e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the
quarterly period ended March 31, 2011
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number: 0-32421
NII HOLDINGS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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91-1671412
(I.R.S. Employer
Identification No.)
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1875 Explorer Street, Suite 1000
Reston, Virginia
(Address of Principal
Executive Offices)
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20190
(Zip
Code)
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(703)
390-5100
(Registrants
Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Number of Shares Outstanding
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Title of Class
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on May 2, 2011
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Common Stock, $0.001 par value per share
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170,197,413
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NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except par values)
Unaudited
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March 31,
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December 31,
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2011
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2010
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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2,428,251
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$
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1,767,501
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Short-term investments
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355,730
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537,539
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Accounts receivable, less allowance for doubtful accounts of
$56,247 and $41,282
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849,875
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788,000
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Handset and accessory inventory
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227,137
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227,191
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Deferred income taxes, net
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233,649
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186,988
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Prepaid expenses and other
|
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|
349,954
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393,658
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Total current assets
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4,444,596
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3,900,877
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Property, plant and equipment, less accumulated depreciation
of $2,218,485 and $2,028,266
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3,092,450
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2,960,046
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Intangible assets, less accumulated amortization of $139,283
and $130,847
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449,389
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433,208
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Deferred income taxes, net
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455,049
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486,098
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Long-term investments
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254,484
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Other assets
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371,280
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410,458
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Total assets
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$
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9,067,248
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$
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8,190,687
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Accounts payable
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$
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179,796
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$
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300,030
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Accrued expenses and other
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819,827
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827,253
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Deferred revenues
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167,650
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158,690
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Current portion of long-term debt
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491,975
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446,995
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Total current liabilities
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1,659,248
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1,732,968
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Long-term debt
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3,576,499
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2,818,423
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Deferred revenues
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|
20,419
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20,476
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Deferred credits
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84,708
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88,068
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Other long-term liabilities
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219,472
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211,179
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Total liabilities
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5,560,346
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4,871,114
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Commitments and contingencies (Note 4)
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Stockholders equity
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Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2011 and 2010, no
shares issued or outstanding 2011 and 2010
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Common stock, par value $0.001, 600,000 shares
authorized 2011 and 2010, 169,729 shares issued
and outstanding 2011, 169,661 shares issued and
outstanding 2010
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169
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|
169
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Paid-in capital
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1,380,014
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1,364,705
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Retained earnings
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2,112,708
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2,015,950
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Accumulated other comprehensive income (loss)
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14,011
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(61,251
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)
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Total stockholders equity
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3,506,902
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3,319,573
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Total liabilities and stockholders equity
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$
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9,067,248
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$
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8,190,687
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
NII
HOLDINGS, INC. AND SUBSIDIARIES
AND
COMPREHENSIVE INCOME
(in thousands, except per share amounts)
Unaudited
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Three Months Ended,
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March 31,
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2011
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2010
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Operating revenues
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Service and other revenues
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$
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1,546,328
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$
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1,217,670
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Digital handset and accessory revenues
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76,509
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65,476
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|
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1,622,837
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1,283,146
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Operating expenses
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Cost of service (exclusive of depreciation and amortization
included below)
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444,877
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349,525
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Cost of digital handsets and accessories
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211,503
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172,828
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Selling, general and administrative
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535,557
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419,426
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Depreciation
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146,796
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120,740
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Amortization
|
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9,123
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7,956
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|
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|
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1,347,856
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|
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1,070,475
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|
|
|
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|
|
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Operating income
|
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|
274,981
|
|
|
|
212,671
|
|
|
|
|
|
|
|
|
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Other expense
|
|
|
|
|
|
|
|
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Interest expense, net
|
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|
(81,159
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)
|
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|
(85,726
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)
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Interest income
|
|
|
6,211
|
|
|
|
5,599
|
|
Foreign currency transaction gains (losses), net
|
|
|
8,494
|
|
|
|
(25,083
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)
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Other expense, net
|
|
|
(4,367
|
)
|
|
|
(4,358
|
)
|
|
|
|
|
|
|
|
|
|
|
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|
(70,821
|
)
|
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|
(109,568
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)
|
|
|
|
|
|
|
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|
|
Income before income tax provision
|
|
|
204,160
|
|
|
|
103,103
|
|
Income tax provision
|
|
|
(107,402
|
)
|
|
|
(54,641
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
96,758
|
|
|
$
|
48,462
|
|
|
|
|
|
|
|
|
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|
Net income, per common share, basic
|
|
$
|
0.57
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
0.56
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
169,692
|
|
|
|
166,817
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
172,534
|
|
|
|
170,475
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of income taxes
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
74,751
|
|
|
$
|
28,793
|
|
Other
|
|
|
511
|
|
|
|
(1,723
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
75,262
|
|
|
|
27,070
|
|
Net income
|
|
|
96,758
|
|
|
|
48,462
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
172,020
|
|
|
$
|
75,532
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the Three Months Ended March 31, 2011
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
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|
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|
|
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|
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|
Accumulated
|
|
|
|
|
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|
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|
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Other
|
|
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Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
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Capital
|
|
|
Earnings
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Balance, January 1, 2011
|
|
|
169,661
|
|
|
$
|
169
|
|
|
$
|
1,364,705
|
|
|
$
|
2,015,950
|
|
|
$
|
(61,251
|
)
|
|
$
|
3,319,573
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,758
|
|
|
|
|
|
|
|
96,758
|
|
Other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,262
|
|
|
|
75,262
|
|
Exercise of stock options
|
|
|
78
|
|
|
|
|
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
|
426
|
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
14,880
|
|
|
|
|
|
|
|
|
|
|
|
14,880
|
|
Other
|
|
|
(10
|
)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2011
|
|
|
169,729
|
|
|
$
|
169
|
|
|
$
|
1,380,014
|
|
|
$
|
2,112,708
|
|
|
$
|
14,011
|
|
|
$
|
3,506,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the
Three Months Ended March 31, 2011 and 2010
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
96,758
|
|
|
$
|
48,462
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Amortization of debt discount and financing costs
|
|
|
14,900
|
|
|
|
16,287
|
|
Depreciation and amortization
|
|
|
155,919
|
|
|
|
128,696
|
|
Provision for losses on accounts receivable
|
|
|
31,827
|
|
|
|
19,594
|
|
Foreign currency transaction (gains) losses, net
|
|
|
(8,494
|
)
|
|
|
25,083
|
|
Share-based payment expense
|
|
|
14,880
|
|
|
|
18,150
|
|
Other, net
|
|
|
1,363
|
|
|
|
(11,645
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(76,915
|
)
|
|
|
(39,639
|
)
|
Handset and accessory inventory
|
|
|
21,262
|
|
|
|
60,399
|
|
Prepaid expenses and other, net
|
|
|
7,209
|
|
|
|
21,512
|
|
Other long-term assets
|
|
|
(31,835
|
)
|
|
|
35,174
|
|
Accounts payable, accrued expenses and other
|
|
|
(22,911
|
)
|
|
|
(124,999
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
203,963
|
|
|
|
197,074
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(226,131
|
)
|
|
|
(156,289
|
)
|
Purchase of long-term and short-term investments
|
|
|
(696,517
|
)
|
|
|
(315,136
|
)
|
Proceeds from sales of short-term investments
|
|
|
624,541
|
|
|
|
396,838
|
|
Transfers from restricted cash
|
|
|
89,100
|
|
|
|
|
|
Other, net
|
|
|
(6,773
|
)
|
|
|
(17,778
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(215,780
|
)
|
|
|
(92,365
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
750,000
|
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
|
|
|
|
60,000
|
|
Repayments under syndicated loan facilities and other
transactions
|
|
|
(61,693
|
)
|
|
|
(47,262
|
)
|
Other, net
|
|
|
(12,412
|
)
|
|
|
16,918
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
675,895
|
|
|
|
29,656
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
(3,328
|
)
|
|
|
12,306
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
660,750
|
|
|
|
146,671
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,767,501
|
|
|
|
2,504,064
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,428,251
|
|
|
$
|
2,650,735
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
NII
HOLDINGS, INC. AND SUBSIDIARIES
Unaudited
|
|
Note 1.
|
Basis of
Presentation
|
General. Our unaudited condensed
consolidated financial statements have been prepared under the
rules and regulations of the Securities and Exchange Commission,
or the SEC. While they do not include all of the information and
footnotes required by accounting principles generally accepted
in the United States of America for complete financial
statements, they reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation of the results
for interim periods. In addition, the year-end condensed
consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by accounting principles generally accepted in the
United States of America.
You should read these condensed consolidated financial
statements in conjunction with the consolidated financial
statements and notes contained in our annual report on
Form 10-K
for the year ended December 31, 2010. You should not expect
results of operations for interim periods to be an indication of
the results for a full year.
Accumulated Other Comprehensive Income
(Loss). The components of our accumulated
other comprehensive income (loss), net of taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
18,417
|
|
|
$
|
(56,333
|
)
|
Other
|
|
|
(4,406
|
)
|
|
|
(4,918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,011
|
|
|
$
|
(61,251
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
226,131
|
|
|
$
|
156,289
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
(8,227
|
)
|
|
|
(21,812
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
217,904
|
|
|
$
|
134,477
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
81,159
|
|
|
$
|
85,726
|
|
Interest capitalized
|
|
|
5,180
|
|
|
|
2,238
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86,339
|
|
|
$
|
87,964
|
|
|
|
|
|
|
|
|
|
|
6
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the three months ended March 31, 2011 and 2010, we had
$53.6 million and $23.3 million, respectively, 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.
Revenue-Based Taxes. We record
revenue-based taxes and other excise taxes on a gross basis as a
component of both service and other revenues and selling,
general and administrative expenses in our condensed
consolidated statement of operations. For the three months ended
March 31, 2011 and 2010, we had $59.0 million and
$43.5 million, respectively, in revenue-based taxes and
other excise taxes.
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings, but not securities that are antidilutive, including
stock options with an exercise price greater than the average
market price of our common stock.
As presented for the three months ended March 31, 2011, our
calculation of diluted net income per share includes common
shares issuable upon the potential exercise of stock options
under our stock-based employee compensation plans and restricted
common shares issued under those plans. We did not include the
common shares that could be issued upon conversion of our 3.125%
convertible notes in our calculation of diluted net income per
common share because their effect would have been antidilutive
to our net income per common share for that period. Further, for
the three months ended March 31, 2011, we did not include
9.1 million common shares issuable upon exercise of stock
options or an immaterial amount of our restricted common shares
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 three months ended March 31, 2010, our
calculation of diluted net income per share includes common
shares issuable upon the potential exercise of stock options
under our stock-based employee compensation plans and restricted
common shares issued under those plans. We did not include the
common shares that could be issued upon conversion of our 3.125%
convertible notes or our 2.75% convertible notes in our
calculation of diluted net income per common share because their
effect would have been antidilutive to our net income per common
share for that period. Further, for the three months ended
March 31, 2010, we did not include 8.5 million common
shares issuable upon exercise of stock options 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.
7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables provide a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our condensed consolidated
statements of operations for the three months ended
March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
96,758
|
|
|
|
169,692
|
|
|
$
|
0.57
|
|
|
$
|
48,462
|
|
|
|
166,817
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
2,492
|
|
|
|
|
|
|
|
|
|
|
|
3,167
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
491
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income on which diluted earnings per share is calculated
|
|
$
|
96,758
|
|
|
|
172,534
|
|
|
$
|
0.56
|
|
|
$
|
48,462
|
|
|
|
170,475
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications. We have reclassified
some prior period amounts in our condensed consolidated
financial statements to conform to our current year presentation.
New Accounting Pronouncements. In
October 2009, the FASB updated its authoritative guidance for
accounting for multiple deliverable revenue arrangements. The
new guidance revises the criteria used to determine the separate
units of accounting in a multiple deliverable arrangement and
requires that total consideration received under the arrangement
be allocated over the separate units of accounting based on
their relative selling prices. This guidance also clarifies the
methodology used in determining our best estimate of the selling
price used in this allocation. The applicable revenue
recognition criteria will be considered separately for the
separate units of accounting. We adopted this new guidance on
its effective date of January 1, 2011. Consistent with this
guidance, we allocate revenue from transactions in which we
offer wireless service in conjunction with the sale or rental of
a handset between the two separate units of accounting. We base
this allocation on the relative selling prices of the handset
and the wireless service plan when sold separately. The amount
of revenue that can be allocated to the handset is limited to
amounts that are not contingent on our future provision of
wireless service. The adoption of this guidance did not have a
material impact on our condensed consolidated financial
statements.
|
|
Note 2.
|
Fair
Value Measurements
|
The following tables set forth the classification within the
fair value hierarchy of our financial instruments measured at
fair value on a recurring basis in the accompanying condensed
consolidated balance sheet as of March 31, 2011 and
December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
|
March 31, 2011
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
March 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2011
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
90,426
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
90,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
|
|
|
|
|
December 31, 2010
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
December 31,
|
|
Financial Instruments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2010
|
|
|
Short-term investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities Nextel Brazil investments
|
|
$
|
50,778
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities include short-term investments made by Nextel Brazil,
primarily in Brazilian government bonds, long-term, low-risk
bank certificates of deposit and Brazilian corporate debentures.
