e10vq
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30, 2008
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the
transition period
from to
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Commission file
number: 0-32421
NII HOLDINGS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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91-1671412
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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1875 Explorer Street, Suite 1000
Reston, Virginia
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20190
(Zip Code)
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(Address of Principal Executive
Offices)
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(703) 390-5100
(Registrants
Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and
Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant 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)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Number of Shares Outstanding
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Title of Class
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on August 1, 2008
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Common Stock, $0.001 par value per share
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165,694,742
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NII
HOLDINGS, INC. AND SUBSIDIARIES
INDEX
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Page
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Part I. Financial Information.
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Item 1.
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Financial Statements (Unaudited)
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Condensed Consolidated Balance Sheets As of
June 30, 2008 and December 31, 2007
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2
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Condensed Consolidated Statements of Operations and
Comprehensive Income For the Six and Three Months
Ended June 30, 2008 and 2007
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3
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Condensed Consolidated Statement of Changes in
Stockholders Equity For the Six Months Ended
June 30, 2008
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4
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Condensed Consolidated Statements of Cash Flows For
the Six Months Ended June 30, 2008 and 2007
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5
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Notes to Condensed Consolidated Financial Statements
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6
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Item 2.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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19
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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49
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Item 4.
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Controls and Procedures
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51
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Part II. Other Information.
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Item 1.
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Legal Proceedings
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52
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Item 1A.
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Risk Factors
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52
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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52
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Item 4.
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Submission of Matters to a Vote of Security Holders
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53
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Item 6.
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Exhibits
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53
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1
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements.
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NII
HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)
Unaudited
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June 30,
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December 31,
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2008
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2007
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ASSETS
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Current assets
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Cash and cash equivalents
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$
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1,279,780
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$
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1,370,165
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Short-term investments
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165,539
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241,764
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Accounts receivable, less allowance for doubtful accounts of
$30,644 and $20,204
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544,928
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438,348
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Handset and accessory inventory
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177,283
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|
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107,314
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Deferred income taxes, net
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150,613
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121,512
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Prepaid expenses and other
|
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131,872
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|
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110,736
|
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|
|
|
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Total current assets
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2,450,015
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|
|
|
2,389,839
|
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Property, plant and equipment, net
|
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2,239,116
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1,853,082
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Intangible assets, net
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421,521
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410,447
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Deferred income taxes, net
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601,947
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541,406
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Other assets
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301,700
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|
|
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241,962
|
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|
|
|
|
|
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Total assets
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$
|
6,014,299
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|
|
$
|
5,436,736
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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|
|
|
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Accounts payable
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$
|
141,241
|
|
|
$
|
125,040
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Accrued expenses and other
|
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|
501,890
|
|
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436,703
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Deferred revenues
|
|
|
130,734
|
|
|
|
109,640
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|
Accrued interest
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|
12,643
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|
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|
12,439
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Current portion of long-term debt
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76,171
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70,448
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Total current liabilities
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862,679
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754,270
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Long-term debt
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2,341,271
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2,196,069
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Deferred revenues
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31,302
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32,892
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Deferred credits
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148,579
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158,621
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Other long-term liabilities
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157,730
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126,511
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Total liabilities
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3,541,561
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|
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3,268,363
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Commitments and contingencies (Note 5)
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Stockholders equity
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Undesignated preferred stock, par value $0.001,
10,000 shares authorized 2008 and 2007, no
shares issued or outstanding 2008 and 2007
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Common stock, par value $0.001, 600,000 shares
authorized 2008 and 2007, 165,575 shares issued
and outstanding 2008, 169,910 shares issued and
outstanding 2007
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|
166
|
|
|
|
170
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|
Paid-in capital
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924,188
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|
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1,091,672
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Retained earnings
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|
1,272,642
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|
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1,003,799
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Accumulated other comprehensive income
|
|
|
275,742
|
|
|
|
72,732
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|
|
|
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Total stockholders equity
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2,472,738
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2,168,373
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Total liabilities and stockholders equity
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$
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6,014,299
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$
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5,436,736
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
NII
HOLDINGS, INC. AND SUBSIDIARIES
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
Unaudited
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Six Months Ended
|
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Three Months Ended
|
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June 30,
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June 30,
|
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2008
|
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2007
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2008
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2007
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Operating revenues
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|
|
|
|
|
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|
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Service and other revenues
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|
$
|
1,990,803
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|
|
$
|
1,451,840
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|
|
$
|
1,043,039
|
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$
|
759,999
|
|
Digital handset and accessory revenues
|
|
|
106,368
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|
|
|
49,909
|
|
|
|
60,915
|
|
|
|
26,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,097,171
|
|
|
|
1,501,749
|
|
|
|
1,103,954
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|
|
|
786,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
542,992
|
|
|
|
387,103
|
|
|
|
284,065
|
|
|
|
204,019
|
|
Cost of digital handsets and accessories
|
|
|
293,398
|
|
|
|
207,649
|
|
|
|
159,127
|
|
|
|
110,755
|
|
Selling, general and administrative
|
|
|
669,957
|
|
|
|
489,448
|
|
|
|
355,888
|
|
|
|
264,306
|
|
Depreciation
|
|
|
182,778
|
|
|
|
136,325
|
|
|
|
96,564
|
|
|
|
70,961
|
|
Amortization
|
|
|
16,527
|
|
|
|
3,371
|
|
|
|
8,589
|
|
|
|
1,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,705,652
|
|
|
|
1,223,896
|
|
|
|
904,233
|
|
|
|
651,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
391,519
|
|
|
|
277,853
|
|
|
|
199,721
|
|
|
|
135,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(81,626
|
)
|
|
|
(53,982
|
)
|
|
|
(40,238
|
)
|
|
|
(29,653
|
)
|
Interest income
|
|
|
36,528
|
|
|
|
22,682
|
|
|
|
17,588
|
|
|
|
12,470
|
|
Foreign currency transaction gains, net
|
|
|
40,306
|
|
|
|
5,799
|
|
|
|
37,401
|
|
|
|
9,331
|
|
Other (expense) income, net
|
|
|
(5,175
|
)
|
|
|
633
|
|
|
|
(646
|
)
|
|
|
(1,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,967
|
)
|
|
|
(24,868
|
)
|
|
|
14,105
|
|
|
|
(9,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
381,552
|
|
|
|
252,985
|
|
|
|
213,826
|
|
|
|
126,170
|
|
Income tax provision
|
|
|
(112,709
|
)
|
|
|
(84,741
|
)
|
|
|
(58,552
|
)
|
|
|
(42,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
268,843
|
|
|
$
|
168,244
|
|
|
$
|
155,274
|
|
|
$
|
84,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, basic
|
|
$
|
1.60
|
|
|
$
|
1.04
|
|
|
$
|
0.93
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, per common share, diluted
|
|
$
|
1.52
|
|
|
$
|
0.94
|
|
|
$
|
0.88
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
168,129
|
|
|
|
162,371
|
|
|
|
166,907
|
|
|
|
162,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
187,025
|
|
|
|
185,883
|
|
|
|
185,899
|
|
|
|
185,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
202,568
|
|
|
$
|
42,090
|
|
|
$
|
240,601
|
|
|
$
|
47,005
|
|
Reclassification for gains on derivatives included in other
(expense) income, net
|
|
|
146
|
|
|
|
395
|
|
|
|
64
|
|
|
|
42
|
|
Unrealized gains on derivatives, net
|
|
|
297
|
|
|
|
361
|
|
|
|
289
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
203,011
|
|
|
|
42,846
|
|
|
|
240,954
|
|
|
|
47,170
|
|
Net income
|
|
|
268,843
|
|
|
|
168,244
|
|
|
|
155,274
|
|
|
|
84,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
471,854
|
|
|
$
|
211,090
|
|
|
$
|
396,228
|
|
|
$
|
131,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the Six Months Ended June 30, 2008
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Equity
|
|
|
Balance, January 1, 2008
|
|
|
169,910
|
|
|
$
|
170
|
|
|
$
|
1,091,672
|
|
|
$
|
1,003,799
|
|
|
$
|
72,732
|
|
|
$
|
2,168,373
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268,843
|
|
|
|
|
|
|
|
268,843
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,010
|
|
|
|
203,010
|
|
Purchase of common stock
|
|
|
(5,555
|
)
|
|
|
(5
|
)
|
|
|
(242,665
|
)
|
|
|
|
|
|
|
|
|
|
|
(242,670
|
)
|
Share-based payment expense for equity-based awards
|
|
|
|
|
|
|
|
|
|
|
35,226
|
|
|
|
|
|
|
|
|
|
|
|
35,226
|
|
Exercise of stock options
|
|
|
1,220
|
|
|
|
1
|
|
|
|
28,639
|
|
|
|
|
|
|
|
|
|
|
|
28,640
|
|
Tax benefit on exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
2,877
|
|
|
|
|
|
|
|
|
|
|
|
2,877
|
|
Tax benefit on prior periods stock option exercises
|
|
|
|
|
|
|
|
|
|
|
8,439
|
|
|
|
|
|
|
|
|
|
|
|
8,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008
|
|
|
165,575
|
|
|
$
|
166
|
|
|
$
|
924,188
|
|
|
$
|
1,272,642
|
|
|
$
|
275,742
|
|
|
$
|
2,472,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
NII
HOLDINGS, INC. AND SUBSIDIARIES
For the Six Months Ended June 30, 2008 and 2007
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
268,843
|
|
|
$
|
168,244
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Amortization of debt financing costs
|
|
|
4,463
|
|
|
|
2,603
|
|
Depreciation and amortization
|
|
|
199,305
|
|
|
|
139,696
|
|
Provision for losses on accounts receivable
|
|
|
39,211
|
|
|
|
21,804
|
|
Foreign currency transaction gains, net
|
|
|
(40,306
|
)
|
|
|
(5,799
|
)
|
Deferred income tax (benefit) provision
|
|
|
(27,018
|
)
|
|
|
25,662
|
|
Utilization of deferred credit
|
|
|
|
|
|
|
(3,729
|
)
|
Share-based payment expense
|
|
|
35,392
|
|
|
|
29,448
|
|
Excess tax benefit from share-based payment
|
|
|
(7,953
|
)
|
|
|
(2,505
|
)
|
Accretion of asset retirement obligations
|
|
|
3,643
|
|
|
|
2,868
|
|
Loss on short-term investments
|
|
|
2,955
|
|
|
|
|
|
Other, net
|
|
|
2,020
|
|
|
|
735
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(112,927
|
)
|
|
|
(74,083
|
)
|
Handset and accessory inventory
|
|
|
(64,673
|
)
|
|
|
(42,977
|
)
|
Prepaid expenses and other
|
|
|
(15,388
|
)
|
|
|
(45,852
|
)
|
Other long-term assets
|
|
|
(45,577
|
)
|
|
|
(34,708
|
)
|
Accounts payable, accrued expenses and other
|
|
|
55,419
|
|
|
|
34,846
|
|
Current deferred revenue
|
|
|
13,830
|
|
|
|
9,720
|
|
Other long-term liabilities
|
|
|
4,766
|
|
|
|
1,909
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
316,005
|
|
|
|
227,882
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(423,773
|
)
|
|
|
(361,135
|
)
|
Payments for acquisitions, purchases of licenses and other
|
|
|
(4,275
|
)
|
|
|
(15,365
|
)
|
Proceeds from sales of short-term investments
|
|
|
355,013
|
|
|
|
|
|
Purchase of short-term investments
|
|
|
(273,888
|
)
|
|
|
|
|
Other
|
|
|
(45
|
)
|
|
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(346,968
|
)
|
|
|
(377,345
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments to purchase common stock
|
|
|
(242,665
|
)
|
|
|
(329,980
|
)
|
Proceeds from issuance of convertible notes
|
|
|
|
|
|
|
1,200,000
|
|
Borrowings under syndicated loan facilities
|
|
|
125,000
|
|
|
|
|
|
Repayments under syndicated loan facilities
|
|
|
(31,922
|
)
|
|
|
(9,152
|
)
|
Proceeds from stock option exercises
|
|
|
28,639
|
|
|
|
77,974
|
|
Payment of debt financing costs
|
|
|
|
|
|
|
(22,532
|
)
|
Excess tax benefit from share-based payment
|
|
|
7,953
|
|
|
|
2,505
|
|
Proceeds from tower financing transactions
|
|
|
27,271
|
|
|
|
7,453
|
|
Repayments under capital leases, license financing, tower
financing and other transactions
|
|
|
(5,710
|
)
|
|
|
(2,578
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(91,434
|
)
|
|
|
923,690
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
32,012
|
|
|
|
(575
|
)
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(90,385
|
)
|
|
|
773,652
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,370,165
|
|
|
|
708,591
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,279,780
|
|
|
$
|
1,482,243
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
|
|
Note 1.
|
Basis of
Presentation
|
General. Our unaudited condensed
consolidated financial statements have been prepared under the
rules and regulations of the Securities and Exchange Commission,
or the SEC. While they do not include all of the information and
footnotes required by accounting principles generally accepted
in the United States of America for complete financial
statements, they reflect all adjustments that, in the opinion of
management, are necessary for a fair presentation of the results
for interim periods. In addition, the year-end condensed
consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by accounting principles generally accepted in the
United States of America.
You should read these condensed consolidated financial
statements in conjunction with the consolidated financial
statements and notes contained in our 2007 annual report on
Form 10-K
and our quarterly report on
Form 10-Q
for the quarter ended March 31, 2008. You should not expect
results of operations for interim periods to be an indication of
the results for a full year.
Accumulated Other Comprehensive
Income. The components of our accumulated
other comprehensive income, net of taxes, are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Cumulative foreign currency translation adjustment
|
|
$
|
277,200
|
|
|
$
|
74,633
|
|
Unrealized losses on derivatives
|
|
|
(1,458
|
)
|
|
|
(1,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
275,742
|
|
|
$
|
72,732
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$
|
423,773
|
|
|
$
|
361,135
|
|
Change in capital expenditures accrued and unpaid or financed,
including accreted interest capitalized
|
|
|
11,509
|
|
|
|
(19,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
435,282
|
|
|
$
|
341,389
|
|
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
81,626
|
|
|
$
|
53,982
|
|
Interest capitalized
|
|
|
4,169
|
|
|
|
3,186
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
85,795
|
|
|
$
|
57,168
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
|
$
|
54,613
|
|
|
$
|
36,766
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
127,009
|
|
|
$
|
70,608
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2008 and 2007, we had
$7.1 million and $11.3 million, respectively, in
non-cash
financing activities related to co-location capital lease
obligations on our communication towers.
Net Income Per Common Share, Basic and
Diluted. Basic net income per common share
includes no dilution and is computed by dividing net income by
the weighted average number of common shares outstanding for the
period. Diluted net income per common share reflects the
potential dilution of securities that could participate in our
earnings.
6
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As presented for the six and three months ended June 30,
2008, our calculation of diluted net income per share includes
common shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 3.125%
convertible notes and our 2.75% convertible notes.
As presented for the six and three months ended June 30,
2007, our calculation of diluted net income per share includes
common shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans and our restricted stock, as well as common
shares resulting from the potential conversion of our 2.875%
convertible notes and our 2.75% convertible notes. We did not
include the common shares resulting from the potential
conversion of our 3.125% convertible notes that we issued in the
second quarter of 2007, since their effect would have been
antidilutive to our net income per common share.
The following tables provide a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our condensed consolidated
statements of operations for the six and three months ended
June 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
Six Months Ended June 30, 2007
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
268,843
|
|
|
|
168,129
|
|
|
$
|
1.60
|
|
|
$
|
168,244
|
|
|
|
162,371
|
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
1,524
|
|
|
|
|
|
|
|
|
|
|
|
4,480
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
774
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
15,807
|
|
|
|
17,132
|
|
|
|
|
|
|
|
5,797
|
|
|
|
18,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
284,650
|
|
|
|
187,025
|
|
|
$
|
1.52
|
|
|
$
|
174,041
|
|
|
|
185,883
|
|
|
$
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
Three Months Ended June 30, 2007
|
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
Income
|
|
|
Shares
|
|
|
Per Share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
(in thousands, except per share data)
|
|
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
155,274
|
|
|
|
166,907
|
|
|
$
|
0.93
|
|
|
$
|
84,080
|
|
|
|
162,867
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
1,584
|
|
|
|
|
|
|
|
|
|
|
|
4,193
|
|
|
|
|
|
Restricted stock
|
|
|
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
527
|
|
|
|
|
|
Convertible notes, net of capitalized interest and taxes
|
|
|
7,871
|
|
|
|
17,132
|
|
|
|
|
|
|
|
2,859
|
|
|
|
18,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
163,145
|
|
|
|
185,899
|
|
|
$
|
0.88
|
|
|
$
|
86,939
|
|
|
|
185,845
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of Common Stock. In January
2008, our Board of Directors authorized a program to purchase
shares of our common stock for cash. The Board approved the
purchase of shares having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. During the first half of 2008, we
7
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
purchased a total of 5,555,033 shares of our common stock
for $242.7 million. During the second quarter of 2007, we
purchased a total of 4,043,725 shares of our common stock
for $330.0 million under our first program to purchase
shares of our common stock for cash, which was approved by our
Board of Directors in May 2007. We treat purchases under both
programs as effective retirements of the purchased shares and
therefore reduce our reported shares issued and outstanding by
the number of shares purchased. In addition, we record the
excess of the purchase price over the par value of the common
stock as a reduction to paid-in capital.
Reclassifications. We have reclassified
certain prior year amounts in our unaudited condensed
consolidated financial statements to conform to our current year
presentation. Specifically, for the six and three months ended
June 30, 2007, we corrected the classification of
$11.8 million and $6.0 million, respectively, from
cost of service to cost of digital handset and accessory sales
related to costs incurred in connection with replacement
handsets sold to current customers. These revisions did not have
a material impact on previously reported balances.
New Accounting Pronouncements. In
September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, or SFAS 157, which
provides guidance for using fair value to measure assets and
liabilities when required for recognition or disclosure
purposes. SFAS No. 157 does not expand the use of fair
value or determine when fair value should be used in the
financial statements. 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 No. 157-1,
in order to amend SFAS No. 157 to exclude from its
scope FASB Statement No. 13, Accounting for
Leases, or SFAS No. 13, and other accounting
pronouncements that address fair value measurements for purposes
of lease classification or measurement. In addition, in February
2008, the FASB issued Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, or
FSP
No. 157-2,
which defers the effective date of SFAS No. 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 on a
recurring basis (at least annually). In accordance with FSP
No. 157-2,
we partially adopted SFAS No. 157 for financial assets
and liabilities in the first quarter of fiscal year 2008.
SFAS No. 157 did not have a material impact on our
condensed consolidated financial statements. See Note 2 for
additional information and related disclosures regarding our
fair value measurements.
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, or SFAS No. 159.
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 adopted
SFAS No. 159 in the first quarter of fiscal year 2008.
SFAS No. 159 did not have a material impact on our
condensed consolidated financial statements as we elected not to
measure any eligible items at fair value.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations, or
SFAS No. 141(R), which replaces
SFAS No. 141. SFAS No. 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, the goodwill acquired and the expenses incurred
in connection with the acquisition. SFAS No. 141(R)
also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business
combination. SFAS No. 141(R) is effective for fiscal
years beginning after December 15, 2008. Earlier adoption
is not permitted. As a result, we will apply the provisions of
SFAS No. 141(R) prospectively to business combinations
that close on or after January 1, 2009. We are currently
evaluating the impact, if any, the adoption of
SFAS No. 141(R) may have on our condensed consolidated
financial statements.
8
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 No. 160.
SFAS No. 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 No. 160 also
establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS No. 160
is effective for fiscal years beginning after December 15,
2008. Earlier adoption is not permitted. We do not believe that
its adoption will have a material impact on our condensed
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities An Amendment of FASB Statement
No. 133 or SFAS No. 161, which amends and
expands the disclosure requirements of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities to require qualitative disclosure about
objectives and strategies in using derivatives, quantitative
disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about the underlying
credit-risk-related contingent features in derivative
agreements. SFAS No. 161 is intended to improve
financial reporting by requiring transparency about the location
and amounts of derivative instruments in an entitys
financial statements; how derivative instruments and related
hedged items are accounted for under SFAS No. 133; and
how derivative instruments and related hedged items affect its
financial position, financial performance and cash flows.
