TIIE) and fixed rates as the original agreement but with
lower spreads for each tranche. In October 2009, Nextel Mexico
paid the remaining principal amounts under both Tranche B
and Tranche C of its syndicated loan. The remaining
$156.6 million is denominated in U.S. dollars with a
floating interest rate based on LIBOR
(Tranche A 1.55% and 1.56% as of
December 31, 2010 and 2009, respectively). Under the
original agreement,
F-24
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
principal for Tranche A was also due on the same dates as
the principal under Tranches B and C. However, after the
refinancing, principal for Tranche A is now due in a lump
sum of $156.6 million in June 2011.
Tower Financing Obligations. We account
for our tower sales and related leasing arrangement with
American Tower as financing arrangements. As a result, we did
not recognize any gains from the sales, and we maintain the
tower assets on our consolidated balance sheet and continue to
depreciate them. We recognize the proceeds received as financing
obligations that will be repaid through monthly payments. To the
extent that American Tower leases space on these communication
towers to third party companies, our base rent and ground rent
related to the towers leased are reduced. We recognize ground
rent payments as operating expenses in cost of service and tower
base rent payments as interest expense and a reduction in the
financing obligation using the effective interest method. In
addition, we recognize co-location rent payments made by the
third party lessees to American Tower as other operating
revenues because we are maintaining the tower assets on our
consolidated balance sheet. Both the proceeds received and rent
payments due are denominated in Mexican pesos for the Mexican
transactions and in Brazilian reais for the Brazilian
transactions. Rent payments are subject to local inflation
adjustments. During the years ended December 31, 2010, 2009
and 2008, we recognized $39.8 million, $36.3 million
and $31.5 million, respectively, in other operating
revenues related to these co-location lease arrangements, a
significant portion of which we recognized as interest expense.
Following the sale of these towers, we no longer have any
further contractual obligation or right to transfer towers to
American Tower Corporation.
Capital
Lease Obligations.
Corporate Aircraft Lease. In November 2005, we
entered into an agreement to lease a new corporate aircraft
beginning in 2009 for ten years. We determined that in
accordance with the authoritative guidance for lessee
involvement in asset construction, we were the owner of this new
corporate aircraft during its construction because we had
substantially all of the construction period risks. As a result,
we recorded an asset for
construction-in-progress
and a corresponding long-term liability for the new aircraft as
construction occurred. In December 2009, upon taking delivery of
the aircraft and commencement of the lease term, we began
accounting for the aircraft lease as a capital lease. As a
result, we recorded a capital lease liability and a
corresponding capital lease asset of $42.7 million in
December 2009.
Other Capital Lease Obligations. Under the
master lease agreement with American Tower, in certain
circumstances, Nextel Mexico and Nextel Brazil are permitted to
co-locate communications equipment on sites owned by American
Tower. Nextel Mexico and Nextel Brazil account for the majority
of these co-location agreements as capital leases.
Other
Brazil Financings.
Brazil Import Financing. In March 2009, Nextel
Brazil began financing certain handset and infrastructure
equipment purchased mainly from Motorola and Research in Motion,
or RIM, that is imported into Brazil through agreements with
several Brazilian banks. Each tranche of these financings
matures within a six to twelve-month period.
Brazil Credit Paper. In May 2009, Nextel
Brazil entered into a $25.6 million working capital loan
with a Brazilian bank. Interest was payable quarterly for the
first twelve months beginning in August 2009 and monthly for the
remaining six months, and the principal matured beginning in
June 2010 through November 2010 with the principal amount
payable in six equal consecutive monthly payments. In July 2009,
Nextel Brazil entered into a second $16.9 million working
capital loan with the same Brazilian bank. Interest on the
second loan is payable quarterly for the first six months
beginning in October 2009 and monthly for the remaining nine
months, and the principal matured beginning in February 2010
through October 2010 with the principal amount payable in nine
equal consecutive monthly payments. In December 2009, Nextel
Brazil entered into a third $28.7 million working
F-25
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
capital loan with a separate Brazilian bank. Interest on the
third loan was payable monthly for the first twelve months
beginning in January 2010. The principal matures beginning in
January 2011 through December 2012 and is payable in 24 equal
consecutive monthly payments.
As of December 31, 2010 and 2009, our short-term financings
had weighted average interest rates of 7.28% and 8.06%.
Debt Maturities. For the years
subsequent to December 31, 2010, scheduled annual
maturities of all long-term debt outstanding as of
December 31, 2010 are as follows (in thousands):
|
|
|
|
|
|
|
Principal
|
|
Year
|
|
Repayments
|
|
|
2011
|
|
$
|
446,995
|
|
2012
|
|
|
1,258,827
|
|
2013
|
|
|
50,217
|
|
2014
|
|
|
52,520
|
|
2015
|
|
|
38,225
|
|
Thereafter
|
|
|
1,495,876
|
|
|
|
|
|
|
Total
|
|
$
|
3,342,660
|
|
|
|
|
|
|
|
|
6.
|
Fair
Value Measurements
|
The FASBs authoritative guidance on fair value
measurements defines fair value as an exit price, representing
the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement
that is determined based on assumptions that market participants
would use in pricing an asset or liability. Valuation techniques
discussed under the FASBs authoritative guidance for fair
value measurements include the market approach (comparable
market prices), the income approach (present value of future
income or cash flow based on current market expectations) and
the cost approach (cost to replace the service capacity of an
asset or replacement cost). As a basis for considering these
assumptions, the guidance utilizes a three-tier fair value
hierarchy, which prioritizes the inputs to the valuation
techniques used to measure fair value. The following is a brief
description of the three levels in the fair value hierarchy:
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2: Inputs other than quoted prices
in active markets that are observable for the asset or
liability, either directly or indirectly.
Level 3: Unobservable inputs that reflect
the reporting entitys own assumptions.
To the extent that the valuation is based on models or inputs
that are less observable or unobservable in the market, the
determination of fair value requires more judgment. Accordingly,
the degree of judgment exercised in determining fair value is
greatest for instruments categorized in Level 3. In certain
cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for
disclosure purposes, the level in the fair value hierarchy
within which the fair value measurement falls is determined
based on the lowest level input that is significant to the fair
value measurement in its entirety.
For assets and liabilities measured at fair value on a
non-recurring basis, fair value is determined by using various
valuation approaches. The same hierarchy as described above,
which maximizes the use of observable inputs and minimizes the
use of unobservable inputs, by generally requiring that the
observable inputs be used when
F-26
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Fair
Value Measurements (Continued)
|
available, is used in measuring fair value for these items. Fair
value may be derived using pricing models. Pricing models take
into account the contract terms (including maturity) as well as
multiple inputs, including, where applicable, interest rate
yield curves, credit curves, correlation, credit worthiness of
the counterparty, option volatility and currency rates. In
accordance with the FASBs authoritative guidance for fair
value measurements, the impact of our own credit spreads is also
considered when measuring the fair value of liabilities. Where
appropriate, valuation adjustments are made to account for
various factors such as credit quality and model uncertainty.
These adjustments are subject to judgment, are applied on a
consistent basis and are based upon observable inputs where
available. We generally subject all valuations and models to a
review process initially and on a periodic basis thereafter. As
fair value is a market-based measure considered from the
perspective of a market participant rather than an
entity-specific measure, even when market assumptions are not
readily available, our own assumptions are set to reflect those
that we believe market participants would use when pricing the
asset or liability at the measurement date.
Considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates
presented below are not necessarily indicative of the amounts
that we could realize in a current market exchange. The use of
different market assumptions and valuation techniques may have a
material effect on the estimated fair value amounts. The
following is a description of the major categories of assets and
liabilities measured at fair value on a recurring basis and the
valuation techniques applied to them.
Available-for-Sale
Securities.
Nextel Brazil Investments. As of
December 31, 2010,
available-for-sale
securities include $50.8 million in short-term investments
made by Nextel Brazil in two investment funds. These funds
invest primarily in Brazilian government bonds, long-term,
low-risk bank certificates of deposit and Brazilian corporate
debentures. We account for these securities at fair value in
accordance with the FASBs authoritative guidance
surrounding the accounting for investments in debt and equity
securities. The fair value of the securities is based on the net
asset value of the funds. In our judgment, these securities
trade with sufficient daily observable market activity to
support a Level 1 classification within the fair value
hierarchy.
Enhanced Cash Fund. In May 2007, we invested
in an enhanced cash fund similar to, but not in the legal form
of, a money market fund that invested primarily in asset-backed
securities. Initially, we classified our investment as a cash
equivalent because it was highly liquid at that time. In
December 2007, the fund manager ceased all purchases and sales
of interests in the fund and began an orderly liquidation of the
portfolios assets due to issues that arose in the
U.S. credit markets. We concluded that because the fair
value per unit of the fund was determined, published and the
basis for current transactions, the fair value of our investment
in the fund was readily determinable and as a result, we
classified this investment as
available-for-sale.
In addition, we have the right at our option to receive an
in-kind distribution of the underlying assets in the fund that
we can sell or hold to maturity. As a result, as of
December 31, 2007, we classified our investment in the fund
of $241.8 million as a current asset. Through the third
quarter of 2008, the underlying assets in the fund traded with
sufficient daily observable market activity to support a
Level 2 classification within the fair value hierarchy.
Due to the changing market conditions in the fourth quarter of
2008, the net asset value per unit as determined by the fund
manager had declined from $1.000 per unit at inception to $0.827
per unit as of December 31, 2008. We determined that this
loss in value was
other-than-temporary.
As a result, during the year ended December 31, 2008, we
recognized a pre-tax loss of $14.8 million related to the
loss in value of the fund, which we recorded as a component of
net other expense in our consolidated statement of operations.
We also received $173.9 million in distributions from the
fund during the year ended December 31, 2008. As a result
of the decline in the overall market conditions of the credit
market and the reduced liquidity in the observable market for
asset-backed securities, we reclassified the enhanced cash fund
from Level 2 to Level 3 because certain significant
inputs for the fair value measurement became unobservable.
F-27
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Fair
Value Measurements (Continued)
|
The remainder of our investment in the enhanced cash fund was
liquidated during December 2009. For the year ended
December 31, 2009, we received $55.3 million in total
distributions and realized a pre-tax gain during 2009 of
$2.1 million, which we recorded as a component of net other
expense in our consolidated statement of operations.