We account for these securities at fair value in accordance with
the FASBs authoritative guidance surrounding the
accounting for investments in debt and equity securities. The
fair value of the securities is based on the net asset value of
the funds. In our judgment, these securities trade with
sufficient daily observable market activity to support a
Level 1 classification within the fair value hierarchy.
Other
Financial Instruments.
We estimate the fair value of our financial instruments other
than our
available-for-sale
securities, including cash and cash equivalents,
held-to-maturity
investments, accounts receivable, accounts payable, derivative
instruments and debt. The carrying value of cash and cash
equivalents, accounts receivable, accounts payable and
short-term borrowings contained in the condensed consolidated
balance sheets approximate their fair values due to the
short-term nature of these instruments. The fair values of our
derivative instruments are immaterial.
Held-to-Maturity
Investments.
We periodically invest some of our cash holdings in certain
securities that we intend to hold to maturity. These
held-to-maturity
securities include investments in U.S. treasury securities,
as well as investments in corporate bonds, which consist of
securities issued by U.S. government agencies and corporate
debt securities backed by the U.S. government with
maturities ranging from one to fourteen months. We account for
held-to-maturity
securities at amortized cost. We determined the fair value of
our
held-to-maturity
investments in U.S. treasury securities based on quoted
market prices for the individual instruments. In our judgment,
these securities trade with sufficient daily observable market
activity to support a Level 1 classification within the
fair value hierarchy. We determined the fair value of our
investments in corporate bonds based on reported trade data in a
broker dealer market for the individual instruments. We consider
these measurements to be Level 2 in the fair value
hierarchy. The gross unrecognized holding gains and losses as of
March 31, 2011 were immaterial. The carrying amounts and
estimated fair values of our
held-to-maturity
investments as of March 31, 2011 and December 31, 2010
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
securities U.S. Treasuries
|
|
$
|
200,293
|
|
|
$
|
201,392
|
|
|
$
|
421,653
|
|
|
$
|
423,613
|
|
Held-to-maturity
securities corporate bonds
|
|
|
65,011
|
|
|
|
65,251
|
|
|
|
65,108
|
|
|
|
65,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
265,304
|
|
|
|
266,643
|
|
|
|
486,761
|
|
|
|
489,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
securities U.S. Treasuries
|
|
|
254,484
|
|
|
|
236,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
519,788
|
|
|
$
|
503,183
|
|
|
$
|
486,761
|
|
|
$
|
489,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-Term
Debt Instruments.
The carrying amounts and estimated fair values of our long-term
debt instruments as of March 31, 2011 and December 31,
2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Senior notes
|
|
$
|
2,030,148
|
|
|
$
|
2,227,400
|
|
|
$
|
1,279,524
|
|
|
$
|
1,428,000
|
|
Convertible notes
|
|
|
1,052,909
|
|
|
|
1,101,375
|
|
|
|
1,043,236
|
|
|
|
1,078,000
|
|
Syndicated loan facilities
|
|
|
432,625
|
|
|
|
430,902
|
|
|
|
458,964
|
|
|
|
457,187
|
|
Other
|
|
|
255,208
|
|
|
|
256,531
|
|
|
|
193,460
|
|
|
|
195,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,770,890
|
|
|
$
|
4,016,208
|
|
|
$
|
2,975,184
|
|
|
$
|
3,158,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimated the fair values of our senior notes using quoted
market prices in a broker dealer market and the fair values of
our convertible notes using quoted prices in a traded exchange
market, which may be adjusted for certain factors such as
historical trading levels and market data for our senior notes,
credit default spreads, stock volatility assumptions with
respect to our convertible notes and other corroborating market
or internally generated data. Because our fair value
measurements include assumptions based on market data,
corroborating market data and some broker internally generated
information, we consider these estimates Level 2 in the
fair value hierarchy.
We estimated the fair values of our syndicated loan facilities
using primarily Level 3 inputs such as U.S. Treasury
yield curves, prices of comparable bonds, LIBOR and zero-coupon
yield curves, U.S. treasury bond rates and credit spreads
on comparable publicly traded bonds.
Other debt consists primarily of Brazilian credit paper and
import financing agreements. We estimated the fair value of the
Brazilian credit paper utilizing primarily Level 3 inputs
such as U.S. treasury security yield curves, prices of
comparable bonds, LIBOR and zero-coupon yield curves, Treasury
bond rates and credit spreads on comparable publicly traded
bonds. We believe that the fair value of our short-term, import
financing agreements approximate their carrying value primarily
because of the short maturities of the agreements prior to
realization and consider these measurements to be Level 3
in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(in thousands)
|
|
|
Senior notes, net
|
|
$
|
2,030,148
|
|
|
$
|
1,279,524
|
|
Convertible notes, net
|
|
|
1,052,909
|
|
|
|
1,043,236
|
|
Syndicated loan facilities
|
|
|
432,625
|
|
|
|
458,964
|
|
Tower financing obligations
|
|
|
178,742
|
|
|
|
175,932
|
|
Capital lease obligations
|
|
|
118,842
|
|
|
|
114,303
|
|
Brazil import financing
|
|
|
154,753
|
|
|
|
128,094
|
|
Other
|
|
|
100,455
|
|
|
|
65,365
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
4,068,474
|
|
|
|
3,265,418
|
|
Less: current portion
|
|
|
(491,975
|
)
|
|
|
(446,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,576,499
|
|
|
$
|
2,818,423
|
|
|
|
|
|
|
|
|
|
|
10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
7.625% Senior Notes due 2021. In
March 2011, we issued $750.0 million aggregate principal
amount of senior notes for which we received about
$735.8 million in cash proceeds, after deducting
underwriting fees, commissions and offering expenses. We will
amortize the $14.2 million we incurred in underwriting
discounts and offering expenses into interest expense over the
ten-year term of the notes. The notes are senior unsecured
obligations of NII Capital Corp., a domestic subsidiary that we
wholly own, and are guaranteed by us and by certain of our other
domestic wholly-owned subsidiaries. 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 due 2016, NII
Capital Corp.s 8.875% senior notes due 2019 and NII
Holdings 3.125% convertible notes due 2012. 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 7.625% per year, which is payable semi-annually in
arrears on April 1 and October 1, beginning on
October 1, 2011 and will mature on April 1, 2021.
The notes are not entitled to any mandatory redemption or
sinking fund. Prior to April 1, 2014, up to 35% of the
aggregate principal amount of the notes may be redeemed with the
net cash proceeds from specified equity offerings at a
redemption price of 107.625% of their principal amount, plus
accrued and unpaid interest. Such redemption may only be made
if, after the redemption, at least 65% of the aggregate
principal amount of the notes issued remains outstanding. In
addition, prior to April 1, 2016, NII Capital Corp. may
redeem the notes, in whole or in part, at a redemption price
equal to 100% of the principal amount thereof plus a
make-whole premium and accrued and unpaid interest.
At any time on or after April 1, 2016 and prior to
maturity, the notes will be redeemable, in whole or in part, at
the redemption prices presented below (expressed as percentages
of principal amount), plus accrued and unpaid interest to the
redemption date if redeemed during the
12-month
period beginning on April 1 of the applicable year:
|
|
|
|
|
|
|
Redemption
|
Year
|
|
Price
|
|
2016
|
|
|
103.813
|
%
|
2017
|
|
|
102.541
|
%
|
2018
|
|
|
101.271
|
%
|
2019 and thereafter
|
|
|
100.000
|
%
|
Upon the occurrence of specified events involving a change of
control, holders of the notes may require us to purchase their
notes at a purchase price equal to 101% of the principal amount
of the notes, plus accrued and unpaid interest.
The indenture 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;
|
11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
enter into transactions with affiliates; and
|
|
|
|
merge or consolidate with another entity.
|
These covenants are subject to a number of qualifications and
exceptions and are substantially similar to the covenants
contained in the indentures governing NII Capital Corp.s
10.0% senior notes due 2016 and 8.875% senior notes
due 2019.
Convertible
Notes.
3.125% Convertible Notes. If
certain events occur, the 3.125% notes will be convertible
into shares of our common stock at a conversion rate of
8.4517 shares per $1,000 principal amount of notes, or
9,296,870 aggregate common shares, representing a conversion
price of about $118.32 per share. For the fiscal quarter ended
March 31, 2011, the closing sale price of our common stock
did not exceed 120% of the conversion price of $118.32 per share
for at least 20 trading days in the 30 consecutive trading days
ending on March 31, 2011. As a result, the conversion
contingency was not met as of March 31, 2011.
Adoption of Authoritative Guidance on Convertible Debt
Instruments. As a result of adopting the
FASBs authoritative guidance on convertible debt
instruments on January 1, 2009, we were required to
separately account for the debt and equity components of our
3.125% convertible notes in a manner that reflects our
nonconvertible debt (unsecured debt) borrowing rate. The debt
and equity components recognized for our 3.125% convertible
notes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
December 31, 2010
|
|
|
3.125% Notes
|
|
3.125% Notes
|
|
|
due 2012
|
|
due 2012
|
|
Principal amount of convertible notes
|
|
$
|
1,100,000
|
|
|
$
|
1,100,000
|
|
Unamortized discount on convertible notes
|
|
|
47,091
|
|
|
|
56,764
|
|
Net carrying amount of convertible notes
|
|
|
1,052,909
|
|
|
|
1,043,236
|
|
Carrying amount of equity component
|
|
|
193,941
|
|
|
|
193,941
|
|
As of March 31, 2011, the unamortized discount on our
3.125% convertible notes had a remaining recognition period of
about 14 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 three months ended March 31, 2011
and 2010 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
3.125% Notes
|
|
|
3.125% Notes
|
|
|
2.75% Notes
|
|
|
|
due 2012
|
|
|
due 2012
|
|
|
due 2025
|
|
|
Contractual coupon interest
|
|
$
|
8,594
|
|
|
$
|
9,375
|
|
|
$
|
2,406
|
|
Amortization of discount on convertible notes
|
|
|
9,674
|
|
|
|
9,849
|
|
|
|
3,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
18,268
|
|
|
$
|
19,224
|
|
|
$
|
5,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective interest rate on convertible notes
|
|
|
7.15
|
%
|
|
|
7.15
|
%
|
|
|
6.45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4.
|
Commitments
and Contingencies
|
Brazilian
Contingencies.
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on
imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions
disputing these assessments. In some cases, Nextel Brazil has
received favorable decisions, which are currently being appealed
by the respective governmental authority. In other cases, Nextel
Brazils petitions have been denied, and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing various other claims. Nextel Brazil did not reverse
any material accrued liabilities related to contingencies during
the first quarter of 2011.
As of March 31, 2011 and December 31, 2010, Nextel
Brazil had accrued liabilities of $58.9 million and
$56.8 million, respectively, related to contingencies, all
of which were classified in accrued contingencies reported as a
component of other long-term liabilities and none of which
related to unasserted claims. We currently estimate the range of
reasonably possible losses related to matters for which Nextel
Brazil has not accrued liabilities, as they are not deemed
probable, to be between $204.4 million and
$208.4 million as of March 31, 2011. 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.
Legal
Proceedings.
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. The earliest years that remain subject to examination by
jurisdiction are: Chile 1993; U.S. 1999;
Mexico and Argentina 2004; Peru and
Brazil 2006; Luxembourg, Netherlands and
Spain 2009. We regularly assess the potential
outcome of current and future examinations in each of the taxing
jurisdictions when determining the adequacy of the provision for
income taxes.
The following table shows a reconciliation of our unrecognized
tax benefits according to the FASBs authoritative guidance
on accounting for uncertainty in income taxes, for the three
months ended March 31, 2011 (in thousands):
|
|
|
|
|
Unrecognized tax benefits December 31, 2010
|
|
$
|
102,880
|
|
Additions for current year tax positions
|
|
|
747
|
|
Additions for prior year tax positions
|
|
|
|
|
Reductions for current year tax positions
|
|
|
|
|
Reductions for prior year tax positions
|
|
|
(70,653
|
)
|
Lapse of statute of limitations
|
|
|
(1,392
|
)
|
Settlements with taxing authorities
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
2,400
|
|
|
|
|
|
|
Unrecognized tax benefits March 31, 2011
|
|
$
|
33,982
|
|
|
|
|
|
|
13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The unrecognized tax benefits as of March 31, 2011 and
December 31, 2010 include $6.1 million and
$75.7 million, respectively, of tax benefits that could
potentially reduce our future effective tax rate, if recognized.
During the first quarter of 2011, we reduced the amount of our
unrecognized tax benefits by $72.0 million due to the March
2011 decision by a Mexico court to deny our administrative
petition related to the Federal income tax law covering
deductions and gains from the sale of property.
We record interest and penalties associated with uncertain tax
positions as a component of our income tax provision.
