e10vqza
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
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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, 2004 |
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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 |
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 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
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10700 Parkridge Boulevard, Suite 600
Reston, Virginia
(Address of Principal Executive Offices) |
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20191
(Zip Code) |
Registrants Telephone Number, Including Area Code:
(703) 390-5100
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 an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes þ No o
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12,
13 or 15(d) of the Securities Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a
court. Yes þ No o
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
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Number of Shares Outstanding |
Title of Class |
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on July 30, 2004 |
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Common Stock, $0.001 par value per share |
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69,692,605 |
EXPLANATORY NOTE
We have restated our previously issued condensed consolidated
financial statements as of and for the six and three months
ended June 30, 2004, and 2003, as set forth in Note 2
to the condensed consolidated financial statements in this
quarterly report on Form 10-Q/A. We have also restated our
previously issued consolidated financial statements and related
footnotes as of and for the year ended December 31, 2003,
as set forth in Note 2 to our consolidated financial
statements included in our 2003 annual report on
Form 10-K/A. We are restating our condensed consolidated
financial statements to correct for the following items:
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Bookkeeping errors at our operating company in Mexico; |
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Accounting for deferred tax asset valuation allowance reversals; |
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Certain errors in the calculation of income taxes for financial
statement purposes; |
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Insurance claim receivables and write-downs for damaged
equipment in Mexico; |
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Depreciation of handsets in Argentina; and |
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Other insignificant miscellaneous adjustments. |
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All amounts in this quarterly report on Form 10-Q/A have
been updated, as appropriate, to reflect this restatement. Other
than for the items discussed in this Explanatory Note, we did
not update this quarterly report on Form 10-Q/A for
subsequent events that occurred after we filed our original
quarterly report on Form 10-Q on August 6, 2004.
Description
of Errors
We identified various bookkeeping errors at our operating
company in Mexico. These errors originated in the third quarter
of 2002 and occurred through the third quarter of 2004. The
identification of these bookkeeping errors occurred as a result
of our ongoing review of Nextel Mexicos internal accounts
and records in order to comply with the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002.
The nature of the errors relate to the following main areas:
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Foreign currency adjustments Some foreign currency
transaction gains and losses were double-recorded through a
combination of manual entries and system-generated automatic
entries recorded upon payment of U.S. dollar denominated
payables; |
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Accounts receivable adjustments Periodic
reconciliations between the accounts receivable subsidiary
ledger and the general ledger were not performed properly. As a
result, unreconciled differences related to the non-recognition
of commissions expense on credit card payments, returned checks,
manual adjustments and other items were classified to a current
liability account, but were not reversed from the liability
account upon resolution of these differences; and |
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Liability accounts Certain liability accounts
contained balances that could not be supported by invoices or
subsequent disbursements. |
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We determined the reversal of certain valuation allowances on
deferred tax assets that were established at the time of our
application of fresh-start accounting in 2002 were not correctly
reported in our consolidated financial statements for subsequent
periods. For the two-month period ended December 31, 2002,
the year ended December 31, 2003 and the six-month period
ended June 30, 2004, we reversed valuation allowances which
reduced the provision for income taxes. In accordance with the
American Institute of Certified Public Accountants
Statement of Position, or SOP, 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code,
the reversal of valuation allowances established in fresh-start
accounting should first reduce intangible assets existing at our
emergence from reorganization until fully exhausted, followed by
increases to paid-in capital.
For the two months ended December 31, 2002 and the ten
months ended October 31, 2002, we identified errors in the
calculation of income tax expense in Mexico for financial
statement purposes. The adjustment to
2
correct our income tax expense for this matter increases our
long-lived assets as of October 31, 2002 because of the
application of fresh-start accounting under SOP 90-7. As a
result, we understated amortization and depreciation related to
those long-lived assets for periods subsequent to the ten months
ended October 31, 2002.
We reviewed the accounting treatment for various insurance
claims related to damaged equipment at our operating company in
Mexico. As a result of this review, we determined that
write-downs of damaged equipment and recording of insurance
claims receivables were recorded in the incorrect quarters
within 2004 and that an insurance claim receivable should not
have been recorded as of June 30, 2004 as it was not deemed
to be probable of collection.