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 consolidated
balance sheets as of December 31, 2010 and 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
50,778
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
December 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2009
|
|
|
Short-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
116,289
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
116,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present additional information about
Level 3 assets measured at fair value on a recurring basis:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
Beginning balance
|
|
$
|
53,160
|
|
Principal distributions
|
|
|
(55,302
|
)
|
Realized gain on distributions, included in net income
|
|
|
2,142
|
|
|
|
|
|
|
Ending balance
|
|
$
|
|
|
|
|
|
|
|
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 values of cash and cash
equivalents, accounts receivable, accounts payable and
short-term borrowings contained in the consolidated balance
sheets approximate their fair values due to the short-term
nature of these instruments. The fair values of our derivative
instruments are immaterial.
Held-to-Maturity
Investments.
In the second quarter of 2010, we invested some of our cash
holdings in certain securities that we intend to hold to
maturity. These
held-to-maturity
securities include investments in U.S. treasury securities,
as well as investments in corporate bonds, which consist of
securities issued by U.S. government agencies and corporate
debt securities backed by the U.S. government with
maturities ranging from 3 to 18 months. We account for
held-to-maturity
securities at amortized cost. We determined the fair value of
our
held-to-maturity
investments in U.S. treasury securities based on quoted
market prices for the individual instruments. In our judgment,
these securities trade with sufficient daily observable market
activity to support a Level 1 classification within the
fair value hierarchy. We
F-28
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Fair
Value Measurements (Continued)
|
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 December 31, 2010 were
immaterial. The carrying amounts and estimated fair values of
our
held-to-maturity
investments as of December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Held-to-maturity
securities U.S. Treasuries
|
|
$
|
421,653
|
|
|
$
|
423,613
|
|
Held-to-maturity
securities corporate bonds
|
|
|
65,108
|
|
|
|
65,392
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
486,761
|
|
|
$
|
489,005
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt Instruments.
The carrying amounts and estimated fair values of our long-term
debt instruments at December 31, 2010 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
Senior notes
|
|
$
|
1,279,524
|
|
|
$
|
1,428,000
|
|
|
$
|
1,277,207
|
|
|
$
|
1,312,165
|
|
Convertible notes
|
|
|
1,043,236
|
|
|
|
1,078,000
|
|
|
|
1,440,040
|
|
|
|
1,447,655
|
|
Syndicated loan facilities
|
|
|
458,964
|
|
|
|
457,187
|
|
|
|
416,081
|
|
|
|
403,079
|
|
Other
|
|
|
193,460
|
|
|
|
195,620
|
|
|
|
157,164
|
|
|
|
158,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,975,184
|
|
|
$
|
3,158,807
|
|
|
$
|
3,290,492
|
|
|
$
|
3,321,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes and Convertible Notes. We
estimated the fair values of our senior notes and our
convertible notes using quoted market prices in a broker dealer
market, which may be adjusted for certain factors such as
historical trading levels and market data for our notes, credit
default spreads, stock volatility assumptions with respect to
our senior notes and our convertible notes and other
corroborating market or internally generated data. Because our
fair value measurement includes market data, corroborating
market data and some internally generated information, we
consider this Level 2 in the fair value hierarchy.
Syndicated Loan Facilities. We
estimated the fair values of our syndicated loan facilities
using primarily Level 3 inputs such as U.S. Treasury
yield curves, prices of comparable bonds, LIBOR and zero-coupon
yield curves, treasury bond rates and credit spreads on
comparable publicly traded bonds.
Brazil Credit Paper. The Brazilian
credit paper represents working capital loans from Brazilian
banks. We borrowed $25.6 million in May 2009,
$16.9 million in June 2009 and an additional
$28.7 million in December 2009. We estimated the fair value
of the loans by discounting the expected cash flows utilizing
primarily Level 3 inputs such as a forward zero-coupon
curve of the U.S. Treasury bonds and an appropriate credit
spread based on comparable publicly traded bonds.
F-29
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Commitments
and Contingencies
|
Capital
and Operating Lease Commitments.
We have co-location capital lease obligations on some of our
communication towers in Mexico and Brazil. The remaining terms
of these lease agreements range from one to fifteen years. In
addition, we have a capital lease obligation on our existing
corporate aircraft. The remaining term of this lease agreement
is ten years. See Note 5 for further information regarding
these agreements.
We lease various cell sites, office facilities and other assets
under operating leases. Some of these leases provide for annual
increases in our rent payments based on changes in locally-based
consumer price indices. The remaining terms of our cell site
leases range from one to fifteen years and are generally
renewable, at our option, for additional terms. The remaining
terms of our office leases range from less than one to ten
years. During the years ended December 31, 2010, 2009 and
2008, total rent expense under operating leases was
$225.9 million, $183.3 million and
$177.2 million, respectively.
For years subsequent to December 31, 2010, future minimum
payments for all capital and operating lease obligations that
have initial noncancelable lease terms exceeding one year, net
of rental income, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
|
2011
|
|
$
|
83,581
|
|
|
$
|
180,938
|
|
|
$
|
264,519
|
|
2012
|
|
|
83,581
|
|
|
|
158,164
|
|
|
|
241,745
|
|
2013
|
|
|
83,646
|
|
|
|
139,805
|
|
|
|
223,451
|
|
2014
|
|
|
83,683
|
|
|
|
129,851
|
|
|
|
213,534
|
|
2015
|
|
|
80,427
|
|
|
|
111,980
|
|
|
|
192,407
|
|
Thereafter
|
|
|
344,936
|
|
|
|
334,370
|
|
|
|
679,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
759,854
|
|
|
|
1,055,108
|
|
|
|
1,814,962
|
|
Less: imputed interest
|
|
|
(469,618
|
)
|
|
|
|
|
|
|
(469,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
290,236
|
|
|
$
|
1,055,108
|
|
|
$
|
1,345,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorola
Commitments.
We are a party to agreements with Motorola, Inc. under which
Motorola provides us with infrastructure equipment and services,
including installation, implementation and training. We and
Motorola have also agreed to warranty and maintenance programs
and specified indemnity arrangements. We have also agreed to
provide Motorola with notice of our determination that
Motorolas technology is no longer suited to our needs at
least six months before publicly announcing or entering into a
contract to purchase equipment utilizing an alternate
technology. In addition, if Motorola manufactures, or elects to
manufacture, the equipment utilizing the alternate technology
that we elect to deploy, we must give Motorola the opportunity
to supply 50% of our infrastructure requirements for the
equipment utilizing the alternate technology for three years.
Since Motorola does not manufacture WCDMA infrastructure
equipment, this requirement does not apply to our planned
deployment of third generation networks.
In September 2006, we entered into agreements to extend our
relationship with Motorola for the supply of iDEN handsets and
iDEN network infrastructure through December 31, 2011.
Under these agreements, Motorola agreed to maintain an adequate
supply of the iDEN handsets and equipment used in our business
for the term of the agreement and to continue to invest in the
development of new iDEN devices and infrastructure features. In
addition, we agreed to annually escalating handset volume
purchase commitments and certain pricing parameters for handsets
and infrastructure linked to the volume of our purchases. If we
do not meet the specified handset
F-30
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
Commitments
and Contingencies (Continued)
|
volume commitments, we would be required to pay an additional
amount based on any shortfall of actual purchased handsets
compared to the related annual volume commitment. In October
2010, we extended the terms of the iDEN network infrastructure
agreement with Motorola until December 31, 2014.
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 year ended December 31, 2010.
As of December 31, 2010 and 2009, Nextel Brazil had accrued
liabilities of $56.8 million and $13.9 million,
respectively, related to contingencies, all of which were
classified in accrued contingencies reported as a component of
other long-term liabilities and none of which related to
unasserted claims. We currently estimate the range of reasonably
possible losses related to matters for which Nextel Brazil has
not accrued liabilities, as they are not deemed probable, to be
between $182.6 million and $186.6 million as of
December 31, 2010. We are continuing to evaluate the
likelihood of probable and reasonably possible losses, if any,
related to all known contingencies. As a result, future
increases or decreases to our accrued liabilities may be
necessary and will be recorded in the period when such amounts
are determined to be probable and reasonably estimable.
Argentine
Contingencies.
As of December 31, 2010 and 2009, Nextel Argentina had
accrued liabilities of $35.1 million and
$28.2 million, respectively, related primarily to local
turnover taxes, universal service tax and local government
claims, all of which were classified in accrued contingencies
and accrued non-income taxes reported as components of accrued
expenses and other.
Legal
Proceedings.
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
Income
Taxes.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. We regularly assess the potential outcome of current and
future examinations in each of the taxing jurisdictions when
determining the adequacy of the provision for income taxes. We
have only recorded financial statement benefits for tax
positions which we believe reflect the
more-likely-than-not criteria incorporated in the
FASBs authoritative guidance on accounting for uncertainty
in income taxes, and we have established income tax reserves in
accordance with this authoritative guidance where necessary.
Once a financial statement benefit for a tax position is
recorded or a tax reserve is established, we adjust it only when
there is more information available or when an event occurs
necessitating a change. While we believe that the amount of the
recorded financial statement benefits and tax reserves reflect
the more-likely-than-not criteria, it is possible that the
ultimate outcome of current or future examinations may result in
a reduction to the tax benefits previously recorded on the
financial statements or may exceed the current income tax
reserves in amounts that could be material.
F-31
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We currently have 600,000,000 shares of authorized common
stock, par value $0.001 per share, and 10,000,000 shares of
authorized undesignated preferred stock, par value $0.001 per
share.
As described in Note 1, during the years ended
December 31, 2008 and 2007, we repurchased a total of
5,555,033 shares and 7,401,543 shares of our common
stock, respectively.
During the years ended December 31, 2010, 2009 and 2008, we
issued shares of common stock in connection with the exercise of
stock options by employees.
As of December 31, 2010 and 2009, there were
169,661,346 shares and 166,730,066 shares of our
common stock outstanding, respectively.
Common Stock. Holders of our common
stock are entitled to one vote per share on all matters
submitted for action by the stockholders and share equally,
share for share, if dividends are declared on the common stock.
If our Company is partially or completely liquidated, dissolved
or wound up, whether voluntarily or involuntarily, the holders
of the common stock are entitled to share ratably in the net
assets remaining after payment of all liquidation preferences,
if any, applicable to any outstanding preferred stock. There are
no redemption or sinking fund provisions applicable to the
common stock.
Undesignated Preferred Stock. Our board
of directors has the authority to issue undesignated preferred
stock of one or more series and in connection with the creation
of such series, to fix by resolution the designation, voting
powers, preferences and relative, participating, optional and
other special rights of such series, and the qualifications,
limitations and restrictions thereof. As of December 31,
2010, we had not issued any shares of undesignated preferred
stock.
Common Stock Reserved for Issuance. As
of December 31, 2010 and 2009, under our employee stock
option plan, we had reserved for future issuance
31,410,828 shares and 12,517,735 shares of our common
stock, respectively.
