e10vq
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended
June 30, 2007
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period
from to
|
Commission file number: 0-32421
NII HOLDINGS, INC.
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
91-1671412
|
(State or Other Jurisdiction
of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
10700 Parkridge Boulevard,
Suite 600
Reston, Virginia
|
|
20191
|
(Address of Principal Executive
Offices)
|
|
(Zip Code)
|
(703) 390-5100
(Registrants Telephone
Number, Including Area Code)
Not
Applicable
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12,
13 or 15(d) of the Securities Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a
court. Yes þ No o
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
|
|
|
|
|
Number of Shares Outstanding
|
Title of Class
|
|
on August 2, 2007
|
|
Common Stock, $0.001 par
value per share
|
|
172,897,254
|
NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX
1
PART I
FINANCIAL INFORMATION
|
|
Item 1.
|
Financial
Statements.
|
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands, except par values)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,482,243
|
|
|
$
|
708,591
|
|
Accounts receivable, less
allowance for doubtful accounts of $19,143 and $15,928
|
|
|
360,523
|
|
|
|
298,470
|
|
Handset and accessory inventory
|
|
|
115,010
|
|
|
|
70,247
|
|
Deferred income taxes, net
|
|
|
73,796
|
|
|
|
60,450
|
|
Prepaid expenses and other
|
|
|
120,780
|
|
|
|
71,376
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,152,352
|
|
|
|
1,209,134
|
|
Property, plant and equipment,
net of accumulated
depreciation of $615,507 and $474,520
|
|
|
1,641,308
|
|
|
|
1,389,150
|
|
Intangible assets,
net
|
|
|
384,714
|
|
|
|
369,196
|
|
Deferred income taxes,
net
|
|
|
151,922
|
|
|
|
186,867
|
|
Other assets
|
|
|
207,790
|
|
|
|
143,331
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,538,086
|
|
|
$
|
3,297,678
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
97,218
|
|
|
$
|
107,687
|
|
Accrued expenses and other
|
|
|
363,116
|
|
|
|
342,465
|
|
Deferred revenues
|
|
|
95,633
|
|
|
|
83,952
|
|
Accrued interest
|
|
|
14,607
|
|
|
|
11,703
|
|
Current portion of long-term debt
|
|
|
47,863
|
|
|
|
23,294
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
618,437
|
|
|
|
569,101
|
|
Long-term debt
|
|
|
2,324,762
|
|
|
|
1,134,387
|
|
Deferred revenues
|
|
|
34,510
|
|
|
|
36,156
|
|
Deferred credits
|
|
|
106,537
|
|
|
|
110,033
|
|
Other long-term
liabilities
|
|
|
112,359
|
|
|
|
101,521
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,196,605
|
|
|
|
1,951,198
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 5)
|
|
|
|
|
|
|
|
|
Stockholders
equity
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, par
value $0.001, 10,000 shares authorized, no shares issued or
outstanding 2007 and 2006
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001,
600,000 shares authorized 2007 and 2006,
161,550 shares issued and outstanding 2007,
161,814 shares issued and outstanding 2006
|
|
|
162
|
|
|
|
162
|
|
Paid-in capital
|
|
|
512,712
|
|
|
|
723,644
|
|
Retained earnings
|
|
|
793,625
|
|
|
|
630,538
|
|
Accumulated other comprehensive
income (loss)
|
|
|
34,982
|
|
|
|
(7,864
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,341,481
|
|
|
|
1,346,480
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
4,538,086
|
|
|
$
|
3,297,678
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,449,364
|
|
|
$
|
1,040,205
|
|
|
$
|
758,681
|
|
|
$
|
534,249
|
|
Digital handset and accessory
revenues
|
|
|
49,909
|
|
|
|
44,495
|
|
|
|
26,985
|
|
|
|
22,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,499,273
|
|
|
|
1,084,700
|
|
|
|
785,666
|
|
|
|
556,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
398,940
|
|
|
|
279,162
|
|
|
|
210,045
|
|
|
|
144,812
|
|
Cost of digital handsets and
accessories
|
|
|
195,812
|
|
|
|
140,156
|
|
|
|
104,729
|
|
|
|
70,355
|
|
Selling, general and administrative
|
|
|
489,448
|
|
|
|
356,990
|
|
|
|
264,306
|
|
|
|
186,454
|
|
Depreciation
|
|
|
136,325
|
|
|
|
81,884
|
|
|
|
70,961
|
|
|
|
41,674
|
|
Amortization
|
|
|
3,371
|
|
|
|
2,812
|
|
|
|
1,727
|
|
|
|
1,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,223,896
|
|
|
|
861,004
|
|
|
|
651,768
|
|
|
|
444,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
275,377
|
|
|
|
223,696
|
|
|
|
133,898
|
|
|
|
111,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(53,982
|
)
|
|
|
(42,447
|
)
|
|
|
(29,653
|
)
|
|
|
(21,032
|
)
|
Interest income
|
|
|
25,158
|
|
|
|
25,738
|
|
|
|
13,788
|
|
|
|
13,137
|
|
Foreign currency transaction gains
(losses), net
|
|
|
5,799
|
|
|
|
(3,483
|
)
|
|
|
9,331
|
|
|
|
(2,342
|
)
|
Other income (expense), net
|
|
|
633
|
|
|
|
(5,588
|
)
|
|
|
(1,194
|
)
|
|
|
(3,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,392
|
)
|
|
|
(25,780
|
)
|
|
|
(7,728
|
)
|
|
|
(13,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
provision
|
|
|
252,985
|
|
|
|
197,916
|
|
|
|
126,170
|
|
|
|
98,125
|
|
Income tax provision
|
|
|
(84,741
|
)
|
|
|
(77,015
|
)
|
|
|
(42,090
|
)
|
|
|
(42,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
168,244
|
|
|
$
|
120,901
|
|
|
$
|
84,080
|
|
|
$
|
55,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share,
basic
|
|
$
|
1.04
|
|
|
$
|
0.79
|
|
|
$
|
0.52
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share,
diluted
|
|
$
|
0.94
|
|
|
$
|
0.70
|
|
|
$
|
0.47
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding, basic
|
|
|
162,371
|
|
|
|
152,833
|
|
|
|
162,867
|
|
|
|
153,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding, diluted
|
|
|
185,883
|
|
|
|
183,535
|
|
|
|
185,845
|
|
|
|
184,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
adjustment
|
|
$
|
42,090
|
|
|
$
|
(27,583
|
)
|
|
$
|
47,005
|
|
|
$
|
(29,406
|
)
|
Reclassification for losses on
derivatives included in other income (expense), net
|
|
|
395
|
|
|
|
1,401
|
|
|
|
42
|
|
|
|
314
|
|
Unrealized gains on derivatives,
net
|
|
|
361
|
|
|
|
1,718
|
|
|
|
123
|
|
|
|
1,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
42,846
|
|
|
|
(24,464
|
)
|
|
|
47,170
|
|
|
|
(27,588
|
)
|
Net income
|
|
|
168,244
|
|
|
|
120,901
|
|
|
|
84,080
|
|
|
|
55,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
211,090
|
|
|
$
|
96,437
|
|
|
$
|
131,250
|
|
|
$
|
28,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the Six Months Ended June 30, 2007
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Balance, January 1,
2007
|
|
|
161,814
|
|
|
$
|
162
|
|
|
$
|
723,644
|
|
|
$
|
630,538
|
|
|
$
|
(7,864
|
)
|
|
$
|
1,346,480
|
|
Cumulative effect of adopting
FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,157
|
)
|
|
|
|
|
|
|
(5,157
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168,244
|
|
|
|
|
|
|
|
168,244
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,846
|
|
|
|
42,846
|
|
Repurchase of common stock
|
|
|
(4,044
|
)
|
|
|
(4
|
)
|
|
|
(329,976
|
)
|
|
|
|
|
|
|
|
|
|
|
(329,980
|
)
|
Share-based payment expense
|
|
|
|
|
|
|
|
|
|
|
29,123
|
|
|
|
|
|
|
|
|
|
|
|
29,123
|
|
Conversion of 2.75% notes to
common stock
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Exercise of stock options
|
|
|
3,780
|
|
|
|
4
|
|
|
|
77,970
|
|
|
|
|
|
|
|
|
|
|
|
77,974
|
|
Tax benefit on exercise of stock
options
|
|
|
|
|
|
|
|
|
|
|
2,565
|
|
|
|
|
|
|
|
|
|
|
|
2,565
|
|
Tax benefit of prior periods
stock option exercises
|
|
|
|
|
|
|
|
|
|
|
9,383
|
|
|
|
|
|
|
|
|
|
|
|
9,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2007
|
|
|
161,550
|
|
|
$
|
162
|
|
|
$
|
512,712
|
|
|
$
|
793,625
|
|
|
$
|
34,982
|
|
|
$
|
1,341,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
NII
HOLDINGS, INC. AND SUBSIDIARIES
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
168,244
|
|
|
$
|
120,901
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Amortization of debt financing
costs
|
|
|
2,603
|
|
|
|
2,323
|
|
Depreciation and amortization
|
|
|
139,696
|
|
|
|
84,696
|
|
Provision for losses on accounts
receivable
|
|
|
21,804
|
|
|
|
14,759
|
|
Losses on derivative instruments
|
|
|
585
|
|
|
|
1,909
|
|
Foreign currency transaction
(gains) losses, net
|
|
|
(5,799
|
)
|
|
|
3,483
|
|
Deferred income tax provision
|
|
|
25,662
|
|
|
|
33,293
|
|
Utilization of deferred credit
|
|
|
(3,729
|
)
|
|
|
(5,152
|
)
|
Share-based payment expense
|
|
|
29,448
|
|
|
|
17,483
|
|
Excess tax benefit from
share-based payment
|
|
|
(2,505
|
)
|
|
|
(19,749
|
)
|
Accretion of asset retirement
obligations
|
|
|
2,868
|
|
|
|
1,668
|
|
Other, net
|
|
|
150
|
|
|
|
1,827
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(74,083
|
)
|
|
|
(40,143
|
)
|
Handset and accessory inventory
|
|
|
(42,977
|
)
|
|
|
(17,389
|
)
|
Prepaid expenses and other
|
|
|
(45,852
|
)
|
|
|
(30,661
|
)
|
Other long-term assets
|
|
|
(34,708
|
)
|
|
|
(16,333
|
)
|
Accounts payable, accrued expenses
and other
|
|
|
34,846
|
|
|
|
(2,268
|
)
|
Current deferred revenue
|
|
|
9,720
|
|
|
|
7,742
|
|
Other long-term liabilities
|
|
|
1,909
|
|
|
|
3,126
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
227,882
|
|
|
|
161,515
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(361,135
|
)
|
|
|
(265,811
|
)
|
Payments for acquisitions,
purchases of licenses and other
|
|
|
(15,365
|
)
|
|
|
(1,680
|
)
|
Transfers to restricted cash
|
|
|
(919
|
)
|
|
|
(5,100
|
)
|
Other
|
|
|
74
|
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(377,345
|
)
|
|
|
(272,145
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of
convertible notes
|
|
|
1,200,000
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(329,980
|
)
|
|
|
|
|
Proceeds from stock option
exercises
|
|
|
77,974
|
|
|
|
45,094
|
|
Borrowings under syndicated loan
facility
|
|
|
|
|
|
|
59,354
|
|
Repayments under syndicated loan
facility
|
|
|
(9,152
|
)
|
|
|
(9,941
|
)
|
Payment of debt financing costs
|
|
|
(22,532
|
)
|
|
|
(2,668
|
)
|
Gross proceeds from tower
financing transactions
|
|
|
7,453
|
|
|
|
2,597
|
|
Repayments under capital leases
and tower financing transactions
|
|
|
(2,578
|
)
|
|
|
(2,325
|
)
|
Excess tax benefit from
share-based payment
|
|
|
2,505
|
|
|
|
19,749
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
923,690
|
|
|
|
111,860
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
on cash and cash equivalents
|
|
|
(575
|
)
|
|
|
(15,120
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
773,652
|
|
|
|
(13,890
|
)
|
Cash and cash equivalents,
beginning of period
|
|
|
708,591
|
|
|
|
877,536
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end
of period
|
|
$
|
1,482,243
|
|
|
$
|
863,646
|
|
|
|
|
|
|
|
|
|
|
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 2006 annual report on
Form 10-K
and our quarterly report on
Form 10-Q
for the quarter ended March 31, 2007. You should not expect
results of operations for interim periods to be an indication of
the results for a full year.
Accumulated Other Comprehensive Income
(Loss). The components of our accumulated
other comprehensive income (loss), net of taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Cumulative foreign currency
translation adjustment
|
|
$
|
37,170
|
|
|
$
|
(4,920
|
)
|
Unrealized losses on derivatives
|
|
|
(2,188
|
)
|
|
|
(2,944
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34,982
|
|
|
$
|
(7,864
|
)
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Cash paid for capital
expenditures, including capitalized interest
|
|
$
|
361,135
|
|
|
$
|
265,811
|
|
Changes in capital expenditures
accrued and unpaid or financed
|
|
|
(19,746
|
)
|
|
|
61,061
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
341,389
|
|
|
$
|
326,872
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
53,982
|
|
|
$
|
42,447
|
|
Interest capitalized
|
|
|
3,186
|
|
|
|
7,471
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,168
|
|
|
$
|
49,918
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of
amounts capitalized
|
|
$
|
36,766
|
|
|
$
|
28,555
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income
taxes
|
|
$
|
70,608
|
|
|
$
|
47,065
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2007 and 2006, we had
$11.3 million and $8.4 million, respectively, in
non-cash financing activities related to co-location capital
lease obligations on our communication towers.
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.
6
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As presented for the six and three months ended June 30,
2007, our calculation of diluted net income per share includes
common shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.875%
convertible notes and our 2.75% convertible notes. We did not
include the common shares resulting from the potential
conversion of our 3.125% convertible notes that we issued in the
second quarter of 2007, since their effect would have been
antidilutive to our net income per share.
As presented for the six and three months ended June 30,
2006, our calculation of diluted net income per share includes
common shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 3.5%
convertible notes, our 2.875% convertible notes and our 2.75%
convertible notes.
As discussed in Note 8, on July 25, 2007, we accepted
the tender of 99.99% of the $300.0 million in outstanding
principal amount of our 2.875% convertible notes under a tender
offer that expired on July 23, 2007, resulting in the
issuance of 11,268,103 shares of our common stock. The
completion of the tender offer will result in a higher weighted
average share count for basic net income per share in future
periods, but will have no effect on our diluted net income per
share.
The following tables provide a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our consolidated statements of
operations for the six and three months ended June 30, 2007
and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007
|
|
|
Six Months Ended June 30, 2006
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
168,244
|
|
|
|
162,371
|
|
|
$
|
1.04
|
|
|
$
|
120,901
|
|
|
|
152,833
|
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
4,480
|
|
|
|
|
|
|
|
|
|
|
|
4,804
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
774
|
|
|
|
|
|
|
|
|
|
|
|
777
|
|
|
|
|
|
Convertible notes, net of
capitalized interest and taxes
|
|
|
5,797
|
|
|
|
18,258
|
|
|
|
|
|
|
|
7,376
|
|
|
|
25,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
174,041
|
|
|
|
185,883
|
|
|
$
|
0.94
|
|
|
$
|
128,277
|
|
|
|
183,535
|
|
|
$
|
0.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007
|
|
|
Three Months Ended June 30, 2006
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
84,080
|
|
|
|
162,867
|
|
|
$
|
0.52
|
|
|
$
|
55,903
|
|
|
|
153,493
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
4,193
|
|
|
|
|
|
|
|
|
|
|
|
4,708
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
895
|
|
|
|
|
|
Convertible notes, net of
capitalized interest and taxes
|
|
|
2,859
|
|
|
|
18,258
|
|
|
|
|
|
|
|
3,747
|
|
|
|
25,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
86,939
|
|
|
|
185,845
|
|
|
$
|
0.47
|
|
|
$
|
59,650
|
|
|
|
184,215
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of Common Stock. In May
2007, our Board of Directors authorized a program to repurchase
shares of our common stock for cash. The Board approved the
repurchase of shares having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. During the second quarter of 2007, we repurchased a
total of 4,043,725 shares of our common stock for
approximately $330.0 million. We treated this purchase as
an effective retirement of the purchased shares and therefore
reduced our reported shares issued and outstanding by the number
of shares repurchased. In addition, we recorded the excess of
the purchase price over the par value of the common stock as a
reduction to paid-in capital.
Reclassifications. We have reclassified
certain prior year amounts in our unaudited condensed
consolidated financial statements to conform to our current year
presentation. These reclassifications did not have a material
impact on previously reported balances.
New Accounting Pronouncements. In June
2006, the Financial Accounting Standards Board, or the FASB,
ratified the consensus of the Emerging Issues Task Force, or
EITF, on Issue
06-3,
How Sales Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross Versus Net Presentation), or
EITF 06-3.
EITF 06-3 states
that a company should disclose its accounting policy (gross or
net presentation) regarding presentation of sales and other
similar taxes. If taxes included in gross revenues are
significant, a company should disclose the amount of such taxes
for each period for which an income statement is presented.
EITF 06-3
is effective for financial reports in interim and annual
reporting periods beginning after December 15, 2006. We
currently disclose our policy with regard to these types of
taxes in our revenue recognition policy; however we do not
consider the amounts of these taxes significant for disclosure.
Therefore, the adoption of
EITF 06-3
did not have a material impact on our consolidated financial
statements.
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109, or
FIN 48. FIN 48 clarifies the accounting for
uncertainty in income tax positions and is effective beginning
January 1, 2007. FIN 48 provides that the financial
statement effects of an income tax position can only be
recognized when, based on the technical merits, it is
more-likely-than-not that the position will be
sustained upon examination. The cumulative effect of applying
the provisions of FIN 48 is required to be reported as an
adjustment to the opening balance of retained earnings for that
fiscal year. The adoption of FIN 48 in the first quarter of
2007 resulted in a $5.2 million decrease to our retained
earnings. See Note 6 for more information.
In September 2006, the FASB issued Statement of Financial
Accounting Standards, or SFAS, No. 157, Fair
Value Measurement, or SFAS 157, which provides
guidance for using fair value to measure assets and liabilities
when required for recognition or disclosure purposes.
SFAS 157 is intended to make the measurement of fair value
more consistent and comparable and improve disclosures about
these measures. Specifically, SFAS 157 (1) clarifies
the principle that fair value should be based
8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on the assumptions market participants would use when pricing
the asset or liability, (2) establishes a fair value
hierarchy that prioritizes the information used to develop those
assumptions, (3) clarifies the information required to be
used to measure fair value, (4) determines the frequency of
fair value measures and (5) requires companies to make
expanded disclosures about the methods and assumptions used to
measure fair value and the fair value measurements effect
on earnings. However, SFAS 157 does not expand the use of
fair value to any new circumstances or determine when fair value
should be used in the financial statements. SFAS 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods
within those fiscal years, with some exceptions. SFAS 157
is to be applied prospectively as of the first interim period
for the fiscal year in which it is initially adopted, except for
a limited form of retrospective application for some specific
items. We are currently evaluating the impact that SFAS 157
may have on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, Including an Amendment of FASB Statement
No. 115. SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other
items at fair value that are not currently required to be
measured at fair value. Unrealized gains and losses on items for
which the fair value option has been elected are reported in
earnings. SFAS No. 159 does not affect any existing
accounting literature that requires certain assets and
liabilities to be carried at fair value. SFAS No. 159
is effective for fiscal years beginning after November 15,
2007. We are currently evaluating the impact that
SFAS No. 159 may have on our consolidated financial
statements.
|
|
Note 2.
|
Supplemental
Balance Sheet Information
|
Prepaid
Expenses and Other.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Short-term value added tax
receivables
|
|
$
|
27,283
|
|
|
$
|
14,813
|
|
Commissions
|
|
|
15,208
|
|
|
|
16,164
|
|
Local taxes
|
|
|
13,932
|
|
|
|
4,630
|
|
Advertising
|
|
|
10,171
|
|
|
|
70
|
|
Spectrum fees
|
|
|
7,570
|
|
|
|
3,773
|
|
General prepaid expenses
|
|
|
6,689
|
|
|
|
4,337
|
|
Insurance
|
|
|
5,070
|
|
|
|
5,767
|
|
Short-term advances to suppliers
|
|
|
4,945
|
|
|
|
4,793
|
|
Rent
|
|
|
4,865
|
|
|
|
4,172
|
|
Maintenance
|
|
|
4,177
|
|
|
|
3,112
|
|
Insurance claims
|
|
|
3,792
|
|
|
|
3,193
|
|
Interest receivable
|
|
|
3,491
|
|
|
|
527
|
|
Other
|
|
|
13,587
|
|
|
|
6,025
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
120,780
|
|
|
$
|
71,376
|
|
|
|
|
|
|
|
|
|
|
In general, Nextel Mexico enters into advertising agreements
with various media suppliers and pre-pays for the entire
years services during the first quarter of each year.
These amounts are reflected in the prepaid expense balance for
advertising above.
9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Assets.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Long-term value added tax
receivables
|
|
$
|
86,349
|
|
|
$
|
66,931
|
|
Deferred financing costs
|
|
|
37,516
|
|
|
|
17,304
|
|
Long-term advances to suppliers
|
|
|
32,892
|
|
|
|
14,516
|
|
Deposits
|
|
|
25,623
|
|
|
|
20,983
|
|
Income tax receivable
|
|
|
16,018
|
|
|
|
15,996
|
|
Handsets under operating leases
|
|
|
7,038
|
|
|
|
5,970
|
|
Other
|
|
|
2,354
|
|
|
|
1,631
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
207,790
|
|
|
$
|
143,331
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007, the deferred financing costs balance
includes $22.8 million related to the issuance of our
3.125% convertible notes in the second quarter of 2007. See
Note 4 for more information.