We assessed the realizability of our deferred tax assets during
the first quarter of 2011, consistent with the methodology we
employed for 2010. In that assessment, we considered the
reversal of existing temporary differences associated with
deferred tax assets and liabilities, future taxable income, tax
planning strategies and historical and future pre-tax book
income (as adjusted for permanent differences between financial
and tax accounting items) in order to determine if it is
more-likely-than-not that the deferred tax asset
will be realized. As a result of this assessment, we increased
the valuation allowance on our U.S. companies
deferred tax assets by $19.0 million, which we recorded as
an increase to income tax expense. For our foreign companies, we
determined that the realizability of their deferred assets had
not changed. We will continue to evaluate the amount of the
valuation allowance for all of our foreign and
U.S. companies throughout the remainder of 2011 to
determine the appropriate level of valuation allowance.
During 2004, Nextel Mexico amended its Mexican Federal income
tax returns in order to reverse a benefit previously claimed for
a disputed provision of the Federal income tax law covering
deductions and gains from the sale of property. We filed the
amended returns in order to avoid potential penalties, and we
also filed administrative petitions seeking clarification of our
right to the tax benefits claimed on the original income tax
returns. The tax authorities constructively denied our
administrative petitions in January 2005, and in May 2005, we
filed an annulment suit challenging the constructive denial. In
March 2011, we were officially notified that the courts denied
our petition based on the economic substance of our
interpretation. Therefore, during the first quarter of 2011, we
reversed the income tax receivable on the financial statements
and recorded a $14.5 million increase in income tax expense
with respect to this item.
14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 6.
|
Segment
Reporting
|
We have determined that our reportable segments are those that
are based on our method of internal reporting, which
disaggregates our business by geographical location. Our
reportable segments are: (1) Brazil, (2) Mexico,
(3) Argentina and (4) Peru. The operations of all
other businesses that fall below the segment reporting
thresholds are included in the Corporate and other
segment below. This segment includes our Chilean operating
companies and our corporate operations in the U.S. We
evaluate performance of these segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Brazil
|
|
|
Mexico
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Three Months Ended March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
813,338
|
|
|
$
|
567,006
|
|
|
$
|
150,714
|
|
|
$
|
85,657
|
|
|
$
|
7,405
|
|
|
$
|
(1,283
|
)
|
|
$
|
1,622,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
283,001
|
|
|
$
|
180,347
|
|
|
$
|
43,951
|
|
|
$
|
7,178
|
|
|
$
|
(84,697
|
)
|
|
$
|
1,120
|
|
|
$
|
430,900
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(155,919
|
)
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,494
|
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
204,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
97,588
|
|
|
$
|
37,382
|
|
|
$
|
12,171
|
|
|
$
|
22,942
|
|
|
$
|
47,821
|
|
|
$
|
|
|
|
$
|
217,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
563,827
|
|
|
$
|
509,424
|
|
|
$
|
132,757
|
|
|
$
|
72,879
|
|
|
$
|
4,604
|
|
|
$
|
(345
|
)
|
|
$
|
1,283,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
176,709
|
|
|
$
|
184,384
|
|
|
$
|
36,599
|
|
|
$
|
4,223
|
|
|
$
|
(60,548
|
)
|
|
$
|
|
|
|
$
|
341,367
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,696
|
)
|
Foreign currency transaction losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,083
|
)
|
Interest expense and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
85,092
|
|
|
$
|
17,173
|
|
|
$
|
8,815
|
|
|
$
|
7,994
|
|
|
$
|
15,403
|
|
|
$
|
|
|
|
$
|
134,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
3,151,657
|
|
|
$
|
2,072,047
|
|
|
$
|
420,603
|
|
|
$
|
533,414
|
|
|
$
|
2,889,814
|
|
|
$
|
(287
|
)
|
|
$
|
9,067,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
3,036,106
|
|
|
$
|
2,019,550
|
|
|
$
|
393,246
|
|
|
$
|
556,752
|
|
|
$
|
2,185,320
|
|
|
$
|
(287
|
)
|
|
$
|
8,190,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7.
|
Condensed
Consolidating Financial Statements
|
In March 2011, we issued $750.0 million in aggregate
principal amount of 7.625% senior notes due 2021. In
addition, during 2009, we issued senior notes totaling
$1.3 billion in aggregate principal amount comprised of our
10.0% senior notes due 2016 and our 8.875% senior
notes due 2019. We refer to the senior notes issued in 2011 and
2009 collectively as the notes. All of these notes
are senior unsecured obligations of NII Capital Corp., our
wholly-owned subsidiary, and are guaranteed on a senior
unsecured basis by NII Holdings and all of its current and
future first tier and domestic restricted subsidiaries, other
than NII Capital Corp. No foreign subsidiaries will guarantee
the notes unless they are first tier subsidiaries of NII
Holdings. These guarantees are full and unconditional, as well
as joint and several.
As a result of the issuance of the notes and the related
guarantees, we are required to provide certain condensed
consolidating financial information. Included in the tables
below are condensed consolidating balance sheets as of
March 31, 2011 and December 31, 2010, as well as
condensed consolidating statements of operations and cash flows
for the three months ended March 31, 2011 and 2010, of:
(a) the parent company, NII Holdings, Inc.; (b) the
subsidiary issuer, NII Capital Corp.; (c) the guarantor
subsidiaries on a combined basis; (d) the non-guarantor
subsidiaries of NII Holdings, Inc. on a combined basis;
(e) consolidating adjustments; and (f) NII Holdings,
Inc. and subsidiaries on a consolidated basis. The condensed
consolidating balance sheet as of December 31, 2010
presented below was revised to reflect the proper classification
of certain intercompany balances. This revision was not material
to our financial statements taken as a whole.
16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of March 31, 2011
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)(1)
|
|
|
Subsidiaries(2)
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,274,659
|
|
|
$
|
17
|
|
|
$
|
8,588
|
|
|
$
|
1,144,987
|
|
|
$
|
|
|
|
$
|
2,428,251
|
|
Short-term investments
|
|
|
265,304
|
|
|
|
|
|
|
|
|
|
|
|
90,426
|
|
|
|
|
|
|
|
355,730
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
852,287
|
|
|
|
(2,412
|
)
|
|
|
849,875
|
|
Handset and accessory inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,137
|
|
|
|
|
|
|
|
227,137
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
4,400
|
|
|
|
233,317
|
|
|
|
(4,068
|
)
|
|
|
233,649
|
|
Prepaid expenses and other
|
|
|
3,889
|
|
|
|
|
|
|
|
10,853
|
|
|
|
335,224
|
|
|
|
(12
|
)
|
|
|
349,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,543,852
|
|
|
|
17
|
|
|
|
23,841
|
|
|
|
2,883,378
|
|
|
|
(6,492
|
)
|
|
|
4,444,596
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
134,526
|
|
|
|
2,958,211
|
|
|
|
(287
|
)
|
|
|
3,092,450
|
|
Investments in and advances to affiliates
|
|
|
3,205,565
|
|
|
|
3,089,667
|
|
|
|
3,170,922
|
|
|
|
|
|
|
|
(9,466,154
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449,389
|
|
|
|
|
|
|
|
449,389
|
|
Deferred income taxes, net
|
|
|
4,216
|
|
|
|
|
|
|
|
|
|
|
|
455,049
|
|
|
|
(4,216
|
)
|
|
|
455,049
|
|
Long-term investments
|
|
|
254,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254,484
|
|
Other assets
|
|
|
2,387,766
|
|
|
|
3,050,734
|
|
|
|
687,934
|
|
|
|
505,006
|
|
|
|
(6,260,160
|
)
|
|
|
371,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,395,883
|
|
|
$
|
6,140,418
|
|
|
$
|
4,017,223
|
|
|
$
|
7,251,033
|
|
|
$
|
(15,737,309
|
)
|
|
$
|
9,067,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
516
|
|
|
$
|
179,275
|
|
|
$
|
|
|
|
$
|
179,796
|
|
Accrued expenses and other
|
|
|
646,536
|
|
|
|
142,770
|
|
|
|
1,577,943
|
|
|
|
1,109,318
|
|
|
|
(2,656,740
|
)
|
|
|
819,827
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,650
|
|
|
|
|
|
|
|
167,650
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
15,284
|
|
|
|
476,691
|
|
|
|
|
|
|
|
491,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
646,541
|
|
|
|
142,770
|
|
|
|
1,593,743
|
|
|
|
1,932,934
|
|
|
|
(2,656,740
|
)
|
|
|
1,659,248
|
|
Long-term debt
|
|
|
1,052,932
|
|
|
|
2,030,148
|
|
|
|
67,830
|
|
|
|
425,589
|
|
|
|
|
|
|
|
3,576,499
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,419
|
|
|
|
|
|
|
|
20,419
|
|
Deferred credits
|
|
|
|
|
|
|
|
|
|
|
15,537
|
|
|
|
73,387
|
|
|
|
(4,216
|
)
|
|
|
84,708
|
|
Other long-term liabilities
|
|
|
2,189,508
|
|
|
|
|
|
|
|
9,922
|
|
|
|
1,627,782
|
|
|
|
(3,607,740
|
)
|
|
|
219,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,888,981
|
|
|
|
2,172,918
|
|
|
|
1,687,032
|
|
|
|
4,080,111
|
|
|
|
(6,268,696
|
)
|
|
|
5,560,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,506,902
|
|
|
|
3,967,500
|
|
|
|
2,330,191
|
|
|
|
3,170,922
|
|
|
|
(9,468,613
|
)
|
|
|
3,506,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
7,395,883
|
|
|
$
|
6,140,418
|
|
|
$
|
4,017,223
|
|
|
$
|
7,251,033
|
|
|
$
|
(15,737,309
|
)
|
|
$
|
9,067,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
NII Capital Corp. is the issuer of our 7.625% senior notes
due 2021, our 10.0% senior notes due 2016 and our
8.875% senior notes due 2019. |
|
(2) |
|
Represents our subsidiaries that have provided guarantees of the
obligations of NII Capital Corp. under our 7.625% senior
notes due 2021, our 10.0% senior notes due 2016 and our
8.875% notes due 2019. |
17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
As of December 31, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
548,197
|
|
|
$
|
28
|
|
|
$
|
122,186
|
|
|
$
|
1,097,090
|
|
|
$
|
|
|
|
$
|
1,767,501
|
|
Short-term investments
|
|
|
486,761
|
|
|
|
|
|
|
|
|
|
|
|
50,778
|
|
|
|
|
|
|
|
537,539
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
797,421
|
|
|
|
(9,421
|
)
|
|
|
788,000
|
|
Handset and accessory inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,191
|
|
|
|
|
|
|
|
227,191
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
4,202
|
|
|
|
182,786
|
|
|
|
|
|
|
|
186,988
|
|
Prepaid expenses and other
|
|
|
2,776
|
|
|
|
|
|
|
|
5,439
|
|
|
|
385,477
|
|
|
|
(34
|
)
|
|
|
393,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,037,734
|
|
|
|
28
|
|
|
|
131,827
|
|
|
|
2,740,743
|
|
|
|
(9,455
|
)
|
|
|
3,900,877
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
107,030
|
|
|
|
2,853,303
|
|
|
|
(287
|
)
|
|
|
2,960,046
|
|
Investments in and advances to affiliates
|
|
|
2,962,830
|
|
|
|
2,905,655
|
|
|
|
2,925,907
|
|
|
|
|
|
|
|
(8,794,392
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
433,208
|
|
|
|
|
|
|
|
433,208
|
|
Deferred income taxes, net
|
|
|
7,712
|
|
|
|
|
|
|
|
|
|
|
|
486,098
|
|
|
|
(7,712
|
)
|
|
|
486,098
|
|
Other assets
|
|
|
2,414,774
|
|
|
|
2,256,448
|
|
|
|
667,301
|
|
|
|
588,572
|
|
|
|
(5,516,637
|
)
|
|
|
410,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,423,050
|
|
|
$
|
5,162,131
|
|
|
$
|
3,832,065
|
|
|
$
|
7,101,924
|
|
|
$
|
(14,328,483
|
)
|
|
$
|
8,190,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,295
|
|
|
$
|
|
|
|
$
|
2,314
|
|
|
$
|
296,421
|
|
|
$
|
|
|
|
$
|
300,030
|
|
Accrued expenses and other
|
|
|
637,597
|
|
|
|
173,263
|
|
|
|
1,599,378
|
|
|
|
1,117,481
|
|
|
|
(2,700,466
|
)
|
|
|
827,253
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,690
|
|
|
|
|
|
|
|
158,690
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
1,729
|
|
|
|
445,266
|
|
|
|
|
|
|
|
446,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
638,892
|
|
|
|
173,263
|
|
|
|
1,603,421
|
|
|
|
2,017,858
|
|
|
|
(2,700,466
|
)
|
|
|
1,732,968
|
|
Long-term debt
|
|
|
1,043,258
|
|
|
|
1,279,524
|
|
|
|
39,334
|
|
|
|