The components of the income tax provision from continuing
operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
35
|
|
|
$
|
(2,973
|
)
|
|
$
|
|
|
State, net of Federal tax benefit
|
|
|
|
|
|
|
(480
|
)
|
|
|
|
|
Foreign
|
|
|
(284,471
|
)
|
|
|
(226,016
|
)
|
|
|
(215,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
(284,436
|
)
|
|
|
(229,469
|
)
|
|
|
(215,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
12,310
|
|
|
|
45,303
|
|
|
|
30,547
|
|
State, net of Federal tax benefit
|
|
|
1,376
|
|
|
|
5,011
|
|
|
|
3,404
|
|
Foreign
|
|
|
14,064
|
|
|
|
(25,531
|
)
|
|
|
42,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision
|
|
|
27,750
|
|
|
|
24,783
|
|
|
|
76,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
(256,686
|
)
|
|
$
|
(204,686
|
)
|
|
$
|
(138,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
A reconciliation of the U.S. statutory Federal income tax
rate to our effective tax rate as a percentage of income before
taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Statutory Federal tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State taxes, net of Federal tax benefit
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Effect of foreign operations
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(6
|
)
|
Change in deferred tax asset valuation allowance
|
|
|
2
|
|
|
|
3
|
|
|
|
5
|
|
Intercompany transactions
|
|
|
|
|
|
|
(1
|
)
|
|
|
3
|
|
Withholding tax and tax on subpart F income
|
|
|
5
|
|
|
|
3
|
|
|
|
2
|
|
Tax deductible dividends
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
|
|
U.S. tax on unremitted foreign earnings
|
|
|
13
|
|
|
|
|
|
|
|
|
|
Inflation adjustments
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
|
(7
|
)
|
Income tax credits
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
Other nondeductible expenses
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax rate
|
|
|
43
|
%
|
|
|
35
|
%
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
Significant components of our deferred tax assets and
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses and capital loss carryforwards
|
|
$
|
284,606
|
|
|
$
|
250,961
|
|
Allowance for doubtful accounts
|
|
|
36,628
|
|
|
|
27,635
|
|
Accrued expenses
|
|
|
117,086
|
|
|
|
100,686
|
|
Accrual for contingent liabilities
|
|
|
17,319
|
|
|
|
6,298
|
|
Property, plant and equipment
|
|
|
285,998
|
|
|
|
266,480
|
|
Capital lease obligations
|
|
|
55,935
|
|
|
|
37,939
|
|
Deferred revenue
|
|
|
48,252
|
|
|
|
45,207
|
|
Stock option expense
|
|
|
61,203
|
|
|
|
51,297
|
|
Inventory reserve
|
|
|
40,042
|
|
|
|
22,308
|
|
Other
|
|
|
17,148
|
|
|
|
21,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
964,217
|
|
|
|
830,707
|
|
Valuation allowance
|
|
|
(106,811
|
)
|
|
|
(75,584
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
857,406
|
|
|
|
755,123
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
67,754
|
|
|
|
70,151
|
|
Unremitted foreign earnings
|
|
|
81,009
|
|
|
|
19,352
|
|
Deferred revenue
|
|
|
33,248
|
|
|
|
21,565
|
|
Property, plant and equipment
|
|
|
17,704
|
|
|
|
17,560
|
|
Debt discount
|
|
|
22,054
|
|
|
|
42,773
|
|
Billing reserve
|
|
|
21,370
|
|
|
|
21,061
|
|
Other
|
|
|
30,957
|
|
|
|
16,573
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
274,096
|
|
|
|
209,035
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
583,310
|
|
|
$
|
546,088
|
|
|
|
|
|
|
|
|
|
|
We have not recorded a deferred tax liability on Nextel
Brazils unrealized foreign currency gain on the
intercompany loan from NII Holdings, Inc. as it is our intention
to not subject that unrealized gain to Brazilian tax. If this
gain is subject to tax, it could result in an additional income
tax liability. As of December 31, 2010 and 2009, the
cumulative amount of additional tax liability would have been
approximately $136.4 million and $123.1 million,
respectively.
We continued to assert our prior position regarding the
repatriation of historical foreign earnings back to the U.S.,
and during the first quarter of 2010, we determined that we will
repatriate a total of $200 million of 2010 undistributed
earnings back to the U.S. in a taxable manner over the next
three years. As of December 31, 2009, we included a
$19.4 million provision in deferred tax liability for
U.S. federal, state and foreign taxes with respect to
future remittances of certain undistributed earnings (other than
income that has been previously taxed in the U.S. under the
subpart F rules) of certain of our foreign subsidiaries. This
deferred tax liability increased by a net tax effect of
$61.6 million in 2010 due to: (1) an increase
resulting from our plan to repatriate an additional
$200 million ($77.8 million tax effected) of
undistributed earnings in the next three years, (2) a
decrease from a $19.4 million tax
F-34
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
effect on the distribution received from our Mexico
subsidiaries, and (3) a $3.2 million increase due to
the strengthening in the Mexican exchange rate against the
U.S. dollar. As of December 31, 2010 this deferred tax
liability was $81.0 million. Except for the earnings
associated with this $81.0 million provision and income
that has been previously taxed in the U.S. under the
subpart F rules and can be remitted to the U.S. without
incurring additional income taxes, we currently have no
intention to remit any additional undistributed earnings of our
foreign subsidiaries in a taxable manner. Should additional
amounts of our foreign subsidiaries undistributed earnings
be remitted to the U.S. as dividends, we may be subject to
additional U.S. income taxes (net of allowable foreign tax
credits) and foreign withholding taxes. It is not practicable to
estimate the amount of any additional taxes which may be payable
on the remaining undistributed earnings.
As of December 31, 2010, we had approximately
$332.8 million of net operating loss carryforwards for
U.S. Federal and state income tax purposes, which expires
in various amounts beginning in 2019 through 2030. The timing
and manner in which we will utilize the net operating loss
carryforwards in any year, or in total, may be limited in the
future under the provisions of Internal Revenue Code
Section 382 regarding changes in our ownership.
As of December 31, 2010, we had approximately
$7.9 million of capital loss carryforwards for
U.S. Federal income tax purposes, which expires in various
amounts from 2012 through 2014. We will only be able to utilize
these capital losses to the extent we generate U.S. capital
gains. As we do not believe we meet the more-likely-than-not
criteria regarding the utilization of these capital losses prior
to their expiration, we have established a full valuation
allowance against these capital losses.
As of December 31, 2010, we had approximately
$14.1 million of net operating loss carryforwards in our
Mexican subsidiary. These carryforwards expire in various
amounts and at various periods from 2011 to 2020. Nextel Chile
and our holding companies in Luxembourg had approximately
$206.7 million and $29.6 million, respectively, of net
operating loss carryforwards that can be carried forward
indefinitely. Our holding companies in Spain had
$2.4 million net operating loss carryforwards that can be
carried forward 15 years starting from the first period
these holding companies generate profit. Nextel Peru had
approximately $40.1 million of net operating loss
carryforwards that can be carried forward and utilized,
alternatively, to fully offset Peru taxable income within the
next four years, or the losses may be carried forward
indefinitely until they are fully utilized, but in such an
instance the losses may only offset up to 50% of taxable income
each year. In addition, our Brazilian subsidiaries had
approximately $579.3 million of net operating loss
carryforwards that can also be carried forward indefinitely, but
the amount that we can utilize annually is limited to 30% of
Brazilian taxable income before the net operating loss
deduction. Our foreign subsidiaries ability to utilize the
foreign tax net operating losses in any single year ultimately
depends upon their ability to generate sufficient taxable income.
We excluded $202.8 million of U.S. net operating loss
carryforwards from the calculation of the deferred tax asset
above because it represents excess stock option deductions that
did not reduce taxes payable in the U.S. The tax effect of
these unrealized excess stock option deductions, if realized in
the future, will result in an increase to paid-in capital. We
recognize the benefits of net operating loss carryforwards in
the following order: (1) net operating losses from items
other than excess stock option deductions; (2) net
operating losses from excess stock option deductions accounted
for under FASBs updated authoritative guidance on
share-based payments; and (3) from excess stock option
deductions accounted for under FASBs updated authoritative
guidance on share-based payments. We use a
with-and-without
method to determine the tax benefit realized from excess stock
option deductions under FASBs updated authoritative
guidance on share-based payments. We calculated our adoption
date pool of excess tax benefits previously included in paid-in
capital under the standard method outlined in FASBs
updated authoritative guidance on share-based payments.
During 2010, the deferred tax asset valuation allowance
increased by a net amount of $31.2 million, primarily due
to the additional valuation allowance established on deferred
tax assets acquired in an acquisition of companies
F-35
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
in Brazil, an increase in the net operating loss carryforward in
Chile and Luxembourg, for which it is more likely than not that
the benefits will not be realized in the near term, a reduction
of the valuation allowance in the U.S. due to an increase
in the future reversal of taxable temporary differences and the
2010 realization of capital gains that reduced the valuation
allowance on the capital loss carryforward, and due to the
impact of various foreign currency translation adjustments.
The following table shows the deferred tax asset valuation
allowances that our subsidiaries and holding companies had as of
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in millions)
|
|
|
Brazil
|
|
$
|
39.1
|
|
|
$
|
21.3
|
|
Chile
|
|
|
33.7
|
|
|
|
14.7
|
|
U.S.
|
|
|
25.2
|
|
|
|
38.0
|
|
Luxembourg
|
|
|
6.2
|
|
|
|
|
|
Mexico
|
|
|
1.9
|
|
|
|
1.6
|
|
Spain
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
106.8
|
|
|
$
|
75.6
|
|
|
|
|
|
|
|
|
|
|
Of the total $106.8 million consolidated deferred tax asset
valuation allowance as of December 31, 2010,
$17.9 million of Nextel Brazils valuation allowance
existed as of our emergence from Chapter 11 reorganization
and therefore, any future decreases in this amount will be
recorded in accordance with the FASBs updated
authoritative guidance on financial reporting by entities in
reorganization under the bankruptcy code as a reduction to
income tax expense.
Realization of any additional deferred tax assets in any of our
markets depends on future profitability in these markets. Our
ability to generate the expected amounts of taxable income from
future operations is dependent upon general economic conditions,
technology trends, political uncertainties, competitive
pressures and other factors beyond managements control. If
our operations demonstrate profitability, we may reverse
additional deferred tax asset valuation allowances by
jurisdiction in the future. We will continue to evaluate the
deferred tax asset valuation allowance balances in all of our
foreign and U.S. companies throughout 2011 to determine the
appropriate level of valuation allowance.