As of June 30, 2007 and December 31, 2006, the
long-term advances to suppliers balance includes
$20.7 million and $2.6 million, respectively, that
Nextel Mexico prepaid in accordance with the terms of a
commercial agreement with Telmex that was entered into in the
first quarter of 2006 under which Nextel Mexico receives
telecommunications services.
Accrued
Expenses and Other.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Payroll related items and
commissions
|
|
$
|
63,954
|
|
|
$
|
55,654
|
|
Capital expenditures
|
|
|
63,287
|
|
|
|
81,839
|
|
Network system and information
technology
|
|
|
54,712
|
|
|
|
46,741
|
|
Customer deposits
|
|
|
37,570
|
|
|
|
31,044
|
|
Non-income based taxes
|
|
|
35,029
|
|
|
|
30,430
|
|
Accrued contingencies
|
|
|
22,378
|
|
|
|
24,369
|
|
Income taxes
|
|
|
20,204
|
|
|
|
16,774
|
|
License fees
|
|
|
9,794
|
|
|
|
10,765
|
|
Deferred tax liability
|
|
|
9,009
|
|
|
|
7,756
|
|
Marketing
|
|
|
8,082
|
|
|
|
5,551
|
|
Professional fees
|
|
|
5,613
|
|
|
|
4,288
|
|
Insurance
|
|
|
3,886
|
|
|
|
3,163
|
|
Inventory
|
|
|
3,806
|
|
|
|
2,236
|
|
Other
|
|
|
25,792
|
|
|
|
21,855
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
363,116
|
|
|
$
|
342,465
|
|
|
|
|
|
|
|
|
|
|
10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred
Credits.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Deferred income tax liability
|
|
$
|
89,124
|
|
|
$
|
88,886
|
|
Deferred credit from AOL Mexico
acquisition
|
|
|
17,413
|
|
|
|
21,147
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
106,537
|
|
|
$
|
110,033
|
|
|
|
|
|
|
|
|
|
|
Other
Long-Term Liabilities.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Accrued contingencies
|
|
$
|
55,203
|
|
|
$
|
61,516
|
|
Asset retirement obligations
|
|
|
34,847
|
|
|
|
29,297
|
|
Severance plan liability
|
|
|
6,940
|
|
|
|
6,468
|
|
Other
|
|
|
15,369
|
|
|
|
4,240
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
112,359
|
|
|
$
|
101,521
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 3.
|
Intangible
Assets
|
Our intangible assets consist of our licenses, customer base and
trade name, all of which have finite useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
Amortizable intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
408,763
|
|
|
$
|
(24,049
|
)
|
|
$
|
384,714
|
|
|
$
|
389,526
|
|
|
$
|
(20,330
|
)
|
|
$
|
369,196
|
|
Customer base
|
|
|
42,543
|
|
|
|
(42,543
|
)
|
|
|
|
|
|
|
42,401
|
|
|
|
(42,401
|
)
|
|
|
|
|
Trade name and other
|
|
|
1,735
|
|
|
|
(1,735
|
)
|
|
|
|
|
|
|
1,664
|
|
|
|
(1,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible
assets
|
|
$
|
453,041
|
|
|
$
|
(68,327
|
)
|
|
$
|
384,714
|
|
|
$
|
433,591
|
|
|
$
|
(64,395
|
)
|
|
$
|
369,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Based solely on the carrying amount of amortizable intangible
assets existing as of June 30, 2007 and current exchange
rates, we estimate amortization expense for each of the next
five years ending December 31 to be as follows (in thousands):
|
|
|
|
|
|
|
Estimated
|
|
|
|
Amortization
|
|
Years
|
|
Expense
|
|
|
2007
|
|
$
|
16,312
|
|
2008
|
|
|
29,718
|
|
2009
|
|
|
29,718
|
|
2010
|
|
|
29,718
|
|
2011
|
|
|
29,718
|
|
In January 2007, Nextel Brazil renewed 11,900 specialized mobile
radio channels of its 800 MHz spectrum licenses with
Brazils telecommunications regulatory agency, which is
known as Anatel, for a term of 15 years, beginning from the
respective expiration of each license. In connection with this
license renewal, Nextel Brazil paid $13.0 million to
Anatel, which will be amortized over the remaining license
renewal periods.
Nextel Mexico recently filed applications to renew approximately
30 of its licenses, more than half of which have expired or will
soon expire. Although Nextel Mexico expects that these renewals
will be granted, it cannot guarantee the renewal of these
licenses. If some of all of these renewals are not granted,
Nextel Mexico could experience an adverse effect on its business.
Actual amortization expense to be reported in future periods
could differ from these estimates as a result of additional
acquisitions of intangibles, as well as changes in exchange
rates and other relevant factors. During the three months ended
June 30, 2007 and 2006, we did not acquire, dispose of or
write down any goodwill or intangible assets with indefinite
useful lives.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
2.875% convertible notes due
2034
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
2.75% convertible notes due
2025
|
|
|
349,997
|
|
|
|
350,000
|
|
3.125% convertible notes due
2012
|
|
|
1,200,000
|
|
|
|
|
|
Mexico syndicated loan
facility
|
|
|
288,562
|
|
|
|
297,577
|
|
Tower financing
obligations
|
|
|
149,564
|
|
|
|
137,625
|
|
Capital lease
obligations
|
|
|
73,148
|
|
|
|
62,669
|
|
Brazil spectrum license
financing
|
|
|
11,314
|
|
|
|
9,770
|
|
Other
|
|
|
40
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,372,625
|
|
|
|
1,157,681
|
|
Less: current portion
|
|
|
(47,863
|
)
|
|
|
(23,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,324,762
|
|
|
$
|
1,134,387
|
|
|
|
|
|
|
|
|
|
|
3.125% Convertible Notes. In May
2007, we privately placed $1,000.0 million aggregate
principal amount of 3.125% convertible notes due 2012, which we
refer to as the 3.125% notes. In addition, we granted the
initial purchaser an option to purchase up to an additional
$200.0 million principal amount of 3.125% notes, which
the initial purchaser exercised in full. As a result, we issued
a total of $1,200.0 million principal amount of the
12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
3.125% notes for which we received total gross proceeds of
$1,200.0 million. We also incurred direct issuance costs of
$22.8 million, which we recorded as a deferred financing
cost that we will amortize into interest expense over the term
of the 3.125% notes.
The 3.125% notes bear interest at a rate of 3.125% per
annum on the principal amount of the notes, payable
semi-annually in arrears in cash on June 15 and December 15 of
each year, beginning December 15, 2007, and will mature on
June 15, 2012, when the entire principal balance of
$1,200.0 million will be due. In addition, and subject to
specified exceptions, the noteholders have the right to require
us to repurchase the notes at a repurchase price equal to 100%
of their principal amount, plus any accrued and unpaid interest
(including additional amounts, if any) up to, but excluding, the
repurchase date upon the occurrence of a fundamental change. The
3.125% notes are convertible into shares of our common
stock at a conversion rate of 8.4517 shares per $1,000
principal amount of notes, subject to adjustment, prior to the
close of business on the final maturity date under any of the
following circumstances:
|
|
|
|
|
during any fiscal quarter commencing after September 30,
2007, if the closing sale price of our common stock exceeds 120%
of the conversion price for at least 20 trading days in the 30
consecutive trading days ending on the last trading day of the
preceding fiscal quarter;
|
|
|
|
prior to May 15, 2012, during the five business day period
after any five consecutive trading day period in which the
trading price per note for each day of such period was less than
98% of the product of the closing sale price of our common stock
and the number of shares issuable upon conversion of $1,000
principal amount of notes;
|
|
|
|
at any time on or after May 15, 2012; or
|
|
|
|
upon the occurrence of specified corporate events.
|
We have the option to satisfy the conversion of the
3.125% notes in shares of our common stock, in cash or a
combination of both.
According to the registration rights agreement that we entered
into in connection with the issuance of the 3.125% notes,
we are required to prepare a shelf registration statement
registering the resale of the 3.125% notes and the shares
of our common stock into which the 3.125% notes are
convertible and file the shelf registration statement with the
SEC within 180 days after the issue date or within
90 days of the issue date, if the shelf registration
statement is not an automatic shelf registration statement as
defined in Rule 405 of the Securities Act of 1933, as
amended. The registration rights agreement requires us to use
our reasonable best efforts to cause the shelf registration
statement to be declared effective as promptly as is
practicable, but in any event by 180 days after the issue
date and to keep the shelf registration statement effective
until certain events occur. If we fail to do this, we are
required to pay liquidated damages to recordholders of the
3.125% notes or to issue additional shares of common stock
as follows:
|
|
|
|
|
pay interest accruing for each day in the specified damages
accrual period at a rate per annum equal to 0.5% of the
principal amount of the note; and
|
|
|
|
for any note that is submitted for conversion during the
specified damages accrual period, (i) pay on the settlement
date interest accruing for each day commencing on and including
the first day of the damages accrual period and ending on, but
excluding, the settlement date at a rate per annum equal to 0.5%
of the principal amount of the note and (ii) issue and
deliver for each $1,000 principal amount of notes submitted for
conversion additional shares of underlying common stock equal to
1% of the applicable conversion rate, except to the extent that
we elect to deliver cash upon conversion.
|
2.875% Convertible Notes. For the
fiscal quarter ended June 30, 2007, the closing sale price
of our common stock exceeded 120% of the conversion price of
$26.62 per share for at least 20 trading days in the 30
consecutive trading days ending on June 30, 2007. As a
result, the conversion contingency was met and our 2.875%
convertible
13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
notes are currently convertible into 37.5660 shares of our
common stock per $1,000 principal amount of notes, or an
aggregate of 11,269,800 common shares, at a conversion price of
$26.62 per share. On July 25, 2007, we accepted the tender
of 99.99% of the $300.0 million in outstanding principal
amount of our 2.875% convertible notes under a tender offer that
expired on July 23, 2007. See Note 8 for more
information.
2.75% Convertible Notes. For the
fiscal quarter ended June 30, 2007, the closing sale price
of our common stock exceeded 120% of the conversion price of
$50.08 per share for at least 20 trading days in the 30
consecutive trading days ending on June 30, 2007. As a
result, the conversion contingency was met and our 2.75%
convertible notes are currently convertible into
19.967 shares of our common stock per $1,000 principal
amount of notes, or an aggregate of 6,988,390 common shares, at
a conversion price of $50.08 per share.
|
|
Note 5.
|
Commitments
and Contingencies
|
Brazilian
Contingencies.
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes and import
duties based on the classification of equipment and services.
Nextel Brazil has filed various administrative and legal
petitions disputing these assessments. In some cases, Nextel
Brazil has received favorable decisions, which are currently
being appealed by the respective governmental authority. In
other cases, Nextel Brazils petitions have been denied,
and Nextel Brazil is currently appealing those decisions. Nextel
Brazil is also disputing various other claims.
As of June 30, 2007 and December 31, 2006, Nextel
Brazil had accrued liabilities of $28.7 million and
$24.7 million, respectively, related to contingencies, all
of which were classified in accrued contingencies reported as a
component of other long-term liabilities. Of the total accrued
liabilities as of June 30, 2007 and December 31, 2006,
Nextel Brazil had $21.2 million and $18.0 million in
unasserted claims, respectively. 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 $170.8 million and
$174.8 million as of June 30, 2007. We are continuing
to evaluate the likelihood of probable and reasonably possible
losses, if any, related to all known contingencies. As a result,
future increases or decreases to our accrued liabilities may be
necessary and will be recorded in the period when such amounts
are determined to be probable and estimable.
Argentine
Contingencies.
As of June 30, 2007 and December 31, 2006, Nextel
Argentina had accrued liabilities of $30.0 million and
$29.4 million, respectively, related primarily to local
turnover taxes and local government claims, all of which were
classified in accrued contingencies reported as a component of
accrued expenses and other.
Turnover Tax. The government of the city of
Buenos Aires imposes a turnover tax rate of 6% of revenues for
cellular companies while maintaining a 3% rate for other
telecommunications services. From a regulatory standpoint, we
are not considered a cellular company, although, as noted below,
the city of Buenos Aires made claims to the effect that the
higher turnover tax rate should apply to our services. As a
result, until April 2006, Nextel Argentina paid the turnover tax
at a rate of 3% and recorded a liability and related expense for
the differential between the higher rate applicable to cellular
carriers and the 3% rate, plus interest.
In March 2006, Nextel Argentina received an unfavorable decision
from the city of Buenos Aires related to the determination of
whether it is a cellular company for purposes of this tax. In
addition, the city of Buenos Aires confirmed a previously
assessed penalty equal to 80% of the principal amount of the
additional tax from December 1997 through May 2004. In
April 2006, Nextel Argentina decided to pay under protest
$18.8 million, which represented the total amount of
principal and interest, related to this turnover tax.
14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In August 2006, Nextel Argentina filed a lawsuit against the
city of Buenos Aires to pursue the reimbursement of the
$18.8 million paid under protest in April 2006. Subsequent
to this payment, Nextel Argentina paid $4.5 million under
protest from April 2006 through December 2006 related to this
tax.
In December 2006, the city of Buenos Aires issued new laws,
which Nextel Argentina believes support its position that it
should be taxed at the general 3% rate and not at the 6%
cellular rate. Beginning in January 2007, Nextel Argentina has
and will continue to pay the 3% general turnover tax rate and
continue with its efforts to obtain reimbursement of amounts
previously paid under protest. Nextel Argentina no longer
accrues for the incremental difference in the cellular rate. In
addition, in March 2007, Nextel Argentina filed an
administrative claim to recover the amounts paid under protest
from April 2006 through December 2006.
Similarly, one of the provincial governments in another one of
the markets where Nextel Argentina operates also increased their
turnover tax rate from 4.55% to 6% of revenues for cellular
companies. Consistent with its earlier position, Nextel
Argentina continues to pay the turnover tax in this province at
the existing rate and accrues a liability for the incremental
difference in the rate on interconnect revenues. As of
June 30, 2007 and December 31, 2006, Nextel Argentina
accrued $6.0 million and $5.1 million, respectively,
for local turnover taxes in this province, which are included as
components of accrued expenses and other.
Universal Service Tax. Nextel Argentina is
subject to the Universal Service Regulation, which imposes a tax
on telecommunications licensees, equal to 1% of
telecommunications service revenue minus applicable taxes and
specified related costs. The license holder can choose either to
pay the resulting amount into a fund for universal service
development or to participate directly in offering services to
specific geographical areas under an annual plan designed by the
federal government. Although the regulations state that this tax
would be applicable beginning January 1, 2001, the
authorities did not take the necessary actions to implement the
tax. However, a subsequent resolution, issued by the Secretary
of Communications in May 2005, prohibits telecommunications
operators from itemizing the tax in customer invoices or passing
through the tax to customers. In addition, following the
Secretarys instructions, the Argentine CNC ordered Nextel
Argentina, among other operators, to reimburse the amounts
collected as universal service contributions, plus interest. In
June 2007, the Secretary of Communications issued a resolution
requiring new universal service tax contributions to be
deposited into a financial institution. Nextel Argentina will
begin depositing these contributions in September 2007,
effective for the period beginning July 1, 2007. As of
June 30, 2007 and December 31, 2006, the accrual for
the liability to customers was $7.3 million and
$6.9 million, respectively, which is included as a
component of accrued expenses and other.
Mexican
Contingency.
Nextel Mexico is a party to a telecommunications services
agreement under which it committed to purchase a minimum amount
of certain interconnection services over a two year period
ending December 31, 2007. Based on actual usage of those
services to date and assuming the agreement is not renewed or
extended before the end of 2007, it is possible that Nextel
Mexico will not meet its minimum commitment, which could result
in a shortfall ranging from $8.0 million to
$11.0 million. Based on its legal interpretation of certain
provisions in the agreement that would eliminate the potential
shortfall and the uncertainty regarding the level of Nextel
Mexicos use of the interconnection services over the
remainder of 2007, Nextel Mexico believes that it will not be
required to pay any additional amounts. As a result, as of
June 30, 2007 Nextel Mexico has not accrued for any losses
under this agreement. Nextel Mexico is in the process of
evaluating whether to negotiate an extension of the agreement
beyond December 31, 2007.
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.
15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Adoption of FIN 48. We are subject
to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. The earliest years that remain subject to examination by
jurisdiction are: Chile 1993; U.S. 1995;
Mexico 1999; Argentina and Peru 2001;
and Brazil 2002. 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. As of January 1, 2007, we adopted
FIN 48, Accounting for Uncertainty in Income
Taxes. As a result of the implementation of FIN 48,
we accounted for our change in reserve for uncertain tax
positions as a $5.2 million decrease to the beginning
balance of retained earnings on our condensed consolidated
balance sheet.
The following table shows a reconciliation of our total
FIN 48 unrecognized tax benefit for the six months ended
June 30, 2007 (in thousands):
|
|
|
|
|
Unrecognized tax
benefits January 1, 2007
|
|
$
|
55,965
|
|
Unrecognized tax benefits
originating from positions taken during the current period
|
|
|
6,828
|
|
Foreign currency translation
adjustment
|
|
|
58
|
|
|
|
|
|
|
Unrecognized tax
benefits June 30, 2007
|
|
$
|
62,851
|
|
|
|
|
|
|
The unrecognized tax benefits as of June 30, 2007 include
$47.3 million of tax benefits that could potentially reduce
our future effective tax rate, if recognized. It also includes
$3.0 million related to withholding taxes on intercompany
payments that we may recognize in the next 12 months due to
the pending expiration of the period of limitation for assessing
a tax deficiency related to this position.
We record interest and penalties associated with uncertain tax
positions as a component of our income tax provision.
Deferred Tax Assets. We assessed the
realizability of our deferred tax assets during the second
quarter of 2007, consistent with the methodology we employed for
2006, and determined that the realizability of those deferred
assets has not changed. 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. We will continue to evaluate the amount of the
necessary valuation allowance for all of our foreign operating
companies and our U.S. companies throughout the remainder
of 2007.
Mexican Taxes. 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 governing 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. In May 2005, we filed an annulment suit challenging the
constructive denial. Resolution of the annulment suit is
pending. Based on an opinion by our independent legal counsel in
Mexico, we believe it is probable that we will recover this
amount. As of June 30, 2007 and December 31, 2006, our
consolidated balance sheet includes $16.0 million in income
tax receivables, which are included as components of other
non-current assets. The income tax benefit for this item was
related to our income tax provision for the years ended
December 31, 2005, 2004 and 2003.
|
|
Note 7.
|
Segment
Reporting
|
We have determined that our reportable segments are those that
are based on our method of internal reporting, which
disaggregates our business by geographical location. Our
reportable segments are: (1) Mexico, (2) Brazil,
(3) Argentina and (4) Peru. The operations of all
other businesses that fall below the segment reporting
thresholds
16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are included in the Corporate and other segment
below. This segment includes our Chilean operating companies and
our corporate operations in the U.S. We evaluate
performance of these segments and provide resources to them
based on operating income before depreciation and amortization
and impairment, restructuring and other charges, which we refer
to as segment earnings. Because we do not view share-based
compensation as an important element of operational performance,
we recognize share-based payment expense at the corporate level
and exclude it when evaluating the business performance of our
segments. For several years, we have charged a management fee to
Nextel Mexico for services rendered by corporate management.
During 2007, we reported this management fee as a separate line
item in the segment reporting information presented below as
these amounts are now regularly provided to our chief operating
decision maker. During the six and three months ended
June 30, 2006, we charged Nextel Mexico a management fee of
$34.1 million and $17.0 million, respectively.