SFAS No. 161 is effective for financial statements
issued for fiscal years beginning after November 15, 2008.
We are currently evaluating the potential impact, if any, that
the adoption of SFAS No. 161 may have on our condensed
consolidated financial statements.
In April 2008, the FASB issued Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible
Assets, or FSP
FAS 142-3.
FSP
FAS 142-3
amends the factors considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill
and Other Intangible Assets in order to improve the
consistency between the useful life of the recognized intangible
asset and the period of expected cash flows used to measure the
fair value of the asset. FSP
FAS 142-3
applies to: (1) intangible assets that are acquired
individually or with a group of other assets, and
(2) intangible assets acquired both in business
combinations and asset acquisitions. FSP
FAS 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is prohibited. We are
currently evaluating the potential impact, if any, the adoption
of FSP
FAS 142-3
may have on our condensed consolidated financial statements.
In May 2008, the FASB issued Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), or FSP APB
14-1. FSP
APB 14-1
requires that issuers of certain convertible debt instruments
that may be settled in cash upon conversion, including partial
cash settlement, separately account for the liability and equity
components (ie. the embedded conversion option) and recognize
the accretion of the resulting discount on the debt as interest
expense. FSP APB
14-1 is
effective for fiscal years beginning after December 15,
2008 and for interim periods within those fiscal years. It is
required to be applied retrospectively to convertible debt
instruments that were outstanding during any period presented in
the financial statements issued after the effective date. We are
currently quantifying the effect the adoption of
FSP APB 14-1
will have on our convertible notes and our consolidated
financial statements. We believe that the adoption of FSP APB
14-1 in 2009
will result in an increase in the amount of non-cash interest
expense with respect to our convertible debt securities and a
corresponding reduction in our reported net income and diluted
earnings per share for all periods presented in our consolidated
financial statements.
9
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 2.
|
Fair
Value Measurements
|
On January 1, 2008, we adopted SFAS No. 157 for
financial assets and liabilities. SFAS No. 157 defines
fair value, provides guidance for measuring fair value and
requires certain disclosures with respect to the processes used
to measure the fair value of financial assets and liabilities.
SFAS No. 157 does not require any new fair value
measurements, but rather applies to all other accounting
pronouncements that require or permit fair value measurements.
SFAS No. 157 clarifies that fair value is an exit
price, representing the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a
market-based measurement that is determined based on assumptions
that market participants would use in pricing an asset or
liability. Valuation techniques discussed under
SFAS No. 157 include the market approach (comparable
market prices), the income approach (present value of future
income or cash flow based on current market expectations) and
the cost approach (cost to replace the service capacity of an
asset or replacement cost). SFAS No. 157 utilizes a
three-tier fair value hierarchy, which prioritizes the inputs to
the valuation techniques used to measure fair value. The
following is a brief description of the three levels in the fair
value hierarchy:
Level 1: Observable inputs such as quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2: Inputs other than quoted prices
in active markets that are observable for the asset or
liability, either directly or indirectly.
Level 3: Unobservable inputs that reflect
the reporting entitys own assumptions.
The following table summarizes the financial instruments
measured at fair value on a recurring basis in the accompanying
condensed consolidated balance sheet as of June 30, 2008
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2008
|
|
|
Fair Value as of
|
|
|
|
Using the Fair Value Hierarchy
|
|
|
June 30,
|
|
Short-Term Investments
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
2008
|
|
|
Available for sale securities Nextel Brazil
investments
|
|
$
|
41,334
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,334
|
|
Available for sale securities Enhanced cash fund
|
|
|
|
|
|
|
124,205
|
|
|
|
|
|
|
|
124,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,334
|
|
|
$
|
124,205
|
|
|
$
|
|
|
|
$
|
165,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our short-term investments are composed of $41.3 million in
investments made by Nextel Brazil in three different investment
funds and a $124.2 million investment in an enhanced cash
fund that invests primarily in asset backed securities. We
classify these investments as available for sale securities
under SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities.
Two of the Nextel Brazil investment funds invest primarily in
Brazilian government bonds, long-term, low-risk bank
certificates of deposit and Brazilian corporate debentures,
while the third investment fund invests solely in long-term,
low-risk bank certificates of deposit. The net asset values of
the investments were determined using Level 1 inputs within
the fair value hierarchy because their net asset values trade
with sufficient observable activity to support the Level 1
fair value measurement.
We received $114.7 million in distributions in the first
half of 2008 from our investment in the enhanced cash fund. As
of June 30, 2008, the net asset value per unit of interest
in the enhanced cash fund had declined to $0.97 from $0.99 as of
December 31, 2007. We determined the net asset value of
this investment using Level 2 inputs within the fair value
hierarchy because the underlying assets to the fund are fair
valued in observable markets or with corroborating observable
market data. Due to the changing credit market conditions, we
evaluated the decline in the market value of the enhanced cash
fund and determined that unrealized losses related to that fund
should be recognized as other-than-temporary. As a result, we
recognized a $2.9 million pre-tax loss related to the
decline in
10
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the fair value of our investment in the enhanced cash fund
during the first quarter of 2008. We did not recognize any
other-than-temporary losses related to the fund during the
second quarter of 2008 as the net asset value of the fund
remained stable. In accordance with our accounting policy, we
will continue to assess future declines in fair value to
determine whether additional losses should be realized.
We expect that substantially all of the enhanced cash fund will
be liquidated by June 30, 2009. In addition, we have the
right at our option to receive an in-kind distribution of the
underlying assets in the enhanced cash fund. Currently,
decisions regarding the sale of the investments held by the
enhanced cash fund are made by the fund manager. If we were to
elect to receive the in-kind distribution, we could actively
manage the investment decisions with respect to the underlying
assets, including electing to sell those assets or hold them to
maturity, rather than relying on the fund manager to make those
decisions. As a result of this right to elect to receive an
in-kind distribution, we classified our investment in the fund
as a current asset as of June 30, 2008.
As of June 30, 2008, no assets or liabilities are measured
at fair value on a nonrecurring basis.
|
|
Note 3.
|
Intangible
Assets
|
Our intangible assets consist of our licenses, customer base and
trade name, all of which have finite useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
476,679
|
|
|
$
|
(55,158
|
)
|
|
$
|
421,521
|
|
|
$
|
446,222
|
|
|
$
|
(35,775
|
)
|
|
$
|
410,447
|
|
Customer base
|
|
|
45,049
|
|
|
|
(45,049
|
)
|
|
|
|
|
|
|
42,617
|
|
|
|
(42,617
|
)
|
|
|
|
|
Trade name and other
|
|
|
1,939
|
|
|
|
(1,939
|
)
|
|
|
|
|
|
|
1,796
|
|
|
|
(1,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
523,667
|
|
|
$
|
(102,146
|
)
|
|
$
|
421,521
|
|
|
$
|
490,635
|
|
|
$
|
(80,188
|
)
|
|
$
|
410,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based solely on the carrying amount of amortizable intangible
assets existing as of June 30, 2008 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
|
|
$
|
32,163
|
|
2009
|
|
|
31,953
|
|
2010
|
|
|
31,953
|
|
2011
|
|
|
31,953
|
|
2012
|
|
|
31,953
|
|
Actual amortization expense to be reported in future periods
could differ from these estimates as a result of additional
acquisitions of intangibles, as well as changes in exchange
rates and other relevant factors. During the three months ended
June 30, 2008 and 2007, we did not acquire, dispose of or
write down any goodwill or intangible assets with indefinite
useful lives.
11
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in thousands)
|
|
|
3.125% convertible notes due 2012
|
|
$
|
1,200,000
|
|
|
$
|
1,200,000
|
|
2.75% convertible notes due 2025
|
|
|
349,996
|
|
|
|
349,996
|
|
Brazil syndicated loan facility
|
|
|
300,000
|
|
|
|
175,000
|
|
Mexico syndicated loan facility
|
|
|
253,877
|
|
|
|
279,355
|
|
Tower financing obligations
|
|
|
218,847
|
|
|
|
177,199
|
|
Capital lease obligations
|
|
|
85,882
|
|
|
|
75,436
|
|
Brazil spectrum license financing
|
|
|
8,759
|
|
|
|
9,446
|
|
Other
|
|
|
81
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,417,442
|
|
|
|
2,266,517
|
|
Less: current portion
|
|
|
(76,171
|
)
|
|
|
(70,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,341,271
|
|
|
$
|
2,196,069
|
|
|
|
|
|
|
|
|
|
|
3.125% Convertible Notes. For the
fiscal quarter ended June 30, 2008, 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 June 30, 2008. As a
result, the conversion contingency was not met as of
June 30, 2008.
2.75% Convertible Notes. For the
fiscal quarter ended June 30, 2008, 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 June 30, 2008. As a
result, the conversion contingency was not met as of
June 30, 2008.
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 4.96%
and 7.35% as of June 30, 2008 and December 31, 2007,
respectively). The remaining $255.0 million is denominated
in U.S. dollars with a floating interest rate based on
LIBOR plus a specified margin ranging from 1.75% to 2.25%
(Tranche B 4.71% and 7.10% as of June 30,
2008 and December 31, 2007, respectively). Tranche A
matures on September 14, 2014, and Tranche B matures
on September 14, 2012.
As of December 31, 2007, Nextel Brazil had 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. During the first quarter of 2008,
Nextel Brazil borrowed the remaining $18.8 million in term
loans under Tranche A and $106.2 million in term loans
under Tranche B of this syndicated loan facility.
Tower Financing Obligations. We have an
agreement with American Tower Corporation for the sale-leaseback
of communication towers in Mexico and Brazil that we recognize
as financing obligations. During the six months ended
June 30, 2008, Nextel Mexico sold 181 towers to American
Tower, which increased its tower financing obligations by
$23.1 million and Nextel Brazil sold 54 towers to American
Tower, which increased its tower financing obligations by
$5.6 million. Following the sale of these towers, we no
longer have any further contractual obligation or right to
transfer towers to American Tower Corporation.
12
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 5.
|
Commitments
and Contingencies
|
Brazilian
Contingencies.
Nextel Brazil has received various assessment notices from state
and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on
imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions
disputing these assessments. In some cases, Nextel Brazil has
received favorable decisions, which are currently being appealed
by the respective governmental authority. In other cases, Nextel
Brazils petitions have been denied, and Nextel Brazil is
currently appealing those decisions. Nextel Brazil is also
disputing various other claims.
As of June 30, 2008 and December 31, 2007, Nextel
Brazil had accrued liabilities of $24.2 million and
$20.2 million, respectively, related to contingencies, all
of which were classified in accrued contingencies reported as a
component of other long-term liabilities. Of the total accrued
liabilities as of June 30, 2008 and December 31, 2007,
Nextel Brazil had $12.6 million and $10.8 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 $292.6 million and
$296.6 million as of June 30, 2008. We are continuing
to evaluate the likelihood of probable and reasonably possible
losses, if any, related to all known contingencies. As a result,
future increases or decreases to our accrued liabilities may be
necessary and will be recorded in the period when such amounts
are determined to be probable and estimable.
Argentine
Contingencies.
As of June 30, 2008 and December 31, 2007, Nextel
Argentina had accrued liabilities of $36.6 million and
$32.2 million, respectively, related primarily to local
turnover taxes, universal service tax and local government
claims, all of which were classified in accrued contingencies
and accrued non-income taxes reported as components of accrued
expenses and other.
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, for the period 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 accrue and pay the 3%
general turnover tax rate and would continue with its efforts to
obtain reimbursement of amounts previously paid under protest in
excess of that level, but would discontinue its prior practice
of accruing for the incremental difference in the cellular rate
over the general 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
13
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
paid from April 2006 through December 2006 relating to this tax.
Nextel Argentina believes that the tax refund clarifies and
confirms that only the 3% general turnover tax rate is
applicable to our services. 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 until the court issues a ruling
on the case. 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 relating to services provided in that jurisdiction.
Nextel Argentina continues to pay the turnover tax in this
province at the existing rate and accrues a liability for the
incremental difference in the rate on interconnect revenues. As
of June 30, 2008 and December 31, 2007, Nextel
Argentina had accrued $8.3 million and $6.8 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.
Under the Universal Service Regulation, 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
Comision Nacional de Comunicaciones, or 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. In April 2008, a new
decree was issued by the Secretary of Communications addressing
a number of issues relevant to the implementation of
the regime. This new decree would enable license holders to
satisfy previous outstanding obligations under the regime by
providing services under existing or new programs that are
approved as Universal Service programs by the Secretary of
Communications.
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 June 30,
2008 and December 31, 2007, the accrual for the liability
to Nextel Argentinas customers was $8.5 million and
$7.7 million, respectively, which is included as a
component of accrued expenses and other.
Legal
Proceedings.
We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
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 2001;
14
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Argentina 2002; Peru and Brazil 2003. We
regularly assess the potential outcome of current and future
examinations in each of the taxing jurisdictions when
determining the adequacy of the provision for income taxes.
The following table shows a reconciliation of our unrecognized
tax benefits according to FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109, or
FIN No. 48, for the six months ended June 30,
2008 (in thousands):
|
|
|
|
|
Unrecognized tax benefits December 31, 2007
|
|
$
|
67,955
|
|
Additions for current year tax positions
|
|
|
5,325
|
|
Foreign currency translation adjustment
|
|
|
2,709
|
|
|
|
|
|
|
Unrecognized tax benefits June 30, 2008
|
|
$
|
75,989
|
|
|
|
|
|
|
The unrecognized tax benefits as of December 31, 2007 and
June 30, 2008 include $49.2 million and
$57.4 million, respectively, of tax benefits that could
potentially reduce our future effective tax rate, if recognized.
We record interest and penalties associated with uncertain tax
positions as a component of our income tax provision.
We assessed the realizability of our deferred tax assets during
the first half of 2008, consistent with the methodology we
employed for 2007, and determined that the realizability of
those deferred assets has not changed for the markets in which
we operate. In that assessment, we considered the reversal of
existing temporary differences associated with deferred tax
assets and liabilities, future taxable income, tax planning
strategies and historical and future pre-tax book income (as
adjusted for permanent differences between financial and tax
accounting items) in order to determine if it is
more-likely-than-not that the deferred tax asset
will be realized. As of June 30, 2008, our Brazilian entity
Nextel Telecomunicacoes S.A. (Brazil S.A.) continues to maintain
a 100% valuation allowance against its net deferred tax assets;
however, we believe it is reasonably possible that the valuation
allowance could be released in the near term if Brazil S.A.
generates a level of sufficient pre-tax U.S. GAAP income.
Additionally, due to the expected repatriation of certain
earnings of our Argentine and Mexican subsidiaries during the
current year and the two following years, we released a portion
of the U.S. valuation allowance that related to excess
stock option deductions, resulting in an increase to paid-in
capital.
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 this year.
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 June 30, 2008 and December 31,
2007 include $16.9 and $16.0 million, respectively, 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.
15
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. This tax is being 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. 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. 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. After evaluating the impact that the
new minimum corporate tax will have on Nextel Mexico, we
concluded that Nextel Mexico is not expected to incur any
material minimum corporate tax liability in this year or future
years and no adjustment to our deferred income tax provision is
necessary.
|
|
Note 7.
