e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 0-32421
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NII HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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91-1671412
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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10700 Parkridge Boulevard, Suite 600
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20191
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Reston, Virginia
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(Zip Code)
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(Address of principal executive offices)
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Registrants telephone number,
including area code:
(703) 390-5100
Securities registered pursuant to
Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.001 per share
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The Nasdaq Stock Market
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Securities registered pursuant to
Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a
smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of
June 30, 2007: $13,021,999,270
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.
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Number of Shares Outstanding
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Title of Class
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on February 20, 2008
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Common Stock, $0.001 par value per share
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169,910,315
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Documents
Incorporated by Reference
Portions of the registrants Proxy Statement for the 2008
Annual Meeting of Stockholders are incorporated by reference
into Part III hereof.
NII
HOLDINGS, INC.
TABLE OF
CONTENTS
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Item
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Description
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Page
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PART I
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1.
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Business
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2
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1A.
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Risk Factors
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21
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1B.
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Unresolved Staff Comments
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32
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2.
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Properties
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32
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3.
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Legal Proceedings
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32
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4.
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Submission of Matters to a Vote of Security Holders
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33
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Executive Officers of the Registrant
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33
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PART II
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5.
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Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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35
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6.
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Selected Financial Data
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36
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7.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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39
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7A.
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Quantitative and Qualitative Disclosures About Market Risk
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84
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8.
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Financial Statements and Supplementary Data
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85
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9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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85
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9A.
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Controls and Procedures
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86
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9B.
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Other Information
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86
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PART III
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10.
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Directors, Executive Officers of the Registrant and Corporate
Governance
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87
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11.
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Executive Compensation
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87
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12.
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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87
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13.
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Certain Relationships and Related Transactions, and Director
Independence
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87
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14.
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Principal Accounting Fees and Services
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87
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PART IV
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15.
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Exhibits, Financial Statement Schedules
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88
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1
PART I
We were originally organized in 1995 as a holding company for
the operations of Nextel Communications, Inc. in selected
international markets. The corporation that is currently known
as NII Holdings, Inc. was incorporated in Delaware in 2000 as
Nextel International, Inc. In December 2001, we changed our name
from Nextel International, Inc. to NII Holdings, Inc. Unless the
context requires otherwise, NII Holdings, Inc.,
NII Holdings, we, our,
us and the Company refer to the combined
businesses of NII Holdings, Inc. and its consolidated
subsidiaries. We refer to our operating companies by the
countries in which they operate, such as Nextel Mexico, Nextel
Brazil, Nextel Argentina, Nextel Peru and Nextel Chile. For
financial information about our operating companies, which we
refer to as segments, see Note 13 to our consolidated
financial statements included at the end of this annual report
on
Form 10-K.
Nextel, Nextel Direct Connect,
Nextel Online, Nextel Worldwide and
International Direct Connect are trademarks or
service marks of Nextel Communications, Inc., a wholly-owned
subsidiary of Sprint Nextel Corporation. Motorola
and iDEN are trademarks or service marks of
Motorola, Inc. In addition, various other trademarks discussed
within this annual report on
Form 10-K
are owned by various other entities.
Except as otherwise indicated, all amounts are expressed in
U.S. dollars and references to dollars and
$ are to U.S. dollars. All consolidated
historical financial statements contained in this report are
prepared in accordance with accounting principles generally
accepted in the United States.
Our principal executive office is located at 10700 Parkridge
Boulevard, Suite 600, Reston, Virginia 20191. Our telephone
number at that location is
(703) 390-5100.
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2.
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Access to
Public Filings and Board Committee Charters
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We maintain an internet website at www.nii.com. Information
contained on our website is not part of this annual report on
Form 10-K.
Stockholders of the Company and the public may access our
periodic and current reports (including annual, quarterly and
current reports on
Form 10-K,
Form 10-Q
and
Form 8-K,
respectively, and any amendments to those reports) filed with or
furnished to the Securities and Exchange Commission pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, through the investor relations
section of our website. The information is provided by a third
party link to the SECs online EDGAR database, is free of
charge and may be reviewed, downloaded and printed from our
website at any time.
We also provide public access to our Code of Ethics, entitled
the NII Holdings, Inc. Code of Business Conduct and Ethics and
the charters of the following committees of our Board of
Directors: the Audit Committee, the Compensation Committee and
the Nominating Committee. The Code of Business Conduct and
Ethics, corporate governance guidelines and committee charters
may be viewed free of charge on the Investor Relations link of
our website at the following address: www.nii.com. You may
obtain copies of any of these documents free of charge by
writing to: NII Holdings Investor Relations, 10700 Parkridge
Boulevard, Suite 600, Reston, Virginia 20191. If a
provision of our Code of Business Conduct and Ethics required
under the Nasdaq Global Select Market corporate governance
standards is materially modified, or if a waiver of our Code of
Business Conduct and Ethics is granted to a director or
executive officer, we will post a notice of such action on the
Investor Relations link of our website at the following address:
www.nii.com. Only the Board of Directors or the Audit Committee
may consider a waiver of the Code of Business Conduct and Ethics
for an executive officer or director.
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3.
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Our
Networks and Services
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We provide digital wireless communication services, primarily
targeted at meeting the needs of customers who use our services
in their businesses and individuals that have medium to high
usage patterns, both of whom value our multi-function handsets,
including our Nextel Direct Connect feature, and our high level
of customer service. We provide these services through operating
companies located in selected Latin American markets, with our
principal operations located in major business centers and
related transportation corridors of Mexico, Brazil, Argentina
and Peru. In addition, we offer our digital services on a
limited basis in Santiago, Chile. The markets we serve 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
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economic activity. We believe that vehicle traffic congestion,
low wireline service penetration and the expanded coverage of
wireless networks in these major business centers encourage the
use of the mobile wireless communications services that we offer.
We use a transmission technology called integrated digital
enhanced network, or iDEN, developed by Motorola, Inc. to
provide our digital mobile services on 800 MHz spectrum
holdings in all of our markets. This technology, which is the
only digital technology currently available that can be used on
non-contiguous spectrum like ours, allows us to use our spectrum
efficiently and offer multiple wireless services integrated into
a variety of handset devices. The services we offer include:
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mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
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Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a push-to-talk
basis, private one-to-one call or group call;
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International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers using compatible handsets in the United
States and, except for our customers in Chile, with TELUS
subscribers using compatible handsets in Canada;
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mobile internet services, text messaging services,
e-mail
services including
Blackberrytm
services, location-based services, which include the use of
Global Positioning System (GPS) technologies, digital media
services and advanced
Javatm
enabled business applications, which are generally marketed as
Nextel
Onlinesm
services; and
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international roaming capabilities, which are marketed as
Nextel
Worldwidesm
services.
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We currently provide services in the three largest metropolitan
areas in each of Mexico, Brazil, Argentina and Peru, in various
other cities in each of these countries and in Santiago, Chile,
which is the largest metropolitan area in Chile.
As illustrated in the table below, as of December 31, 2007,
our operating companies had a total of about 4.73 million
digital handsets in commercial service, an increase of
1.29 million from the 3.44 million digital handsets in
commercial service as of December 31, 2006. For purposes of
the table, digital handsets in commercial service represent all
digital handsets with active customer accounts on the digital
mobile networks in each of the listed countries.
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Digital Handsets
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in Commercial
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Service
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As of December 31,
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Country
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2007
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2006
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(in thousands)
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Mexico
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2,140
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1,544
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Brazil
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1,290
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899
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Argentina
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812
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651
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Peru
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477
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345
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Chile
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10
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1
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Total
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4,729
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3,440
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Our principal objective is to grow our business in selected
markets in Latin America by providing differentiated wireless
communications services that are valued by our customers, while
improving our profitability and cash flow over the long term.
Our strategy is based on several core principles, including
focusing on major business centers in key Latin American
markets, targeting high value customers, providing
differentiated services, delivering superior customer service,
selectively expanding our service areas, preserving the iDEN
opportunity and planning for the future.
We intend to continue growing our business in a balanced manner,
with a primary focus on generating growth in operating income
and cash flow over the long term and enhancing our profitability
by attracting and retaining
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high value wireless subscribers while maintaining appropriate
controls on costs. To support this goal, we plan to continue to
expand the coverage
and/or
capacity of our networks in our existing markets and increase
our existing subscriber base while managing our costs in a
manner designed to support that growth and improving our
operating results. We will seek to add subscribers at rates and
other terms that reflect the competitive conditions in our
markets while seeking to minimize any negative impact on our
consolidated financial performance.
We may also explore financially attractive opportunities to
expand our network coverage in areas that we do not currently
serve. Based on market data that continues to show lower
wireless penetration in our markets relative to other regions of
the world and our current market share in those markets, we
believe that we can continue to generate subscriber base and
revenue growth while improving our profitability and cash flow
generation over the long term, notwithstanding the more intense
competition that has recently been experienced in some of our
markets. Although certain Latin American markets have been
historically volatile, the Latin American markets in which we
operate have been relatively more stable compared to historical
periods.
We believe that the wireless communications industry in the
markets in which we operate has been and will continue to be
highly competitive on the basis of price, the types of services
offered, the diversity of handsets offered and quality of
service. In each of our markets, we compete with at least two
large, well-capitalized competitors with substantial financial
and other resources. Some of these competitors have the ability
to offer bundled telecommunications services that include local,
long distance and data services, and can offer a larger variety
of handsets with a wide range of prices, brands and features.
Although competitive pricing and variety and pricing of handsets
are often important factors in a customers decision making
process, we believe that the users who primarily make up our
targeted customer base are also likely to base their purchase
decisions on quality of service and customer support, as well as
on the availability of differentiated features and services,
like our Direct Connect services, that make it easier for them
to communicate quickly, efficiently and economically. To address
some of the competitive pressures we face in some of our
markets, we have:
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added cell sites to improve network performance and expand the
coverage and capacity of our networks;
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launched attractive commercial campaigns offering handsets to
new and existing customers at a lower cost and offered service
plans that are more competitive;
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implemented customer retention programs that are focused on our
high value customers;
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worked with Motorola to develop new handset models and features;
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adjusted our credit policies in certain markets in an effort to
optimize the balance between promoting subscriber growth while
maintaining the overall credit quality of our customer
base; and
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implemented enhanced incentives to improve third party sales
distribution, such as increasing commission rates and making
other modifications to the compensation arrangements with our
indirect sales channels in an effort to promote additional sales
through these channels.
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Our overall strategy and the competitive conditions in the
markets where we operate require that we continually improve the
coverage and capacity of our networks and the types and quality
of the services we offer. In order to do so, we must ensure that
we have sufficient radio spectrum in the geographic areas in
which we operate to support the services that we currently offer
and may offer in the future. In recent years, we have acquired
licenses to use additional 800 MHz spectrum in Mexico in a
government auction and purchased licenses to use other radio
spectrum bands in Mexico and Peru. In July 2007, we were awarded
a nationwide license of 35 MHz of 1.9 GHz spectrum in
Peru for a term of 20 years through a governmental auction
process, and we are in the process of acquiring licenses to use
other radio spectrum bands in Argentina and Peru, pending
regulatory approval. We expect to continue to assess and, if
appropriate, pursue opportunities to acquire additional spectrum
in our markets in the future. We also expect to assess alternate
technologies that may be deployed using this spectrum through an
evaluation of the technical performance, cost and functional
capabilities of these technologies as part of our ongoing
assessment of our ability to meet our business goals and our
customers current and future needs.
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C.
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Our
Products, Services and Solutions
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We offer a wide range of wireless communications services and
related subscriber equipment and a variety of service plans with
different rate structures that are designed to meet the needs of
our targeted customer groups. These services and equipment have
been designed to provide innovative features that meet those
customers needs for fast and reliable voice and data
communications that allow them to conduct business quickly and
efficiently. In
4
addition to more traditional mobile telephony services, we offer
the following services that we believe reflect the significant
points of differentiation of our services from those offered by
our competitors:
1. Nextel Direct
Connect®. One
of our key competitive differentiators is Nextel Direct Connect,
the long-range walkie-talkie service that allows communication
at the touch of one button. The Nextel Direct Connect feature
gives customers the ability to instantly set up a
conference either privately (one-to-one) or with a
group (one-to-many) which allows our customers to
initiate and complete communications much more quickly than is
possible using a traditional mobile telephone call. Nextel
Direct Connect service greatly enhances the instant
communication abilities of business users within their
organizations and with suppliers, vendors and customers, and
provides individuals the ability to contact business colleagues,
friends and family instantly. This unique service is enhanced by
our International Direct
Connect®
service, which allows our subscribers to communicate instantly
across national borders. In addition, our agreement with Sprint
Nextel Corporation allows our subscribers in all of our markets
to use Nextel Direct Connect to communicate with subscribers
using compatible handsets in the United States, and our
agreement with TELUS Corporation allows our subscribers in
Mexico, Brazil, Argentina and Peru to use Nextel Direct Connect
to communicate with subscribers using compatible handsets in
Canada.
In some of our markets, we also offer services that provide our
customers with instant communication capabilities in a variety
of other ways, including a push-to-email application that allows
a user to send a streaming voice message from his or her handset
to an email recipient using our Direct Connect feature, Direct
Talksm,
a service available on certain handsets that enables
off-network
walkie-talkie communication, and Desktop Dispatch, a service
that allows users to send Direct Connect messages between Nextel
handsets and any internet connected personal computer.
Although a number of our competitors have launched or announced
plans to launch services that are designed to compete with
Nextel Direct Connect, we do not believe that the current
versions of these services compare favorably with our service in
terms of latency, quality, reliability or ease of use.
2. Wireless Data Solutions and Nextel
Online®. We
offer a variety of wireless data solutions that are designed to
help our customers increase their productivity through the
delivery of real-time information to mobile workers anytime and
anywhere, including remote
e-mail
access and mobile messaging services using two-way text
communications capabilities from their handsets. Accessible via
our wireless handsets, in addition to laptop computers and
handheld computing devices, wireless data solutions enable quick
response among workers in the field and streamline operations
through faster exchanges of information to support workforce
mobility. We also design wireless business solutions to meet the
needs of specific customers based on their industry and
individualized business needs, including a wide array of fleet
and workforce management services that utilize the unique
capabilities of our data network, such as the ability to
accurately and in near real time, locate handsets using assisted
global positioning system, or A-GPS, technology. Wireless
business services are backed by customer support teams in each
country that help customers build, distribute, and manage
wireless applications. In addition, we offer our customers
always-on connectivity to the Internet directly from their
handset through Nextel Online, which combines the vast resources
of the Internet with convenient mobile content services, all
from their handset. We also offer a range of messaging services,
including Blackberry enterprise and internet services that are
available using our Blackberry devices, SMS and multi-media
messaging, or MMS, as well as additional mobile data
communications services.
3. Handsets. We offer all of our
voice and data communications features and services through
handsets that incorporate Motorolas iDEN technology and
offer our unique 4-in-1 service, including digital wireless
service, Nextel Direct Connect walkie-talkie service, wireless
Internet access and two-way messaging capabilities. All of our
handsets are developed and manufactured by Motorola, other than
the Blackberry devices, which are manufactured by Research in
Motion, or RIM. Our handsets range from basic models designed to
serve the needs of customers who require basic wireless services
without sacrificing the essential features they depend upon to
do their jobs, to more advanced Blackberry devices, which, in
addition to digital wireless and Nextel Direct Connect features,
provide integrated access to one or multiple corporate and
personal email accounts. Our handsets offer a wide range of
features, and many include a built-in speakerphone, additional
line service, conference calling, an external screen that lets
customers view caller ID, voice-activated dialing for hands-free
operation, a voice recorder for calls and memos, an advanced
phonebook that manages contacts and date book tools to manage
calendars and alert users of business and personal meetings. All
of our current handset offerings have subscriber identification
module, or SIM, cards, which carry relevant authentication
information and address book information, thereby greatly easing
subscribers abilities to upgrade their handsets quickly
and easily, particularly in conjunction with our on-line
web-based
back-up
tools. Many of our handsets include pre-installed
Javatm
applications. Java enables users to create and execute a number
of mobile applications and supports a wide range of downloadable
digital media capabilities.
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4. International Roaming
Services. In addition to offering subscribers
the ability to roam in areas in other countries served by our
operating companies iDEN networks and those operated by
Sprint Nextel in the United States and TELUS in Canada, we offer
a handset that is capable of roaming on the networks in other
countries that operate using the global system for mobile
communications, or GSM, standard. The availability of these
services is subject to reaching agreements with the operators of
those networks. Our customers can roam in about 65 countries in
the world. We market these roaming capabilities as Roaming
International
and/or
Nextel
Worldwidesm
services.
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D.
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Our
Network and Wireless Technology
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1.
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Our
iDEN Network Technology
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Our networks utilize the advanced iDEN technology developed and
designed by Motorola. iDEN is a digital technology that is able
to operate on non-contiguous spectrum frequencies, which
previously were usable only for two-way radio calls. Most of the
iDEN handsets that we offer are not currently designed to roam
onto non-iDEN wireless networks. Although iDEN offers a number
of advantages in relation to other technology platforms,
including the ability to operate on non-contiguous spectrum like
ours and to offer the Nextel Direct Connect walkie-talkie
feature, unlike other wireless technologies, it is a proprietary
technology that relies solely on the efforts of Motorola and any
future licensees of this technology for product development and
innovation. We also rely on Motorola to provide us with
technology improvements designed to support new features and
services and improve the quality of our services and the
efficiency of our networks. We expect Motorola to continue to be
our sole source supplier of iDEN network infrastructure
equipment and most of our handsets with the exception of
Blackberry devices, which are manufactured by RIM, and other
specialized devices.
The iDEN technology substantially increases the capacity of our
existing spectrum channels and permits us to utilize our current
holdings of specialized mobile radio, or SMR, spectrum more
efficiently. This increase in capacity is accomplished in two
ways:
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First, our iDEN networks are capable of simultaneously carrying
up to six voice
and/or
control paths on the same frequency channel without causing
interference. Using this feature of the iDEN technology, our
two-way radio dispatch service achieves about six times
improvement over analog SMR in channel utilization capacity and
about three times improvement over analog SMR in channel
utilization capacity for channels used for mobile telephone
service.
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Second, our digital mobile networks reuse each channel many
times throughout the market area in a manner similar to that
used in the cellular industry, further improving channel
utilization capacity.
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Motorola provides the iDEN infrastructure equipment and handsets
throughout our markets under agreements that set the prices we
must pay to purchase and license this equipment, as well as a
structure to develop new features and make long-term
improvements to our networks. Motorola also provides integration
services in connection with the deployment of our iDEN network
elements. Our agreements with Motorola impose limitations and
conditions on our ability to use other technologies. These
agreements may delay or prevent us from employing new or
different technologies that perform better or are available at a
lower cost. Furthermore, iDEN technology is not as widely
adopted in relation to other wireless technologies and currently
has substantially fewer subscribers on a worldwide basis than
other digital technology formats such as GSM. See
Item 1A. Risk Factors 2. Because we rely on one
supplier to implement our digital mobile networks, any failure
of that supplier to perform could adversely affect our
operations.
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2.
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Network
Expansion and Future Technologies
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During 2007, we expanded the geographic coverage of our
networks, as well as their capacity and quality, by adding 885
transmitter and receiver sites to our networks, bringing the
total number of sites as of December 31, 2007 to 5,409.
This expansion, which was focused primarily in our two largest
operating markets, Mexico and Brazil, was a part of our strategy
to expand our networks geographic coverage and capacity
where necessary to meet the growing demand of our customers. In
2008, we expect to build additional transmitter and receiver
sites to improve both our geographic coverage and to meet the
capacity needs of our growing customer base, with most of that
expansion expected to be focused in Brazil and Mexico.
Another key component in our overall strategy to improve the
coverage and capacity of our networks and the types and quality
of the services we offer now and in the future is ensuring that
we have sufficient radio spectrum in the geographic areas in
which we operate. During 2005 and 2006, we acquired licenses to
use additional 800 MHz spectrum in Mexico in a government
auction and purchased licenses to use other radio spectrum bands
in Mexico
6
and Peru. In July 2007, we were awarded a nationwide license of
35 MHz of 1.9 GHz spectrum in Peru for a term of
20 years through a governmental auction process, and 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
800 MHz band generally provide for nationwide rights to
utilize a significant block of contiguous spectrum that supports
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
beyond the minimum levels required by the terms of our spectrum
licenses only if we believe it is warranted by expected customer
demand for the services supported by the new technology, and we
believe that those services can be offered profitably. 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.
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E.
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Network
Implementation, Design and Construction
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After obtaining necessary regulatory authorizations to develop
and deploy our networks, we undertake a careful frequency
planning and system design process. Our transmitter sites are
selected on the basis of their proximity to targeted customers,
the ability to acquire and build the sites and frequency
propagation characteristics. Site procurement efforts include
obtaining leases and permits and, in many cases, zoning
approvals. See Item 1A. Risk Factors 6. Government
regulations determine how we operate in various countries, which
could limit our growth and strategic plans. The
preparation of each site, including grounding, ventilation, air
conditioning and construction, typically takes three months. We
must also obtain all equipment necessary for the site. Equipment
installation, testing and optimization generally take at least
an additional four weeks. Any scheduled build-out or expansion
may be delayed due to typical permitting, construction and other
delays.
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F.
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Sales and
Distribution and Customer Care
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Our differentiated products and services allow us to target
customers who use our services in their businesses and
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature, and our high level of customer service.
We believe these types of customers represent the most valuable
customers in the wireless industry. Our focus on these customers
has resulted in the acquisition of what we believe to be the
most valuable customer base in the markets we serve, with higher
customer loyalty rates and average monthly revenue per
subscriber and the highest lifetime revenue per subscriber of
any service provider in our markets. Our operating companies use
a variety of sales channels as part of our strategy to increase
our customer base. These sales channels may include direct sales
representatives, indirect sales agents, Nextel stores and other
customer convenient sales channels such as web sales. Each of
our operating companies is continuously optimizing the mix of
sales channels to take into consideration the methods that best
meet local customer preferences and facilitate our overall
strategy of attracting and retaining customers in our targeted
groups.
Our operating companies employ direct sales representatives who
market our services directly to potential and existing
customers. The focus of our direct sales force is primarily on
businesses that value our industry expertise and differentiated
services, as well as our ability to develop tailored custom
communications capabilities that meet the specific needs of
these customers.
Our operating companies also utilize indirect sales agents,
which mainly consist of local and national non-affiliated
dealers. Dealers are independent contractors that solicit
customers for our service and are generally paid through
commissions. Dealers participate with our operating
companies direct sales forces in varying degrees in
pursuing each of our targeted customer groups.
Our sales channels in some of our markets also include
distribution through customer-convenient channels, including
telesales and sales through our Nextel stores. In some of our
markets, we utilize our website as a marketing tool that allows
customers to compare our various rate plans and research the
suite of our products and services, including handsets,
accessories and special promotions.
Our customer care organization works to improve our
customers experience, with the goal of retaining
subscribers of our wireless services. Our customer care centers
located in each of our markets receive and respond to inquiries
from customers. We believe that the customer support provided by
our customer care organization has
7
allowed us to achieve higher customer loyalty rates that are
superior to those of many of our competitors and has provided us
with a key competitive advantage.
Our operating companies primarily market their wireless
communications services to targeted customer groups who utilize
our services in their businesses, particularly including those
with mobile work forces
and/or
multiple locations, such as service companies, security firms,
contractors and delivery services, and to individuals that have
medium to high usage patterns, all of whom value our
multi-function handsets, including our Nextel Direct Connect
feature described below, and our high level of customer service.
Companies with mobile work forces often need to provide their
personnel with the ability to communicate directly with one
another. To meet the needs of these customers, we offer a
package of services and features that combines multiple
communications services in one digital handset, including Nextel
Direct Connect, which allows users to contact other subscribers
instantly on a push-to-talk basis, on a private
one-to-one call or on a one-to-many group call, throughout the
areas covered by our digital wireless network in each of the
markets in which we operate. To further differentiate our
service from that of our competitors, we offer International
Direct Connect service, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers using compatible handsets in the United
States and, except for our customers in Chile, with TELUS
subscribers using compatible handsets in Canada. The nationwide
and international network features of our Nextel Direct Connect
and International Direct Connect services allow our customers to
avoid the long distance and roaming charges that our competitors
may charge for long distance and international long distance
communications.
We offer a variety of pricing options and plans, including plans
designed specifically for our targeted base of customers. In
most instances, our services are sold on a postpaid basis
pursuant to a service contract, typically for periods of one to
two years, with services billed on a monthly basis according to
the applicable pricing plan. In some markets, we offer prepaid
services as a means to attract customers within our targeted
base who may not meet our customer credit policies, who value
the flexibility to pay for service in advance or who want to
purchase certain services, such as wireless data services, on a
prepaid basis as an add-on service to their postpaid contract.
Although we market our services using traditional print and
television advertising, we also provide exposure to our brand
and wireless services through various sponsorships. For example,
we have sponsored the Copa Nextel Stock Car races in Brazil,
which are professional auto racing events. The goal of these
initiatives, together with our other marketing initiatives, is
to increase brand awareness in our targeted customer base.
The Latin American mobile communications industry has undergone
significant growth in recent years. Our total digital handsets
in commercial service within the markets we serve reached about
4.73 million as of December 31, 2007, which represents
an increase of 37% compared to about 3.44 million handsets
in commercial service as of December 31, 2006. We believe
that the wireless communications industry has been and will
continue to be characterized by intense competition on the basis
of price, the types of services offered, variety, features and
pricing of handsets and quality of service.
In the countries in which we operate, there are principally
three other multinational providers of mobile wireless voice
communications with whom we compete:
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America Movil, which has the largest wireless market share in
Mexico, operates in all of Brazils ten cellular licensed
areas and has nationwide coverage in Argentina, Peru and Chile;
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Telefonica Moviles, which has wireless operations throughout
Mexico, Argentina, Peru and Chile, is a joint controlling
shareholder of Vivo, the largest wireless operator in
Brazil; and
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Telecom Italia Mobile, or TIM, which has wireless operations
covering all of Brazil, and is a joint controlling shareholder
of the wireless affiliate of Telecom Argentina.
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We also compete with regional or national providers of mobile
wireless voice communications, such as Telemars Oi in
Brazil and Iusacell in Mexico.
New licenses for spectrum may also be auctioned by governments
in markets in which we operate allowing for new competitors, as
well as the competitors listed above, many of whom have greater
coverage areas
and/or name
recognition than we do, to expand into new markets and offer new
products and services. Some of these existing competitors have
more extensive distribution channels than ours, a more expansive
spectrum position than ours, or
8
are able to acquire subscribers at a lower cost than we can. We
also expect current and future competitors will continue to
upgrade their systems to provide additional services competitive
with those available on our networks. We also expect competition
to increase as a result of other technologies and services that
are developed and introduced in the future. These technologies
and services may potentially include those using either licensed
or unlicensed spectrum including World Interoperability for
Microwave Access, or WiMax, and wireless fidelity, or WiFi. Some
of our competitors, including America Movil in Brazil, Telecom
Personal, S.A. in Argentina and Telefonica Moviles, Claro and
Entel Chile in Chile, have recently launched a new generation of
mobile communications technology, which we refer to as 3G
technology, that incorporates high speed internet access and
video telephony into an existing network. Additionally, some
competitors operate in the wireline business allowing them to
offer a bundle of wireline voice, high speed internet and
wireless services to their customers.
In each of the markets where our operating companies operate, we
compete with other communications services providers, including
other wireless communications companies and wireline telephone
companies, based primarily on our differentiated wireless
service offerings and products, principally our Direct Connect
service, including International Direct Connect. We also believe
that we differentiate ourselves from our competition by focusing
on the quality of our customer care and service. In the past,
our competitors have focused their marketing efforts on retail
customers who purchase prepaid services, but recently, some of
those competitors have increased their focus on business and
other postpaid customers. Our focus on customer service and care
is an important component of our strategy to attract and retain
customers within our targeted customer groups. Although pricing
is an increasingly important factor in potential customers
purchase decisions, we believe that our targeted customers are
also likely to base their purchase decisions on quality of
service and the availability of differentiated features and
services that make it easier for them to communicate quickly and
efficiently.
Many of our competitors are owned by or affiliated with large
multinational communications companies. As a result, these
competitors have substantially greater financial resources than
we do, which allows them to spend substantially more than we do
in their advertising/brand awareness campaigns and may enable
them to reduce prices in an effort to gain market share. For
example, during 2007, some of Nextel Mexicos competitors
significantly lowered prices for postpaid wireless services,
offered free or significantly discounted 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. The higher cost of our handsets
relative to the handsets offered by our competitors requires us
to absorb a comparatively larger part of the cost of offering
handsets to new and existing customers and places us at a
competitive disadvantage with respect to the pricing of our
handsets and our ability to offer new handsets at discounted
prices as an incentive to retain our existing customers. We
expect that the prices we charge for our products and services
will decline over the next few years as competition intensifies
in our markets. Several of our competitors have introduced
aggressive pricing promotions, including plans that allow shared
minutes between groups of callers. In addition, several of our
competitors have also introduced Push-To-Talk over Cellular
service, which is a walkie-talkie type of service similar to our
Direct Connect service. While we believe that the
competitors current versions of Push-To-Talk over Cellular
do not compare favorably with our Direct Connect service,
particularly in terms of latency, quality, reliability or ease
of use, if competitors are able to replicate a product more
comparable to ours, we may lose some of our competitive
advantage.
The Latin American wireless market is predominantly a prepaid
market, which means that customers pay in advance for a
pre-determined number of minutes of use. However, our strategy
primarily focuses on customers who use our services in their
businesses, particularly including those with mobile work forces
and/or
multiple locations, such as service companies, security firms,
contractors and delivery services, and individuals that have
medium to high usage patterns. We believe the customer groups we
target value our multi-function handsets, including our Nextel
Direct Connect feature, and our high level of customer service.
Our customers, who typically purchase our services under
contract and pay for their services on a monthly basis based on
usage, represent the premium segment within our markets and they
generally offer higher average monthly revenue per subscriber
and higher operating income per subscriber. We believe that our
strategy of focusing on this customer segment has allowed us to
acquire and retain the most profitable subscribers in the
markets in which we operate. Since the wireless industry has
often competed based on price, increased competition could
require us to decrease prices or increase service and product
offerings, which would lower our revenues or increase our costs.
Additional service offerings by our competitors
and/or
product offerings could also impact our ability to retain
customers. While we believe that the market for premium
customers will continue to grow, the market could become
saturated as competition in this customer segment increases.
For a more detailed description of the competitive factors
affecting each operating company, see the
Competition discussion for each of those operating
companies under K. Operating Companies.
9
The licensing, construction, ownership and operation of wireless
communications systems are regulated by governmental entities in
the markets in which our operating companies conduct business.
The grant, maintenance, and renewal of applicable licenses and
radio frequency allocations are also subject to regulation. In
addition, these matters and other aspects of wireless
communications system operations, including rates charged to
customers and the resale of wireless communications services,
may be subject to public utility regulation in the jurisdiction
in which service is provided. Further, statutes and regulations
in some of the markets in which our operating companies conduct
business impose limitations on the ownership of
telecommunications companies by foreign entities. Changes in the
current regulatory environments, the interpretation or
application of current regulations or future judicial
intervention in those countries could impact our business. These
changes may affect interconnection arrangements, requirements
for increased capital investments, prices our operating
companies are able to charge for their services or foreign
ownership limitations, among other things. For a more detailed
description of the regulatory environment in each of the
countries in which our managed operating companies conduct
business, see the Regulatory and Legal Overview
discussion for each of those operating companies under
K. Operating Companies.
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J.
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Foreign
Currency Controls and Dividends
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In some of the countries in which we operate, the purchase and
sale of foreign currency is subject to governmental control.
Additionally, local law in some of these countries may limit the
ability of our operating companies to declare and pay dividends.
Local law may also impose a withholding tax in connection with
the payment of dividends. For a more detailed description of the
foreign currency controls and dividend limitations and taxes in
each of the countries in which our managed operating companies
conduct business, see the Foreign Currency Controls and
Dividends discussion for each of those operating companies
under K. Operating Companies.
1. Mexico
Operating Company Overview. We refer to our
wholly-owned Mexican operating company, Comunicaciones Nextel de
Mexico, S.A. de C.V., as Nextel Mexico. Nextel Mexico is
headquartered in Mexico City and has many regional offices
throughout Mexico. As of December 31, 2007, Nextel Mexico
had 4,127 employees.
Nextel Mexico provides digital mobile services under the trade
name Nextel in major business centers, including
Mexico City, Guadalajara, Puebla, Leon, Monterrey, Toluca,
Tijuana, Torreon and Ciudad Juarez, as well as in smaller
markets and along related transportation corridors throughout
Mexico. As of December 31, 2007, Nextel Mexico provided
service to about 2,139,800 digital handsets, which we estimate
to be about 3% of the total digital handsets in commercial
service in Mexico.
In 2006, Nextel Mexico acquired Cosmofrecuencias, S.A. de C.V.,
or Cosmofrecuencias, and its subsidiary, Operadora de
Comunicaciones, S.A. de C.V., or Opcom, which have licenses to
use 50 MHz of 3.4 GHz spectrum nationwide in Mexico
and provide local fixed/mobile wireless telephone services. We
believe that these licenses will provide us with an opportunity
to reduce our interconnection and operating costs and position
us to pursue additional revenue generating opportunities in the
future. See Regulatory and Legal Overview below for more
information. During 2007, Cosmofrecuencias was merged into Opcom.
Competition. Nextel Mexicos digital
mobile network competes with cellular and personal
communications services system operators in all of its market
areas. Nextel Mexico competes on a nationwide basis with
Radiomovil Dipsa, S.A. de C.V., known as Telcel, which is a
subsidiary of America Movil, S.A. de C.V., an affiliate of
Telefonos de Mexico, S.A. de C.V., known as Telmex. Telcel holds
the Cellular B-Band concession and additional personal
communications services licenses throughout Mexico, was the
first wireless operator in the country and is the largest
provider of wireless services in Mexico. Nextel Mexico also
competes on a nationwide basis with Telefonica, S.A., which is
the second largest wireless operator in the country and offers
wireless services under the Movistar brand, and with Iusacell,
S.A. de C.V., which offers wireless services under the Iusacell
and Unefon brands.
In March 2005, Nextel Mexico won licenses to use an average of
15 MHz of nationwide spectrum, except for Mexico City,
where no spectrum was auctioned off and where Nextel Mexico has
licenses covering approximately 21 MHz in the 800 MHz
band. These licenses have an initial term of 20 years and
are renewable thereafter for 20 years. The spectrum
licenses that Nextel Mexico acquired have allowed it to
significantly expand the geographic coverage and capacity of its
digital mobile network since 2005.
10
We believe that the most important factors upon which Nextel
Mexico competes are the quality of our customer service and
network, recognition of our brand, our consultative distribution
channels (through which the characteristics, features and
benefits of our services and details concerning our available
rate plans, as well as what plans and features best meet the
customers needs, are discussed directly with prospective
customers) and our differentiated services, primarily our Direct
Connect service, which is available throughout all areas where
Nextel Mexico provides digital service. During 2007, some of
Nextel Mexicos competitors increased the level of
competition in Mexico by, among other things, significantly
lowering prices for postpaid wireless services, offering free or
significantly discounted handsets, specifically targeting Nextel
Mexicos largest corporate subscriber accounts, offering
various incentives to our customers to switch service providers,
including reimbursement of cancellation fees, and offering
bundled telecommunications services that include local, long
distance and data services. Nextel Mexico is addressing these
competitive actions by, among other things, launching attractive
commercial campaigns offering handsets to new and existing
customers on more favorable terms, which results in higher
handset subsidies as a percentage of handset costs, and offering
more competitive rate plans, which results in lower average
revenue per subscriber. Nextel Mexico also increased its
commission rates and otherwise modified its compensation
arrangements with its indirect sales channels in an effort to
promote additional sales through these channels. Notwithstanding
these actions, the more intense competitive conditions may make
it more difficult for Nextel Mexico to retain its customers.
Regulatory and Legal Overview. The Secretary
of Communications and Transportation of Mexico regulates the
telecommunications industry in Mexico. The Mexican
Telecommunications Commission oversees specific aspects of the
telecommunications industry on behalf of the Secretary of
Communications and Transportation.
The existing telecommunications law, which went into effect in
1995, restricts foreign ownership in telecommunications to a
maximum of 49% voting equity interest except for cellular
telephony, which has no such restriction. However, most of the
licenses held by Nextel Mexico prior to 2000 are not subject to
the 49% foreign ownership limitation as such licenses were
originally granted under the old telecommunications law that had
no such limitation to foreign ownership. All of the licenses
acquired by Nextel Mexico after January 1, 2000 are held
through Inversiones Nextel de Mexico, a corporation with a
capital structure known under applicable corporate law as
neutral stock, in which Nextel Mexico owns
approximately 99.99% of the economic interest, but only 49% of
the voting shares. The remaining 51% of the voting shares in
Inversiones Nextel de Mexico, which is held by one Mexican
shareholder, is subject to a voting trust agreement and a
shareholders agreement between Nextel Mexico and this
shareholder that establish governance controls and transfer
restrictions that are designed to protect Nextel Mexicos
interests.
The current telecommunications law requires mandatory
interconnection between all telecommunication networks under
reciprocal terms and conditions when it is technically possible.
Notwithstanding the foregoing, some telecommunications companies
have had difficulty obtaining interconnection services under
reciprocal terms and conditions from other telephone operators.
Because Nextel Mexico has operated under SMR licenses in the
800 MHz band, it was not deemed a telephone operator and
has historically not been granted telephone numbers. As a
result, it was unclear whether Nextel Mexico was entitled to
reciprocal interconnection terms and conditions with wireline
and wireless public telephone networks. Meanwhile, to ensure its
access to interconnection, Nextel Mexico entered into commercial
agreements with other local, point to point and long distance
carriers such as Alestra, Avantel, Axtel, Bestel and Telmex that
provide interconnection between Nextel Mexicos networks
and the public switched telephone network. Nextel Mexico has
also executed commercial agreements to exchange SMS traffic with
Telcel, Telefonica, Iusacell and Unefon.
In contrast, entities like Opcom that hold licenses to provide
local fixed/mobile wireless telephone services are entitled to
reciprocal interconnection terms and conditions with wireline
and wireless public telephone networks. In 2007, Nextel Mexico,
through its subsidiary Opcom, entered into local-to-local
interconnection agreements with Telmex, Alestra, Maxcom and
other local telephone service operators. In addition, Opcom also
entered into local-to-mobile interconnection agreements with
Telcel, Telefonica and Iusacell, in which Opcom is considered to
be the local carrier. Opcom also executed a local-to-mobile
interconnection agreement with Maxcom, in which Opcom is
considered to be the mobile carrier. In November 2007, the
Mexican authorities issued a resolution of an interconnection
dispute ordering Telcel, Telefonica and Iusacell to interconnect
Opcom on a mobile-to-mobile modality. Following the issuance of
that resolution, Opcom entered into local-to-mobile and
mobile-to-mobile interconnection agreements with Telcel,
Telefonica, Iusacell and Unefon, as well as a local-to-mobile
interconnection agreement with Telmex, which acts as a transit
provider between all of the mobile networks in Mexico. These
agreements are expected to result in lower interconnection costs
as we transition services from the providers under our existing
commercial agreements and may allow us to offer new services,
such as calling party pays services, which would allow our
customers to receive calls without incurring the related charges.
11
As of December 31, 2007, Nextel Mexico has filed
applications to renew about 30 of its SMR licenses, 16 of which
have expired. Although Nextel Mexico expects that these renewals
will be granted, there is no guarantee that such renewals will
be granted. If some or all of these renewals are not granted,
Nextel Mexico could experience an adverse effect on its
business. Although renewal fees are governed by Mexican federal
law, the Mexican authorities may impose a one-time renewal fee
in addition to the fees already established under federal law.
We cannot currently predict whether such a renewal fee will be
imposed or estimate the related amount. See Note 3 to our
consolidated financial statements included at the end of this
annual report on
Form 10-K.
Foreign Currency Controls and
Dividends. Because there are no foreign currency
controls in place, Mexican currency is convertible into
U.S. dollars and other foreign currency without
restrictions. Mexican companies may distribute dividends and
profits outside of Mexico if the Mexican company meets specified
distribution and legal reserve requirements. Under Mexican
corporate law, approval of a majority of stockholders attending
an ordinary stockholders meeting of a corporation is
required to pay dividends. Dividends paid out of Nextel
Mexicos accumulated taxable income are not subject to
withholding tax; a tax of up to 39% is imposed on Nextel Mexico
if it pays dividends in excess of this amount. This tax may be
creditable against Nextel Mexicos future tax liability. A
15% withholding tax applies to interest paid by Nextel Mexico to
NII or its U.S. affiliates.
Income Tax Legislation. In December 2004, the
Mexican government enacted tax legislation, effective
January 1, 2005, which reduced the corporate tax rate to
30% for 2005, 29% for 2006 and 28% for 2007 and subsequent years.
On October 1, 2007, the Mexican government enacted
amendments to the Mexican tax law that became effective
January 1, 2008. The amendments established a new minimum
corporate tax, eliminated the existing minimum asset tax and
established a new withholding tax system on cash deposits in
bank accounts. The new minimum corporate tax is a supplemental
tax that supersedes the current asset tax and applies when and
to the extent the tax computed under the new minimum corporate
tax exceeds the amounts that would be payable under the existing
Mexican income tax. The new minimum corporate tax is computed on
a cash basis rather than on an accrual basis, and is calculated
based on gross revenues, with no deductions allowed for cost of
goods sold, non-taxable salaries and wages, interest expense,
depreciation, amortization, foreign currency transaction gains
and losses or existing net income tax operating losses from
prior years. For purposes of the new minimum corporate tax,
Nextel Mexico will generally deduct the value of depreciable
assets and inventory as an expense when these assets are
acquired. This tax will be phased in at a rate of 16.5% for
2008, 17% for 2009 and a final tax rate of 17.5% for 2010 and
thereafter. Certain tax credits may be available to reduce the
amount of new minimum corporate tax that is payable.
2. Brazil
Operating Company Overview. We refer to our
wholly-owned Brazilian operating company, Nextel
Telecomunicacoes Ltda., as Nextel Brazil. Nextel Brazil provides
analog and digital mobile services under the tradename
Nextel in major business centers, including Rio de
Janeiro, Sao Paulo, Belo Horizonte and Brasilia, along related
transportation corridors and in a number of smaller markets. As
of December 31, 2007, Nextel Brazil provided service to
about 1,289,500 digital handsets, which we estimate to be about
1% of the total digital handsets in commercial service in Brazil.
Nextel Brazils operations are headquartered in Sao Paulo,
with branch offices in Rio de Janeiro and various other cities.
As of December 31, 2007, Nextel Brazil had
2,858 employees.
Competition. Nextel Brazil competes with other
analog SMR and cellular and personal communications services
providers. The largest competitors are Vivo (a joint venture of
Telefonica S.A. and Portugal Telecom S.A.), which has the
largest market share in the Sao Paulo Metropolitan Area and Rio
de Janeiro, as well as several other regional operators; Telecom
Americas, which owns Claro and is controlled by America Movil;
Telecom Italia Mobile; TNL PCS S.A. (a personal communications
services operating subsidiary of Telemar Norte Leste S.A.,
Brazils largest wireline incumbent, and which markets
under the brand name Oi); and Brasil
Telecom GSM, a subsidiary of Brasil Telecom S.A.
Nextel Brazil also competes with other regional cellular and
wireless operators including Telemig Celular S.A. There are also
several small SMR competitors in the analog market in various
regions in Brazil.
We believe that the most important factors upon which Nextel
Brazil competes are the quality of our customer service and
network, our consultative distribution channels (through which
the characteristics, features and benefits of our services and
details concerning our available rate plans, as well as what
plans and features best meet the customers needs, are
discussed directly with prospective customers), our
differentiated brand positioning and our
12
differentiated services, primarily our Direct Connect service,
which is available throughout all areas where Nextel Brazil
provides digital service. While its competition generally
targets the prepaid market, Nextel Brazil primarily targets
customers who utilize its services in their businesses and
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature, and our high level of customer service.
Substantially all of our subscribers in Brazil are on contracts
that provide for recurring monthly payments for services for a
specified term.
Regulatory and Legal Overview. Prior to 2000,
the Brazilian telecommunications regulations imposed various
restrictions that significantly limited the ability of Nextel
Brazil to provide digital mobile services to all potential
customer groups. On April 27, 2000, Brazils
telecommunications regulatory agency, Agencia Nacional de
Telecomunicacoes, known as Anatel, approved new rules relating
to SMR services in Brazil. As a result of these regulations,
together with subsequent supplements and modifications, Brazil
began opening its markets to wider competition in the mobile
wireless communications market where we operate.
Among others, the regulations issued in 2000 allowed affiliated
companies to hold more than one license in the same service
area, but still limited SMR licensees and their affiliates to a
maximum holding of 10 MHz of spectrum in the same service
area. These regulations were subsequently changed in 2005 and
currently allow SMR operators and their affiliates to hold up to
15 MHz of spectrum in the same service area. In addition,
the regulations adopted in 2005 annulled the former regulation
relating to areas of authorization and replaced it with a new
SMR Authorizations General Plan issued by Anatel under
Resolution No. 405.
Although we believe that these regulations give us significantly
greater flexibility to provide digital mobile services, we are
still required to provide two-way radio as a basic service
before we can provide any other service. For example, we cannot
offer interconnection to the public telephone system without
providing dispatch services.
On October 17, 2001, Anatel enacted certain rules that
allow carriers to charge calling party pays charges. These
regulations clarified, among other things, how SMR companies
like Nextel Brazil would be paid by other companies if they
wished to interconnect with Nextel Brazils network. These
rules also allowed Nextel Brazil to amend its interconnection
agreements to reflect the calling party pays charges. We have
negotiated agreements with all significant fixed line and
wireless operators in Brazil to reflect the additional payments
between carriers as a result of the calling party pays charges.
These agreements are subject to annual renewals. The calling
party pays structure incorporated into the SMR regulations
adopted by Anatel in 2005 permits Nextel Brazil to compensate
other operators for calls terminated in their network under a
formula that reduces the amount paid to them by allowing a
percentage of these calls to be treated as bill and
keep. Since their adoption, these regulations have
resulted in savings to Nextel Brazil in relation to interconnect
charges made by other carriers.
Any company interested in obtaining new SMR licenses from Anatel
must apply and present documentation demonstrating certain
technical, legal and financial qualifications. Anatel may
communicate its intention to grant new licenses, as well as the
terms and conditions applicable, such as the relevant price.
Before granting any license, Anatel is required to publish an
announcement in the official gazette. Any company willing to
respond to Anatels invitation, or willing to render the
applicable service in a given area claimed by another interested
party, may have the opportunity to obtain a license. Whenever
the number of claimants is larger than the available spectrum,
Anatel is required to conduct competitive bidding to determine
which interested party will be granted the available licenses.
A license for the right to provide SMR services is granted for
an undetermined period of time. While the associated radio
frequencies are licensed for a period of 15 years, they are
renewable only once for an additional
15-year
period. Renewal of the license is subject to rules established
by Anatel. The renewal process must be filed at least three
years before the expiration of the original term and must be
decided by Anatel within 12 months of its filing. Anatel
may deny a request for renewal of the license only if the
applicant is not making rational and adequate use of the
frequency, the applicant has committed repeated breaches in the
performance of its activities, or there is a need to modify the
radio frequency allocation. Nextel Brazil recently renewed
licenses for an additional term of 15 years, which begins
from the respective expiration of each license.
The rules require that Nextel Brazils services comply with
start-up
terms and minimum service availability and quality requirements
detailed in the regulations. Failure to meet Anatels
requirements may result in forfeiture of the channels and
revocation of licenses. We believe that Nextel Brazil is
currently in compliance with the applicable operational
requirements of its licenses in all material respects.
Foreign Currency Controls and Dividends. The
purchase and sale of foreign currency in Brazil is subject to
governmental control. Until March 14, 2005, there were two
foreign exchange markets in Brazil that were subject to
regulation by the Central Bank of Brazil. The first was the
commercial/financial floating exchange rate market. This market
was reserved generally for trade-related transactions such as
import and export, registered foreign currency
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investments in Brazil, and other specific transactions involving
remittances abroad. The second foreign exchange market was the
tourism floating exchange rate market. The commercial/financial
exchange rate market was restricted to transactions that require
prior approval by the Brazilian Central Bank. Both markets
operated at floating rates freely negotiated between the
parties. The purchase of currency for repatriation of capital
invested in Brazil and for payment of dividends to foreign
stockholders of Brazilian companies used to be made in the
commercial/financial floating exchange rate market. Purchases
for these purposes could only be made if the original investment
of foreign capital and capital increases had been previously
registered with the Brazilian Central Bank. There were no
significant restrictions on the repatriation of registered share
capital and remittance of dividends.
In spite of changes that have been implemented by the Brazilian
Central Bank, the rules on repatriation of capital and payment
of dividends have not changed. The purchase of currency for
repatriation of capital invested in Brazil and for payment of
dividends to foreign stockholders of Brazilian companies still
may only be made if the original investment of foreign capital
and capital increases were registered with the Brazilian Central
Bank. There are no significant restrictions on the repatriation
of registered share capital and remittance of dividends.
The Nextel Brazil subsidiaries through which any dividend is
expected to flow have applied to the Brazilian Central Bank for
registration of its investments in foreign currency. We intend
to structure future capital contributions to Brazilian
subsidiaries to maximize the amount of share capital and
dividends that can be repatriated through the exchange market.
However, we may not be able to repatriate share capital and
dividends on foreign investments that have not been registered.
Brazilian law provides that the Brazilian government may, for a
limited period of time, impose restrictions on the remittance by
Brazilian companies to foreign investors of the proceeds of
investments in Brazil. These restrictions may be imposed
whenever there is a material imbalance or a serious risk of a
material imbalance in Brazils balance of payments. The
Brazilian government may also impose restrictions on the
conversion of Brazilian currency into foreign currency. These
restrictions may hinder or prevent us from purchasing equipment
required to be paid for in any currency other than Brazilian
reais. Under current Brazilian law, a company may pay dividends
from current or accumulated earnings. Dividend payments from
current earnings are not subject to withholding tax. Interest on
foreign loans is generally subject to a 15% withholding tax.
Interest and payments other than principal amounts on foreign
loans are generally subject to a 0.38% financial transactions
tax.
3. Argentina
Operating Company Overview. We refer to our
wholly-owned Argentine operating company, Nextel Communications
Argentina S.A. (formerly, Nextel Argentina S.R.L.), as Nextel
Argentina. Nextel Argentina provides digital mobile services
under the tradename Nextel in major business centers
including Buenos Aires, Cordoba, Rosario and Mendoza, along
related transportation corridors and in a number of smaller
markets. As of December 31, 2007, Nextel Argentina provided
service to about 812,500 digital handsets, which we estimate to
be about 2% of the total digital handsets in commercial service
in Argentina.
Nextel Argentina is headquartered in Buenos Aires and has
regional offices in Mar del Plata, Rosario, Mendoza, Cordoba and
Santa Fe, and seven branches in Buenos Aires. As of
December 31, 2007, Nextel Argentina had
1,470 employees.
In July 2006, Nextel Argentina signed an agreement, pending
regulatory approval, to purchase all of the stock of Velocom
Argentina, S.A., a wireless internet access and data
transmission company, for $6.0 million in cash and the
assumption of certain liabilities, of which $1.0 million
has been paid as of December 31, 2007. As a result of this
transaction, Nextel Argentina would acquire 50 MHz of
3.4 GHz spectrum nationwide in Argentina. In addition, in
November 2007, Nextel Argentina entered into an agreement with
Telefonica Moviles S.A., under which Nextel Argentina will
acquire the 800 MHz SMR spectrum licenses and related
network assets used by Telefonica Moviles S.A. to operate an
iDEN-based network in Argentina under the Movistar Trunking
brand, which was formerly known as Movilink, for a total
purchase price of $32.0 million in cash. This transaction,
which is subject to the receipt of necessary regulatory
approvals, would result in Nextel Argentina acquiring
approximately 5 MHz of SMR spectrum in Buenos Aires,
Rosario, Mendoza and Cordoba, as well as the related iDEN
equipment and the prepayment of lease expenses relating to the
use of co-located sites for five years.
Competition. There are three mobile service
providers in Argentina with which Nextel Argentina competes: the
Telefonica Moviles Group, commercially known as Movistar;
Compania de Telefonos del Interior S.A., or CTI, which is owned
by America Movil S.A. de C.V.; and Telecom Personal S.A., or
Personal, which is owned by Telecom Argentina S.A. All of these
companies hold cellular communications services licenses,
personal communications services (PCS licenses), or both. The
cellular and PCS licenses each cover only a specific geographic
area,
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but a combination of these licenses and the roaming agreements
with other carriers provide each of Nextel Argentinas
competitors with national coverage. The PCS licenses and
associated frequencies provide existing cellular companies with
increased spectrum capabilities and the ability to launch a wide
range of wireless products and services. Affiliated companies of
Movistar, CTI and Personal are also licensed to offer wireline
local, long distance and other telecommunications services. In
the SMR market, Nextel Argentinas only competitor is
Movistar Trunking, formerly known as Movilink, which is now
owned by the Telefonica Moviles Group. As noted above, Nextel
Argentina has agreed to purchase the assets related to the
Movilink business from Telefonica Moviles. During 2005, Movistar
and CTI launched Push-To-Talk over Cellular service.
As a result of the purchase of Compania de Radiocomunicaciones
Moviles, S.A., or Movicom, by the Telefonica Moviles Group, and
due to existing limitations in the amount of spectrum that a
group may hold in any given geographical region or area
(50 MHz maximum), Movistar is forced to return
approximately 45 MHz of spectrum in certain regions where
it may exceed the 50 MHz limitation. This may create
opportunities for existing carriers or new entrants to bid for
such spectrum should this spectrum be auctioned off publicly.
However, the Argentine government has announced plans to award
this spectrum to a new mobile services company made up of
existing telephone cooperatives. Although it was originally
announced that the new company would begin operations during
2006, no new announcements have been made as of
December 31, 2007.
We believe that the most important factors upon which Nextel
Argentina competes are the quality of our customer service and
network, brand recognition, our consultative distribution
channels and our differentiated services, primarily our Direct
Connect service, which is available throughout all areas where
Nextel Argentina provides digital service. While its competition
generally targets the prepaid market, Nextel Argentina primarily
targets small and medium-sized businesses with mobile workforces
and high-end individuals. Substantially all of our subscribers
in Argentina are on post-paid contracts.
Regulatory and Legal Overview. The Comision
Nacional de Comunicaciones, referred to as the Argentina CNC,
the Secretary of Communications of Argentina, and the Ministry
of Federal Planning, Public Investments and Services are the
Argentine telecommunications authorities responsible for the
administration and regulation of the telecommunications
industry. Following the commitments made under the GATT
regarding the World Trade Organization, or WTO, Basic
Telecommunications Agreement, Argentina fully liberalized its
telecom market beginning in 2000.
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Licenses of telecommunications
services. Licenses enable the rendering of
telecommunications services and are independent of the
authorizations to use spectrum (see Authorization of
Spectrum below). The regulations establish a single
license system that allows the license holder to offer any and
all types of telecommunications services. However, each specific
service to be offered must be separately registered with the
Secretary of Communications and is required to be launched
within an
18-month
term. The licensee is free to choose the geographic area,
technology and architecture through which its telecommunications
services will be provided. Licenses of telecommunications
services may be revoked for violation of the applicable
regulations. Licenses and spectrum authorizations may not be
transferred or assigned, in whole or in part, without prior
written approval of regulatory authorities. Prior authorization
is also required upon a change of control of a licensee
resulting from the transfer of the licensees capital
stock. Argentina does not impose any limitation of foreign
ownership of telecom licenses.
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In addition to its SMR service, Nextel Argentina is deemed to
have registered the following services: paging, data
transmission, value added services and long distance telephony,
among others.