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 and Argentina 2003; 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.
F-36
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
The following table shows a reconciliation of our unrecognized
tax benefits according to the FASBs authoritative guidance
on accounting for uncertainty in income taxes, as of
December 31, 2010, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Unrecognized tax benefits at January 1
|
|
$
|
99,595
|
|
|
$
|
85,886
|
|
|
$
|
67,955
|
|
Additions for current year tax positions
|
|
|
11,215
|
|
|
|
12,018
|
|
|
|
27,436
|
|
Additions for prior year tax positions
|
|
|
|
|
|
|
|
|
|
|
555
|
|
Reductions for current year tax positions
|
|
|
(5,176
|
)
|
|
|
|
|
|
|
|
|
Reductions for prior year tax positions
|
|
|
(5,804
|
)
|
|
|
|
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(529
|
)
|
|
|
(583
|
)
|
|
|
(490
|
)
|
Settlements with taxing authorities
|
|
|
(490
|
)
|
|
|
|
|
|
|
(124
|
)
|
Foreign currency translation adjustment
|
|
|
4,069
|
|
|
|
2,274
|
|
|
|
(9,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at December 31
|
|
$
|
102,880
|
|
|
$
|
99,595
|
|
|
$
|
85,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrecognized tax benefits that could potentially reduce our
future effective tax rate, if recognized, were
$75.7 million as of December 31, 2010 and 2009 and
$63.2 million as of December 31, 2008. We record
interest and penalties associated with uncertain tax positions
as a component of our income tax provision. During the years
ended December 31, 2010, 2009 and 2008, we recognized
approximately $2.6 million, $0.3 million and
$1.6 million, respectively, of interest and penalties in
our current income tax provision and statement of financial
position, and a benefit of $1.2 million, $1.9 million
and $3.0 million of interest and penalties in the
unrecognized tax benefits for which the statute of limitations
expired in 2010, 2009, and 2008, respectively. We had accrued
approximately $2.3 million, $0.5 million and
$2.0 million for the payment of interest and penalties as
of December 31, 2010, 2009 and 2008, respectively. We
classify our uncertain tax positions as non-current income tax
liabilities.
During 2004, Nextel Mexico amended its Mexican Federal income
tax returns in order to reverse a benefit previously claimed for
a disputed provision of the Federal income tax law covering
deductions and gains from the sale of property. We filed the
amended returns in order to avoid potential penalties and we
also filed administrative petitions seeking clarification of our
right to the tax benefits claimed on the original income tax
returns. The tax authorities constructively denied our
administrative petitions in January 2005 and in May 2005 we
filed an annulment suit challenging the constructive denial.
Resolution of the annulment suit is pending. Based on an opinion
by our independent legal counsel in Mexico, we believe it is
probable that we will recover this amount. Our consolidated
balance sheets as of December 31, 2010 and 2009 include
$14.1 million and $13.3 million, respectively, in
income taxes receivable, which are included as components of
other non-current assets. The $0.8 million increase from
December 31, 2009 to December 31, 2010 was due to the
change in the exchange rate between the Mexican peso and the
U.S. dollar. The income tax benefit for this item was
related to our income tax provision for the years ended
December 31, 2005, 2004 and 2003.
On December 7, 2009, the Mexican government enacted
amendments to the Mexican income tax law that became effective
January 1, 2010. The amendments established a transitory
increase to the income tax rate, from 28%, in force for 2007 to
2009, to 30% for 2010 to 2012, 29% for 2013 and 28% for 2014 and
subsequent years.
On July 31, 2010, a temporary increase in the Chilean
corporate income tax rate was published. The 17% corporate tax
rate will be increased to 20% for 2011, adjusted to 18.5% for
2012, and will revert to 17% for 2013 and thereafter.
F-37
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Income
Taxes (Continued)
|
Income from continuing operations before income taxes consisted
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
U.S.
|
|
$
|
(220,572
|
)
|
|
$
|
(188,735
|
)
|
|
$
|
(217,301
|
)
|
Non-U.S.
|
|
|
818,310
|
|
|
|
774,912
|
|
|
|
698,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
597,738
|
|
|
$
|
586,177
|
|
|
$
|
480,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Employee
Stock and Benefit Plans
|
As of December 31, 2010, we had the following share-based
compensation plans:
Under our Revised Third Amended Joint Plan of Reorganization, on
November 12, 2002, we adopted the 2002 Management Incentive
Plan for the benefit of our employees and directors. Although
there are 27,158 stock options outstanding under the 2002
Management Incentive Plan as of December 31, 2010, no
additional awards will be granted under the Plan. We adopted the
2004 Incentive Compensation Plan in April 2004. The 2004
Incentive Compensation Plan provides us the opportunity to
compensate selected employees with stock options, stock
appreciation rights (SARs), stock awards, performance share
awards, incentive awards
and/or stock
units. Through December 31, 2010, we have not granted any
SARs, performance share awards, incentive awards or stock units.
The 2004 Incentive Compensation Plan provides equity and
equity-related incentives to directors, officers or key
employees of and consultants to our company up to a maximum of
59,600,000 shares of common stock, subject to adjustments.
A stock option entitles the optionee to purchase shares of
common stock from us at the specified exercise price. Stock
awards consist of awards of common stock, subject to certain
restrictions specified in the 2004 Incentive Compensation Plan.
All grants or awards made under the 2004 Incentive Compensation
Plan are governed by written agreements between us and the
participants and have a maximum contractual term of ten years.
We issue new shares when both stock options and stock awards are
exercised.
Historically, our Board of Directors has granted stock options
and stock awards to employees on an annual basis near the end of
April. On April 23, 2010, our Board of Directors granted
1,759,620 stock options and 207,404 restricted stock awards to
certain of our employees and directors in connection with this
annual stock option grant. Stock options are also granted to
certain new employees on the later of their date of hire or the
date that the grant is approved. In addition, our chief
executive officer may grant, under authority delegated to him by
the Compensation Committee of our Board of Directors, a limited
number of stock options (not to exceed 10,000 shares in any
single grant and 100,000 shares in the aggregate) to
employees who are not executive officers.
We adopted the FASBs updated authoritative guidance for
stock-based compensation effective January 1, 2006. We used
the modified prospective transition method to adopt this
guidance and therefore did not restate our prior periods
results. Under this transition method, share-based payment
expense for the years ended December 31, 2010, 2009 and
2008 includes compensation expense for all share-based payment
awards granted prior to, but not fully vested as of,
January 1, 2006 based on the grant date fair value
estimated in accordance with the provisions of the FASBs
initial authoritative guidance for stock-based compensation.
Share-based payment expense for all share-based payment awards
granted after January 1, 2006 is based on the grant date
fair value estimated in accordance with the provisions of the
FASBs updated authoritative guidance on stock-based
compensation. We recognize these compensation costs net of a
forfeiture rate for only those shares expected to vest on a
straight-line basis over the requisite service period of the
award. Our stock options generally vest twenty-five percent per
year over a four-year period except for stock options granted in
2009 and 2010, which vest thirty-three percent per year over a
three-year period. Our restricted shares generally vest in full
on the third
and/or
fourth anniversaries of the grant except for restricted shares
granted in 2009 and 2010, which vest thirty-three percent per
year over a three-year period. We
F-38
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Employee
Stock and Benefit Plans (Continued)
|
used actual forfeitures to calculate our compensation expense
for the years ended December 31, 2010, 2009 and 2008.
For the years ended December 31, 2010, 2009 and 2008, we
recognized $59.7 million, $62.9 million and
$64.7 million, respectively, in share-based payment expense
related to stock options. For the years ended December 31,
2010, 2009 and 2008, we recognized $6.6 million,
$7.8 million and $6.6 million, respectively, in
share-based payment expense related to restricted stock. Amounts
recognized in the income statement for tax benefits related to
share-based payment arrangements in 2010, 2009 and 2008 were not
material. We include substantially all share-based payment
expense, including restricted stock expense, as a component of
selling, general and administrative expenses based on
classification of the compensation expense for the applicable
grantee. We classify tax benefits resulting from tax deductions
in excess of the compensation cost recognized for share-based
awards as financing cash flows. As of December 31, 2010,
there was approximately $65.0 million in unrecognized
compensation cost related to non-vested employee stock option
awards. We expect this cost to be recognized over a weighted
average period of 1.39 years. Cash received from exercise
under all share-based payment arrangements was
$57.7 million for 2010, $15.7 million for 2009 and
$33.8 million for 2008. We did not realize any tax benefits
from exercise of the share-based payment arrangements in 2010,
2009 or 2008.
Stock
Option Awards
The following table summarizes stock option activity under all
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Weighted Average
|
|
|
Aggregate Intrinsic
|
|
|
|
Options
|
|
|
per Option
|
|
|
Remaining Life
|
|
|
Value
|
|
|
Outstanding, December 31, 2009
|
|
|
15,890,801
|
|
|
$
|
39.28
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,874,320
|
|
|
|
40.18
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,648,530
|
)
|
|
|
21.78
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(1,070,821
|
)
|
|
|
48.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2010
|
|
|
14,045,770
|
|
|
|
42.01
|
|
|
|
7.04 years
|
|
|
$
|
153,190,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2010
|
|
|
6,944,780
|
|
|
|
51.81
|
|
|
|
5.90 years
|
|
|
|
45,160,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intrinsic value of options exercised for the years ended
December 31, 2010, 2009 and 2008 was $51.2 million,
$4.7 million and $35.7 million, respectively. The
total fair value of options vested was $62.2 million,
$69.9 million and $73.4 million for the years ended
December 31, 2010, 2009 and 2008, respectively. Generally,
our stock options are non-transferable, except by will or laws
of descent or distribution, and the actual value of the stock
options that a recipient may realize, if any, will depend on the
excess of the market price on the date of exercise over the
exercise price.
The weighted average fair value of the stock option awards on
their grant dates using the Black-Scholes-Merton option-pricing
model was $18.12 for each option granted for the year ended
December 31, 2010, $7.55 for
F-39
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Employee
Stock and Benefit Plans (Continued)
|
each option granted for the year ended December 31, 2009
and $18.78 for each option granted for the year ended
December 31, 2008 based on the following assumptions:
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Risk free interest rate
|
|
1.15% - 2.50%
|
|
1.50% - 2.51%
|
|
1.52% - 3.56%
|
Expected stock price volatility
|
|
49.85% - 62.58%
|
|
47.4% - 62.6%
|
|
47.4% - 51.5%
|
Expected term in years
|
|
4.69 - 4.76
|
|
4.52 - 4.69
|
|
4.52 - 4.60
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
The expected term of stock option awards granted represents the
period that we expect our stock option awards will be
outstanding and was determined based on (1) historical data
on employee exercise and post-vesting employment termination
behavior, (2) the contractual terms of the stock option
awards, (3) vesting schedules and (4) expectations of
future employee behavior. The risk-free interest rate for
periods consistent with the contractual life of the stock option
award is based on the yield curve of U.S. Treasury strip
securities in effect at the time of the grant. Expected
volatility for options granted after April 1, 2006 takes
into consideration historical volatility and the implied
volatility from traded options on our stock consistent with the
guidance in SAB No. 107, Share-Based Payment.