|
Segment
Reporting
|
We have determined that our reportable segments are those that
are based on our method of internal reporting, which
disaggregates our business by geographical location. Our
reportable segments are: (1) Mexico, (2) Brazil,
(3) Argentina and (4) Peru. The operations of all
other businesses that fall below the segment reporting
thresholds 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,024,101
|
|
|
$
|
616,584
|
|
|
$
|
241,121
|
|
|
$
|
105,639
|
|
|
$
|
4,004
|
|
|
$
|
(646
|
)
|
|
$
|
1,990,803
|
|
Digital handset and accessory revenues
|
|
|
39,231
|
|
|
|
34,887
|
|
|
|
23,395
|
|
|
|
8,855
|
|
|
|
|
|
|
|
|
|
|
|
106,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
1,063,332
|
|
|
$
|
651,471
|
|
|
$
|
264,516
|
|
|
$
|
114,494
|
|
|
$
|
4,004
|
|
|
$
|
(646
|
)
|
|
$
|
2,097,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
391,480
|
|
|
$
|
175,248
|
|
|
$
|
81,817
|
|
|
$
|
22,630
|
|
|
$
|
(80,351
|
)
|
|
$
|
|
|
|
$
|
590,824
|
|
Management fee
|
|
|
(16,752
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,800
|
|
|
|
(48
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
(96,156
|
)
|
|
|
(68,993
|
)
|
|
|
(18,355
|
)
|
|
|
(9,889
|
)
|
|
|
(5,792
|
)
|
|
|
(120
|
)
|
|
|
(199,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
278,572
|
|
|
|
106,255
|
|
|
|
63,462
|
|
|
|
12,741
|
|
|
|
(69,343
|
)
|
|
|
(168
|
)
|
|
|
391,519
|
|
Interest expense
|
|
|
(31,732
|
)
|
|
|
(26,075
|
)
|
|
|
(1,387
|
)
|
|
|
(36
|
)
|
|
|
(26,585
|
)
|
|
|
4,189
|
|
|
|
(81,626
|
)
|
Interest income
|
|
|
21,852
|
|
|
|
3,260
|
|
|
|
1,867
|
|
|
|
618
|
|
|
|
13,120
|
|
|
|
(4,189
|
)
|
|
|
36,528
|
|
Foreign currency transaction gains (losses), net
|
|
|
16,515
|
|
|
|
25,467
|
|
|
|
(2,673
|
)
|
|
|
(162
|
)
|
|
|
1,111
|
|
|
|
48
|
|
|
|
40,306
|
|
Other (expense) income, net
|
|
|
(159
|
)
|
|
|
(1,552
|
)
|
|
|
44
|
|
|
|
|
|
|
|
(3,508
|
)
|
|
|
|
|
|
|
(5,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
285,048
|
|
|
$
|
107,355
|
|
|
$
|
61,313
|
|
|
$
|
13,161
|
|
|
$
|
(85,205
|
)
|
|
$
|
(120
|
)
|
|
$
|
381,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
126,709
|
|
|
$
|
219,310
|
|
|
$
|
40,261
|
|
|
$
|
22,556
|
|
|
$
|
26,446
|
|
|
$
|
|
|
|
$
|
435,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Six Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
822,317
|
|
|
$
|
357,101
|
|
|
$
|
188,101
|
|
|
$
|
83,490
|
|
|
$
|
1,382
|
|
|
$
|
(551
|
)
|
|
$
|
1,451,840
|
|
Digital handset and accessory revenues
|
|
|
10,648
|
|
|
|
17,726
|
|
|
|
15,654
|
|
|
|
5,881
|
|
|
|
|
|
|
|
|
|
|
|
49,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
832,965
|
|
|
$
|
374,827
|
|
|
$
|
203,755
|
|
|
$
|
89,371
|
|
|
$
|
1,382
|
|
|
$
|
(551
|
)
|
|
$
|
1,501,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
310,940
|
|
|
$
|
94,088
|
|
|
$
|
63,827
|
|
|
$
|
17,873
|
|
|
$
|
(69,179
|
)
|
|
$
|
|
|
|
$
|
417,549
|
|
Management fee
|
|
|
(19,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,800
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(68,214
|
)
|
|
|
(42,657
|
)
|
|
|
(14,868
|
)
|
|
|
(10,884
|
)
|
|
|
(3,270
|
)
|
|
|
197
|
|
|
|
(139,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
222,926
|
|
|
|
51,431
|
|
|
|
48,959
|
|
|
|
6,989
|
|
|
|
(52,649
|
)
|
|
|
197
|
|
|
|
277,853
|
|
Interest expense
|
|
|
(29,312
|
)
|
|
|
(14,342
|
)
|
|
|
(1,124
|
)
|
|
|
(67
|
)
|
|
|
(14,335
|
)
|
|
|
5,198
|
|
|
|
(53,982
|
)
|
Interest income
|
|
|
12,909
|
|
|
|
314
|
|
|
|
2,037
|
|
|
|
341
|
|
|
|
12,279
|
|
|
|
(5,198
|
)
|
|
|
22,682
|
|
Foreign currency transaction gains (losses), net
|
|
|
1,208
|
|
|
|
4,239
|
|
|
|
306
|
|
|
|
54
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
5,799
|
|
Other income (expense), net
|
|
|
2,260
|
|
|
|
(1,554
|
)
|
|
|
1,577
|
|
|
|
1
|
|
|
|
(1,651
|
)
|
|
|
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
209,991
|
|
|
$
|
40,088
|
|
|
$
|
51,755
|
|
|
$
|
7,318
|
|
|
$
|
(56,364
|
)
|
|
$
|
197
|
|
|
$
|
252,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
156,758
|
|
|
$
|
127,019
|
|
|
$
|
25,767
|
|
|
$
|
23,657
|
|
|
$
|
8,188
|
|
|
$
|
|
|
|
$
|
341,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
530,786
|
|
|
$
|
330,268
|
|
|
$
|
126,154
|
|
|
$
|
53,943
|
|
|
$
|
2,208
|
|
|
$
|
(320
|
)
|
|
$
|
1,043,039
|
|
Digital handset and accessory revenues
|
|
|
24,174
|
|
|
|
19,718
|
|
|
|
12,330
|
|
|
|
4,693
|
|
|
|
|
|
|
|
|
|
|
|
60,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
554,960
|
|
|
$
|
349,986
|
|
|
$
|
138,484
|
|
|
$
|
58,636
|
|
|
$
|
2,208
|
|
|
$
|
(320
|
)
|
|
$
|
1,103,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
199,728
|
|
|
$
|
93,858
|
|
|
$
|
42,439
|
|
|
$
|
10,569
|
|
|
$
|
(41,720
|
)
|
|
$
|
|
|
|
$
|
304,874
|
|
Management fee
|
|
|
(8,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,402
|
|
|
|
(48
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
(50,057
|
)
|
|
|
(37,044
|
)
|
|
|
(9,687
|
)
|
|
|
(4,963
|
)
|
|
|
(3,184
|
)
|
|
|
(218
|
)
|
|
|
(105,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
141,317
|
|
|
|
56,814
|
|
|
|
32,752
|
|
|
|
5,606
|
|
|
|
(36,502
|
)
|
|
|
(266
|
)
|
|
|
199,721
|
|
Interest expense
|
|
|
(15,670
|
)
|
|
|
(12,810
|
)
|
|
|
(729
|
)
|
|
|
(19
|
)
|
|
|
(13,231
|
)
|
|
|
2,221
|
|
|
|
(40,238
|
)
|
Interest income
|
|
|
11,283
|
|
|
|
2,263
|
|
|
|
600
|
|
|
|
327
|
|
|
|
5,336
|
|
|
|
(2,221
|
)
|
|
|
17,588
|
|
Foreign currency transaction gains (losses), net
|
|
|
12,355
|
|
|
|
27,214
|
|
|
|
(3,103
|
)
|
|
|
29
|
|
|
|
858
|
|
|
|
48
|
|
|
|
37,401
|
|
Other (expense) income, net
|
|
|
(80
|
)
|
|
|
(355
|
)
|
|
|
16
|
|
|
|
(1
|
)
|
|
|
(226
|
)
|
|
|
|
|
|
|
(646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
149,205
|
|
|
$
|
73,126
|
|
|
$
|
29,536
|
|
|
$
|
5,942
|
|
|
$
|
(43,765
|
)
|
|
$
|
(218
|
)
|
|
$
|
213,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
76,649
|
|
|
$
|
115,911
|
|
|
$
|
23,654
|
|
|
$
|
13,736
|
|
|
$
|
13,815
|
|
|
$
|
|
|
|
$
|
243,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
NII
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Intercompany
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
and other
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
|
Three Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
427,197
|
|
|
$
|
192,729
|
|
|
$
|
96,968
|
|
|
$
|
42,555
|
|
|
$
|
817
|
|
|
$
|
(267
|
)
|
|
$
|
759,999
|
|
Digital handset and accessory revenues
|
|
|
5,588
|
|
|
|
9,592
|
|
|
|
8,742
|
|
|
|
3,063
|
|
|
|
|
|
|
|
|
|
|
|
26,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
432,785
|
|
|
$
|
202,321
|
|
|
$
|
105,710
|
|
|
$
|
45,618
|
|
|
$
|
817
|
|
|
$
|
(267
|
)
|
|
$
|
786,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$
|
157,186
|
|
|
$
|
48,182
|
|
|
$
|
32,066
|
|
|
$
|
8,793
|
|
|
$
|
(38,323
|
)
|
|
$
|
|
|
|
$
|
207,904
|
|
Management fee
|
|
|
(9,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,900
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(35,043
|
)
|
|
|
(22,888
|
)
|
|
|
(7,626
|
)
|
|
|
(5,596
|
)
|
|
|
(1,634
|
)
|
|
|
99
|
|
|
|
(72,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
112,243
|
|
|
|
25,294
|
|
|
|
24,440
|
|
|
|
3,197
|
|
|
|
(30,057
|
)
|
|
|
99
|
|
|
|
135,216
|
|
Interest expense
|
|
|
(15,100
|
)
|
|
|
(7,821
|
)
|
|
|
(630
|
)
|
|
|
(30
|
)
|
|
|
(8,872
|
)
|
|
|
2,800
|
|
|
|
(29,653
|
)
|
Interest income
|
|
|
5,726
|
|
|
|
167
|
|
|
|
1,138
|
|
|
|
144
|
|
|
|
8,095
|
|
|
|
(2,800
|
)
|
|
|
12,470
|
|
Foreign currency transaction gains (losses), net
|
|
|
5,858
|
|
|
|
3,664
|
|
|
|
(170
|
)
|
|
|
10
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
9,331
|
|
Other (expense) income, net
|
|
|
(78
|
)
|
|
|
(789
|
)
|
|
|
1,330
|
|
|
|
1
|
|
|
|
(1,658
|
)
|
|
|
|
|
|
|
(1,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
108,649
|
|
|
$
|
20,515
|
|
|
$
|
26,108
|
|
|
$
|
3,322
|
|
|
$
|
(32,523
|
)
|
|
$
|
99
|
|
|
$
|
126,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
63,775
|
|
|
$
|
74,730
|
|
|
$
|
15,838
|
|
|
$
|
12,860
|
|
|
$
|
6,664
|
|
|
$
|
|
|
|
$
|
173,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
893,075
|
|
|
$
|
908,871
|
|
|
$
|
214,122
|
|
|
$
|
120,327
|
|
|
$
|
103,008
|
|
|
$
|
(287
|
)
|
|
$
|
2,239,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$
|
2,621,717
|
|
|
$
|
1,935,827
|
|
|
$
|
460,713
|
|
|
$
|
266,309
|
|
|
$
|
730,020
|
|
|
$
|
(287
|
)
|
|
$
|
6,014,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
INDEX TO
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
|
|
|
Introduction
|
|
|
20
|
|
Business Overview
|
|
|
20
|
|
Digital Handsets in Commercial Service
|
|
|
23
|
|
Critical Accounting Policies and Estimates
|
|
|
23
|
|
Ratio of Earnings to Fixed Charges
|
|
|
24
|
|
Reclassifications
|
|
|
24
|
|
Results of Operations
|
|
|
24
|
|
a. Consolidated
|
|
|
25
|
|
b. Nextel Mexico
|
|
|
31
|
|
c. Nextel Brazil
|
|
|
34
|
|
d. Nextel Argentina
|
|
|
37
|
|
e. Nextel Peru
|
|
|
40
|
|
f. Corporate and other
|
|
|
42
|
|
Liquidity and Capital Resources
|
|
|
43
|
|
Future Capital Needs and Resources
|
|
|
44
|
|
Forward Looking Statements
|
|
|
47
|
|
Effect of New Accounting Standards
|
|
|
48
|
|
19
Introduction
The following is a discussion and analysis of:
|
|
|
|
|
our consolidated financial condition and results of operations
for the six- and three-month periods ended June 30, 2008
and 2007; 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 2007
annual report on
Form 10-K
and our quarterly report on
Form 10-Q
for the three months ended March 31, 2008, including but
not limited to, the discussion regarding our critical accounting
judgments, as described below. Historical results may not
indicate future performance. See Forward Looking
Statements for risks and uncertainties that may impact our
future performance.
Business
Overview
We provide digital wireless communication services, primarily
targeted at meeting the needs of customers who use our services
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, under the
Nexteltm
brand, with our principal operations located in major business
centers and related transportation corridors of Mexico, Brazil,
Argentina, Peru and 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 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 with TELUS subscribers using compatible handsets in
Canada;
|
|
|
|
text messaging services, mobile internet 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; and
|
|
|
|
international roaming services.
|
Our principal objective is to generate increased revenues in our
Latin American markets by providing differentiated wireless
communications services that are valued by our customers, while
improving our profitability and cash flow over the long term. We
plan to continue to expand the coverage and 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 are
competitive with other offerings in the market, but that are
consistent with our strategy of finding the optimal balance of
growth and profitability regardless of the competitive landscape.
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
20
generate growth in our subscriber base and revenues while
improving our profitability and cash flow over the long term.
Although the economies of certain Latin American markets have
been historically volatile, the economies in the countries where
we operate have been relatively more stable compared to
historical periods. However, 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. In addition, in the last two years, the inflation rate
in Argentina has risen significantly, and we expect that it may
continue to remain elevated or rise in the next several years,
which will increase our costs and could reduce our profitability
in Argentina.
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. We believe that there are
significant opportunities for growth in these markets due to the
high demand for wireless communications services and the large
number of potential customers within our targeted customer
groups.
Targeting High Value Customers. Our main focus
is on customers who purchase services under contract and
primarily use our services in their businesses and individuals
that have medium to high usage patterns, both of whom value our
multi-function handsets, including our Nextel Direct Connect
feature and our high level of customer service. In our
current customer base, our typical customer has between 3 and 30
handsets, and some of our largest customers have over 500
handsets; however, new customers that we have recently acquired
generally have a lower number of handsets per customer.
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,
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 introduced competitive push-to-talk
over cellular products, but we believe that the quality of our
Direct Connect service is superior at this time. We add further
value by customizing data applications that enhance the
productivity of our business customers, such as vehicle and
delivery tracking, order entry processing and workforce
monitoring applications.
Delivering Superior Customer Service. In
addition to our unique service offerings, we seek to further
differentiate ourselves by 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
21
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, particularly in
Brazil and Chile where our coverage is not as extensive as in
other markets. 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. We are currently expanding significantly our
service areas in Brazil in connection with our 2008 growth
objectives and recently announced our plans to make additional
investments in Brazil in order to add more capacity to Nextel
Brazils network, support its growth and expand its
geographic coverage, including expansion into the northeast
region of the country. 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 their push-to-talk services to their CDMA EVDO Rev-A
network platform and as such has reduced the amount of effort
and support in the development of new iDEN handsets. In
anticipation of this change, we have increased our effort and
support of iDEN handset product development and now lead the
majority of that development activity in support of our
customers needs. In addition, we have entered into
arrangements with Motorola that are designed to provide us with
a continued source of iDEN network equipment and handsets in an
environment in which Sprint Nextels purchases and support
of future development of that equipment 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. During the
first quarter of 2008, Motorola announced plans to separate its
mobile devices division into a separate public entity through a
spin off of that division. While we cannot determine the impact
of Motorolas planned separation of the mobile devices
business on its iDEN business, Motorolas obligations under
our existing agreements, including the obligation to supply us
with iDEN handsets and network equipment, remain in effect.
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.
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
22
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, the spectrum bands available for
purchase in our markets and whether other wireless carriers are
operating or plan to operate a particular technology in those
spectrum bands and our need to continue to support iDEN-based
services for our existing customer base either on an ongoing or
transitional basis.
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 plan to develop and deploy a third
generation network in Peru using this spectrum. Our current
plans are to pursue this opportunity utilizing a technology that
will be based on the CDMA platform. The regulatory authorities
in Peru recently approved our plans for the deployment of this
new network. We believe that these plans will enable us to
significantly increase the size of our opportunity in Peru by
allowing us to offer new and differentiated services to a larger
base of potential customers.
We refer to our operating companies by the countries in which
they operate, such as Nextel Mexico, Nextel Brazil, Nextel
Argentina, Nextel Peru and Nextel Chile.
See Forward Looking Statements for information on
risks and uncertainties that could affect the above objectives.
For information regarding commitments and contingencies, see
Note 5 to our condensed consolidated financial statements.
Digital
Handsets in Commercial Service
The table below provides an overview of our total handsets in
commercial service in the countries indicated as of
June 30, 2008 and December 31, 2007. For purposes of
the table, handsets in commercial service represent all handsets
with active customer accounts on the networks in each of the
listed countries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico
|
|
|
Brazil
|
|
|
Argentina
|
|
|
Peru
|
|
|
Chile
|
|
|
Total
|
|
|
|
(handsets in thousands)
|
|
|
Digital handsets in commercial service
December 31, 2007
|
|
|
2,140
|
|
|
|
1,290
|
|
|
|
812
|
|
|
|
477
|
|
|
|
10
|
|
|
|
4,729
|
|
Net subscriber additions
|
|
|
296
|
|
|
|
236
|
|
|
|
85
|
|
|
|
93
|
|
|
|
6
|
|
|
|
716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital handsets in commercial service June 30,
2008
|
|
|
2,436
|
|
|
|
1,526
|
|
|
|
897
|
|
|
|
570
|
|
|
|
16
|
|
|
|
5,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
As described in more detail in our 2007 Annual Report on
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations, we consider
the following accounting policies to be the most important to
our financial position and results of operations or policies
that require us to exercise significant judgment
and/or
estimates:
|
|
|
|
|
revenue recognition;
|
|
|
|
allowance for doubtful accounts;
|
23
|
|
|
|
|
depreciation of property, plant and equipment;
|
|
|
|
amortization of intangible assets;
|
|
|
|
asset retirement obligations;
|
|
|
|
foreign currency;
|
|
|
|
loss contingencies;
|
|
|
|
stock-based compensation; and
|
|
|
|
income taxes.
|
There have been no material changes to our critical accounting
policies and estimates during the six months ended June 30,
2008 compared to those discussed in our 2007 annual report of
Form 10-K
under Managements Discussion and Analysis of
Financial Condition and Results of Operations.
Ratio of
Earnings to Fixed Charges
|
|
|
|
|
Three Months
|
Ended
|
June 30,
|
2008
|
|
2007
|
|
4.78x
|
|
|
4.10x
|
|
For the purpose of computing the ratio of earnings to fixed
charges, earnings consist of income from continuing operations
before income taxes plus fixed charges and amortization of
capitalized interest less capitalized interest. Fixed charges
consist of:
|
|
|
|
|
interest on all indebtedness, amortization of debt financing
costs and amortization of original issue discount;
|
|
|
|
interest capitalized; and
|
|
|
|
the portion of rental expense we believe is representative of
interest.
|
Reclassifications
We have reclassified certain prior year amounts in our unaudited
condensed consolidated financial statements to conform to our
current year presentation. Specifically, for the six and three
months ended June 30, 2007, we corrected the classification
of $11.8 million and $6.0 million, respectively, from
cost of service to cost of digital handset and accessory sales
related to costs incurred in connection with replacement
handsets sold to current customers. These revisions did not have
a material impact on previously reported balances.
Results
of Operations
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of digital
handsets and accessories. Service revenues primarily include
fixed monthly access charges for 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.
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
24
the network switches and transmitter sites used to operate our
networks. Interconnection costs have fixed and variable
components. The fixed component of interconnection costs
consists of monthly flat-rate fees for facilities leased from
local exchange carriers, primarily for circuits required to
connect our transmitter sites to our network switches and to
connect our switches. The variable component of interconnection
costs, which fluctuates in relation to the volume and duration
of wireless calls, generally consists of per-minute use fees
charged by wireline and wireless providers for wireless calls
from our digital handsets that terminate on those
providers networks. Cost of digital handset and accessory
sales consists largely of the cost of the handset and
accessories, order fulfillment and installation-related
expenses, as well as write-downs of digital handset and related
accessory inventory for shrinkage or obsolescence.
Our service and other revenues and the variable component of our
cost of service are primarily driven by the number of digital
handsets in service and not necessarily by the number of
customers, as one customer may purchase one or many digital
handsets. Our digital handset and accessory revenues and cost of
digital handset and accessory sales are primarily driven by the
number of new handsets placed into service as well as handset
upgrades provided to existing customers during the year.
Selling and marketing expenses include all of the expenses
related to acquiring customers. General and administrative
expenses include expenses related to revenue-based taxes,
billing, customer care, collections including bad debt, repairs
and maintenance of management information systems, spectrum
license fees, corporate overhead and share-based payment for
stock options and restricted stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,990,803
|
|
|
|
95
|
%
|
|
$
|
1,451,840
|
|
|
|
97
|
%
|
|
$
|
538,963
|
|
|
|
37
|
%
|
Digital handset and accessory revenues
|
|
|
106,368
|
|
|
|
5
|
%
|
|
|
49,909
|
|
|
|
3
|
%
|
|
|
56,459
|
|
|
|
113
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,097,171
|
|
|
|
100
|
%
|
|
|
1,501,749
|
|
|
|
100
|
%
|
|
|
595,422
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(542,992
|
)
|
|
|
(26
|
)%
|
|
|
(387,103
|
)
|
|
|
(26
|
)%
|
|
|
(155,889
|
)
|
|
|
40
|
%
|
Cost of digital handsets and accessories
|
|
|
(293,398
|
)
|
|
|
(14
|
)%
|
|
|
(207,649
|
)
|
|
|
(14
|
)%
|
|
|
(85,749
|
)
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(836,390
|
)
|
|
|
(40
|
)%
|
|
|
(594,752
|
)
|
|
|
(40
|
)%
|
|
|
(241,638
|
)
|
|
|
41
|
%
|
Selling and marketing expenses
|
|
|
(276,974
|
)
|
|
|
(13
|
)%
|
|
|
(196,778
|
)
|
|
|
(13
|
)%
|
|
|
(80,196
|
)
|
|
|
41
|
%
|
General and administrative expenses
|
|
|
(392,983
|
)
|
|
|
(19
|
)%
|
|
|
(292,670
|
)
|
|
|
(19
|
)%
|
|
|
(100,313
|
)
|
|
|
34
|
%
|
Depreciation and amortization
|
|
|
(199,305
|
)
|
|
|
(9
|
)%
|
|
|
(139,696
|
)
|
|
|
(9
|
)%
|
|
|
(59,609
|
)
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
391,519
|
|
|
|
19
|
%
|
|
|
277,853
|
|
|
|
19
|
%
|
|
|
113,666
|
|
|
|
41
|
%
|
Interest expense, net
|
|
|
(81,626
|
)
|
|
|
(4
|
)%
|
|
|
(53,982
|
)
|
|
|
(4
|
)%
|
|
|
(27,644
|
)
|
|
|
51
|
%
|
Interest income
|
|
|
36,528
|
|
|
|
1
|
%
|
|
|
22,682
|
|
|
|
2
|
%
|
|
|
13,846
|
|
|
|
61
|
%
|
Foreign currency transaction gains, net
|
|
|
40,306
|
|
|
|
2
|
%
|
|
|
5,799
|
|
|
|
|
|
|
|
34,507
|
|
|
|
NM
|
|
Other (expense) income, net
|
|
|
(5,175
|
)
|
|
|
|
|
|
|
633
|
|
|
|
|
|
|
|
(5,808
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
381,552
|
|
|
|
18
|
%
|
|
|
252,985
|
|
|
|
17
|
%
|
|
|
128,567
|
|
|
|
51
|
%
|
Income tax provision
|
|
|
(112,709
|
)
|
|
|
(5
|
)%
|
|
|
(84,741
|
)
|
|
|
(6
|
)%
|
|
|
(27,968
|
)
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
268,843
|
|
|
|
13
|
%
|
|
$
|
168,244
|
|
|
|
11
|
%
|
|
$
|
100,599
|
|
|
|
60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,043,039
|
|
|
|
94
|
%
|
|
$
|
759,999
|
|
|
|
97
|
%
|
|
$
|
283,040
|
|
|
|
37
|
%
|
Digital handset and accessory revenues
|
|
|
60,915
|
|
|
|
6
|
%
|
|
|
26,985
|
|
|
|
3
|
%
|
|
|
33,930
|
|
|
|
126
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,103,954
|
|
|
|
100
|
%
|
|
|
786,984
|
|
|
|
100
|
%
|
|
|
316,970
|
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(284,065
|
)
|
|
|
(26
|
)%
|
|
|
(204,019
|
)
|
|
|
(26
|
)%
|
|
|
(80,046
|
)
|
|
|
39
|
%
|
Cost of digital handsets and accessories
|
|
|
(159,127
|
)
|
|
|
(14
|
)%
|
|
|
(110,755
|
)
|
|
|
(14
|
)%
|
|
|
(48,372
|
)
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(443,192
|
)
|
|
|
(40
|
)%
|
|
|
(314,774
|
)
|
|
|
(40
|
)%
|
|
|
(128,418
|
)
|
|
|
41
|
%
|
Selling and marketing expenses
|
|
|
(149,750
|
)
|
|
|
(14
|
)%
|
|
|
(108,356
|
)
|
|
|
(14
|
)%
|
|
|
(41,394
|
)
|
|
|
38
|
%
|
General and administrative expenses
|
|
|
(206,138
|
)
|
|
|
(19
|
)%
|
|
|
(155,950
|
)
|
|
|
(20
|
)%
|
|
|
(50,188
|
)
|
|
|
32
|
%
|
Depreciation and amortization
|
|
|
(105,153
|
)
|
|
|
(9
|
)%
|
|
|
(72,688
|
)
|
|
|
(9
|
)%
|
|
|
(32,465
|
)
|
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
199,721
|
|
|
|
18
|
%
|
|
|
135,216
|
|
|
|
17
|
%
|
|
|
64,505
|
|
|
|
48
|
%
|
Interest expense, net
|
|
|
(40,238
|
)
|
|
|
(4
|
)%
|
|
|
(29,653
|
)
|
|
|
(4
|
)%
|
|
|
(10,585
|
)
|
|
|
36
|
%
|
Interest income
|
|
|
17,588
|
|
|
|
2
|
%
|
|
|
12,470
|
|
|
|
2
|
%
|
|
|
5,118
|
|
|
|
41
|
%
|
Foreign currency transaction gains, net
|
|
|
37,401
|
|
|
|
3
|
%
|
|
|
9,331
|
|
|
|
1
|
%
|
|
|
28,070
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(646
|
)
|
|
|
|
|
|
|
(1,194
|
)
|
|
|
|
|
|
|
548
|
|
|
|
(46
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
213,826
|
|
|
|
19
|
%
|
|
|
126,170
|
|
|
|
16
|
%
|
|
|
87,656
|
|
|
|
69
|
%
|
Income tax provision
|
|
|
(58,552
|
)
|
|
|
(5
|
)%
|
|
|
(42,090
|
)
|
|
|
(5
|
)%
|
|
|
(16,462
|
)
|
|
|
39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
155,274
|
|
|
|
14
|
%
|
|
$
|
84,080
|
|
|
|
11
|
%
|
|
$
|
71,194
|
|
|
|
85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
During 2007 and continuing into the first half of 2008, we
significantly expanded 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 the
first half of 2007 to the first half of 2008. Both our
consolidated operating margin and our other consolidated
operating expenses as a percentage of consolidated operating
revenues remained relatively stable from the first half of 2007
to the first half of 2008. During the first half of 2008, we
experienced a higher consolidated customer turnover rate, which
resulted primarily from the more competitive sales environment
in Mexico. While we have implemented initiatives that we believe
may stabilize our customer turnover rate in the second half of
2008, the competitive conditions we face may continue to
adversely affect our ability to retain customers, particularly
in Mexico.