The tariffs for SMR services are freely fixed by Nextel
Argentina. Charges recovered by Nextel Argentina for calling
party pays calls originated in fixed lines depend on a reference
price set periodically by the Minister of Federal Planning,
Public Investments and Services.
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Authorizations of spectrum. The use of SMR
spectrum is subject to the prior granting of an authorization to
use that spectrum in a specified, limited geographical area. SMR
authorizations granted through the year 2000 have an indefinite
term, and those granted beginning in 2001 expire after a
10 year-term. Nextel Argentina holds licenses to use 1,805
channels, including those covering the major business markets
areas, without expiration term, and 1,470 channels with
10-year
terms, mostly in smaller markets. SMR authorizations are subject
to service launch and subscriber loading requirements. To ensure
the efficient and effective use of spectrum, the Secretary is
empowered to partially or totally revoke awarded spectrum if it
is not used, or if it is not used in accordance with the terms
and conditions under which it was granted. Nextel Argentina
believes it has satisfied all of its launching and loading
requirements on its existing spectrum positions.
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In September 2005, the Secretary of Communications issued a new
resolution, which established the rules under which new SMR
spectrum is awarded. The new SMR regulations establish a
180-day term
to launch the service in the corresponding geographical area. It
also requires that at least 30% of the infrastructure equipment
deployed to operate on spectrum that is the subject of each new
authorization should consist of Argentinean source goods. The
regulation is not clear as to the computation of this
percentage. Nextel Argentina believes that it has plausible
arguments to eventually challenge this rule regarding
Argentinean source goods.
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Network interconnection. SMR service providers
are assured interconnection with other operators networks,
including the public switched telephone network, on a
nondiscriminatory basis. Interconnection terms and prices are
freely negotiated between the parties, although the regulations
include guidelines which are generally followed in practice and
which can be imposed by the Secretary of Communications if an
agreement between the parties is not reached. All
interconnection agreements entered into must be registered with
the Argentine CNC. Additional requirements are imposed or may be
imposed on all dominant carriers to ensure that the Argentine
telecommunications market is open to competition. Nextel
Argentina provides interconnect services to its subscribers
under interconnection agreements with Telefonica de Argentina
S.A. and Telecom Argentina S.A., as well as other smaller local
carriers. Nextel Argentina has also implemented a calling party
pays program with the fixed line carriers with whom it
interconnects under which Nextel Argentina is compensated at
agreed rates for calls made to its subscribers from those
networks for those subscribers who purchase our services under
calling party pays rate plans.
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Turnover tax. The government of the city of
Buenos Aires imposes a turnover tax rate of 6% of revenues for
cellular companies while maintaining a 3% rate for other
telecommunications services. From a regulatory standpoint, we
are not considered a cellular company, although, the city of
Buenos Aires made claims to the effect that the higher turnover
tax rate should apply to our services. As a result, until April
2006, Nextel Argentina paid the turnover tax at a rate of 3% and
recorded a liability and related expense for the differential
between the higher rate applicable to cellular carriers and the
3% rate, plus interest. In 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.
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 $4.2 million, plus
interest, 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 determined that it would continue to pay the 3%
general turnover tax rate and would continue with its efforts to
obtain reimbursement of amounts previously paid under protest,
but would discontinue its prior practice of accruing for the
incremental difference in the cellular rate. In March 2007,
Nextel Argentina filed an administrative claim to recover the
amounts paid under protest from April 2006 through December
2006. In November 2007, Nextel Argentina received a
$4.2 million tax refund, plus interest, as the result of a
resolution issued by the tax authorities of the city of Buenos
Aires with respect to the amounts paid from April 2006 through
December 2006 relating to this tax. Nextel Argentina believes
that the tax refund clarifies and confirms the 3% general
turnover tax rate. The resolution also indicated that the city
of Buenos Aires will defer the decision of the pending lawsuit
to pursue the reimbursement of the $18.8 million paid under
protest in April 2006. In addition, Nextel Argentina
unconditionally and unilaterally committed to donate
$3.4 million to charitable organizations.
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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. 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.
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Universal service obligation. 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
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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
began depositing these contributions in September 2007,
effective for the period beginning July 1, 2007.
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As a result of various events, during 2005, Nextel Argentina
accrued for the maximum liability due to customers for amounts
billed during all periods ending December 31, 2005, plus
interest. Nextel Argentina continued accruing the higher amount
during the first quarter of 2006 while maintaining its position
that there is no basis for this reimbursement to customers. As
of April 1, 2006, Nextel Argentina changed its rate plan
structure, which eliminated all other charges and any further
contingencies related to this tax. In April 2006, Nextel
Argentina filed a judicial claim against the legislation passed
in May 2005, which is currently pending.
Foreign Currency Controls and Dividends. On
January 6, 2002, a new Argentine emergency law became
effective, and the government formally declared a public
emergency in economic, administrative, financial and exchange
control matters. The law empowered the Federal Executive Power
to regulate those areas until December 10, 2003, subject to
overview by the National Congress. The Emergency Law amended
several provisions of the 1991 Convertibility Law
No. 23,928, the most significant of which was to repeal the
peg of the Argentine peso to the U.S. dollar. The
effectiveness of the Argentine Emergency Law was extended
through December 31, 2008 by the passing of a subsequent
law.
On February 3, 2002, the Federal Executive Power issued a
new decree, which reorganized Argentinas financial system
and converted the economy into Argentine pesos.
Pursuant to another decree, the National Executive Power and the
Argentine Central Bank have placed certain restrictions on the
acquisition of foreign currency by Argentine and non-Argentine
residents and on the inflow and outflow of capital to and from
Argentina, including those for the purposes of repayment of
principal and interest, dividend payments and repatriation of
capital. In addition, there are specific guidelines that must be
complied with in order to make any repayment of principal or
interest to foreign creditors. According to such regulations,
payments of profits and dividends abroad may be carried out as
long as they correspond to financial statements certified by
external auditors.
On June 9, 2005, the Federal Executive Power issued a
decree, which introduced new restrictions to the transfer of
funds to and from Argentina and created a mandatory deposit of
30% of the funds transferred to Argentina. This decree provides
that, under certain circumstances, both Argentinean and
non-Argentinean residents transferring funds from abroad to
Argentina are obligated to make a
365-day
registered non-transferable non-interest bearing cash deposit
equal to 30% of the funds transferred by them to Argentina.
Among others, foreign direct and primary issuances of debt or
cash securities with public offering in the capital or stock
markets are exempt from such restricted deposit requirement.
Under applicable Argentine corporate law, a company may pay
dividends only from liquid and realized profits as shown on the
companys financial statements prepared in accordance with
Argentine generally accepted accounting principles and duly
approved by the shareholders meeting. Of those profits, 5% must
be set aside until a reserve of 20% of the companys
capital stock has been established. Subject to these
requirements, the balance of profits may be declared as
dividends and paid in cash upon a majority vote of the
stockholders. Under current law, dividend payments are not
subject to withholding tax, except when the dividend payments
are the result of profits paid out in excess of the profits
computed for income tax purposes for the financial year
preceding the date of the distribution of such dividends. If
dividends are paid in this manner, a 35% withholding tax applies
on the amount of the surplus. A withholding tax of 35% applies
to interest paid by Nextel Argentina to NII Holdings or any of
its U.S. subsidiaries.
Operating Company Overview. We refer to our
wholly-owned Peruvian operating company, Nextel del Peru, S.A.,
as Nextel Peru. Nextel Peru provides digital mobile services
under the tradename Nextel in major business
centers, including Arequipa, Chimbote, Cuzco, Ica, Lima and
Trujillo, and along related transportation corridors.
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Nextel Peru operates parallel analog and digital mobile networks
in the metropolitan area of Lima. As of December 31, 2007,
Nextel Peru provided service to about 476,900 digital handsets,
which we estimate to be about 4% of the total digital handsets
in commercial service in Peru.
Nextel Peru is headquartered in Lima. As of December 31,
2007, Nextel Peru had 1,138 employees.
In July 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. In
addition, in July 2007, Nextel Peru entered into an agreement,
which is subject to regulatory approval, providing for the
purchase of 54 MHz of 2.5 GHz spectrum throughout the
greater Lima area for $11.3 million, and in October 2006,
Nextel Peru purchased Millicom Peru, S.A. As a result of the
purchase of Millicom Peru, Nextel Peru acquired 50 MHz of
3.4 GHz spectrum in all major provinces, as well as various
network assets and equipment.
Competition. Nextel Peru competes with all
other providers of mobile services in Peru, including Telefonica
Moviles S.A. and America Movil Peru S.A.C., a subsidiary of
Mexicos America Movil. Telefonica Moviles S.A. provides
nationwide coverage and operates under the brand name
Movistar. America Movil provides nationwide coverage
and operates under the brand name Claro.
We believe that the most important factors upon which Nextel
Peru competes are the quality of our customer service and
network, brand recognition and our differentiated services,
primarily our Direct Connect service, which is available
throughout all areas where Nextel Peru provides digital service.
Nextel Peru primarily targets mobile workforces, including
large, mid-size and small corporations and their respective
business networks.
Regulatory and Legal Overview. The Organismo
Supervisor de Inversion Privada en Telecomunicaciones of Peru,
known as OSIPTEL, and the Ministry of Transportation and
Communications of Peru, referred to as the Peruvian Ministry of
Communications, regulate the telecommunications industry in
Peru. OSIPTEL oversees private investments and competition in
the telecommunications industry. The Peruvian Ministry of
Communications grants telecommunications licenses and issues
regulations governing the telecommunications industry. In 1991,
the Peruvian government began to deregulate the
telecommunications industry in an effort to promote free and
open competition. The Telecommunications Law of Peru, the
general regulations under that law and the regulations issued by
OSIPTEL govern the operation of SMR services in Peru, which are
considered public mobile services in the same category as
cellular and personal communications services.
In Peru, SMR service providers are granted
20-year
licenses, which may be extended for an additional
20-year
term, subject to compliance with the terms of the license.
Licenses may be revoked before their expiration for violations
of applicable regulatory and license requirements. Licensees
must also comply with a minimum expansion plan that establishes
the minimum loading and coverage requirements for the licensees,
as well as spectrum targets under the licenses. We believe that
Nextel Peru has met its loading and coverage requirements and
has reached its spectrum targets.
Under the general regulations of Perus telecommunications
law, all public telecommunications service providers have the
right to interconnect to the networks of other providers of
public telecommunications services. Furthermore, interconnection
with these networks must be on an equal and nondiscriminatory
basis. The terms and conditions of interconnection agreements
must be negotiated in good faith between the parties in
accordance with the interconnect regulations and procedures
issued by OSIPTEL, which specify the rates to be charged for
these services. Nextel Peru is presently interconnected with all
major telecommunications operators in Peru, including Telefonica
del Peru S.A.A., Telefonica Moviles S.A., America Movil Peru
S.A.C. and Telmex Peru S.A.
Peru imposes no limitation on foreign ownership of SMR or paging
licenses or licensees. In November 2005, OSIPTEL adopted
regulations that resulted in savings in interconnect rates over
a four-year period ending December 31, 2009.
In 1998, Nextel Peru entered into a
10-year tax
stability agreement with the Peruvian government that suspends
its net operating loss carryforwards from expiring until Nextel
Peru generates taxable income. Once Nextel Peru generates
taxable income, Nextel Peru has four years to offset those tax
loss carryforwards against taxable income, and any taxable
income in excess of the tax loss carryforwards will be taxed at
30%. During 2005, 2006 and 2007, Nextel Peru generated taxable
income and offset a portion of the tax loss carryforwards
against the taxable income generated in those years. The
remaining tax loss carryforwards in Peru will expire on
December 31, 2008 if not used by that date. At this time,
we believe it is more likely than not that these tax loss
carryforwards will be fully utilized prior to their expiration.
The 1998 tax stability agreement effectively expired on
January 1, 2008. Nextel
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Peru has the option to negotiate a new and similar tax stability
agreement with the Peruvian government during the first quarter
of 2008.
Foreign Currency Controls and Dividends. Under
current law, Peruvian currency is freely convertible into
U.S. dollars without restrictions. Peru has a free exchange
market for all foreign currency transactions. On both
October 1, 1998 and May 31, 2001, Nextel International
(Peru), LLC executed legal stability agreements with the
Peruvian government, which, among other things, guaranteed the
free conversion in foreign currency of, and free currency
remittances related to, its investments in Nextel Peru of
$85.0 million and $100.0 million, respectively, for a
term of 10 years.
The payment and amount of dividends on Nextel Perus common
stock is subject to the approval of a majority of the
stockholders at a mandatory meeting of its stockholders.
According to Peruvian corporate law, the stockholders may decide
on the distribution of interim dividends or, alternatively,
delegate the decision to the board of directors. Dividends are
also subject to the availability of profits, determined in
accordance with Peruvian generally accepted accounting
principles. Profits are available for distribution only after
10% of pre-tax profits have been allocated for mandatory
employee profit sharing, and 10% of the net profits have been
set aside to constitute a legal reserve. This reserve is not
available for use except to cover losses in the profit and loss
statement. This reserve obligation remains until the legal
reserve constitutes 20% of the capital stock. Once this legal
reserve is met, the balance of the net profits is available for
distribution. A 4.1% withholding tax applies to dividends paid
by Nextel Peru to its foreign shareholders, and a 30%
withholding tax applies to interest paid by Nextel Peru to NII
Holdings or its non-Peruvian subsidiaries.
Operating Companies Overview. We refer to our
wholly-owned Chilean operating company, Centennial Cayman Corp.
Chile S.A., as Nextel Chile. We also have a second operating
company known as Multikom, S.A. Nextel Chile provides analog
services under the tradenames Centennial and
Multikom and digital mobile services under the
tradename Nextel. These operating companies provide
digital service in Santiago and along related transportation
corridors and on a limited basis in Valparaiso and Vina del Mar.
These operating companies also provide analog service in
Santiago, Valparaiso and Vina del Mar, as well as in a number of
smaller markets. As of December 31, 2007, Nextel Chile
provided services to about 9,900 digital handsets and about 900
analog handsets.
Nextel Chile is headquartered in Santiago, Chile. As of
December 31, 2007, Nextel Chile had 116 employees.
Competition. Currently, there are no other
providers of digital SMR services in Chile. Competitors in the
analog SMR business in Chile are Gallyas S.A., Mobilink S.A. and
Sharfstein, S.A.
There are also three mobile telephone service providers
authorized to operate throughout Chile. These providers are
Entel Chile, Telefonica Moviles de Chile S.A. and Claro S.A.
Entel Chile, which was formerly controlled by Telecom Italia
Movil, or TIM, has been controlled by Chilean investors since
2005 and, through its subsidiaries Entel PCS Telecomunicaciones
S.A. and Entel Telefonica Movil S.A., operates two 30 MHz
concessions in the 1900 MHz band using GSM technology.
Telefonica Moviles de Chile S.A., also known by its commercial
name, Movistar, is controlled by Telefonica Moviles S.A. of
Spain and operates one 25 MHz concession in the
800 MHz band using TDMA technology and one 20 MHz
concession in the 1900 MHz band using GSM/GPRS technology.
It also operates another 10 MHz concession in the
1900 MHz band using CDMA technology.
Finally, Claro S.A., which is owned by America Movil, is the
third mobile operator in Chile. Claro S.A. operates a
30 MHz concession in the 1900 MHz band under the
trademark Claro and auctioned a 25 MHz
concession in the 800 MHz band from Telefonica Moviles de
Chile S.A.
Regulatory and Legal Overview. The main
regulatory agency of the Chilean telecommunications sector is
the Ministry of Transportation and Telecommunications (the
Ministry), which acts primarily through the Undersecretary of
Telecommunications (the Undersecretary). The application,
control and interpretation of the provisions of the General
Telecommunications Law and other applicable regulations are the
responsibilities of the Ministry, which usually acts through the
Undersecretary for these purposes. The decisions of the Ministry
and the Undersecretary are subject to review by the Judiciary
and the Chilean Antitrust Court.
Telecommunications concessions granted by the Chilean regulatory
authorities are not limited as to their number, type of service
or geographical area. Therefore, it is possible to grant two or
more concessions for the
19
provision of the same service on the same location, except where
technical limitations exist. Concessions for the provision of
public telecommunications services are generally granted for a
30-year
period. These concessions may be renewed for additional
30-year
periods if requested by the concessionaire.
In Chile, concessionaires of public telecommunications services
and concessionaires of long distance telephonic services are
required by law to establish and accept interconnections with
each other. The Undersecretary has issued regulations relating
to the interconnection of public telephone networks with other
public telecommunications services of the same type. On
January 31, 2001, the Undersecretary published a new
technical rule related to the provision of digital SMR services.
However, under these regulations, even if services are
determined to be of the same type, providers of public
telecommunications services may not be interconnected to the
public telephone networks unless their concessions expressly
authorize interconnection, which in many cases, including some
of ours, requires an amendment to the concession. Nextel Chile
has been granted that authorization.
Additionally, providers of public telecommunications services of
the same type that are authorized to be interconnected with
public telephone networks are also able to request the
assignment of specific numbering blocks for their subscribers.
Rules governing routing procedures have also been adopted to
this effect. As with interconnection, a provider of public
telecommunications services of the same type must be
specifically authorized in its concessions to interconnect
before obtaining numbering. Our operating companies have been
granted numbering blocks and are currently interconnected to the
public switched telephone network.
SMR concessionaires may freely determine the fees charged to
their subscribers. However, the fees and tariffs charged by a
telecommunications concessionaire to other telecommunications
concessionaires for the services rendered through
interconnections, including the access fees, are fixed by the
regulatory authorities in accordance with a tariff-setting
procedure based upon, among other things, the cost structure,
including expansion plans, of an efficient concessionaire, as
set forth in the General Telecommunications Law. This procedure
is necessary for the mandatory application of the calling party
pays system among the telecommunications concessionaires. The
tariff-setting procedure for our operating companies began on
August 19, 2004 and ended on July 22, 2005 when the
Minister of Transports and Telecommunications jointly with the
Minister of Economy issued two Tariff Decrees, one for each
operating company. These Tariff Decrees will be in effect for
five years from its publication in the official Gazette, which
occurred on September 12, 2005.
In order to provide digital SMR services in Chile, incorporate
digital technology to the networks of our Chilean operating
companies and obtain the corresponding authorization to
interconnect such networks to the publicly switched telephone
network, in 2001, our Chilean operating companies filed for the
amendment of a group of SMR concessions totaling 130 channels in
Santiago according to the procedures established in the General
Telecommunications Law. On April 26, 2004, the decrees
amending the concessions where published in the official gazette
ending the amendment process, and authorizing the deployment and
interconnection of Nextel Chiles iDEN network.
Since the publication in the official gazette of the new decrees
amending our analog concessions and authorizing us to offer
digital service, we originally had a period of 14 to
28 months to build the network. However, in April 2005, we
obtained a two-year extension of the build-out deadline, and in
October 2007, we obtained an additional
24-month
extension to build the remaining sites in the previously
authorized network. Currently the network has been partly built
and approval upon completion of such network has been granted by
the authorities, granting Nextel Chile the permission to begin
rendering digital services and charging for them. If the rest of
the digital network is not completely built within this extended
timeframe, and if we cannot obtain a new extension, we may be
sanctioned by the Chilean authorities with a written admonition
or nominal fines unless Nextel Chile decides to resign the right
to build those sites still under building commitments.
On June 14, 2006, the Supreme Court issued a final decision
on a lawsuit filed by Movistar (formerly Bellsouth) and Claro
(formerly Smartcom) regarding the validity of a portion of our
spectrum concessions. In its decision, the Supreme Court
declared that a group of concessions totaling 150 channels in
Santiago and additional channels in other parts of the country,
which are owned by our operating companies, had been legally
granted by the State of Chile, and therefore overturned a prior
lower court ruling that had declared them null and void. During
2007, we filed requests to amend these concessions in order to
digitalize them and incorporate these channels, which are not a
part of the 130 channels to which digitalization and
interconnection was already granted into our digital network.
In October 2006, Nextel Chile received authorization to use the
switch and the first sites of the network in Santiago and to
charge its digital customers for the use of services through its
digital network.
20
Foreign Currency Controls and Dividends. The
purchase and sale of foreign currency in Chile is not subject to
governmental control. Accordingly, any person may freely engage
in foreign exchange transactions. There are two foreign exchange
markets in Chile. The first is the formal exchange market, which
is subject to the regulations of the Chilean Central Bank and
which consists of banks and other entities authorized to
participate in the market by the Central Bank. This market is
generally used for trade-related transactions, such as import
and export transactions, regulated foreign currency investments
and other transactions, such as remittances abroad. Purchases
and sales of foreign exchange may be effected in the formal or
the informal exchange markets. The informal exchange market
consists of entities not expressly authorized to operate in the
formal exchange market, such as foreign exchange houses and
travel agencies. Both markets operate at floating rates freely
negotiated between the participants. There are no limits imposed
on the extent to which the informal exchange rate can fluctuate
above or below the formal exchange rate or the observed exchange
rate. The observed exchange rate is the official exchange rate
determined each day by the Central Bank based on the average
exchange rates observed in the formal exchange market.
Foreign investments in Chile are subject to exchange controls.
The investment of capital exceeding US $10,000 in Chile and the
repatriation of the investment and its profits must be carried
out under either Decree Law No. 600 or under
Chapter XIV of the Compendium of Foreign Exchange
Regulations issued by the Central Bank of Chile under the
Central Bank Act. Foreign funds registered under Decree Law
No. 600 provide specified guarantees with respect to the
ability to repatriate funds and the stability of the applicable
tax regime. Decree Law No. 600 permits foreign investors to
access the formal exchange market to repatriate their
investments and profits.
Access to the formal exchange market to repatriate investments
and profits derived from investments conducted under
Chapter XIV rules are governed by regulations in force and
effect at the time of repatriation.
The foreign investment regulations may permit foreign investors
to access the formal exchange market to repatriate their
investments and profits as stated above. They do not, however,
necessarily guarantee that foreign currency will be available in
the market.
Under Chilean corporate law, corporations, such as our Chilean
companies, may distribute dividends among their stockholders
only from the net profits of a specific fiscal year or from
retained profits recognized by balance sheets approved by the
stockholders meeting. However, if the company has
accumulated losses, profits of that corporation must first be
allocated to cover the losses. Losses in a specific fiscal year
must be offset with retained profits, if any.
Unless otherwise agreed at a stockholders meeting by the
unanimous vote of all issued shares, publicly traded
corporations must annually distribute at least 30% of the net
profits of each fiscal year. This distribution must be in the
form of a cash dividend to their stockholders in proportion to
their ownership or as otherwise stated in the bylaws. Privately
held corporations, such as our Chilean operating companies, must
follow the provisions of their bylaws; if the bylaws do not
contain these provisions, the rules described above for the
distribution of profits by publicly traded stock corporations
apply. As a general rule, any dividend paid by Nextel Chile to
its foreign shareholders will be subject to a 35% withholding
tax rate, reduced by a tax credit to recognize the 17% corporate
tax paid by Nextel Chile on the income distributed or remitted
abroad. A 35% withholding tax applies to interest paid by Nextel
Chile to NII Holdings or its U.S. affiliates.
In any event, the board of directors may distribute provisional
dividends if the corporation has no accumulated losses, subject
to the personal responsibility of the directors approving the
distributions.
As of December 31, 2007, we had 164 employees at the
corporate level, and our operating companies had
9,709 employees. Nextel Brazil is a party to a collective
bargaining agreement that covers all of its employees and
expires on April 30, 2008. Neither we nor any of our other
operating companies is a party to any collective bargaining
agreement although certain of our operating companies are
subject to employment statutes and regulations that establish
collective bargaining arrangements that are similar in substance
to collective bargaining agreements. We believe the relationship
between us and our employees, and between each of our operating
companies and its employees, is good.
Investors should be aware that we and our business are subject
to various risks, including the risks described below. Our
business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading
price of our common stock could decline due to any of these
risks, and investors may lose
21
all or part of any investment. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of certain factors, including the risks
faced by us described below and included elsewhere. Please note
that additional risks not presently known to us or that we
currently deem immaterial may also impair our business and
operations.
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1.
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If we
are not able to compete effectively in the highly competitive
wireless communications industry, our future growth and
operating results will suffer.
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Our success will depend on the ability of our operating
companies to compete effectively with other telecommunications
services providers, including wireline companies and other
wireless telecommunications companies, in the markets in which
they operate.
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a.
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Some of our competitors are financially stronger than we are,
which may limit our ability to compete based on price.
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Because of their size and resources, and in some cases ownership
by larger companies, some of our competitors may be able to
offer services to customers at prices that are below the prices
that our operating companies can offer for comparable services.
If we cannot compete effectively based on the price of our
service offerings and related cost structure, our results of
operations may be adversely affected. Many of our competitors
are well-established companies that have:
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substantially greater financial and marketing resources;
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larger customer bases;
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larger spectrum positions; and
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larger coverage areas than those of our operating companies.
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Further, significant price competition and other actions by our
competitors could negatively impact our operating results and
our ability to attract and retain customers. For example, some
of Nextel Mexicos larger competitors have increased the
level of competition in Mexico by, among other things,
significantly lowering prices for postpaid wireless services,
offering free or significantly discounted handsets, offering
various incentives to larger customers to switch service
providers, including reimbursement of cancellation fees, and
offering bundled telecommunications services that include local,
long distance and data services. In addition, we anticipate that
all of our operating companies will continue to face strong
market pressure to reduce the prices charged for their products
and services because of increased competition in our markets.
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b.
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Our equipment is more expensive than that of our competitors,
which may limit our ability to compete with other companies that
rely on more prevalent technologies and less expensive
equipment.
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Our digital mobile networks utilize iDEN technology developed
and designed by Motorola. iDEN is a proprietary technology that
relies solely on the efforts of Motorola and any future
licensees of this technology for product development and
innovation. Additionally, Motorola and RIM are the sole
suppliers of all of our handsets. In contrast, our competitors
use infrastructure and subscriber equipment that are based on
standard technologies like GSM, which is a substantially more
widely used technology than iDEN and is available from a
significant number of suppliers. As a result, our competitors
benefit from economies of scale and lower costs for handsets and
infrastructure equipment. These factors, as well as the higher
cost of our handsets and other equipment may make it more
difficult for us to attract or retain customers, and may require
us to absorb a comparatively larger cost of offering handsets to
new and existing customers. The combination of these factors may
place us at a competitive disadvantage and may reduce our growth
and profitability.
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c.
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Our operating companies may face disadvantages when competing
against formerly government-owned incumbent wireline operators
or wireless operators affiliated with them.
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In some markets, our operating companies may not be able to
compete effectively against a formerly government-owned monopoly
telecommunications operator, which today enjoys a near monopoly
on the provision of wireline telecommunications services and may
have a wireless affiliate or may be controlled by shareholders
who also control a wireless operator. For example, Telcel, which
is one of our largest competitors in Mexico, is an affiliate of
Telefonos de Mexico, S.A.B. de C.V., which provides wireline
services in Mexico and was formerly a government-owned monopoly.
Similarly, in Peru, we compete with Telefonica Moviles, which is
an affiliate of the Telefonica del Peru, S.A.A., which operates
wireline services in Peru and was formerly a government-owned
22
monopoly. Our operating companies may be at a competitive
disadvantage in these markets because formerly government-owned
incumbents or affiliated competitors may have:
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close ties with national regulatory authorities;
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control over connections to local telephone lines; or
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the ability to subsidize competitive services with revenues
generated from services they provide on a monopoly or
near-monopoly basis.
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Our operating companies may encounter obstacles and setbacks if
local governments adopt policies favoring these competitors or
otherwise afford them preferential treatment. As a result, our
operating companies may be at a competitive disadvantage to
incumbent providers, particularly as our operating companies
seek to offer new telecommunications services.
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d.
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Our coverage is not as extensive as those of other wireless
service providers in our markets, which may limit our ability to
attract and retain customers.
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We have recently expanded the coverage of our networks,
particularly in Mexico and Brazil, but our digital mobile
networks do not offer nationwide coverage in all of the
countries in which we operate and our technology limits our
potential roaming partners. As a result, we may not be able to
compete effectively with cellular and personal communications
services providers, many of whom operate cellular and personal
communications networks with more extensive areas of service.
Additionally, many of these providers have entered into roaming
agreements with each other, which permit these providers to
offer coverage to their subscribers in each others
markets. The iDEN technology that we deploy is not compatible
with other wireless technologies such as the digital cellular or
personal communications services technologies used by our
competitors or with other iDEN networks not operating in the
800 MHz spectrum. Although some of the handset models that
we sell are compatible with both iDEN 800 MHz and GSM
900/1800 MHz systems, we offer very few of these models
and, as such, we are more limited in our ability to offer the
breadth of roaming capabilities of our competitors. In addition,
our customers are not able to roam on other carriers
networks where we do not have roaming agreements. These factors
may limit our ability to attract certain customers.
To date, we have not entered into roaming agreements with
respect to GSM services offered in the countries in which our
operating companies conduct business, but have entered into
agreements that allow our customers to utilize roaming services
in other countries using the handsets that are compatible with
both iDEN and GSM systems and using other GSM handsets.
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e.
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If we do not keep pace with rapid technological changes, we
may not be able to attract and retain customers.
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The wireless telecommunications industry is experiencing
significant technological change. For example, some of our
competitors, including American Movil in Brazil, Telecom
Personal, S.A. in Argentina and Entel Chile in Chile, have
recently launched upgraded network technology, often referred to
as 3G technology, which is designed to allow them to offer
services that incorporate high speed data services, including
internet access and video telephony. These and other future
technological advancements may enable other wireless
technologies to equal or exceed our current level of service and
make the services we offer less competitive. These new
technologies generally operate on higher spectrum bands than the
800 MHz spectrum band on which our iDEN technology
currently operates. In addition, much of the 800 MHz
spectrum that our operating companies are licensed to use is
non-contiguous while the 3G technology platforms that are
currently available operate only on contiguous spectrum, and,
except in Peru, we do not hold rights to use additional spectrum
in bands that would facilitate a transition to a new network
technology. These factors may make it more difficult or
impossible for us to migrate to a new technology if we choose to
do so, which makes us heavily reliant on Motorola, as the sole
supplier of iDEN technology, to maintain the competitiveness of
our services and subscriber equipment. As a result, if Motorola
is unwilling or unable to upgrade or improve iDEN technology or
develop other technology solutions to meet future advances in
competing technologies on a timely basis, or at an acceptable
cost, we will be less able to compete effectively and could lose
customers to our competitors. In addition, if we decide to
pursue the deployment of a new technology that operates on a
higher spectrum band, we will incur costs to acquire this new
spectrum band. See 8. Costs and other aspects of a
future deployment of advanced digital technology could adversely
affect our operations. for more information. Recently,
Motorolas support of the evolution of the iDEN technology
and of the development of new features, functionality and
handset models has been adversely affected by Sprint Nextel
Corporations reduced purchases of iDEN equipment due to
its announced plans to migrate to a next generation CDMA network
platform. This decline in support may, over time, make it more
difficult for us to compete with
23
competitors who offer a wider range of handset models and
services. In addition, competition among the differing wireless
technologies could:
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segment the user markets, which could reduce demand for our
technology; and
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reduce the resources devoted by third-party suppliers, including
Motorola, which supplies all of our current digital mobile
technology, to developing or improving the technology for our
systems.
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f.
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If our wireless communications technology does not perform in
a manner that meets customer expectations, we will be unable to
attract and retain customers.
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Customer acceptance of the services we offer is and will
continue to be affected by technology-based differences and by
the operational performance and reliability of our digital
mobile networks. We may have difficulty attracting and retaining
customers if we are unable to address and resolve satisfactorily
performance or other transmission quality issues as they arise
or if these issues:
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limit our ability to expand our network coverage or capacity as
currently planned; or
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place us at a competitive disadvantage to other wireless service
providers in our markets.
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g.
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We may be limited in our ability to grow unless we expand
network capacity and coverage and address increased demands on
our business systems and processes as needed.
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Our subscriber base continues to grow rapidly. To continue to
successfully increase our number of subscribers and pursue our
business plan, we must economically:
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expand the capacity and coverage of our networks;
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secure sufficient transmitter and receiver sites at appropriate
locations to meet planned system coverage and capacity targets;
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obtain adequate quantities of base radios and other system
infrastructure equipment; and
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obtain an adequate volume and mix of handsets to meet subscriber
demand.
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From time to time, we experience difficulty in obtaining
sufficient volumes and types of handsets from Motorola; delays
in the development and availability of new handset models; and
handset manufacturing quality problems, particularly with
respect to new handset models. Our operating performance and
ability to retain new customers may be adversely affected if we
are not able to timely and efficiently address these matters,
meet the demands for our services and address any increased
demands on our customer service, billing and other back-office
functions. In the next few years, we plan to deploy new systems
that are designed to support the expected demands on our
customer care and billing functions, but the transition to these
new systems could heighten these risks.
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2.
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Because
we rely on one supplier to implement our digital mobile
networks, any failure of that supplier to perform could
adversely affect our operations.
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Much of the spectrum that our operating companies are licensed
to use is non-contiguous, and the iDEN technology is the only
widespread, commercially available digital technology that
operates on non-contiguous spectrum. As a result, Motorola is
currently our sole source for most of the digital network
equipment and substantially all of the handsets used throughout
our markets, except for the Blackberry handset, which is
manufactured by Research in Motion, or RIM. If Motorola fails to
deliver system infrastructure equipment and handsets or
enhancements to the features and functionality of our networks
on a timely, cost-effective basis, we may not be able to
adequately service our existing customers or attract new
customers. Nextel Communications, a subsidiary of Sprint Nextel
Corporation, is the largest customer of Motorola with respect to
iDEN technology and, in the past, has provided significant
support with respect to new product development for that
technology. Sprint Nextel Corporation has announced plans to
migrate Nextels push-to-talk services to a next generation
CDMA network platform, which we believe has contributed to a
recent decline in Motorolas support for the development of
new iDEN handset models. As a result, we have had access to a
reduced number of new handset models, which has made it more
difficult for us to compete effectively in some of our markets
where new handset styles and features are heavily valued by
customers. Lower levels of iDEN equipment purchases by Sprint
Nextel Corporation could also significantly increase our costs
for equipment and new network features and handset developments
and could impact Motorolas decision to continue to support
iDEN technology beyond their current commitment. In the event
Motorola determines not to continue supporting or enhancing our
iDEN based infrastructure and handsets, because Sprint Nextel
Corporation decreases its use of iDEN technology or otherwise,
we may be materially adversely affected. We expect to continue
to rely principally on Motorola for the manufacture of a
substantial portion of the
24
equipment necessary to construct, enhance and maintain our
iDEN-based digital mobile networks and for the manufacture of
iDEN compatible handsets.
Our operating costs and future capital expenditures may also be
affected by Motorolas success in developing improvements
relating to the iDEN technology. For example, Motorola developed
a 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 without
requiring additional network infrastructure equipment. Beginning
in 2004, we started selling handsets that can operate using the
new 6:1 voice coder technology, and we have deployed the related
network software modifications that are necessary to utilize
this technology in some of our markets. We have experienced
voice quality problems related to certain types of calls made
using the 6:1 voice coder technology and in some markets, we
have adjusted the network software to reduce the number of calls
completed using the 6:1 voice coder technology in order to
balance our network capacity needs with the need to maintain
voice quality. Because we have not used the 6:1 voice coder
technology to its full capacity, we have invested more capital
in our infrastructure to satisfy our network capacity needs than
would have been necessary if we had been able to complete a
higher percentage of calls using the technology, and we may make
similar investments in the future as we optimize our network to
meet our capacity and voice quality requirements. If we were to
decide to significantly curtail the use of the 6:1 voice coder
technology in all of our markets, these investments could be
significant.
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3.
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Our
reliance on indirect distribution channels for a significant
portion of our sales exposes us to the risk that our sales could
decline or cost of sales could increase if there are adverse
changes in our relationships with, or the condition of, our
indirect dealers.
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Our business depends heavily upon third party distribution
channels for securing a substantial portion of the new
subscribers to our services. In some of our markets, a
significant portion of our sales through these indirect
distribution channels is concentrated in a small number of third
party dealers. Because these third party dealers are the primary
contact between us and the subscriber in many instances, they
also play an important role in customer retention. As a result,
the volume of our new subscriber additions and our ability to
retain subscribers could be adversely affected if these third
party dealers terminate their relationship with us, if there are
adverse changes in our relationships with these dealers or if
the financial condition of these dealers deteriorates. In
addition, our profitability could be adversely affected if we
increase commissions to these dealers or make other changes to
our compensation arrangements with them.
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4.
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We
operate exclusively in foreign markets, and our assets,
customers and cash flows are concentrated in Latin America,
which presents risks to our operating plans.
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a.
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We face economic and political risks in our markets, which
may limit our ability to implement our strategy and our
financial flexibility and may disrupt our operations or hurt our
performance.
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Our operations depend on the economies of the markets in which
our operating companies conduct business, all of which are
considered to be emerging markets. These markets are in
countries with economies in various stages of development or
structural reform, some of which are subject to volatile
economic cycles and significant, rapid fluctuations in terms of
commodity prices, local consumer prices, employment levels,
gross domestic product, interest rates and inflation rates,
which have been generally higher, and in prior years,
significantly higher than the inflation rate in the United
States. Specifically, in the last two years, the inflation rate
in Argentina has risen significantly, and we expect that it may
continue to rise in the next several years, which will increase
our costs and could reduce our profitability in Argentina. If
these economic fluctuations and higher inflation rates make it
more difficult for customers to pay for our products and
services, we may experience lower demand for our products and
services and a decline in the growth of their customer base and
in revenues. In addition, recent economic indicators have
revealed that the United States economy is currently in a
downturn and may soon be in a recession. To the extent that this
downturn continues or worsens, the economies of the markets in
which we operate, particularly in Mexico, could be adversely
affected, which could lower demand for our products and services
and adversely impact our growth and profitability.
In recent years, the economies in some of the markets in which
we operate have also been negatively affected by volatile
political conditions and, in some instances, by significant
intervention by the relevant government authorities relating to
economic and currency exchange policies. We are unable to
predict the impact that presidential or other contested local or
national elections and the associated transfer of power from
incumbent officials or political parties to elected victors,
such as the recent elections in Argentina, may have on the local
economy or the growth and development of the local
telecommunications industry. Changes in leadership or in the
ruling party in the countries in which we operate may affect the
economic programs developed under the prior
25
administration, which in turn, may adversely affect the
economies in the countries in which we operate. Although
political, economic and social conditions differ in each country
in which we currently operate, political and economic
developments in one country or in the United States may affect
our business as a whole, including our access to international
capital markets.
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b.
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We are subject to fluctuations in currency exchange rates and
limitations on the expatriation or conversion of currencies,
which may result in significant financial charges, increased
costs of operations or decreased demand for our products and
services.
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Nearly all of our revenues are earned in
non-U.S. currencies,
while a significant portion of our capital and operating
expenditures, including imported network equipment and handsets,
and a significant amount of our outstanding debt, is denominated
in U.S. dollars. In addition, we report our results of
operations in U.S. dollars. The volatility of currency
exchange rates relative to the U.S. dollar, including as a
result of currency devaluations, has affected our financial
results. In some instances, changes in relative currency
valuations and other economic changes in our markets have
resulted in significant charges against our earnings and
negative adjustments to the carrying value of our assets.
Any depreciation of local currencies in the countries in which
our operating companies conduct business may result in increased
costs to us for imported equipment and may, at the same time,
decrease demand for our products and services in the affected
markets. If our operating companies distribute dividends in
local currencies in the future, the amount of cash we receive
will also be affected by fluctuations in exchange rates and
currency devaluations. In addition, some of the countries in
which we have operations do or may restrict the expatriation or
conversion of currency.
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c.
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Our operating companies are subject to local laws and
regulations in the countries in which they operate, which could
impact our financial results.
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Our operations are subject to local laws and regulations in the
countries in which we operate, which may differ from those in
the United States. We could become subject to legal penalties in
foreign countries if we do not comply with local laws and
regulations, which may be substantially different from those in
the United States. In some foreign countries, particularly in
those with developing economies, persons may engage in business
practices that are prohibited by United States regulations
applicable to us such as the Foreign Corrupt Practices Act.
Although we have implemented policies and procedures designed to
ensure compliance with these laws, there can be no assurance
that all of our employees, consultants, contractors and agents
will not take actions in violations of our policies. Any such
violation, even if prohibited by our policies, could have a
material adverse effect on our business.
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d.
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We pay significant import duties on our network equipment and
handsets, and any increases could impact our financial
results.
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Our operations are highly dependent upon the successful and
cost-efficient importation of network equipment and handsets
from North America and, to a lesser extent, from Europe and
Asia. Any significant increase in import duties in the future
could significantly increase our costs. To the extent we cannot
pass these costs on to our customers, our financial results will
be negatively impacted. In the countries in which our operating
companies conduct business, network equipment and handsets may
be subject to significant import duties and other taxes.
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e.
|
We are subject to foreign taxes in the countries in which we
operate, which may reduce amounts we receive from our operating
companies or may increase our tax costs.
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Many of the foreign countries in which we operate have
increasingly turned to new taxes, as well as aggressive
interpretations of current taxes, as a method of increasing
revenue. For example, our operating company in Brazil is
required to pay two types of income taxes, which include a
corporate income tax and a social contribution tax. In addition,
our operating company in Brazil is subject to various types of
non-income taxes, including value-added tax, excise tax, service
tax, importation tax and property tax. The provisions of new tax
laws may attempt to prohibit us from passing these taxes on to
our customers. These taxes may reduce the amount of earnings
that we can generate from our services or in some cases may
result in operating losses.
Distributions of earnings and other payments, including
interest, received from our operating companies may be subject
to withholding taxes imposed by some countries in which these
entities operate. Any of these taxes will reduce the amount of
after-tax cash we can receive from those operating companies.
See K. Operating Companies for
more information.
In general, a U.S. corporation may claim a foreign tax
credit against its Federal income tax expense for foreign
withholding taxes and, under certain circumstances, for its
share of foreign income taxes paid directly by foreign
26
corporate entities in which the company owns 10% or more of the
voting stock. Our ability to claim foreign tax credits is,
however, subject to numerous limitations, and we may incur
incremental tax costs as a result of these limitations or
because we do not have U.S. Federal taxable income.
We may also be required to include in our income for
U.S. Federal income tax purposes our proportionate share of
specified earnings of our foreign corporate subsidiaries that
are classified as controlled foreign corporations, without
regard to whether distributions have been actually received from
these subsidiaries.
Nextel Brazil has received tax assessment notices from state and
federal Brazilian tax authorities asserting deficiencies in tax
payments related primarily to value added taxes, import duties
and matters surrounding the definition and classification of
equipment and services. Nextel Brazil has filed various
petitions disputing these assessments. In some cases we have
received favorable decisions, which are currently being appealed
by the respective governmental authorities. In other cases, our
petitions have been denied and we are currently appealing those
decisions. See Note 9 to our consolidated financial
statements for more information regarding our potential tax
obligations in Brazil.
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f.
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We have entered into a number of agreements that are subject
to enforcement in foreign countries, which may limit efficient
dispute resolution.
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A number of the agreements that we and our operating companies
enter into with third parties are governed by the laws of, and
are subject to dispute resolution in the courts of or through
arbitration proceedings in, the countries or regions in which
the operations are located. We cannot accurately predict whether
these forums will provide effective and efficient means of
resolving disputes that may arise. Even if we are able to obtain
a satisfactory decision through arbitration or a court
proceeding, we could have difficulty enforcing any award or
judgment on a timely basis. Our ability to obtain or enforce
relief in the United States is also uncertain.
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5.
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The
costs we incur to connect our operating companies networks
with those of other carriers are subject to local laws in the
countries in which they operate and may increase, which could
adversely impact our financial results.
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Our operating companies must connect their telecommunication
networks with those of other carriers in order to provide the
services we offer. We incur costs relating to these
interconnection arrangements and for local and long distance
transport services relating to the connection of our transmitter
sites and other network equipment. These costs include
interconnection charges and fees, charges for terminating calls
on the other carriers networks and transport costs, most
of which are measured based on the level of our use of the
related services. We are able to recover a portion of these
costs through revenues earned from charges we are entitled to
bill other carriers for terminating calls on our network, but
because users of mobile telecommunications services who purchase
those services under contract generally, and business customers
like ours in particular, tend to make more calls that terminate
on other carriers networks and because we have a smaller
number of customers than most other carriers, we usually incur
more charges than we are entitled to receive under these
arrangements. The terms of the interconnection and transport
arrangements, including the rates that we pay, are subject to
local regulation in most of the countries in which we operate,
and often require us to negotiate agreements with the other
carriers, some of whom are our competitors, in order to provide
our services. Our costs relating to these interconnection and
transport arrangements are subject to fluctuation both as a
result of changes in regulations in the countries in which we
operate and the negotiations with the other carriers. For
example, some of our competitors in Brazil, through
Brazils Associacao Nacional das Operadoras de Celular, or
ACEL, recently filed a petition against Anatel to challenge the
partial bill and keep settlement process. The preliminary
injunction was denied by the Brazilian courts. Changes in the
aforementioned factors could result in increased costs for the
related services that we may not be able to recover through
increased revenues, which could adversely impact our financial
results.
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6.
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Government
regulations determine how we operate in various countries, which
could limit our growth and strategic plans.
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In each market in which we operate, one or more regulatory
entities regulate the licensing, construction, acquisition,
ownership and operation of our wireless communications systems.
Adoption of new regulations, changes in the current
telecommunications laws or regulations or changes in the manner
in which they are interpreted or applied could adversely affect
our operations. In some markets, we are unable, or have
limitations on our ability, to provide some types of services we
have planned to offer, such as participation in calling party
pays programs. These limitations, or similar regulatory
prohibitions or limitations on our services that may arise in
the future could increase our costs, reduce our revenues or make
it more difficult for us to compete.
27
Further, the regulatory schemes in the countries in which we
operate allow third parties, including our competitors, to
challenge our actions. For instance, some of our competitors
have challenged the validity of some of our licenses or the
scope of services we provide under those licenses, in
administrative or judicial proceedings, particularly in Chile.
If our competitors were to challenge the results of auctions in
which we are a participant, it could adversely affect our
ability to offer services and our ability to acquire the rights
to use spectrum that would provide us with the ability to deploy
new technologies that support new services.
Finally, in some of our markets, local governments have adopted
very stringent rules and regulations related to the placement
and construction of wireless towers, which can significantly
impede the planned expansion of our service coverage area,
eliminate existing towers and impose new and onerous taxes and
fees. These issues affect our ability to operate in each of our
markets, and therefore impact our business strategies. In
addition, local governments have placed embargoes on a number of
our cell sites owned by our operating companies in Argentina and
Brazil. If we are not able to successfully overcome these
embargoes, we may have to remove the cell sites and find a more
acceptable location.
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7.
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If our
licenses to provide mobile services are not renewed, or are
modified or revoked, our business may be
restricted.
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Wireless communications licenses and spectrum allocations are
subject to ongoing review and, in some cases, to modification or
early termination for failure to comply with applicable
regulations. If our operating companies fail to comply with the
terms of their licenses and other regulatory requirements,
including installation deadlines and minimum loading or service
availability requirements, their licenses could be revoked.
Further, compliance with these requirements is a condition for
eligibility for license renewal. Most of our wireless
communications licenses have fixed terms and are not renewed
automatically. Because governmental authorities have discretion
as to the grant or renewal of licenses, our licenses may not be
renewed or, if renewed, renewal may not be on acceptable
economic terms. For example, under existing regulations, our
licenses in Brazil and Peru are renewable once, and no
regulations presently exist regarding how or whether additional
renewals will be granted in future periods. In Mexico, we have
filed applications to renew about 30 of our licenses, 16 of
which have expired. While we expect that these renewals will be
granted, if some or all of these renewals are not granted, it
could have an adverse effect on our business.
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8.
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Costs
and other aspects of a future deployment of advanced digital
technology could adversely affect our operations.
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We have recently acquired rights to use 1.9 GHz spectrum in
Peru that require us to deploy new digital network technology
within specified timeframes throughout Peru, including in areas
that we do not currently serve. Our deployments of new digital
technologies to offer our customers new and advanced services in
Peru will require significant capital expenditures as would any
future acquisition of spectrum rights and deployment of new
digital technologies in other operating markets. Those
expenditures could increase in the event of unforeseen delays,
cost overruns, unanticipated expenses, regulatory changes,
engineering design changes, problems with network or systems
compatibility, equipment unavailability and technological or
other complications, such as our inability to successfully
coordinate this change with our customer care, billing, order
fulfillment and other back-office operations. In addition, a
deployment of new digital technologies will result in
incremental operating expenses prior to fully launching
services. Furthermore, our operating results could be
significantly negatively affected if we are not able to offer
competitive products and services or if we are not successful in
attracting and retaining customers in markets in which we choose
to deploy a new technology.
Additionally, we may be required to raise additional funds in
order to finance the costs associated with the development and
deployment of a new technology and, if required, the acquisition
of related spectrum rights in one or more of our markets. To do
so, we may issue shares of common stock or incur new debt. The
terms and conditions of any financing may not be similar to
those we have experienced in the past and may impose significant
restrictions on our business. See 10. Our current and
future debt may limit our flexibility and increase our risk of
default. for more information.
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9.
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Agreements
with Motorola reduce our operational flexibility and may
adversely affect our growth or operating results.
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We have entered into agreements with Motorola that impose
limitations and conditions on our ability to use other
technologies that would displace our existing iDEN digital
mobile networks. These agreements may delay or prevent us from
deploying new or different technologies that perform better or
are available at a lower cost because
28
of the additional economic costs and other impediments to change
arising under the Motorola agreements. In addition, if Motorola
manufactures, or elects to manufacture, the equipment utilizing
the alternate technology that we elect to deploy, we must give
Motorola the opportunity to supply 50% of our infrastructure
requirements for the equipment utilizing the alternate
technology for three years. If we utilize alternate equipment
suppliers, it may limit our ability to obtain the most favorable
volume pricing.
Furthermore, in connection with our handset supply agreement
with Motorola, we committed to annually escalating handset
purchases and certain pricing parameters for handsets 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.
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10.
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Our
current and future debt may limit our flexibility and increase
our risk of default.
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As of December 31, 2007, the book value of our long-term
debt was $2,196.1 million, including $1,200.0 million
of 3.125% convertible notes due 2012, $350.0 million of
2.75% convertible notes due 2025, $393.0 million for
syndicated loan facilities in Mexico and Brazil,
$172.3 million in obligations associated with the sale and
leaseback of communication towers, $72.9 million in capital
lease obligations and $7.9 million in spectrum license
financing. We may incur additional debt in the future to provide
funding for, among other things, capital expenditures and other
costs relating to the expansion of our business, including the
expansion of our existing networks or deployment of new network
technologies, acquisitions of spectrum, other assets or
businesses and for other corporate purposes as described below.
Our existing debt and debt we may incur in the future could:
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limit our flexibility in planning for, or reacting to, changes
in our business and the industries in which we compete and
increasing our vulnerability to general adverse economic and
industry conditions; and
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limit our ability to obtain additional financing that we may
need to fund future working capital, capital expenditures,
product development, acquisitions or other corporate
requirements.
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Furthermore, certain of our financing agreements include
covenants that impose restrictions on our business, and similar
restrictions may be contained in future financing agreements. If
we are subject to these restrictions, we may be unable to raise
additional financing, compete effectively or take advantage of
new business opportunities, which may affect our ability to
generate revenues and profits. Examples of the types of
covenants that may limit how we conduct business include those
contained in the syndicated loan facilities to which Nextel
Mexico and Nextel Brazil are parties that, among other things,
restrict our ability to:
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incur or guarantee additional indebtedness;
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pay dividends and make other distributions;
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prepay subordinated indebtedness;
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make investments and other restricted payments;
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enter into sale and leaseback transactions;
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create liens;
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sell assets; and
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engage in transactions with affiliates.
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These syndicated loan facilities also require Nextel Mexico and
Nextel Brazil, as applicable, to maintain specified financial
ratios and satisfy financial tests. If Nextel Mexico or Nextel
Brazil are not able to meet the applicable ratios and satisfy
other tests, or if we fail to comply with any of the other
restrictive covenants noted above or that are contained in any
other financing agreements, we will be in default with respect
to one or more of the applicable financing agreements, which in
turn may result in defaults under the remaining financing
arrangements, giving our lenders the right to require us to
repay all amounts then outstanding.
In addition, under the terms of the Nextel Brazil syndicated
loan facility, we have pledged the shares of our Brazil
operating entities to secure the obligations of Nextel Brazil
under that facility. The grant of such a security interest may
make it more difficult for Nextel Brazil to secure additional
financing that it may require.
29
Furthermore, our business plans or the business environments in
which we operate could change, which could require us to obtain
additional funding including:
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a decision by us to deploy new network technologies, in addition
to the planned deployment in Peru, or to offer new
communications services in one or more of our markets;
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our expansion into new markets or further geographic expansion
in our existing markets, including the construction of
additional portions of our network; or
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acquisitions of spectrum licenses, either through government
sponsored auctions or through acquisitions of third parties,
acquisitions of assets or businesses or other strategic
transactions.
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Our funding needs could also be affected by changes in economic
conditions in any of our markets generally, or competitive
practices in the mobile wireless telecommunications industry
from those currently prevailing or from those now anticipated,
or by other presently unexpected circumstances that may arise
that have a material effect on the cash flow or profitability of
our mobile wireless business. 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.
Our ability to meet our existing or future debt obligations and
to reduce our indebtedness will depend on our future performance
and the other cash requirements of our business. Our
performance, to a certain extent, is subject to general economic
conditions and financial, business, political and other factors
that are beyond our control. We cannot assure you that we will
continue to generate cash flow from operations at or above
current levels, that we will be able to meet our cash interest
payments on all of our debt or that the related assets currently
owned by us will continue to benefit us in the future.
In addition, we continue to assess 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:
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the commercial success of our operations;
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the volatility and demand of the capital markets; and
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the future market prices of our securities.
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If we are unable to generate cash flow from operations in the
future to service our debt, we may try to refinance all or a
portion of our debt. We cannot assure you that sufficient future
borrowings will be available to pay or refinance our debt. In
addition, upon the occurrence of certain kinds of change of
control events, we may be required to repurchase or repay a
significant portion of our outstanding debt. However, it is
possible that we will not have sufficient funds at the time of
the change of control to make the required repurchase or
repayment.
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11.
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Any
modification or termination of our trademark license with Nextel
Communications could increase our costs.
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Nextel Communications has licensed to us the right to use
Nextel and other of its trademarks on a perpetual
royalty-free basis in Latin America. However, Nextel
Communications may terminate the license on 60 days notice
if we commit one of several specified defaults (namely, failure
to maintain agreed quality controls or a change in control of
NII Holdings). If there is a change in control of one of our
subsidiaries, upon 30 days notice, Nextel Communications
may terminate the sublicense granted by us to the subsidiary
with respect to the licensed marks. The loss of the use of the
Nextel name and trademark could have a material
adverse effect on our operations.
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12.
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If we
fail to maintain an effective system of internal controls, we
may not be able to accurately report our financial results or
prevent fraud. As a result, current and potential stockholders
could lose confidence in our financial reporting, which could
harm our business and the trading price of our
stock.
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Effective internal controls are necessary for us to provide
reliable financial reports and effectively prevent fraud.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree
of compliance with the policies or procedures may deteriorate.
We have in the past discovered, and may in the future discover,
areas of our internal controls that need improvement. We
continue to monitor and improve our internal controls as needed.
Any failure to implement required new or improved controls or
difficulties encountered in their implementation could harm our
30
operating results or cause us to fail to meet our reporting
obligations. Inadequate internal controls could also cause
investors to lose confidence in our reported financial
information, which could have a negative effect on the trading
price of our stock.
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13.
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We
have significant intangible assets that may not generate
adequate value to satisfy our obligations in the event of
liquidation.
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If we were liquidated, the value of our assets may not be
sufficient to satisfy our obligations. We have a significant
amount of intangible assets, primarily telecommunications
licenses. The value of these licenses will depend mostly upon
the success of our digital mobile network business and the
growth of the SMR and wireless communications industries in
general. Moreover, the transfer of licenses in liquidation would
be subject to governmental or regulatory approvals that may not
be obtained or that may adversely impact the value of such
licenses. Our net tangible book value was $1,757.9 million
as of December 31, 2007.