However, for the six and three months ended June 30, 2006,
the segment information below does not reflect these management
fees as a separate line item because these amounts were not
provided to or used by our chief operating decision maker in
making operating decisions related to this segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Six Months Ended June 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
822,317
|
|
|
$
|
354,625
|
|
|
$
|
188,101
|
|
|
$
|
83,490
|
|
|
$
|
1,382
|
|
|
$
|
(551
|
)
|
|
$
|
1,449,364
|
|
Digital handset and accessory
revenues
|
|
|
10,648
|
|
|
|
17,726
|
|
|
|
15,654
|
|
|
|
5,881
|
|
|
|
|
|
|
|
|
|
|
|
49,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
832,965
|
|
|
$
|
372,351
|
|
|
$
|
203,755
|
|
|
$
|
89,371
|
|
|
$
|
1,382
|
|
|
$
|
(551
|
)
|
|
$
|
1,499,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
310,940
|
|
|
$
|
91,612
|
|
|
$
|
63,827
|
|
|
$
|
17,873
|
|
|
$
|
(69,179
|
)
|
|
$
|
|
|
|
$
|
415,073
|
|
Management fee
|
|
|
(19,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,800
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(68,214
|
)
|
|
|
(42,657
|
)
|
|
|
(14,868
|
)
|
|
|
(10,884
|
)
|
|
|
(3,270
|
)
|
|
|
197
|
|
|
|
(139,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
222,926
|
|
|
|
48,955
|
|
|
|
48,959
|
|
|
|
6,989
|
|
|
|
(52,649
|
)
|
|
|
197
|
|
|
|
275,377
|
|
Interest expense
|
|
|
(29,312
|
)
|
|
|
(14,342
|
)
|
|
|
(1,124
|
)
|
|
|
(67
|
)
|
|
|
(14,335
|
)
|
|
|
5,198
|
|
|
|
(53,982
|
)
|
Interest income
|
|
|
12,909
|
|
|
|
2,790
|
|
|
|
2,037
|
|
|
|
341
|
|
|
|
12,279
|
|
|
|
(5,198
|
)
|
|
|
25,158
|
|
Foreign currency transaction gains
(losses), net
|
|
|
1,208
|
|
|
|
4,239
|
|
|
|
306
|
|
|
|
54
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
5,799
|
|
Other income (expense), net
|
|
|
2,260
|
|
|
|
(1,554
|
)
|
|
|
1,577
|
|
|
|
1
|
|
|
|
(1,651
|
)
|
|
|
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
209,991
|
|
|
$
|
40,088
|
|
|
$
|
51,755
|
|
|
$
|
7,318
|
|
|
$
|
(56,364
|
)
|
|
$
|
197
|
|
|
$
|
252,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
156,758
|
|
|
$
|
127,019
|
|
|
$
|
25,767
|
|
|
$
|
23,657
|
|
|
$
|
8,188
|
|
|
$
|
|
|
|
$
|
341,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
605,297
|
|
|
$
|
224,337
|
|
|
$
|
146,944
|
|
|
$
|
62,629
|
|
|
$
|
1,369
|
|
|
$
|
(371
|
)
|
|
$
|
1,040,205
|
|
Digital handset and accessory
revenues
|
|
|
12,620
|
|
|
|
17,400
|
|
|
|
10,641
|
|
|
|
3,834
|
|
|
|
|
|
|
|
|
|
|
|
44,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
617,917
|
|
|
$
|
241,737
|
|
|
$
|
157,585
|
|
|
$
|
66,463
|
|
|
$
|
1,369
|
|
|
$
|
(371
|
)
|
|
$
|
1,084,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
248,680
|
|
|
$
|
46,055
|
|
|
$
|
46,764
|
|
|
$
|
12,596
|
|
|
$
|
(45,703
|
)
|
|
$
|
|
|
|
$
|
308,392
|
|
Depreciation and amortization
|
|
|
(44,819
|
)
|
|
|
(25,527
|
)
|
|
|
(7,495
|
)
|
|
|
(5,343
|
)
|
|
|
(1,709
|
)
|
|
|
197
|
|
|
|
(84,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
203,861
|
|
|
|
20,528
|
|
|
|
39,269
|
|
|
|
7,253
|
|
|
|
(47,412
|
)
|
|
|
197
|
|
|
|
223,696
|
|
Interest expense
|
|
|
(16,879
|
)
|
|
|
(11,609
|
)
|
|
|
(1,449
|
)
|
|
|
(72
|
)
|
|
|
(12,485
|
)
|
|
|
47
|
|
|
|
(42,447
|
)
|
Interest income
|
|
|
15,995
|
|
|
|
1,585
|
|
|
|
1,114
|
|
|
|
560
|
|
|
|
6,531
|
|
|
|
(47
|
)
|
|
|
25,738
|
|
Foreign currency transaction
(losses) gains, net
|
|
|
(3,542
|
)
|
|
|
(272
|
)
|
|
|
405
|
|
|
|
50
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
(3,483
|
)
|
Other (expense) income, net
|
|
|
(2,294
|
)
|
|
|
(2,736
|
)
|
|
|
229
|
|
|
|
|
|
|
|
(787
|
)
|
|
|
|
|
|
|
(5,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
197,141
|
|
|
$
|
7,496
|
|
|
$
|
39,568
|
|
|
$
|
7,791
|
|
|
$
|
(54,277
|
)
|
|
$
|
197
|
|
|
$
|
197,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
169,918
|
|
|
$
|
98,383
|
|
|
$
|
32,392
|
|
|
$
|
16,521
|
|
|
$
|
9,658
|
|
|
$
|
|
|
|
$
|
326,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Three Months Ended June 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
427,197
|
|
|
$
|
191,411
|
|
|
$
|
96,968
|
|
|
$
|
42,555
|
|
|
$
|
817
|
|
|
$
|
(267
|
)
|
|
$
|
758,681
|
|
Digital handset and accessory
revenues
|
|
|
5,588
|
|
|
|
9,592
|
|
|
|
8,742
|
|
|
|
3,063
|
|
|
|
|
|
|
|
|
|
|
|
26,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
432,785
|
|
|
$
|
201,003
|
|
|
$
|
105,710
|
|
|
$
|
45,618
|
|
|
$
|
817
|
|
|
$
|
(267
|
)
|
|
$
|
785,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
157,186
|
|
|
$
|
46,864
|
|
|
$
|
32,066
|
|
|
$
|
8,793
|
|
|
$
|
(38,323
|
)
|
|
$
|
|
|
|
$
|
206,586
|
|
Management fee
|
|
|
(9,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,900
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(35,043
|
)
|
|
|
(22,888
|
)
|
|
|
(7,626
|
)
|
|
|
(5,596
|
)
|
|
|
(1,634
|
)
|
|
|
99
|
|
|
|
(72,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
112,243
|
|
|
|
23,976
|
|
|
|
24,440
|
|
|
|
3,197
|
|
|
|
(30,057
|
)
|
|
|
99
|
|
|
|
133,898
|
|
Interest expense
|
|
|
(15,100
|
)
|
|
|
(7,821
|
)
|
|
|
(630
|
)
|
|
|
(30
|
)
|
|
|
(8,872
|
)
|
|
|
2,800
|
|
|
|
(29,653
|
)
|
Interest income
|
|
|
5,726
|
|
|
|
1,485
|
|
|
|
1,138
|
|
|
|
144
|
|
|
|
8,095
|
|
|
|
(2,800
|
)
|
|
|
13,788
|
|
Foreign currency transaction gains
(losses), net
|
|
|
5,858
|
|
|
|
3,664
|
|
|
|
(170
|
)
|
|
|
10
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
9,331
|
|
Other (expense) income, net
|
|
|
(78
|
)
|
|
|
(789
|
)
|
|
|
1,330
|
|
|
|
1
|
|
|
|
(1,658
|
)
|
|
|
|
|
|
|
(1,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
108,649
|
|
|
$
|
20,515
|
|
|
$
|
26,108
|
|
|
$
|
3,322
|
|
|
$
|
(32,523
|
)
|
|
$
|
99
|
|
|
$
|
126,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
63,775
|
|
|
$
|
74,730
|
|
|
$
|
15,838
|
|
|
$
|
12,860
|
|
|
$
|
6,664
|
|
|
$
|
|
|
|
$
|
173,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
307,182
|
|
|
$
|
117,647
|
|
|
$
|
76,681
|
|
|
$
|
32,113
|
|
|
$
|
829
|
|
|
$
|
(203
|
)
|
|
$
|
534,249
|
|
Digital handset and accessory
revenues
|
|
|
5,629
|
|
|
|
8,835
|
|
|
|
5,734
|
|
|
|
1,982
|
|
|
|
|
|
|
|
|
|
|
|
22,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
312,811
|
|
|
$
|
126,482
|
|
|
$
|
82,415
|
|
|
$
|
34,095
|
|
|
$
|
829
|
|
|
$
|
(203
|
)
|
|
$
|
556,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
125,283
|
|
|
$
|
23,743
|
|
|
$
|
24,230
|
|
|
$
|
6,198
|
|
|
$
|
(24,646
|
)
|
|
$
|
|
|
|
$
|
154,808
|
|
Depreciation and amortization
|
|
|
(24,125
|
)
|
|
|
(13,491
|
)
|
|
|
(1,917
|
)
|
|
|
(2,833
|
)
|
|
|
(955
|
)
|
|
|
99
|
|
|
|
(43,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
101,158
|
|
|
|
10,252
|
|
|
|
22,313
|
|
|
|
3,365
|
|
|
|
(25,601
|
)
|
|
|
99
|
|
|
|
111,586
|
|
Interest expense
|
|
|
(7,820
|
)
|
|
|
(6,040
|
)
|
|
|
(934
|
)
|
|
|
(36
|
)
|
|
|
(6,226
|
)
|
|
|
24
|
|
|
|
(21,032
|
)
|
Interest income
|
|
|
8,154
|
|
|
|
850
|
|
|
|
580
|
|
|
|
269
|
|
|
|
3,308
|
|
|
|
(24
|
)
|
|
|
13,137
|
|
Foreign currency transaction
(losses) gains, net
|
|
|
(2,191
|
)
|
|
|
(171
|
)
|
|
|
132
|
|
|
|
9
|
|
|
|
(121
|
)
|
|
|
|
|
|
|
(2,342
|
)
|
Other expense, net
|
|
|
(808
|
)
|
|
|
(1,745
|
)
|
|
|
|
|
|
|
|
|
|
|
(671
|
)
|
|
|
|
|
|
|
(3,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
98,493
|
|
|
$
|
3,146
|
|
|
$
|
22,091
|
|
|
$
|
3,607
|
|
|
$
|
(29,311
|
)
|
|
$
|
99
|
|
|
$
|
98,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
96,123
|
|
|
$
|
56,703
|
|
|
$
|
24,498
|
|
|
$
|
11,910
|
|
|
$
|
8,783
|
|
|
$
|
|
|
|
$
|
198,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
780,853
|
|
|
$
|
550,140
|
|
|
$
|
162,062
|
|
|
$
|
96,847
|
|
|
$
|
51,769
|
|
|
$
|
(363
|
)
|
|
$
|
1,641,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,088,206
|
|
|
$
|
853,783
|
|
|
$
|
371,475
|
|
|
$
|
189,502
|
|
|
$
|
1,035,483
|
|
|
$
|
(363
|
)
|
|
$
|
4,538,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
690,573
|
|
|
$
|
415,577
|
|
|
$
|
152,818
|
|
|
$
|
83,920
|
|
|
$
|
46,822
|
|
|
$
|
(560
|
)
|
|
$
|
1,389,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
1,978,469
|
|
|
$
|
637,230
|
|
|
$
|
322,813
|
|
|
$
|
171,871
|
|
|
$
|
187,855
|
|
|
$
|
(560
|
)
|
|
$
|
3,297,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8.
|
Subsequent
Events
|
Tender Offer for Conversion of 2.875% Convertible
Notes. On July 25, 2007, we accepted the
tender of 99.99% of the $300.0 million in outstanding
principal amount of our 2.875% convertible notes under a tender
offer that expired on July 23, 2007. In connection with
this tender offer, we issued 11,268,103 shares of our
common stock and paid to the holders of the tendered notes an
aggregate cash premium of $25.5 million and accrued and
unpaid interest of $4.2 million.
Spectrum Acquisitions. On July 5,
2007, Nextel Peru entered into an agreement providing for the
purchase of 54 MHz of 2.5 GHz spectrum throughout Peru
for $11.3 million from TC Siglo 21 S.A.A. In addition, on
July 27, 2007, Proinversion, the privatization agency in
Peru, awarded a nationwide license of 35 MHz of
1.9 GHz spectrum to Nextel Peru for $27.0 million
through an auction process carried out by the Peruvian
government.
19
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
INDEX TO
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
21
|
|
|
|
|
21
|
|
|
|
|
24
|
|
|
|
|
24
|
|
|
|
|
25
|
|
|
|
|
25
|
|
|
|
|
26
|
|
|
|
|
26
|
|
|
|
|
27
|
|
|
|
|
33
|
|
|
|
|
37
|
|
|
|
|
40
|
|
|
|
|
43
|
|
|
|
|
46
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
51
|
|
|
|
|
52
|
|
20
Introduction
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition and results of operations
for the six- and three-month periods ended June 30, 2007
and 2006; 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 2006
annual report on
Form 10-K
and our quarterly report on
Form 10-Q
for the three months ended March 31, 2007, including but
not limited to, the discussion regarding our critical accounting
judgments, as described below. Historical results may not
indicate future performance. See Forward Looking
Statements for risks and uncertainties that may impact our
future performance.
Business
Overview
We provide digital wireless communication services, primarily
targeted at meeting the needs of customers who use our services
primarily for business purposes, through operating companies
located in selected Latin American markets. Our principal
operations are in major business centers and related
transportation corridors of Mexico, Brazil, Argentina and Peru.
In addition, we recently launched our digital services on a
limited basis in Santiago, Chile. We also provide analog
specialized mobile radio, which we refer to as SMR, services in
Mexico, Brazil, Peru and Chile. Our markets are generally
characterized by high population densities in major urban and
suburban centers, which we refer to as major business centers,
and 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
encourage the use of the mobile wireless communications services
that we offer in these areas. As of June 30, 2007, our
operating companies had a total of 4.06 million digital
handsets in commercial service, an increase of
1.14 million, or 39%, from the 2.92 million digital
handsets in commercial service as of June 30, 2006.
Our principal objective is to grow our business in selected
markets in Latin America by providing differentiated, high value
wireless communications services to customers who use our
services primarily for business purposes, while improving our
profitability and cash flow. Our digital mobile networks support
multiple digital wireless services, including:
|
|
|
|
|
digital mobile telephone service, including advanced calling
features such as speakerphone, conference calling, voice-mail,
call forwarding and additional line service;
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a push-to-talk
basis, on a private one-to-one call or on a group call;
|
|
|
|
International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers in the United States and, except for our
customers in Chile, with TELUS subscribers in Canada;
|
|
|
|
mobile internet services, text messaging services,
e-mail
services including
Blackberrytm
services that we recently introduced, location-based services,
which include the use of Global Positioning System (GPS)
technologies, digital media services and advanced
Javatmenabled
business applications, which are generally marketed as
Nextel
Onlinesm
services; and
|
|
|
|
international roaming capabilities, which are marketed as
Nextel
Worldwidesm
services.
|
We intend to continue growing our business in a balanced manner,
with a primary focus on generating growth in operating income
and free cash flow and enhancing our profitability by
maintaining appropriate controls on costs. To support this goal,
we plan to continue to expand the coverage and capacity of our
digital mobile networks in our existing markets and increase our
existing subscriber base while managing our costs in a manner
designed to support that growth and improving our operating
metrics. Specifically, we will seek to add subscribers at rates
21
which do not have a significant negative impact on our
consolidated financial performance as reflected in several key
operating measures. We may also explore financially attractive
opportunities to expand our network coverage in areas where we
currently do not provide wireless service. Based on market data
that continues to show the relatively low wireless penetration
in our markets and our current market share in those markets, we
believe that we can continue to generate subscriber base and
revenue growth while improving our profitability and cash flow
generation. Although certain Latin American markets have been
historically volatile, the Latin American markets in which we
operate have recently experienced improving economies that have
been relatively more stable compared to historical periods. The
key components of our 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 high usage business
customers. We target these markets because we believe they offer
favorable long-term growth prospects for our wireless
communications services while offering the cost benefits
associated with offering services in more concentrated
population centers. In addition, the cities in which we operate
account for a high proportion of total economic activity in each
of their respective countries and provide us with a large
potential market without the need to build out nationwide
wireless coverage. 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
target business customers.
Targeting High Value Business Customers. Our
main focus is on customers who purchase services under contract
with medium to high usage patterns, targeting customers who
primarily use our services in their businesses because they
value our high quality iDEN networks, our multi-function
handsets and our high level of customer service. Our typical
customers have between 3 and 30 handsets, while some of our
largest customers have over 500 handsets. We believe that
our focus on these business customers is a key reason why we
have a significantly higher monthly average revenue per unit
than that reported by our competitors that rely predominantly on
consumer customers who purchase services on a pre-paid basis.
Providing Differentiated Services. We
differentiate ourselves from our competitors by offering unique
services like our push-to-talk digital radio
communication service, which we refer to as Direct Connect. This
service, which is available throughout our service areas and is
fully integrated in a single wireless device that also provides
digital mobile telephone service, 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. Our competitors have begun to introduce
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.
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 and quality of service. In each of our markets, we
compete with at least two large, well-capitalized competitors
with substantial financial and other resources. Some of these
competitors have the ability to offer bundled telecommunications
services that include local, long distance and data services.
Although competitive pricing is often an important factor, we
believe that the business users who primarily make up our
targeted customer base are also likely to base their purchase
decisions on quality of service and the availability of
differentiated features and services, like our Direct Connect
services, that make it easier for them to conduct business
quickly and efficiently.
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 generally than our competitors. We work proactively with
our customers to match them with service plans offering greater
value based on their usage patterns. After analyzing customer
usage and expense data, we strive to minimize a customers
per minute costs while increasing overall usage of our array of
services, thereby providing higher value to our customers while
increasing our monthly revenues. This goal is also furthered by
our efforts during and after the sales process to educate
customers about our services, multi-function handsets and rate
plans. In addition, we have implemented proactive customer
retention programs to increase customer satisfaction and
retention.
22
Selectively Expanding our Service Areas. We
believe that we have significant opportunities to grow through
selective expansion of our service into additional areas within
the countries in which we currently operate. Such expansion may
involve building out certain areas in which we already have
spectrum, obtaining additional 800 MHZ spectrum in new areas
which would enable us to expand our network service areas, and
further developing our business in key urban areas. In addition,
we may consider selectively expanding into other Latin American
countries where we do not currently operate. As a result of
acquiring the spectrum that we won in the March 2005 spectrum
auctions in Mexico, in mid-2005, we launched an expansion plan
under which we have significantly expanded our service areas in
Mexico. We also expanded coverage of our network in Brazil under
that expansion plan. In the second quarter of 2007, we decided
to develop plans to further significantly expand our service
areas in Brazil and Chile. See 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 innovative data services. The iDEN technology is
unique in that it is the only widespread, commercially available
digital 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. Historically, Nextel
Communications, Motorolas largest iDEN customer, provided
significant support in the ongoing development of the iDEN
technology and related equipment, but following the merger of
Nextel Communications and Sprint, Sprint Nextel announced plans
to migrate Nextels push-to-talk services over time to a
next generation CDMA network platform. As a result, 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 that equipment may decline.
Specifically, in September 2006, we entered into agreements to
extend our relationship with Motorola for the supply of iDEN
handsets and iDEN network infrastructure through
December 31, 2011. Under these agreements, Motorola agreed
to maintain an adequate supply of the iDEN handsets and
equipment used in our business for the term of the agreement and
to continue to invest in the development of new iDEN devices and
infrastructure features. In addition, we agreed to annually
escalating handset volume purchase commitments and certain
pricing parameters for handsets and infrastructure linked to the
volume of our purchases. If we do not meet the specified handset
volume commitments, we would be required to pay an additional
amount based on any shortfall of actual purchased handsets
compared to the related annual volume commitment.
Planning for the Future. Another key component
in our overall strategy is to expand and improve the innovative
and differentiated services we offer and evaluate the
technologies necessary to provide those services. One such
initiative is to develop and offer a broader range of data
services on our networks like those available on the Blackberry
devices we recently launched in all of our markets except Chile,
and to evaluate the feasibility of offering next generation
voice and broadband data services in the future. This focus on
offering innovative and differentiated services requires that we
continue to invest in, evaluate and, if appropriate, deploy new
services and enhancements to our existing services as well as,
in some cases, consider and pursue acquisitions of assets that
include spectrum licenses to deploy these services, including in
auctions of newly available spectrum and through acquisitions of
existing spectrum rights. During 2006, we purchased licenses to
use other radio spectrum bands in Mexico and Peru. We are in the
process of acquiring licenses to use other radio spectrum bands
in Argentina and Peru, pending regulatory approval. The licenses
relating to the newly acquired spectrum outside the 800MHz band
generally provide for nationwide rights to utilize a significant
block of contiguous spectrum that may support the future
deployment of new network technologies and services. As part of
our ongoing assessment of our ability to meet our
customers current and future needs, we continually review
alternate technologies to assess their technical performance,
cost and functional capabilities. These reviews may involve the
deployment of the technologies under consideration on a trial
basis in order to evaluate their capabilities and market demand
for the supported services. We will deploy a new technology only
if it is warranted by expected customer demand and when the
anticipated benefits of services supported by the new technology
outweigh the costs of providing those services. Our decision
whether and how to deploy alternative technologies, as well as
our choice of alternative technologies, would likely be affected
by a number of factors, including the types of features and
services supported by the technology, the availability and
pricing of related equipment, and our need to continue to
support iDEN-based services for our existing customer base
either on an ongoing or transitional basis.
23
We refer to our operating companies by the countries in which
they operate, such as Nextel Mexico, Nextel Brazil, Nextel
Argentina, Nextel Peru and Nextel Chile.
See Forward Looking Statements for information on
risks and uncertainties that could affect the above objectives.
For information regarding commitments and contingencies, see
Note 5 to our condensed consolidated financial statements.
Digital
Handsets in Commercial Service
The table below provides an overview of our total digital
handsets in commercial service in the countries indicated as of
June 30, 2007 and 2006. For purposes of the table, digital
handsets in commercial service represent all digital handsets in
use by our customers on the digital mobile networks in each of
the listed countries.
|
|
|
|
|
|
|
|
|
|
|
Total Digital Handsets in
|
|
|
|
Commercial Service
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Country
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Mexico
|
|
|
1,848
|
|
|
|
1,301
|
|
Brazil
|
|
|
1,082
|
|
|
|
757
|
|
Argentina
|
|
|
726
|
|
|
|
567
|
|
Peru
|
|
|
399
|
|
|
|
296
|
|
Chile
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,060
|
|
|
|
2,921
|
|
|
|
|
|
|
|
|
|
|
Recent
Developments
Issuance of 3.125% Convertible
Notes. In May 2007, we privately placed
$1,000.0 million aggregate principal amount of 3.125%
convertible notes due 2012. In addition, we granted the initial
purchaser an option to purchase up to an additional
$200.0 million principal amount of notes, which the initial
purchaser exercised in full. As a result, we issued a total of
$1,200.0 million principal amount of 3.125% convertible
notes for which we received total gross proceeds of
$1,200.0 million. We also incurred direct issuance costs of
$22.8 million, which we recorded as a deferred financing
cost that we will amortize into interest expense over the term
of the 3.125% notes. The notes bear interest at a rate of
3.125% per annum on the principal amount of the notes, payable
semi-annually in arrears in cash on June 15 and December 15 of
each year, beginning December 15, 2007, and will mature on
June 15, 2012, when the entire principal balance of
$1,200.0 million will be due. In addition, and subject to
specified exceptions, the noteholders have the right to require
us to repurchase the notes at a repurchase price equal to 100%
of their principal amount, plus any accrued and unpaid interest
up to, but excluding, the repurchase date upon the occurrence of
a fundamental change. The notes are convertible into shares of
our common stock at a conversion rate of 8.4517 shares per
$1,000 principal amount of notes, subject to adjustment in
specified circumstances.