During the monthly process to convert the operating results from
accounting principles generally accepted in Argentina to
accounting principles generally accepted in the United States,
the depreciation expense related to handsets under operating
leases was erroneously omitted for financial reporting purposes
for the three and six months ended June 30, 2004.
3
NII HOLDINGS, INC. AND SUBSIDIARIES
INDEX
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Page | |
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Part I
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Financial Information. |
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Item 1. |
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Financial Statements Unaudited
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5 |
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Condensed Consolidated Balance Sheets As of
June 30, 2004 (restated) and December 31, 2003
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5 |
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Condensed Consolidated Statements of Operations and
Comprehensive (Loss) Income For the Six and Three
Months Ended June 30, 2004 (restated) and 2003 (restated)
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6 |
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Condensed Consolidated Statements of Changes in
Stockholders Equity For the Six Months Ended
June 30, 2004 (restated) and 2003 (restated)
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7 |
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Condensed Consolidated Statements of Cash Flows For
the Six Months Ended June 30, 2004 (restated) and 2003
(restated)
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8 |
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Notes to Condensed Consolidated Financial Statements
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9 |
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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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41 |
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk
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68 |
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Item 4. |
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Controls and Procedures
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69 |
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Part II
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Other Information. |
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Item 1. |
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Legal Proceedings
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72 |
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Item 4. |
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Submission of Matters to a Vote of Security Holders
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72 |
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Item 6. |
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Exhibits and Reports on Form 8-K
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73 |
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4
PART I FINANCIAL INFORMATION.
Item 1. Financial Statements
Unaudited.
NII HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2004 and December 31, 2003
(in thousands)
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June 30, | |
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December 31, | |
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2004 | |
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2003 | |
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Restated | |
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Unaudited | |
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ASSETS
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Current assets
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Cash and cash equivalents
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$ |
373,715 |
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$ |
405,406 |
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Short-term investments
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26,859 |
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Accounts receivable, less allowance for doubtful accounts of
$8,327 and $9,020.
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128,213 |
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119,985 |
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Handset and accessory inventory, net
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31,315 |
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21,138 |
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Deferred income taxes, net
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37,310 |
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41,097 |
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Prepaid expenses and other
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57,497 |
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59,128 |
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Total current assets
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654,909 |
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646,754 |
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Property, plant and equipment, net of accumulated
depreciation of $92,444 and $56,913
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420,487 |
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368,434 |
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Intangible assets, net
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68,620 |
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85,818 |
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Other assets
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43,736 |
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27,430 |
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Total assets
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$ |
1,187,752 |
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$ |
1,128,436 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Accounts payable, accrued expenses and other
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$ |
188,904 |
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$ |
201,173 |
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Deferred revenues
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34,762 |
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32,040 |
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Accrued interest
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6,808 |
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5,022 |
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Due to related parties
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16,147 |
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13,460 |
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Current portion of long-term debt
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1,661 |
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1,466 |
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Total current liabilities
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248,282 |
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253,161 |
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Long-term debt, including $52,493 and $168,067 due to
related parties
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639,919 |
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535,290 |
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Deferred revenues (related party)
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44,368 |
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45,968 |
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Other long-term liabilities
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68,123 |
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76,247 |
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Total liabilities
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1,000,692 |
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910,666 |
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Commitments and contingencies (Note 6)
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Stockholders equity
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Common stock, 69,675 shares issued and outstanding
2004, 68,883 shares issued and outstanding 2003.