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14.
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Concerns
about health risks associated with wireless equipment may reduce
the demand for our services.
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Portable communications devices have been alleged to pose health
risks, including cancer, due to radio frequency emissions from
these devices. The actual or perceived risk of mobile
communications devices could adversely affect us through
increased costs of doing business, additional governmental
regulation that sets emissions standards or otherwise limits or
prohibits our devices from being marketed and sold, a reduction
in subscribers, reduced network usage per subscriber or reduced
financing available to the mobile communications industry.
Further research and studies are ongoing, and we cannot be sure
that these studies will not demonstrate a link between radio
frequency emissions and health concerns.
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15.
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Our
forward-looking statements are subject to a variety of factors
that could cause actual results to differ materially from
current beliefs.
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Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995. Certain
statements made in this annual report on
Form 10-K
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 and changes in the
regulatory environment, industry growth and trend predictions.
We have attempted to identify, in context, some of the factors
that we currently believe may cause actual future experience and
results to differ from our current expectations regarding the
relevant matter or subject area. The operation and results of
our wireless communications business also may be subject to the
effects of other risks and uncertainties in addition to the
other qualifying factors identified in this Item, including, but
not limited to:
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our ability to meet the operating goals established by our
business plan;
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general economic conditions in the United States or in Latin
America and in the market segments that we are targeting for our
digital mobile services;
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the political and social conditions in the countries in which we
operate, including political instability, which may affect the
economies of our markets and the regulatory schemes in these
countries;
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substantive terms of any international financial aid package
that may be made available to any country in which our operating
companies conduct business;
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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;
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reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of digital two-way mobile data or Internet
connectivity services in our markets;
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the availability of adequate quantities of system infrastructure
and subscriber equipment and components at reasonable pricing to
meet our service deployment and marketing plans and customer
demand;
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Motorolas ability and willingness to provide handsets and
related equipment and software applications or to develop new
technologies or features for us, including the timely
development and availability of new handsets with expanded
applications and features;
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31
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the risk of deploying new technologies, including the potential
need for additional funding, the risk that new services
supported by the new technology will not attract enough
subscribers to support the related costs of deploying or
operating the new technology, the need to significantly increase
our employee base and the potential distraction of management;
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our ability to successfully scale our billing, collection,
customer care and similar back-office operations to keep pace
with customer growth, increased system usage rates and growth;
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the success of efforts to improve and satisfactorily address any
issues relating to our digital mobile network performance;
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future legislation or regulatory actions relating to our SMR
services, other wireless communication services or
telecommunications generally;
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the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our digital mobile network business;
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the quality and price of similar or comparable wireless
communications services offered or to be offered by our
competitors, including providers of cellular services and
personal communications services;
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market acceptance of our new service offerings;
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our ability to access sufficient debt or equity capital to meet
any future operating and financial needs; and
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other risks and uncertainties described in this annual report on
Form 10-K
and from time to time in our other reports filed with the
Securities and Exchange Commission.
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Item 1B. Unresolved
Staff Comments
None.
Our principal executive and administrative offices are located
in Reston, Virginia, where we lease about 45,200 square
feet of office space under a lease expiring in January 2009. In
addition, each of our operating companies own and lease office
space and transmitter and receiver sites in each of the
countries where they conduct business.
Each operating company leases transmitter and receiver sites for
the transmission of radio service under various individual site
leases. Most of these leases are for terms of five years or
less, with options to renew. As of December 31, 2007, our
operating companies had constructed sites at leased and owned
locations for their digital mobile business, as shown below:
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Number
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Operating Company
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of Sites
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Nextel Mexico
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2,371
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Nextel Brazil
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1,895
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Nextel Argentina
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683
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Nextel Peru
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418
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Nextel Chile
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42
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Total
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5,409
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These sites include sites sold and leased back from American
Tower Corporation, as well as various co-location sites with
American Tower Corporation and other operators.
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Item 3.
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Legal
Proceedings
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We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows. See Note 9 to our consolidated financial statements
at the end of this annual report on
Form 10-K
for more information.
32
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of security holders during
the fourth quarter of 2007.
Executive
Officers of the Registrant
The following people were serving as our executive officers as
of February 20, 2008. These executive officers were elected
to serve until their successors are elected. There is no family
relationship between any of our executive officers or between
any of these officers and any of our directors.
Steven M. Shindler, 45, has been a director on the board
of NII Holdings since 1997, chief executive officer from 2000
until February 2008 and chairman of the board since
November 12, 2002. In February 2008, he became executive
chairman of NII Holdings. Mr. Shindler also served as
executive vice president and chief financial officer of Nextel
Communications from 1996 until 2000. From 1987 to 1996,
Mr. Shindler was an officer with Toronto Dominion Bank, a
bank where he was a managing director in its communications
finance group.
Steven P. Dussek, 51, has been a director on the board of
NII Holdings since 1999 and has been chief executive officer of
NII Holdings since February 2008. Prior to joining NII Holdings,
Mr. Dussek served as president and chief executive officer
of Dobson Communications Corporation, a publicly traded wireless
telecommunications company, from April 2005 until AT&T
Wireless Services acquired Dobson Communications Corporation in
November 2007. From 1999 to 2000, Mr. Dussek was the chief
executive officer of NII Holdings and was the president and
chief operating officer of NII Holdings from March 1999 until
September 1999. From 1996 to 2002, Mr. Dussek served in
various senior management positions with Nextel Communications,
most recently as executive vice president and chief operating
officer. From 1995 to 1996, Mr. Dussek served as vice
president and general manager of the northeast region for the
PCS division of AT&T Wireless Services. From 1993 to 1995,
Mr. Dussek served as senior vice president and chief
operating officer of Paging Networks, Inc., a paging company.
Lo van Gemert, 53, has been the president and chief
operating officer of NII Holdings since 1999. Mr. van Gemert
served as senior vice president of Nextel Communications from
1999 until 2000 and as president of the north region of Nextel
Communications from 1996 until 1999. Before joining Nextel
Communications in 1996, Mr. van Gemert served as executive
vice president at Rogers Cantel, Inc., a wireless operator in
Canada. From 1980 to 1994, Mr. van Gemert held various senior
management positions, domestically and overseas, at Sony
Corporation and Bellsouth Corporation.
Gokul Hemmady, 47, has been the vice president and chief
financial officer of NII Holdings since June 2007. From June
1998 to June 2007, Mr. Hemmady served in various positions
with ADC Telecommunications, Inc., a provider of global network
infrastructure products and services, including as vice
president and chief financial officer from August 2003 through
June 2007, as vice president and treasurer from June 1998
through August 2003 and as controller from May 2002 through
August 2003. Mr. Hemmady joined ADC as assistant treasurer
in October 1997. Prior to 1997, he was employed by
U.S. West International, a communications service provider,
where he served as director of international finance.
Gary D. Begeman, 49, has been the vice president and
general counsel of NII Holdings since February 2007 having
joined NII Holdings as vice president and deputy general counsel
in November 2006. From 2003 through 2006, he served as senior
vice president and deputy general counsel of Sprint Nextel
Corporation and was a vice president of Nextel Communications,
Inc. prior to its merger with Sprint. From 1999 through 2003, he
was senior vice president and general counsel of XO
Communications, Inc. From 1997 to 1999, Mr. Begeman was
vice president and deputy general counsel of Nextel
Communications, Inc. From 1991 until he joined Nextel,
Mr. Begeman was a partner with the law firm of Jones, Day,
Reavis & Pogue.
John McMahon, 43, has been our vice president of business
operations since joining NII Holdings in 1999. Prior to that,
Mr. McMahon served as vice president of finance and
business operations, north region, for Nextel Communications
from 1997 to 1999, and as director of finance for the
mid-Atlantic region from 1995 to 1997.
Alan Strauss, 48, has been our vice president and chief
technology and engineering officer since 2001. From 1998 until
2001, Mr. Strauss was the vice president and general
manager of Nextel Communications strategic business
operations group. From 1994 to 1998, Mr. Strauss held
various positions with Nextel Communications.
Gregory J. Santoro, 45, has been our vice president and
chief marketing and strategy officer since February 2007. From
2000 until 2006, Mr. Santoro was the vice president of
products and services at Nextel Communications, Inc. and most
recently as the vice president of product innovation at Sprint
Nextel Corporation. Before Nextel, Mr. Santoro served as
the vice president of internet services at Bellsouth.net where
he was responsible for launching Bellsouths narrowband and
broadband internet services.
33
Daniel E. Freiman, 36, has been our vice president and
controller since April 2005. Mr. Freiman was our director
of investor relations from June 2004 to April 2005, director of
external financial reporting from November 2002 to June 2004 and
senior manager of external financial reporting from September
2000 to November 2002. Prior to September 2000, he was a manager
in the audit practice of PricewaterhouseCoopers LLP in
Washington, D.C.
Catherine E. Neel, 47, has been our vice president,
treasurer and assistant secretary since November 2002. From 1999
to 2002, Ms. Neel was the assistant treasurer of NII
Holdings. Prior to 1999, Ms. Neel held various management
positions with Bellsouth Corporation and was in public
accounting with Arthur Andersen LLP.
Jose Felipe, 57, has held several positions since joining
NII Holdings in 1998. Since January 2008, he has served as a
vice president of NII Holdings. From February 2003 through
December 2007, he was the president of Nextel Mercosur, managing
our operations in Argentina, Brazil and Chile. From 1999 to
2003, he served as the president of Nextel Cono Sur which
managed our operations in Argentina and Chile. From 1998 to
1999, Mr. Felipe was our vice president Latin
America. From 1991 to 1998, Mr. Felipe held various senior
management positions with AT&T Corp., most recently as the
president and chief executive officer of the Puerto Rico and
Virgin Islands region and as the vice president of emerging
markets of the Latin American region.
Peter A. Foyo, 42, has served as president of Nextel
Mexico since 1998. From 1988 to 1998, Mr. Foyo held various
senior management positions with AT&T Corp., including
corporate strategy director of Alestra, S.A. de C.V., a joint
venture between AT&T and a local Mexican partner, and
president of AT&T Argentina.
Sergio Borges Chaia, 42, has served as president and
chief executive officer of Nextel Brazil since
January 2007. From 1996 until he joined Nextel Brazil in
2007, Mr. Chaia held various management positions with
Sodexho Pass Brazil, including president, chief executive
officer and managing director.
Ruben Butvilofsky, 55, has served as president of Nextel
Argentina since August 2005. From 1998 to August 2005,
Mr. Butvilofsky served as Nextel Argentinas vice
president of commercial operations. Prior to joining Nextel
Argentina, Mr. Butvilofsky was the sales director of
Liberty ART, a subsidiary of Liberty Mutual, in their Argentina
operations. Before joining Liberty ART, he was a direct sales
manager for Bellsouth (Movicom) and an indirect channel manager
for IBM Argentina.
Miguel E. Rivera, 55, has served as president of Nextel
Peru since 2000. Previously, Mr. Rivera was the general
manager of the Lima Stock Exchange from 1999 to 2000. From 1986
to 1998, Mr. Rivera held various executive positions with
IBM, most recently as general manager of Manufacturing Industry,
IBM Latin America.
34
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
|
|
1.
|
Market
for Common Stock
|
Our common stock trades on the Nasdaq Global Select Market under
the trading symbol NIHD. Our common stock had traded
on the Nasdaq National Market under the same symbol until
July 3, 2006. The following table sets forth on a per share
basis the reported high and low sales prices for our common
stock, as reported on the market at the time, for the quarters
indicated.
|
|
|
|
|
|
|
|
|
|
|
Price Range of
|
|
|
|
Common Stock
|
|
|
|
High
|
|
|
Low
|
|
|
2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
59.34
|
|
|
$
|
42.80
|
|
Second Quarter
|
|
|
67.18
|
|
|
|
44.45
|
|
Third Quarter
|
|
|
63.34
|
|
|
|
48.03
|
|
Fourth Quarter
|
|
|
69.94
|
|
|
|
61.22
|
|
2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
76.35
|
|
|
$
|
60.53
|
|
Second Quarter
|
|
|
82.91
|
|
|
|
74.19
|
|
Third Quarter
|
|
|
90.43
|
|
|
|
64.40
|
|
Fourth Quarter
|
|
|
83.44
|
|
|
|
42.50
|
|
|
|
2.
|
Number
of Stockholders of Record
|
As of February 20, 2008, there were approximately 15
holders of record of our common stock, including the Depository
Trust Corporation, which acts as a clearinghouse for
multiple brokerage and custodial accounts.
We have not paid any dividends on our common stock and do not
plan to pay dividends on our common stock for the foreseeable
future. In addition, some of our financing documents have
contained, and some future financing agreements may contain,
restrictions on the payment of dividends. We anticipate that for
the foreseeable future any cash flow generated from our
operations will be used to develop and expand our business and
operations and make contractual payments under our debt
facilities in accordance with our business plan.
|
|
4.
|
Issuer
Purchases of Equity Securities
|
On May 29, 2007, our Board of Directors authorized, and we
announced, a program to repurchase shares of our common stock
for cash. The Board of Directors approved the repurchase of
shares having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. Although the program was not initiated with a specific
end date, as of December 31, 2007, we had used
$500.0 million in cash, plus $0.1 million in
commissions, in connection with the purchase of our common
stock, which completed the program. The following table presents
details of our repurchases during the three months ended
December 31, 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
|
|
|
October 1, 2007 October 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
170,040,270
|
|
November 1, 2007 November 30, 2007
|
|
|
1,788,950
|
|
|
|
53.03
|
|
|
|
1,788,950
|
|
|
|
75,288,193
|
|
December 1, 2007 December 31, 2007
|
|
|
1,568,868
|
|
|
|
51.79
|
|
|
|
1,568,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,357,818
|
|
|
|
52.35
|
|
|
|
3,357,818
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 7, 2008, we announced that our Board of
Directors authorized us to purchase up to an additional
$500.0 million in value of our common stock under a new
stock repurchase program.
35
Performance
Graph
The following graph presents the cumulative total stockholder
return on our common stock from our listing on the
Over-the-Counter Bulletin Board on November 20, 2002
and our move to the Nasdaq National Market on February 28,
2003 until July 3, 2006 and the Nasdaq Global Select Market
through December 31, 2007. This graph also compares our
common stock to the cumulative total stockholder return on the
Nasdaq 100 Index, the common stock of America Movil, S.A. de
C.V. and Millicom International Cellular S.A. The graph assumes
an initial investment of $100 in our common stock on
November 20, 2002 and in each of the comparative indices or
peer issuers, and that all dividends were reinvested.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
12/31/2002
|
|
12/31/2003
|
|
12/31/2004
|
|
12/31/2005
|
|
12/31/2006
|
|
12/31/2007
|
|
NII Holdings
|
|
$
|
100.00
|
|
|
$
|
635.15
|
|
|
$
|
1,211.49
|
|
|
$
|
2,230.47
|
|
|
$
|
3,290.55
|
|
|
$
|
2,467.40
|
|
Nasdaq 100
|
|
$
|
100.00
|
|
|
$
|
149.61
|
|
|
$
|
163.81
|
|
|
$
|
165.82
|
|
|
$
|
177.10
|
|
|
$
|
210.18
|
|
America Movil
|
|
$
|
100.00
|
|
|
$
|
190.39
|
|
|
$
|
364.55
|
|
|
$
|
611.28
|
|
|
$
|
944.71
|
|
|
$
|
1,282.52
|
|
Millicom International
|
|
$
|
100.00
|
|
|
$
|
1,310.86
|
|
|
$
|
1,702.62
|
|
|
$
|
2,010.49
|
|
|
$
|
4,617.23
|
|
|
$
|
8,834.46
|
|
|
|
Item 6.
|
Selected
Financial Data
|
The financial information presented below for the years ended
December 31, 2007, 2006, 2005, 2004 and 2003 has been
derived from our audited consolidated financial statements. Our
consolidated financial statements as of and for the years ended
December 31, 2007, 2006, 2005, 2004 and 2003 have been
audited by PricewaterhouseCoopers LLP, our independent
registered public accounting firm. Our audited consolidated
financial statements as of December 31, 2007 and 2006 and
for the years ended December 31, 2007, 2006 and 2005 are
included at the end of this annual report on
Form 10-K.
This information is only a summary and should be read together
with our consolidated historical financial statements and
managements discussion and analysis appearing elsewhere in
this annual report on
Form 10-K.
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands, except per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,184,696
|
|
|
$
|
2,279,922
|
|
|
$
|
1,666,613
|
|
|
$
|
1,214,837
|
|
|
$
|
895,615
|
|
Digital handset and accessory revenues
|
|
|
111,599
|
|
|
|
91,418
|
|
|
|
79,226
|
|
|
|
65,071
|
|
|
|
43,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,296,295
|
|
|
|
2,371,340
|
|
|
|
1,745,839
|
|
|
|
1,279,908
|
|
|
|
938,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
879,679
|
|
|
|
617,669
|
|
|
|
464,651
|
|
|
|
365,982
|
|
|
|
266,709
|
|
Cost of digital handset and accessory sales
|
|
|
415,015
|
|
|
|
311,307
|
|
|
|
251,192
|
|
|
|
207,112
|
|
|
|
134,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,294,694
|
|
|
|
928,976
|
|
|
|
715,843
|
|
|
|
573,094
|
|
|
|
400,968
|
|
Selling, general and administrative
|
|
|
1,077,893
|
|
|
|
780,373
|
|
|
|
545,235
|
|
|
|
358,076
|
|
|
|
290,712
|
|
Depreciation
|
|
|
289,897
|
|
|
|
194,817
|
|
|
|
123,990
|
|
|
|
84,139
|
|
|
|
49,127
|
|
Amortization
|
|
|
14,727
|
|
|
|
7,405
|
|
|
|
6,142
|
|
|
|
14,236
|
|
|
|
30,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
619,084
|
|
|
|
459,769
|
|
|
|
354,629
|
|
|
|
250,363
|
|
|
|
167,506
|
|
Interest expense, net
|
|
|
(128,733
|
)
|
|
|
(89,379
|
)
|
|
|
(72,470
|
)
|
|
|
(55,113
|
)
|
|
|
(64,623
|
)
|
Interest income
|
|
|
67,429
|
|
|
|
51,057
|
|
|
|
32,611
|
|
|
|
12,697
|
|
|
|
10,864
|
|
Foreign currency transaction gains, net
|
|
|
19,008
|
|
|
|
3,557
|
|
|
|
3,357
|
|
|
|
9,210
|
|
|
|
8,856
|
|
Debt conversion expense
|
|
|
(26,429
|
)
|
|
|
(5,070
|
)
|
|
|
(8,930
|
)
|
|
|
|
|
|
|
|
|
(Loss) gain on extinguishment of debt, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,327
|
)
|
|
|
22,404
|
|
Other expense, net
|
|
|
(1,914
|
)
|
|
|
(6,000
|
)
|
|
|
(8,621
|
)
|
|
|
(2,320
|
)
|
|
|
(12,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision and cumulative effect of
change in accounting principle
|
|
|
548,445
|
|
|
|
413,934
|
|
|
|
300,576
|
|
|
|
135,510
|
|
|
|
132,841
|
|
Income tax provision
|
|
|
(170,027
|
)
|
|
|
(119,444
|
)
|
|
|
(125,795
|
)
|
|
|
(79,191
|
)
|
|
|
(51,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle
|
|
|
378,418
|
|
|
|
294,490
|
|
|
|
174,781
|
|
|
|
56,319
|
|
|
|
81,214
|
|
Cumulative effect of change in accounting principle, net of
income taxes of $11,898 in 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
378,418
|
|
|
$
|
294,490
|
|
|
$
|
174,781
|
|
|
$
|
57,289
|
|
|
$
|
81,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting
principle per common share, basic
|
|
$
|
2.27
|
|
|
$
|
1.91
|
|
|
$
|
1.19
|
|
|
$
|
0.40
|
|
|
$
|
0.64
|
|
Cumulative effect of change in accounting principle per common
share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, basic
|
|
$
|
2.27
|
|
|
$
|
1.91
|
|
|
$
|
1.19
|
|
|
$
|
0.41
|
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting
principle per common share, diluted
|
|
$
|
2.11
|
|
|
$
|
1.67
|
|
|
$
|
1.06
|
|
|
$
|
0.39
|
|
|
$
|
0.59
|
|
Cumulative effect of change in accounting principle per common
share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, diluted
|
|
$
|
2.11
|
|
|
$
|
1.67
|
|
|
$
|
1.06
|
|
|
$
|
0.40
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic
|
|
|
166,749
|
|
|
|
154,085
|
|
|
|
146,336
|
|
|
|
139,166
|
|
|
|
126,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, diluted
|
|
|
184,256
|
|
|
|
184,282
|
|
|
|
176,562
|
|
|
|
145,015
|
|
|
|
140,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,370,165
|
|
|
$
|
708,591
|
|
|
$
|
877,536
|
|
|
$
|
330,984
|
|
|
$
|
405,406
|
|
Short-term investments
|
|
|
241,764
|
|
|
|
|
|
|
|
7,371
|
|
|
|
38,401
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
1,853,082
|
|
|
|
1,389,150
|
|
|
|
933,923
|
|
|
|
558,247
|
|
|
|
368,434
|
|
Intangible assets, net
|
|
|
410,447
|
|
|
|
369,196
|
|
|
|
83,642
|
|
|
|
67,956
|
|
|
|
85,818
|
|
Total assets
|
|
|
5,436,736
|
|
|
|
3,297,678
|
|
|
|
2,620,964
|
|
|
|
1,491,280
|
|
|
|
1,128,436
|
|
Long-term debt, including current portion
|
|
|
2,266,517
|
|
|
|
1,155,736
|
|
|
|
1,172,958
|
|
|
|
603,509
|
|
|
|
536,756
|
|
Stockholders equity
|
|
|
2,168,373
|
|
|
|
1,346,480
|
|
|
|
811,401
|
|
|
|
421,947
|
|
|
|
217,770
|
|
Ratio of
Earnings to Fixed Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
4.15x
|
|
|
|
4.05
|
x
|
|
|
3.80
|
x
|
|
|
2.88
|
x
|
|
|
2.55x
|
|
For the purpose of computing the ratio of earnings to fixed
charges, earnings consist of income (loss) 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
spectrum license fees from selling, general and administrative
expenses to cost of service for the years ended
December 31, 2005, 2004 and 2003 to conform to our current
year presentation.
Debt Conversion Expense. On
June 10, 2005 and June 21, 2005, $40.0 million
and $48.5 million, respectively, aggregate principal amount
of our 3.5% convertible notes were converted into
3,000,000 shares of our common stock and
3,635,850 shares of our common stock in accordance with the
original terms of the debt securities. In connection with these
conversions, we paid in the aggregate $8.9 million in cash
as additional consideration for conversion, which we recorded as
debt conversion expense.
On December 14, 2006, all of the holders of the
$91.4 million remaining aggregate principal face amount of
our 3.5% convertible notes converted those notes into
6,852,150 shares of common stock in accordance with the
original terms of the debt agreement. In connection with this
conversion, we paid a total of $4.6 million as additional
consideration for conversion, as well as $0.8 million of
accrued interest and $0.5 million of direct external costs
associated with the transaction. We recorded the
$4.6 million paid to the noteholders and the
$0.5 million of direct external costs as debt conversion
expense in our consolidated statement of operations.
In July 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, $1.0 million in direct external costs
and accrued and unpaid interest of $4.2 million. We
recorded the $25.5 million in cash consideration and
$1.0 million in direct external costs as debt conversion
expense in our consolidated statement of operations.
(Loss) Gain on Extinguishment of Debt,
Net. The $22.4 million net gain on
extinguishment of debt for the year ended December 31, 2003
represents a gain we recognized in connection with the
settlement of our Brazil equipment facility. The
$79.3 million net loss on early extinguishment of debt for
the year ended December 31, 2004 represents a loss we
incurred in connection with the retirement of substantially all
of our 13.0% senior secured discount notes through a cash
tender offer in March 2004.
38
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
INDEX TO
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
A. Executive Overview
|
|
|
40
|
|
B. Results of Operations
|
|
|
49
|
|
1. Year Ended December 31, 2007 vs. Year Ended
December 31, 2006
|
|
|
50
|
|
a. Consolidated
|
|
|
50
|
|
b. Nextel Mexico
|
|
|
54
|
|
c. Nextel Brazil
|
|
|
57
|
|
d. Nextel Argentina
|
|
|
60
|
|
e. Nextel Peru
|
|
|
62
|
|
f. Corporate and other
|
|
|
64
|
|
2. Year Ended December 31, 2006 vs. Year Ended
December 31, 2005
|
|
|
65
|
|
a. Consolidated
|
|
|
65
|
|
b. Nextel Mexico
|
|
|
68
|
|
c. Nextel Brazil
|
|
|
71
|
|
d. Nextel Argentina
|
|
|
73
|
|
e. Nextel Peru
|
|
|
75
|
|
f. Corporate and other
|
|
|
77
|
|
C. Liquidity and Capital Resources
|
|
|
78
|
|
D. Future Capital Needs and Resources
|
|
|
79
|
|
E. Effect of Inflation and Foreign Currency Exchange
|
|
|
83
|
|
F. Effect of New Accounting Standards
|
|
|
83
|
|
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
|
|
|
84
|
|
39
Introduction
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition for the years ended
December 31, 2007 and 2006 and our consolidated results of
operations for the years ended December 31, 2007, 2006 and
2005; 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
quarterly reports on
Form 10-Q
for the quarters ended March 31, 2007, June 30, 2007
and September 30, 2007, including but not limited to, the
discussion regarding our critical accounting judgments, as
described below. Historical results may not indicate future
performance. See Item 1A. Risk Factors 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
in their businesses and individuals that have medium to high
usage patterns, both of whom value our multi-function handsets,
including our Nextel Direct Connect feature, and our high level
of customer service. We provide these services through operating
companies located in selected Latin American markets, with our
principal operations located in major business centers and
related transportation corridors of Mexico, Brazil, Argentina
and Peru. In addition, we offer our digital services on a
limited basis in Santiago, Chile. The markets we serve 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 in
these major business centers encourage the use of the mobile
wireless communications services that we offer.
Our digital mobile networks support multiple digital wireless
services, including:
|
|
|
|
|
mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a push-to-talk
basis, private one-to-one call or group call;
|
|
|
|
International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers using compatible handsets in the United
States and, except for our customers in Chile, with TELUS
subscribers using compatible handsets in Canada;
|
|
|
|
mobile internet services, text messaging services,
e-mail
services including
Blackberrytm
services, location-based services, which include the use of
Global Positioning System (GPS) technologies, digital media
services and advanced
Javatm
enabled business applications, which are generally marketed as
Nextel
Onlinesm
services; and
|
|
|
|
international roaming capabilities, which are marketed as
Nextel
Worldwidesm
services.
|
Our principal objective is to grow our business in selected
markets in Latin America by providing differentiated wireless
communications services that are valued by our customers, while
improving our profitability and cash flow over the long term. We
plan to continue to expand the coverage
and/or
capacity of our networks in our existing markets and increase
our existing subscriber base while managing our costs in a
manner designed to support that growth and improving our
operating results. We will seek to add subscribers at rates and
other terms that reflect the competitive conditions in our
markets while seeking to minimize any negative impact on our
consolidated financial performance.
We may also explore financially attractive opportunities to
expand our network coverage in areas that we do not currently
serve. Based on market data that continues to show lower
wireless penetration in our markets relative to other regions of
the world and our current market share in those markets, we
believe that we can continue to generate growth in our
subscriber base and revenues while improving our profitability
and cash flow over the long term, notwithstanding the more
intense competition that has recently been experienced in some
of our markets.
40
Although certain Latin American markets have been historically
volatile, the Latin American markets in which we operate have
been relatively more stable compared to historical periods.
We believe that the wireless communications industry in the
markets in which we operate has been and will continue to be
highly competitive on the basis of price, the types of services
offered, the diversity of handsets offered and quality of
service. In each of our markets, we compete with at least two
large, well-capitalized competitors with substantial financial
and other resources. Some of these competitors have the ability
to offer bundled telecommunications services that include local,
long distance and data services, and can offer a larger variety
of handsets with a wide range of prices, brands and features.
Although competitive pricing and variety and pricing of handsets
are often important factors in a customers decision making
process, we believe that the users who primarily make up our
targeted customer base are also likely to base their purchase
decisions on quality of service and customer support, as well as
on the availability of differentiated features and services,
like our Direct Connect services, that make it easier for them
to communicate quickly, efficiently and economically.
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 medium to high usage
business customers and consumers. We target these markets
because we believe they have favorable long-term growth
prospects for our wireless communications services while
offering the cost benefits associated with providing services in
more concentrated population centers. In addition, the cities in
which we operate account for a high proportion of total economic
activity in each of their respective countries and provide us
with a large potential market 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 potential customers within our targeted customer
groups.
Targeting High Value Customers. Our main focus
is on customers who purchase services under contract who
primarily use our services in their businesses and individuals
that have medium to high usage patterns, both of whom value our
multi-function handsets, including our Nextel Direct Connect
feature and our high level of customer service. In our current
customer base, our typical customer has between 3 and 30
handsets, and some of our largest customers have over 500
handsets; however, new customers that we are acquiring generally
have a lower number of handsets per customer.
Providing Differentiated Services. We
differentiate ourselves from our competitors by offering unique
services like our push-to-talk 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.
Delivering Superior Customer Service. In
addition to our unique service offerings, we seek to further
differentiate ourselves by generally providing a higher level of
customer service 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.
Selectively Expanding our Service Areas. We
believe that we have significant opportunities to grow through
selective expansion of our service into additional areas in some
of the countries in which we currently operate. 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 additional spectrum in Mexico in 2005, we launched a
plan under which we significantly expanded our service areas in
Mexico. We also expanded coverage of our network in Brazil under
that plan. In the second quarter of 2007, we decided to develop
plans to further expand significantly
41
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. Sprint Nextel
Corporation is the largest customer of Motorola with respect to
iDEN technology and, in the past, has provided significant
support with respect to new product development for that
technology. Sprint Nextel Corporation has announced plans to
migrate Nextels push-to-talk services to a next generation
CDMA network platform, which we believe has contributed to a
recent decline in Motorolas support for the development of
new iDEN handset models. 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 future development of that equipment may decline.
Specifically, in September 2006, we entered into agreements to
extend our relationship with Motorola for the supply of iDEN
handsets and iDEN network infrastructure through
December 31, 2011. Under these agreements, Motorola agreed
to maintain an adequate supply of the iDEN handsets and
equipment used in our business for the term of the agreement and
to continue to invest in the development of new iDEN devices and
infrastructure features. In addition, we agreed to annually
escalating handset volume purchase commitments and certain
pricing parameters for handsets and infrastructure linked to the
volume of our purchases. If we do not meet the specified handset
volume commitments, we would be required to pay an additional
amount based on any shortfall of actual purchased handsets
compared to the related annual volume commitment.
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 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. In addition, in July 2007, we were
awarded a nationwide license of 35 MHz of 1.9 GHz
spectrum in Peru for a term of 20 years through a
governmental auction process that requires us to deploy new
digital network technology within specified timeframes
throughout Peru, including in areas that we do not currently
serve. 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 beyond the minimum levels required
by the terms of our spectrum licenses only if it is warranted by
expected customer demand and when the anticipated benefits of
services supported by the new technology outweigh the costs of
providing those services. Our decision whether and how to deploy
alternative technologies, as well as our choice of alternative
technologies, would likely be affected by a number of factors,
including the types of features and services supported by the
technology and our assessment of the demand for those features
and services, the availability and pricing of related equipment
and our need to continue to support iDEN-based services for our
existing customer base either on an ongoing or transitional
basis.
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 Item 1A.
Risk Factors for information on risks and uncertainties
that could affect the above objectives.
42
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
December 31, 2007 and 2006. For purposes of the table,
digital handsets in commercial service represent all digital
handsets with active customer accounts on the digital mobile
networks in each of the listed countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Digital handsets in commercial service
December 31, 2006
|
|
|
1,544
|
|
|
|
899
|
|
|
|
651
|
|
|
|
345
|
|
|
|
1
|
|
|
|
3,440
|
|
Net subscriber additions
|
|
|
596
|
|
|
|
391
|
|
|
|
161
|
|
|
|
132
|
|
|
|
9
|
|
|
|
1,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital handsets in commercial service
December 31, 2007
|
|
|
2,140
|
|
|
|
1,290
|
|
|
|
812
|
|
|
|
477
|
|
|
|
10
|
|
|
|
4,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Exposure
Nearly all of our revenues are denominated in
non-U.S. currencies,
although a significant portion of our capital and operating
expenditures, including imported network equipment and handsets,
and a substantial portion of our outstanding debt, are
denominated in U.S. dollars. Accordingly, fluctuations in
exchange rates relative to the U.S. dollar could have a
material adverse effect on our earnings and assets. We translate
the results of operations for our
non-U.S. subsidiaries
and affiliates from the designated functional currency to the
U.S. dollar using average exchange rates during the
relevant period. As a result, any depreciation of local
currencies in the countries in which our operating companies
conduct business relative to the U.S. dollar could decrease
our operating income, increase our costs for imported equipment
and, at the same time, decrease demand for our products and
services in the affected markets. In addition, changes in
exchange rates associated with U.S. dollar-denominated
assets and liabilities result in foreign currency transaction
gains or losses. Additional information regarding the impact of
currency rates is included in the discussion of our segments
under Results of Operations.
Mexican
Commitment
Nextel Mexico is a party to a telecommunications services
agreement under which it committed to purchase a minimum amount
of specified types of interconnection services over a two-year
period ending December 31, 2007. During the third quarter
of 2007, we determined it was probable that Nextel Mexico would
not meet its purchase commitment under this agreement. As a
result, Nextel Mexico recorded a $2.5 million charge
related to this potential shortfall. In December 2007, Nextel
Mexico negotiated an extension of this agreement which reduced
its purchase commitment for 2007 and extended the contract for
services through December 2011. Since the reduced commitment for
services was met in 2007, Nextel Mexico reversed the
$2.5 million charge for the estimated potential shortfall
in its commitment. While the amended agreement does not contain
any commitment to purchase a specific value of services from the
vendor, it does require that Nextel Mexico use the vendors
interconnection services to terminate a specified percentage of
Nextel Mexicos interconnected traffic.
Brazilian
Commitments
In December 2007, in connection with the 1.9 GHz spectrum
auctions in Brazil, Nextel Brazil obtained $53.8 million in
letters of credit to secure its participation in the auctions.
Since Nextel Brazil did not obtain spectrum in these auctions,
it does not have any obligations under these letters of credit.
However, these letters of credit are available through April
2008.
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 a result of
the expiration of the statute of limitations for certain
contingencies, during the years ended December 31, 2007,
2006 and 2005, Nextel Brazil reversed $10.6 million,
$9.2 million and $6.5 million, respectively, in
accrued liabilities, of which we recorded $4.5 million,
$4.4 million and $3.2 million, respectively, as a
reduction to operating expenses
43
and the remainder to other income, which represented monetary
corrections. Monetary corrections are specific indexation
factors under Brazilian law that are used to restore the real
economic value of tax and other contingent obligations in local
Brazilian currency after taking into consideration the effects
of inflation.
As of December 31, 2007 and 2006, Nextel Brazil had accrued
liabilities of $20.2 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 December 31, 2007 and 2006, Nextel Brazil had
$10.8 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 $219.7 million and $223.7 million as of
December 31, 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 December 31, 2007 and 2006, Nextel Argentina had
accrued liabilities of $32.2 million and
$29.4 million, respectively, related primarily to local
turnover taxes, universal service tax and local government
claims, all of which were classified in accrued contingencies
and accrued non-income taxes reported as components of accrued
expenses and other.
Turnover Tax. The government of the
city of Buenos Aires imposes a turnover tax rate of 6% of
revenues for cellular companies while maintaining a 3% rate for
other telecommunications services. From a regulatory standpoint,
we are not considered a cellular company, although, 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.
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 $4.2 million, plus
interest, 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
determined that it would continue to pay the 3% general turnover
tax rate and would continue with its efforts to obtain
reimbursement of amounts previously paid under protest, but
would discontinue its prior practice of accruing for the
incremental difference in the cellular rate.
In March 2007, Nextel Argentina filed an administrative claim to
recover the amounts paid under protest from April 2006 through
December 2006. In November 2007, Nextel Argentina received a
$4.2 million tax refund, plus interest, as the result of a
resolution issued by the tax authorities of the city of Buenos
Aires with respect to the amounts paid from April 2006 through
December 2006 relating to this tax. Nextel Argentina believes
that the tax refund clarifies and confirms the 3% general
turnover tax rate. The resolution also indicated that the city
of Buenos Aires will defer the decision of the pending lawsuit
to pursue the reimbursement of the $18.8 million paid under
protest in April 2006. In addition, Nextel Argentina
unconditionally and unilaterally committed to donate
$3.4 million to charitable organizations.
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. 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 December 31, 2007 and 2006, Nextel Argentina accrued
$6.8 million and $5.1 million, respectively, for local
turnover taxes in this province, which are included as
components of accrued expenses and other.
44
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 began depositing these
contributions in September 2007, effective for the period
beginning July 1, 2007.
As a result of various events, during 2005, Nextel Argentina
accrued for the maximum liability due to customers for amounts
billed during all periods ending December 31, 2005, plus
interest. Nextel Argentina continued accruing the higher amount
during the first quarter of 2006 while maintaining its position
that there is no basis for this reimbursement to customers. As
of April 1, 2006, Nextel Argentina changed its rate plan
structure, which eliminated all other charges and any further
contingencies related to this tax. In April 2006, Nextel
Argentina filed a judicial claim against the legislation passed
in May 2005, which is currently pending. As of December 31,
2007 and 2006, the accrual for the liability to Nextel
Argentinas customers was $7.7 million and
$6.9 million, respectively, which is included as a
component of accrued expenses and other.
Critical
Accounting Policies and Estimates
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses and related disclosures of contingent assets and
liabilities in the consolidated financial statements and
accompanying notes. Although we believe that our estimates,
assumptions and judgments are reasonable, they are based upon
information presently available. Due to the inherent uncertainty
involved in making those estimates, actual results reported in
future periods could differ from those estimates.
The SEC has defined a companys critical accounting
policies as those that are most important to the portrayal of
the companys financial condition and results of
operations, and which require a company to make its most
difficult and subjective judgments, often as a result of the
need to make estimates of matters that are inherently uncertain.
Based on this definition, we have identified the critical
accounting policies and judgments addressed below. We also have
other accounting policies, which involve the use of estimates,
judgments and assumptions that are significant to understanding
our results. For additional information, see Note 1 to our
consolidated financial statements included at the end of this
annual report on
Form 10-K.
Revenue Recognition. While our revenue
recognition policy does not require the exercise of significant
judgment or the use of significant estimates, we believe that
our policy is significant as revenue is a key component of our
results of operations.
Operating revenues primarily consist of service revenues and
revenues generated from the sale and rental of digital handsets
and accessories. We present our operating revenues net of
value-added taxes, but we include certain revenue-based taxes
that are our primary obligation. Service revenues primarily
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 where
applicable and variable charges for airtime and digital two-way
radio usage in excess of plan minutes, long-distance charges and
international roaming revenues derived from calls placed by our
customers on other carriers networks.
We also have other sources of revenues. Other revenues primarily
include amounts generated from our handset maintenance programs,
roaming revenues generated from other companies customers
that roam on our networks and co-location rental revenues from
third party tenants that rent space on our towers.
We recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sale price is fixed and
determinable and collectibility is reasonably assured. The
following are the policies applicable to our major categories of
revenue transactions.
45
We recognize revenue for access charges and other services
charged at fixed amounts ratably over the service period, net of
credits and adjustments for service discounts and value-added
taxes. We recognize excess usage, local, long distance and
calling party pays revenue at contractual rates per minute as
minutes are used. We record cash received in excess of revenues
earned as deferred revenues.
We recognize revenue generated from our handset maintenance
programs on a monthly basis at fixed amounts over the service
period. We recognize roaming revenues at contractual rates per
minute as minutes are used. We recognize co-location revenues
from third party tenants on a monthly basis based on the terms
set by the underlying agreements.
We bill excess usage to our customers in arrears. In order to
recognize the revenues originated from excess usage subsequent
to customer invoicing through the end of the reporting period,
we estimate the unbilled portion based on the usage that the
handset had during the part of the month already billed, and we
use this actual usage to estimate the unbilled usage for the
rest of the month taking into consideration working days and
seasonality. Our estimates are based on our experience in each
market. We periodically evaluate our estimation process by
comparing our estimates to actual excess usage revenue billed
the following month. As a result, actual usage could differ from
our estimates.
We recognize revenue from handset and accessory sales when title
and risk of loss passes upon delivery of the handset or
accessory to the customer as this is considered to be a separate
earnings process from the sale of wireless services.
Allowance for Doubtful Accounts. We
establish an allowance for doubtful accounts receivable
sufficient to cover probable and reasonably estimated losses.
Our methodology for determining our allowance for doubtful
accounts receivable requires significant estimates. Since we
have over one million accounts, it is impracticable to review
the collectibility of all individual accounts when we determine
the amount of our allowance for doubtful accounts receivable
each period. Therefore, we consider a number of factors in
establishing the allowance on a
market-by-market
basis, including historical collection experience, current
economic trends, estimates of forecasted write-offs, agings of
the accounts receivable portfolio and other factors. While we
believe that the estimates we use are reasonable, actual results
could differ from those estimates.
Depreciation of Property, Plant and
Equipment. Our business is capital intensive
because of our digital mobile networks. We record at cost our
digital network assets and other improvements that in our
opinion, extend the useful lives of the underlying assets, and
depreciate the assets over their estimated useful lives. We
calculate depreciation using the straight-line method based on
estimated useful lives ranging from 3 to 20 years for
digital mobile network equipment and network software and 3 to
10 years for office equipment, furniture and fixtures, and
other, which includes
non-network
internal use software. We depreciate our corporate aircraft
capital lease using the straight-line method based on the lease
term of 8 years. We amortize leasehold improvements over
the shorter of the lease terms or the useful lives of the
improvements. Our digital mobile networks are highly complex
and, due to constant innovation and enhancements, certain
components of the networks may lose their utility faster than
anticipated. We periodically reassess the economic life of these
components and make adjustments to their expected lives after
considering historical experience and capacity requirements,
consulting with the vendor and assessing new product and market
demands and other factors. When these factors indicate network
components may not be useful for as long as originally
anticipated, we depreciate the remaining book value over the
remaining useful lives. Further, the timing and deployment of
any new technologies could affect the estimated remaining useful
lives of our digital network assets, which could significantly
impact future results of operations.
Amortization of Intangible Assets. We
record our licenses at historical cost and amortize them using
the straight-line method based on an estimated useful life of 12
to 20 years. The terms of our licenses, including renewals,
range from 30 to 40 years. The political and regulatory
environments in the markets we serve are continuously changing
and, in many cases, the renewal fees could be significant.
Therefore, we do not view the renewal of our licenses to be
perfunctory. In addition, the wireless telecommunications
industry is experiencing significant technological change, and
the commercial life of any particular technology is difficult to
predict. Most of our licenses give us the right to use
800 MHz spectrum that is non-contiguous, and the iDEN
technology is the only widespread, commercially available
digital technology that operates on non-contiguous spectrum. As
a result, our ability to deploy new technologies on our licensed
800MHz spectrum is limited. In light of the uncertainty
regarding the availability of alternative technologies and
regarding the commercial life of any technology, including the
iDEN technology, our ability to use our 800MHz spectrum for an
indefinite period cannot be assured. As a result, we classify
our licenses as finite lived assets. Our licenses and the
requirements to maintain the licenses are subject to renewal
after the initial term, provided that we have complied with
applicable rules and policies in each of our markets. We intend
to comply, and believe we have complied, with these rules and
policies in all material respects.
46
However, because governmental authorities have discretion as to
the grant or renewal of licenses, our licenses may not be
renewed, which could have a significant impact on our estimated
useful lives, or we may be required to pay significant renewal
fees. This would affect our results of operations in the future.
Asset Retirement Obligations. We record
an asset retirement obligation, or ARO, and an associated asset
retirement cost, or ARC, when we have a legal obligation in
connection with the retirement of tangible long-lived assets. We
have certain legal obligations, conditional and otherwise,
related to network infrastructure, principally tower and related
assets and certain administrative facilities. These legal
obligations include obligations to, at the end of the lease,
remove our network infrastructure and administrative assets from
the leased space where these assets are located. Estimating this
obligation requires us to make certain assumptions that are
highly judgmental in nature. The significant assumptions used in
estimating our asset retirement obligations include the
following: the probability that our assets with asset retirement
obligations will be removed at the lessors directive;
expected settlement dates that coincide with lease expiration
dates plus estimates of lease extensions; removal costs that are
indicative of what third party vendors would charge us to remove
the assets; expected inflation rates that are consistent with
historical inflation rates; and credit-adjusted risk-free rates
that approximate our incremental borrowing rates. We review
these assumptions to ensure that the estimates are reasonable.
Any change in the assumptions used could significantly affect
the amounts recorded. Over time, we accrete the ARO to its
future value, and depreciate the ARC over the estimated useful
life of the related asset. Upon settlement of the ARO, we will
extinguish the obligation for its recorded amount and incur a
gain or loss if the actual obligation is different from the
recorded amount.
Foreign Currency. We translate the
results of operations for our
non-U.S. subsidiaries
and affiliates from the designated functional currency to the
U.S. dollar using average exchange rates during the
relevant period, while we translate assets and liabilities at
the exchange rate in effect at the reporting date. We report the
resulting gains or losses from translating foreign currency
financial statements as other comprehensive income or loss.
Because average exchange rates are used to translate the
operations of our
non-U.S. subsidiaries,
our operating companies trends may be impacted by the
translation. For example, in-country U.S. dollar-based
trends may be accentuated or attenuated by changes in
translation rates.
We report the effects of changes in exchange rates associated
with U.S. dollar-denominated assets and liabilities as
foreign currency transaction gains or losses. With regard to
intercompany loans and advances to our foreign subsidiaries that
are of a long-term investment nature and that are not expected
to be settled in the foreseeable future, we report the effects
of changes in exchange rates as part of the cumulative foreign
currency translation adjustment in our consolidated financial
statements. We view the intercompany loans and advances from our
U.S. subsidiaries to Nextel Brazil and Nextel Chile and an
intercompany payable due to Nextel Mexico as of a long-term
investment nature. In contrast, we report the effects of
exchange rates associated with U.S. dollar denominated
intercompany loans and advances to our foreign subsidiaries that
are due, or for which repayment is anticipated, in the
foreseeable future, as foreign currency transaction gains, net
in our consolidated statements of operations. As a result, our
determination of whether intercompany loans and advances are of
a long-term investment nature can have a significant impact on
the calculation of foreign currency transaction gains and losses
and the foreign currency translation adjustment.
Loss Contingencies. We account for and
disclose loss contingencies such as pending litigation and
actual or possible claims and assessments in accordance with
SFAS No. 5, Accounting for Contingencies.
We accrue for loss contingencies if it is probable that a loss
will occur and if the loss can be reasonably estimated. We
disclose, but do not accrue for, loss contingencies if it is
reasonably possible that a loss will occur and if the loss can
be reasonably estimated. We do not accrue for or disclose loss
contingencies if there is only a remote possibility that the
loss will occur. SFAS No. 5 requires us to make
judgments regarding future events, including an assessment
relating to the likelihood that a loss may occur and an estimate
of the amount of such loss. In assessing loss contingencies, we
often seek the assistance of our legal counsel and in some
instances, of third party legal counsel. As a result of the
significant judgment required in assessing and estimating loss
contingencies, actual losses realized in future periods could
differ significantly from our estimates.
Stock-Based Compensation. Through
December 31, 2005, we accounted for share-based payments
using the intrinsic value method under the recognition and
measurement provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees, or APB 25, and related interpretations, as
permitted by SFAS No. 123, Accounting for Stock
Based Compensation, or SFAS 123. In accordance with
APB 25, no compensation cost was required to be recognized for
options granted that had an exercise price equal to the market
value of the underlying common stock on the grant date.
47
On January 1, 2006, we adopted the fair value recognition
provisions of SFAS 123R, Shared-Based Payment,
which requires the measurement and recognition of compensation
expense, based on estimated fair values, for all share-based
awards, made to employees and directors, including stock options
and restricted stock. We used the modified prospective
transition method and therefore did not restate our prior
periods results. Share-based compensation expense
recognized in our consolidated statement of operations for the
years ended December 31, 2007 and 2006 includes
compensation expense for share-based awards granted
(i) prior to, but not yet vested as of January 1,
2006, based on the grant date fair value estimated in accordance
with the provisions of SFAS 123, and (ii) subsequent
to January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS 123R.
We use the Black-Scholes-Merton option pricing model, which we
refer to as the Black-Scholes Model, for purposes of determining
the estimated fair value of share-based payment awards on the
date of grant under SFAS 123R. The Black-Scholes Model was
developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In
addition, option-pricing models such as the Black-Scholes-Model
require the input of highly subjective assumptions, including
expected stock price volatility and expected exercise behavior,
as well as other assumptions including the average risk free
interest rate and expected dividend yield.
Each year we confer with an independent consulting firm with
expertise in valuing employee stock options to review our
assumptions, methodology and calculations. The assumptions we
use in the Black-Scholes Model represent our best estimates, but
these estimates involve inherent uncertainties and the
application of management judgment. Consequently, there is a
risk that our estimates of the fair values of our stock option
awards on the grant dates may bear little resemblance to the
actual values realized upon the exercise, expiration, early
termination or forfeiture of those stock option awards in the
future. Certain stock option awards may expire worthless or
otherwise result in zero intrinsic value as compared to the fair
values originally estimated on the grant date and reported in
our financial statements. Alternatively, value may be realized
from the stock option awards that is significantly in excess of
the fair values originally estimated on the grant date and
reported in our financial statements. Additionally, application
of alternative assumptions could produce significantly different
estimates of the fair value of stock option awards and
consequently, the related amounts recognized in the consolidated
statements of operations. Currently, there is no other practical
application to verify the reliability and accuracy of the
estimates from option-pricing valuation models such as
Black-Scholes. Although the fair value of stock option awards is
determined in accordance with SFAS 123R and Staff
Accounting Bulletin Topic 14, or SAB 107, using the
Black-Scholes Model, the fair value may not be indicative of the
fair value observed in a willing buyer/willing seller market
transaction. Because stock options granted to employees have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, we believe that
the existing models, including the Black-Scholes model, do not
necessarily provide a reliable single measure of the fair value
of the stock options.
Income Taxes. We account for income
taxes using the asset and liability method, under which we
recognize deferred income taxes for the tax consequences
attributable to differences between the financial statement
carrying amounts and the tax bases of existing assets and
liabilities, as well as for tax loss carryforwards and tax
credit carryforwards. We measure deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recoverable or settled. We recognize the effect
on deferred taxes of a change in tax rates in income in the
period that includes the enactment date. We provide a valuation
allowance against deferred tax assets if, based upon the weight
of available evidence, we do not believe it is
more-likely-than-not that some or all of the
deferred tax assets will be realized. We report remeasurement
gains and losses related to deferred tax assets and liabilities
in our income tax provision.
Historically, a substantial portion of our deferred tax asset
valuation allowance related to deferred tax assets that, if
realized, would not result in a benefit to our income tax
provision. In accordance with Statement of Position
90-7,
Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, or
SOP 90-7,
we recognize decreases in the valuation allowance existing at
the reorganization date first as a reduction in the carrying
value of intangible assets existing at the reorganization date
of October 31, 2002 and then as an increase to paid-in
capital. As of December 31, 2004, we reduced to zero the
carrying value of our intangible assets existing at the
reorganization date. As of December 31, 2007, due to
satisfying the more-likely-than-not criteria in Brazil, we
substantially reduced the amount of our deferred tax asset
valuation allowance that existed at the reorganization date by
increasing paid-in capital. We will record the future decreases,
if any, of the valuation allowance existing on the
reorganization date as an increase to paid-in capital. We will
record decreases, if any, of the post-reorganization valuation
allowance as a benefit to our income tax provision. Using a
with-and-without
method, in accordance with SFAS 123R, we recognize
decreases in the valuation allowance attributable to the excess
tax benefits resulting
48
from the exercise of employee stock options as an increase to
paid-in capital. In each market and in the U.S., we recognize
decreases in the valuation allowance first as a decrease in the
remaining valuation allowance that existed as of the
reorganization date, then as a decrease in any
post-reorganization valuation allowance, and finally as a
decrease of the valuation allowance associated with stock option
deductions.
Realization of deferred tax assets in any of our markets depends
on continued future profitability in these markets. Our ability
to generate the expected amounts of taxable income from future
operations is dependent upon general economic conditions,
technology trends, political uncertainties, competitive
pressures and other factors beyond managements control. If
our operations continue to demonstrate profitability, we may
further reverse additional deferred tax asset valuation
allowance balances during 2008. We will continue to evaluate the
deferred tax asset valuation allowance balances in all of our
foreign and U.S. companies throughout 2008 to determine the
appropriate level of valuation allowances.
During the fourth quarter of 2007, we changed our historic
position regarding the repatriation of foreign earnings back to
the United States. Historically, we have not recorded any
U.S. Federal, state or foreign tax provision on the
undistributed earnings of our foreign subsidiaries other than
income that has been previously taxed in the U.S. under the
subpart F rules, as it has been our intention to indefinitely
reinvest such undistributed earnings outside of the United
States. In the fourth quarter of 2007, we provided a
$69.6 million provision for U.S. Federal, state and
foreign taxes on future remittances to the U.S. of certain
undistributed earnings (other than income that has been
previously taxed in the U.S. under the subpart F rules) of
our Argentine and Mexican subsidiaries. Other than this
$69.6 million provision, at this time, it remains our
intention to indefinitely reinvest all other undistributed
earnings of our foreign subsidiaries outside the United States.
Should additional amounts of our foreign subsidiaries
undistributed earnings be remitted to the U.S. as
dividends, we may be subject to additional U.S. income
taxes (net of allowable foreign tax credits) and foreign
withholding taxes.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. We regularly assess the potential outcome of current and
future examinations in each of the taxing jurisdictions when
determining the adequacy of the provision for income taxes. We
have only recorded financial statement benefits for tax
positions which we believe reflect the
more-likely-than-not criteria of Financial
Accounting Standards Board, or FASB, Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109, or
FIN 48. We have also established income tax reserves in
accordance with FIN 48 where necessary. Once a financial
statement benefit for a tax position is recorded or a tax
reserve is established, we adjust it only when there is more
information available or when an event occurs necessitating a
change. While we believe that the amount of the recorded
financial statement benefits and tax reserves reflect the
FIN 48 more-likely-than-not criteria, it is possible that
the ultimate outcome of current or future examinations may
result in a reduction to the tax benefits previously recorded on
our consolidated financial statements or may exceed the current
income tax reserves in amounts that could be material.
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of 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 and international roaming
revenues derived from calls placed by our customers. Digital
handset and accessory revenues represent revenues we earn on the
sale of digital handsets and accessories to our customers.
In addition, we also have other less significant sources of
revenues. These revenues primarily include revenues generated
from our handset maintenance programs, roaming revenues
generated from other companies customers that roam on our
networks and co-location rental revenues from third-party
tenants that rent space on our towers.
See Revenue Recognition above and Note 1 to our
consolidated financial statements included at the end of this
annual report on
Form 10-K
for a description of our revenue recognition methodology.
Cost of revenues primarily includes the cost of providing
wireless service and the cost of 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,
spectrum license fees 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
49
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 includes all of the expenses
related to acquiring customers. General and administrative
expenses include expenses related to revenue-based taxes,
billing, customer care, collections including bad debt, repairs
and maintenance of management information systems, spectrum
license fees, corporate overhead and share-based payment for
stock options and restricted stock.
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1.