Coverage expansion and network improvements resulted in
consolidated capital expenditures totaling $435.3 million
for the first half of 2008, which represented a
$93.9 million increase from the comparable period in 2007.
This increase in capital expenditures was the result of the
expansion of both the geographic coverage and capacity of our
networks, particularly in Brazil and Mexico, consistent with our
plan to continue to expand our consolidated customer base in
both new and existing areas in those markets. While we expect
that the amounts invested by Nextel Brazil and Nextel Mexico 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. In addition, our deployment of a new CDMA
network in Peru will require additional significant capital
expenditures in the second half of 2008 and in subsequent years.
See Future Capital Needs and Resources Capital
Expenditures for more information.
26
As described in more detail in the discussion of segment results
below, our results of operations for the six and three months
ended June 30, 2008 were affected by the appreciation of
local currencies against the U.S. dollar, particularly in
Brazil and Mexico. As a result, the components of our
consolidated results of operations for the six and three months
ended June 30, 2008 reflect higher increases in
U.S. dollar-denominated revenues and expenses than would
have occurred if it were not for the impact of the appreciation
in the values of the local market currencies relative to the
U.S. dollar.
The $539.0 million, or 37%, and $283.0 million, or
37%, increases in consolidated service and other revenues from
the six and three months ended June 30, 2007 to the same
periods in 2008 are primarily due to 36% and 35% increases
in the average number of total digital handsets in service,
primarily in Mexico and Brazil, resulting from continued strong
demand for our services and our balanced growth and expansion
strategy, as well as a slight increase in average consolidated
revenues per handset from the second quarter of 2007 to the
second quarter of 2008 due to the appreciation of the Brazilian
real and the Mexican peso. Average consolidated revenues per
handset remained relatively stable from the six months ended
June 30, 2007 to the same period in 2008.
The $56.5 million, or 113%, and $33.9 million, or
126%, increases in consolidated digital handset and accessory
revenues from the six and three months ended June 30, 2007
to the same periods in 2008 are primarily due to 83% and 73%
increases in handset upgrades for existing subscribers,
increases in the average price per handset upgrade due to the
launch of new handset models and 31% and 33% increases in
handset sales to new subscribers.
The $155.9 million, or 40%, and $80.0 million, or 39%,
increases in consolidated cost of service from the six and three
months ended June 30, 2007 to the same periods in 2008 are
principally a result of the following:
|
|
|
|
|
$76.2 million, or 37%, and $38.2 million, or 35%,
increases in consolidated interconnect costs resulting from 24%
and 23% increases in consolidated interconnect minutes of use
and an increase in the proportion of mobile-to-mobile minutes of
use, which generally have higher per minute interconnection
costs;
|
|
|
|
$36.4 million, or 30%, and $19.7 million, or 31%,
increases in consolidated direct switch and transmitter and
receiver site costs resulting from an 18% increase in the total
number of sites in service from June 30, 2007 to
June 30, 2008 and an increase in costs per site; and
|
|
|
|
$26.0 million, or 59%, and $14.3 million, or 64%,
increases in consolidated service and repair costs mainly
resulting from increases in the number of subscribers
participating under our handset maintenance programs.
|
The $85.7 million, or 41%, and $48.4 million, or 44%,
increases in consolidated cost of digital handset and accessory
sales from the six and three months ended June 30, 2007 to
the same periods in 2008 are primarily due to 31% and 33%
increases in handset sales to new customers in 2008, as well as
83% and 73% increases in handset upgrades for existing
subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $80.2 million, or 41%, and $41.4 million, or 38%,
increases in consolidated selling and marketing expenses from
the six and three months ended June 30, 2007 to the same
periods in 2008 are principally a result of the following:
|
|
|
|
|
$41.3 million, or 53%, and $22.4 million, or 54%,
increases in consolidated indirect commissions resulting from
33% and 35% increases in total gross subscriber additions
generated through external sales channels and increases in
indirect commissions earned per handset sale;
|
|
|
|
$29.8 million, or 41%, and $17.1 million, or 45%,
increases in consolidated payroll expenses and direct
commissions resulting from 29% and 31% increases in total gross
subscriber additions generated by internal sales personnel and
higher payroll and related costs due to increases in selling and
marketing personnel necessary to support continued sales
growth; and
|
27
|
|
|
|
|
$7.1 million, or 18%, and $0.8 million, or 3%,
increases in consolidated advertising expenses, primarily in
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 $100.3 million, or 34%, and $50.2 million, or 32%,
increases in consolidated general and administrative expenses
from the six and three months ended June 30, 2007 to the
same periods in 2008 are primarily a result of the following:
|
|
|
|
|
$34.4 million, or 46%, and $18.6 million, or 47%,
increases in consolidated customer care expenses, mainly payroll
and related expenses, resulting from additional customer care
personnel necessary to support a larger customer base;
|
|
|
|
$17.4 million, or 80%, and $9.2 million, or 78%,
increases in consolidated bad debt expense, primarily as a
result of the 40% increases in consolidated operating revenues
and a decrease in collection rates in Mexico. As a result, bad
debt expense as a percentage of revenue increased from 1.5% for
the six months ended June 30, 2007 to 1.9% for the same
period in 2008 and from 1.5% for the three months ended
June 30, 2007 to 1.9% for the same period in 2008;
|
|
|
|
$17.0 million, or 15%, and $7.9 million, or 13%,
increases in general corporate costs largely due to higher
personnel costs related to increases in headcount and higher
facilities-related expenses due to continued subscriber growth
and expansion into new areas;
|
|
|
|
$15.6 million, or 76%, and $8.3 million, or 74%,
increases in revenue-based taxes in Brazil that we report on a
gross basis as both service and other revenues and general and
administrative expenses; and
|
|
|
|
$9.8 million, or 51%, and $3.3 million, or 29%,
increases in stock option compensation expense, primarily
resulting from stock options granted in April 2007 and April
2008.
|
|
|
5.
|
Depreciation
and amortization
|
The $59.6 million, or 43%, and $32.5 million, or 45%,
increases in consolidated depreciation and amortization from the
six and three months ended June 30, 2007 to the same
periods in 2008 are primarily due to a 42% increase in our
consolidated property, plant and equipment in service from
June 30, 2007 to June 30, 2008 resulting from the
continued expansion of our networks, mainly in Brazil and Mexico.
The $27.6 million, or 51%, and $10.6 million, or 36%,
increases in consolidated interest expense from the six and
three months ended June 30, 2007 to the same periods in
2008 are primarily due to the following:
|
|
|
|
|
$15.6 million and $6.3 million increases in interest
expense due to the issuance of our 3.125% convertible notes
during the second quarter of 2007, partially offset by
$4.3 million and $2.2 million decreases in interest
expense due to the conversion of our 2.875% convertible notes in
the third quarter of 2007;
|
|
|
|
$11.2 million and $6.2 million increases,
respectively, in interest incurred on our towers financing
transactions and capital lease obligations in Mexico and Brazil
primarily due to increases in both the number of towers financed
and capital leases; and
|
|
|
|
$7.8 million and $3.5 million of interest incurred on
borrowings under Nextel Brazils syndicated loan facility
that were funded between October 2007 and March 2008, partially
offset by $2.7 million and $1.7 million decreases in
interest expense due to a principal payment made by Nextel
Mexico on its syndicated loan facility in April 2008.
|
|
|
7.
|
Foreign
currency transaction gains, net
|
Consolidated foreign currency transaction gains of
$40.3 million and $37.4 million for the six and three
months ended June 30, 2008 and $5.8 million and
$9.3 million for the six and three months ended
June 30, 2007 are
28
primarily the result of the strengthening of the Mexican peso
and the Brazilian real relative to the U.S. dollar on
Nextel Mexicos and Nextel Brazils
U.S. dollar-denominated liabilities, primarily Nextel
Brazils syndicated loan facility for the 2008 periods.
|
|
8.
|
Other
(expense) income, net
|
The $5.2 million in other expense, net, during the six
months ended June 30, 2008 mainly represents a loss we
recognized related to a decline in the value of our investment
in a short-term investment fund in the United States resulting
from changing credit market conditions. We believe that if these
credit market conditions continue to deteriorate we could
experience further losses on this short-term investment.
The $28.0 million, or 33%, and $16.5 million, or 39%,
increases in the consolidated income tax provision from the six
and three months ended June 30, 2007 to the same periods in
2008 are primarily due to $128.6 million, or 51%, and
$87.7 million, or 69%, increases in income before taxes.
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. The tables below provide a summary
of the components of our consolidated segments for the six and
three months ended June 30, 2008 and 2007. The results of
Nextel Chile are included in Corporate and other.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Six Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2008
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
1,063,332
|
|
|
|
51
|
%
|
|
$
|
(376,630
|
)
|
|
|
45
|
%
|
|
$
|
(295,222
|
)
|
|
|
44
|
%
|
|
$
|
391,480
|
|
Nextel Brazil
|
|
|
651,471
|
|
|
|
31
|
%
|
|
|
(277,310
|
)
|
|
|
33
|
%
|
|
|
(198,913
|
)
|
|
|
30
|
%
|
|
|
175,248
|
|
Nextel Argentina
|
|
|
264,516
|
|
|
|
13
|
%
|
|
|
(120,716
|
)
|
|
|
14
|
%
|
|
|
(61,983
|
)
|
|
|
9
|
%
|
|
|
81,817
|
|
Nextel Peru
|
|
|
114,494
|
|
|
|
5
|
%
|
|
|
(58,495
|
)
|
|
|
7
|
%
|
|
|
(33,369
|
)
|
|
|
5
|
%
|
|
|
22,630
|
|
Corporate and other
|
|
|
4,004
|
|
|
|
|
|
|
|
(3,885
|
)
|
|
|
1
|
%
|
|
|
(80,470
|
)
|
|
|
12
|
%
|
|
|
(80,351
|
)
|
Intercompany eliminations
|
|
|
(646
|
)
|
|
|
|
|
|
|
646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
2,097,171
|
|
|
|
100
|
%
|
|
$
|
(836,390
|
)
|
|
|
100
|
%
|
|
$
|
(669,957
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Three Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2008
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
554,960
|
|
|
|
50
|
%
|
|
$
|
(199,808
|
)
|
|
|
45
|
%
|
|
$
|
(155,424
|
)
|
|
|
44
|
%
|
|
$
|
199,728
|
|
Nextel Brazil
|
|
|
349,986
|
|
|
|
32
|
%
|
|
|
(148,779
|
)
|
|
|
34
|
%
|
|
|
(107,349
|
)
|
|
|
30
|
%
|
|
|
93,858
|
|
Nextel Argentina
|
|
|
138,484
|
|
|
|
13
|
%
|
|
|
(62,448
|
)
|
|
|
14
|
%
|
|
|
(33,597
|
)
|
|
|
9
|
%
|
|
|
42,439
|
|
Nextel Peru
|
|
|
58,636
|
|
|
|
5
|
%
|
|
|
(30,253
|
)
|
|
|
7
|
%
|
|
|
(17,814
|
)
|
|
|
5
|
%
|
|
|
10,569
|
|
Corporate and other
|
|
|
2,208
|
|
|
|
|
|
|
|
(2,224
|
)
|
|
|
|
|
|
|
(41,704
|
)
|
|
|
12
|
%
|
|
|
(41,720
|
)
|
Intercompany eliminations
|
|
|
(320
|
)
|
|
|
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,103,954
|
|
|
|
100
|
%
|
|
$
|
(443,192
|
)
|
|
|
100
|
%
|
|
$
|
(355,888
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Six Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2007
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
832,965
|
|
|
|
55
|
%
|
|
$
|
(293,689
|
)
|
|
|
49
|
%
|
|
$
|
(228,336
|
)
|
|
|
47
|
%
|
|
$
|
310,940
|
|
Nextel Brazil
|
|
|
374,827
|
|
|
|
25
|
%
|
|
|
(158,250
|
)
|
|
|
27
|
%
|
|
|
(122,489
|
)
|
|
|
25
|
%
|
|
|
94,088
|
|
Nextel Argentina
|
|
|
203,755
|
|
|
|
14
|
%
|
|
|
(95,274
|
)
|
|
|
16
|
%
|
|
|
(44,654
|
)
|
|
|
9
|
%
|
|
|
63,827
|
|
Nextel Peru
|
|
|
89,371
|
|
|
|
6
|
%
|
|
|
(46,466
|
)
|
|
|
8
|
%
|
|
|
(25,032
|
)
|
|
|
5
|
%
|
|
|
17,873
|
|
Corporate and other
|
|
|
1,382
|
|
|
|
|
|
|
|
(1,624
|
)
|
|
|
|
|
|
|
(68,937
|
)
|
|
|
14
|
%
|
|
|
(69,179
|
)
|
Intercompany eliminations
|
|
|
(551
|
)
|
|
|
|
|
|
|
551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
1,501,749
|
|
|
|
100
|
%
|
|
$
|
(594,752
|
)
|
|
|
100
|
%
|
|
$
|
(489,448
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Selling,
|
|
|
Selling,
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
Consolidated
|
|
|
General and
|
|
|
General and
|
|
|
Segment
|
|
Three Months Ended
|
|
Operating
|
|
|
Operating
|
|
|
Cost of
|
|
|
Cost of
|
|
|
Administrative
|
|
|
Administrative
|
|
|
Earnings
|
|
June 30, 2007
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Revenues
|
|
|
Expenses
|
|
|
Expenses
|
|
|
(Losses)
|
|
|
|
(dollars in thousands)
|
|
|
Nextel Mexico
|
|
$
|
432,785
|
|
|
|
55
|
%
|
|
$
|
(154,167
|
)
|
|
|
49
|
%
|
|
$
|
(121,432
|
)
|
|
|
46
|
%
|
|
$
|
157,186
|
|
Nextel Brazil
|
|
|
202,321
|
|
|
|
26
|
%
|
|
|
(86,176
|
)
|
|
|
27
|
%
|
|
|
(67,963
|
)
|
|
|
26
|
%
|
|
|
48,182
|
|
Nextel Argentina
|
|
|
105,710
|
|
|
|
13
|
%
|
|
|
(49,868
|
)
|
|
|
16
|
%
|
|
|
(23,776
|
)
|
|
|
9
|
%
|
|
|
32,066
|
|
Nextel Peru
|
|
|
45,618
|
|
|
|
6
|
%
|
|
|
(23,908
|
)
|
|
|
8
|
%
|
|
|
(12,917
|
)
|
|
|
5
|
%
|
|
|
8,793
|
|
Corporate and other
|
|
|
817
|
|
|
|
|
|
|
|
(922
|
)
|
|
|
|
|
|
|
(38,218
|
)
|
|
|
14
|
%
|
|
|
(38,323
|
)
|
Intercompany eliminations
|
|
|
(267
|
)
|
|
|
|
|
|
|
267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$
|
786,984
|
|
|
|
100
|
%
|
|
$
|
(314,774
|
)
|
|
|
100
|
%
|
|
$
|
(264,306
|
)
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
six and three months ended June 30, 2008 and 2007. 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
the prior period. Because the U.S. dollar is the functional
currency in Peru, Nextel Perus results of operations are
not significantly impacted by changes in the U.S. dollar to
Peruvian sol exchange rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
10.63
|
|
|
|
10.95
|
|
|
|
3
|
%
|
Brazilian real
|
|
|
1.70
|
|
|
|
2.04
|
|
|
|
21
|
%
|
Argentine peso
|
|
|
3.14
|
|
|
|
3.09
|
|
|
|
(2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
Percent Change
|
|
|
Mexican peso
|
|
|
10.44
|
|
|
|
10.89
|
|
|
|
4
|
%
|
Brazilian real
|
|
|
1.66
|
|
|
|
1.98
|
|
|
|
20
|
%
|
Argentine peso
|
|
|
3.12
|
|
|
|
3.08
|
|
|
|
(1
|
)%
|
30
A discussion of the results of operations for each of our
reportable segments is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexicos
|
|
|
|
|
|
Mexicos
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
1,024,101
|
|
|
|
96
|
%
|
|
$
|
822,317
|
|
|
|
99
|
%
|
|
$
|
201,784
|
|
|
|
25
|
%
|
Digital handset and accessory revenues
|
|
|
39,231
|
|
|
|
4
|
%
|
|
|
10,648
|
|
|
|
1
|
%
|
|
|
28,583
|
|
|
|
268
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,063,332
|
|
|
|
100
|
%
|
|
|
832,965
|
|
|
|
100
|
%
|
|
|
230,367
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(199,032
|
)
|
|
|
(19
|
)%
|
|
|
(160,115
|
)
|
|
|
(20
|
)%
|
|
|
(38,917
|
)
|
|
|
24
|
%
|
Cost of digital handsets and accessories
|
|
|
(177,598
|
)
|
|
|
(16
|
)%
|
|
|
(133,574
|
)
|
|
|
(16
|
)%
|
|
|
(44,024
|
)
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(376,630
|
)
|
|
|
(35
|
)%
|
|
|
(293,689
|
)
|
|
|
(36
|
)%
|
|
|
(82,941
|
)
|
|
|
28
|
%
|
Selling and marketing expenses
|
|
|
(156,456
|
)
|
|
|
(15
|
)%
|
|
|
(117,960
|
)
|
|
|
(14
|
)%
|
|
|
(38,496
|
)
|
|
|
33
|
%
|
General and administrative expenses
|
|
|
(138,766
|
)
|
|
|
(13
|
)%
|
|
|
(110,376
|
)
|
|
|
(13
|
)%
|
|
|
(28,390
|
)
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
391,480
|
|
|
|
37
|
%
|
|
|
310,940
|
|
|
|
37
|
%
|
|
|
80,540
|
|
|
|
26
|
%
|
Management fee
|
|
|
(16,752
|
)
|
|
|
(2
|
)%
|
|
|
(19,800
|
)
|
|
|
(2
|
)%
|
|
|
3,048
|
|
|
|
(15
|
)%
|
Depreciation and amortization
|
|
|
(96,156
|
)
|
|
|
(9
|
)%
|
|
|
(68,214
|
)
|
|
|
(8
|
)%
|
|
|
(27,942
|
)
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
278,572
|
|
|
|
26
|
%
|
|
|
222,926
|
|
|
|
27
|
%
|
|
|
55,646
|
|
|
|
25
|
%
|
Interest expense, net
|
|
|
(31,732
|
)
|
|
|
(3
|
)%
|
|
|
(29,312
|
)
|
|
|
(4
|
)%
|
|
|
(2,420
|
)
|
|
|
8
|
%
|
Interest income
|
|
|
21,852
|
|
|
|
2
|
%
|
|
|
12,909
|
|
|
|
2
|
%
|
|
|
8,943
|
|
|
|
69
|
%
|
Foreign currency transaction gains, net
|
|
|
16,515
|
|
|
|
2
|
%
|
|
|
1,208
|
|
|
|
|
|
|
|
15,307
|
|
|
|
NM
|
|
Other (expense) income, net
|
|
|
(159
|
)
|
|
|
|
|
|
|
2,260
|
|
|
|
|
|
|
|
(2,419
|
)
|
|
|
(107
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
285,048
|
|
|
|
27
|
%
|
|
$
|
209,991
|
|
|
|
25
|
%
|
|
$
|
75,057
|
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
530,786
|
|
|
|
96
|
%
|
|
$
|
427,197
|
|
|
|
99
|
%
|
|
$
|
103,589
|
|
|
|
24
|
%
|
Digital handset and accessory revenues
|
|
|
24,174
|
|
|
|
4
|
%
|
|
|
5,588
|
|
|
|
1
|
%
|
|
|
18,586
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
554,960
|
|
|
|
100
|
%
|
|
|
432,785
|
|
|
|
100
|
%
|
|
|
122,175
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(101,695
|
)
|
|
|
(18
|
)%
|
|
|
(83,244
|
)
|
|
|
(19
|
)%
|
|
|
(18,451
|
)
|
|
|
22
|
%
|
Cost of digital handsets and accessories
|
|
|
(98,113
|
)
|
|
|
(18
|
)%
|
|
|
(70,923
|
)
|
|
|
(17
|
)%
|
|
|
(27,190
|
)
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199,808
|
)
|
|
|
(36
|
)%
|
|
|
(154,167
|
)
|
|
|
(36
|
)%
|
|
|
(45,641
|
)
|
|
|
30
|
%
|
Selling and marketing expenses
|
|
|
(83,391
|
)
|
|
|
(15
|
)%
|
|
|
(63,715
|
)
|
|
|
(15
|
)%
|
|
|
(19,676
|
)
|
|
|
31
|
%
|
General and administrative expenses
|
|
|
(72,033
|
)
|
|
|
(13
|
)%
|
|
|
(57,717
|
)
|
|
|
(13
|
)%
|
|
|
(14,316
|
)
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
199,728
|
|
|
|
36
|
%
|
|
|
157,186
|
|
|
|
36
|
%
|
|
|
42,542
|
|
|
|
27
|
%
|
Management fee
|
|
|
(8,354
|
)
|
|
|
(2
|
)%
|
|
|
(9,900
|
)
|
|
|
(2
|
)%
|
|
|
1,546
|
|
|
|
(16
|
)%
|
Depreciation and amortization
|
|
|
(50,057
|
)
|
|
|
(9
|
)%
|
|
|
(35,043
|
)
|
|
|
(8
|
)%
|
|
|
(15,014
|
)
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
141,317
|
|
|
|
25
|
%
|
|
|
112,243
|
|
|
|
26
|
%
|
|
|
29,074
|
|
|
|
26
|
%
|
Interest expense, net
|
|
|
(15,670
|
)
|
|
|
(3
|
)%
|
|
|
(15,100
|
)
|
|
|
(3
|
)%
|
|
|
(570
|
)
|
|
|
4
|
%
|
Interest income
|
|
|
11,283
|
|
|
|
2
|
%
|
|
|
5,726
|
|
|
|
1
|
%
|
|
|
5,557
|
|
|
|
97
|
%
|
Foreign currency transaction gains, net
|
|
|
12,355
|
|
|
|
3
|
%
|
|
|
5,858
|
|
|
|
1
|
%
|
|
|
6,497
|
|
|
|
111
|
%
|
Other expense, net
|
|
|
(80
|
)
|
|
|
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
149,205
|
|
|
|
27
|
%
|
|
$
|
108,649
|
|
|
|
25
|
%
|
|
$
|
40,556
|
|
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
31
Nextel Mexico continues to be our largest and most profitable
market segment, comprising 51% of our consolidated operating
revenues and generating a 37% segment earnings margin for the
six months ended June 30, 2008, consistent with the margin
reported for the six months ended June 30, 2007. During the
first half of 2008, 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 high level of subscriber growth.