The Black-Scholes-Merton option-pricing model was developed for
use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition,
option-pricing models such as the Black-Scholes-Merton model
require the input of highly subjective assumptions, including
the expected stock price volatility. The assumptions listed
above represent our best estimates, but these estimates involve
inherent uncertainties and the application of management
judgment. Consequently, there is a risk that our estimates of
the fair values of our stock option awards on the grant dates
may bear little resemblance to the actual values realized upon
the exercise, expiration, early termination or forfeiture of
those stock option awards in the future. Certain stock option
awards may expire worthless or otherwise result in zero
intrinsic value as compared to the fair values originally
estimated on the grant date and reported in our financial
statements. Alternatively, value may be realized from stock
option awards that are significantly in excess of the fair
values originally estimated on the grant date and reported in
our financial statements. Additionally, application of
alternative assumptions could produce significantly different
estimates of the fair value of stock option awards and
consequently, the related amounts recognized in the consolidated
statements of operations. Currently, there is no market-based
mechanism or other practical application to verify the
reliability and accuracy of the estimates from option-pricing
valuation models, such as Black-Scholes-Merton, nor is there a
means to compare and adjust the estimates to actual values.
Although the fair value of stock option awards is determined in
accordance with the FASBs updated authoritative guidance
for stock-based compensation, using the Black-Scholes-Merton
option-pricing model, the fair value may not be indicative of
the fair value observed in a willing buyer/willing seller market
transaction. Because stock options have characteristics
significantly different from those of traded options, and
because changes in the subjective input assumptions can
materially affect the fair value estimate, we believe that the
existing models do not necessarily provide a reliable single
measure of the fair value of the stock options.
F-40
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Employee
Stock and Benefit Plans (Continued)
|
Restricted
Stock Awards
Following is a summary of the status of our non-vested
restricted stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Number of
|
|
|
Fair Value
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Non-vested restricted stock awards as of December 31, 2009
|
|
|
683,224
|
|
|
$
|
27.59
|
|
Granted
|
|
|
222,970
|
|
|
|
40.03
|
|
Vested
|
|
|
(282,750
|
)
|
|
|
36.23
|
|
Forfeited
|
|
|
(20,698
|
)
|
|
|
21.32
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 31, 2010
|
|
|
602,746
|
|
|
|
28.90
|
|
|
|
|
|
|
|
|
|
|
If a participant terminates employment prior to the vesting
dates, the unvested shares are forfeited and available for
reissuance under the terms of the 2004 Incentive Compensation
Plan. The fair value of our restricted stock awards is
determined based on the quoted price of our common stock at the
grant date. As of December 31, 2010, there was
approximately $9.8 million in unrecognized compensation
cost related to non-vested restricted stock awards. We expect
this cost to be recognized over a weighted average period of
1.55 years. The total fair value of restricted stock units
vested was $11.2 million during 2010 and $6.0 million
during 2009. No restricted stock units vested during 2008. The
weighted average grant date fair value of restricted stock units
granted during 2010 was $40.03 per unit compared to $14.33 per
unit for 2009 and $44.17 per unit for 2008.
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, amortization
and impairment, restructuring and other charges, which we refer
to as segment earnings.
F-41
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
Segment
Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and
|
|
|
Intercompany
|
|
|
|
|
|
|
Brazil
|
|
|
Mexico
|
|
|
Argentina
|
|
|
Peru
|
|
|
other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
2,591,271
|
|
|
$
|
2,113,762
|
|
|
$
|
563,459
|
|
|
$
|
312,016
|
|
|
$
|
24,491
|
|
|
$
|
(3,683
|
)
|
|
$
|
5,601,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
805,692
|
|
|
$
|
745,155
|
|
|
$
|
148,924
|
|
|
$
|
22,263
|
|
|
$
|
(299,060
|
)
|
|
$
|
7,419
|
|
|
$
|
1,430,393
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(552,980
|
)
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,374
|
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(332,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
597,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
426,502
|
|
|
$
|
128,550
|
|
|
$
|
47,323
|
|
|
$
|
94,019
|
|
|
$
|
179,599
|
|
|
$
|
|
|
|
$
|
875,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,734,637
|
|
|
$
|
1,861,864
|
|
|
$
|
519,720
|
|
|
$
|
268,385
|
|
|
$
|
14,086
|
|
|
$
|
(1,093
|
)
|
|
$
|
4,397,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
495,325
|
|
|
$
|
653,110
|
|
|
$
|
148,803
|
|
|
$
|
14,605
|
|
|
$
|
(201,662
|
)
|
|
$
|
|
|
|
$
|
1,110,181
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(433,304
|
)
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104,866
|
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
586,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
407,449
|
|
|
$
|
104,418
|
|
|
$
|
38,626
|
|
|
$
|
148,463
|
|
|
$
|
34,201
|
|
|
$
|
|
|
|
$
|
733,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,330,919
|
|
|
$
|
2,133,241
|
|
|
$
|
554,324
|
|
|
$
|
243,390
|
|
|
$
|
8,741
|
|
|
$
|
(1,235
|
)
|
|
$
|
4,269,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
369,969
|
|
|
$
|
764,344
|
|
|
$
|
170,855
|
|
|
$
|
42,557
|
|
|
$
|
(175,305
|
)
|
|
$
|
|
|
|
$
|
1,172,420
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(405,120
|
)
|
Foreign currency transaction losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120,572
|
)
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(165,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
480,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
414,466
|
|
|
$
|
218,623
|
|
|
$
|
84,631
|
|
|
$
|
64,342
|
|
|
$
|
50,847
|
|
|
$
|
|
|
|
$
|
832,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
3,036,106
|
|
|
$
|
2,019,550
|
|
|
$
|
393,246
|
|
|
$
|
556,752
|
|
|
$
|
2,185,320
|
|
|
$
|
(287
|
)
|
|
$
|
8,190,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,530,896
|
|
|
$
|
2,234,120
|
|
|
$
|
399,579
|
|
|
$
|
445,828
|
|
|
$
|
1,944,557
|
|
|
$
|
(287
|
)
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(in thousands, except per share amounts)
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,283,146
|
|
|
$
|
1,351,921
|
|
|
$
|
1,446,151
|
|
|
$
|
1,520,098
|
|
Operating income
|
|
|
212,671
|
|
|
|
213,023
|
|
|
|
222,551
|
|
|
|
229,168
|
|
Net income
|
|
|
48,462
|
|
|
|
75,491
|
|
|
|
118,512
|
|
|
|
98,587
|
|
Net income, per common share, basic
|
|
$
|
0.29
|
|
|
$
|
0.45
|
|
|
$
|
0.70
|
|
|
$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
0.28
|
|
|
$
|
0.44
|
|
|
$
|
0.68
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Quarterly
Financial Data
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(in thousands, except per share amounts)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
961,314
|
|
|
$
|
1,058,865
|
|
|
$
|
1,142,458
|
|
|
$
|
1,234,962
|
|
Operating income
|
|
|
152,244
|
|
|
|
163,114
|
|
|
|
186,297
|
|
|
|
175,222
|
|
Net income
|
|
|
70,638
|
|
|
|
134,290
|
|
|
|
116,982
|
|
|
|
59,581
|
|
Net income, per common share, basic
|
|
$
|
0.43
|
|
|
$
|
0.81
|
|
|
$
|
0.70
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
0.43
|
|
|
$
|
0.79
|
|
|
$
|
0.69
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The sum of the per share amounts do not equal the annual amounts
due to changes in the number of weighted average number of
common shares outstanding during the year.
During the fourth quarter of 2010, we identified accounting
errors in our Brazil operating segment related to the
recognition throughout 2010 of certain value-added tax credits,
which we later determined were not recoverable. These errors,
which were attributable to the results included in our condensed
consolidated financial statements for the three months ended
March 31, June 30, and September 30, 2010 and, to
a lesser degree, for the year ended December 31, 2009, were
identified and corrected as
out-of-period
adjustments during the three months ended December 31,
2010. The effect of correcting these errors as
out-of-period
adjustments understated net income by approximately
$16.9 million and net income per basic and diluted common
share by approximately $0.10 and $0.10, respectively, for the
three months ended December 31, 2010. The correction of
these errors is not material to our consolidated financial
statements as of and for the three months ended March 31,
June 30, and September 30, 2010 nor was this
correction material to our consolidated financial statements as
of and for the year ended December 31, 2009.
|
|
13.
|
Condensed
Consolidating Financial Statements
|
In 2009, we issued senior notes totaling $1.3 billion in
aggregate principal amount comprised of our 10.0% senior
notes due 2016 and our 8.875% senior notes due 2019
(collectively, the notes). The notes are senior
unsecured obligations of NII Capital Corp., a wholly-owned
domestic subsidiary, and are guaranteed on a senior unsecured
basis by NII Holdings and all of its current and future first
tier and domestic restricted subsidiaries, other than NII
Capital Corp. No foreign subsidiaries will guarantee the notes
unless they are first tier subsidiaries of NII Holdings. These
guarantees are full and unconditional, as well as joint and
several.
In connection with the issuance of the notes and the guarantees
thereof, we are required to provide certain condensed
consolidating financial information. Included in the tables
below are condensed consolidating balance sheets as of
December 31, 2010 and 2009, as well as condensed
consolidating statements of operations for the years ended
December 31, 2010, 2009 and 2008 and condensed
consolidating statements of cash flows for the years ended
December 31, 2010, 2009 and 2008, of: (a) the parent
company, NII Holdings, Inc.; (b) the subsidiary issuer, NII
Capital Corp.; (c) the guarantor subsidiaries on a combined
basis; (d) the non-guarantor subsidiaries on a combined
basis; (e) consolidating adjustments; and (f) NII
Holdings, Inc. and subsidiaries on a consolidated basis. The
condensed consolidating balance sheet as of December 31,
2009 presented below was revised to reflect the inclusion of an
additional subsidiary guarantor and the release of certain
guarantors pursuant to the indentures. Additionally, the
condensed consolidating balance sheet as of December 31,
2009 and the condensed consolidating statements of operations
and cash flows for the years ended December 31, 2009 and
2008 were revised to reflect the proper elimination of certain
intercompany balances and transactions between subsidiaries
within the combined financial statements to which they relate.