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Year
Ended December 31, 2007 vs. Year Ended December 31,
2006
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% of
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% of
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Year Ended
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Consolidated
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Year Ended
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Consolidated
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Change from
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December 31,
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Operating
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December 31,
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Operating
|
|
|
|
Previous Year
|
|
|
|
|
2007
|
|
|
Revenues
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,184,696
|
|
|
|
97
|
|
%
|
|
$
|
2,279,922
|
|
|
|
96
|
|
%
|
|
$
|
904,774
|
|
|
|
40
|
|
%
|
Digital handset and accessory revenues
|
|
|
111,599
|
|
|
|
3
|
|
%
|
|
|
91,418
|
|
|
|
4
|
|
%
|
|
|
20,181
|
|
|
|
22
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,296,295
|
|
|
|
100
|
|
%
|
|
|
2,371,340
|
|
|
|
100
|
|
%
|
|
|
924,955
|
|
|
|
39
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(879,679
|
)
|
|
|
(27
|
)
|
%
|
|
|
(617,669
|
)
|
|
|
(26
|
)
|
%
|
|
|
(262,010
|
)
|
|
|
42
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(415,015
|
)
|
|
|
(12
|
)
|
%
|
|
|
(311,307
|
)
|
|
|
(13
|
)
|
%
|
|
|
(103,708
|
)
|
|
|
33
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,294,694
|
)
|
|
|
(39
|
)
|
%
|
|
|
(928,976
|
)
|
|
|
(39
|
)
|
%
|
|
|
(365,718
|
)
|
|
|
39
|
|
%
|
Selling and marketing expenses
|
|
|
(445,516
|
)
|
|
|
(14
|
)
|
%
|
|
|
(321,240
|
)
|
|
|
(14
|
)
|
%
|
|
|
(124,276
|
)
|
|
|
39
|
|
%
|
General and administrative expenses
|
|
|
(632,377
|
)
|
|
|
(19
|
)
|
%
|
|
|
(459,133
|
)
|
|
|
(19
|
)
|
%
|
|
|
(173,244
|
)
|
|
|
38
|
|
%
|
Depreciation and amortization
|
|
|
(304,624
|
)
|
|
|
(9
|
)
|
%
|
|
|
(202,222
|
)
|
|
|
(9
|
)
|
%
|
|
|
(102,402
|
)
|
|
|
51
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
619,084
|
|
|
|
19
|
|
%
|
|
|
459,769
|
|
|
|
19
|
|
%
|
|
|
159,315
|
|
|
|
35
|
|
%
|
Interest expense, net
|
|
|
(128,733
|
)
|
|
|
(4
|
)
|
%
|
|
|
(89,379
|
)
|
|
|
(4
|
)
|
%
|
|
|
(39,354
|
)
|
|
|
44
|
|
%
|
Interest income
|
|
|
67,429
|
|
|
|
2
|
|
%
|
|
|
51,057
|
|
|
|
2
|
|
%
|
|
|
16,372
|
|
|
|
32
|
|
%
|
Foreign currency transaction gains, net
|
|
|
19,008
|
|
|
|
1
|
|
%
|
|
|
3,557
|
|
|
|
|
|
|
|
|
15,451
|
|
|
|
NM
|
|
|
Debt conversion expense
|
|
|
(26,429
|
)
|
|
|
(1
|
)
|
%
|
|
|
(5,070
|
)
|
|
|
|
|
|
|
|
(21,359
|
)
|
|
|
NM
|
|
|
Other expense, net
|
|
|
(1,914
|
)
|
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
4,086
|
|
|
|
(68
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
548,445
|
|
|
|
17
|
|
%
|
|
|
413,934
|
|
|
|
17
|
|
%
|
|
|
134,511
|
|
|
|
32
|
|
%
|
Income tax provision
|
|
|
(170,027
|
)
|
|
|
(5
|
)
|
%
|
|
|
(119,444
|
)
|
|
|
(5
|
)
|
%
|
|
|
(50,583
|
)
|
|
|
42
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
378,418
|
|
|
|
12
|
|
%
|
|
$
|
294,490
|
|
|
|
12
|
|
%
|
|
$
|
83,928
|
|
|
|
28
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
In connection with our profitable growth strategy, during 2007,
we continued to significantly expand our subscriber base across
all of our markets with the majority of this growth concentrated
in Mexico and Brazil. As a result, both our consolidated
revenues and consolidated operating expenses increased
substantially from 2006 to 2007. Consolidated cost of service
increased in total and as a percentage of total operating
revenues mostly due to higher interconnect expenses caused by
increased customer loading and a higher proportion of
mobile-to-mobile calls, which generally have higher per minute
interconnection costs. Consolidated cost of digital handset and
accessory sales and consolidated selling and marketing expenses
increased significantly from 2006 to 2007 as a result of an
overall increase in consolidated handset sales. Coverage
expansion and network improvements resulted in consolidated
capital expenditures totaling $666.8 million in 2007, which
represented a $39.3 million increase from 2006. This
increase in capital expenditures was the result of the rapid
expansion of our digital mobile networks and the launch of
various new markets. As a result, our depreciation expense
increased significantly from 2006 to
50
2007. Consolidated operating margin remained relatively flat
from 2006 to 2007 principally as a result of the aforementioned
increase in operating expenses associated with our growing
customer base and network expansion.
In 2008, we plan to continue to expand our consolidated customer
base in both new and existing areas while continuing to address
a more competitive sales environment, primarily in Mexico. As a
result, we expect that our consolidated average revenue per
subscriber will decline in 2008. We also expect our consolidated
customer turnover rate to increase in 2008 primarily as a result
of the competitive sales environments in our markets. 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. In addition, we recently
acquired rights to use 1.9 GHz spectrum in Peru that
require us to deploy new digital network technology within
specified timeframes throughout Peru, including in areas that we
do not currently serve. Our deployments of new digital
technologies to offer our customers new and advanced services in
Peru will require additional significant capital expenditures in
2008. See D. Future Capital Needs and
Resources. Capital Expenditures. for more information.
The $904.8 million, or 40%, increase in consolidated
service and other revenues from 2006 to 2007 is primarily due to
a 38% increase 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 $64.5 million, or 53%,
increase in revenues generated from our handset maintenance
programs as a result of an increase in the number of subscribers
participating in these programs. Average consolidated revenues
per handset remained relatively stable from 2006 to 2007.
The $20.2 million, or 22%, increase in consolidated digital
handset and accessory revenues from 2006 to 2007 is primarily
due to a 53% increase in handset upgrades, as well as a 41%
increase in handset sales, partially offset by lower sales
revenue per handset resulting from a change in the mix of
handsets sold and handset promotions, primarily in Mexico.
The $262.0 million, or 42%, increase in consolidated cost
of service from 2006 to 2007 is principally a result of the
following:
|
|
|
|
|
a $149.1 million, or 48%, increase in consolidated
interconnect costs resulting primarily from a 34% increase 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 interconnection costs;
|
|
|
|
a $60.8 million, or 30%, increase in consolidated direct
switch and transmitter and receiver site costs resulting from a
20% increase in the total number of sites in service from
December 31, 2006 to December 31, 2007 and an increase
in costs per site; and
|
|
|
|
a $34.3 million, or 39%, increase in consolidated service
and repair costs mainly resulting from an increase in
subscribers participating under our handset maintenance programs.
|
The $103.7 million, or 33%, increase in consolidated cost
of digital handset and accessory sales from 2006 to 2007 is
primarily due to a 41% increase in total handset sales, as well
as a 53% increase in handset upgrades, partially offset by lower
costs per handset sale resulting from reductions in handset unit
costs and a change in the mix of handsets sold in 2007.
|
|
3.
|
Selling and
marketing expenses
|
The $124.3 million, or 39%, increase in consolidated
selling and marketing expenses from 2006 to 2007 is principally
a result of the following:
|
|
|
|
|
a $53.1 million, or 41%, increase in consolidated indirect
commissions resulting from a 37% increase in total handset sales
through external sales channels;
|
|
|
|
a $43.0 million, or 37%, increase in consolidated payroll
expenses and direct commissions resulting from a 46% increase in
total handset sales by internal sales personnel, partially
offset by a decrease in direct commission per handset sale,
primarily in Mexico; and
|
51
|
|
|
|
|
a $24.7 million, or 39%, increase 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.
|
|
|
4.
|
General and
administrative expenses
|
The $173.2 million, or 38%, increase in consolidated
general and administrative expenses from 2006 to 2007 is
primarily a result of the following:
|
|
|
|
|
a $53.7 million, or 48%, increase in consolidated customer
care expenses, mainly payroll and related expenses, resulting
from additional customer care personnel necessary to support a
larger customer base;
|
|
|
|
a $46.4 million, or 25%, increase in general corporate
costs 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;
|
|
|
|
a $19.3 million, or 66%, increase in revenue-based taxes in
Brazil that we report on a gross basis as both service and other
revenues and general and administrative expenses;
|
|
|
|
an $18.1 million, or 61%, increase in stock option
compensation expense, primarily resulting from grants of stock
options in April 2006 and April 2007;
|
|
|
|
a $16.0 million, or 53%, increase in consolidated bad debt
expense, primarily in Mexico, as a result of the 39% increase in
consolidated operating revenues. Bad debt expense as a
percentage of consolidated operating revenues increased slightly
from 1.3% in 2006 to 1.4% in 2007; and
|
|
|
|
a $15.0 million, or 34%, increase in information technology
repair and maintenance costs primarily in Mexico and Brazil
related to the expansion of our digital mobile networks.
|
|
|
5.
|
Depreciation
and amortization
|
The $102.4 million, or 51%, increase in consolidated
depreciation and amortization from 2006 to 2007 is primarily due
to a 41% increase in our consolidated property, plant and
equipment in service from December 31, 2006 to
December 31, 2007 resulting from the continued expansion of
our digital mobile networks, mainly in Mexico and Brazil.
The $39.4 million, or 44%, increase in consolidated net
interest expense from 2006 to 2007 is primarily due to the
following:
|
|
|
|
|
$21.9 million of interest expense incurred on our 3.125%
convertible notes that we issued in May 2007;
|
|
|
|
a $10.8 million increase 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;
|
|
|
|
a $7.8 million decrease in capitalized interest related to
a significant decline in average
construction-in-progress
balances, primarily in Mexico and Brazil; and
|
|
|
|
$3.1 million of interest incurred on borrowings under
Nextel Brazils syndicated loan facility; partially offset
by
|
|
|
|
a $6.8 million decrease in interest expense due to the
conversion of our 3.5% convertible notes during the fourth
quarter of 2006 and our 2.875% convertible notes during the
third quarter of 2007.
|
The $16.4 million, or 32%, increase in consolidated
interest income from 2006 to 2007 is largely due to higher
average consolidated cash balances, primarily in the United
States, resulting from the $1.2 billion in gross proceeds
we received from the 3.125% convertible notes that we issued in
May 2007.
|
|
8.
|
Foreign
currency transaction gains, net
|
Consolidated foreign currency transaction gains of
$19.0 million for 2007 are mostly the result of the
strengthening of the Brazilian real relative to the
U.S. dollar on Nextel Brazils
U.S. dollar-denominated liabilities, primarily on a
short-term intercompany bridge loan and its syndicated loan
facility.
52
|
|
9.
|
Debt
conversion expense
|
Debt conversion expense for 2007 represents $26.4 million
in cash consideration and direct external costs that we paid in
connection with the tender offer for 99.99% of our 2.875%
convertible notes in the third quarter of 2007.
Debt conversion expense for 2006 represents $5.1 million in
cash consideration and direct external costs that we paid in
connection with the conversion of the remaining
$91.4 million of our 3.5% convertible notes during the
fourth quarter of 2006.
The $50.6 million, or 42%, increase in the consolidated
income tax provision from 2006 to 2007 is primarily due to a
$134.5 million, or 32%, increase in income before taxes and
a $69.6 million tax provision for future remittances of
certain undistributed earnings by Nextel Argentina and Nextel
Mexico that we recorded in 2007. These increases were partially
offset by the release of $48.7 million in
post-reorganization deferred tax asset valuation allowance by
Nextel Brazil in 2007. In addition, the 2006 income tax
provision included a $17.1 million tax benefit related to
an out-of-period adjustment.
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 year ended December 31, 2007,
we reported this management fee as a separate line item in the
segment reporting information as this amount is now regularly
provided to our chief operating decision maker. During the years
ended December 31, 2006 and 2005, Nextel Mexico incurred a
management fee of $47.9 million and $68.1 million,
respectively. However, for the years ended December 31,
2006 and 2005, 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 years ended December 31, 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
|
|
Year Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
December 31, 2007
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,792,699
|
|
|
|
55
|
%
|
|
$
|
(621,975
|
)
|
|
|
48
|
%
|
|
$
|
(494,879
|
)
|
|
|
46
|
%
|
|
$
|
675,845
|
|
Nextel Brazil
|
|
|
867,964
|
|
|
|
26
|
%
|
|
|
(365,548
|
)
|
|
|
28
|
%
|
|
|
(284,631
|
)
|
|
|
27
|
%
|
|
|
217,785
|
|
Nextel Argentina
|
|
|
442,093
|
|
|
|
13
|
%
|
|
|
(203,672
|
)
|
|
|
16
|
%
|
|
|
(100,067
|
)
|
|
|
9
|
%
|
|
|
138,354
|
|
Nextel Peru
|
|
|
190,858
|
|
|
|
6
|
%
|
|
|
(100,642
|
)
|
|
|
8
|
%
|
|
|
(54,447
|
)
|
|
|
5
|
%
|
|
|
35,769
|
|
Corporate and other
|
|
|
3,850
|
|
|
|
|
|
|
|
(4,026
|
)
|
|
|
|
|
|
|
(143,869
|
)
|
|
|
13
|
%
|
|
|
(144,045
|
)
|
Intercompany eliminations
|
|
|
(1,169
|
)
|
|
|
|
|
|
|
1,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
3,296,295
|
|
|
|
100
|
%
|
|
$
|
(1,294,694
|
)
|
|
|
100
|
%
|
|
$
|
(1,077,893
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Year Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
December 31, 2006
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,341,297
|
|
|
|
57
|
%
|
|
$
|
(448,072
|
)
|
|
|
48
|
%
|
|
$
|
(362,541
|
)
|
|
|
46
|
%
|
|
$
|
530,684
|
|
Nextel Brazil
|
|
|
536,988
|
|
|
|
23
|
%
|
|
|
(243,288
|
)
|
|
|
26
|
%
|
|
|
(178,556
|
)
|
|
|
23
|
%
|
|
|
115,144
|
|
Nextel Argentina
|
|
|
345,034
|
|
|
|
14
|
%
|
|
|
(159,025
|
)
|
|
|
17
|
%
|
|
|
(87,013
|
)
|
|
|
11
|
%
|
|
|
98,996
|
|
Nextel Peru
|
|
|
146,373
|
|
|
|
6
|
%
|
|
|
(77,385
|
)
|
|
|
9
|
%
|
|
|
(42,910
|
)
|
|
|
6
|
%
|
|
|
26,078
|
|
Corporate and other
|
|
|
2,425
|
|
|
|
|
|
|
|
(1,983
|
)
|
|
|
|
|
|
|
(109,353
|
)
|
|
|
14
|
%
|
|
|
(108,911
|
)
|
Intercompany eliminations
|
|
|
(777
|
)
|
|
|
|
|
|
|
777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
2,371,340
|
|
|
|
100
|
%
|
|
$
|
(928,976
|
)
|
|
|
100
|
%
|
|
$
|
(780,373
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
In accordance with accounting principles generally accepted in
the United States, we translated the results of operations of
our operating segments using the average exchange rates for the
years ended December 31, 2007, 2006 and 2005. The following
table presents the average exchange rates we used to translate
the results of operations of our operating segments, as well as
changes from the average exchange rates utilized in prior
periods. Because the U.S. dollar is the functional currency
in Peru, Nextel Perus results of operations are not
significantly impacted by changes in the U.S. dollar to
Nuevo sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 to 2007
|
|
|
2005 to 2006
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Percent Change
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
10.93
|
|
|
|
10.90
|
|
|
|
10.90
|
|
|
|
(0.3
|
)%
|
|
|
0.0
|
%
|
Brazilian real
|
|
|
1.95
|
|
|
|
2.18
|
|
|
|
2.43
|
|
|
|
11.8
|
%
|
|
|
11.5
|
%
|
Argentine peso
|
|
|
3.12
|
|
|
|
3.08
|
|
|
|
2.92
|
|
|
|
(1.3
|
)%
|
|
|
(5.2
|
)%
|
A discussion of the results of operations in each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2007
|
|
|
Revenues
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,762,596
|
|
|
|
98
|
|
%
|
|
$
|
1,319,371
|
|
|
|
98
|
|
%
|
|
$
|
443,225
|
|
|
|
34
|
|
%
|
Digital handset and accessory revenues
|
|
|
30,103
|
|
|
|
2
|
|
%
|
|
|
21,926
|
|
|
|
2
|
|
%
|
|
|
8,177
|
|
|
|
37
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,792,699
|
|
|
|
100
|
|
%
|
|
|
1,341,297
|
|
|
|
100
|
|
%
|
|
|
451,402
|
|
|
|
34
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(370,468
|
)
|
|
|
(21
|
)
|
%
|
|
|
(275,950
|
)
|
|
|
(20
|
)
|
%
|
|
|
(94,518
|
)
|
|
|
34
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(251,507
|
)
|
|
|
(14
|
)
|
%
|
|
|
(172,122
|
)
|
|
|
(13
|
)
|
%
|
|
|
(79,385
|
)
|
|
|
46
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(621,975
|
)
|
|
|
(35
|
)
|
%
|
|
|
(448,072
|
)
|
|
|
(33
|
)
|
%
|
|
|
(173,903
|
)
|
|
|
39
|
|
%
|
Selling and marketing expenses
|
|
|
(262,495
|
)
|
|
|
(14
|
)
|
%
|
|
|
(197,653
|
)
|
|
|
(15
|
)
|
%
|
|
|
(64,842
|
)
|
|
|
33
|
|
%
|
General and administrative expenses
|
|
|
(232,384
|
)
|
|
|
(13
|
)
|
%
|
|
|
(164,888
|
)
|
|
|
(12
|
)
|
%
|
|
|
(67,496
|
)
|
|
|
41
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
675,845
|
|
|
|
38
|
|
%
|
|
|
530,684
|
|
|
|
40
|
|
%
|
|
|
145,161
|
|
|
|
27
|
|
%
|
Management fee
|
|
|
(34,376
|
)
|
|
|
(2
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(34,376
|
)
|
|
|
NM
|
|
|
Depreciation and amortization
|
|
|
(151,573
|
)
|
|
|
(9
|
)
|
%
|
|
|
(105,867
|
)
|
|
|
(8
|
)
|
%
|
|
|
(45,706
|
)
|
|
|
43
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
489,896
|
|
|
|
27
|
|
%
|
|
|
424,817
|
|
|
|
32
|
|
%
|
|
|
65,079
|
|
|
|
15
|
|
%
|
Interest expense, net
|
|
|
(60,527
|
)
|
|
|
(3
|
)
|
%
|
|
|
(38,424
|
)
|
|
|
(3
|
)
|
%
|
|
|
(22,103
|
)
|
|
|
58
|
|
%
|
Interest income
|
|
|
29,605
|
|
|
|
2
|
|
%
|
|
|
32,377
|
|
|
|
2
|
|
%
|
|
|
(2,772
|
)
|
|
|
(9
|
)
|
%
|
Foreign currency transaction gains, net
|
|
|
2,559
|
|
|
|
|
|
|
|
|
3,957
|
|
|
|
|
|
|
|
|
(1,398
|
)
|
|
|
(35
|
)
|
%
|
Other income (expense), net
|
|
|
2,103
|
|
|
|
|
|
|
|
|
(3,173
|
)
|
|
|
|
|
|
|
|
5,276
|
|
|
|
(166
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
463,636
|
|
|
|
26
|
|
%
|
|
$
|
419,554
|
|
|
|
31
|
|
%
|
|
$
|
44,082
|
|
|
|
11
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Nextel Mexico continues to be our largest and most profitable
market segment, comprising nearly 55% of our consolidated
operating revenues and generating a 38% segment earnings margin
for the year ended December 31, 2007. During 2007, Nextel
Mexico experienced strong subscriber growth and a corresponding
increase in operating expenses, which resulted from increased
costs incurred in connection with its 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 both 2006 and 2007. In addition, in 2007
Nextel Mexicos segment earnings margin decreased from
2006, primarily as a result of an increase in cost of digital
handset and accessories caused by a 47% increase in handset
sales realized in connection with strong subscriber growth and
higher handset subsidies as a percentage of handset costs due to
competitive circumstances, as well as an increase in general and
administrative costs resulting from higher customer care and bad
debt expenses.
54
During 2007, some of Nextel Mexicos competitors
significantly lowered prices for postpaid wireless services,
offered free or significantly discounted handsets, specifically
targeted some of Nextel Mexicos largest corporate
customers, offered various incentives to Nextel Mexicos
customers to switch service providers, including reimbursement
of cancellation fees, and offered bundled telecommunications
services that include local, long distance and data services.
Nextel Mexico is addressing these competitive actions by, among
other things, launching attractive commercial campaigns offering
handsets to new and existing customers on more favorable terms,
which results in higher handset subsidies as a percentage of
handset costs, and offering more competitive rate plans, which
results in lower average revenue per subscriber. During the
third and fourth quarters of 2007, Nextel Mexico also increased
its commission rates and otherwise modified its compensation
arrangements with its indirect sales channels in an effort to
promote additional sales through these channels. As a result of
the more competitive environment, Nextel Mexico experienced
lower average revenue per subscriber and a higher customer
turnover rate in 2007 compared to 2006. 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 will continue to decline and that Nextel
Mexicos customer turnover rate may continue to increase in
2008.
During 2007, Nextel Mexico substantially completed the network
expansion plans it launched in 2005 that were designed to
significantly increase the number of markets we serve in Mexico.
Coverage expansion and network improvements resulted in capital
expenditures totaling $255.2 million in 2007, which
represents 38% of our consolidated capital expenditures for
2007. While we expect that Nextel Mexico will continue to
represent a significant portion of our total capital
expenditures in the future, as we continue to increase the
coverage and capacity of our networks in our existing markets,
we expect its percentage of total capital expenditures to
decrease slightly 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 are maturing, Nextel Mexico has begun to focus
on driving penetration in additional market segments such as
small businesses and mid- to high-income individuals to
complement its core target base of larger business customers.
The average exchange rate of the Mexican peso for the year ended
December 31, 2007 depreciated against the U.S. dollar
by less than 1% from the year ended December 31, 2006. As a
result, the components of Nextel Mexicos results of
operations after translation into U.S. dollars are largely
comparable from 2006 to 2007.
The $443.2 million, or 34%, increase in service and other
revenues from 2006 to 2007 is primarily due to the following:
|
|
|
|
|
a 39% increase in the average number of digital handsets in
service resulting from growth in Nextel Mexicos existing
markets, as well as the expansion of service coverage into new
markets during both 2006 and 2007; and
|
|
|
|
a $27.0 million, or 55%, increase in revenues generated
from Nextel Mexicos handset maintenance program as a
result of an increase in subscribers participating in this
program; partially offset by
|
|
|
|
a decline in average revenue per subscriber.
|
The $8.2 million, or 37%, increase in digital handset and
accessory revenues from 2006 to 2007 is primarily the result of
a 47% increase in handset sales and a 58% increase in handset
upgrades, partially offset by lower sales revenue per handset
resulting from handset promotions under which Nextel Mexico
offered handsets to new and existing customers at discounted
prices in order to meet competitive offers in the market.
The $94.5 million, or 34%, increase in cost of service from
2006 to 2007 is principally a result of the following:
|
|
|
|
|
a $50.3 million, or 39%, increase in interconnect costs,
largely as a result of a 33% increase 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;
|
|
|
|
a $20.5 million, or 21%, increase in direct switch and
transmitter and receiver site costs resulting from a 16%
increase in the number of sites in service from
December 31, 2006 to December 31, 2007, as well as an
increase in operating and maintenance costs per site; and
|
|
|
|
a $14.9 million, or 38%, increase in service and repair
costs largely due to a 37% increase in subscribers participating
in Nextel Mexicos handset maintenance program.
|
55
The $79.4 million, or 46%, increase in cost of digital
handsets and accessory sales from 2006 to 2007 is primarily due
to a 47% increase in handset sales, as well as a 58% increase in
handset upgrades.
|
|
3.
|
Selling and
marketing expenses
|
The $64.8 million, or 33%, increase in selling and
marketing expenses from 2006 to 2007 is primarily a result of
the following:
|
|
|
|
|
a $34.6 million, or 38%, increase in indirect commissions,
primarily due to a 39% increase in handset sales by Nextel
Mexicos third party dealers;
|
|
|
|
a $19.5 million, or 35%, increase in direct commissions and
payroll expenses, principally due to a 61% increase 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
|
|
|
|
an $8.7 million, or 20%, increase in advertising costs
resulting from the launch of new markets in connection with
Nextel Mexicos expansion plan, the launch of new rate
plans and the establishment of objectives to reinforce market
awareness of the Nextel brandname.
|
Due to the increases in commission rates for indirect sales
channels that Nextel Mexico implemented during the third quarter
of 2007, we expect that indirect commissions per handset sale
will be higher in 2008 compared to 2007.
|
|
4.
|
General and
administrative expenses
|
The $67.5 million, or 41%, increase in general and
administrative expenses from 2006 to 2007 is largely a result of
the following:
|
|
|
|
|
a $28.7 million, or 51%, 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 growing customer base, as well
as an increase in the number of retail stores in Mexico;
|
|
|
|
a $22.9 million, or 32%, increase 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 Nextel Mexicos expansion into new markets; and
|
|
|
|
a $11.3 million, or 69%, increase in bad debt expense,
primarily from higher revenues and the introduction of certain
rate plans that are available to customers with higher credit
risk. Bad debt as a percentage of revenue increased from 1.2% in
2006 to 1.5% in 2007.
|
We charge a management fee to Nextel Mexico for its share of the
corporate management services performed by us, which effective
January 1, 2007, we began including in our segment
reporting information. Nextel Mexico incurred a management fee
of $34.4 million in 2007. During 2006, Nextel Mexico
incurred a management fee of $47.9 million.
|
|
6.
|
Depreciation
and amortization
|
The $45.7 million, or 43%, increase in depreciation and
amortization from 2006 to 2007 is primarily due to a 27%
increase in Nextel Mexicos property, plant and equipment
in service resulting from the continued build-out of Nextel
Mexicos network in connection with its expansion plan, as
well as a $5.7 million increase in amortization due to the
acquisition of new licenses in late 2006.
7. Interest
expense, net
Excluding $10.1 million in interest on the management fee
in 2007 that was not recognized for segment reporting purposes
in 2006, Nextel Mexicos interest expense increased
$12.0 million, or 31%, mostly as a result of a decrease in
capitalized interest related to a significant decrease in
average
construction-in-progress
balances in connection with the substantial completion of Nextel
Mexicos expansion plan. This increase was also due to an
increase in interest incurred on Nextel Mexicos towers
financing and co-location capital leases resulting from an
increase in the number of communication tower and co-location
agreements.
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2007
|
|
|
Revenues
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
833,241
|
|
|
|
96
|
|
%
|
|
$
|
500,315
|
|
|
|
93
|
|
%
|
|
$
|
332,926
|
|
|
|
67
|
|
%
|
Digital handset and accessory revenues
|
|
|
34,723
|
|
|
|
4
|
|
%
|
|
|
36,673
|
|
|
|
7
|
|
%
|
|
|
(1,950
|
)
|
|
|
(5
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
867,964
|
|
|
|
100
|
|
%
|
|
|
536,988
|
|
|
|
100
|
|
%
|
|
|
330,976
|
|
|
|
62
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(286,673
|
)
|
|
|
(33
|
)
|
%
|
|
|
(173,570
|
)
|
|
|
(32
|
)
|
%
|
|
|
(113,103
|
)
|
|
|
65
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(78,875
|
)
|
|
|
(9
|
)
|
%
|
|
|
(69,718
|
)
|
|
|
(13
|
)
|
%
|
|
|
(9,157
|
)
|
|
|
13
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(365,548
|
)
|
|
|
(42
|
)
|
%
|
|
|
(243,288
|
)
|
|
|
(45
|
)
|
%
|
|
|
(122,260
|
)
|
|
|
50
|
|
%
|
Selling and marketing expenses
|
|
|
(117,754
|
)
|
|
|
(14
|
)
|
%
|
|
|
(70,411
|
)
|
|
|
(13
|
)
|
%
|
|
|
(47,343
|
)
|
|
|
67
|
|
%
|
General and administrative expenses
|
|
|
(166,877
|
)
|
|
|
(19
|
)
|
%
|
|
|
(108,145
|
)
|
|
|
(21
|
)
|
%
|
|
|
(58,732
|
)
|
|
|
54
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
217,785
|
|
|
|
25
|
|
%
|
|
|
115,144
|
|
|
|
21
|
|
%
|
|
|
102,641
|
|
|
|
89
|
|
%
|
Depreciation and amortization
|
|
|
(96,342
|
)
|
|
|
(11
|
)
|
%
|
|
|
(59,199
|
)
|
|
|
(11
|
)
|
%
|
|
|
(37,143
|
)
|
|
|
63
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
121,443
|
|
|
|
14
|
|
%
|
|
|
55,945
|
|
|
|
10
|
|
%
|
|
|
65,498
|
|
|
|
117
|
|
%
|
Interest expense, net
|
|
|
(33,943
|
)
|
|
|
(4
|
)
|
%
|
|
|
(23,961
|
)
|
|
|
(5
|
)
|
%
|
|
|
(9,982
|
)
|
|
|
42
|
|
%
|
Interest income
|
|
|
744
|
|
|
|
|
|
|
|
|
3,490
|
|
|
|
1
|
|
%
|
|
|
(2,746
|
)
|
|
|
(79
|
)
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
14,595
|
|
|
|
2
|
|
%
|
|
|
(387
|
)
|
|
|
|
|
|
|
|
14,982
|
|
|
|
NM
|
|
|
Other expense, net
|
|
|
(127
|
)
|
|
|
|
|
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
|
1,749
|
|
|
|
(93
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
102,712
|
|
|
|
12
|
|
%
|
|
$
|
33,211
|
|
|
|
6
|
|
%
|
|
$
|
69,501
|
|
|
|
209
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Over the last three years, Nextel Brazils subscriber base
and segment earnings have increased as a result of a continued
focus on customer service, the expansion of its network and
significant improvements in its operating cost structure. In
addition to these factors, as a result of the improvement in the
Brazilian economy over the same period and increasing demand for
its services, Nextel Brazil has continued to grow its existing
markets and made significant investments in new markets.
Coverage expansion and network improvements resulted in capital
expenditures totaling $256.4 million for 2007, which
represents 38% of our consolidated capital expenditure
investments during 2007. 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 2008, Nextel Brazil
plans to continue to expand its digital mobile network and grow
its subscriber base.
The average exchange rate of the Brazilian real for the year
ended December 31, 2007 appreciated against the
U.S. dollar by 12% from the year ended December 31,
2006. As a result, the components of Nextel Brazils
results of operations 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 relative to the U.S. dollar.
The $332.9 million, or 67%, increase in service and other
revenues from 2006 to 2007 is primarily a result of the
following:
|
|
|
|
|
a 43% increase in the average number of digital handsets in
service resulting from growth in Nextel Brazils existing
markets and the expansion of service coverage into new markets
in connection with our balanced growth and expansion objectives;
|
|
|
|
the 12% appreciation of the Brazilian real against the
U.S. dollar;
|
57
|
|
|
|
|
a $24.4 million, or 72%, increase in revenues generated
from Nextel Brazils handset maintenance program as a
result of an increase in subscribers participating in this
program; and
|
|
|
|
an increase in local currency-based average revenue per
subscriber.
|
The $2.0 million, or 5%, decrease in digital handset and
accessory revenues from 2006 to 2007 is primarily due to a
decrease in handset sales revenues resulting from a larger
proportion of sales in 2007 of SIM cards, which allow a customer
to use our service by inserting the card into a separately
purchased handset and which generate lower sales revenues per
unit than handsets.
The $113.1 million, or 65%, increase in cost of service
from 2006 to 2007 is primarily due to the following:
|
|
|
|
|
a $73.3 million, or 88%, increase in interconnect costs
resulting from a 50% increase 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;
|
|
|
|
a $29.9 million, or 48%, increase in direct switch and
transmitter and receiver site costs resulting from a 24%
increase in the number of sites in service from
December 31, 2006 to December 31, 2007, as well as an
increase in operating and maintenance costs per site; and
|
|
|
|
a $4.7 million, or 26%, increase in service and repair
costs largely due to a 40% increase in subscribers participating
in Nextel Brazils handset maintenance program.
|
The increase in cost of service also resulted from the 12%
appreciation of the Brazilian real against the U.S. dollar.
The $9.2 million, or 13%, increase in cost of digital
handset and accessory sales from 2006 to 2007 is primarily due
to a 53% increase in handset upgrades, partially offset by a
decrease in handset costs resulting from the larger proportion
in 2007 of sales of SIM cards, which have a significantly lower
cost per unit than handsets.
|
|
3.
|
Selling and
marketing expenses
|
The $47.3 million, or 67%, increase in selling and
marketing expenses from 2006 to 2007 is principally due to the
following:
|
|
|
|
|
an $18.9 million, or 56%, increase in payroll and direct
commissions largely as a result of a 45% increase in handset
sales by Nextel Brazils sales force and an increase in
selling and marketing personnel necessary to support continued
sales growth;
|
|
|
|
a $14.6 million, or 96%, increase in advertising expenses
resulting from the launch of new markets in connection with
Nextel Brazils expansion plan, its sponsorship of the Copa
Nextel Stock Car races, a professional racecar event, and its
continued print and media campaigns for various products and
services, including the launch of Blackberry services; and
|
|
|
|
a $13.1 million, or 71%, increase in indirect commissions
resulting from a 43% increase in handset sales through Nextel
Brazils external sales channels, as well as an increase in
indirect commissions earned per handset sale resulting from
premiums paid on sales exceeding pre-established thresholds.
|
All of these increases were also affected by the 12%
appreciation of the Brazilian real against the U.S. dollar.
|
|
4.
|
General and
administrative expenses
|
The $58.7 million, or 54%, increase in general and
administrative expenses from 2006 to 2007 is primarily a result
of the following:
|
|
|
|
|
a $19.3 million, or 66%, increase 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 67% increase in Nextel Brazils service and other
revenues;
|
|
|
|
a $17.4 million, or 53%, increase in customer care expenses
resulting from an increase in customer care personnel necessary
to support a larger customer base, as well as an increase in the
number of retail stores;
|
58
|
|
|
|
|
a $13.6 million, or 53%, increase in general corporate
costs primarily resulting from an increase in general and
administrative personnel necessary to support Nextel
Brazils expansion, as well as an increase in facilities
costs due to the expansion into new markets; and
|
|
|
|
a $5.3 million, or 57%, increase in information technology
expenses related to the expansion of Nextel Brazils
network and the implementation of new systems.
|
All of these increases were also affected by the 12%
appreciation of the Brazilian real against the U.S. dollar.
|
|
5.
|
Depreciation
and amortization
|
The $37.1 million, or 63%, increase in depreciation and
amortization from 2006 to 2007 is primarily due to a 75%
increase in Nextel Brazils property, plant and equipment
in service resulting from the continued build-out of Nextel
Brazils digital mobile network, as well as the 12%
appreciation of the Brazilian real against the U.S. dollar.
The $10.0 million, or 42%, increase in net interest expense
from 2006 to 2007 is primarily the result of increased interest
incurred on Nextel Brazils tower financing and capital
lease obligations due to an increase in both the number of
towers financed and capital leases, $3.1 million of
interest incurred on borrowings under Nextel Brazils
syndicated loan facility, a decrease in capitalized interest and
the 12% appreciation of the Brazilian real against the
U.S. dollar.
As a result of the drawdown of amounts under its syndicated loan
facility in the fourth quarter of 2007, we expect that Nextel
Brazils net interest expense will increase in 2008 as we
incur interest under that facility for a full year.
|
|
7.
|
Foreign
currency transaction gains (losses), net
|
Foreign currency transaction gains of $14.6 million for
2007 is primarily due to the strengthening of the Brazilian real
relative to the U.S. dollar on Nextel Brazils
U.S. dollar-denominated liabilities, primarily on a
short-term intercompany bridge loan and its syndicated loan
facility.
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
|
Change from
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
2007
|
|
|
Revenues
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
408,142
|
|
|
|
92
|
|
%
|
|
$
|
320,664
|
|
|
|
93
|
|
%
|
|
$
|
87,478
|
|
|
|
27
|
%
|
Digital handset and accessory revenues
|
|
|
33,951
|
|
|
|
8
|
|
%
|
|
|
24,370
|
|
|
|
7
|
|
%
|
|
|
9,581
|
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
442,093
|
|
|
|
100
|
|
%
|
|
|
345,034
|
|
|
|
100
|
|
%
|
|
|
97,059
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(151,731
|
)
|
|
|
(34
|
)
|
%
|
|
|
(113,918
|
)
|
|
|
(33
|
)
|
%
|
|
|
(37,813
|
)
|
|
|
33
|
%
|
Cost of digital handset and accessory sales
|
|
|
(51,941
|
)
|
|
|
(12
|
)
|
%
|
|
|
(45,107
|
)
|
|
|
(13
|
)
|
%
|
|
|
(6,834
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(203,672
|
)
|
|
|
(46
|
)
|
%
|
|
|
(159,025
|
)
|
|
|
(46
|
)
|
%
|
|
|
(44,647
|
)
|
|
|
28
|
%
|
Selling and marketing expenses
|
|
|
(34,646
|
)
|
|
|
(8
|
)
|
%
|
|
|
(27,752
|
)
|
|
|
(8
|
)
|
%
|
|
|
(6,894
|
)
|
|
|
25
|
%
|
General and administrative expenses
|
|
|
(65,421
|
)
|
|
|
(15
|
)
|
%
|
|
|
(59,261
|
)
|
|
|
(17
|
)
|
%
|
|
|
(6,160
|
)
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
138,354
|
|
|
|
31
|
|
%
|
|
|
98,996
|
|
|
|
29
|
|
%
|
|
|
39,358
|
|
|
|
40
|
%
|
Depreciation and amortization
|
|
|
(30,227
|
)
|
|
|
(7
|
)
|
%
|
|
|
(20,141
|
)
|
|
|
(6
|
)
|
%
|
|
|
(10,086
|
)
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
108,127
|
|
|
|
24
|
|
%
|
|
|
78,855
|
|
|
|
23
|
|
%
|
|
|
29,272
|
|
|
|
37
|
%
|
Interest expense, net
|
|
|
(2,466
|
)
|
|
|
|
|
|
|
|
(2,330
|
)
|
|
|
(1
|
)
|
%
|
|
|
(136
|
)
|
|
|
6
|
%
|
Interest income
|
|
|
5,370
|
|
|
|
2
|
|
%
|
|
|
2,509
|
|
|
|
1
|
|
%
|
|
|
2,861
|
|
|
|
114
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
1,244
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
1,262
|
|
|
|
NM
|
|
Other income, net
|
|
|
1,594
|
|
|
|
|
|
|
|
|
329
|
|
|
|
|
|
|
|
|
1,265
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
113,869
|
|
|
|
26
|
|
%
|
|
$
|
79,345
|
|
|
|
23
|
|
%
|
|
$
|
34,524
|
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
The average exchange rate of the Argentine peso for the year
ended December 31, 2007 depreciated against the
U.S. dollar by 1% from the year ended December 31,
2006. As a result, the components of Nextel Argentinas
results of operations after translation into U.S. dollars
are largely comparable from 2006 to 2007.
The $87.5 million, or 27%, increase in service and other
revenues from 2006 to 2007 is primarily attributable to the
following:
|
|
|
|
|
a 28% increase in the average number of digital handsets in
service, resulting mostly from growth in Nextel Argentinas
existing markets; and
|
|
|
|
an $11.3 million, or 35%, increase in revenues generated
from Nextel Argentinas handset maintenance program as a
result of an increase in the number of subscribers participating
in this program.
|
The $9.6 million, or 39%, increase in digital handset and
accessory revenues from 2006 to 2007 is mostly the result of a
21% increase in handset sales, as well as a 30% increase in
handset upgrades.
The $37.8 million, or 33%, increase in cost of service from
2006 to 2007 is principally a result of the following:
|
|
|
|
|
a $16.3 million, or 26%, increase in interconnect costs,
largely as a result of an 18% increase 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;
|
60
|
|
|
|
|
a $13.0 million, or 53%, increase in service and repair
costs, largely due to a 60% increase in subscribers
participating in Nextel Argentinas handset maintenance
program; and
|
|
|
|
a $6.8 million, or 27%, increase in direct switch and
transmitter and receiver site costs due to a 21% increase in the
number of sites in service from December 31, 2006 to
December 31, 2007, as well as increases in operating and
maintenance costs, rental costs and municipal taxes per site.
|
The $6.8 million, or 15%, increase in cost of digital
handset and accessory sales from 2006 to 2007 is primarily the
result of a 21% increase in handset sales, as well as a 30%
increase in handset upgrades.
|
|
3.
|
Selling and
marketing expenses
|
The $6.9 million, or 25%, increase in selling and marketing
expenses from 2006 to 2007 is primarily due to the following:
|
|
|
|
|
a $3.5 million, or 29%, increase in indirect commissions,
principally resulting from a 25% increase in handset sales by
Nextel Argentinas dealers, as well as an increase in
indirect commissions earned per handset sale; and
|
|
|
|
a $2.0 million, or 19%, increase in direct commissions and
payroll expenses, mostly due to a 16% increase in handset sales
by Nextel Argentinas sales personnel.
|
|
|
4.
|
General and
administrative expenses
|
The $6.2 million, or 10%, increase in general and
administrative expenses from 2006 to 2007 is primarily a result
of the following:
|
|
|
|
|
a $4.4 million, or 36%, increase in customer care expenses
resulting from an increase in customer care personnel necessary
to support a larger customer base; and
|
|
|
|
a $2.4 million, or 34%, increase in information technology
expenses caused by an increase in information technology
personnel and higher software maintenance costs; partially
offset by
|
|
|
|
a $1.8 million, or 5%, decrease in general corporate costs
primarily due to a lower turnover tax rate required in 2007 and
a cost reduction resulting from a change in the calculation of
universal service taxes.
|
|
|
5.
|
Depreciation
and amortization
|
The $10.1 million, or 50%, increase in depreciation and
amortization from 2006 to 2007 is primarily due to a 29%
increase in Nextel Argentinas property, plant and
equipment in service, as well as the correction of an error in
the computation of the useful life of certain software that
Nextel Argentina recorded during the second quarter of 2006.
The $2.9 million, or 114%, increase in interest income from
2006 to 2007 is primarily the result of an increase in Nextel
Argentinas average cash balances.
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
%of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Perus
|
|
|
|
Year Ended
|
|
|
Perus
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2007
|
|
|
Revenues
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
178,058
|
|
|
|
93
|
|
%
|
|
$
|
137,924
|
|
|
|
94
|
|
%
|
|
$
|
40,134
|
|
|
|
29
|
|
%
|
Digital handset and accessory revenues
|
|
|
12,800
|
|
|
|
7
|
|
%
|
|
|
8,449
|
|
|
|
6
|
|
%
|
|
|
4,351
|
|
|
|
51
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190,858
|
|
|
|
100
|
|
%
|
|
|
146,373
|
|
|
|
100
|
|
%
|
|
|
44,485
|
|
|
|
30
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(69,185
|
)
|
|
|
(36
|
)
|
%
|
|
|
(53,145
|
)
|
|
|
(36
|
)
|
%
|
|
|
(16,040
|
)
|
|
|
30
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(31,457
|
)
|
|
|
(17
|
)
|
%
|
|
|
(24,240
|
)
|
|
|
(17
|
)
|
%
|
|
|
(7,217
|
)
|
|
|
30
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100,642
|
)
|
|
|
(53
|
)
|
%
|
|
|
(77,385
|
)
|
|
|
(53
|
)
|
%
|
|
|
(23,257
|
)
|
|
|
30
|
|
%
|
Selling and marketing expenses
|
|
|
(20,476
|
)
|
|
|
(10
|
)
|
%
|
|
|
(17,213
|
)
|
|
|
(12
|
)
|
%
|
|
|
(3,263
|
)
|
|
|
19
|
|
%
|
General and administrative expenses
|
|
|
(33,971
|
)
|
|
|
(18
|
)
|
%
|
|
|
(25,697
|
)
|
|
|
(17
|
)
|
%
|
|
|
(8,274
|
)
|
|
|
32
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
35,769
|
|
|
|
19
|
|
%
|
|
|
26,078
|
|
|
|
18
|
|
%
|
|
|
9,691
|
|
|
|
37
|
|
%
|
Depreciation and amortization
|
|
|
(19,867
|
)
|
|
|
(11
|
)
|
%
|
|
|
(12,927
|
)
|
|
|
(9
|
)
|
%
|
|
|
(6,940
|
)
|
|
|
54
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
15,902
|
|
|
|
8
|
|
%
|
|
|
13,151
|
|
|
|
9
|
|
%
|
|
|
2,751
|
|
|
|
21
|
|
%
|
Interest expense, net
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
25
|
|
|
|
(17
|
)
|
%
|
Interest income
|
|
|
750
|
|
|
|
1
|
|
%
|
|
|
1,070
|
|
|
|
1
|
|
%
|
|
|
(320
|
)
|
|
|
(30
|
)
|
%
|
Foreign currency transaction gains, net
|
|
|
507
|
|
|
|
|
|
|
|
|
106
|
|
|
|
|
|
|
|
|
401
|
|
|
|
NM
|
|
|
Other income, net
|
|
|
2
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
17,041
|
|
|
|
9
|
|
%
|
|
$
|
14,184
|
|
|
|
10
|
|
%
|
|
$
|
2,857
|
|
|
|
20
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Nuevo sol
exchange rate.
The $40.1 million, or 29%, increase in service and other
revenues from 2006 to 2007 is primarily due to a 37% increase in
the average number of digital handsets in service, partially
offset by a decrease in average revenue per subscriber mainly
resulting from an increase in sales of prepaid rate plans, which
have lower prices per plan, during 2007 compared to 2006.
The $4.4 million, or 51%, increase in digital handset and
accessory revenues from 2006 to 2007 is primarily the result of
a 35% increase in handset sales, as well as an increase in
handset upgrades.
The $16.0 million, or 30%, increase in cost of service from
2006 to 2007 is largely a result of the following:
|
|
|
|
|
a $9.4 million, or 27%, increase in interconnect costs due
to a 24% increase in interconnect minutes of use;
|
|
|
|
a $3.0 million, or 26%, increase in direct switch and
transmitter and receiver site costs due to a 13% increase in the
number of sites in service from December 31, 2006 to
December 31, 2007, as well as an increase in operating and
maintenance costs per site; and
|
|
|
|
a $2.0 million, or 39%, increase in service and repair
costs largely due to a 41% increase in subscribers participating
in Nextel Perus handset maintenance program.
|
The $7.2 million, or 30%, increase in cost of digital
handsets and accessory sales from 2006 to 2007 is largely the
result of a 35% increase in handset sales, as well as an
increase in handset upgrades.
62
|
|
3.
|
Selling and
marketing expenses
|
The $3.3 million, or 19%, increase in selling and marketing
expenses from 2006 to 2007 is primarily due to a
$2.3 million, or 27%, increase in direct commissions and
payroll expenses principally due to a 31% increase in handset
sales by Nextel Perus sales personnel.
|
|
4.
|
General and
administrative expenses
|
The $8.3 million, or 32%, increase in general and
administrative expenses from 2006 to 2007 is primarily due to
the following:
|
|
|
|
|
a $3.1 million, or 33%, increase in general corporate costs
due to an increase in general and administrative personnel
necessary to support Nextel Perus expanding business;
|
|
|
|
a $2.5 million, or 26%, increase in customer care expenses,
mainly caused by an increase in customer care and billing
operations personnel needed to support a growing customer
base; and
|
|
|
|
a $1.8 million, or 38%, increase in information technology
costs primarily resulting from the implementation of a new
billing system.
|
|
|
5.
|
Depreciation
and amortization
|
The $6.9 million, or 54%, increase in depreciation and
amortization from 2006 to 2007 is primarily due to a 22%
increase in Nextel Perus property, plant and equipment in
service, as well as additional depreciation related to the early
retirement of certain network equipment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
and other
|
|
|
|
Year Ended
|
|
|
and other
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2007
|
|
|
Revenues
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,828
|
|
|
|
99
|
|
%
|
|
$
|
2,425
|
|
|
|
100
|
|
%
|
|
$
|
1,403
|
|
|
|
58
|
|
%
|
Digital handset and accessory revenues
|
|
|
22
|
|
|
|
1
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,850
|
|
|
|
100
|
|
%
|
|
|
2,425
|
|
|
|
100
|
|
%
|
|
|
1,425
|
|
|
|
59
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(2,791
|
)
|
|
|
(73
|
)
|
%
|
|
|
(1,863
|
)
|
|
|
(77
|
)
|
%
|
|
|
(928
|
)
|
|
|
50
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(1,235
|
)
|
|
|
(32
|
)
|
%
|
|
|
(120
|
)
|
|
|
(5
|
)
|
%
|
|
|
(1,115
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,026
|
)
|
|
|
(105
|
)
|
%
|
|
|
(1,983
|
)
|
|
|
(82
|
)
|
%
|
|
|
(2,043
|
)
|
|
|
103
|
|
%
|
Selling and marketing expenses
|
|
|
(10,145
|
)
|
|
|
(264
|
)
|
%
|
|
|
(8,211
|
)
|
|
|
(339
|
)
|
%
|
|
|
(1,934
|
)
|
|
|
24
|
|
%
|
General and administrative expenses
|
|
|
(133,724
|
)
|
|
|
NM
|
|
|
|
|
(101,142
|
)
|
|
|
NM
|
|
|
|
|
(32,582
|
)
|
|
|
32
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(144,045
|
)
|
|
|
NM
|
|
|
|
|
(108,911
|
)
|
|
|
NM
|
|
|
|
|
(35,134
|
)
|
|
|
32
|
|
%
|
Management fee
|
|
|
34,376
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,376
|
|
|
|
NM
|
|
|
Depreciation and amortization
|
|
|
(7,008
|
)
|
|
|
(182
|
)
|
%
|
|
|
(4,481
|
)
|
|
|
(185
|
)
|
%
|
|
|
(2,527
|
)
|
|
|
56
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(116,677
|
)
|
|
|
NM
|
|
|
|
|
(113,392
|
)
|
|
|
NM
|
|
|
|
|
(3,285
|
)
|
|
|
3
|
|
%
|
Interest expense, net
|
|
|
(41,873
|
)
|
|
|
NM
|
|
|
|
|
(24,613
|
)
|
|
|
NM
|
|
|
|
|
(17,260
|
)
|
|
|
70
|
|
%
|
Interest income
|
|
|
41,156
|
|
|
|
NM
|
|
|
|
|
11,705
|
|
|
|
NM
|
|
|
|
|
29,451
|
|
|
|
252
|
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
103
|
|
|
|
3
|
|
%
|
|
|
(101
|
)
|
|
|
(4
|
)
|
%
|
|
|
204
|
|
|
|
(202
|
)
|
%
|
Debt conversion expense
|
|
|
(26,429
|
)
|
|
|
NM
|
|
|
|
|
(5,070
|
)
|
|
|
(209
|
)
|
%
|
|
|
(21,359
|
)
|
|
|
NM
|
|
|
Other expense, net
|
|
|
(5,486
|
)
|
|
|
(142
|
)
|
%
|
|
|
(1,282
|
)
|
|
|
(53
|
)
|
%
|
|
|
(4,204
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(149,206
|
)
|
|
|
NM
|
|
|
|
$
|
(132,753
|
)
|
|
|
NM
|
|
|
|
$
|
(16,453
|
)
|
|
|
12
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
63
For the year ended December 31, 2007, corporate and other
operating revenues and cost of revenues primarily represent the
results of both digital and analog operations reported by Nextel
Chile, which launched 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 year ended December 31, 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 $32.6 million, or 32%, increase in general and
administrative expenses from 2006 to 2007 is primarily due to an
$18.1 million, or 61%, increase in stock option
compensation expense, an increase in corporate payroll and
related expenses and an increase in outside service costs,
specifically for consulting services.
During 2007, Nextel Mexico incurred a management fee of
$34.4 million 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. As a result, we have recorded
this management fee as a contra-expense in the table presented
above.
The $17.3 million, or 70%, increase in net interest expense
from 2006 to 2007 is substantially the result of
$21.9 million in interest related to our 3.125% convertible
notes that we issued in the second quarter of 2007, partially
offset by a $6.8 million decrease in interest expense due
to the conversion of our 3.5% convertible notes and 2.875%
convertible notes.
The $29.5 million increase in interest income from 2006 to
2007 is largely due to higher average cash balances resulting
from the $1.2 billion in gross proceeds we received from
the 3.125% convertible notes that we issued in May 2007.
|
|
5.
|
Debt
conversion expense
|
Debt conversion expense for 2007 represents $26.5 million
in cash consideration and direct external costs that we paid in
connection with the tender offer for 99.99% of our 2.875%
convertible notes in the third quarter of 2007.
Debt conversion expense for 2006 represents $5.1 million in
cash consideration and direct external costs that we paid in
connection with the conversion of the remaining
$91.4 million of our 3.5% convertible notes during the
fourth quarter of 2006.
The $4.2 million increase in other expense, net, from 2006
to 2007 is mainly due to a decline in the value of our
investment in a short-term investment fund, which we previously
characterized as a cash equivalent investment, resulting from
changing credit market conditions. Due to these changing
conditions, we evaluated the decline in the market value of the
investment and determined that unrealized losses related to
certain securities in this investment should be recognized as
other-than-temporary. We made these assessments by reviewing the
relevant factors and considering all available evidence,
including specific and individual investment data, the length of
time and the extent to which the market value was less than
cost, the financial condition and near-term prospects of our
investment fund and our intent and ability to hold the
investment. As a result, we recognized a pre-tax
$3.1 million loss related to the decline in the fair value
of our investment.