Over the past year, some of Nextel Mexicos competitors
have 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 and
offering more competitive rate plans, which result in lower
average revenues per subscriber. In addition, during the third
quarter of 2007 and continuing into 2008, Nextel Mexico took a
number of steps to improve its competitiveness including the
implementation of an increase in its commission rates and other
modifications to its compensation arrangements with its external
sales channels in an effort to promote additional sales through
these channels. These changes to the compensation arrangements
have led to an increase in indirect commission expense during
the first half of 2008 compared to the first half of 2007 and
are expected to continue for the remainder of 2008. The more
competitive environment in Mexico also resulted in lower average
revenue per subscriber in local currency and a higher customer
turnover rate during the six months ended June 30, 2008
compared to the same period in 2007. As Nextel Mexico continues
to expand its customer base in both new and existing markets and
continues to address a more competitive sales environment,
Nextel Mexicos average revenue per subscriber could
continue to decline on a local currency basis during the
remainder of 2008. We have launched several initiatives focused
on stabilizing our customer turnover in Mexico, which may reduce
this rate in the second half of 2008; however, we expect the
turnover rate will continue to be higher relative to the same
periods in 2007.
Coverage expansion and network improvements in Mexico resulted
in capital expenditures totaling $126.7 million for the six
months ended June 30, 2008, which represents 29% of our
consolidated capital expenditures for the first half of 2008.
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 now that its expansion
plans launched in 2005 are substantially complete and as we
pursue more aggressive expansion plans in our other markets. We
expect subscriber growth in Mexico to continue as we build a
customer base in new markets that were launched during 2007.
The average exchange rate of the Mexican peso for the six and
three months ended June 30, 2008 appreciated against the
U.S. dollar by 3% and 4%, respectively, from the same
periods in 2007. As a result, the components of Nextel
Mexicos results of operations for the six and three months
ended June 30, 2008 after translation into
U.S. dollars reflect slightly higher increases in
U.S. dollar-denominated revenues and expenses than would
have occurred if it were not for the impact of the appreciation
in the average values of the peso relative to the
U.S. dollar.
The $201.8 million, or 25%, and $103.6 million, or
24%, increases in service and other revenues from the six and
three months ended June 30, 2007 to the same periods in
2008 are primarily due to the following:
|
|
|
|
|
35% and 33% increases 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 launched in the second half of 2007 and in
2008; and
|
|
|
|
$13.9 million, or 40%, and $6.4 million, or 34%,
increases in revenues generated from Nextel Mexicos
handset maintenance program as a result of increases in the
number of subscribers participating in this program.
|
These increases were partially offset by declines in average
service revenue per subscriber due to the launch of more
competitive rate plans described above.
32
The $28.6 million and $18.6 million increases in
digital handset and accessory revenues from the six and three
months ended June 30, 2007 to the same periods in 2008 are
primarily due to 55% and 56% increases in handset upgrades for
existing subscribers over both periods, 27% and 33% increases in
handset sales to new subscribers and increases in the average
price paid by subscribers for handset upgrades and handset sales.
The $38.9 million, or 24%, and $18.5 million, or 22%,
increases in cost of service from the six and three months ended
June 30, 2007 to the same periods in 2008 are principally a
result of the following:
|
|
|
|
|
$12.1 million, or 14%, and $5.1 million, or 12%,
increases in interconnect costs, largely as a result of 14% and
11% increases in interconnect system minutes of use;
|
|
|
|
$10.6 million, or 19%, and $5.5 million, or 19%,
increases in direct switch and transmitter and receiver site
costs resulting from a 10% increase in the number of sites in
service from June 30, 2007 to June 30, 2008; and
|
|
|
|
$6.8 million, or 55%, and $3.4 million, or 54%,
increases in service and repair costs largely due to the
increases in the number of subscribers participating in Nextel
Mexicos handset maintenance program.
|
The $44.0 million, or 33%, and $27.2 million, or 38%,
increases in cost of digital handset and accessory sales from
the six and three months ended June 30, 2007 to the same
periods in 2008 are primarily due to 55% and 56% increases in
handset upgrades for existing subscribers over both periods, as
well as 27% and 33% increases in handset sales to new
subscribers, partially offset by a reduction in handset unit
costs.
|
|
3.
|
Selling and
marketing expenses
|
The $38.5 million, or 33%, and $19.7 million, or 31%,
increases in selling and marketing expenses from the six and
three months ended March 31, 2007 to the same periods in
2008 are primarily a result of the following:
|
|
|
|
|
$29.3 million, or 55%, and $15.7 million, or 56%,
increases in indirect commissions, primarily due to 28% and 32%
increases in gross subscriber additions generated by Nextel
Mexicos external sales channels, as well as an increase in
indirect commission per gross subscriber addition resulting from
an increase in commission rates that Nextel Mexico implemented
during the third quarter of 2007; and
|
|
|
|
$10.1 million, or 29%, and $5.5 million, or 30%,
increases in direct commissions and payroll expenses,
principally due to 27% and 33% increases in gross subscriber
additions generated by Nextel Mexicos internal sales
personnel.
|
|
|
4.
|
General and
administrative expenses
|
The $28.4 million, or 26%, and $14.3 million, or 25%,
increases in general and administrative expenses from the six
and three months ended June 30, 2007 to the same periods in
2008 are largely a result of the following:
|
|
|
|
|
$12.7 million, or 97%, and $6.4 million, or 89%,
increases in bad debt expense, which increased as percentages of
revenue from 1.6% and 1.7% for the six and three months ended
June 30, 2007 to 2.4% and 2.5% for the six and three months
ended June 30, 2008, primarily due to a decrease in account
collections mainly related to new subscriber additions that have
higher credit risk;
|
|
|
|
$11.8 million, or 30%, and $6.3 million, or 31%,
increases in customer care expenses, primarily due to increases
in payroll and employee related expenses caused by an increase
in customer care personnel necessary to support a growing
customer base; and
|
|
|
|
$2.5 million, or 26%, and $1.4 million, or 27%,
increases in information technology expenses resulting from an
increase in payroll and related expenses caused by more
executive information technology personnel, as well as an
increase in systems maintenance expenses.
|
|
|
5.
|
Depreciation
and amortization
|
The $27.9 million, or 41%, and $15.0 million, or 43%,
increases in depreciation and amortization from the six and
three months ended June 30, 2007 to the same periods in
2008 are primarily due to higher depreciation related to a 24%
increase in Nextel Mexicos property, plant and equipment
in service resulting from the continued build-out
33
of Nextel Mexicos network in connection with its growth
objectives, as well as $12.3 million and $6.4 million
increases in amortization related to the 3.4 GHz licenses
that Nextel Mexico began using in September 2007.
The $8.9 million, or 69%, and $5.6 million, or 97%,
increases in interest income from the six and three months ended
June 30, 2007 to the same periods in 2008 are primarily a
result of higher average cash balances.
|
|
7.
|
Foreign
currency transaction gains, net
|
The $15.3 million and $6.5 million increases in net
foreign currency transaction gains from the six and three months
ended June 30, 2007 to the same periods in 2008 are
primarily due to the impact of an increase in the values of the
Mexican peso on Nextel Mexicos
U.S. dollar-denominated net liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazils
|
|
|
|
|
|
Brazils
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
616,584
|
|
|
|
95
|
%
|
|
$
|
357,101
|
|
|
|
95
|
%
|
|
$
|
259,483
|
|
|
|
73
|
%
|
Digital handset and accessory revenues
|
|
|
34,887
|
|
|
|
5
|
%
|
|
|
17,726
|
|
|
|
5
|
%
|
|
|
17,161
|
|
|
|
97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
651,471
|
|
|
|
100
|
%
|
|
|
374,827
|
|
|
|
100
|
%
|
|
|
276,644
|
|
|
|
74
|
%
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(218,581
|
)
|
|
|
(34
|
)%
|
|
|
(123,296
|
)
|
|
|
(33
|
)%
|
|
|
(95,285
|
)
|
|
|
77
|
%
|
Cost of digital handsets and accessories
|
|
|
(58,729
|
)
|
|
|
(9
|
)%
|
|
|
(34,954
|
)
|
|
|
(9
|
)%
|
|
|
(23,775
|
)
|
|
|
68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(277,310
|
)
|
|
|
(43
|
)%
|
|
|
(158,250
|
)
|
|
|
(42
|
)%
|
|
|
(119,060
|
)
|
|
|
75
|
%
|
Selling and marketing expenses
|
|
|
(78,930
|
)
|
|
|
(12
|
)%
|
|
|
(49,620
|
)
|
|
|
(13
|
)%
|
|
|
(29,310
|
)
|
|
|
59
|
%
|
General and administrative expenses
|
|
|
(119,983
|
)
|
|
|
(18
|
)%
|
|
|
(72,869
|
)
|
|
|
(20
|
)%
|
|
|
(47,114
|
)
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
175,248
|
|
|
|
27
|
%
|
|
|
94,088
|
|
|
|
25
|
%
|
|
|
81,160
|
|
|
|
86
|
%
|
Depreciation and amortization
|
|
|
(68,993
|
)
|
|
|
(11
|
)%
|
|
|
(42,657
|
)
|
|
|
(11
|
)%
|
|
|
(26,336
|
)
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
106,255
|
|
|
|
16
|
%
|
|
|
51,431
|
|
|
|
14
|
%
|
|
|
54,824
|
|
|
|
107
|
%
|
Interest expense, net
|
|
|
(26,075
|
)
|
|
|
(4
|
)%
|
|
|
(14,342
|
)
|
|
|
(4
|
)%
|
|
|
(11,733
|
)
|
|
|
82
|
%
|
Interest income
|
|
|
3,260
|
|
|
|
|
|
|
|
314
|
|
|
|
|
|
|
|
2,946
|
|
|
|
NM
|
|
Foreign currency transaction gains, net
|
|
|
25,467
|
|
|
|
4
|
%
|
|
|
4,239
|
|
|
|
1
|
%
|
|
|
21,228
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
(1,554
|
)
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
107,355
|
|
|
|
16
|
%
|
|
$
|
40,088
|
|
|
|
11
|
%
|
|
$
|
67,267
|
|
|
|
168
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
330,268
|
|
|
|
94
|
%
|
|
$
|
192,729
|
|
|
|
95
|
%
|
|
$
|
137,539
|
|
|
|
71
|
%
|
Digital handset and accessory revenues
|
|
|
19,718
|
|
|
|
6
|
%
|
|
|
9,592
|
|
|
|
5
|
%
|
|
|
10,126
|
|
|
|
106
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349,986
|
|
|
|
100
|
%
|
|
|
202,321
|
|
|
|
100
|
%
|
|
|
147,665
|
|
|
|
73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(117,694
|
)
|
|
|
(34
|
)%
|
|
|
(67,299
|
)
|
|
|
(34
|
)%
|
|
|
(50,395
|
)
|
|
|
75
|
%
|
Cost of digital handsets and accessories
|
|
|
(31,085
|
)
|
|
|
(9
|
)%
|
|
|
(18,877
|
)
|
|
|
(9
|
)%
|
|
|
(12,208
|
)
|
|
|
65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148,779
|
)
|
|
|
(43
|
)%
|
|
|
(86,176
|
)
|
|
|
(43
|
)%
|
|
|
(62,603
|
)
|
|
|
73
|
%
|
Selling and marketing expenses
|
|
|
(43,598
|
)
|
|
|
(12
|
)%
|
|
|
(29,023
|
)
|
|
|
(14
|
)%
|
|
|
(14,575
|
)
|
|
|
50
|
%
|
General and administrative expenses
|
|
|
(63,751
|
)
|
|
|
(18
|
)%
|
|
|
(38,940
|
)
|
|
|
(19
|
)%
|
|
|
(24,811
|
)
|
|
|
64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
93,858
|
|
|
|
27
|
%
|
|
|
48,182
|
|
|
|
24
|
%
|
|
|
45,676
|
|
|
|
95
|
%
|
Depreciation and amortization
|
|
|
(37,044
|
)
|
|
|
(11
|
)%
|
|
|
(22,888
|
)
|
|
|
(11
|
)%
|
|
|
(14,156
|
)
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
56,814
|
|
|
|
16
|
%
|
|
|
25,294
|
|
|
|
13
|
%
|
|
|
31,520
|
|
|
|
125
|
%
|
Interest expense, net
|
|
|
(12,810
|
)
|
|
|
(4
|
)%
|
|
|
(7,821
|
)
|
|
|
(4
|
)%
|
|
|
(4,989
|
)
|
|
|
64
|
%
|
Interest income
|
|
|
2,263
|
|
|
|
1
|
%
|
|
|
167
|
|
|
|
|
|
|
|
2,096
|
|
|
|
NM
|
|
Foreign currency transaction gains, net
|
|
|
27,214
|
|
|
|
8
|
%
|
|
|
3,664
|
|
|
|
2
|
%
|
|
|
23,550
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(355
|
)
|
|
|
|
|
|
|
(789
|
)
|
|
|
(1
|
)%
|
|
|
434
|
|
|
|
(55
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
73,126
|
|
|
|
21
|
%
|
|
$
|
20,515
|
|
|
|
10
|
%
|
|
$
|
52,611
|
|
|
|
256
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
34
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 experience growth
in its existing markets and made significant investments in new
markets. Coverage expansion and network improvements resulted in
capital expenditures totaling $219.3 million for the first
half of 2008, which represented 50% of our consolidated capital
expenditure investments during that period. We believe that
Nextel Brazils network expansion and quality improvements
are contributing factors to its low customer turnover rate and
subscriber growth. Consistent with the expansion plans we
announced in 2007 and 2008, Nextel Brazil expects to continue to
expand the geographic coverage and capacity of its network to
meet the needs of its growing subscriber base. In addition, we
recently announced our plans to make additional investments in
Brazil in order to add more capacity to Nextel Brazils
network, support its growth and expand its geographic coverage,
including expansion into the northeast region of the country.
The average exchange rates of the Brazilian real for the six and
three months ended June 30, 2008 appreciated against the
U.S. dollar by 21% and 20% from the same periods in 2007.
As a result, the components of Nextel Brazils results of
operations for the six and three months ended June 30,
2008, after translation into U.S. dollars, reflect more
significant increases in U.S. dollar-denominated revenues
and expenses than would have occurred if the Brazilian real had
not appreciated relative to the U.S. dollar.