In prior filings, these intercompany balances and transactions
were included in the Consolidating Adjustments
column. These revisions were not material to our financial
statements taken as a whole.
F-43
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)(1)
|
|
|
Subsidiaries(2)
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
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
|
|
|
2,044,360
|
|
|
|
173,263
|
|
|
|
1,599,378
|
|
|
|
1,856,602
|
|
|
|
(4,846,350
|
)
|
|
|
827,253
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,690
|
|
|
|
|
|
|
|
158,690
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
1,729
|
|
|
|
445,266
|
|
|
|
|
|
|
|
446,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,045,655
|
|
|
|
173,263
|
|
|
|
1,603,421
|
|
|
|
2,756,979
|
|
|
|
(4,846,350
|
)
|
|
|
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
|
|
|
14,564
|
|
|
|
|
|
|
|
9,773
|
|
|
|
867,903
|
|
|
|
(681,061
|
)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
NII Capital Corp. is the issuer of our 10.0% senior notes
due 2016 and our 8.875% senior notes due 2019. |
|
(2) |
|
Represents our subsidiaries that have provided guarantees of the
obligations of NII Capital Corp. under our 10.0% senior
notes due 2016 and our 8.875% notes due 2019. |
F-44
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,702,190
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
801,846
|
|
|
$
|
|
|
|
$
|
2,504,064
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116,289
|
|
|
|
|
|
|
|
116,289
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613,344
|
|
|
|
247
|
|
|
|
613,591
|
|
Handset and accessory inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,476
|
|
|
|
|
|
|
|
188,476
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
1,977
|
|
|
|
147,358
|
|
|
|
(837
|
)
|
|
|
148,498
|
|
Prepaid expenses and other
|
|
|
725
|
|
|
|
15
|
|
|
|
4,812
|
|
|
|
214,658
|
|
|
|
|
|
|
|
220,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,702,915
|
|
|
|
43
|
|
|
|
6,789
|
|
|
|
2,081,971
|
|
|
|
(590
|
)
|
|
|
3,791,128
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
57,051
|
|
|
|
2,445,425
|
|
|
|
(287
|
)
|
|
|
2,502,189
|
|
Investments in and advances to affiliates
|
|
|
1,686,513
|
|
|
|
2,375,653
|
|
|
|
2,375,653
|
|
|
|
|
|
|
|
(6,437,819
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
337,233
|
|
|
|
|
|
|
|
337,233
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
31,161
|
|
|
|
494,343
|
|
|
|
(31,161
|
)
|
|
|
494,343
|
|
Other assets
|
|
|
2,237,959
|
|
|
|
940,834
|
|
|
|
676,708
|
|
|
|
918,241
|
|
|
|
(4,343,942
|
)
|
|
|
429,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,627,387
|
|
|
$
|
3,316,530
|
|
|
$
|
3,147,362
|
|
|
$
|
6,277,213
|
|
|
$
|
(10,813,799
|
)
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
997
|
|
|
$
|
185,999
|
|
|
$
|
|
|
|
$
|
186,996
|
|
Accrued expenses and other
|
|
|
1,394,719
|
|
|
|
66,983
|
|
|
|
1,525,867
|
|
|
|
1,137,229
|
|
|
|
(3,483,174
|
)
|
|
|
641,624
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,533
|
|
|
|
|
|
|
|
136,533
|
|
Current portion of long-term debt
|
|
|
342,412
|
|
|
|
|
|
|
|
1,684
|
|
|
|
220,448
|
|
|
|
|
|
|
|
564,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,737,131
|
|
|
|
66,983
|
|
|
|
1,528,548
|
|
|
|
1,680,209
|
|
|
|
(3,483,174
|
)
|
|
|
1,529,697
|
|
Long-term debt
|
|
|
1,097,647
|
|
|
|
1,277,206
|
|
|
|
41,063
|
|
|
|
600,328
|
|
|
|
|
|
|
|
3,016,244
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,071
|
|
|
|
|
|
|
|
22,071
|
|
Deferred credits
|
|
|
33,900
|
|
|
|
18,667
|
|
|
|
|
|
|
|
72,526
|
|
|
|
(31,161
|
)
|
|
|
93,932
|
|
Other long-term liabilities
|
|
|
11,872
|
|
|
|
|
|
|
|
8,871
|
|
|
|
987,877
|
|
|
|
(862,708
|
)
|
|
|
145,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,880,550
|
|
|
|
1,362,856
|
|
|
|
1,578,482
|
|
|
|
3,363,011
|
|
|
|
(4,377,043
|
)
|
|
|
4,807,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,746,837
|
|
|
|
1,953,674
|
|
|
|
1,568,880
|
|
|
|
2,914,202
|
|
|
|
(6,436,756
|
)
|
|
|
2,746,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,627,387
|
|
|
$
|
3,316,530
|
|
|
$
|
3,147,362
|
|
|
$
|
6,277,213
|
|
|
$
|
(10,813,799
|
)
|
|
$
|
7,554,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,304
|
|
|
$
|
5,601,316
|
|
|
$
|
(2,304
|
)
|
|
$
|
5,601,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
106
|
|
|
|
2,229,028
|
|
|
|
|
|
|
|
2,229,134
|
|
Selling, general and administrative
|
|
|
10,064
|
|
|
|
389
|
|
|
|
223,153
|
|
|
|
1,717,907
|
|
|
|
(9,724
|
)
|
|
|
1,941,789
|
|
Management fee, royalty fee and other
|
|
|
(76,814
|
)
|
|
|
|
|
|
|
(125,683
|
)
|
|
|
195,077
|
|
|
|
7,420
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
7,637
|
|
|
|
545,343
|
|
|
|
|
|
|
|
552,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,750
|
)
|
|
|
389
|
|
|
|
105,213
|
|
|
|
4,687,355
|
|
|
|
(2,304
|
)
|
|
|
4,723,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
66,750
|
|
|
|
(389
|
)
|
|
|
(102,909
|
)
|
|
|
913,961
|
|
|
|
|
|
|
|
877,413
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(245,817
|
)
|
|
|
(126,140
|
)
|
|
|
(1,131
|
)
|
|
|
(170,758
|
)
|
|
|
201,642
|
|
|
|
(342,204
|
)
|
Interest income
|
|
|
16,568
|
|
|
|
187,106
|
|
|
|
499
|
|
|
|
26,310
|
|
|
|
(201,642
|
)
|
|
|
28,841
|
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,374
|
|
|
|
|
|
|
|
52,374
|
|
Equity in income of affiliates
|
|
|
417,955
|
|
|
|
483,113
|
|
|
|
565,991
|
|
|
|
|
|
|
|
(1,467,059
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
39
|
|
|
|
|
|
|
|
143
|
|
|
|
(18,855
|
)
|
|
|
(13
|
)
|
|
|
(18,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,745
|
|
|
|
544,079
|
|
|
|
565,502
|
|
|
|
(110,929
|
)
|
|
|
(1,467,072
|
)
|
|
|
(279,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
255,495
|
|
|
|
543,690
|
|
|
|
462,593
|
|
|
|
803,032
|
|
|
|
(1,467,072
|
)
|
|
|
597,738
|
|
Income tax benefit (provision)
|
|
|
85,557
|
|
|
|
(26,911
|
)
|
|
|
(68,440
|
)
|
|
|
(246,892
|
)
|
|
|
|
|
|
|
(256,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
341,052
|
|
|
$
|
516,779
|
|
|
$
|
394,153
|
|
|
$
|
556,140
|
|
|
$
|
(1,467,072
|
)
|
|
$
|
341,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,397,599
|
|
|
$
|
|
|
|
$
|
4,397,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
1,848,780
|
|
|
|
|
|
|
|
1,848,955
|
|
Selling, general and administrative
|
|
|
|
|
|
|
4
|
|
|
|
149,734
|
|
|
|
1,288,725
|
|
|
|
|
|
|
|
1,438,463
|
|
Management fee and other
|
|
|
(29,335
|
)
|
|
|
|
|
|
|
(81,997
|
)
|
|
|
111,332
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
6,636
|
|
|
|
426,668
|
|
|
|
|
|
|
|
433,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,335
|
)
|
|
|
4
|
|
|
|
74,548
|
|
|
|
3,675,505
|
|
|
|
|
|
|
|
3,720,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
29,335
|
|
|
|
(4
|
)
|
|
|
(74,548
|
)
|
|
|
722,094
|
|
|
|
|
|
|
|
676,877
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(95,723
|
)
|
|
|
(32,903
|
)
|
|
|
(691
|
)
|
|
|
(100,941
|
)
|
|
|
11,414
|
|
|
|
(218,844
|
)
|
Interest income
|
|
|
3,884
|
|
|
|
|
|
|
|
8,354
|
|
|
|
24,762
|
|
|
|
(11,414
|
)
|
|
|
25,586
|
|
Foreign currency transaction gains (losses), net
|
|
|
3,064
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
101,803
|
|
|
|
|
|
|
|
104,866
|
|
Equity in income (losses) of affiliates
|
|
|
401,770
|
|
|
|
272,843
|
|
|
|
(10,548
|
)
|
|
|
|
|
|
|
(664,065
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
2,142
|
|
|
|
|
|
|
|
(4,063
|
)
|
|
|
(382
|
)
|
|
|
(5
|
)
|
|
|
(2,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
315,137
|
|
|
|
239,940
|
|
|
|
(6,949
|
)
|
|
|
25,242
|
|
|
|
(664,070
|
)
|
|
|
(90,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax benefit (provision)
|
|
|
344,472
|
|
|
|
239,936
|
|
|
|
(81,497
|
)
|
|
|
747,336
|
|
|
|
(664,070
|
)
|
|
|
586,177
|
|
Income tax benefit (provision)
|
|
|
37,019
|
|
|
|
8,157
|
|
|
|
(12,445
|
)
|
|
|
(237,417
|
)
|
|
|
|
|
|
|
(204,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
381,491
|
|
|
$
|
248,093
|
|
|
$
|
(93,942
|
)
|
|
$
|
509,919
|
|
|
$
|
(664,070
|
)
|
|
$
|
381,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-47
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,269,380
|
|
|
$
|
|
|
|
$
|
4,269,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,696,318
|
|
|
|
|
|
|
|
1,696,318
|
|
Selling, general and administrative
|
|
|
|
|
|
|
|
|
|
|
130,678
|
|
|
|
1,269,964
|
|
|
|
|
|
|
|
1,400,642
|
|
Management fee and other
|
|
|
|
|
|
|
|
|
|
|
(83,794
|
)
|
|
|
84,146
|
|
|
|
(352
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
6,892
|
|
|
|
398,228
|
|
|
|
|
|
|
|
405,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,776
|
|
|
|
3,448,656
|
|
|
|
(352
|
)
|
|
|
3,502,080
|
|
Operating (loss) income
|
|
|
|
|
|
|
|
|
|
|
(53,776
|
)
|
|
|
820,724
|
|
|
|
352
|
|
|
|
767,300
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(95,085
|
)
|
|
|
|
|
|
|
(988
|
)
|
|
|
(116,745
|
)
|
|
|
7,302
|
|
|
|
(205,516
|
)
|
Interest income
|
|
|
19,949
|
|
|
|
|
|
|
|
52
|
|
|
|
55,712
|
|
|
|
(7,302
|
)
|
|
|
68,411
|
|
Foreign currency transaction losses, net
|
|
|
(1,455
|
)
|
|
|
|
|
|
|
|
|
|
|
(118,765
|
)
|
|
|
(352
|
)
|
|
|
(120,572
|
)
|
Equity in income of affiliates
|
|
|
404,435
|
|
|
|
374,299
|
|
|
|
|
|
|
|
|
|
|
|
(778,734
|
)
|
|
|
|
|
Other (expense) income, net
|
|
|
(14,778
|
)
|
|
|
|
|
|
|
401
|
|
|
|
(14,429
|
)
|
|
|
|
|
|
|
(28,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
313,066
|
|
|
|
374,299
|
|
|
|
(535
|
)
|
|
|
(194,227
|
)
|
|
|
(779,086
|