Repurchase of Common Stock. In May
2007, our Board of Directors authorized a program to repurchase
shares of our common stock for cash. The Board approved the
repurchase of shares having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. During the second quarter of 2007, we repurchased a
total of 4,043,725 shares of our common stock for
approximately $330.0 million. We treated this purchase as
an effective retirement of the purchased shares and therefore
reduced our reported shares issued and outstanding by the number
of shares repurchased. In addition, we recorded the excess of
the purchase price over the common stocks par value as a
reduction to paid-in capital.
Tender Offer for Conversion of 2.875% Convertible
Notes. On July 25, 2007, we accepted the
tender of 99.99% of the $300.0 million in outstanding
principal amount of our 2.875% convertible notes under a tender
offer that expired on July 23, 2007. In connection with
this tender offer, we issued 11,268,103 shares of our
common stock and paid to the holders of the tendered notes an
aggregate cash premium of $25.5 million and accrued and
unpaid interest of $4.2 million.
24
Spectrum Acquisitions. On July 5,
2007, Nextel Peru entered into an agreement providing for the
purchase of 54 MHz of 2.5 GHz spectrum throughout Peru
for $11.3 million from TC Siglo 21 S.A.A. In addition, on
July 27, 2007, Proinversion, the privatization agency in
Peru, awarded a nationwide license of 35 MHz of
1.9 GHz spectrum to Nextel Peru for $27.0 million
through an auction process carried out by the Peruvian
government.
Critical
Accounting Policies and Estimates
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of
America 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 related notes for the periods presented. Due to the inherent
uncertainty involved in making those estimates, actual results
to be reported in future periods could differ from those
estimates.
We consider the following accounting policies to be the most
important to our financial position and results of operations or
policies that require us to exercise significant judgment
and/or
estimates:
|
|
|
|
|
revenue recognition;
|
|
|
|
allowance for doubtful accounts;
|
|
|
|
depreciation of property, plant and equipment;
|
|
|
|
amortization of intangible assets;
|
|
|
|
asset retirement obligations;
|
|
|
|
foreign currency;
|
|
|
|
loss contingencies;
|
|
|
|
stock-based compensation; and
|
|
|
|
income taxes.
|
We adopted Financial Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, or
FIN 48, in the first quarter of 2007, which changed how we
account for uncertain income tax positions, including how we
account for reserves related to potential future income tax
assessments from taxing authorities. We now recognize the
financial statement effects of an income tax position only when
we conclude, based on the technical merits, it is
more-likely-than-not that the position will be
sustained upon examination. Prior to adopting FIN 48, we
recognized the financial statement effect of income tax
positions based on our income tax return filing positions, and
we recorded a reserve for potential future income tax
assessments when it was probable that the assessment
would be realized. We accounted for the changes in connection
with the adoption of FIN 48 as an adjustment to the
beginning balance of retained earnings on our condensed
consolidated balance sheet as of June 30, 2007.
We believe that there have been no material changes to our
critical accounting policies and estimates during the three
months ended June 30, 2007 compared to those discussed in
our 2006 annual report on
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations.
Ratio of
Earnings to Fixed Charges
|
|
|
|
|
Three Months
|
|
Ended
|
|
June 30,
|
|
2007
|
|
2006
|
|
|
4.10x
|
|
|
3.92x
|
|
25
For the purpose of computing the ratio of earnings to fixed
charges, earnings consist of income from continuing operations
before income taxes plus fixed charges and amortization of
capitalized interest less capitalized interest. Fixed charges
consist of:
|
|
|
|
|
interest on all indebtedness, amortization of debt financing
costs and amortization of original issue discount;
|
|
|
|
interest capitalized; and
|
|
|
|
the portion of rental expense we believe is representative of
interest.
|
Reclassifications
We have reclassified certain prior year amounts in our unaudited
condensed consolidated financial statements to conform to our
current year presentation. These reclassifications did not have
a material impact on previously reported balances.
Results
of Operations
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of digital
handsets and accessories. Service revenues primarily include
fixed monthly access charges for digital mobile telephone
service and digital two-way radio and other services, including
revenues from calling party pays programs and variable charges
for airtime and digital two-way radio usage in excess of plan
minutes, long-distance charges, international roaming revenues
derived from calls placed by our customers and charges related
to the use of data services. 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, revenue-based taxes and co-location rental revenues
from third-party tenants that rent space on our towers.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of digital handset and accessory
sales. Cost of providing service consists largely of costs of
interconnection with local exchange carrier facilities and
direct switch and transmitter and receiver site costs, including
property taxes, expenses related to our handset maintenance
programs, insurance costs, utility costs, maintenance costs and
rent for the network switches and transmitter sites used to
operate our digital 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 digital 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 digital
handsets in service and not necessarily by the number of
customers, as one customer may purchase one or many digital
handsets. Our digital handset and accessory revenues and cost of
digital handset and accessory sales are primarily driven by the
number of new handsets placed into service as well as handset
upgrades provided to existing customers during the year.
Selling and marketing expenses include all of the expenses
related to acquiring customers. General and administrative
expenses include expenses related to revenue-based taxes,
billing, customer care, collections including bad debt, repairs
and maintenance of management information systems, spectrum
license fees, corporate overhead and share-based payment for
stock options and restricted stock.
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,449,364
|
|
|
|
97
|
%
|
|
$
|
1,040,205
|
|
|
|
96
|
%
|
|
$
|
409,159
|
|
|
|
39
|
%
|
Digital handset and accessory
revenues
|
|
|
49,909
|
|
|
|
3
|
%
|
|
|
44,495
|
|
|
|
4
|
%
|
|
|
5,414
|
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,499,273
|
|
|
|
100
|
%
|
|
|
1,084,700
|
|
|
|
100
|
%
|
|
|
414,573
|
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(398,940
|
)
|
|
|
(27
|
)%
|
|
|
(279,162
|
)
|
|
|
(26
|
)%
|
|
|
(119,778
|
)
|
|
|
43
|
%
|
Cost of digital handsets and
accessories
|
|
|
(195,812
|
)
|
|
|
(13
|
)%
|
|
|
(140,156
|
)
|
|
|
(13
|
)%
|
|
|
(55,656
|
)
|
|
|
40
|
%
|
Selling and marketing expenses
|
|
|
(196,778
|
)
|
|
|
(13
|
)%
|
|
|
(146,136
|
)
|
|
|
(13
|
)%
|
|
|
(50,642
|
)
|
|
|
35
|
%
|
General and administrative expenses
|
|
|
(292,670
|
)
|
|
|
(20
|
)%
|
|
|
(210,854
|
)
|
|
|
(19
|
)%
|
|
|
(81,816
|
)
|
|
|
39
|
%
|
Depreciation and amortization
|
|
|
(139,696
|
)
|
|
|
(9
|
)%
|
|
|
(84,696
|
)
|
|
|
(8
|
)%
|
|
|
(55,000
|
)
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
275,377
|
|
|
|
18
|
%
|
|
|
223,696
|
|
|
|
21
|
%
|
|
|
51,681
|
|
|
|
23
|
%
|
Interest expense, net
|
|
|
(53,982
|
)
|
|
|
(3
|
)%
|
|
|
(42,447
|
)
|
|
|
(4
|
)%
|
|
|
(11,535
|
)
|
|
|
27
|
%
|
Interest income
|
|
|
25,158
|
|
|
|
2
|
%
|
|
|
25,738
|
|
|
|
2
|
%
|
|
|
(580
|
)
|
|
|
(2
|
)%
|
Foreign currency transaction gains
(losses), net
|
|
|
5,799
|
|
|
|
|
|
|
|
(3,483
|
)
|
|
|
|
|
|
|
9,282
|
|
|
|
(266
|
)%
|
Other income (expense), net
|
|
|
633
|
|
|
|
|
|
|
|
(5,588
|
)
|
|
|
(1
|
)%
|
|
|
6,221
|
|
|
|
(111
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
252,985
|
|
|
|
17
|
%
|
|
|
197,916
|
|
|
|
18
|
%
|
|
|
55,069
|
|
|
|
28
|
%
|
Income tax provision
|
|
|
(84,741
|
)
|
|
|
(6
|
)%
|
|
|
(77,015
|
)
|
|
|
(7
|
)%
|
|
|
(7,726
|
)
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
168,244
|
|
|
|
11
|
%
|
|
$
|
120,901
|
|
|
|
11
|
%
|
|
$
|
47,343
|
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
758,681
|
|
|
|
97
|
%
|
|
$
|
534,249
|
|
|
|
96
|
%
|
|
$
|
224,432
|
|
|
|
42
|
%
|
Digital handset and accessory
revenues
|
|
|
26,985
|
|
|
|
3
|
%
|
|
|
22,180
|
|
|
|
4
|
%
|
|
|
4,805
|
|
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
785,666
|
|
|
|
100
|
%
|
|
|
556,429
|
|
|
|
100
|
%
|
|
|
229,237
|
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(210,045
|
)
|
|
|
(27
|
)%
|
|
|
(144,812
|
)
|
|
|
(26
|
)%
|
|
|
(65,233
|
)
|
|
|
45
|
%
|
Cost of digital handsets and
accessories
|
|
|
(104,729
|
)
|
|
|
(13
|
)%
|
|
|
(70,355
|
)
|
|
|
(12
|
)%
|
|
|
(34,374
|
)
|
|
|
49
|
%
|
Selling and marketing expenses
|
|
|
(108,356
|
)
|
|
|
(14
|
)%
|
|
|
(76,295
|
)
|
|
|
(14
|
)%
|
|
|
(32,061
|
)
|
|
|
42
|
%
|
General and administrative expenses
|
|
|
(155,950
|
)
|
|
|
(20
|
)%
|
|
|
(110,159
|
)
|
|
|
(20
|
)%
|
|
|
(45,791
|
)
|
|
|
42
|
%
|
Depreciation and amortization
|
|
|
(72,688
|
)
|
|
|
(9
|
)%
|
|
|
(43,222
|
)
|
|
|
(8
|
)%
|
|
|
(29,466
|
)
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
133,898
|
|
|
|
17
|
%
|
|
|
111,586
|
|
|
|
20
|
%
|
|
|
22,312
|
|
|
|
20
|
%
|
Interest expense, net
|
|
|
(29,653
|
)
|
|
|
(4
|
)%
|
|
|
(21,032
|
)
|
|
|
(4
|
)%
|
|
|
(8,621
|
)
|
|
|
41
|
%
|
Interest income
|
|
|
13,788
|
|
|
|
2
|
%
|
|
|
13,137
|
|
|
|
2
|
%
|
|
|
651
|
|
|
|
5
|
%
|
Foreign currency transaction gains
(losses), net
|
|
|
9,331
|
|
|
|
1
|
%
|
|
|
(2,342
|
)
|
|
|
|
|
|
|
11,673
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(1,194
|
)
|
|
|
|
|
|
|
(3,224
|
)
|
|
|
|
|
|
|
2,030
|
|
|
|
(63
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
126,170
|
|
|
|
16
|
%
|
|
|
98,125
|
|
|
|
18
|
%
|
|
|
28,045
|
|
|
|
29
|
%
|
Income tax provision
|
|
|
(42,090
|
)
|
|
|
(5
|
)%
|
|
|
(42,222
|
)
|
|
|
(8
|
)%
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
84,080
|
|
|
|
11
|
%
|
|
$
|
55,903
|
|
|
|
10
|
%
|
|
$
|
28,177
|
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
During the first half of 2007, we experienced significant growth
in our consolidated revenues, which was primarily driven by an
increase in our consolidated subscriber base across all markets
with the majority of those new subscribers located in Mexico and
Brazil, where we have significantly expanded the coverage of our
networks and the markets we serve. Consolidated operating
expenses as a percentage of consolidated operating revenues
increased slightly, and consolidated operating margin decreased
slightly in the first half of 2007 compared to the first half of
2006. These changes were due mainly to increases in our
consolidated cost of service resulting from higher interconnect
expenses, general and administrative expenses resulting from an
increase in stock-based compensation expenses and depreciation
and amortization resulting from the rapid expansion of our
digital mobile networks, all of which increased as a percentage
of our total revenue. These increases, other than the increase
in stock-based compensation, are primarily a result of the
expansion of our networks and launch of new markets, increased
customer loading and upgrades and higher interconnect costs
resulting from a higher proportion of mobile-to-mobile calls,
which generally have higher per minute interconnection costs. We
expect these costs as a percentage of revenue to remain stable
through the remainder of 2007. Our sales productivity improved
due to
28
various programs implemented to improve our mix of sales
channels, as well as resource alignment and allocation to the
sales area. In addition, coverage expansion and network
improvements resulted in consolidated capital expenditures
totaling $341.4 million for the first half of 2007. While
we expect that the amounts invested by Nextel Mexico and Nextel
Brazil to expand the coverage of their networks and to improve
their quality and capacity will continue to represent the
majority of our total capital expenditure investments in the
future, we expect the capital expenditures invested by Nextel
Brazil to increase due to our recent decision to expand our
network coverage in Brazil and the capital expenditures invested
by Nextel Mexico to decrease due to the substantial completion
of our expansion plan in Mexico.
The $409.2 million, or 39%, and $224.4 million, or
42%, increases in consolidated service and other revenues from
the six and three months ended June 30, 2006 to the same
periods in 2007 are primarily due to 38% and 39% increases in
the average number of total digital handsets in service,
primarily in Mexico and Brazil, resulting from continued strong
demand for our services and our balanced growth and expansion
strategy, as well as a slight increase in average consolidated
revenues per handset from the second quarter of 2006 to the
second quarter of 2007. Average consolidated revenues per
handset remained relatively stable from the six months ended
June 30, 2006 to the same period in 2007.
The $119.8 million, or 43%, and $65.2 million, or 45%,
increases in consolidated cost of service from the six and three
months ended June 30, 2006 to the same periods in 2007 are
principally a result of the following:
|
|
|
|
|
$69.7 million, or 51%, and $37.8 million, or 53%,
increases in consolidated interconnect costs resulting from 48%
and 49% increases in consolidated interconnect minutes of use,
as well as an increase in the proportion of mobile-to-mobile
minutes of use, which generally have higher per minute costs;
|
|
|
|
$28.3 million, or 30%, and $15.1 million, or 32%,
increases in consolidated direct switch and transmitter and
receiver site costs resulting from a 25% increase in the total
number of consolidated transmitter and receiver sites in service
from June 30, 2006 to June 30, 2007; and
|
|
|
|
$15.7 million, or 39%, and $7.0 million, or 33%,
increases in consolidated service and repair costs mainly
resulting from increases in subscribers participating under our
handset maintenance programs.
|
The $55.7 million, or 40%, and $34.4 million, or 49%,
increases in consolidated cost of digital handset and accessory
sales from the six and three months ended June 30, 2006 to
the same periods in 2007 are primarily due to 47% and 49%
increases in total handset sales, as well as 50% and 86%
increases in handset upgrades, partially offset by lower costs
per handset sale resulting from reductions in handset unit costs
in 2007.
|
|
3.
|
Selling and
marketing expenses
|
The $50.6 million, or 35%, and $32.1 million, or 42%,
increases in consolidated selling and marketing expenses from
the six and three months ended June 30, 2006 to the same
periods in 2007 are principally a result of the following:
|
|
|
|
|
$18.8 million, or 32%, and $11.1 million, or 37%,
increases in consolidated indirect commissions resulting from
45% and 49% increases in total handset sales through external
sales channels, partially offset by decreases in indirect
commissions per handset sale resulting from a change in the mix
of rate plans sold;
|
|
|
|
$19.1 million, or 36%, and $10.9 million, or 40%,
increases in consolidated payroll expenses and direct
commissions caused by increases in commissions incurred as a
result of 49% and 50% increases in total handset sales by
internal sales personnel, partially offset by decreases in
indirect commissions per handset sale resulting from a change in
the mix of rate plans sold; and
|
|
|
|
$11.0 million, or 38%, and $9.0 million, or 58%,
increases in consolidated advertising expenses, primarily in
Mexico and Brazil, mainly related to the launch of new markets
in connection with our expansion plan and increased advertising
initiatives related to overall subscriber growth.
|
29
|
|
4.
|
General and
administrative expenses
|
The $81.8 million, or 39%, and $45.8 million, or 42%,
increases in consolidated general and administrative expenses
from the six and three months ended June 30, 2006 to the
same periods in 2007 are primarily a result of the following:
|
|
|
|
|
$30.6 million, or 30%, and $18.3 million, or 35%,
increases largely due to higher personnel costs related to an
increase in headcount and higher facilities-related expenses due
to continued subscriber growth and expansion into new areas;
|
|
|
|
$24.0 million, or 47%, and $12.6 million, or 47%,
increases in consolidated customer care expenses, mainly payroll
and related expenses, resulting from additional customer care
personnel necessary to support a larger customer base;
|
|
|
|
$8.9 million, or 68%, and $5.1 million, or 64%,
increases in stock option compensation expense, primarily
resulting from grants of stock options in April 2006 and April
2007;
|
|
|
|
$7.0 million, or 48%, and $4.4 million, or 60%,
increases in consolidated bad debt expense, primarily as a
result of the 38% and 41% increases in consolidated operating
revenues. Bad debt as a percentage of revenue increased from
1.36% for the six months ended June 30, 2006 to 1.45% for
the same period in 2007 and from 1.32% for the three months
ended June 30, 2006 to 1.49% for the same period in 2007.
We expect bad debt as a percentage of revenue to remain
relatively stable at its current levels for the remainder of
2007; and
|
|
|
|
$6.2 million, or 30%, and $3.8 million, or 37%,
increases in information technology repair and maintenance costs
primarily in Mexico and Brazil related to the expansion of their
networks and the implementation of new systems.
|
|
|
5.
|
Depreciation
and amortization
|
The $55.0 million, or 65%, and $29.5 million, or 68%,
increases in consolidated depreciation and amortization from the
six and three months ended June 30, 2006 to the same
periods in 2007 are primarily due to a 65% increase in our
consolidated property, plant and equipment in service from
June 30, 2006 to June 30, 2007 resulting from the
continued expansion of our digital mobile networks, mainly in
Mexico and Brazil.
The $11.5 million, or 27%, and $8.6 million, or 41%,
increases in consolidated net interest expense from the six and
three months ended June 30, 2006 to the same periods in
2007 are primarily due to the following:
|
|
|
|
|
$4.4 million and $1.5 million increases, respectively,
in interest incurred on our towers financing transactions and
capital lease obligations in Mexico and Brazil primarily due to
increases in both the number of towers financed and capital
leases;
|
|
|
|
$4.3 million and $1.3 million decreases in capitalized
interest related to a significant decrease in average
construction-in-progress
balances, primarily in Mexico due to the substantial completion
of our expansion plan; and
|
|
|
|
$3.1 million in incremental interest expense for both
periods incurred on our 3.125% convertible notes that we issued
in May 2007.
|
|
|
7.
|
Foreign
currency transaction gains (losses), net
|
Consolidated foreign currency transaction gains of
$5.8 million and $9.3 million for the six and three
months ended June 30, 2007 are primarily the result of the
strengthening of the Mexican peso and the Brazilian real
relative to the U.S. dollar on Nextel Mexicos and
Nextel Brazils U.S. dollar-denominated liabilities,
primarily their intercompany payables.
30
Consolidated foreign currency transaction losses of
$3.5 million and $2.3 million for the six and three
months ended June 30, 2006 are primarily the result of the
weakening of the Mexican peso relative to the U.S. dollar
on Nextel Mexicos U.S. dollar-denominated
liabilities, primarily its intercompany payables.
|
|
8.
|
Other income
(expense), net
|
The $6.2 million change in other expense, net, from the six
months ended June 30, 2006 to the same period in 2007
primarily relates to the reversal of a contingent liability by
Nextel Mexico during the first quarter of 2007 and a reduction
in realized losses on Nextel Mexicos hedge of capital
expenditures and handset purchases that we reclassify from
accumulated other comprehensive loss.
The $7.7 million, or 10%, increase in the consolidated
income tax provision from the six months ended June 30,
2006 to the same period in 2007 is primarily due to the tax and
accounting rules related to the reporting of our intercompany
management fee. As the result of a change in the relevant income
tax rules, beginning in 2007, we now record the tax effect of
these fees evenly throughout the year, which significantly
reduced the changes in the quarter-to-quarter tax rate that
occurred in 2006.
Segment
Results
We evaluate performance of our segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element of operational
performance, we recognize share-based payment expense at the
corporate level and exclude it when evaluating the business
performance of our segments. For several years, we have charged
a management fee to Nextel Mexico for services rendered by
corporate management. For the six and three months ended
June 30, 2007, we reported this management fee as a
separate line item in the segment reporting information as these
amounts are now regularly provided to our chief operating
decision maker. During the six and three months ended
June 30, 2006, we charged Nextel Mexico a management fee of
$34.1 million and $17.0 million, respectively.
However, for the six and three months ended June 30, 2006,
our segment information does not reflect these management fees
as a separate line item because these amounts were not provided
to or used by our chief operating decision maker in making
operating decisions related to this segment. The tables below
provide a summary of the components of our consolidated segments
for the six and three months ended June 30, 2007 and 2006.