456,307
|
|
|
|
|
|
|
|
2,818,423
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,476
|
|
|
|
|
|
|
|
20,476
|
|
Deferred credits
|
|
|
|
|
|
|
|
|
|
|
21,427
|
|
|
|
74,352
|
|
|
|
(7,711
|
)
|
|
|
88,068
|
|
Other long-term liabilities
|
|
|
1,421,327
|
|
|
|
|
|
|
|
9,773
|
|
|
|
1,607,024
|
|
|
|
(2,826,945
|
)
|
|
|
211,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,103,477
|
|
|
|
1,452,787
|
|
|
|
1,673,955
|
|
|
|
4,176,017
|
|
|
|
(5,535,122
|
)
|
|
|
4,871,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,319,573
|
|
|
|
3,709,344
|
|
|
|
2,158,110
|
|
|
|
2,925,907
|
|
|
|
(8,793,361
|
)
|
|
|
3,319,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
6,423,050
|
|
|
$
|
5,162,131
|
|
|
$
|
3,832,065
|
|
|
$
|
7,101,924
|
|
|
$
|
(14,328,483
|
)
|
|
$
|
8,190,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2011
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
768
|
|
|
$
|
1,622,837
|
|
|
$
|
(768
|
)
|
|
$
|
1,622,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
656,335
|
|
|
|
|
|
|
|
656,380
|
|
Selling, general and administrative
|
|
|
912
|
|
|
|
162
|
|
|
|
63,793
|
|
|
|
472,578
|
|
|
|
(1,888
|
)
|
|
|
535,557
|
|
Management fee, royalty fee and other
|
|
|
(20,503
|
)
|
|
|
|
|
|
|
(29,475
|
)
|
|
|
48,858
|
|
|
|
1,120
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
2,084
|
|
|
|
153,835
|
|
|
|
|
|
|
|
155,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,591
|
)
|
|
|
162
|
|
|
|
36,447
|
|
|
|
1,331,606
|
|
|
|
(768
|
)
|
|
|
1,347,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
19,591
|
|
|
|
(162
|
)
|
|
|
(35,679
|
)
|
|
|
291,231
|
|
|
|
|
|
|
|
274,981
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(48,678
|
)
|
|
|
(30,709
|
)
|
|
|
(660
|
)
|
|
|
(48,473
|
)
|
|
|
47,361
|
|
|
|
(81,159
|
)
|
Interest income
|
|
|
4,451
|
|
|
|
43,611
|
|
|
|
51
|
|
|
|
5,459
|
|
|
|
(47,361
|
)
|
|
|
6,211
|
|
Foreign currency transaction gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,494
|
|
|
|
|
|
|
|
8,494
|
|
Equity in income of affiliates
|
|
|
113,784
|
|
|
|
151,227
|
|
|
|
152,355
|
|
|
|
|
|
|
|
(417,366
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
(4,407
|
)
|
|
|
|
|
|
|
(4,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,597
|
|
|
|
164,129
|
|
|
|
151,746
|
|
|
|
(38,927
|
)
|
|
|
(417,366
|
)
|
|
|
(70,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
89,188
|
|
|
|
163,967
|
|
|
|
116,067
|
|
|
|
252,304
|
|
|
|
(417,366
|
)
|
|
|
204,160
|
|
Income tax benefit (provision)
|
|
|
7,570
|
|
|
|
(4,346
|
)
|
|
|
(7,166
|
)
|
|
|
(99,949
|
)
|
|
|
(3,511
|
)
|
|
|
(107,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
96,758
|
|
|
$
|
159,621
|
|
|
$
|
108,901
|
|
|
$
|
152,355
|
|
|
$
|
(420,877
|
)
|
|
$
|
96,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Operating revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,283,146
|
|
|
$
|
|
|
|
$
|
1,283,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation and amortization
included below)
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
522,318
|
|
|
|
|
|
|
|
522,353
|
|
Selling, general and administrative
|
|
|
460
|
|
|
|
4
|
|
|
|
46,061
|
|
|
|
372,901
|
|
|
|
|
|
|
|
419,426
|
|
Management fee
|
|
|
(18,556
|
)
|
|
|
|
|
|
|
(23,220
|
)
|
|
|
41,776
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
1,681
|
|
|
|
127,015
|
|
|
|
|
|
|
|
128,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,096
|
)
|
|
|
4
|
|
|
|
24,557
|
|
|
|
1,064,010
|
|
|
|
|
|
|
|
1,070,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
18,096
|
|
|
|
(4
|
)
|
|
|
(24,557
|
)
|
|
|
219,136
|
|
|
|
|
|
|
|
212,671
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(25,090
|
)
|
|
|
(31,758
|
)
|
|
|
(304
|
)
|
|
|
(31,983
|
)
|
|
|
3,409
|
|
|
|
(85,726
|
)
|
Interest income
|
|
|
2,917
|
|
|
|
|
|
|
|
533
|
|
|
|
5,558
|
|
|
|
(3,409
|
)
|
|
|
5,599
|
|
Foreign currency transaction losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,083
|
)
|
|
|
|
|
|
|
(25,083
|
)
|
Equity in income of affiliates
|
|
|
35,176
|
|
|
|
96,975
|
|
|
|
117,171
|
|
|
|
|
|
|
|
(249,322
|
)
|
|
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
115
|
|
|
|
(4,469
|
)
|
|
|
(4
|
)
|
|
|
(4,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,003
|
|
|
|
65,217
|
|
|
|
117,515
|
|
|
|
(55,977
|
)
|
|
|
(249,326
|
)
|
|
|
(109,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax benefit (provision)
|
|
|
31,099
|
|
|
|
65,213
|
|
|
|
92,958
|
|
|
|
163,159
|
|
|
|
(249,326
|
)
|
|
|
103,103
|
|
Income tax benefit (provision)
|
|
|
17,363
|
|
|
|
|
|
|
|
(17,675
|
)
|
|
|
(54,534
|
)
|
|
|
205
|
|
|
|
(54,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
48,462
|
|
|
$
|
65,213
|
|
|
$
|
75,283
|
|
|
$
|
108,625
|
|
|
$
|
(249,121
|
)
|
|
$
|
48,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2011
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
96,758
|
|
|
$
|
159,621
|
|
|
$
|
108,901
|
|
|
$
|
152,355
|
|
|
$
|
(420,877
|
)
|
|
$
|
96,758
|
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
19,929
|
|
|
|
(115,482
|
)
|
|
|
(100,932
|
)
|
|
|
106,091
|
|
|
|
197,599
|
|
|
|
107,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
116,687
|
|
|
|
44,139
|
|
|
|
7,969
|
|
|
|
258,446
|
|
|
|
(223,278
|
)
|
|
|
203,963
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(26,092
|
)
|
|
|
|
|
|
|
|
|
|
|
(200,039
|
)
|
|
|
|
|
|
|
(226,131
|
)
|
Proceeds from sales of short-term investments
|
|
|
245,000
|
|
|
|
|
|
|
|
|
|
|
|
379,541
|
|
|
|
|
|
|
|
624,541
|
|
Transfers from restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,100
|
|
|
|
|
|
|
|
89,100
|
|
Purchase of long-term and short-term investments
|
|
|
(279,962
|
)
|
|
|
|
|
|
|
|
|
|
|
(416,555
|
)
|
|
|
|
|
|
|
(696,517
|
)
|
Intercompany borrowings
|
|
|
(66,006
|
)
|
|
|
(736,860
|
)
|
|
|
|
|
|
|
|
|
|
|
802,866
|
|
|
|
|
|
Other, net
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,438
|
)
|
|
|
|
|
|
|
(6,773
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(127,395
|
)
|
|
|
(736,860
|
)
|
|
|
|
|
|
|
(154,391
|
)
|
|
|
802,866
|
|
|
|
(215,780
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750,000
|
|
Proceeds from intercompany long-term loan
|
|
|
736,860
|
|
|
|
|
|
|
|
|
|
|
|
7,881
|
|
|
|
(744,741
|
)
|
|
|
|
|
Intercompany dividends
|
|
|
|
|
|
|
(84,139
|
)
|
|
|
(139,139
|
)
|
|
|
|
|
|
|
223,278
|
|
|
|
|
|
Other, net
|
|
|
310
|
|
|
|
26,849
|
|
|
|
17,572
|
|
|
|
(60,711
|
)
|
|
|
(58,125
|
)
|
|
|
(74,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
737,170
|
|
|
|
692,710
|
|
|
|
(121,567
|
)
|
|
|
(52,830
|
)
|
|
|
(579,588
|
)
|
|
|
675,895
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,328
|
)
|
|
|
|
|
|
|
(3,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
726,462
|
|
|
|
(11
|
)
|
|
|
(113,598
|
)
|
|
|
47,897
|
|
|
|
|
|
|
|
660,750
|
|
Cash and cash equivalents, beginning of period
|
|
|
548,197
|
|
|
|
28
|
|
|
|
122,186
|
|
|
|
1,097,090
|
|
|
|
|
|
|
|
1,767,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,274,659
|
|
|
$
|
17
|
|
|
$
|
8,588
|
|
|
$
|
1,144,987
|
|
|
$
|
|
|
|
$
|
2,428,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2010
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings,
|
|
|
NII Capital
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
|
Inc. (Parent)
|
|
|
Corp. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
48,462
|
|
|
$
|
65,213
|
|
|
$
|
75,283
|
|
|
$
|
108,625
|
|
|
$
|
(249,121
|
)
|
|
$
|
48,462
|
|
Adjustments to reconcile net income to net cash (used in)
provided by operating activities
|
|
|
(59,216
|
)
|
|
|
(65,213
|
)
|
|
|
(72,131
|
)
|
|
|
163,141
|
|
|
|
182,031
|
|
|
|
148,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(10,754
|
)
|
|
|
|
|
|
|
3,152
|
|
|
|
271,766
|
|
|
|
(67,090
|
)
|
|
|
197,074
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,186
|
)
|
|
|
|
|
|
|
|
|
|
|
(154,103
|
)
|
|
|
|
|
|
|
(156,289
|
)
|
Proceeds from sales of short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
396,838
|
|
|
|
|
|
|
|
396,838
|
|
Purchase of short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(315,136
|
)
|
|
|
|
|
|
|
(315,136
|
)
|
Other, net
|
|
|
(35,942
|
)
|
|
|
|
|
|
|
64,355
|
|
|
|
(17,778
|
)
|
|
|
(28,413
|
)
|
|
|
(17,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(38,128
|
)
|
|
|
|
|
|
|
64,355
|
|
|
|
(90,179
|
)
|
|
|
(28,413
|
)
|
|
|
(92,365
|
)
|
Net cash provided by (used in) financing activities
|
|
|
8,023
|
|
|
|
|
|
|
|
(67,507
|
)
|
|
|
(6,363
|
)
|
|
|
95,503
|
|
|
|
29,656
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,306
|
|
|
|
|
|
|
|
12,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(40,859
|
)
|
|
|
|
|
|
|
|
|
|
|
187,530
|
|
|
|
|
|
|
|
146,671
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,702,191
|
|
|
|
28
|
|
|
|
|
|
|
|
801,845
|
|
|
|
|
|
|
|
2,504,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,661,332
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
989,375
|
|
|
$
|
|
|
|
$
|
2,650,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
INDEX TO
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
24
|
|
|
|
|
24
|
|
|
|
|
28
|
|
|
|
|
28
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
32
|
|
|
|
|
34
|
|
|
|
|
36
|
|
|
|
|
37
|
|
|
|
|
38
|
|
|
|
|
38
|
|
|
|
|
40
|
|
|
|
|
43
|
|
|
|
|
43
|
|
23
Introduction
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition as of March 31, 2011
and December 31, 2010 and our consolidated results of
operations for the three-month periods ended March 31, 2011
and 2010; and
|
|
|
|
significant factors which we believe could affect our
prospective financial condition and results of operations.
|
You should read this discussion in conjunction with our annual
report on
Form 10-K,
including, but not limited to, the discussion regarding our
critical accounting policies and estimates, as described below.
Historical results may not indicate future performance. See
Forward Looking Statements and
Item 1A. Risk Factors in our annual
report on
Form 10-K
for risks and uncertainties that may impact our future
performance.
We refer to our operating companies by the countries in which
they operate, such as Nextel 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 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;
|
24
|
|
|
|
|
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 2011. We expect to
commercially launch third generation service offerings in Chile
later this year and in Brazil and Mexico in the first half of
2012.
We may also explore financially attractive opportunities to
expand our network coverage in areas that we do not currently
serve or plan to serve. Based on market data that continues to
show lower wireless penetration in our markets relative to other
regions of the world and our current market share in those
markets, we believe that we can continue to generate growth in
our subscriber base and revenues while improving our
profitability and cash flow over the long term.
We believe that the wireless communications industry in the
markets in which we operate has been and will continue to be
highly competitive on the basis of price, the types of services
offered, the diversity of handsets offered, speed of data access
and the quality of service. In each of our markets, we compete
with at least two large, well-capitalized competitors with
substantial financial and other resources. Some of these
competitors have the ability to offer bundled telecommunications
services that include local, long distance and data services,
and can offer a larger variety of handsets with a wide range of
prices, brands and features. Although competitive pricing of
services and the variety and pricing of handsets are often
important factors in a customers decision making process,
we believe that the users who primarily make up our targeted
customer base are also likely to base their purchase decisions
on quality of service and customer support, as well as on the
availability of differentiated features and services, like our
Direct Connect services, that make it easier for them to
communicate quickly, efficiently and economically.