)
|
|
|
(286,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax benefit (provision)
|
|
|
313,066
|
|
|
|
374,299
|
|
|
|
(54,311
|
)
|
|
|
626,497
|
|
|
|
(778,734
|
)
|
|
|
480,817
|
|
Income tax benefit (provision)
|
|
|
28,889
|
|
|
|
585
|
|
|
|
9,642
|
|
|
|
(177,978
|
)
|
|
|
|
|
|
|
(138,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
341,955
|
|
|
$
|
374,884
|
|
|
$
|
(44,669
|
)
|
|
$
|
448,519
|
|
|
$
|
(778,734
|
)
|
|
$
|
341,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
341,052
|
|
|
$
|
516,779
|
|
|
$
|
394,153
|
|
|
$
|
556,140
|
|
|
$
|
(1,467,072
|
)
|
|
$
|
341,052
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
(487,337
|
)
|
|
|
(538,796
|
)
|
|
|
(267,548
|
)
|
|
|
527,600
|
|
|
|
1,315,843
|
|
|
|
549,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(146,285
|
)
|
|
|
(22,017
|
)
|
|
|
126,605
|
|
|
|
1,083,740
|
|
|
|
(151,229
|
)
|
|
|
890,814
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(39,729
|
)
|
|
|
|
|
|
|
|
|
|
|
(652,030
|
)
|
|
|
|
|
|
|
(691,759
|
)
|
Purchases of long-term and short-term investments
|
|
|
(540,921
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,299,272
|
)
|
|
|
|
|
|
|
(1,840,193
|
)
|
Proceeds from sales of short-term investments
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
1,366,545
|
|
|
|
|
|
|
|
1,416,545
|
|
Transfers from restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,100
|
|
|
|
|
|
|
|
99,100
|
|
Transfers to restricted cash
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
(98,528
|
)
|
|
|
|
|
|
|
(98,542
|
)
|
Intercompany borrowings
|
|
|
(62,995
|
)
|
|
|
400
|
|
|
|
63,955
|
|
|
|
|
|
|
|
(1,360
|
)
|
|
|
|
|
Payments for acquisitions, purchases of licenses and other
|
|
|
(26,462
|
)
|
|
|
(400
|
)
|
|
|
|
|
|
|
(61,888
|
)
|
|
|
26,862
|
|
|
|
(61,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(620,121
|
)
|
|
|
|
|
|
|
63,955
|
|
|
|
(646,073
|
)
|
|
|
25,502
|
|
|
|
(1,176,737
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
|
|
|
|
|
|
|
130,000
|
|
Repayments under syndicated loan facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,117
|
)
|
|
|
|
|
|
|
(87,117
|
)
|
Repayments under import financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,606
|
)
|
|
|
|
|
|
|
(80,606
|
)
|
Purchases of convertible notes
|
|
|
(442,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(442,972
|
)
|
Intercompany dividends
|
|
|
|
|
|
|
|
|
|
|
(67,090
|
)
|
|
|
(84,139
|
)
|
|
|
151,229
|
|
|
|
|
|
Other, net
|
|
|
55,385
|
|
|
|
22,017
|
|
|
|
(1,284
|
)
|
|
|
(31,084
|
)
|
|
|
(25,502
|
)
|
|
|
19,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows (used in) provided by financing activities
|
|
|
(387,587
|
)
|
|
|
22,017
|
|
|
|
(68,374
|
)
|
|
|
(152,946
|
)
|
|
|
125,727
|
|
|
|
(461,163
|
)
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,523
|
|
|
|
|
|
|
|
10,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,153,993
|
)
|
|
|
|
|
|
|
122,186
|
|
|
|
295,244
|
|
|
|
|
|
|
|
(736,563
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
1,702,190
|
|
|
|
28
|
|
|
|
|
|
|
|
801,846
|
|
|
|
|
|
|
|
2,504,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
548,197
|
|
|
$
|
28
|
|
|
$
|
122,186
|
|
|
$
|
1,097,090
|
|
|
$
|
|
|
|
$
|
1,767,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
381,491
|
|
|
$
|
248,093
|
|
|
$
|
(93,942
|
)
|
|
$
|
509,919
|
|
|
$
|
(664,070
|
)
|
|
$
|
381,491
|
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
|
|
|
(280,988
|
)
|
|
|
(248,093
|
)
|
|
|
93,942
|
|
|
|
404,971
|
|
|
|
513,432
|
|
|
|
483,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
100,503
|
|
|
|
|
|
|
|
|
|
|
|
914,890
|
|
|
|
(150,638
|
)
|
|
|
864,755
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,393
|
)
|
|
|
|
|
|
|
|
|
|
|
(647,185
|
)
|
|
|
|
|
|
|
(649,578
|
)
|
Purchases of short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(964,489
|
)
|
|
|
|
|
|
|
(964,489
|
)
|
Proceeds from sales of short-term investments
|
|
|
55,369
|
|
|
|
|
|
|
|
|
|
|
|
903,999
|
|
|
|
|
|
|
|
959,368
|
|
Transfers to restricted cash
|
|
|
(3,612
|
)
|
|
|
|
|
|
|
|
|
|
|
(121,210
|
)
|
|
|
|
|
|
|
(124,822
|
)
|
Transfers from restricted cash
|
|
|
4,120
|
|
|
|
|
|
|
|
|
|
|
|
13,632
|
|
|
|
|
|
|
|
17,752
|
|
Intercompany borrowings
|
|
|
(157,058
|
)
|
|
|
(1,248,976
|
)
|
|
|
|
|
|
|
|
|
|
|
1,406,034
|
|
|
|
|
|
Payments for acquisitions, purchases of licenses and other
|
|
|
(47,716
|
)
|
|
|
|
|
|
|
|
|
|
|
(29,116
|
)
|
|
|
42,241
|
|
|
|
(34,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(151,290
|
)
|
|
|
(1,248,976
|
)
|
|
|
|
|
|
|
(844,369
|
)
|
|
|
1,448,275
|
|
|
|
(796,360
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
1,249,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,249,078
|
|
Repayments under syndicated loan facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89,673
|
)
|
|
|
|
|
|
|
(89,673
|
)
|
Intercompany dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,637
|
)
|
|
|
150,637
|
|
|
|
|
|
Intercompany investments
|
|
|
1,248,977
|
|
|
|
|
|
|
|
|
|
|
|
157,056
|
|
|
|
(1,406,033
|
)
|
|
|
|
|
Other, net
|
|
|
13,205
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
85,011
|
|
|
|
(42,241
|
)
|
|
|
55,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by financing activities
|
|
|
1,262,182
|
|
|
|
1,249,004
|
|
|
|
|
|
|
|
1,757
|
|
|
|
(1,297,637
|
)
|
|
|
1,215,306
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,888
|
)
|
|
|
|
|
|
|
(22,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
1,211,395
|
|
|
|
28
|
|
|
|
|
|
|
|
49,390
|
|
|
|
|
|
|
|
1,260,813
|
|
Cash and cash equivalents, beginning of year
|
|
|
490,795
|
|
|
|
|
|
|
|
|
|
|
|
752,456
|
|
|
|
|
|
|
|
1,243,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,702,190
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
801,846
|
|
|
$
|
|
|
|
$
|
2,504,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-50
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
341,955
|
|
|
$
|
374,884
|
|
|
$
|
(44,669
|
)
|
|
$
|
448,519
|
|
|
$
|
(778,734
|
)
|
|
$
|
341,955
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
|
|
|
(295,224
|
)
|
|
|
(374,884
|
)
|
|
|
44,610
|
|
|
|
327,746
|
|
|
|
752,220
|
|
|
|
454,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
46,731
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
776,265
|
|
|
|
(26,514
|
)
|
|
|
796,423
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(9,480
|
)
|
|
|
|
|
|
|
|
|
|
|
(797,130
|
)
|
|
|
|
|
|
|
(806,610
|
)
|
Purchase of short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(672,875
|
)
|
|
|
|
|
|
|
(672,875
|
)
|
Proceeds from sales of short-term investments
|
|
|
173,899
|
|
|
|
|
|
|
|
|
|
|
|
625,831
|
|
|
|
|
|
|
|
799,730
|
|
Other, net
|
|
|
(98,642
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,775
|
)
|
|
|
98,631
|
|
|
|
(10,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
65,777
|
|
|
|
|
|
|
|
|
|
|
|
(854,949
|
)
|
|
|
98,631
|
|
|
|
(690,541
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under long-term credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
|
|
|
|
|
|
125,000
|
|
Payments to purchase common stock
|
|
|
(242,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(242,665
|
)
|
Other, net
|
|
|
32,108
|
|
|
|
|
|
|
|
|
|
|
|
51,493
|
|
|
|
(72,117
|
)
|
|
|
11,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows (used in) provided by financing activities
|
|
|
(210,557
|
)
|
|
|
|
|
|
|
|
|
|
|
176,493
|
|
|
|
(72,117
|
)
|
|
|
(106,181
|
)
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126,615
|
)
|
|
|
|
|
|
|
(126,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(98,049
|
)
|
|
|
|
|
|
|
(59
|
)
|
|
|
(28,806
|
)
|
|
|
|
|
|
|
(126,914
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
588,844
|
|
|
|
|
|
|
|
59
|
|
|
|
781,262
|
|
|
|
|
|
|
|
1,370,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
490,795
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
752,456
|
|
|
$
|
|
|
|
$
|
1,243,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-51
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Deductions
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
and Other
|
|
|
End of
|
|
|
|
Period
|
|
|
Expenses
|
|
|
Adjustments(1)
|
|
|
Period
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
35,148
|
|
|
$
|
75,904
|
|
|
$
|
(69,770
|
)
|
|
$
|
41,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
75,580
|
|
|
$
|
44,140
|
|
|
$
|
(12,909
|
)
|
|
$
|
106,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
27,875
|
|
|
$
|
86,960
|
|
|
$
|
(79,687
|
)
|
|
$
|
35,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
48,456
|
|
|
$
|
27,146
|
|
|
$
|
(22
|
)
|
|
$
|
75,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
20,204
|
|
|
$
|
80,628
|
|
|
$
|
(72,957
|
)
|
|
$
|
27,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
32,509
|
|
|
$
|
25,036
|
|
|
$
|
(9,089
|
)
|
|
$
|
48,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the impact of foreign currency translation adjustments. |
F-52
EXHIBIT INDEX
For periods before December 21, 2001, references to NII
Holdings refer to Nextel International, Inc. the former name of
NII Holdings. All documents referenced below were filed pursuant
to the Securities Exchange Act of 1934 by NII Holdings, file
number 0-32421, unless otherwise indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by
|
|
|
|
|
|
|
|
|
Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
2.1
|
|
Revised Third Amended Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code for NII Holdings and NII
Holdings (Delaware), Inc.