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70 |
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69 |
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Paid-in capital
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182,082 |
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164,705 |
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Deferred compensation
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(15,360 |
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Retained earnings
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78,067 |
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103,978 |
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Accumulated other comprehensive loss
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(57,799 |
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(50,982 |
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Total stockholders equity
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187,060 |
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217,770 |
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Total liabilities and stockholders equity
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$ |
1,187,752 |
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$ |
1,128,436 |
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
NII HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
For the Six and Three Months Ended June 30, 2004 and
2003
(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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2004 | |
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2003 | |
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2004 | |
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2003 | |
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Restated | |
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Restated | |
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Restated | |
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Restated | |
Operating revenues
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Service and other revenues
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$ |
554,815 |
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$ |
409,431 |
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$ |
288,783 |
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$ |
214,834 |
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Digital handset and accessory sales revenues
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26,573 |
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19,913 |
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15,345 |
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11,117 |
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581,388 |
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429,344 |
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304,128 |
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225,951 |
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Operating expenses
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Cost of service (exclusive of depreciation included below)
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145,643 |
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100,343 |
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78,082 |
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54,458 |
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Cost of digital handset and accessory sales
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92,534 |
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58,785 |
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51,680 |
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30,538 |
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Selling, general and administrative
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180,881 |
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147,133 |
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95,371 |
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80,537 |
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Depreciation
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40,046 |
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19,138 |
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20,937 |
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10,490 |
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Amortization
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6,887 |
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16,635 |
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3,097 |
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7,976 |
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465,991 |
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342,034 |
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249,167 |
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183,999 |
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Operating income
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115,397 |
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87,310 |
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54,961 |
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41,952 |
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Other income (expense)
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Interest expense
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(27,090 |
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(30,923 |
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(10,891 |
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(17,003 |
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Interest income
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5,611 |
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5,228 |
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3,006 |
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3,295 |
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Loss on early extinguishment of debt, net (Note 5)
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(79,327 |
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Foreign currency transaction gains (losses), net
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2,380 |
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14,614 |
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(215 |
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22,918 |
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Other income (expense), net
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1,192 |
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(7,046 |
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2,409 |
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(5,080 |
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(97,234 |
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(18,127 |
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(5,691 |
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4,130 |
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Income before income tax provision
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18,163 |
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69,183 |
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49,270 |
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46,082 |
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Income tax provision
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(44,074 |
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(47,704 |
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(22,570 |
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(34,607 |
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Net (loss) income
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$ |
(25,911 |
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$ |
21,479 |
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$ |
26,700 |
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$ |
11,475 |
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Net (loss) income per common share, basic
(Note 1)
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$ |
(0.37 |
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$ |
0.35 |
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$ |
0.38 |
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$ |
0.19 |