The results of Nextel Chile are included in Corporate and
other.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Six Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2007
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
832,965
|
|
|
|
56
|
%
|
|
$
|
(293,689
|
)
|
|
|
49
|
%
|
|
$
|
(228,336
|
)
|
|
|
47
|
%
|
|
$
|
310,940
|
|
Nextel Brazil
|
|
|
372,351
|
|
|
|
25
|
%
|
|
|
(158,250
|
)
|
|
|
27
|
%
|
|
|
(122,489
|
)
|
|
|
25
|
%
|
|
|
91,612
|
|
Nextel Argentina
|
|
|
203,755
|
|
|
|
13
|
%
|
|
|
(95,274
|
)
|
|
|
16
|
%
|
|
|
(44,654
|
)
|
|
|
9
|
%
|
|
|
63,827
|
|
Nextel Peru
|
|
|
89,371
|
|
|
|
6
|
%
|
|
|
(46,466
|
)
|
|
|
8
|
%
|
|
|
(25,032
|
)
|
|
|
5
|
%
|
|
|
17,873
|
|
Corporate and other
|
|
|
1,382
|
|
|
|
|
|
|
|
(1,624
|
)
|
|
|
|
|
|
|
(68,937
|
)
|
|
|
14
|
%
|
|
|
(69,179
|
)
|
Intercompany eliminations
|
|
|
(551
|
)
|
|
|
|
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,499,273
|
|
|
|
100
|
%
|
|
$
|
(594,752
|
)
|
|
|
100
|
%
|
|
$
|
(489,448
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Three Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2007
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
432,785
|
|
|
|
55
|
%
|
|
$
|
(154,167
|
)
|
|
|
49
|
%
|
|
$
|
(121,432
|
)
|
|
|
46
|
%
|
|
$
|
157,186
|
|
Nextel Brazil
|
|
|
201,003
|
|
|
|
26
|
%
|
|
|
(86,176
|
)
|
|
|
27
|
%
|
|
|
(67,963
|
)
|
|
|
26
|
%
|
|
|
46,864
|
|
Nextel Argentina
|
|
|
105,710
|
|
|
|
13
|
%
|
|
|
(49,868
|
)
|
|
|
16
|
%
|
|
|
(23,776
|
)
|
|
|
9
|
%
|
|
|
32,066
|
|
Nextel Peru
|
|
|
45,618
|
|
|
|
6
|
%
|
|
|
(23,908
|
)
|
|
|
8
|
%
|
|
|
(12,917
|
)
|
|
|
5
|
%
|
|
|
8,793
|
|
Corporate and other
|
|
|
817
|
|
|
|
|
|
|
|
(922
|
)
|
|
|
|
|
|
|
(38,218
|
)
|
|
|
14
|
%
|
|
|
(38,323
|
)
|
Intercompany eliminations
|
|
|
(267
|
)
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
785,666
|
|
|
|
100
|
%
|
|
$
|
(314,774
|
)
|
|
|
100
|
%
|
|
$
|
(264,306
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Six Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2006
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
617,917
|
|
|
|
57
|
%
|
|
$
|
(202,131
|
)
|
|
|
48
|
%
|
|
$
|
(167,106
|
)
|
|
|
47
|
%
|
|
$
|
248,680
|
|
Nextel Brazil
|
|
|
241,737
|
|
|
|
22
|
%
|
|
|
(111,733
|
)
|
|
|
27
|
%
|
|
|
(83,949
|
)
|
|
|
24
|
%
|
|
|
46,055
|
|
Nextel Argentina
|
|
|
157,585
|
|
|
|
15
|
%
|
|
|
(70,865
|
)
|
|
|
17
|
%
|
|
|
(39,956
|
)
|
|
|
11
|
%
|
|
|
46,764
|
|
Nextel Peru
|
|
|
66,463
|
|
|
|
6
|
%
|
|
|
(34,216
|
)
|
|
|
8
|
%
|
|
|
(19,651
|
)
|
|
|
5
|
%
|
|
|
12,596
|
|
Corporate and other
|
|
|
1,369
|
|
|
|
|
|
|
|
(744
|
)
|
|
|
|
|
|
|
(46,328
|
)
|
|
|
13
|
%
|
|
|
(45,703
|
)
|
Intercompany eliminations
|
|
|
(371
|
)
|
|
|
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,084,700
|
|
|
|
100
|
%
|
|
$
|
(419,318
|
)
|
|
|
100
|
%
|
|
$
|
(356,990
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Three Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2006
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
312,811
|
|
|
|
56
|
%
|
|
$
|
(101,670
|
)
|
|
|
47
|
%
|
|
$
|
(85,858
|
)
|
|
|
46
|
%
|
|
$
|
125,283
|
|
Nextel Brazil
|
|
|
126,482
|
|
|
|
23
|
%
|
|
|
(58,401
|
)
|
|
|
27
|
%
|
|
|
(44,338
|
)
|
|
|
24
|
%
|
|
|
23,743
|
|
Nextel Argentina
|
|
|
82,415
|
|
|
|
15
|
%
|
|
|
(37,087
|
)
|
|
|
17
|
%
|
|
|
(21,098
|
)
|
|
|
11
|
%
|
|
|
24,230
|
|
Nextel Peru
|
|
|
34,095
|
|
|
|
6
|
%
|
|
|
(17,794
|
)
|
|
|
9
|
%
|
|
|
(10,103
|
)
|
|
|
5
|
%
|
|
|
6,198
|
|
Corporate and other
|
|
|
829
|
|
|
|
|
|
|
|
(418
|
)
|
|
|
|
|
|
|
(25,057
|
)
|
|
|
14
|
%
|
|
|
(24,646
|
)
|
Intercompany eliminations
|
|
|
(203
|
)
|
|
|
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
556,429
|
|
|
|
100
|
%
|
|
$
|
(215,167
|
)
|
|
|
100
|
%
|
|
$
|
(186,454
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
A discussion of the results of operations for each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
822,317
|
|
|
|
99
|
%
|
|
$
|
605,297
|
|
|
|
98
|
%
|
|
$
|
217,020
|
|
|
|
36
|
%
|
Digital handset and accessory
revenues
|
|
|
10,648
|
|
|
|
1
|
%
|
|
|
12,620
|
|
|
|
2
|
%
|
|
|
(1,972
|
)
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
832,965
|
|
|
|
100
|
%
|
|
|
617,917
|
|
|
|
100
|
%
|
|
|
215,048
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(171,776
|
)
|
|
|
(21
|
)%
|
|
|
(127,168
|
)
|
|
|
(21
|
)%
|
|
|
(44,608
|
)
|
|
|
35
|
%
|
Cost of digital handsets and
accessories
|
|
|
(121,913
|
)
|
|
|
(15
|
)%
|
|
|
(74,963
|
)
|
|
|
(12
|
)%
|
|
|
(46,950
|
)
|
|
|
63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(293,689
|
)
|
|
|
(36
|
)%
|
|
|
(202,131
|
)
|
|
|
(33
|
)%
|
|
|
(91,558
|
)
|
|
|
45
|
%
|
Selling and marketing expenses
|
|
|
(117,960
|
)
|
|
|
(14
|
)%
|
|
|
(90,880
|
)
|
|
|
(15
|
)%
|
|
|
(27,080
|
)
|
|
|
30
|
%
|
General and administrative expenses
|
|
|
(110,376
|
)
|
|
|
(13
|
)%
|
|
|
(76,226
|
)
|
|
|
(12
|
)%
|
|
|
(34,150
|
)
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
310,940
|
|
|
|
37
|
%
|
|
|
248,680
|
|
|
|
40
|
%
|
|
|
62,260
|
|
|
|
25
|
%
|
Management fee
|
|
|
(19,800
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
(19,800
|
)
|
|
|
NM
|
|
Depreciation and amortization
|
|
|
(68,214
|
)
|
|
|
(8
|
)%
|
|
|
(44,819
|
)
|
|
|
(7
|
)%
|
|
|
(23,395
|
)
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
222,926
|
|
|
|
27
|
%
|
|
|
203,861
|
|
|
|
33
|
%
|
|
|
19,065
|
|
|
|
9
|
%
|
Interest expense, net
|
|
|
(29,312
|
)
|
|
|
(4
|
)%
|
|
|
(16,879
|
)
|
|
|
(3
|
)%
|
|
|
(12,433
|
)
|
|
|
74
|
%
|
Interest income
|
|
|
12,909
|
|
|
|
2
|
%
|
|
|
15,995
|
|
|
|
3
|
%
|
|
|
(3,086
|
)
|
|
|
(19
|
)%
|
Foreign currency transaction gains
(losses), net
|
|
|
1,208
|
|
|
|
|
|
|
|
(3,542
|
)
|
|
|
(1
|
)%
|
|
|
4,750
|
|
|
|
(134
|
)%
|
Other income (expense), net
|
|
|
2,260
|
|
|
|
|
|
|
|
(2,294
|
)
|
|
|
|
|
|
|
4,554
|
|
|
|
(199
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
209,991
|
|
|
|
25
|
%
|
|
$
|
197,141
|
|
|
|
32
|
%
|
|
$
|
12,850
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
427,197
|
|
|
|
99
|
%
|
|
$
|
307,182
|
|
|
|
98
|
%
|
|
$
|
120,015
|
|
|
|
39
|
%
|
Digital handset and accessory
revenues
|
|
|
5,588
|
|
|
|
1
|
%
|
|
|
5,629
|
|
|
|
2
|
%
|
|
|
(41
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
432,785
|
|
|
|
100
|
%
|
|
|
312,811
|
|
|
|
100
|
%
|
|
|
119,974
|
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(89,178
|
)
|
|
|
(21
|
)%
|
|
|
(64,951
|
)
|
|
|
(21
|
)%
|
|
|
(24,227
|
)
|
|
|
37
|
%
|
Cost of digital handsets and
accessories
|
|
|
(64,989
|
)
|
|
|
(15
|
)%
|
|
|
(36,719
|
)
|
|
|
(12
|
)%
|
|
|
(28,270
|
)
|
|
|
77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(154,167
|
)
|
|
|
(36
|
)%
|
|
|
(101,670
|
)
|
|
|
(33
|
)%
|
|
|
(52,497
|
)
|
|
|
52
|
%
|
Selling and marketing expenses
|
|
|
(63,715
|
)
|
|
|
(15
|
)%
|
|
|
(46,978
|
)
|
|
|
(15
|
)%
|
|
|
(16,737
|
)
|
|
|
36
|
%
|
General and administrative expenses
|
|
|
(57,717
|
)
|
|
|
(13
|
)%
|
|
|
(38,880
|
)
|
|
|
(12
|
)%
|
|
|
(18,837
|
)
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
157,186
|
|
|
|
36
|
%
|
|
|
125,283
|
|
|
|
40
|
%
|
|
|
31,903
|
|
|
|
25
|
%
|
Management fee
|
|
|
(9,900
|
)
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
(9,900
|
)
|
|
|
NM
|
|
Depreciation and amortization
|
|
|
(35,043
|
)
|
|
|
(8
|
)%
|
|
|
(24,125
|
)
|
|
|
(8
|
)%
|
|
|
(10,918
|
)
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
112,243
|
|
|
|
26
|
%
|
|
|
101,158
|
|
|
|
32
|
%
|
|
|
11,085
|
|
|
|
11
|
%
|
Interest expense, net
|
|
|
(15,100
|
)
|
|
|
(3
|
)%
|
|
|
(7,820
|
)
|
|
|
(3
|
)%
|
|
|
(7,280
|
)
|
|
|
93
|
%
|
Interest income
|
|
|
5,726
|
|
|
|
1
|
%
|
|
|
8,154
|
|
|
|
3
|
%
|
|
|
(2,428
|
)
|
|
|
(30
|
)%
|
Foreign currency transaction gains
(losses), net
|
|
|
5,858
|
|
|
|
1
|
%
|
|
|
(2,191
|
)
|
|
|
(1
|
)%
|
|
|
8,049
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(78
|
)
|
|
|
|
|
|
|
(808
|
)
|
|
|
|
|
|
|
730
|
|
|
|
(90
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
108,649
|
|
|
|
25
|
%
|
|
$
|
98,493
|
|
|
|
31
|
%
|
|
$
|
10,156
|
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Nextel Mexico continues to be our largest and most profitable
market segment, comprising 56% of our consolidated operating
revenues for the six months ended June 30, 2007. During the
six months ended June 30, 2007, Nextel Mexico experienced
strong subscriber growth as a result of continued customer
demand, selectively expanding coverage in new and existing
markets and improving network quality and capacity. The
corresponding increase in operating expenses was a result of
increased costs incurred in connection with Nextel Mexicos
expansion efforts, including network, personnel and other
expenses related to the launch of new markets, as well as the
high level of subscriber growth throughout 2006 and the first
half of 2007. Some of Nextel Mexicos competitors have
lowered prices for certain services and handsets, offered
various incentives to larger customers to switch service
providers, including reimbursement of cancellation fees, and
offered bundled telecommunications services that include local,
long distance and data services. Nextel Mexico is addressing
these competitive actions through various responses, including
aggressive commercial campaigns offering handsets to new and
existing customers on terms that result in higher handset
subsidies and offering more competitive rate plans, which have
resulted in slightly lower average revenue per subscriber and
slightly higher customer turnover in 2007 compared to 2006. In
addition, Nextel Mexicos segment earnings margin decreased
primarily as a result of an increase in cost of digital handset
and accessory revenues because of a 60% increase in handset
sales realized in connection with the strong
34
subscriber growth. We expect Nextel Mexicos segment
earnings margin to remain stable through the remainder of 2007.
During the first half of 2007, Nextel Mexico substantially
completed its network expansion plans. Coverage expansion and
network improvements resulted in capital expenditures totaling
$156.8 million for the first half of 2007, which is a 46%
share of consolidated capital expenditure investments. While we
expect that Nextel Mexico will continue to represent a
significant portion of our total capital expenditure investments
in the future we expect its percentage of total capital
expenditures to decrease now that its expansion plans are
substantially complete. We expect subscriber growth in Mexico to
continue as we take advantage of new markets launched during
2006 and 2007 as those markets begin to mature. In addition, as
Nextel Mexico continues to expand its customer base in both new
and existing markets and continues to address a more competitive
sales environment, we expect that Nextel Mexicos average
revenue per subscriber may decline slightly in 2007 compared to
2006. We also expect Nextel Mexico to begin receiving some
benefits from additional revenue streams, such as the Blackberry
product and short messaging, later this year.
In accordance with accounting principles generally accepted in
the United States, we translated Nextel Mexicos results of
operations using the average exchange rate for the six and three
months ended June 30, 2007 and 2006. The average exchange
rates of the Mexican peso for the six months ended June 30,
2007 depreciated against the U.S. dollar by 1% from the six
months ended June 30, 2006. The average exchange rate of
the Mexican peso for the three months ended June 30, 2007
appreciated against the U.S. dollar by 2% from the three
months ended June 30, 2006. As a result, compared to 2006,
the components of Nextel Mexicos results of operations for
the six months ended June 30, 2007 after translation into
U.S. dollars reflect slightly lower increases than would
have occurred if it were not for the impact of the depreciation
of the peso. Conversely, compared to 2006, the components of
Nextel Mexicos results of operations for the three months
ended June 30, 2007 after translation into
U.S. dollars reflect slightly higher increases than would
have occurred if it were not for the impact of the appreciation
of the peso.
The $217.0 million, or 36%, and $120.0 million, or
39%, increases in service and other revenues from the six and
three months ended June 30, 2006 to the same periods in
2007 are primarily due to 40% and 41% increases in the average
number of digital handsets in service from the six and three
months ended June 30, 2006 to the same periods in 2007
resulting from growth in Nextel Mexicos existing markets,
as well as the expansion of service coverage into new markets
during 2006 and the first six months of 2007, partially offset
by slight declines in average revenue per handset.
The $44.6 million, or 35%, and $24.2 million, or 37%,
increases in cost of service from the six and three months ended
June 30, 2006 to the same periods in 2007 are principally
due to the following:
|
|
|
|
|
$25.4 million, or 43%, and $13.4 million, or 44%,
increases in interconnect costs generally resulting from 40% and
38% increases in interconnect system minutes of use, as well as
an increase in the proportion of mobile-to-mobile minutes of
use, which generally have higher per minute costs;
|
|
|
|
$10.5 million, or 23%, and $6.0 million, or 26%,
increases in direct switch and transmitter and receiver site
costs resulting from a 29% increase in the number of transmitter
and receiver sites in service from June 30, 2006 to
June 30, 2007; and
|
|
|
|
$5.8 million, or 32%, and $2.5 million, or 26%,
increases in service and repair costs largely due to increased
activity under Nextel Mexicos handset maintenance program.
|
The $47.0 million, or 63%, and $28.3 million, or 77%,
increases in cost of digital handsets and accessories from the
six and three months ended June 30, 2006 to the same
periods in 2007 are primarily due to 60% and 65% increases in
handset sales, respectively, as well as increases in handset
upgrades provided to current customers.
35
|
|
3.
|
Selling and
marketing expenses
|
The $27.1 million, or 30%, and $16.7 million, or 36%,
increases in selling and marketing expenses from the six and
three months ended June 30, 2006 to the same periods in
2007 are primarily a result of the following:
|
|
|
|
|
$11.1 million, or 26%, and $6.4 million, or 29%,
increases in indirect commissions primarily due to 50% and 56%
increases in handset sales by Nextel Mexicos outside
dealers, partially offset by a decrease in indirect commission
per handset sale resulting from a change in the mix of rate
plans sold;
|
|
|
|
$9.3 million, or 36%, and $5.5 million, or 42%,
increases in direct commissions and payroll expenses principally
due to 78% and 81% increases in handset sales by Nextel
Mexicos sales personnel, partially offset by a decrease in
direct commission per handset sale resulting from a change in
the mix of rate plans sold; and
|
|
|
|
$5.6 million, or 29%, and $4.1 million, or 39%,
increases in advertising costs largely due to the launch of new
markets in connection with Nextel Mexicos expansion plan,
the launch of new rate plans and objectives to reinforce market
awareness of the Nextel brand name.
|
|
|
4.
|
General and
administrative expenses
|
The $34.2 million, or 45%, and $18.8 million, or 48%,
increases in general and administrative expenses from the six
and three months ended June 30, 2006 to the same periods in
2007 are largely a result of the following:
|
|
|
|
|
$14.9 million, or 60%, and $7.7 million, or 60%,
increase in customer care expenses primarily due to an increase
in payroll and employee related expenses caused by an increase
in customer care personnel necessary to support a larger
customer base, as well as an increase in the number of retail
stores;
|
|
|
|
$12.4 million, or 37%, and $6.4 million, or 37%,
increases in general corporate costs resulting from an increase
in payroll and related expenses caused by more general and
administrative personnel, higher business insurance expenses and
increased facilities costs due to expansion into new
markets; and
|
|
|
|
$5.2 million, or 67%, and $3.7 million, or 104%,
increases in bad debt expense. Bad debt as a percentage of
revenue increased from 1.26% for the six months ended
June 30, 2006 to 1.56% for the same period in 2007 and from
1.13% for the three months ended June 30, 2006 to 1.67% for
the same period in 2007. This increase resulted primarily from
the introduction of certain rate plans that are available to
customers with slightly higher credit risk. We expect bad debt
as a percent of revenue to remain relatively stable through the
remainder of 2007 and into 2008.
|
We charge a management fee to Nextel Mexico for its share of the
corporate management services performed by us, which effective
January 1, 2007, is being included in our segment reporting
information. The management fee charged to Nextel Mexico was
$19.8 million and $9.9 million for the six and three
months ended June 30, 2007.
|
|
6.
|
Depreciation
and amortization
|
The $23.4 million, or 52%, and $10.9 million, or 45%,
increases in depreciation and amortization from the six and
three months ended June 30, 2006 to the same periods in
2007 are primarily due to a 68% increase in Nextel Mexicos
property, plant and equipment in service resulting from the
continued build-out of Nextel Mexicos digital mobile
network in connection with its expansion plan.
Excluding $5.2 million and $2.8 million in interest on
the management fee for the six and three months ended
June 30, 2007 that was not recognized for segment reporting
purposes in the prior year, Nextel Mexicos interest
expense increased $7.3 million, or 43%, and
$4.5 million, or 58%, mostly due to decreases in
capitalized interest related to a significant decrease in
average
construction-in-progress
balances due to the substantial completion of its
36
expansion plan, as well as an increase in interest incurred on
its co-location capital leases resulting from an increase in the
number of communication tower co-location agreements.
|
|
8.
|
Foreign
currency transaction gains (losses), net
|
Foreign currency transaction gains of $1.2 million and
$5.9 million for the six and three months ended
June 30, 2007 are primarily due to the impact of an
increase in the value of the Mexican peso on Nextel
Mexicos U.S. dollar-denominated liabilities.