|
|
8-K
|
|
|
2
|
.1
|
|
11/12/02
|
|
|
3.1
|
|
Restated Certificate of Incorporation of NII Holdings, as amended
|
|
10-K
|
|
|
3
|
.1
|
|
02/27/07
|
|
|
3.2
|
|
Second Amended and Restated Bylaws of NII Holdings
|
|
8-K
|
|
|
3
|
.1
|
|
10/29/07
|
|
|
4.1
|
|
Indenture governing our 3.125% convertible notes due 2012, dated
June 5, 2007, by and between NII Holdings and Wilmington
Trust Company, as Indenture Trustee
|
|
10-Q
|
|
|
4
|
.1
|
|
08/06/07
|
|
|
4.2
|
|
Indenture governing our 10% senior notes due 2016, dated as
of August 18, 2009, by and between NII Holdings and
Wilmington Trust Company, as Indenture Trustee
|
|
8-K
|
|
|
4
|
.1
|
|
08/18/09
|
|
|
4.3
|
|
Indenture governing our 8.875% senior notes due 2019, dated
as of December 15, 2009, by and between NII Holdings and
Wilmington Trust Company, as Indenture Trustee
|
|
8-K
|
|
|
4
|
.1
|
|
12/15/09
|
|
|
10.1
|
|
Subscriber Unit Purchase Agreement, dated as of January 1,
2005, by and between NII Holdings and Motorola, Inc. (portions
of this exhibit have been omitted pursuant to a request for
confidential treatment)
|
|
10-K
|
|
|
10
|
.1
|
|
03/22/06
|
|
|
10.2
|
|
Amendment Number Three to the Subscriber Unit Purchase
Agreement, dated September 28, 2006, by and between NII
Holdings and Motorola, Inc. (portions of this exhibit have been
omitted pursuant to a request for confidential treatment)
|
|
10-Q
|
|
|
10
|
.1
|
|
11/06/06
|
|
|
10.3
|
|
Form of iDEN Infrastructure Installation Services Agreement,
effective June 30, 2000, by and between NII Holdings,
Motorola, Inc. and each of Nextel, Telecomunicações
Ltda., Nextel Argentina S.R.L., Nextel de Mexico, S.A. de C.V.,
Nextel del Peru, S.A. and Nextel Communications Philippines, Inc.
|
|
8-K
|
|
|
10
|
.1
|
|
12/22/00
|
|
|
10.4
|
|
Form of iDEN Infrastructure Equipment Supply Agreement,
effective June 30, 2000, by and between NII Holdings,
Motorola, Inc. and each of Nextel Telecomunicações
Ltda., Nextel Argentina S.R.L., Nextel de Mexico, S.A. de C.V.,
Nextel del Peru, S.A. and Nextel Communications Philippines, Inc.
|
|
8-K
|
|
|
10
|
.2
|
|
12/22/00
|
|
|
10.5
|
|
Amendment 003 to iDEN Infrastructure Equipment Supply Agreement,
dated December 7, 2001, between NII Holdings, Motorola,
Inc., Nextel Communications Argentina, S.A., Nextel
Telecomunicações Ltda., Comunicaciones Nextel de
México, S.A. de C.V., Nextel del Peru S.A. and Nextel
Communications Philippines, Inc.
|
|
10-K
|
|
|
10
|
.48
|
|
03/29/02
|
|
|
10.6
|
|
Form of Amendment 007A to the iDEN Infrastructure Equipment
Supply Agreement, dated September 28, 2006, between NII
Holdings, Motorola, Inc. and each of Nextel Communications
Argentina, S.A., Nextel Telecomunicações Ltda.,
Centennial Cayman Corp. Chile, S.A., Comunicaciones Nextel de
Mexico, S.A. de C.V. and Nextel del Peru, S.A. (portions of this
exhibit have been omitted pursuant to a request for confidential
treatment)
|
|
10-Q
|
|
|
10
|
.2
|
|
11/06/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by
|
|
|
|
|
|
|
|
|
Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
10.7
|
|
Amended and Restated Credit Agreement, dated as of June 27,
2006, by and among Communicaciones Nextel de Mexico, S.A. de
C.V., the financial institutions thereto, as lenders, Citibank,
N.A., Citigroup Global Markets, Inc. and Scotiabank Inverlat,
S.A.
|
|
10-Q
|
|
|
10
|
.1
|
|
08/07/06
|
|
|
10.8
|
|
Term Facility Agreement A/B, dated as of September 14,
2007, by and among Nextel Telecomunicações Ltda.,
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden
N.V., as lender, and Standard Bank Offshore Trust Company
Jersey Limited, as Security Agent
|
|
10-Q
|
|
|
10
|
.1
|
|
11/06/07
|
|
|
10.9
|
|
Third Amended and Restated Trademark License Agreement, dated as
of November 12, 2002, between Nextel Communications, Inc.
and NII Holdings
|
|
S-1
|
|
|
10
|
.12
|
|
12/20/02
|
|
|
10.10(+)
|
|
Management Incentive Plan, dated as of November 12, 2002
|
|
S-8
|
|
|
99
|
.1
|
|
12/12/02
|
|
|
10.11
|
|
Spectrum Use and Build Out Agreement, dated as of
November 12, 2002
|
|
10-K
|
|
|
10
|
.22
|
|
03/27/03
|
|
|
10.12(+)
|
|
Form of NII Holdings Change of Control Severance Plan
|
|
10-Q
|
|
|
10
|
.2
|
|
08/06/08
|
|
|
10.13(+)
|
|
2004 Incentive Compensation Plan
|
|
10-Q
|
|
|
10
|
.1
|
|
08/06/08
|
|
|
10.14(+)
|
|
Form of Executive Officer Restricted Stock Award Agreement
|
|
8-K
|
|
|
10
|
.1
|
|
04/22/09
|
|
|
10.15(+)
|
|
Form of Executive Officer Nonqualified Stock Option Agreement
|
|
8-K
|
|
|
10
|
.2
|
|
04/22/09
|
|
|
10.16(+)
|
|
Form of Non-employee Director Restricted Stock Award Agreement
|
|
10-Q
|
|
|
10
|
.3
|
|
05/06/09
|
|
|
10.17(+)
|
|
Form of Non-employee Director Nonqualified Stock Option Agreement
|
|
8-K
|
|
|
10
|
.4
|
|
05/02/06
|
|
|
10.18(+)
|
|
Outside Directors Deferral Plan
|
|
10-K
|
|
|
10
|
.26
|
|
02/27/08
|
|
|
10.19(+)
|
|
Severance Plan
|
|
10-Q
|
|
|
10
|
.3
|
|
08/06/08
|
|
|
10.20(+)
|
|
Executive Voluntary Deferral Plan
|
|
8-K
|
|
|
10
|
.3
|
|
12/16/08
|
|
|
10.21(+)
|
|
Employment Letter Agreement, dated January 5, 2008, between
NII Holdings and Steven P. Dussek
|
|
8-K
|
|
|
10
|
.1
|
|
01/09/08
|
|
|
10.22(+)
|
|
Employment Agreement for Steven M. Shindler, dated June 8,
2009
|
|
8-K
|
|
|
10
|
.1
|
|
06/09/09
|
|
|
10.23(+)
|
|
Employment Agreement for Sergio Chaia, dated January 16,
2007
|
|
10-K
|
|
|
10
|
.30
|
|
02/25/10
|
|
|
12.1
|
|
Ratio of Earnings to Fixed Charges
|
|
|
|
|
|
|
|
|
|
*
|
14.1
|
|
Code of Business Conduct and Ethics
|
|
10-K
|
|
|
14
|
.1
|
|
03/12/04
|
|
|
21.1
|
|
Subsidiaries of NII Holdings
|
|
|
|
|
|
|
|
|
|
*
|
23.1
|
|
Consent of PricewaterhouseCoopers LLP
|
|
|
|
|
|
|
|
|
|
*
|
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
|
|
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by
|
|
|
|
|
|
|
|
|
Reference
|
|
|
Exhibit
|
|
|
|
|
|
|
|
Filing
|
|
Filed
|
Number
|
|
Exhibit Description
|
|
Form
|
|
Exhibit
|
|
Date
|
|
Herewith
|
|
32.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350
|
|
|
|
|
|
|
|
|
|
*
|
101
|
|
The following materials from the NII Holdings, Inc. Annual
Report on
Form 10-K
for the year ended December 31, 2010 formatted in
eXtensible Business Reporting Language (XBRL):
(i) Consolidated Balance Sheets, (ii) Consolidated
Statements of Operations, (iii) Consolidated Statements of
Changes in Stockholders Equity, (iv) Consolidated
Statements of Cash Flows and (v) Notes to Consolidated
Financial Statements.
|
|
|
|
|
|
|
|
|
|
*
|
|
|
|
+ |
|
Indicates Management Compensatory Plan, Contract or Arrangement. |