64
|
|
2.
|
Year
Ended December 31, 2006 vs. Year Ended December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
|
Year Ended
|
|
|
Consolidated
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
2005
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
2,279,922
|
|
|
|
96
|
|
%
|
|
$
|
1,666,613
|
|
|
|
95
|
|
%
|
|
$
|
613,309
|
|
|
|
37
|
|
%
|
Digital handset and accessory revenues
|
|
|
91,418
|
|
|
|
4
|
|
%
|
|
|
79,226
|
|
|
|
5
|
|
%
|
|
|
12,192
|
|
|
|
15
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,371,340
|
|
|
|
100
|
|
%
|
|
|
1,745,839
|
|
|
|
100
|
|
%
|
|
|
625,501
|
|
|
|
36
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(617,669
|
)
|
|
|
(26
|
)
|
%
|
|
|
(464,651
|
)
|
|
|
(27
|
)
|
%
|
|
|
(153,018
|
)
|
|
|
33
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(311,307
|
)
|
|
|
(13
|
)
|
%
|
|
|
(251,192
|
)
|
|
|
(14
|
)
|
%
|
|
|
(60,115
|
)
|
|
|
24
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(928,976
|
)
|
|
|
(39
|
)
|
%
|
|
|
(715,843
|
)
|
|
|
(41
|
)
|
%
|
|
|
(213,133
|
)
|
|
|
30
|
|
%
|
Selling and marketing expenses
|
|
|
(321,240
|
)
|
|
|
(14
|
)
|
%
|
|
|
(233,540
|
)
|
|
|
(13
|
)
|
%
|
|
|
(87,700
|
)
|
|
|
38
|
|
%
|
General and administrative expenses
|
|
|
(459,133
|
)
|
|
|
(19
|
)
|
%
|
|
|
(311,695
|
)
|
|
|
(18
|
)
|
%
|
|
|
(147,438
|
)
|
|
|
47
|
|
%
|
Depreciation and amortization
|
|
|
(202,222
|
)
|
|
|
(9
|
)
|
%
|
|
|
(130,132
|
)
|
|
|
(7
|
)
|
%
|
|
|
(72,090
|
)
|
|
|
55
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
459,769
|
|
|
|
19
|
|
%
|
|
|
354,629
|
|
|
|
21
|
|
%
|
|
|
105,140
|
|
|
|
30
|
|
%
|
Interest expense, net
|
|
|
(89,379
|
)
|
|
|
(4
|
)
|
%
|
|
|
(72,470
|
)
|
|
|
(4
|
)
|
%
|
|
|
(16,909
|
)
|
|
|
23
|
|
%
|
Interest income
|
|
|
51,057
|
|
|
|
2
|
|
%
|
|
|
32,611
|
|
|
|
2
|
|
%
|
|
|
18,446
|
|
|
|
57
|
|
%
|
Foreign currency transaction gains, net
|
|
|
3,557
|
|
|
|
|
|
|
|
|
3,357
|
|
|
|
|
|
|
|
|
200
|
|
|
|
6
|
|
%
|
Debt conversion expense
|
|
|
(5,070
|
)
|
|
|
|
|
|
|
|
(8,930
|
)
|
|
|
(1
|
)
|
%
|
|
|
3,860
|
|
|
|
(43
|
)
|
%
|
Other expense, net
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
(8,621
|
)
|
|
|
(1
|
)
|
%
|
|
|
2,621
|
|
|
|
(30
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
413,934
|
|
|
|
17
|
|
%
|
|
|
300,576
|
|
|
|
17
|
|
%
|
|
|
113,358
|
|
|
|
38
|
|
%
|
Income tax provision
|
|
|
(119,444
|
)
|
|
|
(5
|
)
|
%
|
|
|
(125,795
|
)
|
|
|
(7
|
)
|
%
|
|
|
6,351
|
|
|
|
(5
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
294,490
|
|
|
|
12
|
|
%
|
|
$
|
174,781
|
|
|
|
10
|
|
%
|
|
$
|
119,709
|
|
|
|
68
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $613.3 million, or 37%, increase in consolidated
service and other revenues from 2005 to 2006 is primarily due to
a 37% increase in the average number of total digital handsets
in service resulting from continued strong demand for our
services and our balanced growth and expansion objectives.
The $12.2 million, or 15%, increase in consolidated digital
handset and accessory revenues from 2005 to 2006 is primarily
due to a 39% increase in total handset sales, as well as an 8%
increase in handset upgrades, partially offset by lower revenues
earned per handset sale resulting from handset promotions.
The $153.0 million, or 33%, increase in consolidated cost
of service from 2005 to 2006 is principally a result of the
following:
|
|
|
|
|
an $80.1 million, or 35%, increase in consolidated
interconnect costs resulting from a 43% increase in consolidated
interconnect minutes of use, partially offset by lower costs per
minute of use primarily resulting from volume discounts
negotiated with various carriers in Mexico;
|
|
|
|
a $40.3 million, or 25%, increase in consolidated direct
switch and transmitter and receiver site costs resulting from a
27% increase in the total number of sites in service from
December 31, 2005 to December 31, 2006;
|
|
|
|
a $25.0 million, or 40%, increase in consolidated service
and repair costs mainly resulting from an increase in
subscribers participating under our handset maintenance
programs; and
|
|
|
|
a $7.5 million, or 23%, increase in engineering payroll and
related expenses resulting from an increase in personnel
necessary to support our larger wireless networks.
|
65
The $60.1 million, or 24%, increase in consolidated cost of
digital handset and accessory sales from 2005 to 2006 is
primarily due to a 39% increase in total handset sales, as well
as an 8% increase in handset upgrades, partially offset by lower
cost per handset sale resulting from a reduction in handset unit
costs in 2006.
|
|
3.
|
Selling and
marketing expenses
|
The $87.7 million, or 38%, increase in consolidated selling
and marketing expenses from 2005 to 2006 is principally a result
of the following:
|
|
|
|
|
a $39.0 million, or 43%, increase in consolidated indirect
commissions resulting from a 43% increase in total handset sales
through external sales channels;
|
|
|
|
a $30.9 million, or 36%, increase in consolidated direct
commissions and payroll expenses largely due to an increase in
commissions incurred as a result of a 33% increase in total
handset sales by internal sales personnel and an increase in
salaries; and
|
|
|
|
a $17.6 million, or 38%, increase 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.
|
|
|
4.
|
General and
administrative expenses
|
The $147.4 million, or 47%, increase in consolidated
general and administrative expenses from 2005 to 2006 is
primarily a result of the following:
|
|
|
|
|
a $37.1 million, or 25%, increase 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 markets;
|
|
|
|
a $35.3 million, or 46%, increase in consolidated customer
care expenses, mainly payroll and related expenses, resulting
from additional customer care personnel necessary to support a
larger consolidated customer base;
|
|
|
|
$31.8 million in incremental stock option compensation
expense that we recognized in 2006 as a result of the
implementation of SFAS 123R on January 1, 2006;
|
|
|
|
an $11.0 million, or 33%, increase 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;
|
|
|
|
a $10.7 million, or 58%, increase in revenue-based taxes in
Brazil that we report on a gross basis as both service and other
revenues and general and administrative expenses;
|
|
|
|
a $10.6 million, or 54%, increase in consolidated bad debt
expense, which increased slightly as a percentage of revenues
from 1.13% in 2005 to 1.28% in 2006; and
|
|
|
|
a $6.4 million, or 118%, increase in share-based payment
expense for restricted stock.
|
|
|
5.
|
Depreciation
and amortization
|
The $72.1 million, or 55%, increase in consolidated
depreciation and amortization from 2005 to 2006 is primarily due
to a 63% increase in our consolidated property, plant and
equipment in service resulting from the continued expansion of
our digital mobile networks, mainly in Mexico and Brazil.
The $16.9 million, or 23%, increase in consolidated net
interest expense from 2005 to 2006 is primarily due to the
following:
|
|
|
|
|
an $11.1 million increase in interest expense related to
the draw-down of Nextel Mexicos syndicated loan facility
in May 2005, which resulted in seven months of interest expense
in 2005 compared to a full year of interest expense in 2006;
|
|
|
|
an $8.3 million increase in interest incurred on our towers
financing transactions and capital lease obligations in Mexico
and Brazil primarily due to an increase in both the number of
towers sold and capital leases; and
|
66
|
|
|
|
|
a $6.0 million increase in interest expense related to the
issuance of our 2.75% convertible notes in August 2005, which
resulted in five months of interest expense in 2005 compared to
a full year of interest expense in 2006.
|
These increases were partially offset by a $3.9 million
increase in capitalized interest and a $4.0 million
decrease in interest expense on Nextel Argentinas turnover
tax contingency because Nextel Argentina paid the full liability
due in April 2006.
The $18.4 million, or 57%, increase in interest income from
2005 to 2006 is largely the result of an increase in average
consolidated cash balances due to the draw-down of Nextel
Mexicos syndicated loan facility in May 2005, cash
generated from operations in Mexico and the $350.0 million
proceeds received from the issuance of our 2.75% convertible
notes in August 2005.
|
|
8.
|
Debt
conversion expense
|
Debt conversion expense for 2006 represents $5.1 million in
cash consideration and direct external costs that we paid in
connection with the conversion of the remaining
$91.4 million of our 3.5% convertible notes during the
fourth quarter of 2006.
Debt conversion expense for 2005 represents $8.9 million in
cash consideration and direct external costs that we paid in
connection with the conversion of $88.5 million of our 3.5%
convertible notes during the second quarter of 2005.
The $6.4 million, or 5%, decrease in the income tax
provision from 2005 to 2006 is primarily due to a
$17.1 million benefit related to an out-of-period
adjustment and a reduced effective tax rate, partially offset by
a $113.4 million, or 38%, increase in income before tax.
The 2006 effective tax rate decreased by 13% in comparison to
2005 primarily due to the effects of the out-of-period
adjustment (4%), a smaller valuation allowance increase compared
to 2005 (3%), a reduction in the amount of non-deductible
expenses outside the U.S. (3%) and various other items (3%,
net). Without the effect of the out-of-period adjustment, our
2006 effective tax rate would have been 33% rather than 29%.
Segment
Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
Year Ended
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
December 31,
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
2006
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,341,297
|
|
|
|
57
|
%
|
|
$
|
(448,072
|
)
|
|
|
48
|
%
|
|
$
|
(362,541
|
)
|
|
|
46
|
%
|
|
$
|
530,684
|
|
Nextel Brazil
|
|
|
536,988
|
|
|
|
23
|
%
|
|
|
(243,288
|
)
|
|
|
26
|
%
|
|
|
(178,556
|
)
|
|
|
23
|
%
|
|
|
115,144
|
|
Nextel Argentina
|
|
|
345,034
|
|
|
|
14
|
%
|
|
|
(159,025
|
)
|
|
|
17
|
%
|
|
|
(87,013
|
)
|
|
|
11
|
%
|
|
|
98,996
|
|
Nextel Peru
|
|
|
146,373
|
|
|
|
6
|
%
|
|
|
(77,385
|
)
|
|
|
9
|
%
|
|
|
(42,910
|
)
|
|
|
6
|
%
|
|
|
26,078
|
|
Corporate and other
|
|
|
2,425
|
|
|
|
|
|
|
|
(1,983
|
)
|
|
|
|
|
|
|
(109,353
|
)
|
|
|
14
|
%
|
|
|
(108,911
|
)
|
Intercompany eliminations
|
|
|
(777
|
)
|
|
|
|
|
|
|
777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
2,371,340
|
|
|
|
100
|
%
|
|
$
|
(928,976
|
)
|
|
|
100
|
%
|
|
$
|
(780,373
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
Year Ended
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
December 31,
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
2005
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,013,320
|
|
|
|
58
|
%
|
|
$
|
(348,019
|
)
|
|
|
49
|
%
|
|
$
|
(265,603
|
)
|
|
|
49
|
%
|
|
$
|
399,698
|
|
Nextel Brazil
|
|
|
347,530
|
|
|
|
20
|
%
|
|
|
(181,418
|
)
|
|
|
25
|
%
|
|
|
(121,921
|
)
|
|
|
22
|
%
|
|
|
44,191
|
|
Nextel Argentina
|
|
|
269,572
|
|
|
|
15
|
%
|
|
|
(130,949
|
)
|
|
|
18
|
%
|
|
|
(67,791
|
)
|
|
|
13
|
%
|
|
|
70,832
|
|
Nextel Peru
|
|
|
114,201
|
|
|
|
7
|
%
|
|
|
(54,634
|
)
|
|
|
8
|
%
|
|
|
(33,196
|
)
|
|
|
6
|
%
|
|
|
26,371
|
|
Corporate and other
|
|
|
1,886
|
|
|
|
|
|
|
|
(1,493
|
)
|
|
|
|
|
|
|
(56,724
|
)
|
|
|
10
|
%
|
|
|
(56,331
|
)
|
Intercompany eliminations
|
|
|
(670
|
)
|
|
|
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,745,839
|
|
|
|
100
|
%
|
|
$
|
(715,843
|
)
|
|
|
100
|
%
|
|
$
|
(545,235
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A discussion of the results of operations in each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
|
Year Ended
|
|
|
Mexicos
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
2005
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,319,371
|
|
|
|
98
|
|
%
|
|
$
|
986,936
|
|
|
|
97
|
|
%
|
|
$
|
332,435
|
|
|
|
34
|
|
%
|
Digital handset and accessory revenues
|
|
|
21,926
|
|
|
|
2
|
|
%
|
|
|
26,384
|
|
|
|
3
|
|
%
|
|
|
(4,458
|
)
|
|
|
(17
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,341,297
|
|
|
|
100
|
|
%
|
|
|
1,013,320
|
|
|
|
100
|
|
%
|
|
|
327,977
|
|
|
|
32
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(275,950
|
)
|
|
|
(20
|
)
|
%
|
|
|
(214,646
|
)
|
|
|
(21
|
)
|
%
|
|
|
(61,304
|
)
|
|
|
29
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(172,122
|
)
|
|
|
(13
|
)
|
%
|
|
|
(133,373
|
)
|
|
|
(13
|
)
|
%
|
|
|
(38,749
|
)
|
|
|
29
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(448,072
|
)
|
|
|
(33
|
)
|
%
|
|
|
(348,019
|
)
|
|
|
(34
|
)
|
%
|
|
|
(100,053
|
)
|
|
|
29
|
|
%
|
Selling and marketing expenses
|
|
|
(197,653
|
)
|
|
|
(15
|
)
|
%
|
|
|
(148,096
|
)
|
|
|
(15
|
)
|
%
|
|
|
(49,557
|
)
|
|
|
33
|
|
%
|
General and administrative expenses
|
|
|
(164,888
|
)
|
|
|
(12
|
)
|
%
|
|
|
(117,507
|
)
|
|
|
(11
|
)
|
%
|
|
|
(47,381
|
)
|
|
|
40
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
530,684
|
|
|
|
40
|
|
%
|
|
|
399,698
|
|
|
|
40
|
|
%
|
|
|
130,986
|
|
|
|
33
|
|
%
|
Depreciation and amortization
|
|
|
(105,867
|
)
|
|
|
(8
|
)
|
%
|
|
|
(69,300
|
)
|
|
|
(7
|
)
|
%
|
|
|
(36,567
|
)
|
|
|
53
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
424,817
|
|
|
|
32
|
|
%
|
|
|
330,398
|
|
|
|
33
|
|
%
|
|
|
94,419
|
|
|
|
29
|
|
%
|
Interest expense, net
|
|
|
(38,424
|
)
|
|
|
(3
|
)
|
%
|
|
|
(28,670
|
)
|
|
|
(3
|
)
|
%
|
|
|
(9,754
|
)
|
|
|
34
|
|
%
|
Interest income
|
|
|
32,377
|
|
|
|
2
|
|
%
|
|
|
22,465
|
|
|
|
2
|
|
%
|
|
|
9,912
|
|
|
|
44
|
|
%
|
Foreign currency transaction gains, net
|
|
|
3,957
|
|
|
|
|
|
|
|
|
2,602
|
|
|
|
|
|
|
|
|
1,355
|
|
|
|
52
|
|
%
|
Other expense, net
|
|
|
(3,173
|
)
|
|
|
|
|
|
|
|
(4,167
|
)
|
|
|
|
|
|
|
|
994
|
|
|
|
(24
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
419,554
|
|
|
|
31
|
|
%
|
|
$
|
322,628
|
|
|
|
32
|
|
%
|
|
$
|
96,926
|
|
|
|
30
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with generally accepted accounting principles in
the United States, we translated Nextel Mexicos results of
operations using the average exchange rate for 2006, which
remained relatively constant against the U.S. dollar from
2005. As a result, the components of Nextel Mexicos
results of operations for 2006 after translation into
U.S. dollars are generally comparable to its results of
operations for 2005.
The $332.4 million, or 34%, increase in service and other
revenues from 2005 to 2006 is primarily due to a 38% increase in
the average number of digital handsets in service resulting from
growth in Nextel Mexicos existing markets, as well as the
expansion of service coverage during 2005 and 2006 into new
markets.
The $4.5 million, or 17%, decrease in digital handset and
accessory revenues from 2005 to 2006 is the result of promotions
to new and existing customers that significantly lowered the
average revenue earned per handset sale. These decreases were
partially offset by a 42% increase in handset sales.
68
The $61.3 million, or 29%, increase in cost of service from
2005 to 2006 is principally due to the following:
|
|
|
|
|
a $26.2 million, or 26%, increase in interconnect costs
generally resulting from a 51% increase in interconnect minutes
of use, partially offset by lower per minute charges achieved
through volume discounts negotiated with various carriers;
|
|
|
|
a $20.2 million, or 26%, increase in direct switch and
transmitter and receiver site costs resulting from a 36%
increase in the number of sites in service from
December 31, 2005 to December 31, 2006 and an increase
in spectrum license fees;
|
|
|
|
a $10.7 million, or 38%, increase in service and repair
costs largely due to increased activity under Nextel
Mexicos handset maintenance program; and
|
|
|
|
a $2.2 million, or 12%, increase in engineering payroll and
related expenses resulting from an increase in personnel
necessary to support a larger wireless network.
|
The $38.7 million, or 29%, increase in cost of digital
handset and accessory sales from 2005 to 2006 is primarily due
to a 42% increase in handset sales, as well as a 10% increase in
handset upgrades.
|
|
3.
|
Selling and
marketing expenses
|
The $49.6 million, or 33%, increase in selling and
marketing expenses from 2005 to 2006 is primarily a result of
the following:
|
|
|
|
|
a $26.0 million, or 40%, increase in indirect commissions
primarily due to a 47% increase in handset sales by Nextel
Mexicos external sales channels;
|
|
|
|
a $10.9 million, or 24%, increase in direct commissions and
payroll expenses principally due to a 33% increase in handset
sales by Nextel Mexicos sales personnel; and
|
|
|
|
an $11.7 million, or 38%, increase 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
brandname.
|
|
|
4.
|
General and
administrative expenses
|
The $47.4 million, or 40%, increase in general and
administrative expenses from 2005 to 2006 is largely a result of
the following:
|
|
|
|
|
an $18.5 million, or 49%, 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;
|
|
|
|
a $16.6 million, or 30%, increase 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;
|
|
|
|
a $7.5 million, or 84%, increase in bad debt expense, which
increased as a percentage of revenues from 0.9% in 2005 to 1.2%
in 2006; and
|
|
|
|
a $3.8 million, or 28%, increase in information technology
repairs and maintenance expenses related to the expansion of
Nextel Mexicos network and the implementation of new
systems.
|
|
|
5.
|
Depreciation
and amortization
|
The $36.6 million, or 53%, increase in depreciation and
amortization from 2005 to 2006 is primarily due to a 60%
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.
69
The $9.8 million, or 34%, increase in net interest expense
from 2005 to 2006 is largely a result of the draw-down of Nextel
Mexicos syndicated loan facility in May 2005, which
resulted in seven months of interest expense in 2005 compared to
twelve months of interest expense in 2006, and an increase in
interest incurred on Nextel Mexicos tower financing
transactions and capital lease obligations due to an increase in
both the number of towers financed and capital leases.
The $9.9 million, or 44%, increase in interest income from
2005 to 2006 is largely due to an increase in Nextel
Mexicos average cash balances resulting primarily from the
draw-down of Nextel Mexicos syndicated loan facility in
May 2005 and cash generated from operations.
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
|
Year Ended
|
|
|
Brazils
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
2005
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
500,315
|
|
|
|
93
|
|
%
|
|
$
|
321,655
|
|
|
|
93
|
|
%
|
|
$
|
178,660
|
|
|
|
56
|
|
%
|
Digital handset and accessory revenues
|
|
|
36,673
|
|
|
|
7
|
|
%
|
|
|
25,875
|
|
|
|
7
|
|
%
|
|
|
10,798
|
|
|
|
42
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
536,988
|
|
|
|
100
|
|
%
|
|
|
347,530
|
|
|
|
100
|
|
%
|
|
|
189,458
|
|
|
|
55
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(173,570
|
)
|
|
|
(32
|
)
|
%
|
|
|
(122,267
|
)
|
|
|
(35
|
)
|
%
|
|
|
(51,303
|
)
|
|
|
42
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(69,718
|
)
|
|
|
(13
|
)
|
%
|
|
|
(59,151
|
)
|
|
|
(17
|
)
|
%
|
|
|
(10,567
|
)
|
|
|
18
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(243,288
|
)
|
|
|
(45
|
)
|
%
|
|
|
(181,418
|
)
|
|
|
(52
|
)
|
%
|
|
|
(61,870
|
)
|
|
|
34
|
|
%
|
Selling and marketing expenses
|
|
|
(70,411
|
)
|
|
|
(13
|
)
|
%
|
|
|
(46,949
|
)
|
|
|
(13
|
)
|
%
|
|
|
(23,462
|
)
|
|
|
50
|
|
%
|
General and administrative expenses
|
|
|
(108,145
|
)
|
|
|
(21
|
)
|
%
|
|
|
(74,972
|
)
|
|
|
(22
|
)
|
%
|
|
|
(33,173
|
)
|
|
|
44
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
115,144
|
|
|
|
21
|
|
%
|
|
|
44,191
|
|
|
|
13
|
|
%
|
|
|
70,953
|
|
|
|
161
|
|
%
|
Depreciation and amortization
|
|
|
(59,199
|
)
|
|
|
(11
|
)
|
%
|
|
|
(31,768
|
)
|
|
|
(9
|
)
|
%
|
|
|
(27,431
|
)
|
|
|
86
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
55,945
|
|
|
|
10
|
|
%
|
|
|
12,423
|
|
|
|
4
|
|
%
|
|
|
43,522
|
|
|
|
350
|
|
%
|
Interest expense, net
|
|
|
(23,961
|
)
|
|
|
(5
|
)
|
%
|
|
|
(18,113
|
)
|
|
|
(5
|
)
|
%
|
|
|
(5,848
|
)
|
|
|
32
|
|
%
|
Interest income
|
|
|
3,490
|
|
|
|
1
|
|
%
|
|
|
1,941
|
|
|
|
|
|
|
|
|
1,549
|
|
|
|
80
|
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(387
|
)
|
|
|
|
|
|
|
|
225
|
|
|
|
|
|
|
|
|
(612
|
)
|
|
|
(272
|
)
|
%
|
Other expense, net
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
|
(3,817
|
)
|
|
|
(1
|
)
|
%
|
|
|
1,941
|
|
|
|
(51
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
33,211
|
|
|
|
6
|
|
%
|
|
$
|
(7,341
|
)
|
|
|
(2
|
)
|
%
|
|
$
|
40,552
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
In accordance with accounting principles generally accepted in
the United States, we translated Nextel Brazils results of
operations using the average exchange rate for 2006, which
appreciated against the U.S. dollar by 12% from 2005. As a
result, the components of Nextel Brazils results of
operations for 2006 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 relative to the U.S. dollar.
The $178.7 million, or 56%, increase in service and other
revenues from 2005 to 2006 is primarily a result of the
following:
|
|
|
|
|
a 39% increase in the average number of digital handsets in
service resulting from growth in Nextel Brazils existing
markets, as well as the expansion of service coverage during
2005 and 2006 into new markets in connection with our balanced
growth and expansion objectives;
|
|
|
|
the 12% appreciation of the Brazilian real against the
U.S. dollar; and
|
|
|
|
a $15.6 million, or 85%, increase in revenues generated
from Nextel Brazils handset maintenance program due to
growth in the number of subscribers that are utilizing this
program.
|
The $10.8 million, or 42%, increase in digital handset and
accessory revenues from 2005 to 2006 is largely the result of a
39% increase in handset sales.
71
The $51.3 million, or 42%, increase in cost of service from
2005 to 2006 is primarily due to the following:
|
|
|
|
|
a $26.2 million, or 46%, increase in interconnect costs
resulting from a 48% increase in interconnect minutes of use;
|
|
|
|
a $15.6 million, or 33%, increase in direct switch and
transmitter and receiver site costs, including spectrum license
fees, resulting from a 23% increase in the number of sites in
service from December 31, 2005 to December 31,
2006; and
|
|
|
|
a $6.5 million, or 56%, increase in service and repair
costs largely due to increased subscribers under Nextel
Brazils handset maintenance program.
|
The increase in cost of service also resulted from the 12%
appreciation of the Brazilian real against the U.S. dollar.
The $10.6 million, or 18%, increase in cost of digital
handset and accessory sales from 2005 to 2006 is primarily due
to a 39% increase in handset sales, partially offset by a
decrease in cost per handset sale due to a change in the mix of
handsets sold, which included a higher proportion of less
expensive models during 2006 compared to 2005.
|
|
3.
|
Selling and
marketing expenses
|
The $23.5 million, or 50%, increase in selling and
marketing expenses from 2005 to 2006 is principally due to the
following:
|
|
|
|
|
a $12.3 million, or 57%, increase in payroll and direct
commissions largely as a result of a 39% increase in handset
sales by Nextel Brazils sales force and an increase in
salaries primarily resulting from additional selling and
marketing personnel necessary to support continued sales growth;
|
|
|
|
a $7.0 million, or 62%, increase in indirect commissions
resulting from a 39% increase in handset sales through Nextel
Brazils external sales channels, as well as an increase in
indirect commissions earned per handset sale resulting from
premiums paid on sales exceeding pre-established
thresholds; and
|
|
|
|
a $5.1 million, or 51%, increase in advertising expenses
due to the implementation of more advertising campaigns during
2006 primarily as a result of increased initiatives related to
overall subscriber growth and the launch of new markets in
connection with Nextel Brazils expansion plan.
|
All of these increases also resulted from the 12% appreciation
of the Brazilian real against the U.S. dollar.
|
|
4.
|
General and
administrative expenses
|
The $33.2 million, or 44%, increase in general and
administrative expenses from 2005 to 2006 is primarily a result
of the following:
|
|
|
|
|
a $10.9 million, or 50%, increase in customer care expenses
resulting from an increase in customer care personnel necessary
to support a larger customer base, as well as an increase in the
number of retail stores;
|
|
|
|
a $10.7 million, or 58%, increase in revenue-based taxes
that we report on a gross basis as both service and other
revenues and general and administrative expenses;
|
|
|
|
a $5.8 million, or 29%, increase in general corporate costs
resulting from an increase in general and administrative
personnel; and
|
|
|
|
a $3.5 million, or 59%, increase in information technology
expenses related to the expansion of Nextel Brazils
network and the implementation of new systems.
|
All of these increases also resulted from the 12% appreciation
of the Brazilian real against the U.S. dollar.
72
|
|
5.
|
Depreciation
and amortization
|
The $27.4 million, or 86%, increase in depreciation and
amortization from 2005 to 2006 is primarily due to a 78%
increase in Nextel Brazils property, plant and equipment
in service resulting from the continued build-out of Nextel
Brazils digital mobile network, as well as the 12%
appreciation of the Brazilian real against the U.S. dollar.
The $5.8 million, or 32%, increase in net interest expense
from 2005 to 2006 is primarily the result of increased interest
incurred on Nextel Brazils tower financing and capital
lease obligations due to an increase in both the number of
towers financed and capital leases, as well as the 12%
appreciation of the Brazilian real against the U.S. dollar.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
|
Year Ended
|
|
|
Argentinas
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
2005
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
320,664
|
|
|
|
93
|
|
%
|
|
$
|
248,262
|
|
|
|
92
|
|
%
|
|
$
|
72,402
|
|
|
|
29
|
|
%
|
Digital handset and accessory revenues
|
|
|
24,370
|
|
|
|
7
|
|
%
|
|
|
21,310
|
|
|
|
8
|
|
%
|
|
|
3,060
|
|
|
|
14
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
345,034
|
|
|
|
100
|
|
%
|
|
|
269,572
|
|
|
|
100
|
|
%
|
|
|
75,462
|
|
|
|
28
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(113,918
|
)
|
|
|
(33
|
)
|
%
|
|
|
(90,625
|
)
|
|
|
(34
|
)
|
%
|
|
|
(23,293
|
)
|
|
|
26
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(45,107
|
)
|
|
|
(13
|
)
|
%
|
|
|
(40,324
|
)
|
|
|
(15
|
)
|
%
|
|
|
(4,783
|
)
|
|
|
12
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159,025
|
)
|
|
|
(46
|
)
|
%
|
|
|
(130,949
|
)
|
|
|
(49
|
)
|
%
|
|
|
(28,076
|
)
|
|
|
21
|
|
%
|
Selling and marketing expenses
|
|
|
(27,752
|
)
|
|
|
(8
|
)
|
%
|
|
|
(21,254
|
)
|
|
|
(8
|
)
|
%
|
|
|
(6,498
|
)
|
|
|
31
|
|
%
|
General and administrative expenses
|
|
|
(59,261
|
)
|
|
|
(17
|
)
|
%
|
|
|
(46,537
|
)
|
|
|
(17
|
)
|
%
|
|
|
(12,724
|
)
|
|
|
27
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
98,996
|
|
|
|
29
|
|
%
|
|
|
70,832
|
|
|
|
26
|
|
%
|
|
|
28,164
|
|
|
|
40
|
|
%
|
Depreciation and amortization
|
|
|
(20,141
|
)
|
|
|
(6
|
)
|
%
|
|
|
(16,460
|
)
|
|
|
(6
|
)
|
%
|
|
|
(3,681
|
)
|
|
|
22
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
78,855
|
|
|
|
23
|
|
%
|
|
|
54,372
|
|
|
|
20
|
|
%
|
|
|
24,483
|
|
|
|
45
|
|
%
|
Interest expense, net
|
|
|
(2,330
|
)
|
|
|
(1
|
)
|
%
|
|
|
(5,407
|
)
|
|
|
(1
|
)
|
%
|
|
|
3,077
|
|
|
|
(57
|
)
|
%
|
Interest income
|
|
|
2,509
|
|
|
|
1
|
|
%
|
|
|
661
|
|
|
|
|
|
|
|
|
1,848
|
|
|
|
280
|
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
|
(518
|
)
|
|
|
(104
|
)
|
%
|
Other income (expense), net
|
|
|
329
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
362
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
79,345
|
|
|
|
23
|
|
%
|
|
$
|
50,093
|
|
|
|
19
|
|
%
|
|
$
|
29,252
|
|
|
|
58
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 rate for 2006 and 2005.
The average exchange rate of the Argentine peso for 2006
depreciated against the U.S. dollar by 5% from 2005. As a
result, the components of Nextel Argentinas results of
operations for 2006 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 Argentine peso.
The $72.4 million, or 29%, increase in service and other
revenues from 2005 to 2006 is primarily a result of the
following:
|
|
|
|
|
a 31% increase in the average number of digital handsets in
service, resulting primarily from growth in Nextel
Argentinas existing markets; and
|
73
|
|
|
|
|
an $8.6 million, or 37%, increase in revenues generated
from Nextel Argentinas handset maintenance program due to
growth in the number of Nextel Argentinas subscribers that
are utilizing this program.
|
The $3.1 million, or 14%, increase in digital handset and
accessory revenues from 2005 to 2006 is primarily the result of
a 28% increase in handset sales, as well as an 8% increase in
handset upgrades.
The $23.3 million, or 26%, increase in cost of service from
2005 to 2006 is principally a result of the following:
|
|
|
|
|
a $13.6 million, or 27%, increase in interconnect costs
largely as a result of a 21% increase in interconnect minutes of
use;
|
|
|
|
a $6.7 million, or 37%, increase in service and repair
costs largely due to increased subscribers under Nextel
Argentinas handset maintenance program; and
|
|
|
|
a $2.6 million, or 11%, increase in direct switch and
transmitter and receiver site costs, including spectrum license
fees, due to a 12% increase in the number of sites in service
from December 31, 2005 to December 31, 2006.
|
The $4.8 million, or 12%, increase in cost of digital
handsets and accessory sales from 2005 to 2006 is primarily the
result of a 28% increase in handset sales, as well as an 8%
increase in handset upgrades, partially offset by lower handset
costs.
|
|
3.
|
Selling and
marketing expenses
|
The $6.5 million, or 31%, increase in selling and marketing
expenses from 2005 to 2006 is largely a result of the following:
|
|
|
|
|
a $3.4 million, or 39%, increase in indirect commissions
primarily due to a 37% increase in handset sales obtained
through Nextel Argentinas external sales channels; and
|
|
|
|
a $2.2 million, or 27%, increase in payroll and direct
commissions largely due to an increase in direct commissions
resulting from an 18% increase in handset sales by Nextel
Argentinas sales force.
|
|
|
4.
|
General and
administrative expenses
|
The $12.7 million, or 27%, increase in general and
administrative expenses from 2005 to 2006 is largely a result of
the following:
|
|
|
|
|
a $7.4 million, or 25%, increase in general corporate costs
resulting from certain revenue-based taxes and an increase in
payroll and related expenses caused by an increase in general
and administrative personnel;
|
|
|
|
a $3.3 million, or 38%, increase in customer care expenses
resulting from additional customer care personnel needed to
support a growing customer base and higher facilities-related
expenses caused by continued subscriber growth; and
|
|
|
|
a $1.6 million, or 30%, increase in information technology
expenses related to higher software maintenance costs.
|
|
|
5.
|
Depreciation
and amortization
|
The $3.7 million, or 22%, increase in depreciation and
amortization from 2005 to 2006 is primarily due to a 44%
increase in Nextel Argentinas property, plant and
equipment in service, partially offset by a decrease in
depreciation due to the correction of an error in the
computation of the useful life of certain software as described
in Note 1 to our consolidated financial statements.
The $3.1 million, or 57%, decrease in net interest expense
from 2005 to 2006 is largely the result of a decrease in
interest expense on Nextel Argentinas turnover tax
contingency because Nextel Argentina paid the full liability due
in April 2006.
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Perus
|
|
|
|
Year Ended
|
|
|
Perus
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
2005
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
137,924
|
|
|
|
94
|
|
%
|
|
$
|
108,544
|
|
|
|
95
|
|
%
|
|
$
|
29,380
|
|
|
|
27
|
|
%
|
Digital handset and accessory revenues
|
|
|
8,449
|
|
|
|
6
|
|
%
|
|
|
5,657
|
|
|
|
5
|
|
%
|
|
|
2,792
|
|
|
|
49
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,373
|
|
|
|
100
|
|
%
|
|
|
114,201
|
|
|
|
100
|
|
%
|
|
|
32,172
|
|
|
|
28
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(53,145
|
)
|
|
|
(36
|
)
|
%
|
|
|
(36,290
|
)
|
|
|
(32
|
)
|
%
|
|
|
(16,855
|
)
|
|
|
46
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(24,240
|
)
|
|
|
(17
|
)
|
%
|
|
|
(18,344
|
)
|
|
|
(16
|
)
|
%
|
|
|
(5,896
|
)
|
|
|
32
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,385
|
)
|
|
|
(53
|
)
|
%
|
|
|
(54,634
|
)
|
|
|
(48
|
)
|
%
|
|
|
(22,751
|
)
|
|
|
42
|
|
%
|
Selling and marketing expenses
|
|
|
(17,213
|
)
|
|
|
(12
|
)
|
%
|
|
|
(12,606
|
)
|
|
|
(11
|
)
|
%
|
|
|
(4,607
|
)
|
|
|
37
|
|
%
|
General and administrative expenses
|
|
|
(25,697
|
)
|
|
|
(17
|
)
|
%
|
|
|
(20,590
|
)
|
|
|
(18
|
)
|
%
|
|
|
(5,107
|
)
|
|
|
25
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
26,078
|
|
|
|
18
|
|
%
|
|
|
26,371
|
|
|
|
23
|
|
%
|
|
|
(293
|
)
|
|
|
(1
|
)
|
%
|
Depreciation and amortization
|
|
|
(12,927
|
)
|
|
|
(9
|
)
|
%
|
|
|
(8,718
|
)
|
|
|
(8
|
)
|
%
|
|
|
(4,209
|
)
|
|
|
48
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
13,151
|
|
|
|
9
|
|
%
|
|
|
17,653
|
|
|
|
15
|
|
%
|
|
|
(4,502
|
)
|
|
|
(26
|
)
|
%
|
Interest expense, net
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
7
|
|
|
|
(5
|
)
|
%
|
Interest income
|
|
|
1,070
|
|
|
|
1
|
|
%
|
|
|
880
|
|
|
|
1
|
|
%
|
|
|
190
|
|
|
|
22
|
|
%
|
Foreign currency transaction gains, net
|
|
|
106
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
86
|
|
|
|
NM
|
|
|
Other income (expense), net
|
|
|
2
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
13
|
|
|
|
(118
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
14,184
|
|
|
|
10
|
|
%
|
|
$
|
18,390
|
|
|
|
16
|
|
%
|
|
$
|
(4,206
|
)
|
|
|
(23
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Nuevo sol
exchange rate.
The $29.4 million, or 27%, increase in service and other
revenues from 2005 to 2006 is primarily due to a 37% increase in
the average number of digital handsets in service, partially
offset by a decrease in average revenue per handset mainly
resulting from lower rate plans implemented in response to
increased competition.
The $2.8 million, or 49%, increase in digital handset and
accessory revenues from 2005 to 2006 is primarily the result of
a 45% increase in handset sales mainly resulting from Nextel
Perus strategy of increasing penetration in small to
mid-size accounts.
The $16.9 million, or 46%, increase in cost of service from
2005 to 2006 is largely a result of the following:
|
|
|
|
|
a $14.1 million, or 68%, increase in interconnect costs due
to a 58% increase in interconnect minutes of use;
|
|
|
|
a $1.8 million, or 18%, increase in direct switch and
transmitter and receiver site costs due to a 16% increase in the
number of sites in service from December 31, 2005 to
December 31, 2006; and
|
|
|
|
a $1.0 million, or 25%, increase in service and repair
costs largely due to increased subscribers under Nextel
Perus handset maintenance program.
|
The $5.9 million, or 32%, increase in cost of digital
handsets and accessory sales from 2005 to 2006 is largely the
result of a 45% increase in handset sales.
75
|
|
3.
|
Selling and
marketing expenses
|
The $4.6 million, or 37%, increase in selling and marketing
expenses from 2005 to 2006 is primarily due to the following:
|
|
|
|
|
a $2.2 million, or 64%, increase in indirect commissions
resulting from a 48% increase in handset sales through Nextel
Perus external sales channels, as well as an increase in
indirect commission per handset sale; and
|
|
|
|
a $2.2 million, or 33%, increase in direct commissions and
payroll expenses principally due to a 42% increase in handset
sales by Nextel Perus sales personnel, partially offset by
a decrease in direct commission per handset sale.
|
|
|
4.
|
General and
administrative expenses
|
The $5.1 million, or 25%, increase in general and
administrative expenses from 2005 to 2006 is primarily due to
the following:
|
|
|
|
|
a $1.9 million, or 24%, increase in customer care expenses,
mainly caused by an increase in customer care and billing
operations personnel needed to support a growing customer base;
|
|
|
|
a $1.5 million, or 18%, increase in general corporate costs
due to an increase in general and administrative personnel and
various taxes paid to regulatory agencies; and
|
|
|
|
a $1.2 million, or 32%, increase in information technology
costs.
|
|
|
5.
|
Depreciation
and amortization
|
The $4.2 million, or 48%, increase in depreciation and
amortization from 2005 to 2006 is primarily due to a 71%
increase in Nextel Perus property, plant and equipment in
service.
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
and other
|
|
|
|
Year Ended
|
|
|
and other
|
|
|
|
Change from
|
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
December 31,
|
|
|
Operating
|
|
|
|
Previous Year
|
|
|
|
|
2006
|
|
|
Revenues
|
|
|
|
2005
|
|
|
Revenues
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
(dollars in thousands)
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
2,425
|
|
|
|
100
|
|
%
|
|
$
|
1,886
|
|
|
|
100
|
|
%
|
|
$
|
539
|
|
|
|
29
|
|
%
|
Digital handset and accessory revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,425
|
|
|
|
100
|
|
%
|
|
|
1,886
|
|
|
|
100
|
|
%
|
|
|
539
|
|
|
|
29
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(1,863
|
)
|
|
|
(77
|
)
|
%
|
|
|
(1,493
|
)
|
|
|
(79
|
)
|
%
|
|
|
(370
|
)
|
|
|
25
|
|
%
|
Cost of digital handset and accessory sales
|
|
|
(120
|
)
|
|
|
(5
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(120
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,983
|
)
|
|
|
(82
|
)
|
%
|
|
|
(1,493
|
)
|
|
|
(79
|
)
|
%
|
|
|
(490
|
)
|
|
|
33
|
|
%
|
Selling and marketing expenses
|
|
|
(8,211
|
)
|
|
|
(339
|
)
|
%
|
|
|
(4,635
|
)
|
|
|
(246
|
)
|
%
|
|
|
(3,576
|
)
|
|
|
77
|
|
%
|
General and administrative expenses
|
|
|
(101,142
|
)
|
|
|
NM
|
|
|
|
|
(52,089
|
)
|
|
|
NM
|
|
|
|
|
(49,053
|
)
|
|
|
94
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(108,911
|
)
|
|
|
NM
|
|
|
|
|
(56,331
|
)
|
|
|
NM
|
|
|
|
|
(52,580
|
)
|
|
|
93
|
|
%
|
Depreciation and amortization
|
|
|
(4,481
|
)
|
|
|
(185
|
)
|
%
|
|
|
(4,279
|
)
|
|
|
(227
|
)
|
%
|
|
|
(202
|
)
|
|
|
5
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(113,392
|
)
|
|
|
NM
|
|
|
|
|
(60,610
|
)
|
|
|
NM
|
|
|
|
|
(52,782
|
)
|
|
|
87
|
|
%
|
Interest expense, net
|
|
|
(24,613
|
)
|
|
|
NM
|
|
|
|
|
(20,202
|
)
|
|
|
NM
|
|
|
|
|
(4,411
|
)
|
|
|
22
|
|
%
|
Interest income
|
|
|
11,705
|
|
|
|
NM
|
|
|
|
|
6,738
|
|
|
|
357
|
|
%
|
|
|
4,967
|
|
|
|
74
|
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(101
|
)
|
|
|
(4
|
)
|
%
|
|
|
10
|
|
|
|
1
|
|
%
|
|
|
(111
|
)
|
|
|
NM
|
|
|
Debt conversion expense
|
|
|
(5,070
|
)
|
|
|
(209
|
)
|
%
|
|
|
(8,930
|
)
|
|
|
NM
|
|
|
|
|
3,860
|
|
|
|
(43
|
)
|
%
|
Other expense, net
|
|
|
(1,282
|
)
|
|
|
(53
|
)
|
%
|
|
|
(593
|
)
|
|
|
(31
|
)
|
%
|
|
|
(689
|
)
|
|
|
116
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(132,753
|
)
|
|
|
NM
|
|
|
|
$
|
(83,587
|
)
|
|
|
NM
|
|
|
|
$
|
(49,166
|
)
|
|
|
59
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Corporate and other operating revenues and cost of revenues
primarily represent the results of analog operations reported by
Nextel Chile. Operating revenues and cost of revenues did not
significantly change from 2005 to 2006 because Nextel
Chiles subscriber base remained stable.
|
|
1.
|
General and
administrative expenses
|
The $49.1 million, or 94%, increase in general and
administrative expenses from 2005 to 2006 is primarily due to
$31.8 million in incremental stock option expense that we
recognized in 2006 as a result of the implementation of
SFAS 123R on January 1, 2006, a $6.4 million
increase in share-based payment expense for restricted stock, an
increase in corporate payroll and related expenses and an
increase in outside service costs, specifically for consulting
services.
The $4.4 million, or 22%, increase in net interest expense
from 2005 to 2006 is substantially the result of interest
related to our 2.75% convertible notes that we issued in August
2005, which resulted in five months of interest expense for 2005
compared to twelve months of interest expense for 2006.
The $5.0 million, or 74%, increase in interest income from
2005 to 2006 is primarily due to higher cash balances at the
corporate level resulting from the $350.0 million proceeds
received from the issuance of our 2.75% convertible notes, as
well as higher interest rates in the U.S.
77
|
|
4.
|
Debt
conversion expense
|
Debt conversion expense for 2006 represents $5.1 million in
cash consideration and direct external costs that we paid in
connection with the conversion of the remaining
$91.4 million of our 3.5% convertible notes during the
fourth quarter of 2006.
Debt conversion expense for 2005 represents $8.9 million in
cash consideration and direct external costs that we paid in
connection with the conversion of $88.5 million of our 3.5%
convertible notes that occurred during the second quarter in
2005.
|
|
C.
|
Liquidity
and Capital Resources
|
We had a working capital surplus of $1,635.6 million as of
December 31, 2007, a $995.6 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 our receipt of
$1,177.2 million in net cash proceeds from the issuance of
$1,200.0 million in 3.125% convertible notes, as well as
Nextel Brazils receipt of $175.0 million in term
loans as a result of the drawdown of its syndicated loan
facility, partially offset by $500.1 million in cash we
used to purchase shares of our common stock during the year
ended December 31, 2007.
We recognized net income of $378.4 million for the year
ended December 31, 2007, $294.5 million for the year
ended December 31, 2006 and $174.8 million for the
year ended December 31, 2005. During 2007, 2006 and 2005,
our operating revenues more than offset our operating expenses,
excluding depreciation and amortization, and cash capital
expenditures.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change from
|
|
|
Change from
|
|
|
|
Year Ended December 31,
|
|
|
2006 to 2007
|
|
|
2005 to 2006
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Dollars
|
|
|
Dollars
|
|
|
Net cash provided by operating activities
|
|
$
|
659,093
|
|
|
$
|
488,980
|
|
|
$
|
316,319
|
|
|
$
|
170,113
|
|
|
$
|
172,661
|
|
Net cash used in investing activities
|
|
|
(944,104
|
)
|
|
|
(752,924
|
)
|
|
|
(389,125
|
)
|
|
|
(191,180
|
)
|
|
|
(363,799
|
)
|
Net cash provided by financing activities
|
|
|
944,046
|
|
|
|
96,635
|
|
|
|
611,628
|
|
|
|
847,411
|
|
|
|
(514,993
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
2,539
|
|
|
|
(1,636
|
)
|
|
|
7,730
|
|
|
|
4,175
|
|
|
|
(9,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
661,574
|
|
|
|
(168,945
|
)
|
|
|
546,552
|
|
|
|
830,519
|
|
|
|
(715,497
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
708,591
|
|
|
|
877,536
|
|
|
|
330,984
|
|
|
|
(168,945
|
)
|
|
|
546,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,370,165
|
|
|
$
|
708,591
|
|
|
$
|
877,536
|
|
|
$
|
661,574
|
|
|
$
|
(168,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operating activities provided us with $659.1 million of
cash during 2007, a $170.1 million, or 35%, increase from
2006. Our operating activities provided us with
$489.0 million of cash during 2006, a $172.7 million,
or 55%, increase from 2005. Both increases were primarily due to
higher operating income resulting from our profitable growth
strategy, partially offset by increases in working capital
investments due to the continued growth of our business.
We used $944.1 million of cash in our investing activities
during 2007, a $191.2 million, or 25%, increase from 2006
due primarily to increased cash capital expenditures, our
$241.8 million investment in an enhanced cash fund similar
to, but not in the legal form of, a money market fund that
invests primarily in asset-backed securities and
$49.5 million in payments for acquisitions and purchases of
licenses, primarily in Brazil and Peru. Cash capital
expenditures increased $71.4 million, or 13%, to
$622.7 million from $551.3 million in 2006 due to the
continued build-out of our networks, primarily in Mexico and
Brazil.
We used $752.9 million of cash in our investing activities
during 2006, a $363.8 million, or 93%, increase from 2005
due primarily to increased capital expenditures and acquisition
costs. Cash capital expenditures increased $165.4 million,
or 43%, from $385.9 million in 2005 to $551.3 million
in 2006 due to the accelerated build-out of our networks during
2006. We paid $209.7 million in cash for acquisitions and
purchases of spectrum licenses in 2006 primarily due to our
acquisition of Cosmofrecuencias, S.A. de C.V. in Mexico. We paid
$27.4 million in cash for acquisitions and purchases of
spectrum licenses in 2005.
78
Our financing activities provided us with $944.0 million of
cash during 2007, primarily due to the following:
|
|
|
|
|
$1.2 billion in gross proceeds that we received from the
issuance of our 3.125% convertible notes;
|
|
|
|
$175.0 million in borrowings under Nextel Brazils
syndicated loan facility; and
|
|
|
|
$91.0 million in proceeds that we received from stock
option exercises by our employees.
|
These increases were partially offset by $500.1 million in
cash we used to repurchase our common stock.
Our financing activities provided us with $96.6 million of
cash during 2006, primarily due to the following:
|
|
|
|
|
$60.9 million in additional borrowings from the refinancing
of Nextel Mexicos syndicated loan;
|
|
|
|
$55.4 million in proceeds that we received from stock
option exercises by our employees; and
|
|
|
|
$6.6 million in excess tax benefits from share-based
payments we recognized in connection with our adoption of
SFAS 123R, which was effective January 1, 2006.
|
These increases were partially offset by $28.1 million in
repayments under long-term credit facilities and software
financing transactions.
Our financing activities provided us with $611.6 million of
cash during 2005, primarily due to the following:
|
|
|
|
|
$350.0 million in gross proceeds that we raised in
connection with the issuance of our 2.75% convertible notes;
|
|
|
|
$250.0 million in gross proceeds that we received in
connection with the draw-down of our Mexico syndicated loan
facility; and
|
|
|
|
$23.9 million in proceeds that we received from stock
option exercises by our employees.
|
These increases were partially offset by $9.6 million in
cash we used to pay debt financing costs in connection with the
issuance of our 2.75% convertible notes.
|
|
D.
|
Future
Capital Needs and Resources
|
Capital Resources. Our ongoing capital
resources depend on a variety of factors, including our existing
cash and cash equivalents balances, the value of our short-term
investment, cash flows generated by our operating companies and
external financial sources that may be available. As of
December 31, 2007, our capital resources included
$1,370.2 million of cash and cash equivalents and
$241.8 million in a short-term investment. In May 2007, we
invested in an enhanced cash fund similar to, but not in the
legal form of, a money market fund that invested primarily in
asset-backed securities. We classified our investment as a cash
equivalent because it was highly liquid at the time of the
initial investment. Due to issues that arose in the
U.S. credit markets, on December 6, 2007, the fund
manager ceased all purchases and sales of interests in the fund
and began an orderly liquidation of the portfolios assets.
We concluded that because the fair value per unit of the fund is
determined, published and the basis for current transactions,
the fair value of our investment in the fund is readily
determinable. As a result, we classified this investment as
available-for-sale. We expect that substantially all of the fund
will be liquidated by December 31, 2008.
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.
|
Financing Activities. In 2007, we
engaged in a number of financing transactions in order to
provide funding for our business and optimize our capital
structure including the following:
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
79
result, we issued a total of $1,200.0 million principal
amount of the 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 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. The notes will mature on June 15, 2012 unless earlier
converted or redeemed by the holders or repurchased by us.
In July 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, $1.0 million in direct external costs
and accrued and unpaid interest of $4.2 million.
In September 2007, Nextel Brazil entered into a
$300.0 million syndicated loan facility. Of the total
amount of the facility, $45.0 million is denominated in
U.S. dollars with a floating interest rate based on LIBOR
plus a specified margin ranging from 2.00% to 2.50%
(Tranche A 7.35% as of December 31, 2007).
The remaining $255.0 million is denominated in
U.S. dollars with a floating interest rate based on LIBOR
plus a specified margin ranging from 1.75% to 2.25%
(Tranche B 7.10% as of December 31, 2007).
Tranche A matures on September 14, 2014, and
Tranche B matures on September 14, 2012. Nextel
Brazils obligations under the syndicated loan facility
agreement are guaranteed by all of its material operating
subsidiaries and are secured by a pledge of the outstanding
equity interests in Nextel Brazil and those subsidiaries. In
addition, Nextel Brazil is subject to various legal and
financial covenants under the syndicated loan facility that,
among other things, require Nextel Brazil to maintain certain
financial ratios and may limit the amount of funds that could be
repatriated in certain periods. Nextel Brazil may utilize
borrowings under this syndicated loan facility for capital
expenditures, general corporate purposes and the repayment of
specified short-term intercompany debt. In connection with this
agreement, Nextel Brazil capitalized $5.0 million in
deferred financing costs, which Nextel Brazil will amortize as
interest expense over the term of the syndicated loan.
In October 2007, Nextel Brazil borrowed $26.2 million in
term loans under Tranche A and $148.8 million in term
loans under Tranche B of this syndicated loan facility. In
addition, at the time of the initial drawdown, Nextel Brazil
established a debt service reserve account in the amount of
$12.7 million in accordance with the terms of this loan. In
January 2008, Nextel Brazil borrowed an additional
$3.0 million in terms loans under Tranche A and
$17.0 million in term loans under Tranche B of this
syndicated loan facility. The remaining $105.0 million in
term loans are available under this facility until
March 11, 2008, subject to the satisfaction of customary
borrowing conditions.
Under an existing agreement with American Tower Corporation,
during 2007 and 2006 we received $31.2 million and
$9.0 million in gross proceeds, respectively, from tower
sale-leaseback transactions in Mexico and Brazil.
Capital Needs and Contractual
Obligations. We currently anticipate that our
future capital needs will principally consist of funds required
for:
|
|
|
|
|
operating expenses relating to our networks;
|
|
|
|
capital expenditures to expand and enhance our networks, as
discussed below under Capital Expenditures;
|
|
|
|
operating and capital expenditures related to the deployment of
a next generation technology in Peru;
|
|
|
|
future spectrum or other related purchases;
|
|
|
|
debt service requirements, including tower financing and capital
lease obligations;
|
|
|
|
cash taxes; and
|
|
|
|
other general corporate expenditures.
|
80
The following table sets forth the amounts and timing of
contractual payments for our most significant contractual
obligations determined as of December 31, 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
Item 1A. Risk Factors 15.
Our forward-looking statements are subject to a variety of
factors that could cause actual results to differ materially
from current beliefs. 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)
|
|
$
|
47,125
|
|
|
$
|
94,250
|
|
|
$
|
1,275,500
|
|
|
$
|
475,170
|
|
|
$
|
1,892,045
|
|
Tower financing obligations(1)
|
|
|
51,548
|
|
|
|
103,103
|
|
|
|
103,098
|
|
|
|
321,654
|
|
|
|
579,403
|
|
Syndicated loan facilities(2)
|
|
|
92,763
|
|
|
|
175,563
|
|
|
|
265,134
|
|
|
|
10,190
|
|
|
|
543,650
|
|
Capital lease obligations(3)
|
|
|
12,799
|
|
|
|
25,798
|
|
|
|
43,115
|
|
|
|
85,375
|
|
|
|
167,087
|
|
Spectrum fees(4)
|
|
|
14,475
|
|
|
|
28,950
|
|
|
|
28,950
|
|
|
|
214,551
|
|
|
|
286,926
|
|
Spectrum license financing(5)
|
|
|
2,297
|
|
|
|
4,594
|
|
|
|
4,594
|
|
|
|
2,297
|
|
|
|
13,782
|
|
Operating leases(6)
|
|
|
115,956
|
|
|
|
185,406
|
|
|
|
120,181
|
|
|
|
154,079
|
|
|
|
575,622
|
|
Purchase obligations(7)
|
|
|
952,815
|
|
|
|
172,263
|
|
|
|
50,607
|
|
|
|
11,459
|
|
|
|
1,187,144
|
|
Other long-term obligations(8)
|
|
|
11,270
|
|
|
|
11,465
|
|
|
|
10,074
|
|
|
|
180,881
|
|
|
|
213,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual commitments
|
|
$
|
1,301,048
|
|
|
$
|
801,392
|
|
|
$
|
1,901,253
|
|
|
$
|
1,455,656
|
|
|
$
|
5,459,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
(2) |
|
These amounts include principal and interest payments associated
with Nextel Mexico and Nextel Brazils syndicated loan
facilities. |
|
(3) |
|
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. See Note 7 to our consolidated
financial statements for more information. |
|
(4) |
|
These amounts do not include variable fees based on certain
operating revenues and are subject to increases in the Mexican
Consumer Pricing Index. |
|
(5) |
|
These amounts represent payments related to spectrum license
financing in Brazil. |
|
(6) |
|
These amounts principally include future lease costs related to
our transmitter and receiver sites and switches and office
facilities. |
|
(7) |
|
These amounts include maximum contractual purchase obligations
under various agreements with our vendors, as well as estimated
amounts related to an interconnection agreement in Mexico. |
|
(8) |
|
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. |
In addition to the aforementioned items, as discussed in
Note 9 to the accompanying consolidated financial
statements, we have entered into an agreement with Motorola
during 2006, which requires us to purchase a certain amount of
handsets each year through December 31, 2011. Prices for
handsets that will be purchased in years subsequent to 2007 were
not stipulated in the agreement as they will be negotiated
annually. As a result, we are not able to quantify the dollar
amount of minimum purchases required under this agreement for
years subsequent to 2008, and therefore, they are not included
in the table above.