The $259.5 million, or 73%, and $137.5 million, or
71%, increases in service and other revenues from the six and
three months ended June 30, 2007 to the same periods in
2008 are primarily a result of the following:
|
|
|
|
|
42% increases in the average number of digital handsets in
service over both periods resulting from growth in Nextel
Brazils existing markets and the expansion of service
coverage into new markets in connection with its balanced growth
and expansion objectives;
|
|
|
|
21% and 20% appreciation of the Brazilian real against the
U.S. dollar;
|
|
|
|
$18.1 million, or 72%, and $9.6 million, or 71%,
increases in revenues generated from Nextel Brazils
handset maintenance program as a result of 47% and 42% increases
in the number of subscribers participating in this
program; and
|
|
|
|
slight increases in local currency-based average revenue per
subscriber.
|
The $17.2 million, or 97%, and $10.1 million, or 106%,
increases in digital handset and accessory revenues from the six
and three months ended June 30, 2007 to the same periods in
2008 are primarily due to 160% and 102% increases in handset
upgrades for existing subscribers, as well as 32% increases in
handset sales to new subscribers over both periods, partially
offset by a decrease in the average price paid by subscribers
for handset upgrades.
The $95.3 million, or 77%, and $50.4 million, or 75%,
increases in cost of service from the six and three months ended
June 30, 2007 to the same periods in 2008 are primarily due
to the following:
|
|
|
|
|
$56.8 million, or 88%, and $29.4 million, or 82%,
increases in interconnect costs resulting from 51% increases in
interconnect minutes of use over both periods, as well as
increases in the proportion of mobile-to-mobile minutes of use,
which generally have higher per minute costs;
|
|
|
|
$20.1 million, or 48%, and $10.4 million, or 48%,
increases in direct switch and transmitter and receiver site
costs resulting from a 28% increase in the number of sites in
service from June 30, 2007 to June 30, 2008; and
|
|
|
|
$13.8 million, or 127%, and $8.5 million, or 152%,
increases in service and repair costs largely due to 47% and 42%
increases in the number of subscribers participating in Nextel
Brazils handset maintenance program, a change in the mix
of handsets repaired and increased costs of repairs.
|
35
The increases in cost of service also resulted from the 21% and
20% appreciation of the Brazilian real against the
U.S. dollar.
The $23.8 million, or 68%, and $12.2 million, or 65%,
increases in cost of digital handset and accessory sales from
the six and three months ended June 30, 2007 to the same
periods in 2008 are primarily due to 32% increases in handset
sales to new subscribers for both periods, as well as 160% and
102% increases in handset upgrades for existing subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $29.3 million, or 59%, and $14.6 million, or 50%,
increases in selling and marketing expenses from the six and
three months ended June 30, 2007 to the same periods in
2008 are principally due to the following:
|
|
|
|
|
$13.5 million, or 58%, and $7.8 million, or 60%,
increases in payroll and direct commissions largely as a result
of 38% increases in gross subscriber additions over both periods
generated by Nextel Brazils internal sales force and
higher payroll and related costs related to increases in selling
and marketing personnel necessary to support continued sales
growth;
|
|
|
|
$8.7 million, or 78%, and $3.0 million, or 39%,
increases 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, consistent with
Nextel Brazils growth objectives; and
|
|
|
|
$5.9 million, or 44%, and $3.1 million, or 41%,
increases in indirect commissions resulting from 26% and 25%
increases in gross subscriber additions generated through Nextel
Brazils external sales channels.
|
All of these increases were also affected by the 21% and 20%
appreciation of the Brazilian real against the U.S. dollar.
|
|
4.
|
General and
administrative expenses
|
The $47.1 million, or 65%, and $24.8 million, or 64%,
increases in general and administrative expenses from the six
and three months ended June 30, 2007 to the same periods in
2008 are primarily a result of the following:
|
|
|
|
|
$16.3 million, or 77%, and $8.9 million, or 78%,
increases in customer care expenses resulting from increases in
customer care personnel necessary to support a larger customer
base, as well as increases in the number of retail stores;
|
|
|
|
$15.6 million, or 76%, and $8.3 million, or 74%,
increases in revenue-based taxes that we report on a gross basis
as both service and other revenues and general and
administrative expenses, primarily due to the 73% and 71%
increases in Nextel Brazils service and other revenues;
|
|
|
|
$7.0 million, or 38%, and $3.3 million, or 35%,
increases in general corporate costs primarily resulting from
increases in general and administrative personnel necessary to
support Nextel Brazils expansion, as well as increases in
facilities costs due to expansion into new markets;
|
|
|
|
$4.5 million, or 76%, and $2.5 million, or 80%,
increases in bad debt expense as a result of the 74% and 73%
increases in Nextel Brazils operating revenues. Bad debt
expense as a percentage of consolidated operating revenues
remained stable at 1.6% for all periods in 2008 and
2007; and
|
|
|
|
$3.8 million, or 57%, and $2.1 million, or 61%,
increases 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 21% and 20%
appreciation of the Brazilian real against the U.S. dollar.
|
|
5.
|
Depreciation
and amortization
|
The $26.3 million, or 62%, and $14.2 million, or 62%,
increases in depreciation and amortization from the six and
three months ended June 30, 2007 to the same periods in
2008 are primarily due to a 72% increase in Nextel
36
Brazils property, plant and equipment in service resulting
from the continued build-out of Nextel Brazils network, as
well as the appreciation of the Brazilian real relative to the
U.S. dollar.
The $11.7 million, or 82%, and $5.0 million, or 64%,
increases in interest expense from the six and three months
ended June 30, 2007 to the same periods in 2008 are
primarily the result of $7.8 million and $3.5 million
of interest incurred on borrowings under Nextel Brazils
syndicated loan facility that were funded between
October 2007 and March 2008, increased interest incurred on
Nextel Brazils tower financing and capital lease
obligations due to increases in both the number of towers
financed and capital leases and the appreciation of the
Brazilian real relative to the U.S. dollar.
|
|
7.
|
Foreign
currency transaction gains, net
|
The $21.2 million and $23.6 million increases in net
foreign currency transaction gains from the six and three months
ended June 30, 2007 to the same periods in 2008 are
primarily due to the impact of an increase in the value of the
Brazilian real on Nextel Brazils
U.S. dollar-denominated syndicated loan facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
241,121
|
|
|
|
91
|
%
|
|
$
|
188,101
|
|
|
|
92
|
%
|
|
$
|
53,020
|
|
|
|
28
|
%
|
Digital handset and accessory revenues
|
|
|
23,395
|
|
|
|
9
|
%
|
|
|
15,654
|
|
|
|
8
|
%
|
|
|
7,741
|
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
264,516
|
|
|
|
100
|
%
|
|
|
203,755
|
|
|
|
100
|
%
|
|
|
60,761
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(85,287
|
)
|
|
|
(32
|
)%
|
|
|
(70,544
|
)
|
|
|
(35
|
)%
|
|
|
(14,743
|
)
|
|
|
21
|
%
|
Cost of digital handsets and accessories
|
|
|
(35,429
|
)
|
|
|
(13
|
)%
|
|
|
(24,730
|
)
|
|
|
(12
|
)%
|
|
|
(10,699
|
)
|
|
|
43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120,716
|
)
|
|
|
(45
|
)%
|
|
|
(95,274
|
)
|
|
|
(47
|
)%
|
|
|
(25,442
|
)
|
|
|
27
|
%
|
Selling and marketing expenses
|
|
|
(21,152
|
)
|
|
|
(8
|
)%
|
|
|
(15,131
|
)
|
|
|
(7
|
)%
|
|
|
(6,021
|
)
|
|
|
40
|
%
|
General and administrative expenses
|
|
|
(40,831
|
)
|
|
|
(16
|
)%
|
|
|
(29,523
|
)
|
|
|
(15
|
)%
|
|
|
(11,308
|
)
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
81,817
|
|
|
|
31
|
%
|
|
|
63,827
|
|
|
|
31
|
%
|
|
|
17,990
|
|
|
|
28
|
%
|
Depreciation and amortization
|
|
|
(18,355
|
)
|
|
|
(7
|
)%
|
|
|
(14,868
|
)
|
|
|
(7
|
)%
|
|
|
(3,487
|
)
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
63,462
|
|
|
|
24
|
%
|
|
|
48,959
|
|
|
|
24
|
%
|
|
|
14,503
|
|
|
|
30
|
%
|
Interest expense, net
|
|
|
(1,387
|
)
|
|
|
(1
|
)%
|
|
|
(1,124
|
)
|
|
|
(1
|
)%
|
|
|
(263
|
)
|
|
|
23
|
%
|
Interest income
|
|
|
1,867
|
|
|
|
1
|
%
|
|
|
2,037
|
|
|
|
1
|
%
|
|
|
(170
|
)
|
|
|
(8
|
)%
|
Foreign currency transaction (losses) gains, net
|
|
|
(2,673
|
)
|
|
|
(1
|
)%
|
|
|
306
|
|
|
|
|
|
|
|
(2,979
|
)
|
|
|
NM
|
|
Other income, net
|
|
|
44
|
|
|
|
|
|
|
|
1,577
|
|
|
|
1
|
%
|
|
|
(1,533
|
)
|
|
|
(97
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
61,313
|
|
|
|
23
|
%
|
|
$
|
51,755
|
|
|
|
25
|
%
|
|
$
|
9,558
|
|
|
|
18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Argentinas
|
|
|
|
|
|
Argentinas
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
126,154
|
|
|
|
91
|
%
|
|
$
|
96,968
|
|
|
|
92
|
%
|
|
$
|
29,186
|
|
|
|
30
|
%
|
Digital handset and accessory revenues
|
|
|
12,330
|
|
|
|
9
|
%
|
|
|
8,742
|
|
|
|
8
|
%
|
|
|
3,588
|
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,484
|
|
|
|
100
|
%
|
|
|
105,710
|
|
|
|
100
|
%
|
|
|
32,774
|
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(43,931
|
)
|
|
|
(32
|
)%
|
|
|
(36,428
|
)
|
|
|
(34
|
)%
|
|
|
(7,503
|
)
|
|
|
21
|
%
|
Cost of digital handsets and accessories
|
|
|
(18,517
|
)
|
|
|
(13
|
)%
|
|
|
(13,440
|
)
|
|
|
(13
|
)%
|
|
|
(5,077
|
)
|
|
|
38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,448
|
)
|
|
|
(45
|
)%
|
|
|
(49,868
|
)
|
|
|
(47
|
)%
|
|
|
(12,580
|
)
|
|
|
25
|
%
|
Selling and marketing expenses
|
|
|
(11,489
|
)
|
|
|
(8
|
)%
|
|
|
(8,042
|
)
|
|
|
(8
|
)%
|
|
|
(3,447
|
)
|
|
|
43
|
%
|
General and administrative expenses
|
|
|
(22,108
|
)
|
|
|
(16
|
)%
|
|
|
(15,734
|
)
|
|
|
(15
|
)%
|
|
|
(6,374
|
)
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
42,439
|
|
|
|
31
|
%
|
|
|
32,066
|
|
|
|
30
|
%
|
|
|
10,373
|
|
|
|
32
|
%
|
Depreciation and amortization
|
|
|
(9,687
|
)
|
|
|
(7
|
)%
|
|
|
(7,626
|
)
|
|
|
(7
|
)%
|
|
|
(2,061
|
)
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
32,752
|
|
|
|
24
|
%
|
|
|
24,440
|
|
|
|
23
|
%
|
|
|
8,312
|
|
|
|
34
|
%
|
Interest expense, net
|
|
|
(729
|
)
|
|
|
(1
|
)%
|
|
|
(630
|
)
|
|
|
|
|
|
|
(99
|
)
|
|
|
16
|
%
|
Interest income
|
|
|
600
|
|
|
|
|
|
|
|
1,138
|
|
|
|
1
|
%
|
|
|
(538
|
)
|
|
|
(47
|
)%
|
Foreign currency transaction losses, net
|
|
|
(3,103
|
)
|
|
|
(2
|
)%
|
|
|
(170
|
)
|
|
|
|
|
|
|
(2,933
|
)
|
|
|
NM
|
|
Other income, net
|
|
|
16
|
|
|
|
|
|
|
|
1,330
|
|
|
|
1
|
%
|
|
|
(1,314
|
)
|
|
|
(99
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
29,536
|
|
|
|
21
|
%
|
|
$
|
26,108
|
|
|
|
25
|
%
|
|
$
|
3,428
|
|
|
|
13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
The average exchange rates of the Argentine peso for the six and
three months ended June 30, 2008 depreciated against the
U.S. dollar by 2% and 1% from the same periods in 2007. As
a result, the components of Nextel Argentinas results of
operations for the six and three months ended June 30, 2008
after translation into U.S. dollars reflect slightly lower
increases in U.S. dollar-denominated revenues and expenses
than would have occurred if the Argentine peso had not
depreciated relative to the U.S. dollar.
The $53.0 million, or 28%, and $29.2 million, or 30%,
increases in service and other revenues from the six and three
months ended June 30, 2007 to the same periods in 2008 are
primarily a result of the following:
|
|
|
|
|
24% increases in the average number of digital handsets in
service, resulting mostly from growth in Nextel Argentinas
existing markets;
|
|
|
|
increases in average revenue per subscriber; and
|
|
|
|
$7.7 million, or 39%, and $4.0 million, or 39%,
increases in revenues generated from Nextel Argentinas
handset maintenance program as a result of 27% and 25% increases
in the number of subscribers participating in the program.
|
The $7.7 million, or 49%, and $3.6 million, or 41%,
increases in digital handset and accessory revenues from the six
and three months ended June 30, 2007 to the same periods in
2008 are primarily due to 111% and 117% increases in handset
upgrades for existing subscribers as well as 23% and 24%
increases in handset sales to new subscribers.
38
The $14.7 million, or 21%, and $7.5 million, or 21%,
increases in cost of service from the six and three months ended
June 30, 2007 to the same periods in 2008 are principally a
result of the following:
|
|
|
|
|
$6.9 million, or 19%, and $3.6 million, or 19%,
increases in interconnect costs largely as a result
14% increases in interconnect system minutes of use, as
well as an increase in the proportion of
mobile-to-mobile
minutes of use, which generally have higher per minute costs;
|
|
|
|
$3.3 million, or 19%, and $1.2 million, or 13%,
increases in service and repair costs, largely due to 27% and
25% increases in the number of subscribers participating in
Nextel Argentinas handset maintenance program; and
|
|
|
|
$2.8 million, or 18%, and $2.1 million, or 27%,
increases in direct switch and transmitter and receiver site
costs due to a 24% increase in the number of sites in service
from June 30, 2007 to June 30, 2008.
|
The $10.7 million, or 43%, and $5.1 million, or 38%,
increases in cost of digital handset and accessory sales from
the six and three months ended June 30, 2007 to the same
periods in 2008 are primarily due to 23% and 24% increases
in handset sales to new subscribers as well as 111% and 117%
increases in handset upgrades for existing subscribers,
partially offset by lower costs per handset upgrade.
|
|
3.
|
Selling and
marketing expenses
|
The $6.0 million, or 40%, and $3.4 million, or 43%,
increases in selling and marketing expenses from the
six and three months ended June 30, 2007 to the same
periods in 2008 are primarily due to the following:
|
|
|
|
|
$3.2 million, or 46%, and $1.8 million, or 47%,
increases in indirect commissions, principally resulting from
29% increases in gross subscriber additions generated by Nextel
Argentinas external sales channels, as well as increases
in indirect commissions earned per subscriber addition; and
|
|
|
|
$3.0 million, or 58%, and $1.9 million, or 77%,
increases in payroll and direct commissions, mostly due to 15%
and 16% increases in gross subscriber additions generated by
Nextel Argentinas internal sales personnel, as well as
higher payroll and related costs related to increases in selling
and marketing personnel necessary to support continued sales
growth and significant increases in salaries consistent with the
ongoing inflation pressures that we are experiencing in
Argentina.
|
|
|
4.
|
General and
administrative expenses
|
The $11.3 million, or 38%, and $6.4 million, or 41%,
increases in general and administrative expenses from the six
and three months ended June 30, 2007 to the same periods in
2008 are primarily a result of the following:
|
|
|
|
|
$5.5 million, or 33%, and $3.2 million, or 37%,
increases in general corporate costs resulting from certain
revenue-based taxes and increases in costs related to billing
and collections services, as well as increases in payroll and
related expenses caused by increases in general and
administrative personnel and significant increases in salaries
consistent with the ongoing inflation pressures that we are
experiencing in Argentina;
|
|
|
|
$3.6 million, or 49%, and $2.0 million, or 50%,
increases in customer care expenses resulting from increases in
customer care personnel necessary to support a larger customer
base and significant increases in salaries consistent with the
ongoing inflation pressures that we are experiencing in
Argentina; and
|
|
|
|
$1.6 million, or 41%, and $0.9 million, or 42%,
increases in information technology expenses caused by increases
in information technology personnel and higher software
maintenance costs.
|
|
|
5.
|
Depreciation
and amortization
|
The $3.5 million, or 23%, and $2.1 million, or 27%,
increases in depreciation and amortization from the six and
three months ended June 30, 2007 to the same periods in
2008 are primarily due to a 38% increase in Nextel
Argentinas property, plant and equipment in service.
|
|
6.