Foreign currency transaction losses of $3.5 million and
$2.2 million for the six and three months ended
June 30, 2006 are mostly due to the relative weakening of
the peso compared to the U.S. dollar on Nextel
Mexicos U.S. dollar-denominated liabilities.
|
|
9.
|
Other income
(expense), net
|
The $4.6 million change in other expense, net, from the six
months ended June 30, 2006 to the same period in 2007
primarily relates to the reversal of a contingent liability
during the first quarter of 2007 and a reduction in realized
losses on Nextel Mexicos hedge of capital expenditures and
handset purchases that we reclassify from accumulated other
comprehensive loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
354,625
|
|
|
|
95
|
%
|
|
$
|
224,337
|
|
|
|
93
|
%
|
|
$
|
130,288
|
|
|
|
58
|
%
|
Digital handset and accessory
revenues
|
|
|
17,726
|
|
|
|
5
|
%
|
|
|
17,400
|
|
|
|
7
|
%
|
|
|
326
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
372,351
|
|
|
|
100
|
%
|
|
|
241,737
|
|
|
|
100
|
%
|
|
|
130,614
|
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(123,296
|
)
|
|
|
(33
|
)%
|
|
|
(77,785
|
)
|
|
|
(32
|
)%
|
|
|
(45,511
|
)
|
|
|
59
|
%
|
Cost of digital handsets and
accessories
|
|
|
(34,954
|
)
|
|
|
(9
|
)%
|
|
|
(33,948
|
)
|
|
|
(14
|
)%
|
|
|
(1,006
|
)
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(158,250
|
)
|
|
|
(42
|
)%
|
|
|
(111,733
|
)
|
|
|
(46
|
)%
|
|
|
(46,517
|
)
|
|
|
42
|
%
|
Selling and marketing expenses
|
|
|
(49,620
|
)
|
|
|
(13
|
)%
|
|
|
(31,357
|
)
|
|
|
(13
|
)%
|
|
|
(18,263
|
)
|
|
|
58
|
%
|
General and administrative expenses
|
|
|
(72,869
|
)
|
|
|
(20
|
)%
|
|
|
(52,592
|
)
|
|
|
(22
|
)%
|
|
|
(20,277
|
)
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
91,612
|
|
|
|
25
|
%
|
|
|
46,055
|
|
|
|
19
|
%
|
|
|
45,557
|
|
|
|
99
|
%
|
Depreciation and amortization
|
|
|
(42,657
|
)
|
|
|
(12
|
)%
|
|
|
(25,527
|
)
|
|
|
(11
|
)%
|
|
|
(17,130
|
)
|
|
|
67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
48,955
|
|
|
|
13
|
%
|
|
|
20,528
|
|
|
|
8
|
%
|
|
|
28,427
|
|
|
|
138
|
%
|
Interest expense, net
|
|
|
(14,342
|
)
|
|
|
(4
|
)%
|
|
|
(11,609
|
)
|
|
|
(5
|
)%
|
|
|
(2,733
|
)
|
|
|
24
|
%
|
Interest income
|
|
|
2,790
|
|
|
|
1
|
%
|
|
|
1,585
|
|
|
|
1
|
%
|
|
|
1,205
|
|
|
|
76
|
%
|
Foreign currency transaction gains
(losses), net
|
|
|
4,239
|
|
|
|
1
|
%
|
|
|
(272
|
)
|
|
|
|
|
|
|
4,511
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(1,554
|
)
|
|
|
|
|
|
|
(2,736
|
)
|
|
|
(1
|
)%
|
|
|
1,182
|
|
|
|
(43
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
40,088
|
|
|
|
11
|
%
|
|
$
|
7,496
|
|
|
|
3
|
%
|
|
$
|
32,592
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
191,411
|
|
|
|
95
|
%
|
|
$
|
117,647
|
|
|
|
93
|
%
|
|
$
|
73,764
|
|
|
|
63
|
%
|
Digital handset and accessory
revenues
|
|
|
9,592
|
|
|
|
5
|
%
|
|
|
8,835
|
|
|
|
7
|
%
|
|
|
757
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,003
|
|
|
|
100
|
%
|
|
|
126,482
|
|
|
|
100
|
%
|
|
|
74,521
|
|
|
|
59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(67,299
|
)
|
|
|
(34
|
)%
|
|
|
(41,197
|
)
|
|
|
(32
|
)%
|
|
|
(26,102
|
)
|
|
|
63
|
%
|
Cost of digital handsets and
accessories
|
|
|
(18,877
|
)
|
|
|
(9
|
)%
|
|
|
(17,204
|
)
|
|
|
(14
|
)%
|
|
|
(1,673
|
)
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86,176
|
)
|
|
|
(43
|
)%
|
|
|
(58,401
|
)
|
|
|
(46
|
)%
|
|
|
(27,775
|
)
|
|
|
48
|
%
|
Selling and marketing expenses
|
|
|
(29,023
|
)
|
|
|
(15
|
)%
|
|
|
(16,188
|
)
|
|
|
(13
|
)%
|
|
|
(12,835
|
)
|
|
|
79
|
%
|
General and administrative expenses
|
|
|
(38,940
|
)
|
|
|
(19
|
)%
|
|
|
(28,150
|
)
|
|
|
(22
|
)%
|
|
|
(10,790
|
)
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
46,864
|
|
|
|
23
|
%
|
|
|
23,743
|
|
|
|
19
|
%
|
|
|
23,121
|
|
|
|
97
|
%
|
Depreciation and amortization
|
|
|
(22,888
|
)
|
|
|
(11
|
)%
|
|
|
(13,491
|
)
|
|
|
(11
|
)%
|
|
|
(9,397
|
)
|
|
|
70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
23,976
|
|
|
|
12
|
%
|
|
|
10,252
|
|
|
|
8
|
%
|
|
|
13,724
|
|
|
|
134
|
%
|
Interest expense, net
|
|
|
(7,821
|
)
|
|
|
(4
|
)%
|
|
|
(6,040
|
)
|
|
|
(5
|
)%
|
|
|
(1,781
|
)
|
|
|
29
|
%
|
Interest income
|
|
|
1,485
|
|
|
|
1
|
%
|
|
|
850
|
|
|
|
|
|
|
|
635
|
|
|
|
75
|
%
|
Foreign currency transaction gains
(losses), net
|
|
|
3,664
|
|
|
|
2
|
%
|
|
|
(171
|
)
|
|
|
|
|
|
|
3,835
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(789
|
)
|
|
|
(1
|
)%
|
|
|
(1,745
|
)
|
|
|
(1
|
)%
|
|
|
956
|
|
|
|
(55
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
20,515
|
|
|
|
10
|
%
|
|
$
|
3,146
|
|
|
|
2
|
%
|
|
$
|
17,369
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Over the last several years, Nextel Brazils subscriber
base and segment earnings have increased as a result of a
continued focus on customer service, the expansion of its
digital mobile network and significant improvements in its
operating cost structure. In addition to these factors,
improvements in the Brazilian economy and increasing demand for
its services have resulted in continued growth in existing
markets and have led Nextel Brazil to make significant
investments in order to expand its services into new markets. As
this expansion has occurred, Nextel Brazils costs have
declined as a percentage of operating revenues as Nextel Brazil
has begun to realize scale benefits associated with its
subscriber growth. Coverage expansion and network improvements
resulted in capital expenditures totaling $127.0 million
for the first half of 2007, which is a 37% share of consolidated
capital expenditure investments. We believe that Nextel
Brazils network expansion and quality improvements are
contributing factors to our low consolidated customer turnover
rate and our consolidated subscriber growth. Throughout the
remainder of 2007, Nextel Brazil plans to continue to expand its
digital mobile network and grow its subscriber base. In
addition, in the second quarter of 2007, we decided to develop
plans to further expand our network coverage in Brazil over the
next two to three years.
In accordance with accounting principles generally accepted in
the United States, we translated Nextel Brazils results of
operations using the average exchange rate for the six and three
months ended June 30, 2007, which appreciated against the
U.S. dollar by 7% and 10% from the same periods in 2006. As
a result, the components of Nextel Brazils results of
operations for the six and three months ended June 30, 2007
after translation into U.S. dollars reflect higher
increases than would have occurred if it were not for the impact
of the appreciation in the average value of the Brazilian real.
38
The $130.3 million, or 58%, and $73.8 million, or 63%,
increases in service and other revenues from the six and three
months ended June 30, 2006 to the same periods in 2007 are
primarily a result of 42% increases in the average number of
digital handsets in service resulting from growth in Nextel
Brazils existing markets, and the expansion of service
coverage into new markets in connection with our balanced growth
and expansion objectives, as well as increases in local
currency-based average revenue per subscriber.
The $45.5 million, or 59%, and $26.1 million, or 63%,
increases in cost of service from the six and three months ended
June 30, 2006 to the same periods in 2007 are primarily due
to the following:
|
|
|
|
|
$28.4 million, or 79%, and $16.8 million, or 89%,
increases in interconnect costs resulting from 51% and 53%
increases in interconnect minutes of use, as well as an increase
in the proportion of mobile-to-mobile minutes of use, which
generally have higher per minute costs; and
|
|
|
|
$12.6 million, or 43%, and $6.6 million, or 43%,
increases in direct switch and transmitter and receiver site
costs, including spectrum license fees, resulting from a 22%
increase in the number of transmitter and receiver sites in
service from June 30, 2006 to June 30, 2007 and
increases in cost per site.
|
|
|
3.
|
Selling and
marketing expenses
|
The $18.3 million, or 58%, and $12.8 million, or 79%,
increases in selling and marketing expenses from the six and
three months ended June 30, 2006 to the same periods in
2007 are principally due to the following:
|
|
|
|
|
$7.8 million, or 50%, and $4.9 million, or 61%,
increases in payroll expenses and direct commissions largely as
a result of 45% and 49% increases in handset sales by Nextel
Brazils internal sales force and 37% increases in selling
and marketing personnel necessary to support continued sales
growth;
|
|
|
|
$5.4 million, or 69%, and $3.5 million, or 83%,
increases in indirect commissions resulting from 44% and 50%
increases in handset sales through Nextel Brazils external
sales channels, as well as increases in indirect commissions
earned per handset sale resulting from premiums paid on sales
exceeding pre-established thresholds; and
|
|
|
|
$4.7 million, or 74%, and $4.3 million, or 132%,
increases in advertising expenses resulting from the launch of
new markets in connection with Nextel Brazils expansion
plan, Nextel Brazils sponsorship of the Copa Nextel Stock
Car series, a professional racecar event, and its continued
print and media campaigns for various products and services,
including the launch of Blackberry services.
|
|
|
4.
|
General and
administrative expenses
|
The $20.3 million, or 39%, and $10.8 million, or 38%,
increases in general and administrative expenses from the six
and three months ended June 30, 2006 to the same periods in
2007 are primarily a result of the following:
|
|
|
|
|
$7.3 million, or 55%, and $4.2 million, or 61%,
increases in revenue-based taxes that we report on a gross basis
as both service and other revenues and general and
administrative expenses, primarily due to the 54% and 59%
increases in Nextel Brazils operating revenues;
|
|
|
|
$6.0 million, or 39%, and $3.3 million, or 41%,
increases in customer care expenses resulting from increases in
customer care personnel necessary to support a larger customer
base, as well as increases in various facilities expenses;
|
|
|
|
$4.3 million, or 31%, and $1.8 million, or 24%,
increases in general corporate and facilities costs primarily
resulting from an increase in general and administrative
personnel; and
|
|
|
|
$2.3 million, or 52%, and $1.2 million, or 54%,
increases in information technology expenses related to the
expansion of Nextel Brazils network and its growing
subscriber base.
|
39
|
|
5.
|
Depreciation
and amortization
|
The $17.1 million, or 67%, and $9.4 million, or 70%,
increases in depreciation and amortization from the six and
three months ended June 30, 2006 to the same periods in
2007 are primarily due to a 73% increase in Nextel Brazils
property, plant and equipment in service from June 30, 2006
to June 30, 2007 resulting from the continued build-out of
Nextel Brazils digital mobile network.
The $2.7 million, or 24%, and $1.8 million, or 29%,
increases in net interest expense are primarily the result of
decreases in capitalized interest related to a decrease in
average
construction-in-progress
balances, as well as increases in interest incurred on Nextel
Brazils towers financing transactions and capital lease
obligations primarily due to increases in both the number of
towers financed and the number of capital leases.
|
|
7.
|
Foreign
currency transaction gains (losses), net
|
Foreign currency transaction gains of $4.2 million and
$3.7 million for the six and three months ended
June 30, 2007 are primarily due to the strengthening of the
Brazil real relative to the U.S. dollar on Nextel
Brazils U.S. dollar-denominated liabilities,
primarily its intercompany payables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
188,101
|
|
|
|
92
|
%
|
|
$
|
146,944
|
|
|
|
93
|
%
|
|
$
|
41,157
|
|
|
|
28
|
%
|
Digital handset and accessory
revenues
|
|
|
15,654
|
|
|
|
8
|
%
|
|
|
10,641
|
|
|
|
7
|
%
|
|
|
5,013
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,755
|
|
|
|
100
|
%
|
|
|
157,585
|
|
|
|
100
|
%
|
|
|
46,170
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(70,720
|
)
|
|
|
(35
|
)%
|
|
|
(51,630
|
)
|
|
|
(33
|
)%
|
|
|
(19,090
|
)
|
|
|
37
|
%
|
Cost of digital handsets and
accessories
|
|
|
(24,554
|
)
|
|
|
(12
|
)%
|
|
|
(19,235
|
)
|
|
|
(12
|
)%
|
|
|
(5,319
|
)
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,274
|
)
|
|
|
(47
|
)%
|
|
|
(70,865
|
)
|
|
|
(45
|
)%
|
|
|
(24,409
|
)
|
|
|
34
|
%
|
Selling and marketing expenses
|
|
|
(15,131
|
)
|
|
|
(7
|
)%
|
|
|
(12,815
|
)
|
|
|
(8
|
)%
|
|
|
(2,316
|
)
|
|
|
18
|
%
|
General and administrative expenses
|
|
|
(29,523
|
)
|
|
|
(15
|
)%
|
|
|
(27,141
|
)
|
|
|
(17
|
)%
|
|
|
(2,382
|
)
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
63,827
|
|
|
|
31
|
%
|
|
|
46,764
|
|
|
|
30
|
%
|
|
|
17,063
|
|
|
|
36
|
%
|
Depreciation and amortization
|
|
|
(14,868
|
)
|
|
|
(7
|
)%
|
|
|
(7,495
|
)
|
|
|
(5
|
)%
|
|
|
(7,373
|
)
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
48,959
|
|
|
|
24
|
%
|
|
|
39,269
|
|
|
|
25
|
%
|
|
|
9,690
|
|
|
|
25
|
%
|
Interest expense, net
|
|
|
(1,124
|
)
|
|
|
(1
|
)%
|
|
|
(1,449
|
)
|
|
|
(1
|
)%
|
|
|
325
|
|
|
|
(22
|
)%
|
Interest income
|
|
|
2,037
|
|
|
|
1
|
%
|
|
|
1,114
|
|
|
|
1
|
%
|
|
|
923
|
|
|
|
83
|
%
|
Foreign currency transaction
gains, net
|
|
|
306
|
|
|
|
|
|
|
|
405
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
(24
|
)%
|
Other income, net
|
|
|
1,577
|
|
|
|
1
|
%
|
|
|
229
|
|
|
|
|
|
|
|
1,348
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
51,755
|
|
|
|
25
|
%
|
|
$
|
39,568
|
|
|
|
25
|
%
|
|
$
|
12,187
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
96,968
|
|
|
|
92
|
%
|
|
$
|
76,681
|
|
|
|
93
|
%
|
|
$
|
20,287
|
|
|
|
26
|
%
|
Digital handset and accessory
revenues
|
|
|
8,742
|
|
|
|
8
|
%
|
|
|
5,734
|
|
|
|
7
|
%
|
|
|
3,008
|
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105,710
|
|
|
|
100
|
%
|
|
|
82,415
|
|
|
|
100
|
%
|
|
|
23,295
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(36,520
|
)
|
|
|
(34
|
)%
|
|
|
(26,802
|
)
|
|
|
(33
|
)%
|
|
|
(9,718
|
)
|
|
|
36
|
%
|
Cost of digital handsets and
accessories
|
|
|
(13,348
|
)
|
|
|
(13
|
)%
|
|
|
(10,285
|
)
|
|
|
(12
|
)%
|
|
|
(3,063
|
)
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,868
|
)
|
|
|
(47
|
)%
|
|
|
(37,087
|
)
|
|
|
(45
|
)%
|
|
|
(12,781
|
)
|
|
|
34
|
%
|
Selling and marketing expenses
|
|
|
(8,042
|
)
|
|
|
(8
|
)%
|
|
|
(6,876
|
)
|
|
|
(9
|
)%
|
|
|
(1,166
|
)
|
|
|
17
|
%
|
General and administrative expenses
|
|
|
(15,734
|
)
|
|
|
(15
|
)%
|
|
|
(14,222
|
)
|
|
|
(17
|
)%
|
|
|
(1,512
|
)
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
32,066
|
|
|
|
30
|
%
|
|
|
24,230
|
|
|
|
29
|
%
|
|
|
7,836
|
|
|
|
32
|
%
|
Depreciation and amortization
|
|
|
(7,626
|
)
|
|
|
(7
|
)%
|
|
|
(1,917
|
)
|
|
|
(2
|
)%
|
|
|
(5,709
|
)
|
|
|
298
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
24,440
|
|
|
|
23
|
%
|
|
|
22,313
|
|
|
|
27
|
%
|
|
|
2,127
|
|
|
|
10
|
%
|
Interest expense, net
|
|
|
(630
|
)
|
|
|
|
|
|
|
(934
|
)
|
|
|
(1
|
)%
|
|
|
304
|
|
|
|
(33
|
)%
|
Interest income
|
|
|
1,138
|
|
|
|
1
|
%
|
|
|
580
|
|
|
|
1
|
%
|
|
|
558
|
|
|
|
96
|
%
|
Foreign currency transaction
(losses) gains, net
|
|
|
(170
|
)
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
(302
|
)
|
|
|
(229
|
)%
|
Other income, net
|
|
|
1,330
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
1,330
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
26,108
|
|
|
|
25
|
%
|
|
$
|
22,091
|
|
|
|
27
|
%
|
|
$
|
4,017
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
In accordance with accounting principles generally accepted in
the United States, we translated Nextel Argentinas results
of operations using the average exchange rates for the six and
three months ended June 30, 2007 and 2006. The average
exchange rates of the Argentine peso for the six and three
months ended June 30, 2007 depreciated against the
U.S. dollar by 1% from the same periods in 2006. As a
result, the components of Nextel Argentinas results of
operations for the six and three months ended June 30, 2007
after translation into U.S. dollars reflect slightly lower
increases than would have occurred if it were not for the impact
of the depreciation in the average value of the peso.
The $41.2 million, or 28%, and $20.3 million, or 26%,
increases in service and other revenues from the six and three
months ended June 30, 2006 to the same periods in 2007 are
primarily a result of the following:
|
|
|
|
|
29% increases in the average number of digital handsets in
service, resulting primarily from growth in Nextel
Argentinas existing markets; and
|
|
|
|
$4.9 million, or 34%, and $2.5 million, or 33%,
increases in revenues generated from Nextel Argentinas
handset maintenance program due to a growth in the number of
Nextel Argentinas customers that are utilizing this
program.
|
41
The $19.1 million, or 37%, and $9.7 million, or 36%,
increases in cost of service from the six and three months ended
June 30, 2006 to the same periods in 2007 are principally a
result of the following:
|
|
|
|
|
$8.7 million, or 31%, and $4.3 million, or 29%,
increases in interconnect costs largely as a result of 19%
increases in interconnect system minutes of use, as well as an
increase in the proportion of mobile-to-mobile minutes of use,
which generally have higher per minute costs;
|
|
|
|
$6.6 million, or 60%, and $3.1 million, or 54%,
increases in service and repair costs largely due to increased
activity under Nextel Argentinas handset maintenance
program; and
|
|
|
|
$3.2 million, or 26%, and $1.6 million, or 26%,
increases in direct switch and transmitter and receiver site
costs, including spectrum license fees, due to a 16% increase in
the number of transmitter and receiver sites in service from
June 30, 2006 to June 30, 2007, as well as increases
in rental costs and municipal taxes per site.
|
The $5.3 million, or 28%, and $3.1 million, or 30%,
increases in cost of digital handset and accessory sales from
the six and three months ended June 30, 2006 to the same
periods in 2007 are primarily due to 25% and 22% increases in
handset sales, as well as 31% and 36% increases in handset
upgrades.
|
|
3.
|
Selling and
marketing expenses
|
The $2.3 million, or 18%, and $1.2 million, or 17%,
increases in selling and marketing expenses from the six and
three months ended June 30, 2006 to the same periods in
2007 are primarily due to $1.7 million, or 32%, and
$1.0 million, or 36%, increases in indirect commissions
principally resulting from 33% and 29% increases in handset
sales obtained through Nextel Argentinas external sales
channels.
|
|
4.
|
General and
administrative expenses
|
The $2.4 million, or 9%, and $1.5 million, or 11%,
increases in general and administrative expenses from the six
and three months ended June 30, 2006 to the same periods in
2007 are largely a result of $1.8 million, or 32%, and
$0.9 million, or 29%, increases in customer care expenses
resulting from an increase in customer care personnel necessary
to support a larger customer base.
|
|
5.