Capital Expenditures. Our capital
expenditures, including capitalized interest, were
$666.8 million for the year ended December 31, 2007,
$627.4 million for the year ended December 31, 2006
and $469.9 million for the year ended December 31,
2005. In each of these years, a substantial portion of our
capital expenditures was invested in Mexico and Brazil. We
expect to continue to focus our capital spending in these two
markets. In the future, we expect to finance our capital
spending using the most effective combination of cash from
operations, cash on hand,
81
cash from the sale or maturity of our short-term investments and
proceeds from external financing that may become available. Our
capital spending is expected to be driven by several factors,
including:
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|
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|
|
the expansion of the coverage of our digital mobile networks to
new market areas;
|
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|
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;
|
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|
|
the enhancement of our digital mobile network coverage around
some major market areas;
|
|
|
|
future minimum build out requirements related to the
3.4 GHz spectrum and local concession that we acquired
through the purchase of Cosmofrecuencias in Mexico;
|
|
|
|
the deployment of a new digital network technology within
specified timeframes resulting from the 1.9 GHz spectrum
that we acquired in Peru;
|
|
|
|
potential funding of future technology initiatives; and
|
|
|
|
non-network
related information technology projects.
|
Our future capital expenditures may be affected by future
technology improvements and technology choices. For example,
Motorola developed a 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 without requiring additional network
infrastructure equipment. 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 markets.
We have experienced voice quality problems related to certain
types of calls made using the 6:1 voice coder technology and in
some markets, we have adjusted the network software to reduce
the number of calls completed using the 6:1 voice coder
technology in order to balance our network capacity needs with
the need to maintain voice quality. Because we have not used the
6:1 voice coder technology to its full capacity, we have
invested more capital in our infrastructure to satisfy our
network capacity needs than would have been necessary if we had
been able to complete a higher percentage of calls using the
technology, and we may make similar investments in the future as
we optimize our network to meet our capacity and voice quality
requirements. If we were to decide to significantly curtail the
use of the 6:1 voice coder technology in all of our markets,
these investments could be significant. See
Item 1A. Risk Factors
2. Because we rely on one supplier to implement our
digital mobile networks, any failure of that supplier to perform
could adversely affect our operations.
Future Outlook. We believe that our
current business plan, which contemplates significant network
expansion in Mexico and Brazil, some network expansion in Chile
and the construction of a new, complementary next generation
network in Peru, will not require any additional external
funding, and we will be able to operate and grow our business
while servicing our debt obligations. See
Item 1A. Risk Factors 15.
Our forward-looking statements are subject to a variety of
factors that could cause actual results to differ materially
from current beliefs.
In making our assessments of a fully funded business plan, we
have considered:
|
|
|
|
|
cash and cash equivalents on hand and short-term-investment
available to fund our operations;
|
|
|
|
expected cash flows from operations;
|
|
|
|
future minimum build out requirements related to the
3.4 GHz spectrum and local concession that we acquired
through the purchase of Cosmofrecuencias in Mexico;
|
|
|
|
the anticipated level of capital expenditures, including minimum
build-out requirements for the 1.9 MHz spectrum we acquired
in Peru;
|
|
|
|
the anticipated level of spectrum acquisitions;
|
|
|
|
our scheduled debt service; and
|
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|
|
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
82
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:
|
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|
|
|
the commercial success of our operations;
|
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|
|
the volatility and demand of the capital markets; and
|
|
|
|
the future market prices of our securities.
|
E. Effect
of Inflation and Foreign Currency Exchange
Our net assets are subject to foreign currency exchange risks
since they are primarily maintained in local currencies.
Additionally, a significant portion of our long-term debt,
including some long-term debt incurred by our operating
subsidiaries, is denominated entirely in U.S. dollars,
which exposes us to foreign currency exchange risks. Nextel
Argentina, Nextel Brazil and Nextel Mexico conduct business in
countries in which the rate of inflation has historically been
significantly higher than that of the United States. We seek to
protect our earnings from inflation and possible currency
depreciation by periodically adjusting the local currency prices
charged by each operating company for sales of handsets and
services to its customers. We routinely monitor our foreign
currency exposure and the cost effectiveness of hedging
instruments.
Inflation is not currently a material factor affecting our
business, although rates of inflation in some of the countries
in which we operate have been historically volatile. In the last
two years, the inflation rate in Argentina has risen
significantly, and we expect that it may continue to rise in the
next several years, which will increase our costs and could
reduce our profitability in Argentina. General operating
expenses such as salaries, employee benefits and lease costs
are, however, subject to normal inflationary pressures. From
time to time, we may experience price changes in connection with
the purchase of system infrastructure equipment and handsets,
but we do not currently believe that any of these price changes
will be material to our business.
F. Effect
of New Accounting Standards
In June 2006, 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
in 2007 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. Our adoption of FIN 48 in the first quarter of
2007 resulted in a $5.2 million decrease to our retained
earnings. See Note 11 to our consolidated financial
statements at the end of this annual report on
Form 10-K
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
83
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. In February 2008, the FASB issued Staff Position
No. 157-1,
Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purpose of Lease
Classification or Measurement Under Statement 13, or
FSP 157-1,
in order to amend SFAS 157 to exclude FASB Statement
No. 13, Accounting for Leases, or SFAS 13,
and other accounting pronouncements that address fair value
measurements for purposes of lease classification or measurement
under SFAS 13. In addition, in February 2008, the FASB
issued Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, or
FSP 157-2,
which defers the effective date of SFAS 157 to fiscal years
beginning after November 15, 2008 for nonfinancial assets
and nonfinancial liabilities, except for those that are
recognized or disclosed at fair value in an entitys
financial statements on a recurring basis (at least annually).
We are currently evaluating the impact that SFAS 157,
FSP 157-1
and
FSP 157-2
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 required to be
included 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.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations, or
SFAS 141(R), which replaces FASB Statement No. 141.
SFAS 141(R) establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill
acquired. SFAS 141(R) also establishes disclosure
requirements to enable the evaluation of the nature and
financial effects of the business combination. SFAS 141(R)
is effective for fiscal years beginning after December 15,
2008. We are currently evaluating the potential impact, if any,
the adoption of SFAS 141(R) may have on our consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of Accounting Research
Bulletin No. 51, or SFAS 160. SFAS 160
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest and the valuation of retained noncontrolling
equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that
clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.
SFAS 160 is effective for fiscal years beginning after
December 15, 2008. We are currently evaluating the
potential impact, if any, the adoption of SFAS No. 160
may have on our consolidated financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our revenues are primarily denominated in foreign currencies,
while a significant portion of our operations are financed in
U.S. dollars through our convertible notes, a portion of
our syndicated loan facility in Mexico and our syndicated loan
facility in Brazil. As a result, fluctuations in exchange rates
relative to the U.S. dollar expose us to foreign currency
exchange risks. These risks include the impact of translating
our local currency reported earnings into U.S. dollars when
the U.S. dollar strengthens against the local currencies of
our foreign operations. In addition, Nextel Mexico, Nextel
Brazil, Nextel Argentina and Nextel Chile purchase some capital
assets and the majority of handsets in U.S. dollars, but
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. As of December 31, 2007, we have not entered into
any derivative transactions to hedge our foreign currency
transaction risk during 2007 or any future period.
84
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
December 31, 2007, $1,884.9 million, or 83%, of our
total consolidated debt was fixed rate debt, and the remaining
$381.6 million, or 17%, 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
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 $31.4 million. The interest rate
swap fixed the amount of interest expense associated with this
portion of the Mexico syndicated loan facility effective
August 31, 2005.
The table below presents principal amounts, related interest
rates by year of maturity and aggregate amounts as of
December 31, 2007 for our fixed rate debt obligations,
including our convertible notes, our syndicated loan facilities
in Mexico and Brazil, our tower financing obligations, the
notional amounts of our purchased call options and written put
options and the fair value of our interest rate swap. We
determined the fair values included in this section based on:
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|
|
|
|
quoted market prices for our convertible notes;
|
|
|
|
carrying values for our tower financing obligations and
syndicated loan facility as interest rates were set recently
when we entered into these transactions; and
|
|
|
|
market values as determined by an independent third party
investment banking firm for our purchased call options, written
put options and interest rate swap.
|
The changes in the fair values of our consolidated debt compared
to their fair values as of December 31, 2006 reflect
changes in applicable market conditions, as well as the issuance
of our 3.125% convertible notes, the drawdown of Nextel
Brazils syndicated loan facility and our acceptance of a
tender offer for 99.99% of our 2.875% convertible notes. All of
the information in the table is presented in U.S. dollar
equivalents, which is our reporting currency. The actual cash
flows associated with our consolidated long-term debt are
denominated in U.S. dollars (US$), Mexican pesos (MP) and
Brazilian reais (BR).
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
|
2007
|
|
|
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$)
|
|
$
|
1,642
|
|
|
$
|
1,846
|
|
|
$
|
1,859
|
|
|
$
|
1,912
|
|
|
$
|
1,219,682
|
|
|
$
|
350,041
|
|
|
$
|
1,576,982
|
|
|
$
|
1,489,671
|
|
|
$
|
678,202
|
|
|
$
|
1,258,202
|
|
Average Interest Rate
|
|
|
10.0%
|
|
|
|
10.0%
|
|
|
|
10.0%
|
|
|
|
10.0%
|
|
|
|
3.2%
|
|
|
|
2.8%
|
|
|
|
3.2%
|
|
|
|
|
|
|
|
3.1%
|
|
|
|
|
|
Fixed Rate (MP)
|
|
$
|
40,771
|
|
|
$
|
41,537
|
|
|
$
|
6,082
|
|
|
$
|
7,174
|
|
|
$
|
8,471
|
|
|
$
|
107,766
|
|
|
$
|
211,801
|
|
|
$
|
211,801
|
|
|
$
|
189,867
|
|
|
$
|
189,867
|
|
Average Interest Rate
|
|
|
11.9%
|
|
|
|
11.9%
|
|
|
|
16.1%
|
|
|
|
16.1%
|
|
|
|
16.1%
|
|
|
|
15.9%
|
|
|
|
14.5%
|
|
|
|
|
|
|
|
14.4%
|
|
|
|
|
|
Fixed Rate (BR)
|
|
$
|
3,035
|
|
|
$
|
3,455
|
|
|
$
|
4,001
|
|
|
$
|
4,717
|
|
|
$
|
5,652
|
|
|
$
|
75,274
|
|
|
$
|
96,134
|
|
|
$
|
96,134
|
|
|
$
|
75,589
|
|
|
$
|
75,589
|
|
Average Interest Rate
|
|
|
18.9%
|
|
|
|
19.8%
|
|
|
|
20.7%
|
|
|
|
21.5%
|
|
|
|
22.3%
|
|
|
|
25.9%
|
|
|
|
24.8%
|
|
|
|
|
|
|
|
25.5%
|
|
|
|
|
|
Variable Rate (US$)
|
|
$
|
|
|
|
$
|
23,636
|
|
|
$
|
47,273
|
|
|
$
|
203,873
|
|
|
$
|
47,273
|
|
|
$
|
9,545
|
|
|
$
|
331,600
|
|
|
$
|
331,600
|
|
|
$
|
156,600
|
|
|
$
|
156,600
|
|
Average Interest Rate
|
|
|
|
|
|
|
7.1%
|
|
|
|
7.1%
|
|
|
|
6.5%
|
|
|
|
7.1%
|
|
|
|
7.1%
|
|
|
|
6.8%
|
|
|
|
|
|
|
|
6.7%
|
|
|
|
|
|
Variable Rate (MP)
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
57,423
|
|
|
$
|
57,423
|
|
Average Interest Rate
|
|
|
8.7%
|
|
|
|
8.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.7%
|
|
|
|
|
|
|
|
8.5%
|
|
|
|
|
|
Interest Rate Swap:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
|
|
$
|
13,210
|
|
|
$
|
13,210
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,420
|
|
|
$
|
(546)
|
|
|
$
|
29,128
|
|
|
$
|
(1,406)
|
|
Average Pay Rate
|
|
|
10.8%
|
|
|
|
10.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8%
|
|
|
|
|
|
|
|
10.8%
|
|
|
|
|
|
Average Receive Rate
|
|
|
8.7%
|
|
|
|
8.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.7%
|
|
|
|
|
|
|
|
8.5%
|
|
|
|
|
|
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
We have listed the consolidated financial statements required
under this Item in Part IV, Item 15(a)(1) of this
annual report on
Form 10-K.
We have listed the financial statement schedule required under
Regulation S-X
in Part IV, Item 15(a)(2) of this annual report on
Form 10-K.
The financial statements and schedule appear following the
signature page of this annual report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
85
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods required by the Securities and
Exchange Commission and that such information is accumulated and
communicated to the Companys management, including our
chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
As of December 31, 2007, 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 our internal control over
financial reporting during the most recently completed fiscal
quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
Managements
Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rule 13a-15(f)
under the Securities Exchange Act of 1934, as amended). Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In order to evaluate the effectiveness of internal control over
financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act, management conducted an assessment using the
criteria established in Internal Control
Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this
assessment, management has concluded that as of
December 31, 2007, our internal control over financial
reporting was effective.
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, who audited and reported on our financial
statements included in this annual report, has also audited the
effectiveness of our internal control over financial reporting
as of December 31, 2007, as stated in its Report of
Independent Registered Public Accounting Firm.
|
|
Item 9B.
|
Other
Information
|
None.
86
PART III
|
|
Item 10.
|
Directors,
Executive Officers of the Registrant and Corporate
Governance
|
Except as to certain information regarding executive officers
included in Part I hereof and incorporated herein by
reference, the information required by this item will be
provided by being incorporated herein by reference to the
Companys definitive proxy statement for the 2008 Annual
Meeting of Stockholders under the captions Election of
Directors, Governance of the Company
Committees of the Board Audit Committee,
Securities Ownership Section 16(a)
Beneficial Ownership Reporting Compliance and
Governance of the Company Code of Ethics.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2008 Annual Meeting of
Stockholders under the captions Director
Compensation and Executive Compensation
(except for the information set forth under the captions
Executive Compensation Compensation Committee
Report on Executive Compensation).
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2008 Annual Meeting of
Stockholders under the captions Securities
Ownership Securities Ownership of Certain Beneficial
Owners and Securities Ownership of
Management and Executive Compensation
Equity Compensation Plan Information.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2008 Annual Meeting of
Stockholders under the caption Certain Relationships and
Related Transactions.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this item will be provided by being
incorporated herein by reference to the Companys
definitive proxy statement for the 2008 Annual Meeting of
Stockholders under the captions Audit
Information Fees Paid to Independent Registered
Public Accounting Firm and Audit
Committee Pre-Approval Policies and Procedures.
87
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules.
|
(a)(1) Financial Statements. Financial statements and report of
independent registered public accounting firm filed as part of
this report are listed below:
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Consolidated Balance Sheets As of December 31,
2007 and 2006
|
|
|
F-3
|
|
Consolidated Statements of Operations For the Years
Ended December 31, 2007, 2006 and 2005
|
|
|
F-4
|
|
Consolidated Statements of Changes in Stockholders
Equity For the Years Ended December 31, 2007,
2006 and 2005
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows For the Years
Ended December 31, 2007, 2006 and 2005
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
|
|
|
|
(2)
|
Financial Statement Schedule. The following financial statement
schedule is filed as part of this report. Schedules other than
the schedule listed below are omitted because they are either
not required or not applicable.
|
|
|
|
|
|
|
|
Page
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
F-46
|
|
|
|
|
|
(3)
|
List of Exhibits. The exhibits filed as part of this report are
listed in the Exhibit Index, which is incorporated in this
item by reference.
|
(b) Exhibits. See Item 15(a)(3) above.
(c) Financial Statement Schedule. See Item 15(a)(2)
above.
88
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NII HOLDINGS, INC.
|
|
|
|
By:
|
/s/ Daniel
E. Freiman
|
Daniel E. Freiman
Vice President and Controller
(On behalf of the registrant and as
Principal Accounting Officer)
February 27,
2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
February 27, 2008.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Steven
M. Shindler
Steven
M. Shindler
|
|
Executive Chairman of the Board of Directors
|
|
|
|
/s/ Steven
P. Dussek
Steven
P. Dussek
|
|
Chief Executive Officer and Director
|
|
|
|
/s/ Gokul
Hemmady
Gokul
Hemmady
|
|
Vice President and Chief Financial Officer (Principal Financial
Officer)
|
|
|
|
/s/ George
A. Cope
George
A. Cope
|
|
Director
|
|
|
|
/s/ John
Donovan
John
Donovan
|
|
Director
|
|
|
|
/s/ Neal
P. Goldman
Neal
P. Goldman
|
|
Director
|
|
|
|
/s/ Charles
M. Herington
Charles
M. Herington
|
|
Director
|
|
|
|
/s/ Carolyn
Katz
Carolyn
Katz
|
|
Director
|
|
|
|
/s/ Donald
E. Morgan
Donald
E. Morgan
|
|
Director
|
|
|
|
/s/ John
W. Risner
John
W. Risner
|
|
Director
|
89
NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
|
F-2
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Consolidated Balance Sheets As of December 31,
2007 and 2006
|
|
|
F-3
|
|
Consolidated Statements of Operations For the Years
Ended December 31, 2007, 2006 and 2005
|
|
|
F-4
|
|
Consolidated Statements of Changes in Stockholders
Equity For the Years Ended December 31, 2007,
2006 and 2005
|
|
|
F-5
|
|
Consolidated Statements of Cash Flows For the Years
Ended December 31, 2007, 2006 and 2005
|
|
|
F-6
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
F-46
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and Stockholders of NII Holdings Inc.:
In our opinion, the consolidated financial statements listed in
the index under Item 15(a)(1) present fairly, in all
material respects, the financial position of NII Holdings Inc.
and its subsidiaries at December 31, 2007 and 2006, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2007 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index
under Item 15(a)(2) presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements and financial statement schedule,
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in
Managements Report on Internal Control over Financial
Reporting under Item 9A. Our responsibility is to express
opinions on these financial statements, on the financial
statement schedule, and on the Companys internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As discussed in Note 1 to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain income tax positions in 2007 and the manner in
which it accounts for share-based compensation in 2006.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
February 27, 2008
F-2
NII
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except par values)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,370,165
|
|
|
$
|
708,591
|
|
Short-term investment
|
|
|
241,764
|
|
|
|
|
|
Accounts receivable, less allowance for doubtful accounts of
$20,204 and $15,928
|
|
|
438,348
|
|
|
|
298,470
|
|
Handset and accessory inventory
|
|
|
107,314
|
|
|
|
70,247
|
|
Deferred income taxes, net
|
|
|
121,512
|
|
|
|
60,450
|
|
Prepaid expenses and other
|
|
|
110,736
|
|
|
|
71,376
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,389,839
|
|
|
|
1,209,134
|
|
Property, plant and equipment, net
|
|
|
1,853,082
|
|
|
|
1,389,150
|
|
Intangible assets, net
|
|
|
410,447
|
|
|
|
369,196
|
|
Deferred income taxes, net
|
|
|
541,406
|
|
|
|
186,867
|
|
Other assets
|
|
|
241,962
|
|
|
|
143,331
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,436,736
|
|
|
$
|
3,297,678
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
125,040
|
|
|
$
|
107,687
|
|
Accrued expenses and other
|
|
|
436,703
|
|
|
|
342,465
|
|
Deferred revenues
|
|
|
109,640
|
|
|
|
83,952
|
|
Accrued interest
|
|
|
12,439
|
|
|
|
11,703
|
|
Current portion of long-term debt
|
|
|
70,448
|
|
|
|
23,294
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
754,270
|
|
|
|
569,101
|
|
Long-term debt
|
|
|
2,196,069
|
|
|
|
1,132,442
|
|
Deferred revenues
|
|
|
32,892
|
|
|
|
36,156
|
|
Deferred credits
|
|
|
158,621
|
|
|
|
110,033
|
|
Other long-term liabilities
|
|
|
126,511
|
|
|
|
103,466
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,268,363
|
|
|
|
1,951,198
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2007 and 2006, no
shares issued or outstanding 2007 and 2006
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001, 600,000 shares
authorized 2007 and 2006, 169,910 shares issued
and outstanding 2007, 161,814 shares issued and
outstanding 2006
|
|
|
170
|
|
|
|
162
|
|
Paid-in capital
|
|
|
1,091,672
|
|
|
|
723,644
|
|
Retained earnings
|
|
|
1,003,799
|
|
|
|
630,538
|
|
Accumulated other comprehensive income (loss)
|
|
|
72,732
|
|
|
|
(7,864
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
2,168,373
|
|
|
|
1,346,480
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
5,436,736
|
|
|
$
|
3,297,678
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
NII
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
3,184,696
|
|
|
$
|
2,279,922
|
|
|
$
|
1,666,613
|
|
Digital handset and accessory revenues
|
|
|
111,599
|
|
|
|
91,418
|
|
|
|
79,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,296,295
|
|
|
|
2,371,340
|
|
|
|
1,745,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
879,679
|
|
|
|
617,669
|
|
|
|
464,651
|
|
Cost of digital handset and accessory sales
|
|
|
415,015
|
|
|
|
311,307
|
|
|
|
251,192
|
|
Selling, general and administrative
|
|
|
1,077,893
|
|
|
|
780,373
|
|
|
|
545,235
|
|
Depreciation
|
|
|
289,897
|
|
|
|
194,817
|
|
|
|
123,990
|
|
Amortization
|
|
|
14,727
|
|
|
|
7,405
|
|
|
|
6,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,677,211
|
|
|
|
1,911,571
|
|
|
|
1,391,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
619,084
|
|
|
|
459,769
|
|
|
|
354,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(128,733
|
)
|
|
|
(89,379
|
)
|
|
|
(72,470
|
)
|
Interest income
|
|
|
67,429
|
|
|
|
51,057
|
|
|
|
32,611
|
|
Foreign currency transaction gains, net
|
|
|
19,008
|
|
|
|
3,557
|
|
|
|
3,357
|
|
Debt conversion expense
|
|
|
(26,429
|
)
|
|
|
(5,070
|
)
|
|
|
(8,930
|
)
|
Other expense, net
|
|
|
(1,914
|
)
|
|
|
(6,000
|
)
|
|
|
(8,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,639
|
)
|
|
|
(45,835
|
)
|
|
|
(54,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
548,445
|
|
|
|
413,934
|
|
|
|
300,576
|
|
Income tax provision
|
|
|
(170,027
|
)
|
|
|
(119,444
|
)
|
|
|
(125,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
378,418
|
|
|
$
|
294,490
|
|
|
$
|
174,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, basic
|
|
$
|
2.27
|
|
|
$
|
1.91
|
|
|
$
|
1.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
2.11
|
|
|
$
|
1.67
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
166,749
|
|
|
|
154,085
|
|
|
|
146,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
184,256
|
|
|
|
184,282
|
|
|
|
176,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
NII
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
Cumulative
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Deferred
|
|
|
and
|
|
|
Translation
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Investments
|
|
|
Adjustment
|
|
|
Equity
|
|
|
Balance, January 1, 2005
|
|
|
139,662
|
|
|
$
|
140
|
|
|
$
|
316,983
|
|
|
$
|
161,267
|
|
|
$
|
(12,644
|
)
|
|
$
|
(1,821
|
)
|
|
$
|
(41,978
|
)
|
|
$
|
421,947
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,781
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,526
|
|
|
|
21,526
|
|
Unrealized loss on derivatives, net of reclassification for
losses included in other expense and net of taxes of $1,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,307
|
)
|
|
|
|
|
|
|
(3,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
229
|
|
|
|
|
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,445
|
|
|
|
|
|
|
|
|
|
|
|
5,445
|
|
Reversal of deferred tax asset valuation allowances
|
|
|
|
|
|
|
|
|
|
|
69,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,228
|
|
Conversion of 3.5% convertible notes to common stock
|
|
|
6,636
|
|
|
|
6
|
|
|
|
88,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,478
|
|
Reclassification of deferred financing costs on debt conversion
|
|
|
|
|
|
|
|
|
|
|
(1,974
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,974
|
)
|
Exercise of stock options
|
|
|
5,850
|
|
|
|
6
|
|
|
|
23,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,891
|
|
Tax benefits on exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
11,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
152,148
|
|
|
|
152
|
|
|
|
508,209
|
|
|
|
336,048
|
|
|
|
(7,428
|
)
|
|
|
(5,128
|
)
|
|
|
(20,452
|
)
|
|
|
811,401
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294,490
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,532
|
|
|
|
15,532
|
|
Reclassification for losses on derivatives included in other
expense, net of taxes of $882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,184
|
|
|
|
|
|
|
|
2,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implementation of SFAS 123R
|
|
|
|
|
|
|
|
|
|
|
(7,428
|
)
|
|
|
|
|
|
|
7,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
45,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,864
|
|
Reversal of deferred tax asset valuation allowances
|
|
|
|
|
|
|
|
|
|
|
24,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,573
|
|
Conversion of 3.5% convertible notes to common stock
|
|
|
6,864
|
|
|
|
7
|
|
|
|
91,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,522
|
|
Reclassification of deferred financing costs on debt conversion
|
|
|
|
|
|
|
|
|
|
|
(1,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,453
|
)
|
Exercise of stock options
|
|
|
2,802
|
|
|
|
3
|
|
|
|
55,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,404
|
|
Tax benefits on exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
6,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
161,814
|
|
|
|
162
|
|
|
|
723,644
|
|
|
|
630,538
|
|
|
|
|
|
|
|
(2,944
|
)
|
|
|
(4,920
|
)
|
|
|
1,346,480
|
|
Cumulative effect of adopting FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,157
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
378,418
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,553
|
|
|
|
79,553
|
|
Unrealized loss on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
(50
|
)
|
Reclassification for losses on derivatives included in other
expense, net of taxes of $493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,093
|
|
|
|
|
|
|
|
1,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
459,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(7,402
|
)
|
|
|
(7
|
)
|
|
|
(500,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500,087
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
66,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,670
|
|
Reversal of deferred tax asset valuation allowances
|
|
|
|
|
|
|
|
|
|
|
407,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
407,041
|
|
Conversion of 2.75% convertible notes and 2.875% convertible
notes to common stock
|
|
|
11,268
|
|
|
|
11
|
|
|
|
295,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295,660
|
|
Exercise of stock options
|
|
|
4,230
|
|
|
|
4
|
|
|
|
90,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,996
|
|
Tax benefit on exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
(1,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,627
|
)
|
Tax benefit of prior periods stock option exercises
|
|
|
|
|
|
|
|
|
|
|
9,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
169,910
|
|
|
$
|
170
|
|
|
$
|
1,091,672
|
|
|
$
|
1,003,799
|
|
|
$
|
|
|
|
$
|
(1,901
|
)
|
|
$
|
74,633
|
|
|
$
|
2,168,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
NII
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
378,418
|
|
|
$
|
294,490
|
|
|
$
|
174,781
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt financing costs
|
|
|
6,889
|
|
|
|
4,724
|
|
|
|
3,365
|
|
Depreciation and amortization
|
|
|
304,624
|
|
|
|
202,222
|
|
|
|
130,132
|
|
Provision for losses on accounts receivable
|
|
|
46,360
|
|
|
|
30,327
|
|
|
|
19,751
|
|
Foreign currency transaction gains, net
|
|
|
(19,008
|
)
|
|
|
(3,557
|
)
|
|
|
(3,357
|
)
|
Deferred income tax provision
|
|
|
51,748
|
|
|
|
38,836
|
|
|
|
49,693
|
|
Utilization of deferred credit
|
|
|
(21,087
|
)
|
|
|
(8,854
|
)
|
|
|
(3,390
|
)
|
Share-based payment expense
|
|
|
67,010
|
|
|
|
45,951
|
|
|
|
5,445
|
|
Excess tax benefit from share-based payment
|
|
|
|
|
|
|
(6,599
|
)
|
|
|
|
|
Accretion of asset retirement obligations
|
|
|
5,900
|
|
|
|
4,273
|
|
|
|
3,902
|
|
Loss on short-term investment
|
|
|
3,320
|
|
|
|
|
|
|
|
|
|
Contingency reversals, net of charges
|
|
|
(13,141
|
)
|
|
|
(5,563
|
)
|
|
|
(2,100
|
)
|
Other, net
|
|
|
2,616
|
|
|
|
(9,792
|
)
|
|
|
9,341
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(166,645
|
)
|
|
|
(108,353
|
)
|
|
|
(80,674
|
)
|
Handset and accessory inventory
|
|
|
(35,766
|
)
|
|
|
(15,414
|
)
|
|
|
(24,235
|
)
|
Prepaid expenses and other
|
|
|
(33,729
|
)
|
|
|
(30,674
|
)
|
|
|
7,002
|
|
Other long-term assets
|
|
|
(35,514
|
)
|
|
|
(19,911
|
)
|
|
|
(23,136
|
)
|
Accounts payable, accrued expenses and other
|
|
|
90,992
|
|
|
|
50,474
|
|
|
|
33,642
|
|
Current deferred revenue
|
|
|
21,526
|
|
|
|
23,981
|
|
|
|
14,602
|
|
Other long-term liabilities
|
|
|
4,580
|
|
|
|
2,419
|
|
|
|
1,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
659,093
|
|
|
|
488,980
|
|
|
|
316,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(622,729
|
)
|
|
|
(551,256
|
)
|
|
|
(385,908
|
)
|
Payments for acquisitions, purchases of licenses and other
|
|
|
(49,530
|
)
|
|
|
(209,650
|
)
|
|
|
(27,357
|
)
|
Transfers to restricted cash
|
|
|
(29,062
|
)
|
|
|
(298
|
)
|
|
|
|
|
Purchases of short-term investments
|
|
|
(269,061
|
)
|
|
|
|
|
|
|
(14,143
|
)
|
Proceeds from maturities of short-term investments
|
|
|
|
|
|
|
7,371
|
|
|
|
38,633
|
|
Proceeds from sales of short-term investments
|
|
|
23,927
|
|
|
|
|
|
|
|
6,996
|
|
Proceeds from sale of fixed assets and insurance claims
|
|
|
2,351
|
|
|
|
1,008
|
|
|
|
|
|
Payments related to derivative instruments
|
|
|
|
|
|
|
(99
|
)
|
|
|
(7,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(944,104
|
)
|
|
|
(752,924
|
)
|
|
|
(389,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes
|
|
|
1,200,000
|
|
|
|
|
|
|
|
350,000
|
|
Payments to repurchase common stock
|
|
|
(500,087
|
)
|
|
|
|
|
|
|
|
|
Borrowings under syndicated loan facilities
|
|
|
175,000
|
|
|
|
60,885
|
|
|
|
250,000
|
|
Repayments under syndicated loan facilities
|
|
|
(18,309
|
)
|
|
|
(14,725
|
)
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
90,996
|
|
|
|
55,404
|
|
|
|
23,891
|
|
Excess tax benefit from share-based payment
|
|
|
|
|
|
|
6,599
|
|
|
|
|
|
Proceeds from towers financing transactions
|
|
|
29,827
|
|
|
|
8,735
|
|
|
|
2,241
|
|
Transfers to restricted cash
|
|
|
|
|
|
|
|
|
|
|
(652
|
)
|
Repayments under capital leases and tower financing transactions
|
|
|
(5,440
|
)
|
|
|
(4,220
|
)
|
|
|
(4,220
|
)
|
Repayments under software financing transactions
|
|
|
|
|
|
|
(13,375
|
)
|
|
|
|
|
Payment of debt financing costs
|
|
|
(27,941
|
)
|
|
|
(2,668
|
)
|
|
|
(9,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
944,046
|
|
|
|
96,635
|
|
|
|
611,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
2,539
|
|
|
|
(1,636
|
)
|
|
|
7,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
661,574
|
|
|
|
(168,945
|
)
|
|
|
546,552
|
|
Cash and cash equivalents, beginning of year
|
|
|
708,591
|
|
|
|
877,536
|
|
|
|
330,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,370,165
|
|
|
$
|
708,591
|
|
|
$
|
877,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
1. Summary
of Operations and Significant Accounting Policies
Operations. We provide digital wireless
communication services, primarily targeted at meeting the needs
of customers who use our services in their businesses and
individuals that have medium to high usage patterns, both of
whom value our multi-function handsets, including our Nextel
Direct Connect feature, and our high level of customer service.
We provide these services through operating companies located in
selected Latin American markets, with our principal operations
located in major business centers and related transportation
corridors of Mexico, Brazil, Argentina and Peru. In addition, we
offer our digital services on a limited basis in Santiago,
Chile. The markets we serve 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 in these major business centers
encourage the use of the mobile wireless communications services
that we offer.
We use a transmission technology called integrated digital
enhanced network, or iDEN, technology developed by Motorola,
Inc. to provide our digital mobile services on 800 MHz
spectrum holdings in all of our digital markets. This
technology, which is the only digital technology currently
available that can be used on non-contiguous spectrum like ours,
allows us to use our spectrum efficiently and offer multiple
digital wireless services integrated into a variety of digital
handset devices. The services we offer include:
|
|
|
|
|
mobile telephone service, including advanced calling features
such as speakerphone, conference calling, voice-mail, call
forwarding and additional line service;
|
|
|
|
Nextel Direct
Connect®
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a push-to-talk
basis, private one-to-one call or group call;
|
|
|
|
International Direct
Connect®
service, together with Sprint Nextel Corporation and
TELUS Corporation, which allows subscribers to communicate
instantly across national borders with our subscribers in
Mexico, Brazil, Argentina, Peru and Chile, with Sprint Nextel
Corporation subscribers using compatible handsets in the United
States and, except for our customers in Chile, with TELUS
subscribers using compatible handsets 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
Javatm
enabled business applications, which are generally marketed as
Nextel
Onlinesm
services; and
|
|
|
|
international roaming capabilities, which are marketed as
Nextel
Worldwidesm
services.
|
Stock Split. On October 27, 2005, we
announced a
2-for-1
common stock split to be effected in the form of a stock
dividend, which was paid on November 21, 2005 to holders of
record on November 11, 2005. All share and per share
amounts in these consolidated financial statements reflect the
common stock split.
Use of Estimates. The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Due to the
inherent uncertainty involved in making estimates, actual
results to be reported in future periods could differ from our
estimates.
Principles of Consolidation. The consolidated
financial statements include the accounts of NII Holdings, Inc.
and our wholly-owned subsidiaries. Our decision to consolidate
an entity is based on our direct and indirect majority interest
in the entity. We eliminate all significant intercompany
transactions, including intercompany profits and losses, in
consolidation.
We refer to our subsidiaries by the countries in which they
operate, such as Nextel Mexico, Nextel Brazil, Nextel Argentina,
Nextel Peru and Nextel Chile.
Concentrations of Risk. Substantially all of
our revenues are generated from our operations located in
Mexico, Brazil and Argentina. Regulatory entities in each
country regulate the licensing, construction, acquisition,
ownership and operation of our digital mobile networks, and
certain other aspects of our business, including some of
F-7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1. Summary
of Operations and Significant Accounting
Policies (Continued)
the rates we charge our customers. Changes in the current
telecommunications statutes or regulations in any of these
countries could adversely affect our business. In addition, as
of December 31, 2007 and 2006, approximately
$3,837.8 million and $2,615.7 million, respectively,
of our assets were owned by Nextel Mexico and Nextel Brazil.
Political, financial and economic developments in Mexico and
Brazil could impact the recoverability of our assets.
Motorola is currently our sole source for most of the digital
network equipment and substantially all of the handsets used
throughout our markets, except for the Blackberry handset, which
is manufactured by Research in Motion, or RIM. If Motorola fails
to deliver system infrastructure equipment and handsets or
enhancements to the features and functionality of our networks
on a timely, cost-effective basis, we may not be able to
adequately service our existing customers or attract new
customers. Nextel Communications, a subsidiary of Sprint Nextel
Corporation, is the largest customer of Motorola with respect to
iDEN technology and, in the past, has provided significant
support with respect to new product development for that
technology. Sprint Nextel Corporation has announced plans to
migrate Nextels push-to-talk services to a next generation
CDMA network platform, which we believe has contributed to a
recent decline in Motorolas support for the development of
new iDEN handset models. As a result, we have had access to a
reduced number of new handset models, which has made it more
difficult for us to compete effectively in some of our markets
where new handset styles and features are heavily valued by
customers. Lower levels of iDEN equipment purchases by Sprint
Nextel Corporation could also significantly increase our costs
for equipment and new network features and handset developments
and could impact Motorolas decision to continue to support
iDEN technology beyond their current commitment. In the event
Motorola determines not to continue supporting or enhancing our
iDEN based infrastructure and handsets, because Sprint Nextel
Corporation decreases its use of iDEN technology or otherwise,
we may be materially adversely affected. We expect to continue
to rely principally on Motorola for the manufacture of a
substantial portion of the equipment necessary to construct,
enhance and maintain our iDEN-based digital mobile networks and
for the manufacture of iDEN compatible handsets. See Note 9
for more information.
Financial instruments that potentially subject us to significant
amounts of credit risk consist of cash, cash equivalents,
short-term investments and accounts receivable. Our cash and
cash equivalents are deposited with high-quality financial
institutions. At times, we maintain cash balances in excess of
Federal Deposit Insurance Corporation (or the foreign country
equivalent institution) limits. Our short-term investment
consists of one fund, which primarily invests in asset-backed
securities. Approximately 9% of the holdings in this fund
consist of securities that may involve risk exposure associated
with investments in sub-prime mortgages. See Note 2 for
further information. Our accounts receivable are generally
unsecured. In some cases, for certain higher risk customers, we
require a customer deposit. We routinely assess the financial
strength of our customers and maintain allowances for
anticipated losses, where necessary.
Foreign Currency. In Mexico, Brazil, Argentina
and Chile, the functional currency is the local currency, while
in Peru the functional currency is the U.S. dollar since it
is the currency used for substantially all transactions. We
translate the results of operations for our
non-U.S. subsidiaries
and affiliates from the designated functional currency to the
U.S. dollar using average exchange rates during the
relevant period, while we translate assets and liabilities at
the exchange rate in effect at the reporting date. We translate
equity balances at historical rates. We report the resulting
gains or losses from translating foreign currency financial
statements as other comprehensive income or loss. We remeasure
Nextel Perus financial statements into U.S. dollars
and record remeasurement gains and losses in the statement of
operations. For the years ended December 31, 2007 and 2006,
we reported remeasurement gains in our income tax provision of
$2.2 million and $2.3 million, respectively, related
to Nextel Perus deferred tax assets and liabilities.
In general, monetary assets and liabilities designated in
U.S. dollars give rise to foreign currency realized and
unrealized transaction gains and losses, which we record in the
consolidated statement of operations as foreign currency
transaction gains, net. We report the effects of changes in
exchange rates associated with certain
U.S. dollar-denominated intercompany loans and advances to
our foreign subsidiaries that are of a long-term investment
nature as other comprehensive income or loss in our consolidated
financial statements. We have determined that certain
U.S. dollar-denominated intercompany loans and advances to
Nextel Brazil and Nextel Chile and an intercompany payable due
to Nextel Mexico are of a long-term investment nature.
F-8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1. Summary
of Operations and Significant Accounting
Policies (Continued)
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
622,729
|
|
|
$
|
551,256
|
|
|
$
|
385,908
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
44,029
|
|
|
|
76,169
|
|
|
|
83,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
666,758
|
|
|
$
|
627,425
|
|
|
$
|
469,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
128,733
|
|
|
$
|
89,379
|
|
|
$
|
72,470
|
|
Interest capitalized
|
|
|
5,671
|
|
|
|
13,483
|
|
|
|
9,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
134,404
|
|
|
$
|
102,862
|
|
|
$
|
82,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions of assets and business combinations
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
49,530
|
|
|
$
|
288,735
|
|
|
$
|
48,442
|
|
Less: liabilities assumed and deferred tax liabilities incurred
|
|
|
|
|
|
|
(78,854
|
)
|
|
|
(34,340
|
)
|
Less: cash acquired
|
|
|
|
|
|
|
(231
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,530
|
|
|
$
|
209,650
|
|
|
$
|
14,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
|
$
|
93,942
|
|
|
$
|
61,561
|
|
|
$
|
40,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
137,541
|
|
|
$
|
87,738
|
|
|
$
|
81,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2007, 2006 and 2005, we
had $13.9 million, $20.1 million and $9.1 million
in non-cash financing activities related to co-location capital
lease obligations on our communication towers. During the year
ended December 31, 2006, Nextel Brazil and Nextel Argentina
financed $4.0 million and $3.0 million, respectively,
in software purchased from Motorola, Inc. As discussed in
Note 7, during the year ended December 31, 2005,
Nextel Mexico financed $7.7 million in software purchased
from Motorola, Inc., and Nextel Brazil financed
$7.6 million of licenses it acquired from the Brazilian
government.
During 2005, we revised the accounting for our corporate
aircraft lease from an operating lease to a capital lease. See
Note 7 for additional information.
As discussed in Note 7, in the third quarter of 2007,
99.99% of the $300.0 million in outstanding principal
amount of our 2.875% convertible notes was converted into
11,268,103 shares of our common stock. In addition, in the
fourth quarter of 2006, the remaining principal amount of our
3.5% convertible notes was fully converted into
6,852,150 shares of our common stock.
Cash and Cash Equivalents. We consider all
highly liquid investments with an original maturity of three
months or less at the time of purchase to be cash equivalents.
Cash equivalents primarily consist of money market funds and
other similarly structured funds.
Short-Term Investment. Our short-term
investment consists of an enhanced cash fund similar to, but not
in the legal form of, a money market fund that invests primarily
in asset-backed securities. We classify investments in debt
securities as available-for-sale as of the balance sheet date
and report them at fair value. We record unrealized gains and
losses, net of income tax, as other comprehensive income or
loss. During the years ended December 31, 2007, 2006 and
2005, we did not have any material unrealized gains or losses
for available-for-sale securities. We report realized gains or
losses, as determined on a specific identification basis, and
other-than-temporary declines in value, if any, in realized
gains or losses on investments. We assess declines in the value
of individual investments to determine whether the decline is
other-than-temporary and thus the investment is impaired. We
make these assessments by considering available evidence,
including changes in general market conditions, specific
industry and individual company data, the length of time and the
extent to which the market value has been less than cost, the
F-9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1. Summary
of Operations and Significant Accounting
Policies (Continued)
financial condition and near-term prospects of the individual
company and our intent and ability to hold the investment. See
Note 2 for additional information.
Handset and Accessory Inventory. We record
handsets and accessories at the lower of cost or market. We
determine cost by the weighted average costing method. We
expense handset costs at the time of sale and classify such
costs in cost of digital handset and accessory sales. We write
down our inventory to cover losses related to obsolete and slow
moving inventory. As of December 31, 2007 and 2006, our
provision for inventory losses was $3.7 million and
$6.0 million, respectively.
Property, Plant and Equipment. We record
property, plant and equipment, including improvements that
extend useful lives or enhance functionality, at cost, while we
charge maintenance and repairs to operations as incurred. We
capitalize internal and external costs incurred to develop
internal-use software, which consist primarily of costs related
to configuration, interfaces, installation and testing. We also
capitalize internal and external costs incurred to develop
specified upgrades and enhancements if they result in
significant additional functionalities for our existing
software. We expense all costs related to evaluation of software
needs, data conversion, training, maintenance and other
post-implementation operating activities.
We calculate depreciation using the straight-line method based
on estimated useful lives ranging from
3 to 20 years for digital mobile network
equipment and network software and 3 to 10 years for office
equipment, furniture and fixtures, and other, which includes
non-network
internal use software. We depreciate our corporate aircraft
capital lease using the straight-line method based on the lease
term of eight years. We include depreciation expense on our
corporate aircraft capital lease and other capital leases in
accumulated depreciation and amortization. We amortize leasehold
improvements over the shorter of the lease terms or the useful
lives of the improvements.
Construction in progress includes internal and external labor,
materials, transmission and related equipment, engineering, site
development, interest and other costs relating to the
construction and development of our digital wireless networks.
We do not depreciate assets under construction until they are
ready for their intended use. We capitalize interest and other
costs, including labor and software upgrades, which are
applicable to the construction of, and significant improvements
that enhance functionality to, our digital mobile network
equipment.
We periodically review the depreciation method, useful lives and
estimated salvage value of our property, plant and equipment and
revise those estimates if current estimates are significantly
different from previous estimates.
Asset Retirement Obligations. We record an
asset retirement obligation and an associated asset retirement
cost when we have a legal obligation in connection with the
retirement of tangible long-lived assets. Our obligations arise
from certain of our leases and relate primarily to the cost of
removing our equipment from such leased sites. We report asset
retirement obligations and related asset retirement costs at
fair value computed using discounted cash flow techniques. In
addition, we review the adequacy of asset retirement obligations
on a regular basis and more often if changes in events or
circumstances warrant it. As of December 31, 2007 and 2006,
our asset retirement obligations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance, January 1
|
|
$
|
29,297
|
|
|
$
|
14,923
|
|
New asset retirement obligations
|
|
|
5,889
|
|
|
|
10,498
|
|
Accretion
|
|
|
5,900
|
|
|
|
4,273
|
|
Settlement of asset retirement obligations
|
|
|
(1,384
|
)
|
|
|
(111
|
)
|
Foreign currency translation and other
|
|
|
1,484
|
|
|
|
(286
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31
|
|
$
|
41,186
|
|
|
$
|
29,297
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments. We enter
into derivative transactions for hedging or risk management
purposes only. We have not and will not enter into any
derivative transactions for speculative or profit generating
purposes. We formally document all relationships between hedging
instruments and hedged items, as well as our risk management
objectives for undertaking various hedge transactions before
entering into the transaction.
We record our derivative financial instruments at fair value as
either assets or liabilities. We recognize changes in fair value
either in earnings or equity, depending on the nature of the
underlying exposure being hedged and how
F-10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1. Summary
of Operations and Significant Accounting
Policies (Continued)
effective the derivatives are at offsetting price movements and
the underlying exposure. We evaluate the effectiveness of our
hedging relationships both at the hedge inception and on an
ongoing basis. Our derivative instruments are designated as
cash-flow hedges and are considered to be highly effective. We
record the changes in fair value of our derivatives financial
instruments as other comprehensive income or loss until the
underlying hedged item is recognized in earnings. We recognize
in earnings immediately any ineffective portion of a
derivatives change in fair value.
Valuation of Long-Lived Assets. We review for
impairment long-lived assets such as property, plant and
equipment and identifiable intangible assets with definite
useful lives, which includes our licenses, whenever events or
changes in circumstances indicate that the carrying amount may
not be recoverable. If the total of the expected undiscounted
future cash flows is less than the carrying amount of the asset,
we recognize a loss, if any, for the difference between the fair
value and carrying value of the asset.
Intangible Assets. Our intangible assets are
composed of wireless telecommunications licenses, customer base
and a trade name.
We amortize our intangible assets using the straight-line method
over the estimated period benefited. We amortize licenses
acquired after our emergence from reorganization over their
estimated useful lives of 12 to 20 years. In the countries
in which we operate, licenses are customarily issued
conditionally for specified periods of time ranging from 30 to
40 years, including renewals. The licenses are generally
renewable provided the licensee has complied with applicable
rules and policies. We believe we have complied with these
standards in all material respects. However, the political and
regulatory environments in the markets we serve are continuously
changing and, in many cases, the renewal fees could be
significant. Therefore, we do not view the renewal of our
licenses to be perfunctory. In addition, the wireless
telecommunications industry is experiencing significant
technological change, and the commercial life of any particular
technology is difficult to predict. Most of our licenses give us
the right to use 800 MHz spectrum that is non-contiguous,
and the iDEN technology is the only widespread, commercially
available digital technology that operates on non-contiguous
spectrum. As a result, our ability to deploy new technologies on
our licensed 800MHz spectrum is limited. In light of the
uncertainty regarding the availability of alternative
technologies and regarding the commercial life of any
technology, including the iDEN technology, our ability to use
our 800MHz spectrum for an indefinite period cannot be assured.
As a result, we classify our licenses as finite lived assets.
Revenue Recognition. Operating revenues
primarily consist of service revenues and revenues generated
from the sale and rental of digital handsets and accessories. We
present our operating revenues net of value-added taxes, but we
include certain revenue-based taxes for which we are the primary
obligor. Service revenues primarily include fixed monthly access
charges for digital mobile telephone service and digital two-way
radio and other services, including revenues from calling party
pays programs where applicable and variable charges for airtime
and digital two-way radio usage in excess of plan minutes, long
distance charges and international roaming revenues derived from
calls placed by our customers on other carriers networks.
We also have other sources of revenues. Other revenues primarily
include amounts generated from our handset maintenance programs,
roaming revenues generated from other companies customers
that roam on our networks and co-location rental revenues from
third party tenants that rent space on our towers.
We recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sale price is fixed and
determinable and collectibility is reasonably assured. The
following are the policies applicable to our major categories of
revenue transactions.
We recognize revenue for access charges and other services
charged at fixed amounts ratably over the service period, net of
credits and adjustments for service discounts and value-added
taxes. We recognize excess usage, local, long distance and
calling party pays revenue at contractual rates per minute as
minutes are used. We record cash received in excess of revenues
earned as deferred revenues.
We recognize revenue generated from our handset maintenance
programs on a monthly basis at fixed amounts over the service
period. We recognize roaming revenues at contractual rates per
minute as minutes are used. We recognize co-location revenues
from third party tenants on a monthly basis based on the terms
set by the underlying agreements.
F-11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1. Summary
of Operations and Significant Accounting
Policies (Continued)
We bill excess usage to our customers in arrears. In order to
recognize the revenues originated from excess usage subsequent
to customer invoicing through the end of the reporting period,
we estimate the unbilled portion based on the usage that the
handset had during the part of the month already billed, and we
use the actual usage to estimate the unbilled usage for the rest
of the month taking into consideration working days and
seasonality. Our estimates are based on our experience in each
market. We periodically evaluate our estimation process by
comparing our estimates to actual excess usage revenue billed
the following month. As a result, actual usage could differ from
our estimates.
We recognize revenue from handset and accessory sales when title
and risk of loss passes upon delivery of the handset or
accessory to the customer as this is considered to be a separate
earnings process from the sale of wireless services.
We recognized the proceeds received from our spectrum use and
build-out agreement with Nextel Communications as deferred
revenues. We amortize this amount into revenue on a
straight-line basis over 15.5 years, which represents the
average remaining useful life of our licenses in the Baja region
of Mexico as of the date we began providing service under this
agreement.
Handsets Provided Under Leases. Our operating
companies periodically provide handsets to our customers under
lease agreements. We evaluate each lease agreement at its
inception to determine whether the agreement represents a
capital lease or an operating lease. Under capital lease
agreements, we expense the full cost of the handset at the
inception of the lease term and recognize digital handset sales
revenue upon delivery of the handset to the customer and
collection of the up-front rental payment, which corresponds to
the inception of the lease term. Under operating lease
agreements, we expense the cost of the handset in excess of the
sum of the minimum contractual revenues associated with the
handset lease. We recognize revenue ratably over the lease term.
Revenue generated under the operating lease arrangement relates
primarily to the up-front rental payments required at the
inception of lease terms.
Allowance for Doubtful Accounts. We establish
an allowance for doubtful accounts receivable sufficient to
cover probable and reasonably estimated losses. Our methodology
for determining our allowance for doubtful accounts receivable
requires significant estimates. Since we have over one million
accounts, it is impracticable to review the collectibility of
all individual accounts when we determine the amount of our
allowance for doubtful accounts receivable each period.
Therefore, we consider a number of factors in establishing the
allowance on a
market-by-market
basis, including historical collection experience, current
economic trends, estimates of forecasted write-offs, agings of
the accounts receivable portfolio and other factors. While we
believe that the estimates we use are reasonable, actual results
could differ from those estimates.
Customer Related Direct Costs. We recognize
all costs of handset sales when title and risk of loss passes
upon delivery of the handset to the customer.
Advertising Costs. We expense costs related to
advertising and other promotional expenditures as incurred.
Advertising costs totaled $88.7 million, $63.9 million
and $46.4 million during the years ended December 31,
2007, 2006 and 2005, respectively.
Stock-Based Compensation. Through
December 31, 2005, we accounted for share-based payments
using the intrinsic value method under the recognition and
measurement provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees, or APB 25, and related interpretations, as
permitted by Statement of Financial Accounting Standards, or
SFAS, No. 123, Accounting for Stock Based
Compensation, or SFAS 123. In accordance with APB 25,
no compensation cost was required to be recognized for options
granted that had an exercise price equal to the market value of
the underlying common stock on the grant date. Effective
January 1, 2006, we adopted the fair value recognition
provisions of SFAS No. 123 (Revised 2004),
Share-Based Payment, or SFAS 123R. We used the
modified prospective transition method and therefore did not
restate our prior periods results. Share-based payment
expense for all share-based payment awards granted after
January 1, 2006 is estimated in accordance with the
provisions of SFAS 123R. We recognize these compensation
costs net of actual forfeitures for only those shares expected
to vest on a straight-line basis over the requisite service
period of the award. See Note 12 for more information.
F-12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1. Summary
of Operations and Significant Accounting
Policies (Continued)
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing the net income
by the weighted average number of common shares outstanding for
the period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings. As presented for the year ended December 31,
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 2.75%
convertible notes. Our calculation of diluted net income per
share for the year ended December 31, 2007 also includes
shares that would have been issued had our 2.875% convertible
notes been converted at the beginning of the year instead of on
the actual conversion date. We did not include the common shares
resulting from the potential conversion of our 3.125%
convertible notes since their effect would have been
antidilutive to our net income per share.
As presented for the year ended December 31, 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 2.875%
convertible notes and our 2.75% convertible notes as if they
were converted at the beginning of the year. Our calculation of
diluted net income per share for the year ended
December 31, 2006 also includes shares that would have been
issued had our 3.5% convertible notes been converted at the
beginning of the year instead of on the actual conversion date.
As presented for the year ended December 31, 2005, 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.
The following tables provide a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our consolidated statements of
operations for the years ended December 31, 2007, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
378,418
|
|
|
|
166,749
|
|
|
$
|
2.27
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
3,633
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
524
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
10,395
|
|
|
|
13,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
388,813
|
|
|
|
184,256
|
|
|
$
|
2.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1. Summary
of Operations and Significant Accounting
Policies (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
294,490
|
|
|
|
154,085
|
|
|
$
|
1.91
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
4,521
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
936
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
14,106
|
|
|
|
24,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
308,596
|
|
|
|
184,282
|
|
|
$
|
1.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
174,781
|
|
|
|
146,336
|
|
|
$
|
1.19
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
5,796
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
646
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
11,861
|
|
|
|
23,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
186,642
|
|
|
|
176,562
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 of Directors approved the
repurchase of shares having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. As of December 31, 2007, we purchased
$500.0 million in cash, plus $0.1 million in
commissions, of our common stock, which completed the stock
repurchase program that our Board of Directors initiated in May
2007. Under this program, we repurchased a total of
7,401,543 shares of our common stock, including
3,357,818 shares that we repurchased during the fourth
quarter of 2007. We treated purchases under this program as
effective retirements of the purchased shares and therefore
reduced our reported shares issued and outstanding by the number
of shares 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.
On January 7, 2008, we announced that our Board of
Directors authorized us to purchase up to an additional
$500.0 million in value of our common stock under a new
stock repurchase program.
Debt Financing Costs. We defer costs incurred
to obtain new debt financing as other non-current assets. We
amortize debt financing costs over the shorter of the term of
the underlying debt or the holders first put date, when
applicable, using the effective interest method. We reclassify
to paid-in capital the net carrying value of deferred financing
costs related to convertible notes that are converted by the
holder.
Income Taxes. We account for income taxes
using the asset and liability method, under which we recognize
deferred income taxes for the tax consequences attributable to
differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities, as well as for
tax loss carryforwards and tax credit carryforwards. We measure
deferred tax assets and liabilities using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recoverable or settled.
We recognize the effect on deferred taxes of a change in tax
rates in income in the period that includes the enactment date.