We have implemented a strategy that we believe will position us
to achieve our long-term goal of generating profitable growth.
The key components of that strategy are as follows:
Focusing on Major Business Centers in Key Latin American
Markets. We operate primarily in large urban
markets, including five of the six largest cities in Latin
America, which have a concentration of medium to high usage
business customers and consumers. We target these markets
because we believe they have favorable long-term growth
prospects for our wireless communications services while
offering the cost benefits associated with providing services in
more concentrated population centers. Our planned third
generation networks are expected to serve both these major
business centers and a broader geographic area in order to reach
more potential customers and to meet the requirements of our
spectrum licenses. In addition, the cities in which we operate
account for a high proportion of total economic activity in each
of their respective countries and provide us with a large
prospective market. We believe that there are significant
opportunities for growth in these markets due to the high demand
for wireless communications services and the large number of
potential customers within our targeted customer groups.
25
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, 2010 and into 2011 in order to expand our service areas,
including expansion into the northeast region of the country,
and to add more capacity to Nextel Brazils network to
support its growth. Such expansion may involve building out
certain areas in which we already have spectrum, obtaining
additional spectrum in new areas which would enable us to expand
our network service areas, and further developing our business
in key urban areas. 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.
26
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.
Motorola recently completed a separation of its mobile devices
and home division into a separate public entities called
Motorola Mobility, Inc., to which our iDEN handset supply
agreements have been assigned, and Motorola Solutions, Inc., to
which our iDEN network infrastructure supply agreements have
been assigned. In addition, we have entered into arrangements
with Motorola that are designed to provide us with a continued
source of iDEN network equipment and handsets in an environment
in which Sprint Nextels purchases and support of future
development of that equipment have declined. Examples of these
arrangements include:
|
|
|
|
|
Agreements we entered into with Motorola in September 2006 to
extend our relationship with Motorola for the supply of iDEN
handsets and iDEN network infrastructure through
December 31, 2011. Under these agreements, Motorola agreed
to maintain an adequate supply of the iDEN handsets and
equipment used in our business for the term of the agreement and
to continue to invest in the development of new iDEN devices and
infrastructure features. In addition, we agreed to annually
escalating handset volume purchase commitments and certain
pricing parameters for handsets and infrastructure linked to the
volume of our purchases. If we do not meet the specified handset
volume commitments, we would be required to pay an additional
amount based on any shortfall of actual purchased handsets
compared to the related annual volume commitment.
|
|
|
|
An agreement we signed with Motorola, Inc., now Motorola
Solutions, Inc., in October 2010, which provided for the
extension of the terms of the iDEN network infrastructure
agreement with Motorola until December 31, 2014. The
extension of this infrastructure agreement will not impact any
handset pricing terms or commitments.
|
|
|
|
An agreement we entered into with Motorola Mobility, Inc. in
March 2011, which provided for the extension of the agreement
under which Motorola will supply iDEN handsets to NII Holdings
through 2014. In addition, we agreed to handset volume purchase
commitments with respect to certain handset models and pricing
parameters linked to the volume of our handset purchases. This
agreement provided that Motorola Mobility, Inc. will continue to
develop and deliver new handsets using the iDEN platform as we
develop our third generation networks over coming years.
|
In addition, in July 2010, Motorola 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
27
which we were the successful bidder in Brazil in 2010 and which
we expect to be awarded to us in 2011. We expect to commercially
launch third generation service offerings in Chile later this
year and in Brazil and Mexico in the first half of 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 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
March 31, 2011 and December 31, 2010. For purposes of
the table, handsets in commercial service represent all handsets
with active customer accounts on the networks in each of the
listed countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil
|
|
|
Mexico
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Handsets in commercial service December 31, 2010
|
|
|
3,319
|
|
|
|
3,361
|
|
|
|
1,154
|
|
|
|
1,128
|
|
|
|
65
|
|
|
|
9,027
|
|
Net subscriber additions
|
|
|
190
|
|
|
|
84
|
|
|
|
29
|
|
|
|
97
|
|
|
|
3
|
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Handsets in commercial service March 31, 2011
|
|
|
3,509
|
|
|
|
3,445
|
|
|
|
1,183
|
|
|
|
1,225
|
|
|
|
68
|
|
|
|
9,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies and Estimates
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses and related disclosures of contingent assets and
liabilities in the condensed consolidated financial statements
and accompanying notes. Although we believe that our estimates,
assumptions and judgments are reasonable, they are based upon
presently available information. Due to the inherent uncertainty
involved in making those estimates, actual results reported in
future periods could differ from those estimates.
As described in more detail in our annual report on
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations, we consider
the following accounting policies to be the most important to
our financial position and results of operations or policies
that require us to exercise significant judgment
and/or
estimates:
|
|
|
|
|
revenue recognition;
|
|
|
|
allowance for doubtful accounts;
|
|
|
|
depreciation of property, plant and equipment;
|
|
|
|
amortization of intangible assets;
|
28
|
|
|
|
|
asset retirement obligations;
|
|
|
|
foreign currency;
|
|
|
|
loss contingencies;
|
|
|
|
stock-based compensation; and
|
|
|
|
income taxes.
|
There have been no material changes to our critical accounting
policies and estimates during the three months ended
March 31, 2011 compared to those discussed under
Managements Discussion and Analysis of Financial
Condition and Results of Operations in our annual report
on
Form 10-K.
Results
of Operations
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of handsets and
accessories. Service revenues primarily include fixed monthly
access charges for mobile telephone service and two-way radio
and other services, including revenues from calling party pays
programs and variable charges for airtime and two-way radio
usage in excess of plan minutes, long-distance charges,
international roaming revenues derived from calls placed by our
customers and revenues generated from broadband data services we
provide on our third generation networks. Digital handset and
accessory revenues represent revenues we earn on the sale of
digital handsets and accessories to our customers.
In addition, we also have other less significant sources of
revenues. These revenues primarily include revenues generated
from our handset maintenance programs, roaming revenues
generated from other companies customers that roam on our
networks and co-location rental revenues from third-party
tenants that rent space on our towers.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of handset and accessory sales.
Cost of providing service consists largely of costs of
interconnection with local exchange carrier facilities and 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 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.
Selling and marketing expenses include all of the expenses
related to acquiring customers. General and administrative
expenses include expenses related to revenue-based taxes,
billing, customer care, collections including bad debt, repairs
and maintenance of management information systems, spectrum
license fees, corporate overhead and share-based payment for
stock options and restricted stock.
In accordance with accounting principles generally accepted in
the United States, we translated the results of operations of
our operating segments using the average currency exchange rates
for the three months ended March 31, 2011 and 2010. The
following table presents the average currency exchange rates we
used to translate the results of operations of our operating
segments into U.S. dollars, as well as changes from the
average exchange rates
29
utilized in prior periods. Because we treat the U.S. dollar
as the functional currency in Peru, Nextel Perus results
of operations are not significantly impacted by changes in the
U.S. dollar to Nuevo sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2011
|
|
2010
|
|
Percent Change
|
|
Brazilian real
|
|
|
1.67
|
|
|
|
1.80
|
|
|
|
7
|
%
|
Mexican peso
|
|
|
12.08
|
|
|
|
12.80
|
|
|
|
6
|
%
|
Argentine peso
|
|
|
4.01
|
|
|
|
3.84
|
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,546,328
|
|
|
|
95
|
%
|
|
$
|
1,217,670
|
|
|
|
95
|
%
|
|
$
|
328,658
|
|
|
|
27
|
%
|
Digital handset and accessory revenues
|
|
|
76,509
|
|
|
|
5
|
%
|
|
|
65,476
|
|
|
|
5
|
%
|
|
|
11,033
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,622,837
|
|
|
|
100
|
%
|
|
|
1,283,146
|
|
|
|
100
|
%
|
|
|
339,691
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(444,877
|
)
|
|
|
(27
|
)%
|
|
|
(349,525
|
)
|
|
|
(27
|
)%
|
|
|
(95,352
|
)
|
|
|
27
|
%
|
Cost of digital handset and accessory sales
|
|
|
(211,503
|
)
|
|
|
(13
|
)%
|
|
|
(172,828
|
)
|
|
|
(14
|
)%
|
|
|
(38,675
|
)
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(656,380
|
)
|
|
|
(40
|
)%
|
|
|
(522,353
|
)
|
|
|
(41
|
)%
|
|
|
(134,027
|
)
|
|
|
26
|
%
|
Selling and marketing expenses
|
|
|
(166,473
|
)
|
|
|
(10
|
)%
|
|
|
(150,389
|
)
|
|
|
(12
|
)%
|
|
|
(16,084
|
)
|
|
|
11
|
%
|
General and administrative expenses
|
|
|
(369,084
|
)
|
|
|
(23
|
)%
|
|
|
(269,037
|
)
|
|
|
(21
|
)%
|
|
|
(100,047
|
)
|
|
|
37
|
%
|
Depreciation and amortization
|
|
|
(155,919
|
)
|
|
|
(10
|
)%
|
|
|
(128,696
|
)
|
|
|
(10
|
)%
|
|
|
(27,223
|
)
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
274,981
|
|
|
|
17
|
%
|
|
|
212,671
|
|
|
|
16
|
%
|
|
|
62,310
|
|
|
|
29
|
%
|
Interest expense, net
|
|
|
(81,159
|
)
|
|
|
(5
|
)%
|
|
|
(85,726
|
)
|
|
|
(6
|
)%
|
|
|
4,567
|
|
|
|
(5
|
)%
|
Interest income
|
|
|
6,211
|
|
|
|
|
|
|
|
5,599
|
|
|
|
|
|
|
|
612
|
|
|
|
11
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
8,494
|
|
|
|
1
|
%
|
|
|
(25,083
|
)
|
|
|
(2
|
)%
|
|
|
33,577
|
|
|
|
(134
|
)%
|
Other expense, net
|
|
|
(4,367
|
)
|
|
|
|
|
|
|
(4,358
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
204,160
|
|
|
|
13
|
%
|
|
|
103,103
|
|
|
|
8
|
%
|
|
|
101,057
|
|
|
|
98
|
%
|
Income tax provision
|
|
|
(107,402
|
)
|
|
|
(7
|
)%
|
|
|
(54,641
|
)
|
|
|
(4
|
)%
|
|
|
(52,761
|
)
|
|
|
97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
96,758
|
|
|
|
6
|
%
|
|
$
|
48,462
|
|
|
|
4
|
%
|
|
$
|
48,296
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the first quarter of 2011, we expanded our subscriber
base across all of our markets with much of this growth
concentrated in Brazil, Mexico and Peru. We also experienced a
lower consolidated customer turnover rate in the first quarter
of 2011 compared to the same period in 2010, which resulted
primarily from improving economic conditions, as well as
continued initiatives to stabilize customer turnover rates in
our markets.
We continued to invest in coverage expansion and network
improvements during the first quarter of 2011, resulting in
consolidated capital expenditures of $217.9 million, which
represented a 62% increase from the first quarter of 2010.
Almost half of this investment occurred in Brazil where we
continued to expand our coverage areas and enhance the quality
and capacity of our networks, consistent with our 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 the
remainder of 2011. We expect to incur significant additional
capital expenditures throughout the remainder of 2011 and into
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,
30
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 throughout the remainder of 2011 and into 2012.
The average values of the local currencies in Brazil and Mexico
appreciated relative to the U.S. dollar during the first
quarter of 2011 compared to the same period in 2010. Conversely,
the average value of the Argentine peso depreciated relative to
the U.S. dollar during the first quarter of 2011 compared
to the first quarter of 2010. As a result, the components of our
consolidated results of operations for the first quarter of
2011, after translation into U.S. dollar, reflect more
significant increases in U.S. dollar revenues and expenses
than would have occurred if these currencies had not appreciated
relative to the U.S. dollar.
The $328.7 million, or 27%, increase in consolidated
service and other revenues from the first quarter of 2010 to the
same period in 2011 is largely due to a 22% 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. This increase was also the
result of an increase in consolidated average revenue per
subscriber, primarily in Brazil and Argentina.