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Net (loss) income per common share, diluted
(Note 1)
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$ |
(0.37 |
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$ |
0.33 |
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$ |
0.36 |
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$ |
0.18 |
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Weighted average number of common shares outstanding,
basic
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69,396 |
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60,816 |
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69,643 |
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61,173 |
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Weighted average number of common shares outstanding,
diluted
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69,396 |
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64,219 |
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79,130 |
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64,452 |
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Comprehensive (loss) income, net of income tax
Foreign currency translation adjustment
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$ |
(6,817 |
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$ |
(21,745 |
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$ |
(14,006 |
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$ |
(17,283 |
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Unrealized loss on cash flow hedge
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(5,311 |
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(3,589 |
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Other comprehensive loss
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(6,817 |
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(27,056 |
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(14,006 |
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(20,872 |
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Net (loss) income
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(25,911 |
) |
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21,479 |
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26,700 |
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11,475 |
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$ |
(32,728 |
) |
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$ |
(5,577 |
) |
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$ |
12,694 |
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$ |
(9,397 |
) |
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
NII HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY
For the Six Months Ended June 30, 2004 and 2003
(in thousands)
Unaudited
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Accumulated | |
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Common Stock | |
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Other | |
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Paid-in | |
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Deferred | |
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Retained | |
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Comprehensive | |
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Shares | |
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Amount | |
|
Capital | |
|
Compensation | |
|
Earnings | |
|
Loss | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance, January 1, 2004
|
|
|
68,883 |
|
|
$ |
69 |
|
|
$ |
164,705 |
|
|
$ |
|
|
|
$ |
103,978 |
|
|
$ |
(50,982 |
) |
|
$ |
217,770 |
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,911 |
) |
|
|
|
|
|
|
(25,911 |
) |
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,817 |
) |
|
|
(6,817 |
) |
|
Issuance of restricted stock
|
|
|
|
|
|
|
|
|
|
|
16,295 |
|
|
|
(16,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted stock expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
935 |
|
|
|
|
|
|
|
|
|
|
|
935 |
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213 |
|
|
Exercise of stock options
|
|
|
792 |
|
|
|
1 |
|
|
|
869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2004 Restated
|
|
|
69,675 |
|
|
$ |
70 |
|
|
$ |
182,082 |
|
|
$ |
(15,360 |
) |
|
$ |
78,067 |
|
|
$ |
(57,799 |
) |
|
$ |
187,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
Common Stock | |
|
|
|
|
|
|
|
Other | |
|
|
|
|
| |
|
Paid-in | |
|
Deferred |
|
Retained | |
|
Comprehensive | |
|
|
|
|
Shares | |
|
Amount | |
|
Capital | |
|
Compensation |
|
Earnings | |
|
Loss | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
Balance, January 1, 2003
|
|
|
60,000 |
|
|
$ |
60 |
|
|
$ |
49,138 |
|
|
$ |
|
|
|
$ |
22,764 |
|
|
$ |
(350 |
) |
|
$ |
71,612 |
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,479 |
|
|
|
|
|
|
|
21,479 |
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27,056 |
) |
|
|
(27,056 |
) |
|
Exercise of stock options
|
|
|
1,593 |
|
|
|
2 |
|
|
|
1,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2003 Restated
|
|
|
61,593 |
|
|
$ |
62 |
|
|
$ |
50,464 |
|
|
$ |
|
|
|
$ |
44,243 |
|
|
$ |
(27,406 |
) |
|
$ |
67,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
NII HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2004 and 2003
(in thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Restated | |
|
Restated | |
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(25,911 |
) |
|
$ |
21,479 |
|
|
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt, net
|
|
|
79,327 |
|
|
|
|
|
|
|
Amortization of debt financing costs and accretion of senior
discount notes
|
|
|
5,916 |
|
|
|
12,201 |
|
|
|
Depreciation and amortization
|
|
|
46,933 |
|
|
|
35,773 |
|
|
|
Provision for losses on accounts receivable
|
|
|
2,676 |
|
|
|
5,101 |
|
|
|
Provision for losses on inventory
|
|
|
1,603 |
|
|
|
1,998 |
|
|
|
Foreign currency transaction gains, net
|
|
|
(2,380 |
) |
|
|
(14,614 |
) |
|
|
Deferred income tax provision
|
|
|
16,087 |
|
|
|
46,767 |
|
|
|
Gain on disposal of property, plant and equipment
|
|
|
2,405 |
|
|
|
43 |
|
|
|
Other, net
|
|
|
(112 |
) |
|
|
(29 |
) |
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, gross
|
|
|
(10,835 |
) |
|
|
(19,954 |
) |
|
|
|
Handset and accessory inventory, gross
|
|
|
(11,608 |
) |
|
|
(2,275 |
) |
|
|
|
Prepaid expenses and other
|
|
|
899 |
|
|
|
(18,501 |
) |
|
|
|
Other long-term assets
|
|
|
(6,265 |
) |
|
|
(3,083 |
) |
|
|
|
Accounts payable, accrued expenses and other
|
|
|
(8,720 |
) |
|
|
11,400 |
|
|
|
|
Current deferred revenue
|
|
|
2,722 |
|
|
|
4,235 |
|
|
|
|
Due to related parties
|
|
|
2,687 |
|
|
|
3,492 |
|
|
|
|
Other long-term liabilities
|
|
|
115 |
|
|
|
19,765 |
|
|
|
|
Proceeds from spectrum sharing agreement with Nextel
Communications
|
|
|
|
|
|
|
9,315 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
95,539 |
|
|
|
113,113 |
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(111,285 |
) |
|
|
(102,037 |
) |
|
Purchases of short-term investments
|
|
|
(26,859 |
) |
|
|
|
|
|
Payments for acquisitions, purchases of licenses and other
|
|
|
(2,485 |
) |
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(140,629 |
) |
|
|
(102,094 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
870 |
|
|
|
1,328 |
|
|
Gross proceeds from issuance of convertible notes
|
|
|
300,000 |
|
|
|
|
|
|
Repayments of senior secured discount notes
|
|
|
(211,212 |
) |
|
|
|
|
|
Repayments under long-term credit facilities and other
|
|
|
(72,507 |
) |
|
|
|
|
|
Repayments under capital lease and financing obligations
|
|
|
(963 |
) |
|
|
|
|
|
Payment of debt financing costs
|
|
|
(8,538 |
) |
|
|
|
|
|
Gross proceeds from towers financing transactions
|
|
|
9,546 |
|
|
|
66,938 |
|
|
Transfers to restricted cash
|
|
|
(4,120 |
) |
|
|
(7,810 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
13,076 |
|
|
|
60,456 |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
323 |
|
|
|
3,928 |
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(31,691 |
) |
|
|
75,403 |
|
Cash and cash equivalents, beginning of period
|
|
|
405,406 |
|
|
|
231,161 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
373,715 |
|
|
$ |
306,564 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
8
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. While
they do not include all of the information and footnotes
required by accounting principles generally accepted in the
United States 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.