We provide a valuation allowance against deferred tax assets if,
based upon the weight of available evidence, we do not believe
it is more-likely-than-not that some or all of the
deferred tax assets will be realized. We report remeasurement
gains and losses related to deferred tax assets and liabilities
in our income tax provision.
F-14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1. Summary
of Operations and Significant Accounting
Policies (Continued)
Historically, a substantial portion of our deferred tax asset
valuation allowance related to deferred tax assets that, if
realized, would not result in a benefit to our income tax
provision. In accordance with Statement of Position, or SOP,
90-7,
Financial Reporting By Entities in Reorganization Under
the Bankruptcy Code, or
SOP 90-7,
we recognize decreases in the valuation allowance existing at
the reorganization date first as a reduction in the carrying
value of intangible assets existing at the reorganization date
and then as an increase to paid-in capital. As of
December 31, 2004, we reduced to zero the carrying value of
our intangible assets existing at the reorganization date. As of
December 31, 2007, due to satisfying the
more-likely-than-not criteria in Brazil, we substantially
reduced the amount of our deferred tax asset valuation allowance
that existed at the reorganization date by increasing paid-in
capital. We will record future decreases, if any, of the
valuation allowance existing on the reorganization date as an
increase to paid-in capital. We will record decreases, if any,
of the post- reorganization valuation allowance as a benefit to
our income tax provision. Using a
with-and-without
method, in accordance with SFAS 123R, we recognize
decreases in the valuation allowance attributable to the excess
tax benefits resulting from the exercise of employee stock
options as an increase to paid-in capital. In each market and in
the United States, we recognize decreases in the valuation
allowance first as a decrease in the remaining valuation
allowance that existed as of the reorganization date, then as a
decrease in any post-reorganization valuation allowance, and
finally as a decrease of the valuation allowance associated with
stock option deductions.
We assess the realizability of our deferred tax assets at each
reporting period. Our assessments generally consider several
factors, including the reversal of existing deferred tax asset
temporary differences, projected future taxable income, tax
planning strategies and historical and future book income
adjusted for permanent book-to-tax differences.
During the fourth quarter of 2007, we changed our historic
position regarding the repatriation of foreign earnings back to
the United States. Historically, we have not recorded any
U.S. Federal, state or foreign tax provision on the
undistributed earnings of our foreign subsidiaries other than
income that has been previously taxed in the U.S. under the
subpart F rules, as it has been our intention to indefinitely
reinvest such undistributed earnings outside of the United
States. In the fourth quarter of 2007, we provided a
$69.6 million provision for U.S. Federal, state and
foreign taxes on future remittances to the U.S. of certain
undistributed earnings (other than income that has been
previously taxed in the U.S. under the subpart F rules) of
our Argentine and Mexican subsidiaries. Other than this
$69.6 million provision, at this time, it remains our
intention to indefinitely reinvest all other undistributed
earnings of our foreign subsidiaries outside the United States.
Should additional amounts of our foreign subsidiaries
undistributed earnings be remitted to the U.S. as
dividends, we may be subject to additional U.S. income
taxes (net of allowable foreign tax credits) and foreign
withholding taxes.
Change in Accounting Principle. Effective
January 1, 2006, we adopted the fair value recognition
provisions of SFAS 123R. We used the modified prospective
transition method and therefore did not restate our prior
periods results. Under this transition method, share-based
payment expense for the year ended December 31, 2006
includes compensation expense for all share-based payment awards
granted prior to, but not fully vested as of, January 1,
2006. Share-based payment expense for all share-based payment
awards granted after January 1, 2006 is estimated in
accordance with the provisions of SFAS 123R. See
Note 12 for more information.
Reclassifications. We have reclassified some
prior period amounts 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
in 2007 did not have a material impact on our consolidated
financial statements.
F-15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1. Summary
of Operations and Significant Accounting
Policies (Continued)
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. Our adoption of FIN 48 in the first quarter of
2007 resulted in a $5.2 million decrease to our retained
earnings. See Note 11 for more information.
In September 2006, the FASB issued 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. In February 2008, the FASB issued Staff Position
No. 157-1,
Application of FASB Statement No. 157 to FASB
Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purpose of Lease
Classification or Measurement Under Statement 13, or
FSP 157-1,
in order to amend SFAS 157 to exclude FASB Statement
No. 13, Accounting for Leases, or SFAS 13,
and other accounting pronouncements that address fair value
measurements for purposes of lease classification or measurement
under SFAS 13. In addition, in February 2008, the FASB
issued Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, or
FSP 157-2,
which defers the effective date of SFAS 157 to fiscal years
beginning after November 15, 2008 for nonfinancial assets
and nonfinancial liabilities, except for those that are
recognized or disclosed at fair value in an entitys
financial statements on a recurring basis (at least annually).
We are currently evaluating the impact that SFAS 157,
FSP 157-1
and
FSP 157-2
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 required to be
included 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.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations, or
SFAS 141(R), which replaces FASB Statement No. 141.
SFAS 141(R) establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill
acquired. SFAS 141(R) also establishes disclosure
requirements to enable the evaluation of the nature and
financial effects of the business combination. SFAS 141(R)
is effective for fiscal years beginning after December 15,
2008. We are currently evaluating the potential impact, if any,
the adoption of SFAS 141(R) may have on our consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An Amendment of Accounting Research
Bulletin No. 51, or SFAS 160. SFAS 160
establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents
ownership interest and the valuation of retained noncontrolling
equity investments when a subsidiary is
F-16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
1. Summary
of Operations and Significant Accounting
Policies (Continued)
deconsolidated. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners. SFAS 160 is effective for fiscal years beginning
after December 15, 2008. We are currently evaluating the
potential impact, if any, the adoption of SFAS No. 160
may have on our consolidated financial statements.
2. Short-Term
Investment
In May 2007, we invested in an enhanced cash fund similar to,
but not in the legal form of, a money market fund that invested
primarily in asset-backed securities. We classified our
investment as a cash equivalent because it was highly liquid at
the time of the initial investment. Due to issues that arose in
the U.S. credit markets, on December 6, 2007, the fund
manager ceased all purchases and sales of interests in the fund
and began an orderly liquidation of the portfolios assets.
We concluded that because the fair value per unit of the fund is
determined, published and the basis for current transactions,
the fair value of our investment in the fund is readily
determinable. As a result, we classified this investment as
available-for-sale. We expect that substantially all of the fund
will be liquidated by December 31, 2008. In addition, we
have the right at our option to receive an in-kind distribution
of the underlying assets in the fund that we can sell or hold to
maturity. As a result, we classified our investment in the fund
as a current asset as of December 31, 2007.
As of December 31, 2007, the net asset value per unit of
interest in the fund as determined by the fund manager had
declined from $1.000 to $0.987. Due to the changing credit
market conditions, we evaluated the decline in the market value
of the fund and determined that unrealized losses related to the
fund should be recognized as other-than-temporary. We made these
assessments by reviewing the relevant factors and considering
all available evidence, including specific and individual
investment data, the length of time and the extent to which the
market value was less than cost, the financial condition and
near-term prospects of our investment fund and our intent and
ability to hold the investment. As a result, we recognized a
pre-tax $3.1 million loss related to the decline in the
fair value of our investment. In December 2007, we received
$23.9 million in distributions from our investment. In
connection with this distribution, we recognized a
$0.2 million realized loss. As of December 31, 2007,
the carrying value of our investment is $241.8 million. The
fund is comprised of the following types of securities:
|
|
|
|
|
Corporate bond or financial institution debt securities
|
|
|
29
|
%
|
Mortgage backed debt securities non-subprime
|
|
|
24
|
%
|
Auto loan backed debt securities
|
|
|
14
|
%
|
Mortgage backed debt securities partial subprime
|
|
|
9
|
%
|
Credit card backed debt securities
|
|
|
9
|
%
|
Cash and other assets
|
|
|
15
|
%
|
In January and February 2008, we received $59.6 million and
$21.8 million, respectively, in distributions from the
fund. The net asset value of units of interest in the fund that
were redeemed as a result of these distributions, and the net
asset value of the remaining units of interest in the fund,
approximated the net asset value per unit of interest in the
fund as of December 31, 2007.
In accordance with our accounting policy, we will continue to
assess any future declines in fair value to determine whether
additional losses should be realized.
3. Significant
Transactions
Nextel
Mexico Transactions
Spectrum License Renewals. As of
December 31, 2007, Nextel Mexico filed applications to
renew about 30 of its licenses, 16 of which have expired.
Although Nextel Mexico expects that these renewals will be
granted, it cannot guarantee the renewal of these licenses. If
some or all of these renewals are not granted, Nextel Mexico
could experience an adverse effect on its business.
Cosmofrecuencias Acquisition. In September
2006, Nextel Mexico purchased all of the equity interests of
Cosmofrecuencias S.A. de C.V., or Cosmofrecuencias, and
Operadora de Communicaciones S.A. de C.V., or
F-17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
3. Significant
Transactions (Continued)
Operadora, for a purchase price of $200.0 million in cash.
Cosmofrecuencias is the holding company of Operadora, which
operated a public telecommunications network using concession
rights granted by the Mexican government. In October 2006,
Nextel Mexico received the necessary regulatory approvals and
released the $200.0 million to complete this acquisition.
The acquisition of these concessions gives Nextel Mexico a 50MHz
nationwide footprint of 3.4GHz spectrum and a local fixed/mobile
wireless telephone concession, which we expect will result in
interconnect and operating cost savings, as well as additional
revenue generating opportunities in the future. We accounted for
this acquisition as a purchase of assets. We allocated the
purchase price to the licenses acquired ($278.1 million)
and a deferred tax liability ($77.8 million), which
represents the tax effect of the difference between the book
basis and tax basis of the acquired licenses. We classified the
licenses acquired as finite lived assets, and we are amortizing
them over the remaining statutory term, which was 11 years
and 9 months as of December 31, 2007.
AOL Mexico Acquisition. In April 2005, Nextel
Mexico purchased AOL Mexico, S. de R.L. de C.V. for
approximately $14.1 million in cash. As a result of this
transaction, Nextel Mexico obtained AOL Mexicos call
center assets, certain accounts receivable and access to AOL
Mexicos customer list, as well as tax loss carryforwards,
which we concluded were more likely than not to be realized. We
accounted for this transaction as a purchase of assets. This
acquisition is a related party transaction as one of our board
members was, at the time of the acquisition, also the president
and chief executive officer of AOL Latin America. Due to this
board members involvement with our company, he recused
himself from our decision to make this acquisition. We allocated
the purchase price to deferred tax assets ($48.4 million)
and a deferred credit ($34.3 million), which represents the
excess of the estimated fair value of the acquired tax
attributes over the allocated purchase price. We decrease the
deferred credit as a reduction of income tax expense in
proportion to the utilization of the acquired tax loss
carryforwards. As of December 31, 2006, the remaining
balance of the deferred tax asset related to the tax loss
carryforward was $32.6 million. During 2007, Nextel Mexico
utilized the remaining tax loss carryforward and reduced the
remaining deferred credit to zero.
Spectrum Auctions. On January 10, 2005,
the Mexican government began an auction for wireless spectrum
licenses in the
806-821 MHz
to
851-866 MHz
frequency band. Inversiones Nextel de Mexico, a subsidiary of
Nextel Mexico, participated in this auction. The spectrum
auction was divided into three separate auctions: Auction 15 for
Northern Mexico Zone 1, Auction 16 for Northern Mexico Zone 2
and Auction 17 for Central and Southern Mexico. The auctions
were completed between February 7 and February 11. Nextel
Mexico won an average of 15 MHz of nationwide spectrum,
except for Mexico City, where no spectrum was auctioned off and
where Nextel Mexico has licenses covering approximately
21 MHz. The corresponding licenses and immediate use of the
spectrum were granted to Inversiones Nextel de Mexico on
March 17, 2005. These licenses have an initial term of
20 years, which we have estimated to be the amortization
period of the licenses, and are renewable thereafter for
20 years. Nextel Mexico paid an up-front fee of
$3.4 million for these licenses, excluding certain annual
fees, and $0.5 million in other capitalizable costs. The
spectrum licenses that Nextel Mexico acquired have allowed it to
significantly expand its digital mobile network, thereby
allowing it to cover a substantial portion of the Mexican
national geography and population.
Nextel
Brazil Transactions
Spectrum License Renewals. 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 on a straight line basis over the remaining
license periods.
Spectrum License Acquisitions. During the
second quarter of 2005, Nextel Brazil acquired spectrum licenses
from the Brazilian government for $8.3 million, of which it
paid $0.7 million. The remaining $7.6 million, which
we classified as debt, plus interest is due in six annual
installments beginning in 2008. We are amortizing these licenses
over their initial term of 15 years.
F-18
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
3. Significant
Transactions (Continued)
Nextel
Argentina Transactions
Movilink Acquisition. In November 2007, Nextel
Argentina entered into an agreement with Telefonica Moviles
S.A., under which Nextel Argentina will acquire the 800 MHz
SMR spectrum licenses and related network assets used by
Telefonica Moviles S.A. to operate an iDEN-based network in
Argentina under the Movistar Trunking brand, which was formerly
known as Movilink, for a total purchase price of
$32.0 million in cash. This transaction, which is subject
to the receipt of necessary regulatory approvals, would result
in Nextel Argentina acquiring approximately 5 MHz of SMR
spectrum in Buenos Aires, Rosario, Mendoza and Cordoba, as well
as the related iDEN equipment and the prepayment of lease
expenses relating to the use of co-located sites for five years.
Velocom Acquisition. In July 2006, Nextel
Argentina signed an agreement, pending regulatory approval, to
purchase all of the stock of Velocom Argentina, S.A., a wireless
internet access and data transmission company, for
$6.0 million in cash and the assumption of certain
liabilities, of which $0.6 million has been paid. As a
result of this transaction, Nextel Argentina will acquire
50 MHz of 3.4 GHz spectrum nationwide.
Nextel
Peru Transactions
Spectrum Acquisitions. In July 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. The license has a term
of 20 years, which we determined is the useful life of the
license for accounting purposes. We determined that this license
is a finite-lived asset. In addition, under a separate
investment stability agreement reached with the Peruvian
government, we are required to make cash contributions to Nextel
Perus share capital in the amount of $150.0 million
over the next five years, of which $38.5 million has
already been contributed. Under the terms of the spectrum
license, Nextel Peru is required to expand the coverage of its
network by adding 100 additional districts within five years
from the date the spectrum license was awarded.
Millicom Acquisition. In October 2006, Nextel
Peru purchased all of the equity interests of Millicom Peru,
S.A., or Millicom, for a purchase price of $5.0 million.
Millicom provided limited high-speed data transmission and
internet access services mainly in Lima, Peru. We accounted for
this acquisition as a business combination. We allocated the
purchase price as follows: $4.8 million to licenses,
$0.5 million to a deferred tax asset, which represents the
tax effect of the difference between the book basis and tax
basis of the acquired licenses, and $0.8 million to current
assets. In addition, Nextel Peru assumed $1.1 million in
current liabilities. Nextel Peru did not acquire any other
intangible assets in connection with this transaction. The
licenses acquired by Nextel Peru in this transaction will give
it a 50MHz footprint of 3.5GHz spectrum in several markets in
Peru. We classify the licenses acquired as finite lived assets,
and we are amortizing them over the remaining statutory term of
13 years and 3 months.
4. Property,
Plant and Equipment
The components of our property, plant and equipment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Land
|
|
$
|
4,949
|
|
|
$
|
3,767
|
|
Leasehold improvements
|
|
|
74,333
|
|
|
|
46,967
|
|
Digital mobile network equipment and network software
|
|
|
2,119,751
|
|
|
|
1,494,638
|
|
Office equipment, furniture and fixtures and other
|
|
|
279,013
|
|
|
|
200,762
|
|
Corporate aircraft capital lease
|
|
|
31,450
|
|
|
|
31,450
|
|
Less: Accumulated depreciation and amortization
|
|
|
(777,051
|
)
|
|
|
(474,520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,732,445
|
|
|
|
1,303,064
|
|
Construction in progress
|
|
|
120,637
|
|
|
|
86,086
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,853,082
|
|
|
$
|
1,389,150
|
|
|
|
|
|
|
|
|
|
|
F-19
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
5. Intangible
Assets
Our intangible assets consist of our licenses, customer base and
trade name, all of which have finite useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
446,222
|
|
|
$
|
(35,775
|
)
|
|
$
|
410,447
|
|
|
$
|
389,526
|
|
|
$
|
(20,330
|
)
|
|
$
|
369,196
|
|
Customer base
|
|
|
42,617
|
|
|
|
(42,617
|
)
|
|
|
|
|
|
|
42,401
|
|
|
|
(42,401
|
)
|
|
|
|
|
Trade name and other
|
|
|
1,796
|
|
|
|
(1,796
|
)
|
|
|
|
|
|
|
1,664
|
|
|
|
(1,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
490,635
|
|
|
$
|
(80,188
|
)
|
|
$
|
410,447
|
|
|
$
|
433,591
|
|
|
$
|
(64,395
|
)
|
|
$
|
369,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in the gross carrying value of our licenses
presented above is primarily a result of the 800 MHz
spectrum license renewals in Brazil and the acquisition of
1.9 GHz spectrum licenses in Peru during 2007. See
Note 3 for more information related to license transactions.
Based solely on the carrying amount of amortizable intangible
assets existing as of December 31, 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
|
|
|
2008
|
|
$
|
30,653
|
|
2009
|
|
|
31,675
|
|
2010
|
|
|
31,675
|
|
2011
|
|
|
31,675
|
|
2012
|
|
|
31,675
|
|
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 years ended
December 31, 2007 and 2006, we did not acquire, dispose of
or write down any goodwill or intangible assets with indefinite
useful lives.
F-20
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
6. Balance
Sheet Details
Prepaid
Expenses and Other.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Short-term value added tax receivables
|
|
$
|
25,484
|
|
|
$
|
14,813
|
|
Local taxes
|
|
|
18,892
|
|
|
|
4,630
|
|
Commissions
|
|
|
14,948
|
|
|
|
16,164
|
|
Insurance
|
|
|
9,677
|
|
|
|
5,767
|
|
Short-term advances to suppliers
|
|
|
7,861
|
|
|
|
4,793
|
|
General prepaid expenses
|
|
|
6,443
|
|
|
|
4,337
|
|
Rent
|
|
|
5,947
|
|
|
|
4,172
|
|
Insurance claims
|
|
|
3,977
|
|
|
|
3,193
|
|
Maintenance
|
|
|
3,511
|
|
|
|
3,112
|
|
Interest receivable
|
|
|
2,320
|
|
|
|
527
|
|
Spectrum fees
|
|
|
1,484
|
|
|
|
3,773
|
|
Other assets
|
|
|
10,192
|
|
|
|
6,095
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
110,736
|
|
|
$
|
71,376
|
|
|
|
|
|
|
|
|
|
|
Other
Assets.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Long-term value added tax receivables
|
|
$
|
101,225
|
|
|
$
|
66,931
|
|
Deposits and restricted cash
|
|
|
53,661
|
|
|
|
20,983
|
|
Deferred financing costs
|
|
|
34,242
|
|
|
|
17,304
|
|
Long-term advances to suppliers
|
|
|
25,362
|
|
|
|
14,516
|
|
Income tax receivable
|
|
|
16,018
|
|
|
|
15,996
|
|
Handsets under operating leases
|
|
|
8,199
|
|
|
|
5,970
|
|
Other
|
|
|
3,255
|
|
|
|
1,631
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
241,962
|
|
|
$
|
143,331
|
|
|
|
|
|
|
|
|
|
|
The long-term value added tax receivables balances presented
above are primarily comprised of value added taxes paid by
Nextel Brazil on capital expenditures and handset purchases.
Under Brazilian regulations, Nextel Brazil will recover these
amounts over a four-year period.
As of December 31, 2007, the deposits balance includes
$11.5 million paid into an escrow account by Nextel Peru
under an agreement that provides for the purchase of 54 MHz
of 2.5 GHz spectrum throughout greater Lima. The completion
of this purchase is conditioned upon receipt of necessary
regulatory approvals.
As of December 31, 2007, the deferred financing costs
balance includes $20.2 million related to the issuance of
our 3.125% convertible notes in the second quarter of 2007. See
Note 7 for more information.
As of December 31, 2007 and 2006, the long-term advances to
suppliers balances include $19.7 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.
F-21
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
6. Balance
Sheet Details (Continued)
Accrued
Expenses and Other.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
$
|
87,486
|
|
|
$
|
81,839
|
|
Payroll related items and commissions
|
|
|
71,626
|
|
|
|
55,654
|
|
Network system and information technology
|
|
|
59,783
|
|
|
|
46,741
|
|
Non-income based taxes
|
|
|
48,444
|
|
|
|
30,430
|
|
Customer deposits
|
|
|
40,188
|
|
|
|
31,044
|
|
Income taxes
|
|
|
27,704
|
|
|
|
16,774
|
|
Accrued contingencies
|
|
|
25,110
|
|
|
|
24,369
|
|
License fees
|
|
|
16,398
|
|
|
|
10,765
|
|
Professional fees
|
|
|
6,999
|
|
|
|
4,288
|
|
Marketing
|
|
|
6,794
|
|
|
|
5,551
|
|
Insurance
|
|
|
4,144
|
|
|
|
3,163
|
|
Deferred tax liability
|
|
|
40
|
|
|
|
7,756
|
|
Other
|
|
|
41,987
|
|
|
|
24,091
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
436,703
|
|
|
$
|
342,465
|
|
|
|
|
|
|
|
|
|
|
Deferred
Credits.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Deferred income tax liability
|
|
$
|
158,621
|
|
|
$
|
88,886
|
|
Deferred credit from AOL Mexico acquisition
|
|
|
|
|
|
|
21,147
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
158,621
|
|
|
$
|
110,033
|
|
|
|
|
|
|
|
|
|
|
Other
Long-Term Liabilities.
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Accrued contingencies
|
|
$
|
47,197
|
|
|
$
|
61,516
|
|
Asset retirement obligations
|
|
|
41,186
|
|
|
|
29,297
|
|
Corporate jet liability
|
|
|
14,930
|
|
|
|
1,000
|
|
Severance plan liability
|
|
|
6,636
|
|
|
|
6,468
|
|
Other
|
|
|
16,562
|
|
|
|
5,185
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
126,511
|
|
|
$
|
103,466
|
|
|
|
|
|
|
|
|
|
|
F-22
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
7. Debt
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
3.125% convertible notes due 2012
|
|
$
|
1,200,000
|
|
|
$
|
|
|
2.75% convertible notes due 2025
|
|
|
349,996
|
|
|
|
350,000
|
|
2.875% convertible notes due 2034
|
|
|
45
|
|
|
|
300,000
|
|
Brazil syndicated loan facility
|
|
|
175,000
|
|
|
|
|
|
Mexico syndicated loan facility
|
|
|
279,355
|
|
|
|
297,577
|
|
Tower financing obligations
|
|
|
177,199
|
|
|
|
137,625
|
|
Capital lease obligations
|
|
|
75,436
|
|
|
|
62,669
|
|
Brazil spectrum license financing
|
|
|
9,446
|
|
|
|
7,825
|
|
Other
|
|
|
40
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,266,517
|
|
|
|
1,155,736
|
|
Less: current portion
|
|
|
(70,448
|
)
|
|
|
(23,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,196,069
|
|
|
$
|
1,132,442
|
|
|
|
|
|
|
|
|
|
|
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
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. Our 3.125% notes are senior
unsecured obligations and rank equal in right of payment with
all of our other existing and future senior unsecured debt.
Historically, some of our long-term debt has been secured and
may be secured in the future.
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, or 10,142,040 aggregate common
shares, representing a conversion price of $118.32 per share.
The 3.125% notes are convertible, subject to adjustment,
prior to the close of business on the final maturity date under
any of the following circumstances:
|
|
|
|
|
during any fiscal quarter commencing after September 30,
2007, if the closing sale price of our common stock exceeds 120%
of the conversion price of $118.32 for at least 20 trading days
in the 30 consecutive trading days ending on the last trading
day of the preceding fiscal quarter;
|
|
|
|
prior to May 15, 2012, during the five business day period
after any five consecutive trading day period in which the
trading price per note for each day of such period was less than
98% of the product of the closing sale price of our common stock
and the number of shares issuable upon conversion of $1,000
principal amount of notes, or 10,142,040 aggregate common shares;
|
|
|
|
at any time on or after May 15, 2012; or
|
|
|
|
upon the occurrence of specified corporate events.
|
For the fiscal quarter ended December 31, 2007, the closing
sale price of our common stock did not exceed 120% of the
conversion price of $118.32 per share for at least 20 trading
days in the 30 consecutive trading days ending on
December 31, 2007. As a result, the conversion contingency
was not met as of December 31, 2007. We
F-23
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
7. Debt (Continued)
have the option to satisfy the conversion of the
3.125% notes in shares of our common stock, in cash or a
combination of both.
The conversion feature related to the trading price per note
meets the criteria of an embedded derivative under
SFAS No. 133. As a result, we are required to separate
the value of the conversion feature from the notes and record a
liability on our consolidated balance sheet. As of
December 31, 2007, the conversion feature had a nominal
value, and therefore it did not have a material impact on our
financial position or results of operations. We will continue to
evaluate the materiality of the value of this conversion feature
on a quarterly basis and record the resulting adjustment, if
any, in our consolidated balance sheet and statement of
operations.
The conversion rate of the 3.125% notes is subject to
adjustment if any of the following events occur:
|
|
|
|
|
we issue common stock as a dividend or distribution on our
common stock;
|
|
|
|
we issue to all holders of common stock certain rights or
warrants to purchase our common stock;
|
|
|
|
we subdivide or combine our common stock;
|
|
|
|
we distribute to all holders of our common stock shares of our
capital stock, evidences of indebtedness or assets, including
cash or securities but excluding the rights, warrants, dividends
or distributions specified above;
|
|
|
|
we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the
extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
current market price per share of common stock on the trading
day next succeeding the last date on which tenders or exchanges
may be made pursuant to this tender or exchange offer; or
|
|
|
|
someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of
the closing date of the offer, our board of directors is not
recommending the rejection of the offer, subject to certain
conditions.
|
Neither we, nor any of our subsidiaries, are subject to any
financial covenants under our 3.125% notes. In addition,
the indenture governing our 3.125% notes does not restrict
us or any of our subsidiaries from paying dividends, incurring
debt, or issuing or repurchasing our securities.
In accordance with the registration rights agreement that we
entered into in connection with the issuance of the
3.125% notes, during the third quarter of 2007, we prepared
and filed an automatic shelf registration statement with the SEC
registering the resale of the 3.125% notes and the shares
of our common stock into which the 3.125% notes are
convertible. The registration rights agreement requires us to
use our reasonable best efforts 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.
|
As presented for the year ended December 31, 2007, our
calculation of diluted net income per share does not include the
common shares resulting from the potential conversion of our
3.125% convertible notes since their effect would have been
antidilutive to our net income per share.
2.75% Convertible Notes. In the
third quarter of 2005, we privately placed $350.0 million
aggregate principal amount of 2.75% convertible notes due 2025,
which we refer to as our 2.75% notes. We also incurred
direct issuance costs of $9.0 million, which we recorded as
deferred financing costs on our consolidated balance sheet and
F-24
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
7. Debt (Continued)
are amortizing over five years. Our 2.75% notes are senior
unsecured obligations and rank equal in right of payment with
all of our other existing and future senior unsecured debt.
Historically, some of our long-term debt has been secured and
may be secured in the future. In addition, since we conduct all
of our operations through our subsidiaries, our 2.75% notes
effectively rank junior in right of payment to all liabilities
of our subsidiaries. The 2.75% notes bear interest at a
rate of 2.75% per year on the principal amount of the notes,
payable semi-annually in arrears in cash on February 15 and
August 15 of each year, and will mature on August 15, 2025,
when the entire principal balance of $350.0 million will be
due. The 2.75% notes were publicly registered, effective
February 10, 2006.
The noteholders have the right to require us to repurchase the
2.75% notes on August 15 of 2010, 2012, 2015 and 2020 at a
repurchase price equal to 100% of their principal amount, plus
any accrued and unpaid interest up to, but excluding, the
repurchase date. In addition, if a fundamental change or
termination of trading, as defined, occurs prior to maturity,
the noteholders have a right to require us to repurchase all or
part of the notes at a repurchase price equal to 100% of the
principal amount, plus accrued and unpaid interest.
The 2.75% notes are convertible, at the option of the
holder, into shares of our common stock at an adjusted
conversion rate of 19.967 shares per $1,000 principal
amount of notes, or 6,988,370 aggregate common shares,
representing a conversion price of about $50.08 per share. The
2.75% notes are convertible, subject to adjustment, prior
to the close of business on the final maturity date under any of
the following circumstances:
|
|
|
|
|
during any fiscal quarter commencing after September 30,
2005 if the closing sale price of our common stock exceeds 120%
of the conversion price of $50.08 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 July 15, 2010, during the five business day period
after any five consecutive trading day period in which the
trading price per note for each day of such period was less than
98% of the product of the closing sale price of our common stock
and the number of shares issuable upon conversion of $1,000
principal amount of notes, or 6,988,370 aggregate common shares;
|
|
|
|
at any time on or after July 15, 2010; or
|
|
|
|
upon the occurrence of specified corporate events, including a
fundamental change, as defined in the 2.75% note agreement,
the issuance of certain rights or warrants or the distribution
of certain assets or debt securities.
|
For the fiscal quarter ended December 31, 2007, the closing
sale price of our common stock did not exceed 120% of the
conversion price of $50.08 per share for at least 20 trading
days in the 30 consecutive trading days ending on
December 31, 2007. As a result, the conversion contingency
was not met as of December 31, 2007.
The conversion feature related to the trading price per note
meets the criteria of an embedded derivative under
SFAS No. 133. As a result, we are required to separate
the value of the conversion feature from the notes and record a
liability on our consolidated balance sheet. As of
December 31, 2007 and 2006, the conversion feature had a
nominal value, and therefore it did not have a material impact
on our financial position or results of operations. We will
continue to evaluate the materiality of the value of this
conversion feature on a quarterly basis and record the resulting
adjustment, if any, in our consolidated balance sheet and
statement of operations.
The conversion rate of the 2.75% notes is subject to
adjustment if any of the following events occur:
|
|
|
|
|
we issue common stock as a dividend or distribution on our
common stock;
|
|
|
|
we issue to all holders of common stock certain rights or
warrants to purchase our common stock;
|
|
|
|
we subdivide or combine our common stock;
|
|
|
|
we distribute to all holders of our common stock shares of our
capital stock, evidences of indebtedness or assets, including
cash or securities but excluding the rights, warrants, dividends
or distributions specified above;
|
|
|
|
we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the
extent that the cash and value of any other consideration
included in the payment per share of
|
F-25
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
7. Debt (Continued)
|
|
|
|
|
common stock exceeds the current market price per share of
common stock on the trading day next succeeding the last date on
which tenders or exchanges may be made pursuant to this tender
or exchange offer; or
|
|
|
|
|
|
someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of
the closing date of the offer, our board of directors is not
recommending the rejection of the offer, subject to certain
conditions.
|
Prior to August 20, 2010, the notes will not be redeemable.
On or after August 20, 2010, we may redeem for cash some or
all of the notes, at any time and from time to time, upon at
least 30 days notice for a price equal to 100% of the
principal amount of the notes to be redeemed, plus any accrued
and unpaid interest up to but excluding the redemption date.
Neither we, nor any of our subsidiaries, are subject to any
financial covenants under our 2.75% notes. In addition, the
indenture governing our 2.75% notes does not restrict us or
any of our subsidiaries from paying dividends, incurring debt,
or issuing or repurchasing our securities.
As presented for the years ended December 31, 2007, 2006
and 2005, our calculation of diluted net income per share
includes the common shares resulting from the potential
conversion of our 2.75% convertible notes.
2.875% Convertible Notes. As of
December 31, 2006, we had outstanding $300.0 million
aggregate principal amount of 2.875% convertible notes due 2034,
which we refer to as our 2.875% notes. Our
2.875% notes were senior unsecured obligations and ranked
equal in right of payment with all of our other existing and
future senior unsecured debt. In addition, since we conduct all
of our operations through our subsidiaries, our
2.875% notes effectively ranked junior in right of payment
to all liabilities of our subsidiaries. The 2.875% notes
bore interest at a rate of 2.875% per year on the principal
amount of the notes, payable semi-annually in arrears and in
cash on February 1 and August 1 of each year. The
2.875% notes were expected to mature on February 1,
2034, when the entire principal balance of $300.0 million
was due. The 2.875% notes were publicly registered,
effective July 22, 2004.
In July 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, $1.0 million in direct external costs
and accrued and unpaid interest of $4.2 million. We
recorded the $25.5 million cash premium and the
$1.0 million in direct external costs as debt conversion
expense in our consolidated statement of operations. We also
reclassified to paid-in capital the remaining $4.3 million
of deferred financing costs related to the notes that were
tendered.
As presented for the year ended December 31, 2007, our
calculation of diluted net income per share includes shares that
would have been issued had our 2.875% convertible notes been
converted at the beginning of the year instead of on the actual
conversion date. As presented for the years ended
December 31, 2006 and 2005, our calculation of diluted net
income per share includes the common shares resulting from the
potential conversion of our 2.875% convertible notes.
Brazil Syndicated Loan Facility. In
September 2007, Nextel Brazil entered into a $300.0 million
syndicated loan facility. Of the total amount of the facility,
$45.0 million is denominated in U.S. dollars with a
floating interest rate based on LIBOR plus a specified margin
ranging from 2.00% to 2.50% (Tranche A 7.35% as
of December 31, 2007). The remaining $255.0 million is
denominated in U.S. dollars with a floating interest rate
based on LIBOR plus a specified margin ranging from 1.75% to
2.25% (Tranche B 7.10% as of December 31,
2007). Tranche A matures on September 14, 2014, and
Tranche B matures on September 14, 2012. Nextel
Brazils obligations under the syndicated loan facility
agreement are guaranteed by all of its material operating
subsidiaries and are secured by a pledge of the outstanding
equity interests in Nextel Brazil and those subsidiaries. In
addition, Nextel Brazil is subject to various legal and
financial covenants under the syndicated loan facility that,
among other things, require Nextel Brazil to maintain certain
financial ratios and may limit the amount of funds that could be
repatriated in certain periods. Nextel Brazil may utilize
borrowings under this syndicated loan facility for capital
expenditures, general corporate purposes and the repayment of
specified short-term intercompany debt. In connection
F-26
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
7. Debt (Continued)
with this agreement, Nextel Brazil deferred $5.0 million of
financing costs, which Nextel Brazil will amortize as additional
interest expense over the term of the syndicated loan.
During the fourth quarter of 2007, Nextel Brazil borrowed
$26.2 million in term loans under Tranche A and
$148.8 million in term loans under Tranche B of this
syndicated loan facility. In addition, at the time of the
initial drawdown, Nextel Brazil established a debt service
reserve account in the amount of $12.7 million in
accordance with the terms of this loan. In January 2008, Nextel
Brazil borrowed an additional $3.0 million in term loans
under Tranche A and $17.0 million in term loans under
Tranche B of this syndicated loan facility. The remaining
$105.0 million in term loans are available under this
facility until March 11, 2008, subject to the satisfaction
of customary borrowing conditions.
Mexico Syndicated Loan Facility. In
October 2004, we closed on a $250.0 million, five year
syndicated loan facility in Mexico. Of the total amount of the
facility, $129.0 million was denominated in
U.S. dollars with a floating interest rate based on LIBOR,
$31.0 million was denominated in Mexican pesos with a
floating interest rate based on the Mexican reference interest
rate TIIE, and $90.0 million was denominated in Mexican
pesos, at an interest rate fixed at the time of funding. In May
2005, we drew down on the loan facility for the entire
$250.0 million. As part of this agreement, Nextel Mexico is
subject to various legal and financial covenants that, among
other things, require Nextel Mexico to maintain certain
financial ratios and may limit the amount of funds that could be
repatriated in certain periods. In July 2005, Nextel Mexico
entered into an interest rate swap agreement to hedge the
$31.4 million portion of the syndicated loan facility. This
interest rate swap fixed the amount of interest expense
associated with this portion of the syndicated loan facility
commencing on August 31, 2005 and continuing over the life
of the facility based on a fixed rate of about 11.95% per year.
In June 2006, Nextel Mexico entered into an agreement to
refinance its syndicated loan. The loan principal was increased
from the original $250.0 million to $296.6 million
after the refinancing. Under the agreement, the loan was
refinanced using the same variable (i.e., LIBOR and TIIE) and
fixed rates as the original agreement but with lower spreads for
each tranche. Of the total amount of the refinanced loan,
$156.6 million is denominated in U.S. dollars, with a
floating interest rate based on LIBOR
(Tranche A 6.31% and 6.69% as of
December 31, 2007 and 2006, respectively),
$57.0 million is denominated in Mexican pesos, with a
floating interest rate based on the Mexican reference rate TIIE
(Tranche C 8.67% and 8.51% as of
December 31, 2007 and 2006, respectively), and
$83.0 million is denominated in Mexican pesos, at an
interest rate fixed at the time of funding
(Tranche B 11.36% as of December 31, 2007
and 2006). For Tranche B and Tranche C, the principal
and interest payments will take place on the same dates as
previously scheduled under the original agreement. Under the
original agreement, principal for Tranche A was also due on
the same dates as the principal under Tranches B and C. However,
after the refinancing, principal for Tranche A will now be
due in a lump sum of $156.6 million in June 2011.
Tower Financing Obligations. During the
years ended December 31, 2007 and 2006, Nextel Mexico and
Nextel Brazil sold communications towers as follows (proceeds in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Towers
|
|
|
|
|
|
Towers
|
|
|
|
|
|
|
Sold
|
|
|
Proceeds
|
|
|
Sold
|
|
|
Proceeds
|
|
|
Nextel Mexico
|
|
|
220
|
|
|
$
|
27,606
|
|
|
|
25
|
|
|
$
|
3,090
|
|
Nextel Brazil
|
|
|
34
|
|
|
|
3,546
|
|
|
|
58
|
|
|
|
5,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
254
|
|
|
$
|
31,152
|
|
|
|
83
|
|
|
$
|
8,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We account for these tower sales as financing arrangements. As a
result, we did not recognize any gains from the sales, and we
maintain the tower assets on our consolidated balance sheet and
continue to depreciate them. We recognize the proceeds received
as financing obligations that will be repaid through monthly
payments. To the extent that American Tower leases space on
these communication towers to third party companies, our base
rent and ground rent related to the towers leased are reduced.
We recognize ground rent payments as operating expenses in cost
of service and tower base rent payments as interest expense and
a reduction in the financing obligation using the effective
interest method. In addition, we recognize co-location rent
payments made by the third party lessees to American Tower as
other operating revenues because we are maintaining the tower
assets on our consolidated
F-27
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
7. Debt (Continued)
balance sheet. Both the proceeds received and rent payments due
are denominated in Mexican pesos for the Mexican transactions
and in Brazilian reais for the Brazilian transactions. Rent
payments are subject to local inflation adjustments. During the
years ended December 31, 2007, 2006 and 2005, we recognized
$29.8 million, $18.6 million and $15.2 million,
respectively, in other operating revenues related to these
co-location lease arrangements, a significant portion of which
we recognized as interest expense.
On March 22, 2005, we amended the sale-leaseback agreement
with respect to the construction
and/or the
acquisition by American Tower of any new towers to be
constructed or purchased by our Mexican and our Brazilian
operating companies. The most significant of these amendments
provides for the elimination of existing minimum purchase and
construction commitments, the establishment of new purchase
commitments for the following four years, subject to certain
co-location conditions, the extension for an additional four
years, subject to certain conditions and limitations, of the
right of American Tower to market for co-location existing and
new towers and the reduction of the monthly rent payments, as
well as the purchase price, of any existing towers not
previously purchased or identified for purchase and of any new
sites built.
Capital
Lease Obligations
Corporate Aircraft Leases. In April 2004, we
entered into an agreement to lease a corporate aircraft for
eight years for the purpose of enabling company employees to
visit and conduct business at our various operating companies in
Latin America. We account for this agreement as a capital lease
and recorded a capital lease asset and capital lease liability
for the present value of the future minimum lease payments. As
of December 31, 2007 and 2006, the capital lease liability
for our 2004 corporate aircraft was $26.9 million and
$28.2 million, respectively.
In November 2005, we entered into an agreement to lease a new
corporate aircraft beginning in 2009 for ten years. We refer to
this aircraft lease as the 2005 aircraft lease. This new
aircraft, which is scheduled to be delivered in May 2009, will
replace the existing corporate aircraft that we are currently
leasing. We determined that in accordance with
EITF 97-10,
The Effect of Lessee Involvement in Asset
Construction, we are the owner of this new corporate
aircraft during its construction because we have substantially
all of the construction period risks. As a result, we record an
asset for
construction-in-progress
and a corresponding long-term liability for the new aircraft as
construction occurs, which was $14.9 million as of
December 31, 2007. When construction of the new corporate
aircraft is complete and the lease term begins, we will record
the 2005 aircraft lease as a sale and a leaseback. We will also
evaluate the classification of the lease as either a capital
lease or an operating lease at that time.
Upon taking delivery of the new aircraft in May 2009, we are
required to immediately exercise our early purchase option on
the existing aircraft and pay all amounts due under the 2004
aircraft lease. If we fail to take delivery of the new aircraft
and acquire the existing aircraft, we will be subject to certain
penalties under the 2004 aircraft lease and the 2005 aircraft
lease. If we take delivery of the new aircraft and acquire the
existing aircraft, we intend to immediately sell the existing
aircraft.
In addition, we signed a demand promissory note to guarantee the
total advance payments for the construction of the new aircraft
to be financed by the lessor under the 2005 aircraft lease. The
first scheduled advance payment occurred in November 2005. The
lessor committed to make advance payments of up to
$25.2 million during the construction of the new aircraft.
During the year ended December 31, 2007, the lessor made
advance payments of $5.6 million. We also provided a
$1.0 million letter of credit to the lessor as security for
the first advance payment, which we paid in the fourth quarter
of 2005. To secure our obligations under the letter of credit
agreement, we initially deposited approximately
$1.0 million in a restricted cash account with the bank
issuing the letter of credit. Under the 2005 aircraft lease, we
are obligated to increase the amount of the letter of credit up
to a maximum of $10.0 million as the lessor makes advance
payments. As a result, during 2007, we deposited additional
amounts in this restricted cash account to continue to secure
the letter of credit. As of December 31, 2007, the balance
in this restricted cash account was $6.6 million. We
classified this restricted cash account as a long-term asset in
our consolidated balance sheets as of December 31, 2007 and
2006, respectively. Under the terms of this promissory note, we
are required to maintain unencumbered cash, cash equivalents,
marketable securities and highly liquid investments of no less
than $60.0 million at all times.
Interest accrues on the portion of the outstanding principal
amount of the promissory note that is equal to or less than
$10.0 million, at a variable rate of interest, adjusted
monthly, equal to the monthly LIBOR rate plus 0.5%
F-28
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
7. Debt (Continued)
per year and the portion of the outstanding principal amount of
the note in excess of $10.0 million, at a variable rate of
interest, adjusted monthly, equal to the monthly LIBOR rate plus
1.75% per year. As of December 31, 2006, we recorded an
asset and a liability of $1.0 million for the amount
outstanding under this promissory note.
Other Capital Lease Obligations. Under the
master lease agreement with American Tower, in certain
circumstances, Nextel Mexico and Nextel Brazil are permitted to
co-locate communications equipment on sites owned by American
Tower. Nextel Mexico and Nextel Brazil account for the majority
of these co-location agreements as capital leases.
Brazil Spectrum License
Financing. During the second quarter of 2005,
Nextel Brazil acquired spectrum licenses from the Brazilian
government for $8.3 million, of which it paid
$0.7 million. The remaining $7.6 million is due in six
annual installments beginning in 2008, and we are amortizing
these licenses over 15 years. Due to changes in foreign
currency exchange rates, the balance of the spectrum license
financing as of December 31, 2007 and 2006 was
$9.4 million and $7.8 million, respectively.
Debt Maturities. For the years
subsequent to December 31, 2007, scheduled annual
maturities of all long-term debt outstanding as of
December 31, 2007 are as follows (in thousands):
|
|
|
|
|
|
|
Principal
|
|
Year
|
|
Repayments
|
|
|
2008
|
|
$
|
70,448
|
|
2009
|
|
|
95,474
|
|
2010
|
|
|
59,215
|
|
2011
|
|
|
217,676
|
|
2012
|
|
|
1,281,078
|
|
Thereafter
|
|
|
542,626
|
|
|
|
|
|
|
Total
|
|
$
|
2,266,517
|
|
|
|
|
|
|
8. Fair
Value of Financial Instruments
We have estimated the fair value of our financial instruments
using available market information and appropriate valuation
methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented below are not necessarily
indicative of the amounts that we could realize in a current
market exchange. The use of different market assumptions and
estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash and Cash Equivalents. We believe the
carrying amounts of these items are reasonable estimates of
their fair values based on the short-term nature of the items.
Short-Term Investment. The estimated fair
values of our short-term investment is based on published net
asset values. As of December 31, 2007, the market value of
our short-term investment had declined from $1.000 per unit of
interest in the investment fund to $0.987 per unit of interest
in the investment fund. See Note 2 for more information.
Debt. The estimated fair values of our
convertible notes are based on quoted market prices. The
carrying value of Nextel Mexicos syndicated loan facility,
our tower financing obligations and Brazils spectrum
license financing approximates their fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
Debt, including current portion and excluding capital lease
obligations
|
|
$
|
2,191,081
|
|
|
$
|
2,103,770
|
|
|
$
|
1,095,012
|
|
|
$
|
1,675,012
|
|
F-29
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
8. Fair
Value of Financial
Instruments (Continued)
Derivatives. Our derivative instruments are
recorded in our consolidated balance sheet at fair value, based
on market values as determined by an independent third party
investment banking firm.
9. Commitments
and Contingencies
Capital
and Operating Lease Commitments.
We have co-location capital lease obligations on some of our
communication towers in Mexico and Brazil. The remaining terms
of these lease agreements range from ten to fifteen years. In
addition, we have a capital lease obligation on our existing
corporate aircraft. The remaining term of this lease agreement
is four years. See Note 7 for further information regarding
these agreements.
We lease various cell sites, office facilities and other assets
under operating leases. Some of these leases provide for annual
increases in our rent payments based on changes in locally-based
consumer price indices. The remaining terms of our cell site
leases range from one to fifteen years and are generally
renewable, at our option, for additional terms. The remaining
terms of our office leases range from less than one to ten
years. During the years ended December 31, 2007, 2006 and
2005, total rent expense under operating leases was
$133.1 million, $100.5 million and $76.9 million,
respectively.
For years subsequent to December 31, 2007, future minimum
payments for all capital and operating lease obligations that
have initial noncancelable lease terms exceeding one year, net
of rental income, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
|
|
|
Leases
|
|
|
Leases
|
|
|
Total
|
|
|
2008
|
|
$
|
12,799
|
|
|
$
|
115,956
|
|
|
$
|
128,755
|
|
2009
|
|
|
12,899
|
|
|
|
99,612
|
|
|
|
112,511
|
|
2010
|
|
|
12,899
|
|
|
|
85,794
|
|
|
|
98,693
|
|
2011
|
|
|
12,899
|
|
|
|
68,917
|
|
|
|
81,816
|
|
2012
|
|
|
30,216
|
|
|
|
51,264
|
|
|
|
81,480
|
|
Thereafter
|
|
|
85,375
|
|
|
|
154,079
|
|
|
|
239,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
167,087
|
|
|
|
575,622
|
|
|
|
742,709
|
|
Less: imputed interest
|
|
|
(91,650
|
)
|
|
|
|
|
|
|
(91,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
75,437
|
|
|
$
|
575,622
|
|
|
$
|
651,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motorola
Commitments.
We are a party to agreements with Motorola, Inc. under which
Motorola provides us with infrastructure equipment and services,
including installation, implementation and training. We and
Motorola have also agreed to warranty and maintenance programs
and specified indemnity arrangements. We have also agreed to
provide Motorola with notice of our determination that
Motorolas technology is no longer suited to our needs at
least six months before publicly announcing or entering into a
contract to purchase equipment utilizing an alternate
technology. In addition, if Motorola manufactures, or elects to
manufacture, the equipment utilizing the alternate technology
that we elect to deploy, we must give Motorola the opportunity
to supply 50% of our infrastructure requirements for the
equipment utilizing the alternate technology for three years.
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.
F-30
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
9. Commitments
and Contingencies (Continued)
Mexican
Commitment.
Nextel Mexico is a party to a telecommunications services
agreement under which it committed to purchase a minimum amount
of specified types of interconnection services over a two-year
period ending December 31, 2007. During the third quarter
of 2007, we determined it was probable that Nextel Mexico would
not meet its purchase commitment under this agreement. As a
result, Nextel Mexico recorded a $2.5 million charge
related to this potential shortfall. In December 2007, Nextel
Mexico negotiated an extension of this agreement which reduced
its purchase commitment for 2007 and extended the contract for
services through December 2011. Since the reduced commitment for
services was met in 2007, Nextel Mexico reversed the
$2.5 million charge for the estimated potential shortfall
in its commitment. While the amended agreement does not contain
any commitment to purchase a specific value of services from the
vendor, it does require that Nextel Mexico use the vendors
interconnection services to terminate a specified percentage of
Nextel Mexicos interconnected traffic.
Brazilian
Commitments.
In December 2007, in connection with the 1.9 GHz spectrum
auctions in Brazil, Nextel Brazil obtained $53.8 million in
letters of credit to secure its participation in the auctions.
Since Nextel Brazil did not obtain spectrum in these auctions,
it does not have any obligations under these letters of credit.
However, these letters of credit are available through April
2008.
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 a result of
the expiration of the statute of limitations for certain
contingencies, during the years ended December 31, 2007,
2006 and 2005, Nextel Brazil reversed $10.6 million,
$9.2 million and $6.5 million, respectively, in
accrued liabilities, of which we recorded $4.5 million,
$4.4 million and $3.2 million, respectively, as a
reduction to operating expenses and the remainder to other
income, which represented monetary corrections. Monetary
corrections are specific indexation factors under Brazilian law
that are used to restore the real economic value of tax and
other contingent obligations in local Brazilian currency after
taking into consideration the effects of inflation.
As of December 31, 2007 and 2006, Nextel Brazil had accrued
liabilities of $20.2 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 December 31, 2007 and 2006, Nextel Brazil had
$10.8 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 $219.7 million and $223.7 million as of
December 31, 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 December 31, 2007 and 2006, Nextel Argentina had
accrued liabilities of $32.2 million and
$29.4 million, respectively, related primarily to local
turnover taxes, universal service tax and local government
claims, all of which were classified in accrued contingencies
and accrued non-income taxes reported as components of accrued
expenses and other.
Turnover Tax. The government of the
city of Buenos Aires imposes a turnover tax rate of 6% of
revenues for cellular companies while maintaining a 3% rate for
other telecommunications services. From a regulatory standpoint,
we are not considered a cellular company, although, 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
F-31
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
9. Commitments
and Contingencies (Continued)
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.
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 $4.2 million, plus
interest, 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
determined that it would continue to pay the 3% general turnover
tax rate and would continue with its efforts to obtain
reimbursement of amounts previously paid under protest, but
would discontinue its prior practice of accruing for the
incremental difference in the cellular rate.
In March 2007, Nextel Argentina filed an administrative claim to
recover the amounts paid under protest from April 2006 through
December 2006. In November 2007, Nextel Argentina received a
$4.2 million tax refund, plus interest, as the result of a
resolution issued by the tax authorities of the city of Buenos
Aires with respect to the amounts paid from April 2006 through
December 2006 relating to this tax. Nextel Argentina believes
that the tax refund clarifies and confirms the 3% general
turnover tax rate. The resolution also indicated that the city
of Buenos Aires will defer the decision of the pending lawsuit
to pursue the reimbursement of the $18.8 million paid under
protest in April 2006. In addition, Nextel Argentina
unconditionally and unilaterally committed to donate
$3.4 million to charitable organizations.
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. 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 December 31, 2007 and 2006, Nextel Argentina accrued
$6.8 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 began
depositing these contributions in September 2007, effective for
the period beginning July 1, 2007.
As a result of various events, during 2005, Nextel Argentina
accrued for the maximum liability due to customers for amounts
billed during all periods ending December 31, 2005, plus
interest. Nextel Argentina continued accruing the higher amount
during the first quarter of 2006 while maintaining its position
that there is no basis for this reimbursement to customers. As
of April 1, 2006, Nextel Argentina changed its rate plan
structure, which eliminated all other charges and any further
contingencies related to this tax. In April 2006, Nextel
Argentina filed a judicial claim against the legislation passed
in May 2005, which is currently pending. As of December 31,
2007 and 2006, the accrual for the liability to Nextel
Argentinas customers was $7.7 million and
$6.9 million, respectively, which is included as a
component of accrued expenses and other.
F-32
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
9. Commitments
and Contingencies (Continued)
Legal
Proceedings.
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
Income
Taxes.
We are subject to income taxes in both the United States and the
non-U.S. jurisdictions
in which we operate. Certain of our entities are under
examination by the relevant taxing authorities for various tax
years. We regularly assess the potential outcome of current and
future examinations in each of the taxing jurisdictions when
determining the adequacy of the provision for income taxes. We
have only recorded financial statement benefits for tax
positions which we believe reflect the
more-likely-than-not criteria of FIN 48. We
have also established income tax reserves in accordance with
FIN 48 where necessary. Once a financial statement benefit
for a tax position is recorded or a tax reserve is established,
we adjust it only when there is more information available or
when an event occurs necessitating a change. While we believe
that the amount of the recorded financial statement benefits and
tax reserves reflect the FIN 48 more-likely-than-not
criteria, it is possible that the ultimate outcome of current or
future examinations may result in a reduction to the tax
benefits previously recorded on the financial statements or may
exceed the current income tax reserves in amounts that could be
material.
10. Capital
Stock
We currently have 600,000,000 shares of authorized common
stock, par value $0.001 per share, and 10,000,000 shares of
authorized undesignated preferred stock, par value $0.001 per
share.
We issued 3,000,000 shares, 3,635,850 shares and
6,852,150 shares of our common stock in connection with the
conversion of our 3.5% convertible notes on June 10, 2005,
June 21, 2005 and December 14, 2006, respectively. As
described in Note 7, we issued 11,268,103 shares of
our common stock in connection with the conversion of our 2.875%
convertible notes in July 2007. In addition, as described in
Note 1, as of December 31, 2007, we repurchased a
total of 7,401,543 shares of our common stock during 2007.
During the years ended December 31, 2007, 2006 and 2005, we
issued common shares of stock in connection with the exercise of
stock options by employees.
As of December 31, 2007 and 2006, there were 169,910,315
and 161,813,864 shares of our common stock outstanding,
respectively.
Common Stock. Holders of our common stock are
entitled to one vote per share on all matters submitted for
action by the stockholders and share equally, share for share,
if dividends are declared on the common stock. If our Company is
partially or completely liquidated, dissolved or wound up,
whether voluntarily or involuntarily, the holders of the common
stock are entitled to share ratably in the net assets remaining
after payment of all liquidation preferences, if any, applicable
to any outstanding preferred stock. There are no redemption or
sinking fund provisions applicable to the common stock.
Undesignated Preferred Stock. Our board of
directors has the authority to issue undesignated preferred
stock of one or more series and in connection with the creation
of such series, to fix by resolution the designation, voting
powers, preferences and relative, participating, optional and
other special rights of such series, and the qualifications,
limitations and restrictions thereof. As of December 31,
2007, we had not issued any shares of undesignated preferred
stock.
Common Stock Reserved for Issuance. As of
December 31, 2007 and 2006, under our employee stock option
plan, we had reserved for future issuance 20,494,643 shares
and 23,378,068 shares of our common stock, respectively.