The $95.4 million, or 27%, increase in consolidated cost of
service from the first quarter of 2010 to the same period in
2011 is primarily a result of the following:
|
|
|
|
|
a $64.4 million, or 38%, increase in consolidated
interconnect costs, mostly in Brazil and Mexico, 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, partially offset by a
reduction in mobile termination rates in Peru; and
|
|
|
|
$22.8 million in consolidated managed service expenses
recognized in the first quarter of 2011 related to certain
engineering activities managed by a third-party vendor.
|
The $38.7 million, or 22%, increase in consolidated cost of
digital handset and accessory sales from the first quarter of
2010 to the same period in 2011 is primarily 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
|
Consolidated selling and marketing expenses as a percentage of
total operating revenues decreased from 12% for the first
quarter of 2010 to 10% for the first quarter of 2011, primarily
as a result of lower indirect commissions in Mexico, as well as
lower advertising costs in Brazil, Mexico and Argentina.
|
|
4.
|
General and
administrative expenses
|
The $100.0 million, or 37%, increase in consolidated
general and administrative expenses from the first quarter of
2010 to the same period in 2011 is principally due to the
following:
|
|
|
|
|
a $47.9 million, or 34%, increase in consolidated general
corporate costs, mostly related to an increase in revenue-based
taxes in Brazil and higher personnel and consulting costs in
some of our markets, which are largely related to the continued
development of our third generation initiatives; and
|
|
|
|
a $20.3 million, or 28%, increase in consolidated customer
care and billing operations expenses, primarily in Brazil, as a
result of an increase in customer care personnel necessary to
support larger customer bases in our markets.
|
31
|
|
5.
|
Depreciation
and amortization
|
The $27.2 million, or 21%, increase in consolidated
depreciation and amortization from the first quarter of 2010 to
the same period in 2011 is the result of more consolidated
property, plant and equipment in service caused by the continued
expansion of the capacity of our iDEN network, as well as the
expansion of the coverage and capacity of our third generation
networks.
|
|
6.
|
Foreign
currency transaction gains (losses), net
|
Consolidated foreign currency transaction gains were not
material for the first quarter of 2011. Consolidated foreign
currency transaction losses of $25.1 million for the first
quarter of 2010 were primarily the result of the weakening of
the Mexican peso on Nextel Mexicos
U.S. dollar-denominated net assets during the period, as
well as the weakening of the Brazilian real on Nextel
Brazils U.S. dollar-denominated net liabilities,
primarily its syndicated loan facility, during the same period.
The $52.8 million, or 97%, increase in consolidated income
tax provision from the first quarter of 2010 to the same period
in 2011 is primarily due to an increase in Nextel Brazils
income before taxes, the reversal of a $14.5 million income
tax benefit recognized on the sale of certain fixed assets based
on an administrative ruling in Mexico and an $18.7 million
increase in the U.S. valuation allowance, partially offset
by an increase in tax deductible dividends in 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 for each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
778,334
|
|
|
|
96
|
%
|
|
$
|
538,050
|
|
|
|
95
|
%
|
|
$
|
240,284
|
|
|
|
45
|
%
|
Digital handset and accessory revenues
|
|
|
35,004
|
|
|
|
4
|
%
|
|
|
25,777
|
|
|
|
5
|
%
|
|
|
9,227
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
813,338
|
|
|
|
100
|
%
|
|
|
563,827
|
|
|
|
100
|
%
|
|
|
249,511
|
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(240,647
|
)
|
|
|
(29
|
)%
|
|
|
(190,570
|
)
|
|
|
(34
|
)%
|
|
|
(50,077
|
)
|
|
|
26
|
%
|
Cost of digital handset and accessory sales
|
|
|
(64,576
|
)
|
|
|
(8
|
)%
|
|
|
(37,885
|
)
|
|
|
(7
|
)%
|
|
|
(26,691
|
)
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305,223
|
)
|
|
|
(37
|
)%
|
|
|
(228,455
|
)
|
|
|
(41
|
)%
|
|
|
(76,768
|
)
|
|
|
34
|
%
|
Selling and marketing expenses
|
|
|
(63,692
|
)
|
|
|
(8
|
)%
|
|
|
(55,369
|
)
|
|
|
(10
|
)%
|
|
|
(8,323
|
)
|
|
|
15
|
%
|
General and administrative expenses
|
|
|
(161,422
|
)
|
|
|
(20
|
)%
|
|
|
(103,294
|
)
|
|
|
(18
|
)%
|
|
|
(58,128
|
)
|
|
|
56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
283,001
|
|
|
|
35
|
%
|
|
$
|
176,709
|
|
|
|
31
|
%
|
|
$
|
106,292
|
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 50% of
consolidated operating revenues for the three months ended
March 31, 2011 compared to 44% in the same period during
2010 and generated segment earnings margins of 35% in the first
quarter of 2011 and 31% in the first
32
quarter of 2010. Nextel Brazil has continued to experience
growth in its existing markets and has continued to make
investments in its newer markets as a result of increased demand
for its services.
We continued to invest in Brazil throughout the first quarter of
2011 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 45% of
consolidated total capital expenditures during the first quarter
of 2011. We believe that the quality and capacity of Nextel
Brazils network, as well as its expanded coverage are
contributing factors to its low customer turnover rate and
increased subscriber growth.
In late 2010, Nextel Brazil participated in a series of spectrum
auctions and was the successful bidder for 20 MHz of
spectrum in 1.9/2.1 GHz spectrum bands in 11 of the 13
auction lots covering approximately 98% of the Brazilian
population for $714.4 million. Nextel Brazil also
successfully bid on 20 MHz of spectrum in the 1.8 GHz
band in Rio de Janeiro for a total bid price of approximately
$121.7 million. Nextel Brazil plans to use the
1.9/2.1 GHz spectrum to support a third generation network
that will utilize WCDMA technology and the 1.8 GHz spectrum
to support its long-term strategy. The licenses relating to the
spectrum won by Nextel Brazil in the auction are expected to be
granted in 2011. The development and deployment of a third
generation network in Brazil using this spectrum will require us
to make significant investments in capital expenditures. See
Future Capital Needs and Resources Capital
Expenditures for more information.
We believe that our planned deployment of a third generation
network will enable us to offer new and differentiated services
to a larger base of customers in Brazil. We expect to incur
significant expenses associated with the deployment phase of
this network, particularly general and administrative and
selling and marketing expenses, but do not expect a
corresponding increase in operating revenues during the
deployment phase. As a result, we anticipate that Nextel
Brazils operating margins will be lower during the network
deployment phase, particularly during the initial stages of
deployment throughout the remainder of 2011 and into 2012.
The average value of the Brazilian real for the three months
ended March 31, 2011 appreciated relative to the
U.S. dollar by 7% compared to the average rate that
prevailed during the three months ended March 31, 2010. As
a result, the components of Nextel Brazils results of
operations for the first quarter of 2011, after translation into
U.S. dollars, reflect more significant increases in
U.S. dollar revenues and expenses than would have occurred
if the Brazilian real had not appreciated relative to the
U.S. dollar.
Nextel Brazils segment earnings increased
$106.3 million, or 60%, from the three months ended
March 31, 2010 to the same period in 2011 as a result of
the following:
The $240.3 million, or 45%, increase in service and other
revenues from the three months ended March 31, 2010 to the
same period in 2011 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 revenue per subscriber, primarily resulting
from the appreciation of the Brazilian real.
The $50.1 million, or 26%, increase in cost of service from
the three months ended March 31, 2010 to the same period in
2011 is primarily due to a $32.1 million, or 31%, increase
in interconnect costs due to an increase in interconnect minutes
of use for calls that terminate on other carriers
networks. Despite this increase, Nextel Brazils cost of
service as a percentage of its total operating revenues
decreased from 34% in the first quarter of 2010 to 29% in the
first quarter of 2011, primarily due to an increase in less
costly
mobile-to-mobile
minutes of use as a result of Nextel Brazils
implementation of rate plans that encouraged more
in-network
calling.
The $26.7 million, or 70%, increase in cost of digital
handset and accessory revenues from the three months ended
March 31, 2010 to the same period in 2011 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.
33
|
|
3.
|
General and
administrative expenses
|
The $58.1 million, or 56%, increase in general and
administrative expenses from the three months ended
March 31, 2010 to the same period in 2011 is principally
due to the following:
|
|
|
|
|
a $24.9 million, or 52%, increase in other general
corporate costs due to an increase in revenue-based taxes and
general and administrative personnel; and
|
|
|
|
a $13.9 million, or 118%, increase in bad debt expense
related to Nextel Brazils operating revenue growth and a
decrease in collection rates resulting from the addition of some
customers during the second half of 2010 whose credit histories
were less established.
|
The change in Nextel Brazils selling and marketing
expenses from the first quarter of 2010 to the same period in
2011 was immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
545,577
|
|
|
|
96
|
%
|
|
$
|
487,921
|
|
|
|
96
|
%
|
|
$
|
57,656
|
|
|
|
12
|
%
|
Digital handset and accessory revenues
|
|
|
21,429
|
|
|
|
4
|
%
|
|
|
21,503
|
|
|
|
4
|
%
|
|
|
(74
|
)
|
|
|
(0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
567,006
|
|
|
|
100
|
%
|
|
|
509,424
|
|
|
|
100
|
%
|
|
|
57,582
|
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(126,803
|
)
|
|
|
(22
|
)%
|
|
|
(86,445
|
)
|
|
|
(17
|
)%
|
|
|
(40,358
|
)
|
|
|
47
|
%
|
Cost of digital handset and accessory sales
|
|
|
(107,086
|
)
|
|
|
(19
|
)%
|
|
|
(100,749
|
)
|
|
|
(20
|
)%
|
|
|
(6,337
|
)
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(233,889
|
)
|
|
|
(41
|
)%
|
|
|
(187,194
|
)
|
|
|
(37
|
)%
|
|
|
(46,695
|
)
|
|
|
25
|
%
|
Selling and marketing expenses
|
|
|
(68,432
|
)
|
|
|
(12
|
)%
|
|
|
(66,091
|
)
|
|
|
(13
|
)%
|
|
|
(2,341
|
)
|
|
|
4
|
%
|
General and administrative expenses
|
|
|
(84,338
|
)
|
|
|
(15
|
)%
|
|
|
(71,755
|
)
|
|
|
(14
|
)%
|
|
|
(12,583
|
)
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
180,347
|
|
|
|
32
|
%
|
|
$
|
184,384
|
|
|
|
36
|
%
|
|
$
|
(4,037
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel Mexico comprised 35% of our consolidated operating
revenues and generated a 32% segment earnings margin for the
first quarter of 2011, which is lower than the margin reported
for the first quarter of 2010. This decrease in Nextel
Mexicos segment earnings margin is largely the result of
an increase in Nextel Mexicos cost of service, which
resulted primarily from higher interconnect expenses associated
with a greater proportion of call traffic terminating on other
carriers networks. Coverage expansion and network
improvements in Mexico resulted in capital expenditures of
$37.4 million for the first quarter of 2011, which
represents 17% of our consolidated total capital expenditures,
an increase when compared to the same period in 2010.
As a result of the spectrum auctions that were completed in
2010, 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 during the fourth quarter of 2010, which we
acquired to develop and deploy a third generation network in
Mexico. We began offering limited third generation services in
two cities in Mexico in early 2011, and we expect to begin
providing more widely available third generation service
offerings in Mexico in the first half of 2012. Continued
development and deployment of a third generation network in
Mexico will require significant investments in capital
expenditures in Mexico. See Future Capital Needs and
Resources Capital Expenditures for more
information.
We believe that our deployment of a third generation network
will enable us to offer new and differentiated services to a
larger base of customers in Mexico. We expect to incur
significant expenses associated with the deployment phase of
this network, particularly general and administrative and
selling and marketing expenses, but do not expect a
corresponding increase in operating revenues during the
deployment phase. As a result, we anticipate that our operating
margins will be lower during the network deployment phase,
particularly during the initial stages of deployment throughout
the remainder of 2011 and into 2012.
34
Beginning in 2007, some of Nextel Mexicos competitors
significantly lowered their prices for postpaid wireless
services, offered free or significantly discounted handsets,
specifically targeted some of Nextel Mexicos largest
corporate customers, offered various incentives to Nextel
Mexicos customers to switch service providers, including
reimbursement of cancellation fees, and offered bundled
telecommunications services that include local, long distance
and data services. These competitive actions and practices
largely remained in place during the first quarter of 2011.
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 results
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.
The average value of the Mexican peso for the quarter ended
March 31, 2011 appreciated relative to the U.S. dollar
by 6% compared to the average rate that prevailed during the
quarter ended March 31, 2010. As a result, the components
of Nextel Mexicos results of operations for the first
quarter of 2011 after translation into U.S. dollars reflect
higher U.S. dollar-denominated revenues and expenses than
would have occurred if it were not for the impact of the
appreciation in the average value of the peso relative to the
U.S. dollar.
Nextel Mexicos segment earnings margin decreased from 36%
for the quarter ended March 31, 2010 to 32% for the same
period in 2011 as a result of the following:
The $57.7 million, or 12%, increase in service and other
revenues from the three months ended March 31, 2010 to the
same period in 2011 is primarily due to an increase in the
average number of digital handsets in service resulting from
subscriber growth across Nextel Mexicos existing markets.
The impact of this subscriber growth was partially offset by
slightly lower average revenue per subscriber compared to the
first quarter of 2010 primarily caused by the implementation of
lower cost rate plans in response to the competitive environment
in Mexico discussed above.
The $40.4 million, or 47%, increase in cost of service from
the three months ended March 31, 2010 to the same period in
2011 is largely due to an increase in interconnect costs
stemming from an increase in interconnect minutes of use and in
the proportion of interconnect minutes of use for calls that
terminate on other carriers networks, which generally have
a higher cost per minute.