You should read the condensed consolidated financial statements
in conjunction with the consolidated financial statements and
notes contained in our 2003 annual report on Form 10-K/A
and our quarterly report on Form 10-Q/A for the quarter
ended March 31, 2004, which were amended and restated for
the reasons set forth in Note 2. You should not expect
results of operations of interim periods to be an indication of
the results for a full year.
The accounts of our consolidated non-U.S. operating companies
are presented utilizing balances as of a date one month earlier
than the accounts of our parent company, U.S. subsidiaries and
our non-operating non-U.S. subsidiaries to ensure timely
reporting of consolidated results. As a result, the financial
position and results of operations of each of our operating
companies in Mexico, Brazil, Argentina, Peru and Chile are
presented as of and for the six and three months ended
May 31, 2004 and 2003, respectively. In contrast, financial
information relating to our parent company, U.S. subsidiaries
and our non-operating non-U.S. subsidiaries is presented as of
and for the six and three months ended June 30, 2004 and
2003.
On February 26, 2004, we announced a 3-for-1 common stock
split which was effected in the form of a stock dividend that
was paid on March 22, 2004 to holders of record as of
March 12, 2004. As a result of the stock split, we
retroactively restated all historical share and earnings per
share data, par value and paid-in capital balances included in
our financial statements for the six and three months ended
June 30, 2004 and 2003.
Restatement of Previously Issued Condensed Consolidated
Financial Statements. We have restated our previously
issued condensed consolidated financial statements and related
footnotes as of and for the six and three months ended
June 30, 2004 and 2003, as set forth in this report. For
additional information regarding this restatement, see
Note 2.
Short-term Investments. Short-term investments
primarily include commercial paper and government-backed
securities with maturities greater than 90 days and less
than one year at the time of purchase. We classify our
short-term investments as available-for-sale and report them at
market value. We report unrealized gains and losses, net of
income taxes, as other comprehensive income or loss. We report
realized gains or losses, as determined on a specific
identification basis, and other-than-temporary declines in
value, if any, on available-for-sale securities in interest
income or interest expense.
Accumulated Other Comprehensive Loss. Accumulated
other comprehensive loss represents a cumulative foreign
currency translation adjustment of $57.8 million as of
June 30, 2004 and $51.0 million as of
December 31, 2003.
9
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
|
|
|
Supplemental Cash Flow Information. |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
|
June 30, | |
|
|
| |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Restated | |
|
Restated | |
|
|
(in thousands) | |
Capital expenditures
|
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures, including capitalized
interest
|
|
$ |
111,285 |
|
|
$ |
102,037 |
|
|
Changes in capital expenditures accrued and unpaid or financed
|
|
|
(12,150 |
) |
|
|
15,017 |
|
|
|
|
|
|
|
|
|
|
$ |
99,135 |
|
|
$ |
117,054 |
|
|
|
|
|
|
|
|
|
Interest costs
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$ |
27,090 |
|
|
$ |
30,923 |
|
|
Interest capitalized
|
|
|
1,109 |
|
|
|
3,513 |
|
|
|
|
|
|
|
|
|
|
$ |
28,199 |
|
|
$ |
34,436 |
|
|
|
|
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
|
$ |
16,200 |
|
|
$ |
14,091 |
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$ |
19,998 |
|
|
$ |
11,805 |
|
|
|
|
|
|
|
|
Cash paid for reorganization items included in operating
activities
|
|
$ |
|
|
|
$ |
2,503 |
|
|
|
|
|
|
|
|
Net (Loss) Income Per Common Share, Basic and
Diluted. Basic net (loss) income per common share
includes no dilution and is computed by dividing the net (loss)
income by the weighted average number of common shares
outstanding for the period. Diluted net (loss) income per common
share reflects the potential dilution of securities that could
participate in our earnings. As presented for the six months
ended June 30, 2004, our basic and diluted net loss per
share calculations are based on the weighted average number of
common shares outstanding during the period and do not include
other potential common shares, including shares issuable upon
exercise of stock options and conversion of our convertible
notes, since their effect would have been antidilutive to our
net loss. As a result, our basic and diluted net loss per share
for the six months ended June 30, 2004 are the same.