|
Depreciation
and amortization
|
The $7.4 million, or 98%, and $5.7 million, or 298%,
increases in depreciation and amortization from the six and
three months ended June 30, 2006 to the same periods in
2007 are primarily due to 33% increases in Nextel
Argentinas property, plant and equipment in service.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
83,490
|
|
|
|
93
|
%
|
|
$
|
62,629
|
|
|
|
94
|
%
|
|
$
|
20,861
|
|
|
|
33
|
%
|
Digital handset and accessory
revenues
|
|
|
5,881
|
|
|
|
7
|
%
|
|
|
3,834
|
|
|
|
6
|
%
|
|
|
2,047
|
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,371
|
|
|
|
100
|
%
|
|
|
66,463
|
|
|
|
100
|
%
|
|
|
22,908
|
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(32,635
|
)
|
|
|
(37
|
)%
|
|
|
(22,206
|
)
|
|
|
(33
|
)%
|
|
|
(10,429
|
)
|
|
|
47
|
%
|
Cost of digital handsets and
accessories
|
|
|
(13,831
|
)
|
|
|
(15
|
)%
|
|
|
(12,010
|
)
|
|
|
(18
|
)%
|
|
|
(1,821
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,466
|
)
|
|
|
(52
|
)%
|
|
|
(34,216
|
)
|
|
|
(51
|
)%
|
|
|
(12,250
|
)
|
|
|
36
|
%
|
Selling and marketing expenses
|
|
|
(9,323
|
)
|
|
|
(10
|
)%
|
|
|
(7,844
|
)
|
|
|
(12
|
)%
|
|
|
(1,479
|
)
|
|
|
19
|
%
|
General and administrative expenses
|
|
|
(15,709
|
)
|
|
|
(18
|
)%
|
|
|
(11,807
|
)
|
|
|
(18
|
)%
|
|
|
(3,902
|
)
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
17,873
|
|
|
|
20
|
%
|
|
|
12,596
|
|
|
|
19
|
%
|
|
|
5,277
|
|
|
|
42
|
%
|
Depreciation and amortization
|
|
|
(10,884
|
)
|
|
|
(12
|
)%
|
|
|
(5,343
|
)
|
|
|
(8
|
)%
|
|
|
(5,541
|
)
|
|
|
104
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6,989
|
|
|
|
8
|
%
|
|
|
7,253
|
|
|
|
11
|
%
|
|
|
(264
|
)
|
|
|
(4
|
)%
|
Interest expense, net
|
|
|
(67
|
)
|
|
|
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
5
|
|
|
|
(7
|
)%
|
Interest income
|
|
|
341
|
|
|
|
|
|
|
|
560
|
|
|
|
1
|
%
|
|
|
(219
|
)
|
|
|
(39
|
)%
|
Foreign currency transaction
gains, net
|
|
|
54
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
4
|
|
|
|
8
|
%
|
Other income, net
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
7,318
|
|
|
|
8
|
%
|
|
$
|
7,791
|
|
|
|
12
|
%
|
|
$
|
(473
|
)
|
|
|
(6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
42,555
|
|
|
|
93
|
%
|
|
$
|
32,113
|
|
|
|
94
|
%
|
|
$
|
10,442
|
|
|
|
33
|
%
|
Digital handset and accessory
revenues
|
|
|
3,063
|
|
|
|
7
|
%
|
|
|
1,982
|
|
|
|
6
|
%
|
|
|
1,081
|
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,618
|
|
|
|
100
|
%
|
|
|
34,095
|
|
|
|
100
|
%
|
|
|
11,523
|
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(16,745
|
)
|
|
|
(37
|
)%
|
|
|
(11,647
|
)
|
|
|
(34
|
)%
|
|
|
(5,098
|
)
|
|
|
44
|
%
|
Cost of digital handsets and
accessories
|
|
|
(7,163
|
)
|
|
|
(16
|
)%
|
|
|
(6,147
|
)
|
|
|
(18
|
)%
|
|
|
(1,016
|
)
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,908
|
)
|
|
|
(53
|
)%
|
|
|
(17,794
|
)
|
|
|
(52
|
)%
|
|
|
(6,114
|
)
|
|
|
34
|
%
|
Selling and marketing expenses
|
|
|
(5,173
|
)
|
|
|
(11
|
)%
|
|
|
(4,321
|
)
|
|
|
(13
|
)%
|
|
|
(852
|
)
|
|
|
20
|
%
|
General and administrative expenses
|
|
|
(7,744
|
)
|
|
|
(17
|
)%
|
|
|
(5,782
|
)
|
|
|
(17
|
)%
|
|
|
(1,962
|
)
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
8,793
|
|
|
|
19
|
%
|
|
|
6,198
|
|
|
|
18
|
%
|
|
|
2,595
|
|
|
|
42
|
%
|
Depreciation and amortization
|
|
|
(5,596
|
)
|
|
|
(12
|
)%
|
|
|
(2,833
|
)
|
|
|
(8
|
)%
|
|
|
(2,763
|
)
|
|
|
98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
3,197
|
|
|
|
7
|
%
|
|
|
3,365
|
|
|
|
10
|
%
|
|
|
(168
|
)
|
|
|
(5
|
)%
|
Interest expense, net
|
|
|
(30
|
)
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
6
|
|
|
|
(17
|
)%
|
Interest income
|
|
|
144
|
|
|
|
|
|
|
|
269
|
|
|
|
1
|
%
|
|
|
(125
|
)
|
|
|
(46
|
)%
|
Foreign currency transaction
gains, net
|
|
|
10
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
1
|
|
|
|
11
|
%
|
Other income, net
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
3,322
|
|
|
|
7
|
%
|
|
$
|
3,607
|
|
|
|
11
|
%
|
|
$
|
(285
|
)
|
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Because the U.S. dollar is the functional currency in Peru,
Nextel Perus results of operations are not significantly
impacted by changes in the U.S. dollar to Peruvian sol
exchange rate.
The $20.9 million, or 33%, and $10.4 million, or 33%,
increases in service and other revenues from the six and three
months ended June 30, 2006 to the same periods in 2007 are
primarily due to 37% and 36% increases in the average number of
digital handsets in service, partially offset by decreases in
average revenue per handset mainly resulting from lower rate
plans implemented in response to increased competition.
The $10.4 million, or 47%, and $5.1 million, or 44%,
increases in cost of service from the six and three months ended
June 30, 2006 to the same periods in 2007 are largely a
result of the following:
|
|
|
|
|
$7.3 million, or 53%, and $3.3 million, or 46%,
increases in interconnect costs largely as a result of 37% and
31% increases in interconnect minutes of use, as well as an
increase in the proportion of mobile-to-mobile minutes of use,
which generally have higher per minute costs; and
|
|
|
|
$1.6 million, or 30%, and $0.8 million, or 29%,
increases in direct switch and transmitter and receiver site
costs due to a 16% increase in the number of transmitter and
receiver sites in service from June 30, 2006 to
June 30, 2007.
|
44
The $1.8 million, or 15%, and $1.0 million, or 17%,
increases in cost of digital handsets and accessories from the
six and three months ended June 30, 2006 to the same
periods in 2007 are largely a result of 25% and 24% increases in
handset sales.
|
|
3.
|
Selling and
marketing expenses
|
The $1.5 million, or 19%, and $0.9 million, or 20%,
increases in selling and marketing expenses from the six and
three months ended June 30, 2006 to the same periods in
2007 are primarily due to $1.0 million, or 24%, and
$0.5 million, or 24%, increases in direct commissions and
payroll expenses principally due to 16% and 8% increases in
handset sales by Nextel Perus sales personnel.
|
|
4.
|
General and
administrative expenses
|
The $3.9 million, or 33%, and $2.0 million, or 34%,
increases in general and administrative expenses from the six
and three months ended June 30, 2006 to the same periods in
2007 are primarily due to the following:
|
|
|
|
|
$1.3 million, or 30%, and $0.8 million, or 34%,
increases in general corporate costs due to increases in general
and administrative personnel necessary to support an increase in
information technology infrastructure associated with the
continued expansion of Nextel Perus business;
|
|
|
|
$1.0 million, or 22%, and $0.6 million, or 24%,
increases in customer care expenses primarily due to increases
in customer care and billing operations personnel caused by the
need to support a growing customer base; and
|
|
|
|
$0.9 million, or 251%, and $0.2 million, or 147%,
increases in bad debt expenses. Bad debt as a percentage of
revenue increased from 0.52% for the six months ended
June 30, 2006 to 1.35% for the same period in 2007 and from
0.49% for the three months ended June 30, 2006 to 0.90% for
the same period in 2007, resulting from the introduction of
certain rate plans that are available to customers with slightly
higher credit risk.
|
|
|
5.
|
Depreciation
and amortization
|
The $5.5 million, or 104%, and $2.8 million, or 98%,
increases in depreciation and amortization from the six and
three months ended June 30, 2006 to the same periods in
2007 are primarily due to increased depreciation resulting from
a 61% increase in Nextel Perus property, plant and
equipment, as well as additional depreciation related to the
early retirement of certain network equipment.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
and other
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,382
|
|
|
|
100
|
%
|
|
$
|
1,369
|
|
|
|
100
|
%
|
|
$
|
13
|
|
|
|
1
|
%
|
Digital handset and accessory
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,382
|
|
|
|
100
|
%
|
|
|
1,369
|
|
|
|
100
|
%
|
|
|
13
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(1,064
|
)
|
|
|
(77
|
)%
|
|
|
(744
|
)
|
|
|
(54
|
)%
|
|
|
(320
|
)
|
|
|
43
|
%
|
Cost of digital handsets and
accessories
|
|
|
(560
|
)
|
|
|
(41
|
)%
|
|
|
|
|
|
|
|
|
|
|
(560
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,624
|
)
|
|
|
(118
|
)%
|
|
|
(744
|
)
|
|
|
(54
|
)%
|
|
|
(880
|
)
|
|
|
118
|
%
|
Selling and marketing expenses
|
|
|
(4,744
|
)
|
|
|
NM
|
|
|
|
(3,240
|
)
|
|
|
(237
|
)%
|
|
|
(1,504
|
)
|
|
|
46
|
%
|
General and administrative expenses
|
|
|
(64,193
|
)
|
|
|
NM
|
|
|
|
(43,088
|
)
|
|
|
NM
|
|
|
|
(21,105
|
)
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(69,179
|
)
|
|
|
NM
|
|
|
|
(45,703
|
)
|
|
|
NM
|
|
|
|
(23,476
|
)
|
|
|
51
|
%
|
Management fee
|
|
|
19,800
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
19,800
|
|
|
|
NM
|
|
Depreciation and amortization
|
|
|
(3,270
|
)
|
|
|
(237
|
)%
|
|
|
(1,709
|
)
|
|
|
(125
|
)%
|
|
|
(1,561
|
)
|
|
|
91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(52,649
|
)
|
|
|
NM
|
|
|
|
(47,412
|
)
|
|
|
NM
|
|
|
|
(5,237
|
)
|
|
|
11
|
%
|
Interest expense, net
|
|
|
(14,335
|
)
|
|
|
NM
|
|
|
|
(12,485
|
)
|
|
|
NM
|
|
|
|
(1,850
|
)
|
|
|
15
|
%
|
Interest income
|
|
|
12,279
|
|
|
|
NM
|
|
|
|
6,531
|
|
|
|
NM
|
|
|
|
5,748
|
|
|
|
88
|
%
|
Foreign currency transaction
losses, net
|
|
|
(8
|
)
|
|
|
(1
|
)%
|
|
|
(124
|
)
|
|
|
(9
|
)%
|
|
|
116
|
|
|
|
(94
|
)%
|
Other expense, net
|
|
|
(1,651
|
)
|
|
|
(119
|
)%
|
|
|
(787
|
)
|
|
|
(57
|
)%
|
|
|
(864
|
)
|
|
|
110
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(56,364
|
)
|
|
|
NM
|
|
|
$
|
(54,277
|
)
|
|
|
NM
|
|
|
$
|
(2,087
|
)
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
and other
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
2006
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
817
|
|
|
|
100
|
%
|
|
$
|
829
|
|
|
|
100
|
%
|
|
$
|
(12
|
)
|
|
|
(1
|
)%
|
Digital handset and accessory
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
817
|
|
|
|
100
|
%
|
|
|
829
|
|
|
|
100
|
%
|
|
|
(12
|
)
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of
depreciation and amortization included below)
|
|
|
(570
|
)
|
|
|
(70
|
)%
|
|
|
(418
|
)
|
|
|
(50
|
)%
|
|
|
(152
|
)
|
|
|
36
|
%
|
Cost of digital handsets and
accessories
|
|
|
(352
|
)
|
|
|
(43
|
)%
|
|
|
|
|
|
|
|
|
|
|
(352
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(922
|
)
|
|
|
(113
|
)%
|
|
|
(418
|
)
|
|
|
(50
|
)%
|
|
|
(504
|
)
|
|
|
121
|
%
|
Selling and marketing expenses
|
|
|
(2,403
|
)
|
|
|
(294
|
)%
|
|
|
(1,932
|
)
|
|
|
(233
|
)%
|
|
|
(471
|
)
|
|
|
24
|
%
|
General and administrative expenses
|
|
|
(35,815
|
)
|
|
|
NM
|
|
|
|
(23,125
|
)
|
|
|
NM
|
|
|
|
(12,690
|
)
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(38,323
|
)
|
|
|
NM
|
|
|
|
(24,646
|
)
|
|
|
NM
|
|
|
|
(13,677
|
)
|
|
|
55
|
%
|
Management fee
|
|
|
9,900
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
9,900
|
|
|
|
NM
|
|
Depreciation and amortization
|
|
|
(1,634
|
)
|
|
|
(200
|
)%
|
|
|
(955
|
)
|
|
|
(115
|
)%
|
|
|
(679
|
)
|
|
|
71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(30,057
|
)
|
|
|
NM
|
|
|
|
(25,601
|
)
|
|
|
NM
|
|
|
|
(4,456
|
)
|
|
|
17
|
%
|
Interest expense, net
|
|
|
(8,872
|
)
|
|
|
NM
|
|
|
|
(6,226
|
)
|
|
|
NM
|
|
|
|
(2,646
|
)
|
|
|
42
|
%
|
Interest income
|
|
|
8,095
|
|
|
|
NM
|
|
|
|
3,308
|
|
|
|
399
|
%
|
|
|
4,787
|
|
|
|
145
|
%
|
Foreign currency transaction
losses, net
|
|
|
(31
|
)
|
|
|
(4
|
)%
|
|
|
(121
|
)
|
|
|
(15
|
)%
|
|
|
90
|
|
|
|
(74
|
)%
|
Other expense, net
|
|
|
(1,658
|
)
|
|
|
(203
|
)%
|
|
|
(671
|
)
|
|
|
(81
|
)%
|
|
|
(987
|
)
|
|
|
(147
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(32,523
|
)
|
|
|
NM
|
|
|
$
|
(29,311
|
)
|
|
|
NM
|
|
|
$
|
(3,212
|
)
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
For the six and three months ended June 30, 2007, corporate
and other operating revenues and cost of revenues primarily
represent the results of both digital and analog operations
reported by Nextel Chile as a result of the launch of digital
services in Chile during the fourth quarter of 2006. We plan to
significantly expand and enhance our network in Chile over the
next several years, which will require additional investments in
capital expenditures and will likely result in a modest level of
start-up
losses. For the six and three months ended June 30, 2006,
corporate and other operating revenues and cost of revenues
primarily represent the results of analog operations reported by
Nextel Chile.
|
|
1.
|
General and
administrative expenses
|
The $21.1 million, or 49%, and $12.7 million, or 55%,
increases in general and administrative expenses from the six
and three months ended June 30, 2006 to the six and three
months ended June 30, 2007 are primarily due to
$8.9 million and $5.1 million increases in stock
option expense, $3.0 million and $0.4 million
increases in share-based payment expense for restricted stock,
increases in corporate payroll and related expenses and
increases in outside service costs, specifically for consulting
services.
47
For the six and three months ended June 30, 2007, we
charged management fees of $19.8 million and
$9.9 million to Nextel Mexico for services rendered by
corporate management. Although we have been charging this fee to
Nextel Mexico for several years, we began reporting this
management fee as a separate line item in our segment reporting
information beginning January 1, 2007.
The $1.9 million, or 15%, and $2.6 million, or 42%,
increases in net interest expense from the six and three months
ended June 30, 2006 to the six and three months ended
June 30, 2007 are substantially the result of interest
related to our 3.125% convertible notes that we issued in the
second quarter of 2007.
The $5.7 million, or 88%, and $4.8 million, or 145%,
increases in interest income from the six and three months ended
June 30, 2006 to the same periods in 2007 are primarily due
to interest earned on the proceeds received from the issuance of
our 3.125% convertible notes in the second quarter of 2007.
Liquidity
and Capital Resources
We had a working capital surplus of $1,533.9 million as of
June 30, 2007, an $893.9 million increase compared to
the working capital surplus of $640.0 million as of
December 31, 2006. The increase in working capital, which
is defined as total current assets less total current
liabilities, primarily resulted from $1,177.2 million in
net cash proceeds we received from the issuance of
$1,200.0 million in 3.125% convertible notes, partially
offset by $330.0 million in cash we used to purchase shares
of our common stock.
We recognized net income of $168.2 million and
$84.1 million for the six and three months ended
June 30, 2007 and $120.9 million and
$55.9 million for the six and three months ended
June 30, 2006. During the six and three months ended
June 30, 2007 and 2006, our operating revenues more than
offset our operating expenses, excluding depreciation and
amortization, and cash capital expenditures.
Cash
Flows
Our operating activities provided us with $227.9 million of
cash during the six months ended June 30, 2007, a
$66.4 million, or 41%, increase compared to the six months
ended June 30, 2006. This increase in generation of cash is
primarily due to higher operating income resulting from our
profitable growth strategy, partially offset by a significant
increase in working capital investments, due to the continued
growth of our business, and cash we paid for income taxes due to
higher levels of book income, primarily in Mexico.
We used $377.3 million of cash in our investing activities
during the six months ended June 30, 2007, a
$105.2 million, or 39%, increase from the six months ended
June 30, 2006 primarily due to increased capital
expenditures and acquisition costs. Cash capital expenditures
increased $95.3 million from $265.8 million during the
six months ended June 30, 2006 to $361.1 million
during the six months ended June 30, 2007, primarily due to
the continued build-out of our digital mobile networks. We paid
$15.4 million in cash for acquisitions and purchases of
spectrum licenses during the six months ended June 30, 2007
compared to $1.7 million during the six months ended
June 30, 2006 primarily due to Nextel Brazils renewal
of licenses for 11,900 channels of 800 MHz spectrum during
the first quarter of 2007.
Our financing activities provided us with $923.7 million of
cash during the six months ended June 30, 2007, an
$811.8 million increase from the six months ended
June 30, 2006, primarily due to a $1,200.0 million in
cash received from the issuance of our 3.125% convertible notes
and a $32.9 million increase in cash received from stock
option exercises, partially offset by $330.0 million in
cash used for the repurchase of our common stock and
$59.4 million in borrowings under our syndicated loan
facility in 2006.
48
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, cash flows generated by our
operating companies and external financial sources that may be
available. As of June 30, 2007, our capital resources
included $1,482.2 million of cash and cash equivalents. 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 grow our customer base; and
|
|
|
|
fluctuations in foreign exchange rates.
|
Capital Needs and Contractual
Obligations. We currently anticipate that our
future capital needs will principally consist of funds required
for:
|
|
|
|
|
operating expenses relating to our digital mobile networks;
|
|
|
|
capital expenditures to expand and enhance our digital mobile
networks, as discussed below under Capital
Expenditures;
|
|
|
|
future spectrum or other related purchases;
|
|
|
|
debt service requirements, including tower financing and capital
lease obligations;
|
|
|
|
cash taxes; and
|
|
|
|
other general corporate expenditures.
|
The following table sets forth the amounts and timing of
contractual payments for our most significant contractual
obligations determined as of June 30, 2007. The information
in the table reflects future unconditional payments and is based
upon, among other things, the current terms of the relevant
agreements, appropriate classification of items under accounting
principles generally accepted in the United States that are
currently in effect and certain assumptions, such as future
interest rates. Future events could cause actual payments to
differ significantly from these amounts. See Forward
Looking Statements. Except as required by law, we disclaim
any obligation to modify or update the information contained in
the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
Contractual Obligations
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Convertible notes(1)
|
|
$
|
55,750
|
|
|
$
|
111,500
|
|
|
$
|
1,311,500
|
|
|
$
|
969,688
|
|
|
$
|
2,448,438
|
|
Tower financing obligations(1)
|
|
|
42,264
|
|
|
|
84,523
|
|
|
|
84,516
|
|
|
|
262,836
|
|
|
|
474,139
|
|
Mexico syndicated loan facility(1)
|
|
|
63,689
|
|
|
|
122,559
|
|
|
|
168,877
|
|
|
|
|
|
|
|
355,125
|
|
Capital lease obligations(2)
|
|
|
11,913
|
|
|
|
24,547
|
|
|
|
23,921
|
|
|
|
101,965
|
|
|
|
162,346
|
|
Spectrum fees(3)
|
|
|
13,839
|
|
|
|
27,677
|
|
|
|
27,677
|
|
|
|
172,982
|
|
|
|
242,175
|
|
Spectrum license financing(4)
|
|
|
2,117
|
|
|
|
4,233
|
|
|
|
4,233
|
|
|
|
2,116
|
|
|
|
12,699
|
|
Operating leases(5)
|
|
|
99,742
|
|
|
|
173,923
|
|
|
|
125,162
|
|
|
|
160,608
|
|
|
|
559,435
|
|
Purchase obligations(6)
|
|
|
570,013
|
|
|
|
53,169
|
|
|
|
39,744
|
|
|
|
|
|
|
|
662,926
|
|
Other long-term obligations(7)
|
|
|
5,950
|
|
|
|
16,890
|
|
|
|
15,616
|
|
|
|
159,234
|
|
|
|
197,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual commitments
|
|
$
|
865,277
|
|
|
$
|
619,021
|
|
|
$
|
1,801,246
|
|
|
$
|
1,829,429
|
|
|
$
|
5,114,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts include estimated principal and interest payments
over the full term of the obligation based on our expectations
as to future interest rates, assuming the current payment
schedule. The future payments due for |
49
|
|
|
|
|
convertible notes include the amounts previously due as of
June 30, 2007 under the $300.0 million principal
amount of our 2.875% convertible notes that were tendered in
July 2007. |
|
(2) |
|
These amounts represent principal and interest payments due
under our co-location agreements to American Tower and our
existing corporate aircraft lease. The amounts related to our
existing aircraft lease exclude amounts that are contingently
due in the event of our default under the lease, but do include
remaining amounts due under the letter of credit provided for
our new corporate aircraft. |
|
(3) |
|
These amounts do not include variable fees based on certain
operating revenues and are subject to increases in the Mexican
Consumer Pricing Index. |
|
(4) |
|
These amounts represent payments related to spectrum license
financing in Brazil. |
|
(5) |
|
These amounts principally include future lease costs related to
our transmitter and receiver sites and switches and office
facilities. |
|
(6) |
|
These amounts include maximum contractual purchase obligations
under various agreements with our vendors, as well as estimated
payments related to spectrum obligations in Argentina. |
|
(7) |
|
These amounts include our current estimates of asset retirement
obligations based on our expectations as to future retirement
costs, inflation rates and timing of retirements, as well as
amounts related to our FIN 48 liabilities. |
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$341.4 million for the six months ended June 30, 2007
compared to $326.9 million for the six months ended
June 30, 2006. Almost half of our total capital investment
was attributable to our network site upgrades for additional
capacity and improved quality related to our expected growth in
existing markets. Our capital expenditures related to the
expansion of our coverage areas as a percentage of our total
capital expenditures is significantly lower than the levels we
invested during the same period last year, and we expect this
trend to continue. In the future, we expect to finance our
capital spending using the most effective combination of cash
from operations, cash on hand and proceeds from external
financing that may become available. Our capital spending is
expected to be driven by several factors, including:
|
|
|
|
|
the expansion of the coverage of our digital mobile networks to
new market areas, primarily in Brazil and Chile;
|
|
|
|
the construction of additional transmitter and receiver sites to
increase system capacity and maintain system quality and the
installation of related switching equipment in some of our
existing market coverage areas;
|
|
|
|
the enhancement of our digital mobile network coverage around
some major market areas;
|
|
|
|
future minimum build-out requirements related to spectrum that
we acquired or are in the process of acquiring in Mexico,
Argentina and Peru;
|
|
|
|
potential funding of future technology initiatives; and
|
|
|
|
non-network
related information technology projects.
|
Our future capital expenditures will be significantly affected
by future technology improvements and technology choices.