|
Foreign
currency transaction (losses) gains, net
|
Foreign currency transaction losses of $2.7 million and
$3.1 million for the six and three months ended
June 30, 2008 are mostly due to the relative weakening of
the peso compared to the U.S. dollar on Nextel
Argentinas U.S. dollar-denominated cash and cash
equivalents.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
Nextel
|
|
|
|
|
|
|
|
|
|
|
|
|
Perus
|
|
|
|
|
|
Perus
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
105,639
|
|
|
|
92
|
%
|
|
$
|
83,490
|
|
|
|
93
|
%
|
|
$
|
22,149
|
|
|
|
27
|
%
|
Digital handset and accessory revenues
|
|
|
8,855
|
|
|
|
8
|
%
|
|
|
5,881
|
|
|
|
7
|
%
|
|
|
2,974
|
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,494
|
|
|
|
100
|
%
|
|
|
89,371
|
|
|
|
100
|
%
|
|
|
25,123
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(37,879
|
)
|
|
|
(33
|
)%
|
|
|
(32,635
|
)
|
|
|
(37
|
)%
|
|
|
(5,244
|
)
|
|
|
16
|
%
|
Cost of digital handsets and accessories
|
|
|
(20,616
|
)
|
|
|
(18
|
)%
|
|
|
(13,831
|
)
|
|
|
(15
|
)%
|
|
|
(6,785
|
)
|
|
|
49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,495
|
)
|
|
|
(51
|
)%
|
|
|
(46,466
|
)
|
|
|
(52
|
)%
|
|
|
(12,029
|
)
|
|
|
26
|
%
|
Selling and marketing expenses
|
|
|
(13,829
|
)
|
|
|
(12
|
)%
|
|
|
(9,323
|
)
|
|
|
(10
|
)%
|
|
|
(4,506
|
)
|
|
|
48
|
%
|
General and administrative expenses
|
|
|
(19,540
|
)
|
|
|
(17
|
)%
|
|
|
(15,709
|
)
|
|
|
(18
|
)%
|
|
|
(3,831
|
)
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
22,630
|
|
|
|
20
|
%
|
|
|
17,873
|
|
|
|
20
|
%
|
|
|
4,757
|
|
|
|
27
|
%
|
Depreciation and amortization
|
|
|
(9,889
|
)
|
|
|
(9
|
)%
|
|
|
(10,884
|
)
|
|
|
(12
|
)%
|
|
|
995
|
|
|
|
(9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
12,741
|
|
|
|
11
|
%
|
|
|
6,989
|
|
|
|
8
|
%
|
|
|
5,752
|
|
|
|
82
|
%
|
Interest expense, net
|
|
|
(36
|
)
|
|
|
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
31
|
|
|
|
(46
|
)%
|
Interest income
|
|
|
618
|
|
|
|
|
|
|
|
341
|
|
|
|
|
|
|
|
277
|
|
|
|
81
|
%
|
Foreign currency transaction (losses) gains, net
|
|
|
(162
|
)
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
(216
|
)
|
|
|
NM
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(100
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
13,161
|
|
|
|
11
|
%
|
|
$
|
7,318
|
|
|
|
8
|
%
|
|
$
|
5,843
|
|
|
|
80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
53,943
|
|
|
|
92
|
%
|
|
$
|
42,555
|
|
|
|
93
|
%
|
|
$
|
11,388
|
|
|
|
27
|
%
|
Digital handset and accessory revenues
|
|
|
4,693
|
|
|
|
8
|
%
|
|
|
3,063
|
|
|
|
7
|
%
|
|
|
1,630
|
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,636
|
|
|
|
100
|
%
|
|
|
45,618
|
|
|
|
100
|
%
|
|
|
13,018
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(19,411
|
)
|
|
|
(33
|
)%
|
|
|
(16,745
|
)
|
|
|
(37
|
)%
|
|
|
(2,666
|
)
|
|
|
16
|
%
|
Cost of digital handsets and accessories
|
|
|
(10,842
|
)
|
|
|
(19
|
)%
|
|
|
(7,163
|
)
|
|
|
(16
|
)%
|
|
|
(3,679
|
)
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,253
|
)
|
|
|
(52
|
)%
|
|
|
(23,908
|
)
|
|
|
(53
|
)%
|
|
|
(6,345
|
)
|
|
|
27
|
%
|
Selling and marketing expenses
|
|
|
(7,561
|
)
|
|
|
(13
|
)%
|
|
|
(5,173
|
)
|
|
|
(11
|
)%
|
|
|
(2,388
|
)
|
|
|
46
|
%
|
General and administrative expenses
|
|
|
(10,253
|
)
|
|
|
(17
|
)%
|
|
|
(7,744
|
)
|
|
|
(17
|
)%
|
|
|
(2,509
|
)
|
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
10,569
|
|
|
|
18
|
%
|
|
|
8,793
|
|
|
|
19
|
%
|
|
|
1,776
|
|
|
|
20
|
%
|
Depreciation and amortization
|
|
|
(4,963
|
)
|
|
|
(8
|
)%
|
|
|
(5,596
|
)
|
|
|
(12
|
)%
|
|
|
633
|
|
|
|
(11
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,606
|
|
|
|
10
|
%
|
|
|
3,197
|
|
|
|
7
|
%
|
|
|
2,409
|
|
|
|
75
|
%
|
Interest expense, net
|
|
|
(19
|
)
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
11
|
|
|
|
(37
|
)%
|
Interest income
|
|
|
327
|
|
|
|
|
|
|
|
144
|
|
|
|
|
|
|
|
183
|
|
|
|
127
|
%
|
Foreign currency transaction gains, net
|
|
|
29
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
19
|
|
|
|
190
|
%
|
Other (expense) income, net
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(200
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$
|
5,942
|
|
|
|
10
|
%
|
|
$
|
3,322
|
|
|
|
7
|
%
|
|
$
|
2,620
|
|
|
|
79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
40
We plan to develop and deploy a third generation network in Peru
using 1.9 GHz spectrum we acquired in 2007. Our current
plans are to pursue this opportunity utilizing a technology that
will be based on the CDMA platform. The regulatory authorities
in Peru recently approved our plans for the deployment of this
new network. We believe that these plans will enable us to
significantly increase the size of our opportunity in Peru by
allowing us to offer new and differentiated services to a larger
base of potential customers. During the first half of 2008, we
did not incur any significant costs in Peru related to this
initiative.
Because the U.S. dollar is the functional currency in Peru,
Nextel Perus results of operations are not significantly
impacted by changes in the U.S. dollar to Peruvian sol
exchange rate.
The $22.1 million, or 27%, and $11.4 million, or 27%,
increases in service and other revenues from the six and three
months ended June 30, 2007 to the same periods in 2008 are
primarily due to 41% and 42% increases in the average number of
digital handsets in service, partially offset by decreases in
average revenue per subscriber mainly resulting from an increase
in sales of prepaid rate plans, which have lower average monthly
prices per subscriber.
The $3.0 million, or 51%, and $1.6 million, or 53%,
increases in digital handset and accessory revenues from the six
and three months ended June 30, 2007 to the same periods in
2008 are primarily due to 55% and 52% increases in handset sales
to new subscribers, as well as increases in handset upgrades for
existing subscribers.
The $5.2 million, or 16%, and $2.7 million, or 16%,
increases in cost of service from the six and three months ended
June 30, 2007 to the same periods in 2008 are largely a
result of the following:
|
|
|
|
|
$2.0 million, or 63%, and $1.2 million, or 72%,
increases in service and repair costs largely due to 72% and 82%
increases in the number of subscribers participating in Nextel
Perus handset maintenance program; and
|
|
|
|
$2.0 million, or 27%, and $1.2 million, or 32%,
increases in direct switch and transmitter and receiver site
costs due to a 7% increase in the number of sites in service
from June 30, 2007 to June 30, 2008, as well as
increases in operating and maintenance costs per site.
|
The $6.8 million, or 49%, and $3.7 million, or 51%,
increases in cost of digital handsets and accessory sales from
the six and three months ended June 30, 2007 to the same
periods in 2008 are largely a result of 55% and 52% increases in
handset sales to new subscribers, as well as increases in
handset upgrades for existing subscribers.
|
|
3.
|
Selling and
marketing expenses
|
The $4.5 million, or 48%, and $2.4 million, or 46%,
increases in selling and marketing expenses from the six and
three months ended June 30, 2007 to the same periods in
2008 are largely a result of the following:
|
|
|
|
|
$2.6 million, or 112%, and $1.5 million, or 122%,
increases in indirect commissions as a result of 81% and 80%
increases in handset sales by Nextel Perus external sales
channels; and
|
|
|
|
$2.1 million, or 41%, and $1.1 million, or 41%,
increases in direct commissions and payroll expenses principally
due to 29% and 21% increases in handset sales by Nextel
Perus sales personnel.
|
|
|
4.
|
General and
administrative expenses
|
The $3.8 million, or 24%, and $2.5 million, or 32%,
increases in general and administrative expenses from the six
and three months ended June 30, 2007 to the same periods in
2008 are primarily due to the following:
|
|
|
|
|
$2.1 million, or 39%, and $1.1 million, or 39%,
increases in customer care expenses, mainly caused by increases
in customer care and billing operations personnel needed to
support a growing customer base; and
|
|
|
|
$1.8 million, or 31%, and $1.1 million, or 37%,
increases in general corporate costs resulting from increases in
payroll and related expenses caused by increases in general and
administrative personnel.
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
and other
|
|
|
Change from
|
|
|
|
June 30,
|
|
|
Operating
|
|
|
June 30,
|
|
|
Operating
|
|
|
Previous Year
|
|
|
|
2008
|
|
|
Revenues
|
|
|
2007
|
|
|
Revenues
|
|
|
Dollars
|
|
|
Percent
|
|
|
|
(dollars in thousands)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
4,004
|
|
|
|
100
|
%
|
|
$
|
1,382
|
|
|
|
100
|
%
|
|
$
|
2,622
|
|
|
|
190
|
%
|
Digital handset and accessory revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,004
|
|
|
|
100
|
%
|
|
|
1,382
|
|
|
|
100
|
%
|
|
|
2,622
|
|
|
|
190
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(2,859
|
)
|
|
|
(71
|
)%
|
|
|
(1,064
|
)
|
|
|
(77
|
)%
|
|
|
(1,795
|
)
|
|
|
169
|
%
|
Cost of digital handsets and accessories
|
|
|
(1,026
|
)
|
|
|
(26
|
)%
|
|
|
(560
|
)
|
|
|
(41
|
)%
|
|
|
(466
|
)
|
|
|
83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,885
|
)
|
|
|
(97
|
)%
|
|
|
(1,624
|
)
|
|
|
(118
|
)%
|
|
|
(2,261
|
)
|
|
|
139
|
%
|
Selling and marketing expenses
|
|
|
(6,607
|
)
|
|
|
(165
|
)%
|
|
|
(4,744
|
)
|
|
|
NM
|
|
|
|
(1,863
|
)
|
|
|
39
|
%
|
General and administrative expenses
|
|
|
(73,863
|
)
|
|
|
NM
|
|
|
|
(64,193
|
)
|
|
|
NM
|
|
|
|
(9,670
|
)
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(80,351
|
)
|
|
|
NM
|
|
|
|
(69,179
|
)
|
|
|
NM
|
|
|
|
(11,172
|
)
|
|
|
16
|
%
|
Management fee
|
|
|
16,800
|
|
|
|
NM
|
|
|
|
19,800
|
|
|
|
NM
|
|
|
|
(3,000
|
)
|
|
|
(15
|
)%
|
Depreciation and amortization
|
|
|
(5,792
|
)
|
|
|
(145
|
)%
|
|
|
(3,270
|
)
|
|
|
(237
|
)%
|
|
|
(2,522
|
)
|
|
|
77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(69,343
|
)
|
|
|
NM
|
|
|
|
(52,649
|
)
|
|
|
NM
|
|
|
|
(16,694
|
)
|
|
|
32
|
%
|
Interest expense, net
|
|
|
(26,585
|
)
|
|
|
NM
|
|
|
|
(14,335
|
)
|
|
|
NM
|
|
|
|
(12,250
|
)
|
|
|
85
|
%
|
Interest income
|
|
|
13,120
|
|
|
|
NM
|
|
|
|
12,279
|
|
|
|
NM
|
|
|
|
841
|
|
|
|
7
|
%
|
Foreign currency transaction gains (losses), net
|
|
|
1,111
|
|
|
|
28
|
%
|
|
|
(8
|
)
|
|
|
(1
|
)%
|
|
|
1,119
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(3,508
|
)
|
|
|
(88
|
)%
|
|
|
(1,651
|
)
|
|
|
(119
|
)%
|
|
|
(1,857
|
)
|
|
|
112
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(85,205
|
)
|
|
|
NM
|
|
|
$
|
(56,364
|
)
|
|
|
NM
|
|
|
$
|
(28,841
|
)
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$
|
2,208
|
|
|
|
100
|
%
|
|
$
|
817
|
|
|
|
100
|
%
|
|
$
|
1,391
|
|
|
|
170
|
%
|
Digital handset and accessory revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,208
|
|
|
|
100
|
%
|
|
|
817
|
|
|
|
100
|
%
|
|
|
1,391
|
|
|
|
170
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation and amortization
included below)
|
|
|
(1,654
|
)
|
|
|
(75
|
)%
|
|
|
(570
|
)
|
|
|
(70
|
)%
|
|
|
(1,084
|
)
|
|
|
190
|
%
|
Cost of digital handsets and accessories
|
|
|
(570
|
)
|
|
|
(26
|
)%
|
|
|
(352
|
)
|
|
|
(43
|
)%
|
|
|
(218
|
)
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,224
|
)
|
|
|
(101
|
)%
|
|
|
(922
|
)
|
|
|
(113
|
)%
|
|
|
(1,302
|
)
|
|
|
141
|
%
|
Selling and marketing expenses
|
|
|
(3,711
|
)
|
|
|
(168
|
)%
|
|
|
(2,403
|
)
|
|
|
(294
|
)%
|
|
|
(1,308
|
)
|
|
|
54
|
%
|
General and administrative expenses
|
|
|
(37,993
|
)
|
|
|
NM
|
|
|
|
(35,815
|
)
|
|
|
NM
|
|
|
|
(2,178
|
)
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(41,720
|
)
|
|
|
NM
|
|
|
|
(38,323
|
)
|
|
|
NM
|
|
|
|
(3,397
|
)
|
|
|
9
|
%
|
Management fee
|
|
|
8,402
|
|
|
|
NM
|
|
|
|
9,900
|
|
|
|
NM
|
|
|
|
(1,498
|
)
|
|
|
(15
|
)%
|
Depreciation and amortization
|
|
|
(3,184
|
)
|
|
|
(144
|
)%
|
|
|
(1,634
|
)
|
|
|
(200
|
)%
|
|
|
(1,550
|
)
|
|
|
95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(36,502
|
)
|
|
|
NM
|
|
|
|
(30,057
|
)
|
|
|
NM
|
|
|
|
(6,445
|
)
|
|
|
21
|
%
|
Interest expense, net
|
|
|
(13,231
|
)
|
|
|
NM
|
|
|
|
(8,872
|
)
|
|
|
NM
|
|
|
|
(4,359
|
)
|
|
|
49
|
%
|
Interest income
|
|
|
5,336
|
|
|
|
242
|
%
|
|
|
8,095
|
|
|
|
NM
|
|
|
|
(2,759
|
)
|
|
|
(34
|
)%
|
Foreign currency transaction gains (losses), net
|
|
|
858
|
|
|
|
39
|
%
|
|
|
(31
|
)
|
|
|
(4
|
)%
|
|
|
889
|
|
|
|
NM
|
|
Other expense, net
|
|
|
(226
|
)
|
|
|
(10
|
)%
|
|
|
(1,658
|
)
|
|
|
(203
|
)%
|
|
|
1,432
|
|
|
|
(86
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$
|
(43,765
|
)
|
|
|
NM
|
|
|
$
|
(32,523
|
)
|
|
|
NM
|
|
|
$
|
(11,242
|
)
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
42
For the six and three months ended June 30, 2008, corporate
and other operating revenues and cost of revenues primarily
represent the results of digital operations reported by Nextel
Chile. For the six and three months ended June 30, 2007,
corporate and other operating revenues and cost of revenues
primarily represent the results of both digital and analog
operations reported by Nextel Chile. 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.
|
|
1.
|
General and
administrative expenses
|
The $9.7 million, or 15%, and $2.2 million, or 6%,
increases in general and administrative expenses from the six
and three months ended June 30, 2007 to the same periods in
2008 are primarily due to $9.8 million and
$3.3 million increases in stock option expense and
increases in corporate personnel expenses related to our new
technology initiatives, partially offset by decreases in
share-based payment expense for restricted stock.
The $12.2 million, or 85%, and $4.4 million, or 49%,
increases in net interest expense from the six and three months
ended June 30, 2007 to the same periods in 2008 are
substantially the result of $15.6 million and
$6.3 million increases in interest expense due to the
issuance of our 3.125% convertible notes during the second
quarter of 2007, partially offset by $4.3 million and
$2.2 million decreases in interest expense due to the
conversion of our 2.875% convertible notes in the third quarter
of 2007.
Liquidity
and Capital Resources
We had working capital, which is defined as total current assets
less total current liabilities, of $1,587.3 million as of
June 30, 2008, a $48.3 million decrease compared to
working capital of $1,635.6 million as of December 31,
2007.
In January 2008, our Board of Directors authorized a program to
purchase shares of our common stock for cash. The Board approved
the purchase of shares having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. During the first half of 2008, we purchased a total of
5,555,033 shares of our common stock for
$242.7 million. During the second quarter of 2007, we
purchased a total of 4,043,725 shares of our common stock
for approximately $330.0 million under our first program to
purchase shares of our common stock for cash, which was approved
by our Board of Directors in May 2007. We treat purchases of our
common stock under this program as effective retirements of the
purchased shares and therefore reduce our reported shares issued
and outstanding by the number of shares purchased. In addition,
we record the excess of the purchase price over the par value of
the common stock as a reduction to paid-in capital.
We recognized net income of $268.8 million for the six
months ended June 30, 2008 compared to $168.2 million
for the six months ended June 30, 2007. During the six
months ended June 30, 2008 and 2007, our operating revenues
more than offset our operating expenses, excluding depreciation
and amortization, and cash capital expenditures.
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Net cash provided by operating activities
|
|
$
|
316,005
|
|
|
$
|
227,882
|
|
|
$
|
88,123
|
|
Net cash used in investing activities
|
|
|
(346,968
|
)
|
|
|
(377,345
|
)
|
|
|
30,377
|
|
Net cash (used in) provided by financing activities
|
|
|
(91,434
|
)
|
|
|
923,690
|
|
|
|
(1,015,124
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
32,012
|
|
|
|
(575
|
)
|
|
|
32,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(90,385
|
)
|
|
|
773,652
|
|
|
|
(864,037
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
1,370,165
|
|
|
|
708,591
|
|
|
|
661,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,279,780
|
|
|
$
|
1,482,243
|
|
|
$
|
(202,463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Our operating activities provided us with $316.0 million of
cash during the six months ended June 30, 2008, an
$88.1 million increase from the six months ended
June 30, 2007. The increase was primarily due to higher
operating income resulting from our profitable growth strategy
and less cash used for working capital.
We used $347.0 million of cash in our investing activities
during the six months ended June 30, 2008, a
$30.4 million decrease from the six months ended
June 30, 2007 due primarily to $114.7 million in
distributions we received from our 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.
Cash capital expenditures increased $62.7 million from
$361.1 million during the six months ended June 30,
2007 to $423.8 million during the six months ended
June 30, 2008, primarily due to the continued expansion of
the geographic coverage and capacity of our networks, primarily
in Brazil and Mexico.
We used $91.4 million of cash in our financing activities
during the six months ended June 30, 2008, primarily due to
$242.7 million in cash we used to purchase our common stock
and $31.9 million in repayments under Nextel Mexicos
syndicated loan facility, partially offset by
$125.0 million in borrowings under Nextel Brazils
syndicated loan facility, $28.6 million in proceeds we
received from stock option exercises and $27.3 million
increase in proceeds from our towers financing transactions in
Mexico and Brazil. Our financing activities provided us with
$923.7 million of cash during the six months ended
June 30, 2007 due primarily to $1,200.0 million in
cash we received from the issuance of our 3.125% convertible
notes and $78.0 million in proceeds we received from stock
option exercises, partially offset by $330.0 million in
cash we used to purchase our common stock.
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
investments, cash flows generated by our operating companies and
external financial sources that may be available. As of
June 30, 2008, our capital resources included
$1,279.8 million of cash and cash equivalents and
$165.5 million in short-term investments.
Our ability to generate sufficient net cash from our operating
activities is dependent upon, among other things:
|
|
|
|
|
the amount of revenue we are able to generate and collect from
our customers;
|
|
|
|
the amount of operating expenses required to provide our
services;
|
|
|
|
the cost of acquiring and retaining customers, including the
subsidies we incur to provide handsets to both our new and
existing customers;
|
|
|
|
our ability to continue to increase the size of our subscriber
base; and
|
|
|
|
fluctuations in foreign exchange rates.
|
Capital Needs and Contractual
Obligations. We currently anticipate that our
future capital needs will principally consist of funds required
for:
|
|
|
|
|
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 network 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.
|
44
The following table sets forth the amounts and timing of
contractual payments for our most significant contractual
obligations determined as of June 30, 2008. The information
in the table reflects future unconditional payments and is based
upon, among other things, the current terms of the relevant
agreements, appropriate classification of items under accounting
principles generally accepted in the United States that are
currently in effect and certain assumptions, such as future
interest rates. Future events could cause actual payments to
differ significantly from these amounts. See Forward
Looking Statements. Except as required by law, we disclaim
any obligation to modify or update the information contained in
the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
Contractual Obligations
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Convertible notes(1)
|
|
$
|
47,125
|
|
|
$
|
94,250
|
|
|
$
|
1,256,750
|
|
|
$
|
470,354
|
|
|
$
|
1,868,479
|
|
Tower financing obligations(1)
|
|
|
62,131
|
|
|
|
124,272
|
|
|
|
124,294
|
|
|
|
374,759
|
|
|
|
685,456
|
|
Syndicated loan facilities(2)
|
|
|
94,678
|
|
|
|
390,147
|
|
|
|
132,635
|
|
|
|
12,833
|
|
|
|
630,293
|
|
Capital lease obligations(3)
|
|
|
15,497
|
|
|
|
31,388
|
|
|
|
47,453
|
|
|
|
107,165
|
|
|
|
201,503
|
|
Spectrum fees(4)
|
|
|
15,294
|
|
|
|
30,588
|
|
|
|
30,588
|
|
|
|
211,400
|
|
|
|
287,870
|
|
Operating leases(5)
|
|
|
138,371
|
|
|
|
224,171
|
|
|
|
149,724
|
|
|
|
196,325
|
|
|
|
708,591
|
|
Purchase obligations(6)
|
|
|
1,098,584
|
|
|
|
72,337
|
|
|
|
17,664
|
|
|
|
|
|
|
|
1,188,585
|
|
Other long-term obligations(7)
|
|
|
15,973
|
|
|
|
21,465
|
|
|
|
28,290
|
|
|
|
188,512
|
|
|
|
254,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual commitments
|
|
$
|
1,487,653
|
|
|
$
|
988,618
|
|
|
$
|
1,787,398
|
|
|
$
|
1,561,348
|
|
|
$
|
5,825,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, including with 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. |
|
(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 principally include future lease costs related to
our transmitter and receiver sites and switches and office
facilities. |
|
(6) |
|
These amounts include maximum contractual purchase obligations
under various agreements with our vendors, as well as estimated
amounts related to interconnection agreements in Mexico. |
|
(7) |
|
These amounts include our current estimates of asset retirement
obligations based on our expectations as to future retirement
costs, inflation rates and timing of retirements, as well as
amounts related to our FIN 48 liabilities. |
We 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 2008 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
$435.3 million for the six months ended June 30, 2008
compared to $341.4 million for the six months ended
June 30, 2007. In each of these periods, 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. Specifically, we recently announced our plans
to make additional investments in Brazil in order to add more
capacity to Nextel Brazils network, support its growth and
expand its geographic coverage, including expansion into the
northeast region of the country. In the future, we expect to
45
finance our capital spending using the most effective
combination of cash from operations, cash on hand, 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:
|
|
|
|
|
the expansion of the coverage of our networks to new market
areas;
|
|
|
|
the construction of additional transmitter and receiver sites to
increase system capacity and maintain system quality and the
installation of related switching equipment in some of our
existing market coverage areas;
|
|
|
|
the enhancement of our network coverage around some major market
areas;
|
|
|
|
the deployment within required timeframes of a next generation
network that utilizes the 1.9 GHz spectrum that we acquired
in Peru in 2007;
|
|
|
|
potential funding of future spectrum acquisitions and
development and deployment of any future next generation
networks; 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 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 Forward Looking Statements.