F-33
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
11. Income
Taxes
The components of the income tax provision from continuing
operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(3,396
|
)
|
|
$
|
(5,086
|
)
|
|
$
|
(5,076
|
)
|
State, net of Federal tax benefit
|
|
|
|
|
|
|
(444
|
)
|
|
|
(566
|
)
|
Foreign
|
|
|
(114,793
|
)
|
|
|
(75,078
|
)
|
|
|
(70,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax provision
|
|
|
(118,189
|
)
|
|
|
(80,608
|
)
|
|
|
(76,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(54,772
|
)
|
|
|
(6,265
|
)
|
|
|
(28,297
|
)
|
State, net of Federal tax benefit
|
|
|
(6,103
|
)
|
|
|
(698
|
)
|
|
|
(3,143
|
)
|
Foreign
|
|
|
9,037
|
|
|
|
(31,873
|
)
|
|
|
(18,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax provision
|
|
|
(51,838
|
)
|
|
|
(38,836
|
)
|
|
|
(49,693
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
|
|
$
|
(170,027
|
)
|
|
$
|
(119,444
|
)
|
|
$
|
(125,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the U.S. statutory Federal income tax
rate to our effective tax rate as a percentage of income before
taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory Federal tax rate
|
|
|
35
|
%
|
|
|
35
|
%
|
|
|
35
|
%
|
State taxes, net of Federal tax benefit
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Effect of foreign operations
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Nondeductible SFAS 123R expense
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
Change in deferred tax asset valuation allowance
|
|
|
(8
|
)
|
|
|
|
|
|
|
3
|
|
Intercompany transactions
|
|
|
2
|
|
|
|
3
|
|
|
|
6
|
|
Withholding tax and tax on subpart F income
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
Loss on Mexican fixed asset disposals
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
Tax-deductible dividends
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
U.S. tax on unremitted foreign earnings
|
|
|
12
|
|
|
|
|
|
|
|
|
|
Inflation adjustments
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(2
|
)
|
Amortization of acquired tax benefits (deferred credit)
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Other
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
31
|
%
|
|
|
29
|
%
|
|
|
42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
11. Income
Taxes (Continued)
Significant components of our deferred tax assets and
liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(in thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating losses and capital loss carryforwards
|
|
$
|
298,709
|
|
|
$
|
305,163
|
|
Allowance for doubtful accounts
|
|
|
18,375
|
|
|
|
14,601
|
|
Accrued expenses
|
|
|
49,267
|
|
|
|
32,522
|
|
Accrual for contingent liabilities
|
|
|
6,874
|
|
|
|
8,391
|
|
Intangible assets
|
|
|
13,058
|
|
|
|
31,969
|
|
Property, plant and equipment
|
|
|
224,049
|
|
|
|
206,037
|
|
Capital lease obligations
|
|
|
70,132
|
|
|
|
57,134
|
|
Deferred revenue
|
|
|
51,948
|
|
|
|
18,579
|
|
Stock option expense
|
|
|
14,902
|
|
|
|
|
|
Other
|
|
|
25,116
|
|
|
|
35,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
772,430
|
|
|
|
709,927
|
|
Valuation allowance
|
|
|
(58,651
|
)
|
|
|
(444,393
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
713,779
|
|
|
|
265,534
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
90,843
|
|
|
|
90,298
|
|
Unremitted foreign earnings
|
|
|
69,477
|
|
|
|
|
|
Deferred revenue
|
|
|
26,057
|
|
|
|
|
|
Property, plant and equipment
|
|
|
9,893
|
|
|
|
10,897
|
|
Other
|
|
|
13,252
|
|
|
|
13,650
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
209,522
|
|
|
|
114,845
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
504,257
|
|
|
$
|
150,689
|
|
|
|
|
|
|
|
|
|
|
During 2006, we identified errors in our consolidated financial
statements for the years ended December 31, 2003 and 2004
related to accounting for income taxes in Nextel Mexico. We
determined that these errors were not material to any period,
and accordingly, as a result of the Nextel Mexico errors
recorded in the fourth quarter of 2006, we decreased our tax
provision by $17.1 million and our current tax payable
liability by $35.0 million, increased amortization expense
by $1.4 million and increased paid-in capital by
$18.6 million as of December 31, 2006. Without this
decrease to the income tax provision, our 2006 effective tax
rate would have been 33% rather than 29%.
We have not recorded a deferred tax liability on Nextel
Brazils unrealized foreign currency gain on the
intercompany loan from NII Holdings, Inc. as it is our intention
to not subject that unrealized gain to Brazilian tax. If this
gain is subject to tax, it could result in an additional income
tax liability. As of December 31, 2007 and 2006, the
cumulative amount of additional tax liability would have been
approximately $115.3 million and $73.3 million,
respectively.
During the fourth quarter of 2007, we changed our historic
position regarding the repatriation of foreign earnings back to
the United States, and we recorded a $69.6 million
provision for U.S. Federal, state and foreign taxes with
respect to future remittances of certain undistributed earnings
(other than income that has been previously taxed in the
U.S. under the subpart F rules) of our Argentine and
Mexican subsidiaries. Except for the earnings associated with
this $69.6 million provision, we currently have no
intention to remit any additional undistributed earnings of our
foreign subsidiaries, other than income that has been previously
taxed in the U.S. under the subpart F rules. Should
additional amounts of our foreign subsidiaries
undistributed earnings be remitted to the U.S. as
dividends, we may be subject to additional U.S. income
taxes (net of allowable foreign tax credits) and foreign
F-35
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
11. Income
Taxes (Continued)
withholding taxes. It is not practicable to estimate the amount
of any additional taxes which may be payable on the remaining
undistributed earnings.
As of December 31, 2007, we had approximately
$238.6 million of net operating loss carryforwards for
U.S. Federal and state income tax purposes that expire in
various amounts beginning in 2010 through 2027. The timing and
manner in which we will utilize the net operating loss
carryforwards in any year, or in total, may be limited in the
future under the provisions of Internal Revenue Code
Section 382 regarding changes in our ownership.
As of December 31, 2007, we had approximately
$9.7 million and $38.6 million of net operating loss
carryforwards in our Mexican and Peruvian subsidiaries,
respectively. These carryforwards expire in various amounts and
at various periods from 2008 to 2017 in Mexico, and at the end
of 2008 in Peru. Nextel Chile had approximately
$42.7 million of net operating loss carryforwards that can
be carried forward indefinitely. In addition, our Brazilian
subsidiaries had approximately $770.0 million of net
operating loss carryforwards that can also be carried forward
indefinitely, but the amount that we can utilize annually is
limited to 30% of Brazilian taxable income before the net
operating loss deduction. Our foreign subsidiaries ability
to utilize the foreign tax net operating losses in any single
year ultimately depends upon their ability to generate
sufficient taxable income.
We excluded $166.2 million of U.S. net operating loss
carryforwards from the calculation of the deferred tax asset
above because it represents excess stock option deductions that
did not reduce taxes payable in the U.S. The tax effect of
these unrealized excess stock option deductions, if realized in
the future, will result in an increase to paid-in capital. We
recognize the benefits of net operating loss carryforwards in
the following order: (1) net operating losses from items
other than excess stock option deductions; (2) net
operating losses from excess stock option deductions accounted
for under SFAS 123R; and (3) from excess stock option
deductions accounted for under SFAS 123R. We use a
with-and-without
method to determine the tax benefit realized from excess stock
option deductions under SFAS 123R. We calculated our
adoption date pool of excess tax benefits previously included in
paid-in capital under the standard method outlined in
SFAS 123R.
During 2007, the deferred tax asset valuation allowance
decreased by $385.7 million primarily due to the
$377.8 million release (net of foreign currency translation
adjustments) of the valuation allowance previously recorded with
respect to the deferred tax assets of one of our Brazilian
entities, Nextel Telecomunicacoes Ltda. (Brazil
Ltda.). In evaluating the need for a valuation allowance
for Brazil Ltda., we considered the following positive evidence:
(1) for the cumulative three-year period 2005 through 2007,
Brazil Ltda. generated positive pre-tax income in accordance
with U.S. GAAP, (2) Brazil Ltda. is expected to
continue to generate positive pre-tax income in accordance with
U.S. GAAP for the foreseeable future, and
(3) Brazilian net operating losses can be carried forward
indefinitely and utilized in future years without expiration.
Based on this evidence, we concluded in the fourth quarter of
2007 that it was more-likely-than-not the deferred
tax assets of Brazil Ltda. would be fully utilized, and we
released the associated valuation allowance. The financial
statement treatment of this valuation allowance release
(excluding the effect of the foreign currency translation
adjustments) is shown in the table below.
During 2006, the deferred tax asset valuation allowance
increased by $27.1 million due mainly to the impact of
foreign currency translation adjustments in Brazil and an
increased net operating loss carryforward in Chile, for which it
is more likely than not that the benefits will not be realized.
This increase was partially offset by a $6.9 million
realization of U.S. excess stock option deductions and a
$5.9 million release of pre-reorganization valuation
allowance in Brazil. We recorded these two valuation allowance
decreases as increases to paid-in capital.
Our deferred tax asset valuation allowances generally consist of
three components. We record decreases in these valuation
allowances as coming first from valuation allowances existing as
of the reorganization date, second from valuation allowances
created subsequent to the reorganization from items other than
excess stock option deductions, and third from
post-reorganization excess stock option deductions accounted for
under SFAS 123R. In accordance with
SOP 90-7,
we recognize decreases in the deferred tax asset valuation
allowance that existed at the reorganization date first as a
reduction in the carrying value of our intangible assets
existing at the reorganization date until fully exhausted, and
then as an increase to paid-in capital. As of December 31,
2004, we reduced to zero the carrying value of our intangible
assets existing at the reorganization date. We will record the
future decreases, if any, of the valuation allowance existing on
the reorganization date as an increase to paid-in capital. The
table below reflects the impact on our stockholders equity
and income tax provision of the deferred tax asset valuation
F-36
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
11. Income
Taxes (Continued)
allowance decreases that we recorded during 2007 and 2006 in
accordance with
SOP 90-7.
$18.6 million of the 2006 increase to stockholders
equity relates to errors identified in our consolidated
financial statements for the years ended December 31, 2003
and 2004 related to accounting for income taxes in Nextel Mexico.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Increase to stockholders equity
|
|
$
|
407,224
|
|
|
$
|
24,573
|
|
|
$
|
69,228
|
|
Reduction to income tax provision
|
|
|
48,724
|
|
|
|
|
|
|
|
1,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
455,948
|
|
|
$
|
24,573
|
|
|
$
|
70,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, a Brazilian company, Nextel
Telecomunicacoes, SA (Brazil SA), Nextel Chile and
Nextel Mexico have $18.5 million, $7.6 million and
$2.7 million of deferred tax asset valuation allowances,
respectively. In addition, our U.S. operations have
$29.8 million of deferred tax asset valuation allowance as
of December 31, 2007. Of the total $58.7 million
consolidated deferred tax asset valuation allowance as of
December 31, 2007, $16.9 million of Brazil SAs
valuation allowance existed as of our emergence from
Chapter 11 reorganization and therefore, any future
decreases in this amount will be recorded in accordance with
SOP 90-7
as an increase to paid-in capital. Similarly, $26.6 million
of the U.S. valuation allowance relates to excess stock
option deductions that did not reduce taxes payable and, if
realized, will result in an increase to paid-in capital.
We currently believe it is reasonably possible that we will
release the remaining Brazil valuation allowance that exists
with respect to Brazil SA within the next year. This valuation
allowance release will be dependent upon the generation of
sufficient pre-tax U.S. GAAP income by Brazil SA. We also
believe it is reasonably possible that, as a result of the
repatriation of certain earnings of our Argentine and Mexican
subsidiaries discussed above, within the next year, we will
release some portion of the U.S. valuation allowance. The
character of the valuation allowance that would be released
would likely be related to excess stock option deductions that
did not previously reduce taxes payable. If this portion of the
U.S. valuation allowance is released, it would result in an
increase to paid-in capital and will be dependent upon the
generation of sufficient U.S. taxable income by our
U.S. entities. Realization of any additional deferred tax
assets in any of our markets depends on future profitability in
these markets. Our ability to generate the expected amounts of
taxable income from future operations is dependent upon general
economic conditions, technology trends, political uncertainties,
competitive pressures and other factors beyond managements
control. If our operations demonstrate profitability, we may
reverse additional deferred tax asset valuation allowances by
jurisdiction in the future. We will continue to evaluate the
deferred tax asset valuation allowance balances in all of our
foreign and U.S. companies throughout 2008 to determine the
appropriate level of valuation allowance.
In 1998, Nextel Peru entered into a
10-year tax
stability agreement with the Peruvian government that suspends
its net operating loss carryforwards from expiring until Nextel
Peru generates taxable income. Once Nextel Peru generates
taxable income, Nextel Peru has four years to utilize those tax
loss carryforwards and any taxable income in excess of the tax
loss carryforwards will be taxed at 30%. During 2005, 2006 and
2007, Nextel Peru generated taxable income and utilized a
portion of the tax loss carryforwards. The remaining tax loss
carryforwards in Peru will expire on December 31, 2008 if
not used by that date. At this time, we believe it is
more-likely-than-not that these tax loss carryforwards will be
fully utilized prior to their expiration. The 1998 tax stability
agreement effectively expired on January 1, 2008; however,
Nextel Peru has the option to negotiate a new and similar tax
stability agreement with the Peruvian government during the
first quarter of 2008.
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.
We adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, on
January 1, 2007. 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 consolidated
balance sheet.
F-37
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
11. Income
Taxes (Continued)
The following table shows a reconciliation of our total
FIN 48 unrecognized tax benefit for the twelve months ended
December 31, 2007 (in thousands):
|
|
|
|
|
Unrecognized tax benefits at January 1, 2007
|
|
$
|
55,965
|
|
Additions for current year tax positions
|
|
|
14,408
|
|
Additions for prior year tax positions
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(3,058
|
)
|
Settlements with taxing authorities
|
|
|
(152
|
)
|
Foreign currency translation adjustment
|
|
|
792
|
|
|
|
|
|
|
Unrecognized tax benefits at December 31, 2007
|
|
$
|
67,955
|
|
|
|
|
|
|
The unrecognized tax benefits as of January 1, 2007 and
December 31, 2007 included $43.0 million and
$49.2 million, respectively, of tax benefits that could
potentially reduce our future effective tax rate, if recognized.
It also includes $3.0 million of unrecognized tax benefits
related to
non-U.S. deductions
that lack sufficient supporting documentation, which are
reasonably possible will be recognized within the next twelve
months following December 31, 2007, as a result of the
expiring statute of limitations.
We record interest and penalties associated with uncertain tax
positions as a component of our income tax provision. During the
year ended December 31, 2007, we recognized approximately
$0.9 million of interest and penalties in our current
income tax provision and statement of financial position. We had
accrued approximately $3.8 million and $2.9 million
for the payment of interest and penalties as of
December 31, 2007 and 2006, respectively. We classify our
uncertain tax positions as non-current income tax liabilities
unless the statute of limitations expires within one year.
In December 2004, the Mexican government enacted tax
legislation, effective January 1, 2005, which reduced the
corporate tax rate to 30% for 2005, 29% for 2006 and 28% for
2007 and subsequent years.
During 2004, Nextel Mexico amended its Mexican Federal income
tax returns in order to reverse a benefit previously claimed for
a disputed provision of the Federal income tax law covering
deductions and gains from the sale of property. We filed the
amended returns in order to avoid potential penalties and we
also filed administrative petitions seeking clarification of our
right to the tax benefits claimed on the original income tax
returns. The tax authorities constructively denied our
administrative petitions in January 2005 and in May 2005 we
filed an annulment suit challenging the constructive denial.
Resolution of the annulment suit is pending. Based on an opinion
by our independent legal counsel in Mexico, we believe it is
probable that we will recover this amount. Our consolidated
balance sheets as of December 31, 2007 and 2006 include
$16.0 million in income taxes receivable, which are
included as components of other non-current assets. The income
tax benefit for this item was related to our income tax
provision for the years ended December 31, 2005, 2004 and
2003.
On October 1, 2007, the Mexican government enacted
amendments to the Mexican tax law that became effective
January 1, 2008. The amendments established a new minimum
corporate tax, eliminated the existing minimum asset tax and
established a new withholding tax system on cash deposits in
bank accounts. The new minimum corporate tax is a supplemental
tax that supersedes the current asset tax and applies when and
to the extent the tax computed under the new minimum corporate
tax exceeds the amounts that would be payable under the existing
Mexican income tax. The new minimum corporate tax is computed on
a cash basis rather than on an accrual basis, and is calculated
based on gross revenues, with no deductions allowed for cost of
goods sold, non-taxable salaries and wages, interest expense,
depreciation, amortization, foreign currency transaction gains
and losses or existing net income tax operating losses from
prior years. For purposes of the minimum corporate tax, Nextel
Mexico will generally deduct the value of depreciable assets and
inventory as an expense when these assets are acquired. This tax
will be phased in at a rate of 16.5% for 2008, 17% for 2009 and
a final tax rate of 17.5% for 2010 and thereafter. Certain tax
credits may be available to reduce the amount of new minimum
corporate tax that is payable.
We believe that the new minimum corporate tax is an income tax
to which SFAS No. 109, Accounting for Income
Taxes, is applicable. As the date of enactment for the
amendments to the Mexican tax law occurred during the fourth
quarter of 2007, any effect of the new minimum corporate tax on
our existing deferred tax assets and
F-38
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
11. Income
Taxes (Continued)
liabilities must be reflected in that period as an increase or
decrease to our deferred income tax provision. After evaluating
the impact that the new minimum corporate tax will have on
Nextel Mexico, we concluded that no adjustment to our deferred
income tax provision was necessary. We also do not believe we
will incur any material minimum corporate tax liability in the
future.
12. Employee
Stock and Benefit Plans
As of December 31, 2007, we had the following share-based
compensation plans:
Under our Revised Third Amended Joint Plan of Reorganization, on
November 12, 2002, we adopted the 2002 Management Incentive
Plan for the benefit of our employees and directors. Although
there are 28,185 stock options outstanding under the 2002
Management Incentive Plan as of December 31, 2007, no
additional awards will be granted under the Plan. We adopted the
2004 Incentive Compensation Plan in April 2004. The 2004
Incentive Compensation Plan provides us the opportunity to
compensate selected employees with stock options, stock
appreciation rights (SARs), stock awards, performance share
awards, incentive awards
and/or stock
units. Through December 31, 2007, we have not granted any
SARs, performance share awards, incentive awards or stock units.
The 2004 Incentive Compensation Plan provides equity and
equity-related incentives to directors, officers or key
employees of and consultants to our company up to a maximum of
39,600,000 shares of common stock, subject to adjustments.
A stock option entitles the optionee to purchase shares of
common stock from us at the specified exercise price. A SAR
entitles the holder to receive the excess of the fair market
value of each share of common stock encompassed by such SARs
over the initial value of such share as determined on the date
of grant. Stock awards consist of awards of common stock,
subject to certain restrictions specified in the 2004 Incentive
Compensation Plan. An award of performance shares entitles the
participant to receive cash, shares of common stock, stock units
or a combination thereof if certain requirements are satisfied.
An incentive award is a cash-denominated award that entitles the
participant to receive a payment in cash or common stock, stock
units, or a combination thereof. Stock units are awards stated
with reference to a specified number of shares of common stock
that entitle the holder to receive a payment for each stock unit
equal to the fair market value of a share of common stock on the
date of payment. All grants or awards made under the 2004
Incentive Compensation Plan are governed by written agreements
between us and the participants and have a maximum contractual
term of ten years. We issue new shares when both stock options
and stock awards are exercised.
Generally, our Board of Directors grants stock options and other
equity awards to employees on an annual basis near the end of
April. On April 25, 2007, our Board of Directors granted
3.3 million stock options to certain of our employees and
directors. In addition, our chief executive officer may grant,
under authority delegated to him by the Compensation Committee
of our Board of Directors, a limited number of stock options
(not to exceed 10,000 shares in any single grant and
100,000 shares in the aggregate) to employees who are not
executive officers.
Through December 31, 2005, we accounted for share-based
payments using the intrinsic value method under the recognition
and measurement provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees, or APB 25, and related interpretations, as
permitted by SFAS No. 123, Accounting for Stock
Based Compensation, or SFAS 123. In accordance with
APB 25, no compensation cost was required to be recognized for
options granted that had an exercise price equal to the market
value of the underlying common stock on the grant date.
Additionally, we provided pro forma disclosure amounts in
accordance with SFAS No. 148, Accounting for
Stock-Based Compensation Transition and
Disclosure, or SFAS 148, as if the fair value method
defined by SFAS 123 had been applied to the share-based
payment.
F-39
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
12. Employee
Stock and Benefit Plans (Continued)
We adopted SFAS 123R effective January 1, 2006. The
following table illustrates the effect on net income and net
income per common share if we had applied the fair value
recognition provisions of SFAS 123, as amended by
SFAS 148, to employee share-based payments in 2005:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
(in thousands, except per
|
|
|
|
share data)
|
|
|
Net income, as reported
|
|
$
|
174,781
|
|
Add:
|
|
|
|
|
Stock-based employee compensation expense included in reported
net income, net of related tax Effects
|
|
|
3,193
|
|
Deduct:
|
|
|
|
|
Total stock-based employee compensation expense determined under
fair value-based method for all awards, net of related tax
effects
|
|
|
(13,612
|
)
|
|
|
|
|
|
Pro forma net income
|
|
$
|
164,362
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
Basic as reported
|
|
$
|
1.19
|
|
|
|
|
|
|
Basic pro forma
|
|
$
|
1.12
|
|
|
|
|
|
|
Diluted as reported
|
|
$
|
1.06
|
|
|
|
|
|
|
Diluted pro forma
|
|
$
|
1.01
|
|
|
|
|
|
|
We used the modified prospective transition method to adopt
SFAS 123R and therefore did not restate our prior periods
results. Under this transition method, share-based payment
expense for the years ended December 31, 2007 and 2006
includes compensation expense for all share-based payment awards
granted prior to, but not fully vested as of, January 1,
2006 based on the grant date fair value estimated in accordance
with the original provisions of SFAS 123. Share-based
payment expense for all share-based payment awards granted after
January 1, 2006 is based on the grant date fair value
estimated in accordance with the provisions of SFAS 123R.
We recognize these compensation costs net of a forfeiture rate
for only those shares expected to vest on a straight-line basis
over the requisite service period of the award. Our stock
options generally vest twenty-five percent per year over a
four-year period, and our restricted shares generally vest in
full on the third
and/or
fourth anniversaries of the grant. The estimated forfeiture rate
for awards granted during the year ended December 31, 2005
was 1%. We estimated the forfeiture rate based on our historical
experience during the preceding three fiscal years. We used
actual forfeitures to calculate our compensation expense for the
years ended December 31, 2007 and 2006.
For the year ended December 31, 2007, we recognized
$55.2 million in share-based payment expense related to
stock options. For the years ended December 31, 2007 and
2006, we recognized $11.8 million and $11.9 million,
respectively, in share-based payment expense related to
restricted stock. For the year ended December 31, 2006, the
impact of adopting SFAS 123R on operating income and income
before income taxes was $34.0 million ($28.3 million,
after tax). We include substantially all share-based payment
expense, including restricted stock expense, as a component of
selling, general and administrative expenses. For the year ended
December 31, 2006, the impact of the share-based payment
expense reduced our basic earnings per share by $0.18 and our
diluted earnings per share by $0.15. In addition, prior to the
adoption of SFAS 123R, we presented the tax benefit of
stock option exercises as operating cash flows. Upon the
adoption of SFAS 123R, we classify tax benefits resulting
from tax deductions in excess of the compensation cost
recognized for share-based awards as financing cash flows.
Because we do not view share-based compensation as an important
element of operational performance, we recognize share-based
payment expense primarily at the corporate level and exclude it
when evaluating the business performance of our segments. As of
December 31, 2007, there was approximately
$139.2 million in unrecognized compensation cost related to
non-vested employee stock option awards. We expect this cost to
be recognized over a four-year period and for a weighted average
period of 1.9 years.
F-40
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
12. Employee
Stock and Benefit Plans (Continued)
Stock
Option Awards
The following table summarizes stock option activity under all
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
|
Options
|
|
|
per Option
|
|
|
Outstanding, January 1, 2005
|
|
|
10,537,104
|
|
|
$
|
9.77
|
|
Granted
|
|
|
7,019,500
|
|
|
|
26.48
|
|
Exercised
|
|
|
(5,850,381
|
)
|
|
|
4.08
|
|
Forfeited
|
|
|
(436,004
|
)
|
|
|
20.99
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2005
|
|
|
11,270,219
|
|
|
|
22.70
|
|
Granted
|
|
|
3,313,900
|
|
|
|
59.89
|
|
Exercised
|
|
|
(2,802,067
|
)
|
|
|
19.77
|
|
Forfeited
|
|
|
(675,152
|
)
|
|
|
33.37
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2006
|
|
|
11,106,900
|
|
|
|
33.96
|
|
Granted
|
|
|
3,574,600
|
|
|
|
78.00
|
|
Exercised
|
|
|
(3,390,812
|
)
|
|
|
26.81
|
|
Forfeited
|
|
|
(682,175
|
)
|
|
|
45.44
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2007
|
|
|
10,608,513
|
|
|
|
50.34
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2005
|
|
|
619,769
|
|
|
|
6.03
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2006
|
|
|
837,775
|
|
|
|
20.39
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2007
|
|
|
1,027,438
|
|
|
|
37.45
|
|
|
|
|
|
|
|
|
|
|
Following is a summary of the status of employee stock options
outstanding and exercisable as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
Average
|
|
Average
|
|
|
Aggregate
|
|
Exercise Price or
|
|
|
|
|
Remaining
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
|
Remaining
|
|
Exercise
|
|
|
Intrinsic
|
|
Range
|
|
|
Shares
|
|
Life
|
|
Price
|
|
|
Value
|
|
|
Shares
|
|
Life
|
|
Price
|
|
|
Value
|
|
|
|
$0.41 0.42
|
|
|
|
28,185
|
|
|
|
4.87 years
|
|
|
$
|
0.42
|
|
|
$
|
1,350,157
|
|
|
|
28,185
|
|
|
|
4.87 years
|
|
|
$
|
0.42
|
|
|
$
|
1,350,157
|
|
|
4.31
|
|
|
|
400
|
|
|
|
5.24 years
|
|
|
|
4.31
|
|
|
|
17,603
|
|
|
|
400
|
|
|
|
5.24 years
|
|
|
|
4.31
|
|
|
|
17,603
|
|
|
17.67 25.12
|
|
|
|
1,267,113
|
|
|
|
6.33 years
|
|
|
|
19.01
|
|
|
|
37,139,908
|
|
|
|
233,863
|
|
|
|
6.34 years
|
|
|
|
19.08
|
|
|
|
6,838,675
|
|
|
26.20 52.97
|
|
|
|
3,440,359
|
|
|
|
7.37 years
|
|
|
|
27.28
|
|
|
|
72,626,522
|
|
|
|
382,109
|
|
|
|
7.38 years
|
|
|
|
27.80
|
|
|
|
7,864,548
|
|
|
53.46 65.20
|
|
|
|
2,522,956
|
|
|
|
8.37 years
|
|
|
|
61.03
|
|
|
|
|
|
|
|
382,881
|
|
|
|
8.36 years
|
|
|
|
61.06
|
|
|
|
|
|
|
71.93 87.33
|
|
|
|
3,349,500
|
|
|
|
9.32 years
|
|
|
|
78.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,608,513
|
|
|
|
|
|
|
|
|
|
|
$
|
111,134,190
|
|
|
|
1,027,438
|
|
|
|
|
|
|
|
|
|
|
$
|
16,070,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic values in the table above represent the
total pre-tax intrinsic value (the difference between our
closing stock price on the last trading day of the year ended
December 31, 2007 and the exercise price, multiplied by the
number of in-the-money options) that would have been received by
the option holders had all option holders exercised their
options on December 31, 2007. This amount changes based on
the fair market value of our common stock. Total intrinsic value
of options exercised for the years ended December 31, 2007
and 2006 was $174.6 million and $112.0 million,
respectively. The total fair value of options vested was
$42.4 million and $22.5 million for the years ended
December 31, 2007 and 2006, respectively. Generally, our
stock options are non-transferable, except by will or laws of
descent or distribution, and the actual value of the stock
options that a recipient may realize, if any, will depend on the
excess of the market price on the date of exercise over the
exercise price.
The weighted average fair value of the stock option awards on
their grant dates using the Black-Scholes-Merton option-pricing
model was $29.43 for each option granted for the year ended
December 31, 2007, $22.28 for each
F-41
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
12. Employee
Stock and Benefit Plans (Continued)
option granted for the year ended December 31, 2006 and
$7.90 for each option granted for the year ended
December 31, 2005 based on the following assumptions:
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Risk free interest rate
|
|
3.84% - 5.04%
|
|
4.73% - 5.10%
|
|
3.70% - 4.49%
|
Expected stock price volatility
|
|
36.9% - 38.5%
|
|
31.0% - 38.5%
|
|
30.5% - 45.0%
|
Expected term in years
|
|
4.52 - 4.75
|
|
4.00 - 4.75
|
|
4.00
|
Expected dividend yield
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
The expected term of stock option awards granted represents the
period that we expect our stock option awards will be
outstanding and was determined based on (1) historical data
on employee exercise and post-vesting employment termination
behavior, (2) the contractual terms of the stock option
awards, (3) vesting schedules and (4) expectations of
future employee behavior. The risk-free interest rate for
periods consistent with the contractual life of the stock option
award is based on the yield curve of U.S. Treasury strip
securities in effect at the time of the grant. Expected
volatility for options granted after April 1, 2006 takes
into consideration historical volatility and the implied
volatility from traded options on our stock. For stock option
awards granted between January 1, 2005 and April 1,
2006, the expected volatility was based on the implied
volatility from traded options on our common stock.
The Black-Scholes-Merton option-pricing model was developed for
use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition,
option-pricing models such as the Black-Scholes-Merton model
require the input of highly subjective assumptions, including
the expected stock price volatility. We hired an independent
consulting firm with expertise in this area to review our
assumptions, methodology and calculations. The assumptions
listed above represent our best estimates, but these estimates
involve inherent uncertainties and the application of management
judgment. Consequently, there is a risk that our estimates of
the fair values of our stock option awards on the grant dates
may bear little resemblance to the actual values realized upon
the exercise, expiration, early termination or forfeiture of
those stock option awards in the future. Certain stock option
awards may expire worthless or otherwise result in zero
intrinsic value as compared to the fair values originally
estimated on the grant date and reported in our financial
statements. Alternatively, value may be realized from the stock
option awards that is significantly in excess of the fair values
originally estimated on the grant date and reported in our
financial statements. Additionally, application of alternative
assumptions could produce significantly different estimates of
the fair value of stock option awards and consequently, the
related amounts recognized in the consolidated statements of
operations. Currently, there is no market-based mechanism or
other practical application to verify the reliability and
accuracy of the estimates from option-pricing valuation models,
such as Black-Scholes-Merton, nor is there a means to compare
and adjust the estimates to actual values. Although the fair
value of stock option awards is determined in accordance with
SFAS 123R and Staff Accounting Bulletin Topic 14, or
SAB 107, using the Black-Scholes-Merton option-pricing
model, the fair value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.
Because stock options have characteristics significantly
different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair
value estimate, we believe that the existing models do not
necessarily provide a reliable single measure of the fair value
of the stock options.
F-42
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
12. Employee
Stock and Benefit Plans (Continued)
Restricted
Stock Awards
Following is a summary of the status of our non-vested
restricted stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Number of
|
|
|
Date Fair Value
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Non-vested restricted stock awards as of January 1, 2005
|
|
|
859,000
|
|
|
$
|
18.97
|
|
Granted
|
|
|
5,000
|
|
|
|
45.80
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 31, 2005
|
|
|
864,000
|
|
|
|
19.13
|
|
Granted
|
|
|
632,000
|
|
|
|
52.77
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(73,000
|
)
|
|
|
40.59
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 31, 2006
|
|
|
1,423,000
|
|
|
|
32.97
|
|
Granted
|
|
|
30,000
|
|
|
|
74.02
|
|
Vested
|
|
|
(839,000
|
)
|
|
|
19.13
|
|
Forfeited
|
|
|
(36,000
|
)
|
|
|
60.77
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock awards as of December 31, 2007
|
|
|
578,000
|
|
|
|
61.36
|
|
|
|
|
|
|
|
|
|
|
If a participant terminates employment prior to the vesting
dates, the unvested shares will be forfeited and available for
reissuance under the terms of the 2004 Incentive Compensation
Plan. The fair value of our restricted stock awards is
determined based on the quoted price of our common stock at the
grant date. As of December 31, 2007, there was
approximately $17.8 million in unrecognized compensation
cost related to non-vested restricted stock awards. We expect
this cost to be recognized over a weighted average period of
1.5 years.
Nextel Mexico Pension Plan. We have a pension
plan which is administered in accordance with local laws and
income tax regulations. As of December 31, 2007 and 2006,
we had accrued pension costs of $7.9 million and
$8.4 million, respectively. We do not expect contributions
to this plan to be material in 2008 or thereafter.
13. Segment
Information
We have determined that our reportable segments are those that
are based on our method of internal reporting, which
disaggregates our business by geographical location. Our
reportable segments are: (1) Mexico, (2) Brazil,
(3) Argentina and (4) Peru. The operations of all
other businesses that fall below the segment reporting
thresholds are included in the Corporate and other
segment below. This segment includes our Chilean operating
companies and our corporate operations in the U.S. We
evaluate performance of these segments and provide resources to
them based on operating income before depreciation and
amortization and impairment, restructuring and other charges,
which we refer to as segment earnings. Because we do not view
share-based compensation as an important element of operational
performance, we recognize share-based payment expense at the
corporate level and exclude it when evaluating the business
performance of our segments. 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 this amount is now regularly provided to our
chief operating decision maker. During the years ended
December 31, 2006 and 2005, Nextel Mexico incurred a
management fee of $47.9 million and $68.1 million,
respectively. However, for the years ended December 31,
2006 and 2005, 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.
F-43
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
13. Segment
Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,762,596
|
|
|
$
|
833,241
|
|
|
$
|
408,142
|
|
|
$
|
178,058
|
|
|
$
|
3,828
|
|
|
$
|
(1,169
|
)
|
|
$
|
3,184,696
|
|
Digital handset and accessory revenues
|
|
|
30,103
|
|
|
|
34,723
|
|
|
|
33,951
|
|
|
|
12,800
|
|
|
|
22
|
|
|
|
|
|
|
|
111,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,792,699
|
|
|
$
|
867,964
|
|
|
$
|
442,093
|
|
|
$
|
190,858
|
|
|
$
|
3,850
|
|
|
$
|
(1,169
|
)
|
|
$
|
3,296,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
675,845
|
|
|
$
|
217,785
|
|
|
$
|
138,354
|
|
|
$
|
35,769
|
|
|
$
|
(144,045
|
)
|
|
$
|
|
|
|
$
|
923,708
|
|
Management fee
|
|
|
(34,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,376
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(151,573
|
)
|
|
|
(96,342
|
)
|
|
|
(30,227
|
)
|
|
|
(19,867
|
)
|
|
|
(7,008
|
)
|
|
|
393
|
|
|
|
(304,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
489,896
|
|
|
|
121,443
|
|
|
|
108,127
|
|
|
|
15,902
|
|
|
|
(116,677
|
)
|
|
|
393
|
|
|
|
619,084
|
|
Interest expense, net
|
|
|
(60,527
|
)
|
|
|
(33,943
|
)
|
|
|
(2,466
|
)
|
|
|
(120
|
)
|
|
|
(41,873
|
)
|
|
|
10,196
|
|
|
|
(128,733
|
)
|
Interest income
|
|
|
29,605
|
|
|
|
744
|
|
|
|
5,370
|
|
|
|
750
|
|
|
|
41,156
|
|
|
|
(10,196
|
)
|
|
|
67,429
|
|
Foreign currency transaction gains, net
|
|
|
2,559
|
|
|
|
14,595
|
|
|
|
1,244
|
|
|
|
507
|
|
|
|
103
|
|
|
|
|
|
|
|
19,008
|
|
Debt conversion expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,429
|
)
|
|
|
|
|
|
|
(26,429
|
)
|
Other income (expense), net
|
|
|
2,103
|
|
|
|
(127
|
)
|
|
|
1,594
|
|
|
|
2
|
|
|
|
(5,486
|
)
|
|
|
|
|
|
|
(1,914
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
463,636
|
|
|
$
|
102,712
|
|
|
$
|
113,869
|
|
|
$
|
17,041
|
|
|
$
|
(149,206
|
)
|
|
$
|
393
|
|
|
$
|
548,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
255,245
|
|
|
$
|
256,410
|
|
|
$
|
66,974
|
|
|
$
|
43,707
|
|
|
$
|
44,422
|
|
|
$
|
|
|
|
$
|
666,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,319,371
|
|
|
$
|
500,315
|
|
|
$
|
320,664
|
|
|
$
|
137,924
|
|
|
$
|
2,425
|
|
|
$
|
(777
|
)
|
|
$
|
2,279,922
|
|
Digital handset and accessory revenues
|
|
|
21,926
|
|
|
|
36,673
|
|
|
|
24,370
|
|
|
|
8,449
|
|
|
|
|
|
|
|
|
|
|
|
91,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,341,297
|
|
|
$
|
536,988
|
|
|
$
|
345,034
|
|
|
$
|
146,373
|
|
|
$
|
2,425
|
|
|
$
|
(777
|
)
|
|
$
|
2,371,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
530,684
|
|
|
$
|
115,144
|
|
|
$
|
98,996
|
|
|
$
|
26,078
|
|
|
$
|
(108,911
|
)
|
|
$
|
|
|
|
$
|
661,991
|
|
Depreciation and amortization
|
|
|
(105,867
|
)
|
|
|
(59,199
|
)
|
|
|
(20,141
|
)
|
|
|
(12,927
|
)
|
|
|
(4,481
|
)
|
|
|
393
|
|
|
|
(202,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
424,817
|
|
|
|
55,945
|
|
|
|
78,855
|
|
|
|
13,151
|
|
|
|
(113,392
|
)
|
|
|
393
|
|
|
|
459,769
|
|
Interest expense, net
|
|
|
(38,424
|
)
|
|
|
(23,961
|
)
|
|
|
(2,330
|
)
|
|
|
(145
|
)
|
|
|
(24,613
|
)
|
|
|
94
|
|
|
|
(89,379
|
)
|
Interest income
|
|
|
32,377
|
|
|
|
3,490
|
|
|
|
2,509
|
|
|
|
1,070
|
|
|
|
11,705
|
|
|
|
(94
|
)
|
|
|
51,057
|
|
Foreign currency transaction gains (losses), net
|
|
|
3,957
|
|
|
|
(387
|
)
|
|
|
(18
|
)
|
|
|
106
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
3,557
|
|
Debt conversion expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,070
|
)
|
|
|
|
|
|
|
(5,070
|
)
|
Other (expense) income, net
|
|
|
(3,173
|
)
|
|
|
(1,876
|
)
|
|
|
329
|
|
|
|
2
|
|
|
|
(1,282
|
)
|
|
|
|
|
|
|
(6,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
419,554
|
|
|
$
|
33,211
|
|
|
$
|
79,345
|
|
|
$
|
14,184
|
|
|
$
|
(132,753
|
)
|
|
$
|
393
|
|
|
$
|
413,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
308,254
|
|
|
$
|
201,828
|
|
|
$
|
61,718
|
|
|
$
|
37,575
|
|
|
$
|
18,050
|
|
|
$
|
|
|
|
$
|
627,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
986,936
|
|
|
$
|
321,655
|
|
|
$
|
248,262
|
|
|
$
|
108,544
|
|
|
$
|
1,886
|
|
|
$
|
(670
|
)
|
|
$
|
1,666,613
|
|
Digital handset and accessory revenues
|
|
|
26,384
|
|
|
|
25,875
|
|
|
|
21,310
|
|
|
|
5,657
|
|
|
|
|
|
|
|
|
|
|
|
79,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,013,320
|
|
|
$
|
347,530
|
|
|
$
|
269,572
|
|
|
$
|
114,201
|
|
|
$
|
1,886
|
|
|
$
|
(670
|
)
|
|
$
|
1,745,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
399,698
|
|
|
$
|
44,191
|
|
|
$
|
70,832
|
|
|
$
|
26,371
|
|
|
$
|
(56,331
|
)
|
|
$
|
|
|
|
$
|
484,761
|
|
Depreciation and amortization
|
|
|
(69,300
|
)
|
|
|
(31,768
|
)
|
|
|
(16,460
|
)
|
|
|
(8,718
|
)
|
|
|
(4,279
|
)
|
|
|
393
|
|
|
|
(130,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
330,398
|
|
|
|
12,423
|
|
|
|
54,372
|
|
|
|
17,653
|
|
|
|
(60,610
|
)
|
|
|
393
|
|
|
|
354,629
|
|
Interest expense, net
|
|
|
(28,670
|
)
|
|
|
(18,113
|
)
|
|
|
(5,407
|
)
|
|
|
(152
|
)
|
|
|
(20,202
|
)
|
|
|
74
|
|
|
|
(72,470
|
)
|
Interest income
|
|
|
22,465
|
|
|
|
1,941
|
|
|
|
661
|
|
|
|
880
|
|
|
|
6,738
|
|
|
|
(74
|
)
|
|
|
32,611
|
|
Foreign currency transaction gains, net
|
|
|
2,602
|
|
|
|
225
|
|
|
|
500
|
|
|
|
20
|
|
|
|
10
|
|
|
|
|
|
|
|
3,357
|
|
Debt conversion expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,930
|
)
|
|
|
|
|
|
|
(8,930
|
)
|
Other expense, net
|
|
|
(4,167
|
)
|
|
|
(3,817
|
)
|
|
|
(33
|
)
|
|
|
(11
|
)
|
|
|
(593
|
)
|
|
|
|
|
|
|
(8,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
322,628
|
|
|
$
|
(7,341
|
)
|
|
$
|
50,093
|
|
|
$
|
18,390
|
|
|
$
|
(83,587
|
)
|
|
$
|
393
|
|
|
$
|
300,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
208,286
|
|
|
$
|
150,159
|
|
|
$
|
52,562
|
|
|
$
|
25,152
|
|
|
$
|
33,707
|
|
|
$
|
|
|
|
$
|
469,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
13. Segment
Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
803,393
|
|
|
$
|
673,462
|
|
|
$
|
183,889
|
|
|
$
|
107,532
|
|
|
$
|
84,972
|
|
|
$
|
(166
|
)
|
|
$
|
1,853,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,297,580
|
|
|
$
|
1,540,227
|
|
|
$
|
444,125
|
|
|
$
|
231,018
|
|
|
$
|
923,952
|
|
|
$
|
(166
|
)
|
|
$
|
5,436,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Quarterly
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(in thousands, except per share amounts)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
714,765
|
|
|
$
|
786,984
|
|
|
$
|
854,403
|
|
|
$
|
940,143
|
|
Operating income
|
|
|
142,637
|
|
|
|
135,216
|
|
|
|
159,439
|
|
|
|
181,792
|
|
Net income
|
|
|
84,164
|
|
|
|
84,080
|
|
|
|
81,666
|
|
|
|
128,508
|
|
Net income, per common share, basic
|
|
$
|
0.52
|
|
|
$
|
0.52
|
|
|
$
|
0.48
|
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
0.47
|
|
|
$
|
0.47
|
|
|
$
|
0.46
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(in thousands, except per share amounts)
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
528,271
|
|
|
$
|
556,429
|
|
|
$
|
615,586
|
|
|
$
|
671,054
|
|
Operating income
|
|
|
112,109
|
|
|
|
111,587
|
|
|
|
105,615
|
|
|
|
130,458
|
|
Net income
|
|
|
64,998
|
|
|
|
55,903
|
|
|
|
65,688
|
|
|
|
107,901
|
|
Net income, per common share, basic
|
|
$
|
0.43
|
|
|
$
|
0.36
|
|
|
$
|
0.43
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
0.38
|
|
|
$
|
0.32
|
|
|
$
|
0.38
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2007 quarterly amounts presented above include a
$4.0 million reclassification from interest income to
operating revenues related to amounts received from Nextel
Brazils customers in connection with late payments.
Significant events that occurred during the fourth quarter of
2007 are described in Notes 1, 2, 7 and 11.
The sum of the per share amounts do not equal the annual amounts
due to changes in the number of weighted average number of
common shares outstanding during the year.
F-45
NII
HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Deductions
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
and Other
|
|
|
End of
|
|
|
|
Period
|
|
|
Expenses
|
|
|
Adjustments(1)
|
|
|
Period
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
15,928
|
|
|
$
|
46,360
|
|
|
$
|
(42,084
|
)
|
|
$
|
20,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
444,393
|
|
|
$
|
6,098
|
|
|
$
|
(391,840
|
)
|
|
$
|
58,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
11,677
|
|
|
$
|
30,327
|
|
|
$
|
(26,076
|
)
|
|
$
|
15,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
417,341
|
|
|
$
|
5,258
|
|
|
$
|
21,794
|
|
|
$
|
444,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
8,145
|
|
|
$
|
19,751
|
|
|
$
|
(16,219
|
)
|
|
$
|
11,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for deferred tax assets
|
|
$
|
365,136
|
|
|
$
|
21,179
|
|
|
$
|
31,026
|
|
|
$
|
417,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the impact of foreign currency translation adjustments. |
F-46
EXHIBIT INDEX
For periods before December 21, 2001, references to NII
Holdings, Inc. refer to Nextel International, Inc. the former
name of NII Holdings. All documents referenced below were filed
pursuant to the Securities Exchange Act of 1934 by NII Holdings,
file number 0-32421, unless otherwise indicated.
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
2.1
|
|
Revised Third Amended Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code for NII Holdings and NII
Holdings (Delaware), Inc. (incorporated by reference to
Exhibit 2.1 to NII Holdings
Form 8-K,
filed on November 12, 2002).
|
3.1
|
|
Restated Certificate of Incorporation of NII Holdings, Inc., as
amended (incorporated by reference to Exhibit 3.1 to NII
Holdings
Form 10-K,
filed on February 27, 2007).
|
3.2
|
|
Second Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit 3.1 to NII Holdings
Form 8-K,
filed on October 29, 2007).
|
4.1
|
|
Indenture governing our 2.75% convertible notes due 2025, dated
as of August 15, 2005, by and between NII Holdings and
Wilmington Trust Company, as Indenture Trustee
(incorporated by reference to Exhibit 4.1 to NII
Holdings
Form 10-Q,
filed on November 9, 2005).
|
4.2
|
|
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
(incorporated by reference to Exhibit 4.1 to NII
Holdings
Form 10-Q,
filed August 6, 2007).
|
10.1
|
|
Subscriber Unit Purchase Agreement, dated as of January 1,
2005, by and between NII Holdings and Motorola, Inc.
(incorporated by reference to Exhibit 10.1 to NII
Holdings
Form 10-K,
filed on March 22, 2006) (portions of this exhibit have
been omitted pursuant to a request for confidential treatment).
|
10.2
|
|
Amendment Number One to the Subscriber Unit Purchase Agreement
for NII Holdings, Inc., dated as of December 12, 2005,
between NII Holdings and Motorola, Inc. (incorporated by
reference to Exhibit 10.20 to NII Holdings
Form 10-K,
filed on March 22, 2006) (portions of this exhibit have
been omitted pursuant to a request for confidential treatment).
|
10.3
|
|
Amendment Number Three to the Subscriber Unit Purchase
Agreement, dated September 28, 2006, by and between NII
Holdings and Motorola, Inc. (incorporated by reference to
Exhibit 10.1 to NII Holdings
Form 10-Q,
filed on November 6, 2006) (portions of this exhibit have
been omitted pursuant to a request for confidential treatment).
|
10.4
|
|
Amendment 003 to iDEN Subscriber Supply Agreement, dated
December 10, 2001, between NII Holdings and Motorola, Inc.
(incorporated by reference to Exhibit 10.51 to NII
Holdings
Form 10-K,
filed on March 29, 2002).
|
10.5
|
|
Form of iDEN Installation Services Agreement, dated
August 14, 2000 by and between NII Holdings, Motorola, Inc.
and each of Nextel, Telecomunicações Ltda., Nextel
Argentina S.R.L., Nextel de Mexico, S.A. de C.V., Nextel del
Peru, S.A. and Nextel Communications Philippines, Inc.
(incorporated by reference to Exhibit 10.1 to NII
Holdings
Form 8-K,
filed on December 22, 2000).
|
10.6
|
|
Form of Amendment 001 to iDEN Infrastructure Installation
Services Agreement, dated as of January 1, 2005, by and
between NII Holdings, Motorola, Inc. and each of Nextel
Argentina, S.A., Nextel Telecomunicacoes, Ltda., Communicaciones
Nextel de Mexico, S.A. de C.V. and Nextel del Peru, S.A.
(incorporated by reference to Exhibit 10.4 to NII
Holdings
Form 10-K,
filed on March 22, 2006).
|
10.7
|
|
Form of iDEN Infrastructure Equipment Supply Agreement dated
August 14, 2000 by and between NII Holdings, Motorola, Inc.
and each of Nextel Telecommunicacoes Ltda., Nextel Argentina
S.R.L., Nextel de Mexico, S.A. de C.V., Nextel del Peru, S.A.
and Nextel Communications Philippines, Inc. (incorporated by
reference to Exhibit 10.2 to NII Holdings
Form 8-K,
filed on December 22, 2000).
|
10.8
|
|
Amendment 003 to iDEN Infrastructure Equipment Supply Agreement,
dated December 7, 2001, between NII Holdings, Motorola,
Inc., Nextel Argentina, S.A., Nextel Telecomunicações
Ltda., Comunicaciones Nextel de México, S.A. de C.V.,
Nextel del Peru S.A. and Nextel Communications Philippines, Inc.
(incorporated by reference to Exhibit 10.48 to NII
Holdings
Form 10-K,
filed on March 29, 2002).
|
10.9
|
|
Form of Amendment 005 to iDEN Infrastructure Supply Agreement,
dated as of December 15, 2004, between NII Holdings,
Motorola, Inc. and each of Nextel Telecommunicacoes Ltda.,
Nextel Argentina S.R.L., Comunicaciones Nextel de Mexico, S.A.
de C.V. and Nextel del Peru, S.A. (incorporated by reference to
Exhibit 10.11 to NII Holdings
Form 10-K,
filed on March 31, 2005).
|
10.10
|
|
Form of Amendment 006 to the iDEN Infrastructure Equipment
Supply Agreement, dated as of January 1, 2005, between NII
Holdings, Motorola, Inc. and each of Nextel Communications
Argentina, S.A., Nextel Telecomunicacoes Ltda., Communicaciones
Nextel de Mexico, S.A. de C.V. and Nextel del Peru, S.A.
(incorporated by reference to Exhibit 10.9 to NII
Holdings
Form 10-K,
filed on March 22, 2006) (portions of this exhibit have
been omitted pursuant to a request for confidential treatment).
|
92
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
10.11
|
|
Form of Amendment 007A to the iDEN Infrastructure Equipment
Supply Agreement, dated September 28, 2006, between NII
Holdings, Motorola, Inc. and each of Nextel Communications
Argentina, S.A., Nextel Telecomunicacoes, Ltda., Centennial
Cayman Corp. Chile, S.A., Comunicaciones Nextel de Mexico, S.A.
de C.V. and Nextel del Peru, S.A. (incorporated by reference to
Exhibit 10.2 to NII Holdings
Form 10-Q,
filed on November 6, 2006) (portions of this exhibit have
been omitted pursuant to a request for confidential treatment).
|
10.12
|
|
Amended and Restated Credit Agreement, dated as of June 27,
2006, by and among Communicaciones Nextel de Mexico, S.A. de
C.V., the financial institutions thereto, as lenders, Citibank,
N.A., Citigroup Global Markets, Inc. and Scotiabank Inverlat,
S.A. (incorporated by reference to Exhibit 10.1 to NII
Holdings
Form 10-Q,
filed on August 7, 2006).
|
10.13
|
|
Term Facility Agreement A/B, dated as of September 14,
2007, by and among Nextel Telecomunicacoes Ltda., Nederlandse
Financierings-Maatschappij Voor Ontwikkelingslanden N.V., as
lender, and Standard Bank Offshore Trust Company Jersey
Limited, as Security Agent (incorporated by reference to
Exhibit 10.1 to NII Holdings
Form 10-Q,
filed on November 6, 2007).
|
10.14
|
|
Third Amended and Restated Trademark License Agreement, dated as
of November 12, 2002, between Nextel Communications, Inc.
and NII Holdings (incorporated by reference to
Exhibit 10.12 to NII Holdings
Form S-1,
File
No. 333-102077,
filed on December 20, 2002).
|
10.15*
|
|
Management Incentive Plan, dated as of November 12, 2002
(incorporated by reference to Exhibit 99.1 to NII
Holdings Registration Statement on
Form S-8,
filed on November 12, 2002).
|
10.16
|
|
Spectrum Use and Build Out Agreement, dated as of
November 12, 2002 (incorporated by reference to
Exhibit 10.22 to NII Holdings
Form 10-K,
filed on March 27, 2003).
|
10.17
|
|
Registration Rights Agreement related to our 2.75% convertible
notes due 2025, dated as of August 15, 2005, by and between
NII Holdings, and Goldman, Sachs & Co. (incorporated
by reference to Exhibit 10.2 to NII Holdings
Form 10-Q,
filed on November 9, 2005).
|
10.18
|
|
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 (incorporated by
reference to Exhibit 10.1 to NII Holdings
Form 10-Q,
filed August 6, 2007).
|
10.19
|
|
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 (incorporated by
reference to Exhibit 10.2 to NII Holdings
Form 10-Q,
filed August 6, 2007).
|
10.20*
|
|
Form of NII Holdings Change of Control Severance Plan
(incorporated by reference to Exhibit 10.26 to NII
Holdings
Form 10-K,
filed on March 12, 2004).
|
10.21*
|
|
2004 Incentive Compensation Plan (incorporated by reference to
Exhibit 4.1 to NII Holdings
Form S-8,
File
No. 333-117394,
filed on July 15, 2004).
|
10.22*
|
|
Form of Executive Officer Restricted Stock Award Agreement
(incorporated by reference to Exhibit 10.1 to NII
Holdings
Form 8-K,
filed on May 2, 2006).
|
10.23*
|
|
Form of Executive Officer Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 10.2 to NII
Holdings
Form 8-K,
filed on May 2, 2006).
|
10.24*
|
|
Form of Non-employee Director Restricted Stock Award Agreement
(incorporated by reference to Exhibit 10.3 to NII
Holdings
Form 8-K,
filed on May 2, 2006).
|
10.25*
|
|
Form of Non-employee Director Nonqualified Stock Option
Agreement (incorporated by reference to Exhibit 10.4 to NII
Holdings
Form 8-K,
filed on May 2, 2006).
|
10.26*
|
|
Outside Directors Deferral Plan (filed herewith).
|
10.28
|
|
Employment Letter Agreement dated January 30, 2007 between
NII Holdings, Inc. and Jose Felipe (incorporated by reference to
Exhibit 10.1 to NII Holdings
Form 10-Q,
filed on May 7, 2007).
|
10.29
|
|
Employment Letter Agreement dated February 21, 2007 between
NII Holdings, Inc. and Peter A. Foyo (incorporated by reference
to Exhibit 10.2 to NII Holdings
Form 10-Q,
filed on May 7, 2007).
|
12.1
|
|
Ratio of Earnings to Fixed Charges (filed herewith).
|
14.1
|
|
Code of Business Conduct and Ethics (incorporated by reference
to Exhibit 14.1 to NII Holdings
Form 10-K,
filed on March 12, 2004).
|
21.1
|
|
Subsidiaries of NII Holdings (filed herewith).
|
23.1
|
|
Consent of PricewaterhouseCoopers LLP (filed herewith).
|
31.1
|
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a)
(filed herewith).
|
31.2
|
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a)
(filed herewith).
|
93
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
32.1
|
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 (filed herewith).
|
32.2
|
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 (filed herewith).
|
|
|
|
* |
|
Indicates Management Compensatory Plan. |
94