Motorola and Sprint Nextel Corporation have developed and
deployed a significant technology upgrade to the iDEN digital
mobile network, the 6:1 voice coder software upgrade, which is
designed to increase the capacity of iDEN networks for
interconnect calls. Beginning in 2004, we started selling
handsets that can operate on the new 6:1 voice coder, and we
have deployed the related network software modifications that
are necessary to utilize this technology in some of our
networks. This network software allows us to adjust the extent
to which we utilize the 6:1 voice coder technology as required
to meet our network capacity needs. This software is designed to
increase our voice capacity for interconnect calls without
requiring the investment in additional network infrastructure
equipment. However, if there are substantial delays in realizing
the benefits of the 6:1 voice coder or if the technology does
not perform satisfactorily, we could be required to invest
significant additional capital in our infrastructure to satisfy
our network capacity needs. See Forward Looking
Statements.
Future Outlook. We believe that our
current business plan, which includes significant network
expansions in Brazil and Chile, will not require any additional
external funding, and we will be able to operate and grow our
business while servicing our debt obligations using a
combination of cash on hand and funds generated by our
50
business. We may, nonetheless, elect to meet a portion of our
funding needs with funds provided from external sources in order
to implement a more efficient capital structure or benefit from
financing that is available on favorable terms. Our revenues are
primarily denominated in foreign currencies. We expect that if
current foreign currency exchange rates do not significantly
adversely change, we will continue to generate net income for
the foreseeable future. See Forward Looking
Statements.
In making our assessments of a fully funded business plan and
net income, we have considered:
|
|
|
|
|
cash and cash equivalents on hand and available to fund our
operations;
|
|
|
|
expected cash flows from operations;
|
|
|
|
the anticipated level of capital expenditures;
|
|
|
|
the anticipated level of spectrum acquisitions;
|
|
|
|
our scheduled debt service; and
|
|
|
|
income taxes.
|
If our business plans change, including as a result of changes
in technology, or if we decide to expand into new markets or
further in our existing markets, as a result of the construction
of additional portions of our networks or the acquisition of
competitors or others, or if economic conditions in any of our
markets change generally, or competitive practices in the mobile
wireless telecommunications industry change materially from
those currently prevailing or from those now anticipated, or if
other presently unexpected circumstances arise that have a
material effect on the cash flow or profitability of our mobile
wireless business, then the anticipated cash needs of our
business as well as the conclusions presented herein as to the
adequacy of the available sources of cash and timing on our
ability to generate net income could change significantly. Any
of these events or circumstances could involve significant
additional funding needs in excess of the identified currently
available sources, and could require us to raise additional
capital to meet those needs. In addition, we continue to assess
the opportunities to raise additional funding on attractive
terms and conditions and at times that do not involve any of
these events or circumstances and may do so if the opportunity
presents itself. However, our ability to seek additional
capital, if necessary, is subject to a variety of additional
factors that we cannot presently predict with certainty,
including:
|
|
|
|
|
the commercial success of our operations;
|
|
|
|
the volatility and demand of the capital markets; and
|
|
|
|
the future market prices of our securities.
|
Forward
Looking Statements
Safe Harbor Statement under the Private
Securities Litigation Reform Act of
1995. Certain statements made in this
quarterly report on
Form 10-Q
are not historical or current facts, but deal with potential
future circumstances and developments. They can be identified by
the use of forward-looking words such as believes,
expects, intends, plans,
may, will, would,
could, should or anticipates
or other comparable words, or by discussions of strategy that
involve risks and uncertainties. We caution you that these
forward-looking statements are only predictions, which are
subject to risks and uncertainties, including technical
uncertainties, financial variations, changes in the regulatory
environment, industry growth and trend predictions. We have
attempted to identify, in context, some of the factors that we
currently believe may cause actual future experience and results
to differ from our current expectations regarding the relevant
matter or subject area. The operation and results of our
wireless communications business also may be subject to the
effects of other risks and uncertainties in addition to the
other qualifying factors identified in this Item, including, but
not limited to:
|
|
|
|
|
our ability to meet the operating goals established by our
business plan;
|
|
|
|
general economic conditions in Latin America and in the market
segments that we are targeting for our digital mobile services;
|
51
|
|
|
|
|
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;
|
|
|
|
substantive terms of any international financial aid package
that may be made available to any country in which our operating
companies conduct business;
|
|
|
|
the impact of foreign exchange volatility in our markets as
compared to the U.S. dollar and related currency
depreciation in countries in which our operating companies
conduct business;
|
|
|
|
reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of digital two-way mobile data or Internet
connectivity services in our markets;
|
|
|
|
the availability of adequate quantities of system infrastructure
and subscriber equipment and components at reasonable pricing to
meet our service deployment and marketing plans and customer
demand;
|
|
|
|
Motorolas ability and willingness to provide handsets and
related equipment and software applications or to develop new
technologies or features for us, including the timely
development and availability of new handsets with expanded
applications and features;
|
|
|
|
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;
|
|
|
|
the success of efforts to improve and satisfactorily address any
issues relating to our digital mobile network performance;
|
|
|
|
future legislation or regulatory actions relating to our SMR
services, other wireless communication services or
telecommunications generally;
|
|
|
|
the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our digital mobile network business;
|
|
|
|
the quality and price of similar or comparable wireless
communications services offered or to be offered by our
competitors, including providers of cellular services and
personal communications services;
|
|
|
|
market acceptance of our new service offerings;
|
|
|
|
our ability to access sufficient debt or equity capital to meet
any future operating and financial needs; and
|
|
|
|
other risks and uncertainties described in this quarterly report
on
Form 10-Q
and from time to time in our other reports filed with the
Securities and Exchange Commission, including in our 2006 annual
report on
Form 10-K.
|
Effect of
New Accounting Standards
In June 2006, the Financial Accounting Standards Board, or the
FASB, ratified the consensus of the Emerging Issues Task Force,
or EITF, on Issue
06-3,
How Sales Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That Is, Gross Versus Net Presentation), or
EITF 06-3.
EITF 06-3 states
that a company should disclose its accounting policy (gross or
net presentation) regarding presentation of sales and other
similar taxes. If taxes included in gross revenues are
significant, a company should disclose the amount of such taxes
for each period for which an income statement is presented.
EITF 06-3
is effective for financial reports in interim and annual
reporting periods beginning after December 15, 2006. We
currently disclose our policy with regard to these types of
taxes in our revenue recognition policy; however we do not
consider the amounts of these taxes significant for disclosure.
Therefore, the adoption of
EITF 06-3
did not have a material impact on our consolidated financial
statements.
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109, or
FIN 48. FIN 48 clarifies the accounting for
uncertainty in income tax positions and is effective beginning
January 1, 2007. FIN 48 provides that the financial
statement effects of an income tax position can only be
recognized when, based on the technical merits, it is
more-likely-than-not that the position
52
will be sustained upon examination. The cumulative effect of
applying the provisions of FIN 48 is required to be
reported as an adjustment to the opening balance of retained
earnings for that fiscal year. The adoption of FIN 48 in
the first quarter of 2007 resulted in a $5.2 million
decrease to our retained earnings. See Note 6 for more
information.
In September 2006, the FASB issued Statement of Financial
Accounting Standards, or SFAS, No. 157, Fair
Value Measurement, or SFAS 157, which provides
guidance for using fair value to measure assets and liabilities
when required for recognition or disclosure purposes.
SFAS 157 is intended to make the measurement of fair value
more consistent and comparable and improve disclosures about
these measures. Specifically, SFAS 157 (1) clarifies
the principle that fair value should be based on the assumptions
market participants would use when pricing the asset or
liability, (2) establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions,
(3) clarifies the information required to be used to
measure fair value, (4) determines the frequency of fair
value measures and (5) requires companies to make expanded
disclosures about the methods and assumptions used to measure
fair value and the fair value measurements effect on
earnings. However, SFAS 157 does not expand the use of fair
value to any new circumstances or determine when fair value
should be used in the financial statements. SFAS 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods
within those fiscal years, with some exceptions. SFAS 157
is to be applied prospectively as of the first interim period
for the fiscal year in which it is initially adopted, except for
a limited form of retrospective application for some specific
items. We are currently evaluating the impact that SFAS 157
may have on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, Including an Amendment of FASB Statement
No. 115. SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other
items at fair value that are not currently required to be
measured at fair value. Unrealized gains and losses on items for
which the fair value option has been elected are reported in
earnings. SFAS No. 159 does not affect any existing
accounting literature that requires certain assets and
liabilities to be carried at fair value. SFAS No. 159
is effective for fiscal years beginning after November 15,
2007. We are currently evaluating the impact that
SFAS No. 159 may have on our consolidated financial
statements.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Our revenues are primarily denominated in foreign currencies,
while a significant portion of our operations are financed in
U.S. dollars through our convertible notes and a portion of
our syndicated loan facility in Mexico. As a result,
fluctuations in exchange rates relative to the U.S. dollar
expose us to foreign currency exchange risks. These risks
include the impact of translating our local currency reported
earnings into U.S. dollars when the U.S. dollar
strengthens against the local currencies of our foreign
operations. In addition, Nextel Mexico, Nextel Brazil, Nextel
Argentina and Nextel Chile purchase some capital assets and the
majority of handsets in U.S. dollars, but record the
related revenue generated from their operations in local
currency.
We enter into derivative transactions only for hedging or risk
management purposes. We have not and will not enter into any
derivative transactions for speculative or profit generating
purposes. In the past, Nextel Mexico entered into hedge
arrangements to reduce its foreign currency transaction risk
associated with a portion of its U.S. dollar-forecasted
capital expenditures and handset purchases. As of June 30,
2007, we have not entered into any derivative transactions to
hedge our foreign currency transaction risk during 2007 or any
future period.
Interest rate changes expose our fixed rate long-term borrowings
to changes in fair value and expose our variable rate long-term
borrowings to changes in future cash flows. As of June 30,
2007, $2,162.3 million, or 91%, of our total consolidated
debt was fixed rate debt, and the remaining $210.3 million,
or 9%, of our total consolidated debt was variable rate debt. In
July 2005, Nextel Mexico entered into an interest rate swap
agreement to hedge the variability of future cash flows
associated with the $31.0 million Mexican peso-denominated
variable interest rate portion of its $250.0 million
syndicated loan facility. Under the interest rate swap, Nextel
Mexico agreed to exchange the difference between the variable
Mexican reference rate, TIIE, and a fixed interest rate, based
on a notional amount of $31.4 million. The interest rate
swap fixed the amount of interest expense associated with this
portion of the Mexico syndicated loan facility effective
August 31, 2005.
The table below presents principal amounts, related interest
rates by year of maturity and aggregate amounts as of
June 30, 2007 for our fixed rate debt obligations,
including our convertible notes, our syndicated loan facility in
53
Mexico and our tower financing obligations, the notional amounts
of our purchased call options and written put options and the
fair value of our interest rate swap.
This table includes the amounts previously due as of
June 30, 2007 under the $300.0 million principal
amount of our 2.875% convertible notes that were tendered in
July 2007. We determined the fair values included in this
section based on:
|
|
|
|
|
quoted market prices for our convertible notes;
|
|
|
|
carrying values for our tower financing obligations and
syndicated loan facility as interest rates were set recently
when we entered into these transactions; and
|
|
|
|
market values as determined by an independent third party
investment banking firm for our purchased call options, written
put options and interest rate swap.
|
The changes in the fair values of our consolidated debt compared
to their fair values as of December 31, 2006 reflect
changes in applicable market conditions. All of the information
in the table is presented in U.S. dollar equivalents, which
is our reporting currency. The actual cash flows associated with
our consolidated long-term debt are denominated in
U.S. dollars (US$), Mexican pesos (MP) and Brazilian reais
(BR).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
1 Year
|
|
|
2 Years
|
|
|
3 Years
|
|
|
4 Years
|
|
|
5 Years
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
Fair Value
|
|
|
|
(dollars in thousands)
|
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate (US$)
|
|
$
|
1,393
|
|
|
$
|
1,781
|
|
|
$
|
1,872
|
|
|
$
|
1,885
|
|
|
$
|
1,201,450
|
|
|
$
|
669,192
|
|
|
$
|
1,877,573
|
|
|
$
|
2,780,196
|
|
|
$
|
678,202
|
|
|
$
|
1,258,202
|
|
Average Interest Rate
|
|
|
10.0
|
%
|
|
|
10.0
|
%
|
|
|
10.0
|
%
|
|
|
10.0
|
%
|
|
|
3.1
|
%
|
|
|
3.0
|
%
|
|
|
3.1
|
%
|
|
|
|
|
|
|
3.1
|
%
|
|
|
|
|
Fixed Rate (MP)
|
|
$
|
27,181
|
|
|
$
|
40,573
|
|
|
$
|
23,155
|
|
|
$
|
5,882
|
|
|
$
|
6,971
|
|
|
$
|
92,207
|
|
|
$
|
195,969
|
|
|
$
|
195,969
|
|
|
$
|
189,867
|
|
|
$
|
189,867
|
|
Average Interest Rate
|
|
|
12.1
|
%
|
|
|
11.9
|
%
|
|
|
12.5
|
%
|
|
|
16.7
|
%
|
|
|
16.7
|
%
|
|
|
16.4
|
%
|
|
|
14.5
|
%
|
|
|
|
|
|
|
14.4
|
%
|
|
|
|
|
Fixed Rate (BR)
|
|
$
|
3,038
|
|
|
$
|
3,379
|
|
|
$
|
3,813
|
|
|
$
|
4,384
|
|
|
$
|
5,129
|
|
|
$
|
68,987
|
|
|
$
|
88,730
|
|
|
$
|
88,730
|
|
|
$
|
75,589
|
|
|
$
|
75,589
|
|
Average Interest Rate
|
|
|
17.5
|
%
|
|
|
18.4
|
%
|
|
|
19.3
|
%
|
|
|
20.2
|
%
|
|
|
21.1
|
%
|
|
|
25.9
|
%
|
|
|
24.5
|
%
|
|
|
|
|
|
|
25.5
|
%
|
|
|
|
|
Variable Rate (US$)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
156,600
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
156,600
|
|
|
$
|
156,600
|
|
|
$
|
156,600
|
|
|
$
|
156,600
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
6.7
|
%
|
|
|
|
|
Variable Rate (MP)
|
|
$
|
16,250
|
|
|
$
|
25,000
|
|
|
$
|
12,501
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
53,751
|
|
|
$
|
53,751
|
|
|
$
|
57,423
|
|
|
$
|
57,423
|
|
Average Interest Rate
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
8.5
|
%
|
|
|
|
|
Interest Rate
Swap:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
|
|
$
|
8,587
|
|
|
$
|
13,210
|
|
|
$
|
6,605
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
28,402
|
|
|
$
|
(867
|
)
|
|
$
|
29,128
|
|
|
$
|
(1,406
|
)
|
Average Pay Rate
|
|
|
10.8
|
%
|
|
|
10.8
|
%
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
%
|
|
|
|
|
|
|
10.8
|
%
|
|
|
|
|
Average Receive Rate
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
8.5
|
%
|
|
|
|
|
|
|
Item 4.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods required by the Securities and
Exchange Commission and that such information is accumulated and
communicated to the Companys management, including our
chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
As of the end of the period covered in this report, an
evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures was carried out under the
supervision and with the participation of our management teams
in the United States and in our operating companies, including
our chief executive officer and chief financial officer. Based
on and as of the date of such evaluation, our chief executive
officer and chief financial officer concluded that the design
and operation of our disclosure controls and procedures were
effective.
Changes
in Internal Control over Financial Reporting
There have been no changes in the Companys internal
control over financial reporting during the most recently
completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Companys
internal control over financial reporting.
54
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings.
|
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
For information on our various loss contingencies, see
Note 5 to our condensed consolidated financial statements
above.
There have been no material changes in our risk factors from
those disclosed in our 2006 annual report on
Form 10-K.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
(c) On May 29, 2007, our Board of Directors
authorized, and we announced, a new program to repurchase shares
of our common stock for cash. The Board approved the repurchase
of shares having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. The program has no specific end date. The following
table presents details of our repurchases during the three
months ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Value of Shares That
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
May Yet Be
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Part of Publicly
|
|
|
Purchased Under the
|
|
Period
|
|
Shares Purchased
|
|
|
Per Share
|
|
|
Announced Plan
|
|
|
Plan
|
|
|
April 1, 2007
April 30, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
May 1, 2007
May 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1, 2007
June 30, 2007
|
|
|
4,043,725
|
|
|
|
81.60
|
|
|
|
4,043,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,043,725
|
|
|
|
81.60
|
|
|
|
4,043,725
|
|
|
$
|
170,039,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
(a) Our Annual Meeting of Stockholders was held on
Wednesday, May, 16, 2007.
(c) The common stockholders voted for the election of three
directors to serve for terms of three years each, expiring on
the date of the annual meeting in 2010 or until their successors
are elected. The results of the voting in these elections are
set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes
|
|
|
Broker Non
|
|
Nominee
|
|
Votes For
|
|
|
Withheld
|
|
|
Votes
|
|
|
John Donovan
|
|
|
94,209,702
|
|
|
|
55,747,598
|
|
|
|
N/A
|
|
Steven P. Dussek
|
|
|
106,902,306
|
|
|
|
43,054,994
|
|
|
|
N/A
|
|
Steven M. Shindler
|
|
|
143,752,555
|
|
|
|
6,204,745
|
|
|
|
N/A
|
|
In addition, the stockholders voted to ratify the appointment of
PricewaterhouseCoopers LLP as our independent registered public
accounting firm for fiscal year 2007. The results of the voting
are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes
|
|
|
Votes
|
|
|
Broker Non
|
|
Nominee
|
|
Votes For
|
|
|
Against
|
|
|
Withheld
|
|
|
Votes
|
|
|
Ratification of Independent
Registered Public Accounting Firm
|
|
|
149,592,610
|
|
|
|
316,821
|
|
|
|
47,869
|
|
|
|
N/A
|
|
No other matters were voted upon at the Annual Meeting or during
the quarter covered by this report.
55
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
4
|
.1
|
|
Indenture governing our 3.125%
convertible notes due 2012, dated June 5, 2007, by and
between NII Holdings, Inc. and Wilmington Trust Company, as
Indenture Trustee.
|
|
10
|
.1
|
|
Purchase Agreement for the sale of
our 3.125% convertible notes due 2012, dated as of May 30,
2007, by and among NII Holdings, Inc. and the initial purchasers.
|
|
10
|
.2
|
|
Registration Rights Agreement
related to our 3.125% convertible notes due 2012, dated as of
June 5, 2007, by and among NII Holdings, Inc. and the
initial purchasers.
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1
|
|
Statement of Chief Executive
Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2
|
|
Statement of Chief Financial
Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1
|
|
Statement of Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350.
|
|
32
|
.2
|
|
Statement of Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350.
|
56
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
By:
|
/s/ DANIEL
E. FREIMAN
|
Daniel E. Freiman
Vice President and Controller
(on behalf of the registrant and as
chief accounting officer)
Date: August 6, 2007
57
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
4
|
.1
|
|
Indenture governing our 3.125%
convertible notes due 2012, dated June 5, 2007, by and
between NII Holdings, Inc. and Wilmington Trust Company, as
Indenture Trustee.
|
|
10
|
.1
|
|
Purchase Agreement for the sale of
our 3.125% convertible notes due 2012, dated as of May 30,
2007, by and among NII Holdings, Inc. and the initial purchasers.
|
|
10
|
.2
|
|
Registration Rights Agreement
related to our 3.125% convertible notes due 2012, dated as of
June 5, 2007, by and among NII Holdings, Inc. and the
initial purchasers.
|
|
12
|
.1
|
|
Ratio of Earnings to Fixed Charges.
|
|
31
|
.1
|
|
Statement of Chief Executive
Officer Pursuant to
Rule 13a-14(a).
|
|
31
|
.2
|
|
Statement of Chief Financial
Officer Pursuant to
Rule 13a-14(a).
|
|
32
|
.1
|
|
Statement of Chief Executive
Officer Pursuant to 18 U.S.C. Section 1350.
|
|
32
|
.2
|
|
Statement of Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350.
|
58