Future Outlook. We believe that our
current business plan, which contemplates significant network
expansion in Brazil, some continued network expansion in Mexico,
Argentina and 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
Forward Looking Statements.
In making our assessments of a fully funded business plan, we
have considered:
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|
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|
|
cash and cash equivalents on hand and short-term-investments
available to fund our operations;
|
|
|
|
expected cash flows from operations;
|
|
|
|
the anticipated level of capital expenditures, including minimum
build-out requirements, relating to the deployment of the next
generation network that utilizes the 1.9 GHz spectrum we
acquired in Peru;
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|
|
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 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
46
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 that do not involve any of
these events or circumstances and may do so if the opportunity
presents itself. Our assessment does not take into consideration
purchases of additional spectrum and network equipment to
support the deployment of future next generation networks or the
costs associated with the deployment of those networks other
than the planned deployment of the next generation network in
Peru. 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;
|
|
|
|
the volatility and demand of the capital markets; and
|
|
|
|
the future market prices of our securities.
|
Forward
Looking Statements
Safe Harbor Statement under the Private
Securities Litigation Reform Act of
1995. Certain statements made in this
quarterly report on
Form 10-Q
are not historical or current facts, but deal with potential
future circumstances and developments. They can be identified by
the use of forward-looking words such as believes,
expects, intends, plans,
may, will, would,
could, should or anticipates
or other comparable words, or by discussions of strategy that
involve risks and uncertainties. We caution you that these
forward-looking statements are only predictions, which are
subject to risks and uncertainties, including technical
uncertainties, financial variations 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;
|
|
|
|
general economic conditions in the United States or in Latin
America and in the market segments that we are targeting for our
services;
|
|
|
|
the political and social conditions in the countries in which we
operate, including political instability, which may affect the
economies of our markets and the regulatory schemes in these
countries;
|
|
|
|
the impact of foreign exchange volatility in our markets as
compared to the U.S. dollar and related currency
depreciation in countries in which our operating companies
conduct business;
|
|
|
|
reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of digital two-way mobile data or Internet
connectivity services in our markets;
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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;
|
|
|
|
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;
|
|
|
|
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;
|
47
|
|
|
|
|
our ability to successfully scale our billing, collection,
customer care and similar back-office operations to keep pace
with customer growth, increased system usage rates and growth or
to successfully deploy new systems that support those functions;
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|
|
the success of efforts to improve and satisfactorily address any
issues relating to our network performance;
|
|
|
|
future legislation or regulatory actions relating to our SMR
services, other wireless communication services or
telecommunications generally;
|
|
|
|
the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our network business;
|
|
|
|
the quality and price of similar or comparable wireless
communications services offered or to be offered by our
competitors, including providers of cellular services and
personal communications services;
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|
|
|
market acceptance of our new service offerings;
|
|
|
|
our ability to access sufficient debt or equity capital to meet
any future operating and financial needs; and
|
|
|
|
|
|
other risks and uncertainties described in this quarterly report
on
Form 10-Q
and from time to time in our other reports filed with the
Securities and Exchange Commission, including in our 2007 annual
report on
Form 10-K.
|
Effect of
New Accounting Standards
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, or SFAS 157, which
provides guidance for using fair value to measure assets and
liabilities when required for recognition or disclosure
purposes. SFAS No. 157 does not expand the use of fair
value or determine when fair value should be used in the
financial statements. 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
No. 157-1,
in order to amend SFAS No. 157 to exclude from its
scope FASB Statement No. 13, Accounting for
Leases, or SFAS No. 13, and other accounting
pronouncements that address fair value measurements for purposes
of lease classification or measurement. In addition, in February
2008, the FASB issued Staff Position
No. 157-2,
Effective Date of FASB Statement No. 157, or
FSP
No. 157-2,
which defers the effective date of SFAS No. 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 on a
recurring basis (at least annually). In accordance with FSP
No. 157-2,
we partially adopted SFAS No. 157 for financial assets
and liabilities in the first quarter of fiscal year 2008.
SFAS No. 157 did not have a material impact on our
condensed consolidated financial statements. See Note 2 for
additional information and related disclosures regarding our
fair value measurements.
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, or SFAS No. 159.
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 adopted
SFAS No. 159 in the first quarter of fiscal year 2008.
SFAS No. 159 did not have a material impact on our
condensed consolidated financial statements as we elected not to
measure any eligible items at fair value.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations, or
SFAS No. 141(R), which replaces
SFAS No. 141. SFAS No. 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, the goodwill acquired and the expenses incurred
in connection with the acquisition. SFAS No. 141(R)
also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business
combination. SFAS No. 141(R) is effective for fiscal
years beginning after December 15, 2008. Earlier adoption
is not permitted. As a result, we will apply the provisions of
SFAS No. 141(R) prospectively to business combinations
that close on or after January 1, 2009. We are currently
48
evaluating the impact, if any, the adoption of
SFAS No. 141(R) may have on our condensed 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 No. 160.
SFAS No. 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 No. 160 also
establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the
interests of the noncontrolling owners. SFAS No. 160
is effective for fiscal years beginning after December 15,
2008. Earlier adoption is not permitted. We do not believe that
its adoption will have a material impact on our condensed
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities An Amendment of FASB Statement
No. 133 or SFAS No. 161, which amends and
expands the disclosure requirements of SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities to require qualitative disclosure about
objectives and strategies in using derivatives, quantitative
disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about the underlying
credit-risk-related contingent features in derivative
agreements. SFAS No. 161 is intended to improve
financial reporting by requiring transparency about the location
and amounts of derivative instruments in an entitys
financial statements; how derivative instruments and related
hedged items are accounted for under SFAS No. 133; and
how derivative instruments and related hedged items affect its
financial position, financial performance and cash flows.
SFAS No. 161 is effective for financial statements
issued for fiscal years beginning after November 15, 2008.
We are currently evaluating the potential impact, if any, that
the adoption of SFAS No. 161 may have on our condensed
consolidated financial statements.
In April 2008, the FASB issued Staff Position
No. FAS 142-3,
Determination of the Useful Life of Intangible
Assets, or FSP
FAS 142-3.
FSP
FAS 142-3
amends the factors considered in developing renewal or extension
assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill
and Other Intangible Assets in order to improve the
consistency between the useful life of the recognized intangible
asset and the period of expected cash flows used to measure the
fair value of the asset. FSP
FAS 142-3
applies to: (1) intangible assets that are acquired
individually or with a group of other assets, and
(2) intangible assets acquired both in business
combinations and asset acquisitions. FSP
FAS 142-3
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Early adoption is prohibited. We are
currently evaluating the potential impact, if any, the adoption
of FSP
FAS 142-3
may have on our condensed consolidated financial statements.
In May 2008, the FASB issued Staff Position No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement), or FSP APB
14-1.
FSP APB 14-1
requires that issuers of certain convertible debt instruments
that may be settled in cash upon conversion, including partial
cash settlement, separately account for the liability and equity
components (ie. the embedded conversion option) and recognize
the accretion of the resulting discount on the debt as interest
expense. FSP APB
14-1 is
effective for fiscal years beginning after December 15,
2008 and for interim periods within those fiscal years. It is
required to be applied retrospectively to convertible debt
instruments that were outstanding during any period presented in
the financial statements issued after the effective date. We are
currently quantifying the effect the adoption of FSP APB
14-1 will
have on our convertible notes and our consolidated financial
statements. We believe that the adoption of FSP APB
14-1 in 2009
will result in an increase in the amount of non-cash interest
expense with respect to our convertible debt securities and a
corresponding reduction in our reported net income and diluted
earnings per share for all periods presented in our consolidated
financial statements.
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|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Our revenues are primarily denominated in foreign currencies,
while a significant portion of our operations are financed in
U.S. dollars through our convertible notes, 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
49
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 June 30, 2008, we have not entered into any
derivative transactions to hedge our foreign currency
transaction risk during 2008 or any future period.
Interest rate changes expose our fixed rate long-term borrowings
to changes in fair value and expose our variable rate long-term
borrowings to changes in future cash flows. As of June 30,
2008, $1,921.2 million, or 79%, of our total consolidated
debt was fixed rate debt, and the remaining $496.2 million,
or 21%, 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
$31.4 million. The interest rate swap fixed the amount of
interest expense associated with this portion of the Mexico
syndicated loan facility commencing on August 31, 2005 and
will continue over the life of the facility.
The table below presents principal amounts, related interest
rates by year of maturity and aggregate amounts as of
June 30, 2008 for our fixed rate debt obligations,
including our convertible notes, our syndicated loan facilities
in Mexico and Brazil, our tower financing obligations, and the
fair value of our interest rate swap. We determined the fair
values included in this section based on:
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|
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|
|
quoted market prices for our convertible notes;
|
|
|
|
carrying values for our tower financing obligations and
syndicated loan facility as interest rates were set recently
when we entered into these transactions; and
|
|
|
|
market values as determined by a banking firm for our interest
rate swap.
|
The changes in the fair values of our consolidated debt compared
to their fair values as of December 31, 2007 reflect
changes in applicable market conditions, the funding of the
remaining amounts available under Nextel Brazils
syndicated loan facility and the addition of incremental tower
financing obligations resulting from sales of towers during the
first half of 2008. All of the information in the table is
presented in U.S. dollar equivalents, which is our
reporting currency. The actual cash flows associated with our
consolidated long-term debt are denominated in U.S. dollars
(US$), Mexican pesos (MP) and Brazilian reais (BR).
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
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$)
|
|
$
|
1,781
|
|
|
$
|
1,872
|
|
|
$
|
1,885
|
|
|
$
|
1,220,645
|
|
|
$
|
|
|
|
$
|
350,037
|
|
|
$
|
1,576,220
|
|
|
$
|
1,448,024
|
|
|
$
|
1,576,982
|
|
|
$
|
1,489,671
|
|
Average Interest Rate
|
|
|
10.0
|
%
|
|
|
10.0
|
%
|
|
|
10.0
|
%
|
|
|
3.2
|
%
|
|
|
|
|
|
|
2.8
|
%
|
|
|
3.2
|
%
|
|
|
|
|
|
|
3.2
|
%
|
|
|
|
|
Fixed Rate (MP)
|
|
$
|
44,122
|
|
|
$
|
25,798
|
|
|
$
|
7,725
|
|
|
$
|
9,081
|
|
|
$
|
10,688
|
|
|
$
|
132,431
|
|
|
$
|
229,845
|
|
|
$
|
229,845
|
|
|
$
|
211,801
|
|
|
$
|
211,801
|
|
Average Interest Rate
|
|
|
11.9
|
%
|
|
|
12.4
|
%
|
|
|
15.4
|
%
|
|
|
15.4
|
%
|
|
|
15.4
|
%
|
|
|
15.2
|
%
|
|
|
14.4
|
%
|
|
|
|
|
|
|
14.5
|
%
|
|
|
|
|
Fixed Rate (BR)
|
|
$
|
3,853
|
|
|
$
|
4,431
|
|
|
$
|
5,183
|
|
|
$
|
6,161
|
|
|
$
|
7,507
|
|
|
$
|
88,019
|
|
|
$
|
115,154
|
|
|
$
|
115,154
|
|
|
$
|
96,134
|
|
|
$
|
96,134
|
|
Average Interest Rate
|
|
|
19.0
|
%
|
|
|
19.7
|
%
|
|
|
20.4
|
%
|
|
|
21.1
|
%
|
|
|
21.8
|
%
|
|
|
24.2
|
%
|
|
|
23.3
|
%
|
|
|
|
|
|
|
24.8
|
%
|
|
|
|
|
Variable Rate (US$)
|
|
$
|
|
|
|
$
|
81,039
|
|
|
$
|
237,639
|
|
|
$
|
81,039
|
|
|
$
|
44,611
|
|
|
$
|
12,272
|
|
|
$
|
456,600
|
|
|
$
|
456,600
|
|
|
$
|
331,600
|
|
|
$
|
331,600
|
|
Average Interest Rate
|
|
|
|
|
|
|
4.8
|
%
|
|
|
4.4
|
%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
4.8
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
|
6.8
|
%
|
|
|
|
|
Variable Rate (MP)
|
|
$
|
26,415
|
|
|
$
|
13,208
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39,623
|
|
|
$
|
39,623
|
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Average Interest Rate
|
|
|
8.8
|
%
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
8.7
|
%
|
|
|
|
|
Interest Rate Swap:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable to Fixed
|
|
$
|
13,958
|
|
|
$
|
6,979
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,937
|
|
|
$
|
(236
|
)
|
|
$
|
26,420
|
|
|
$
|
(546
|
)
|
Average Pay Rate
|
|
|
10.8
|
%
|
|
|
10.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
%
|
|
|
|
|
|
|
10.8
|
%
|
|
|
|
|
Average Receive Rate
|
|
|
8.8
|
%
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
8.7
|
%
|
|
|
|
|
50
|
|
Item 4.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods required by the Securities and
Exchange Commission and that such information is accumulated and
communicated to the Companys management, including our
chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
As of the end of the period covered in this report, an
evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures was carried out under the
supervision and with the participation of our management teams
in the United States and in our operating companies, including
our chief executive officer and chief financial officer. Based
on and as of the date of such evaluation, our chief executive
officer and chief financial officer concluded that the design
and operation of our disclosure controls and procedures were
effective.
Changes
in Internal Control over Financial Reporting
During the second quarter of 2008, we completed the upgrade of
the financial accounting system in our Mexico subsidiary. This
improved the efficiency and effectiveness of our internal
control over financial reporting by automating some of the
control procedures that were previously manual. There have been
no other changes in the Companys internal control over
financial reporting during the most recently completed fiscal
quarter that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over
financial reporting.
51
PART II
OTHER INFORMATION
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Item 1.
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Legal
Proceedings.
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We are subject to claims and legal actions that may arise in the
ordinary course of business. We do not believe that any of these
pending claims or legal actions will have a material effect on
our business, financial condition, results of operations or cash
flows.
For information on our various loss contingencies, see
Note 5 to our condensed consolidated financial statements
above.
With regard to the risk factor described in our 2007 annual
report on
Form 10-K
under Item 1A. Risk Factors 6.
Government regulations determine how we operate in various
countries which could limit our growth and strategic
plans, in April 2008, one of our competitors in Brazil
filed a complaint with the Agencia Nacional de Telecomunicacoes,
or Anatel, alleging that Nextel Brazil was offering services to
customers in a manner that violates our license and the SMR
regulations applicable to us and the services we offer.
Specifically, the competitor alleged that Nextel Brazil was
offering services to non-business customers in a manner that
does not comply with the regulations that govern how we offer
our services in Brazil. In May 2008, the Anatel notified Nextel
Brazil that it had initiated an administrative proceeding
relating to the complaint. We believe that we are operating in a
manner that is consistent with our license and the applicable
regulations and intend to oppose any claims made or actions
taken against us based on the matters raised in the
competitors complaint. However, if the Anatel were to take
actions in response to the competitors complaint that
require us to implement limitations or restrictions on the
manner in which we offer services in Brazil, those actions could
have an adverse effect on our ability to attract new customers
to our services, and our results of operations in Brazil could
be adversely affected.
Except as noted above, there have been no material changes in
our risk factors from those disclosed in our 2007 annual report
on
Form 10-K.
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds.
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(c) On January 7, 2008, our Board of Directors
authorized, and we announced, a new program to purchase shares
of our common stock for cash. The Board approved the purchase of
shares of common stock having an aggregate market value of up to
$500.0 million, depending on market conditions and other
factors. The program has no specific end date. The following
table presents details of our purchases of our common stock
during the three months ended June 30, 2008:
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Approximate Dollar
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Total Number of
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Value of Shares That
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Shares Purchased as
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May Yet Be
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Total Number of
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Average Price
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Part of Publicly
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Purchased Under the
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Period
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Shares Purchased
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Per Share
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Announced Plan
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Plan
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April 1, 2008 April 30, 2008
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$
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May 1, 2008 May 31, 2008
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1,432,931
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48.87
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1,432,931
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June 1, 2008 June 30, 2008
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1,394,561
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50.22
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1,394,561
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Total
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2,827,492
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49.53
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2,827,492
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$
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257,446,814
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52
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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(a) Our Annual Meeting of Stockholders was held on
Wednesday, May, 14, 2008.
(c) The common stockholders voted for the election of three
directors to serve for terms of three years each, expiring on
the date of the annual meeting in 2011 or until their successors
are elected. The results of the voting in these elections are
set forth below:
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Broker
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Votes
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Non
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Nominee
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Votes For
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Withheld
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Votes
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Neal P. Goldman
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148,486,229
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882,553
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N/A
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Charles M. Herington
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148,710,336
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658,446
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N/A
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John W. Risner
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148,073,786
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1,294,996
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N/A
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In addition, the stockholders voted to ratify the appointment of
PricewaterhouseCoopers LLP as our independent registered public
accounting firm for fiscal year 2008. The results of the voting
are set forth below:
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Broker
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Votes
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Votes
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Non
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Nominee
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Votes For
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Against
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Withheld
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Votes
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Ratification of Independent Registered Public Accounting Firm
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148,426,419
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686,992
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255,371
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N/A
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No other matters were voted upon at the Annual Meeting or during
the quarter covered by this report.
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Exhibit
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Number
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Exhibit Description
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10
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.1
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2004 Incentive Compensation Plan, as Amended Effective
July 22, 2008.
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10
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.2
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Change of Control Severance Plan, as Amended and Restated
Effective July 22, 2008.
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10
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.3
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Severance Plan, as Amended and Restated Effective July 22,
2008.
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12
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.1
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Ratio of Earnings to Fixed Charges.
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31
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.1
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Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
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31
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.2
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Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
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32
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.1
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Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
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32
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.2
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Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
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53
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
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By:
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/s/ DANIEL
E. FREIMAN
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Daniel E. Freiman
Vice President and Controller
(on behalf of the registrant and as
chief accounting officer)
Date: August 6, 2008
54
EXHIBIT INDEX
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Exhibit
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Number
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Exhibit Description
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10
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.1
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2004 Incentive Compensation Plan, as Amended Effective
July 22, 2008.
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10
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.2
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Change of Control Severance Plan, as Amended and Restated
Effective July 22, 2008.
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10
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.3
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Severance Plan, as Amended and Restated Effective July 22,
2008.
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12
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.1
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Ratio of Earnings to Fixed Charges.
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31
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.1
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Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a).
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31
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.2
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Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a).
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32
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.1
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Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
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32
|
.2
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Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
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55