35
The changes in Nextel Mexicos selling and marketing
expenses and its general and administrative expenses as
percentages of its operating revenues from the first quarter of
2010 to the same period in 2011 were immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
138,576
|
|
|
|
92
|
%
|
|
$
|
121,879
|
|
|
|
92
|
%
|
|
$
|
16,697
|
|
|
|
14
|
%
|
Digital handset and accessory revenues
|
|
|
12,138
|
|
|
|
8
|
%
|
|
|
10,878
|
|
|
|
8
|
%
|
|
|
1,260
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,714
|
|
|
|
100
|
%
|
|
|
132,757
|
|
|
|
100
|
%
|
|
|
17,957
|
|
|
|
14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(44,877
|
)
|
|
|
(30
|
)%
|
|
|
(44,320
|
)
|
|
|
(33
|
)%
|
|
|
(557
|
)
|
|
|
1
|
%
|
Cost of digital handset and accessory sales
|
|
|
(19,421
|
)
|
|
|
(13
|
)%
|
|
|
(18,485
|
)
|
|
|
(14
|
)%
|
|
|
(936
|
)
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,298
|
)
|
|
|
(43
|
)%
|
|
|
(62,805
|
)
|
|
|
(47
|
)%
|
|
|
(1,493
|
)
|
|
|
2
|
%
|
Selling and marketing expenses
|
|
|
(11,700
|
)
|
|
|
(8
|
)%
|
|
|
(10,682
|
)
|
|
|
(8
|
)%
|
|
|
(1,018
|
)
|
|
|
10
|
%
|
General and administrative expenses
|
|
|
(30,765
|
)
|
|
|
(20
|
)%
|
|
|
(22,671
|
)
|
|
|
(17
|
)%
|
|
|
(8,094
|
)
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
43,951
|
|
|
|
29
|
%
|
|
$
|
36,599
|
|
|
|
28
|
%
|
|
$
|
7,352
|
|
|
|
20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 three months
ended March 31, 2011 depreciated relative to the
U.S. dollar by 4% from the same period in 2010. As a
result, the components of Nextel Argentinas results of
operations for the first quarter of 2011 after translation into
U.S. dollars reflect lower U.S. dollar-denominated
revenues and expenses than would have occurred if the Argentine
peso had not depreciated relative to the U.S. dollar.
Nextel Argentinas segment earnings margin did not change
significantly from the first quarter of 2010 to the same period
in 2011; however, Nextel Argentinas segment earnings
increased 20% from the first quarter of 2010 to the same period
in 2011 primarily due to a $16.7 million, or 14%, increase
in service and other revenues caused by an increase in the
average number of digital handsets in service, as well as an
increase in average revenue per subscriber, partially offset by
an $8.1 million, or 36%, increase in general and
administrative expenses caused by an increase in salaries and a
higher turnover tax rate.
36
The changes in Nextel Argentinas cost of revenues and
selling and marketing expenses as percentages of its operating
revenues from the first quarter of 2010 to the same period in
2011 were immaterial.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
77,739
|
|
|
|
91
|
%
|
|
$
|
65,600
|
|
|
|
90
|
%
|
|
$
|
12,139
|
|
|
|
19
|
%
|
Digital handset and accessory revenues
|
|
|
7,918
|
|
|
|
9
|
%
|
|
|
7,279
|
|
|
|
10
|
%
|
|
|
639
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,657
|
|
|
|
100
|
%
|
|
|
72,879
|
|
|
|
100
|
%
|
|
|
12,778
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(26,000
|
)
|
|
|
(30
|
)%
|
|
|
(25,657
|
)
|
|
|
(35
|
)%
|
|
|
(343
|
)
|
|
|
1
|
%
|
Cost of digital handset and accessory sales
|
|
|
(19,220
|
)
|
|
|
(23
|
)%
|
|
|
(14,884
|
)
|
|
|
(21
|
)%
|
|
|
(4,336
|
)
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,220
|
)
|
|
|
(53
|
)%
|
|
|
(40,541
|
)
|
|
|
(56
|
)%
|
|
|
(4,679
|
)
|
|
|
12
|
%
|
Selling and marketing expenses
|
|
|
(15,399
|
)
|
|
|
(18
|
)%
|
|
|
(12,565
|
)
|
|
|
(17
|
)%
|
|
|
(2,834
|
)
|
|
|
23
|
%
|
General and administrative expenses
|
|
|
(17,860
|
)
|
|
|
(21
|
)%
|
|
|
(15,550
|
)
|
|
|
(21
|
)%
|
|
|
(2,310
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
$
|
7,178
|
|
|
|
8
|
%
|
|
$
|
4,223
|
|
|
|
6
|
%
|
|
$
|
2,955
|
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 2009, we launched a third generation network in Peru
using 1.9 GHz spectrum we acquired in 2007. We continue to
develop and deploy transmitter and receiver sites in conjunction
with the build-out of this network. Although we commercially
launched voice service on this network in April 2010, we expect
to incur significant expenses associated with our continued
deployment, particularly general and administrative expenses, as
we launch services in more markets and incorporate additional
services in existing markets in Peru, including high performance
push-to-talk
services; however, we do not expect a corresponding increase in
operating revenues during this deployment phase. We believe that
the deployment of this third generation network will enable us
to offer new and differentiated services to a larger base of
potential customers in Peru.
Because the U.S. dollar is Nextel Perus functional
currency, results of operations are not significantly impacted
by changes in the U.S. dollar to Peruvian sol exchange rate.
Segment earnings increased 70% from the three months ended
March 31, 2010 to the same period in 2011 primarily due to
a $12.1 million, or 19%, increase in service and other
revenues largely attributable to a 35% 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 slight
increases to costs of digital handset and accessory sales,
selling and marketing expenses and general and administrative
expenses.
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
and other
|
|
|
Change from
|
|
|
|
March 31,
|
|
|
Operating
|
|
|
March 31,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2011
|
|
|
Revenues
|
|
|
2010
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
7,385
|
|
|
|
100
|
%
|
|
$
|
4,565
|
|
|
|
99
|
%
|
|
$
|
2,820
|
|
|
|
62
|
%
|
Digital handset and accessory revenues
|
|
|
20
|
|
|
|
|
|
|
|
39
|
|
|
|
1
|
%
|
|
|
(19
|
)
|
|
|
(49
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,405
|
|
|
|
100
|
%
|
|
|
4,604
|
|
|
|
100
|
%
|
|
|
2,801
|
|
|
|
61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization)
|
|
|
(7,065
|
)
|
|
|
(96
|
)%
|
|
|
(2,878
|
)
|
|
|
(62
|
)%
|
|
|
(4,187
|
)
|
|
|
145
|
%
|
Cost of digital handset and accessory sales
|
|
|
(1,200
|
)
|
|
|
(16
|
)%
|
|
|
(825
|
)
|
|
|
(18
|
)%
|
|
|
(375
|
)
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,265
|
)
|
|
|
(112
|
)%
|
|
|
(3,703
|
)
|
|
|
(80
|
)%
|
|
|
(4,562
|
)
|
|
|
123
|
%
|
Selling and marketing expenses
|
|
|
(7,250
|
)
|
|
|
(98
|
)%
|
|
|
(5,682
|
)
|
|
|
(123
|
)%
|
|
|
(1,568
|
)
|
|
|
28
|
%
|
General and administrative expenses
|
|
|
(76,587
|
)
|
|
|
NM
|
|
|
|
(55,767
|
)
|
|
|
NM
|
|
|
|
(20,820
|
)
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
$
|
(84,697
|
)
|
|
|
NM
|
|
|
$
|
(60,548
|
)
|
|
|
NM
|
|
|
$
|
(24,149
|
)
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the three months ended March 31, 2011 and 2010,
corporate and other operating revenues and cost of revenues
primarily represent the results of operations reported by Nextel
Chile. We plan to deploy a third generation network in Chile
utilizing 60 MHz of spectrum in the 1.7 GHz and
2.1 GHz bands based on WCDMA technology. 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
network in Chile resulted in capital expenditures totaling
$18.2 million for the three months ended March 31,
2011, which represents 8% of our consolidated total capital
expenditures for the first quarter of 2011. Deployment of our
third generation network and other planned network expansions in
Chile will require significant investments in capital
expenditures over the next several years.
Segment losses increased from the three months ended
March 31, 2010 to the same period in 2011 primarily due to
a $20.8 million increase in general and administrative
expenses, primarily due to a $6.6 million increase in
corporate consulting costs, increased employee expenses and an
$8.5 million increase in corporate information technology
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 progress with
our expansion plans and new technology initiatives in some of
our markets.
Liquidity
and Capital Resources
We derive our liquidity and capital resources primarily from
cash we raise in connection with external financings and cash
flows from our operations. As of March 31, 2011, we had
working capital, which is defined as total current assets less
total current liabilities, of $2,785.3 million, a
$617.4 million increase compared to working capital of
$2,167.9 million as of December 31, 2010. The increase
in working capital was primarily a result of about
$735.8 million in net proceeds received from the issuance
of our 7.625% senior notes in March 2011. As of
March 31, 2011, our working capital includes
$2,428.3 million in cash and cash equivalents, of which
$198.8 million was held in currencies other than
U.S. dollars, with 71% of that amount held in Mexican
pesos. As of March 31, 2011, our working capital also
includes $355.7 million in short-term investments, the
majority of which was held in U.S. dollars. In addition, as
of March 31, 2011, we had $254.5 million in long-term
investments. Although we currently intend to hold these
long-term investments to maturity, those investments are readily
marketable and could be sold if necessary to meet our liquidity
needs. 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
38
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 $96.8 million for the three
months ended March 31, 2011 compared to $48.5 million
for the three months ended March 31, 2010. During the three
months ended March 31, 2011 and 2010, 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; made significant
capital investments to enhance the quality and capacity of our
iDEN networks in all of our markets; and deployed and launched
services using a WCDMA-based third generation network in Peru.
In addition, as discussed in more detail above, we expect to
commercially launch third generation service offerings in Chile
later this year and in Brazil and Mexico in the first half of
2012. We expect our capital expenditures will materially
increase in 2011 and 2012 as we invest in these networks.
We expect our current sources of funding, including our cash,
cash equivalent and investment balances, committed financings,
including the financing available from the Brazilian
telecommunications regulator to fund the purchase price of the
spectrum licenses we expect to be awarded in Brazil, and other
anticipated future cash flows will together be sufficient to
meet our funding needs to support our current business and our
planned deployment of third generation networks. Nonetheless, we
plan to continue to evaluate funding opportunities and, if
appropriate, access the credit and capital markets in order to
reduce our capital costs, optimize our capital structure, and
maintain or enhance our liquidity position. To meet these goals,
we expect to pursue various financing alternatives, including
U.S. capital market transactions, as well as locally-based
vendor and bank financing opportunities. We would need to obtain
additional funding beyond our current sources to fund the
deployment of a third generation network in Argentina if we are
able to acquire spectrum licenses there.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Change
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
$
|
1,767,501
|
|
|
$
|
2,504,064
|
|
|
$
|
(736,563
|
)
|
Net cash provided by operating activities
|
|
|
203,963
|
|
|
|
197,074
|
|
|
|
6,889
|
|
Net cash used in investing activities
|
|
|
(215,780
|
)
|
|
|
(92,365
|
)
|
|
|
(123,415
|
)
|
Net cash provided by financing activities
|
|
|
675,895
|
|
|
|
29,656
|
|
|
|
646,239
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(3,328
|
)
|
|
|
12,306
|
|
|
|
(15,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,428,251
|
|
|
$
|
2,650,735
|
|
|
$
|
(222,484
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $204.0 million of
cash during the first quarter of 2011, a $6.9 million, or
3%, increase from the first quarter of 2010, primarily due to
higher operating income resulting from our profitable growth
strategy, as well as the impact of favorable exchange rate
fluctuations.
We used $215.8 million of cash in our investing activities
during the first quarter of 2011, a $123.4 million, or
134%, increase from the first quarter of 2010, primarily due to
a $153.7 million net increase in the purchase of short-term
investments in Brazil and at the corporate level and a
$69.8 million increase in cash capital expenditures,
partially offset by the return of $77.2 million in cash
securing performance bonds related to our spectrum acquisition
in Chile.
39
Our financing activities provided us with $675.9 million of
cash during the first quarter of 2011, primarily due to
$750.0 million of gross proceeds received from the issuance
of our 7.625% senior notes, partially offset by the
repayment of $26.5 million under our syndicated loan
facilities in Brazil and Peru and debt financing costs related
to our new senior notes. Our financing activities provided us
with $29.7 million of cash during the first quarter of
2010, primarily due to $60.0 million in borrowings under
Nextel Perus syndicated loan facility, partially offset by
the repayment of $20.3 million under our syndicated loan
facility in Brazil.
Future
Capital Needs and Resources
Capital Resources. Our ongoing capital
resources depend on a variety of factors, including our existing
cash and cash equivalents balances, committed financings,
including the financing available from the Brazilian
telecommunications regulator to fund the purchase price of the
spectrum licenses we expect to be awarded in Brazil, the value
of our investments and cash flows generated by our operating
companies and external financial sources that may be available.
Our ongoing capital resources may also be affected by the
availability of funding from external sources, including the
availability of funding from the U.S. capital markets and
from local vendor and bank financing or similar arrangements.
Our ability to generate sufficient net cash from our operating
activities is dependent upon, among other things:
|
|
|
|
|
the amount of revenue we are able to generate and collect from
our customers;
|
|
|
|
the amount of operating expenses required to provide our
services;
|
|
|
|
the cost of acquiring and retaining customers, including the
subsidies we incur to provide handsets to both our new and
existing customers;
|
|
|
|
our ability to continue to increase the size of our subscriber
base; and
|
|
|
|
fluctuations in foreign exchange rates.
|
Capital Needs and Contractual
Obligations. We currently anticipate that our
future capital needs will principally consist of funds required
for:
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operating expenses relating to our networks;
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capital expenditures to expand and enhance our networks, as
discussed below under Capital Expenditures;
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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;
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payments in connection with existing and future spectrum
purchases;
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debt service requirements, including significant upcoming
maturities in 2011 and 2012, and obligations relating to our
tower financing and capital lease obligations;
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cash taxes; and
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other general corporate expenditures.
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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 vendor financing or
other available financing.
In March 2011, we issued senior notes with $750.0 million
aggregate principal amount due at maturity that bear interest at
a rate of 7.625% per year, which is payable semi-annually in
arrears on April 1 and October 1, beginning on
October 1, 2011. The notes will mature on April 1,
2021 when the entire principal amount will be due. Other than
the issuance of these notes, during the three months ended
March 31, 2011, there were no material changes to our
contractual obligations as described in our annual report on
Form 10-K
for the year ended December 31, 2010.
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$217.9 million for the three months ended March 31,
2011 and $134.5 million for the three months ended
March 31, 2010. In both
40
quarters, 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 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 throughout the remainder
of 2011 and into 2012, with the amount and timing of those
additional capital expenditures dependent on, among other
things, our business plans, the payment rules associated with
the spectrum and the nature and extent of any regulatory
requirements that may be imposed regarding the timing and scope
of the deployment of the new networks.
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:
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the extent to which we expand the coverage of our networks in
new or existing market areas;
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the number of additional transmitter and receiver sites we build
in order to increase system capacity and maintain system quality
and the costs associated with the installation of related
switching equipment in some of our existing market areas;
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the extent to which we must add capacity to our networks to meet
the demand of our growing customer base;
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the amount we spend to deploy the third generation networks in
Brazil, Mexico, Peru and Chile;
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the costs we incur in connection with future spectrum
acquisitions and the development and deployment of any third
generation networks in Argentina; and
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the costs we incur in connection with
non-network
related information technology projects.
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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 during the
remainder of 2011 and into 2012 as we invest in these networks.
We expect our current cash, cash equivalents and investment
balances, committed financings, including the financing
available from the Brazilian telecommunications regulator to
fund the purchase price of the spectrum licenses we expect to be
awarded in Brazil, and other anticipated future cash flows will
together be sufficient to meet our funding needs to support our
current business and our planned deployment of third generation
networks. However, we would need to obtain additional funding
beyond our current sources to fund the deployment of a third
generation network in Argentina if we are able to acquire
spectrum licenses there.
The timing and amount of our future funding needs will also be
affected by the need to repay or refinance our existing
indebtedness, including $1.1 billion principal amount of
our 3.125% convertible notes that mature in June 2012 and most
of the $432.6 million in syndicated loan facilities due
during the next five years.
We are evaluating and pursuing various financing alternatives,
including U.S. capital market transactions, as well as
locally-based
vendor and bank financing opportunities, that can be used to
reduce our capital costs, optimize our capital structure, and
maintain or enhance our liquidity position. We expect to
continue to raise additional funding using one or more of these
alternatives. Any indebtedness that we may incur during the
remainder of 2011 and in subsequent years may be significant.
41
In making this assessment of our funding needs under our current
business plans, we have considered:
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cash and cash equivalents on hand and short- and long-term
investments available to fund our operations;
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expected cash flows from operations;
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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;
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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;
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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;
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our scheduled debt service, which includes significant
maturities in the next several years; and
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income taxes.
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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:
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if our plans change;
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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;
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if currency values in our markets depreciate relative to the
U.S. dollar in a manner contrary to our expectations;
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if economic conditions in any of our markets change;
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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
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if other presently unexpected circumstances arise that have a
material effect on the cash flow or profitability of our
business.
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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:
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the commercial success of our operations;
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the volatility and demand of the capital markets; and
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the future market prices of our securities.
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Market conditions in debt and equity markets in the United
States and global markets during 2008 and part of 2009 resulted
in a substantial decline in the amount of funding available to
corporate borrowers compared to prior periods as the global
economic downturn affected both the availability and terms of
financing. Although conditions in the debt and equity markets in
the United States have improved, volatility in those markets
could make it more difficult or more costly for us to raise
additional capital in order to meet our future capital needs,
and the related additional costs and terms of any financing we
raise could impose restrictions that limit our flexibility in
responding to business conditions and our ability to obtain
additional financing. If new indebtedness is added to our
current levels of indebtedness, the related risks that we now
face could intensify. For more information, see
Item 1A. Risk Factors included in our annual
report on
Form 10-K.
42
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. We adopted this new guidance on
its effective date of January 1, 2011. Consistent with this
guidance, we allocate revenue from transactions in which we
offer wireless service in conjunction with the sale or rental of
a handset between the two separate units of accounting. We base
this allocation on the relative selling prices of the handset
and the wireless service plan when sold separately. The amount
of revenue that can be allocated to the handset is limited to
amounts that are not contingent on our future provision of
wireless service. The adoption of this guidance did not have a
material impact on our condensed consolidated financial
statements.
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:
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our ability to attract and retain customers;
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our ability to meet the operating goals established by our
business plan;
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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;
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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;
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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;
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our ability to access sufficient debt or equity capital to meet
any future operating and financial needs;
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reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of digital two-way mobile data or Internet
connectivity services in our markets;
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the availability of adequate quantities of system infrastructure
and subscriber equipment and components at reasonable pricing to
meet our service deployment and marketing plans and customer
demand;
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Motorolas ability and willingness to provide handsets and
related equipment and software applications or to develop new
technologies or features for us for use on our iDEN network,
including the timely development and availability of new
handsets with expanded applications and features;
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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
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43
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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;
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our ability to successfully scale our billing, collection,
customer care and similar back-office operations to keep pace
with customer growth, increased system usage rates and growth or
to successfully deploy new systems that support those functions;
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the success of efforts to improve and satisfactorily address any
issues relating to our network performance;
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future legislation or regulatory actions relating to our SMR
services, other wireless communications services or
telecommunications generally and the costs
and/or
potential customer impacts of compliance with regulatory
mandates;
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the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our network business;
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the quality and price of similar or comparable wireless
communications services offered or to be offered by our
competitors, including providers of cellular services and
personal communications services;
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market acceptance of our new service offerings;
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equipment failure, natural disasters, terrorist acts or other
breaches of network or information technology security; and
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other risks and uncertainties described in this annual report on
Form 10-K,
including in Part I, Item 1A. Risk
Factors, and in our other reports filed with the
Securities and Exchange Commission, or the SEC.
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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.
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Item 3.
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Quantitative
and Qualitative Disclosures About Market Risk.
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In March 2011, we issued U.S. dollar-denominated fixed rate
senior notes with $750.0 million aggregate principal amount
due at maturity that bear interest at a rate of 7.625% per year,
which is payable semi-annually in arrears on April 1 and
October 1, beginning on October 1, 2011. The notes
will mature on April 1, 2021 when the entire principal
amount will be due. Other than the issuance of these notes,
during the three months ended March 31, 2011, there were no
material changes to our market risk policies or our market risk
sensitive instruments and positions as described in our annual
report on
Form 10-K
for the year ended December 31, 2010.
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Item 4.
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Controls
and Procedures.
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Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods required by the SEC and that
such information is accumulated and communicated to the
Companys management, including our chief executive officer
and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure.
As of March 31, 2011, an evaluation of the effectiveness of
the design and operation of our disclosure controls and
procedures was carried out under the supervision and with the
participation of our management teams in the United States and
in our operating companies, including our chief executive
officer and chief financial officer. Based on and as of the date
of such evaluation, our chief executive officer and chief
financial officer concluded that the design and operation of our
disclosure controls and procedures were not effective due to a
material weakness in
44
the Companys internal controls over financial reporting.
The material weakness we identified, which is more fully
described in Item 9A. Controls and Procedures
of our annual report on
Form 10-K
for the year ended December 31, 2010, related to the
failure of the controls in our Brazil operating segment over the
communication and incorporation of changes in Brazilian
value-added
tax laws into our reporting procedures. The underlying factors
contributing to the control failure related to insufficient
staffing, documentation and training, and underinvestment in
systems, resulting in inappropriate reliance on manual
procedures. The remediation plan that we have developed and are
following addresses both the specific areas of the financial
close process related to the errors that were identified in
2010, as well as the underlying factors contributing to the
errors.
Changes
in Internal Control over Financial Reporting
Although management has taken steps consistent with its plan for
remediation of the material weakness noted above, the material
weakness has not been remediated as of the end of the period
covered by this quarterly report on
Form 10-Q.
There have been no changes in the Companys internal
control over financial reporting during the most recently
completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
45
PART II
OTHER INFORMATION
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Item 1.
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Legal
Proceedings.
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We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
For information on our various loss contingencies, see
Note 4 to our condensed consolidated financial statements
above.
There have been no material changes in our risk factors from
those disclosed in our annual report on
Form 10-K
dated February 24, 2011.
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Exhibit
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Number
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Exhibit Description
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4
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.1
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Indenture governing our 7.625% senior notes due 2021, dated
as of March 29, 2011, by and between NII Holdings and
Wilmington Trust Company, as Indenture Trustee
(incorporated by reference to Exhibit 4.1 to NII
Holdings
Form 8-K,
filed on March 29, 2011).
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10
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.1
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Underwriting Agreement governing our 7.625% senior notes
due 2021, dated as of March 24, 2011, by and between NII
Holdings and Goldman, Sachs & Co., as
Underwriters Representative (incorporated by reference to
Exhibit 10.1 to NII Holdings
Form 8-K,
filed on March 29, 2011).
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10
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.2*
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Employment Letter Agreement, dated April 29, 2011, between
NII Holdings and Peter A. Foyo.
|
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12
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.1*
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Ratio of Earnings to Fixed Charges.
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31
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.1*
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Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
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31
|
.2*
|
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Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
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32
|
.1*
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|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2*
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|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
101*
|
|
|
The following materials from the NII Holdings, Inc. Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2011 formatted in
eXtensible Business Reporting Language (XBRL):
(i) Condensed Consolidated Balance Sheets,
(ii) Condensed Consolidated Statements of Operations and
Comprehensive Income, (iii) Condensed Consolidated
Statement of Changes in Stockholders Equity,
(iv) Condensed Consolidated Statements of Cash Flows and
(v) Notes to Condensed Consolidated Financial Statements.
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* |
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Submitted electronically herewith. |
46
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
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By:
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/s/ TERESA
S. GENDRON
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Teresa S. Gendron
Vice President and Controller
(on behalf of the registrant and as
chief accounting officer)
Date: May 5, 2011
47
EXHIBIT INDEX
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|
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Exhibit
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Number
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|
Exhibit Description
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4
|
.1
|
|
Indenture governing our 7.625% senior notes due 2021, dated
as of March 29, 2011, by and between NII Holdings and
Wilmington Trust Company, as Indenture Trustee
(incorporated by reference to Exhibit 4.1 to NII
Holdings
Form 8-K,
filed on March 29, 2011).
|
|
10
|
.1
|
|
Underwriting Agreement governing our 7.625% senior notes
due 2021, dated as of March 24, 2011, by and between NII
Holdings and Goldman, Sachs & Co., as
Underwriters Representative (incorporated by reference to
Exhibit 10.1 to NII Holdings
Form 8-K,
filed on March 29, 2011).
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10
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.2*
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Employment Letter Agreement, dated April 29, 2011, between
NII Holdings and Peter A. Foyo.
|
|
12
|
.1*
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Ratio of Earnings to Fixed Charges.
|
|
31
|
.1*
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Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
|
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31
|
.2*
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1*
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
32
|
.2*
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
|
|
101*
|
|
|
The following materials from the NII Holdings, Inc. Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2011 formatted in
eXtensible Business Reporting Language (XBRL):
(i) Condensed Consolidated Balance Sheets,
(ii) Condensed Consolidated Statements of Operations and
Comprehensive Income, (iii) Condensed Consolidated
Statement of Changes in Stockholders Equity,
(iv) Condensed Consolidated Statements of Cash Flows and
(v) Notes to Condensed Consolidated Financial Statements.
|
|
|
|
* |
|
Submitted electronically herewith. |
48