As presented for the three months ended June 30, 2004, our
calculation of diluted net income per share includes the common
shares resulting from the potential conversion of our 3.5%
convertible notes (see Note 5), as well as the common
shares resulting from shares issuable upon the potential
exercise of stock options under our stock-based employee
compensation plans. We did not include unrecognized compensation
cost from our restricted stock and shares related to stock
option grants which are antidilutive in our calculation of
diluted earnings per share for the three months ended
June 30, 2004 since the inclusion of this amount would have
been antidilutive to our net income per share. In addition, we
did not include the common shares resulting from the potential
conversion of our 2.875% convertible notes as these notes have
not met the criteria for conversion into shares of common stock.
The following table provides a reconciliation of the numerators
and denominators used to calculate basic and diluted net income
per common share as disclosed in our consolidated statements of
operations and
10
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
comprehensive (loss) income for the three months ended
June 30, 2004 and the six and three months ended
June 30, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2003 Restated | |
|
|
| |
|
|
Income | |
|
Shares | |
|
Per Share | |
|
|
(Numerator) | |
|
(Denominator) | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(in thousands, except per share data) | |
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
21,479 |
|
|
|
60,816 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
3,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
21,479 |
|
|
|
64,219 |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2004 Restated | |
|
Three Months Ended June 30, 2003 Restated | |
|
|
| |
|
| |
|
|
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
|
|
$ |
26,700 |
|
|
|
69,643 |
|
|
$ |
0.38 |
|
|
$ |
11,475 |
|
|
|
61,173 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
2,737 |
|
|
|
|
|
|
|
|
|
|
|
3,279 |
|
|
|
|
|
|
3.5% convertible notes
|
|
|
1,575 |
|
|
|
6,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
28,275 |
|
|
|
79,130 |
|
|
$ |
0.36 |
|
|
$ |
11,475 |
|
|
|
64,452 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Compensation. We currently sponsor two
equity incentive plans. In addition to the 2002 Management
Incentive Plan, in April 2004, our Board of Directors approved
the 2004 Incentive Compensation Plan (the Plan), which provides
us with the opportunity to compensate selected employees with
stock options, stock appreciation rights (SAR), stock awards,
performance share awards, incentive awards, and/or stock units.
A stock option entitles the optionee to purchase shares of
common stock from us at the specified exercise price. A SAR
entitles the holder to receive the excess of the fair market
value of each share of common stock encompassed by such SAR over
the initial value of such share as determined on the date of
grant. Stock awards consist of awards of common stock, subject
to certain restrictions specified in the Plan. An award of
performance shares entitles the participant to receive cash,
shares of common stock, stock units, or a combination thereof if
certain requirements are satisfied. An incentive award is a
cash-denominated award that entitles the participant to receive
a payment in cash or common stock, stock units, or a combination
thereof. Stock units are awards stated with reference to a
specified number of shares of common stock that entitle the
holder to receive a payment for each stock unit equal to the
fair market value of a share of common stock on the date of
payment. All grants or awards made under the Plan are governed
by written agreements between us and the participant.
In April 2004, our Board of Directors approved grants under the
Plan of 429,500 shares of restricted stock to our officers and
2.6 million stock options to the officers and other
selected employees. The restricted shares fully vest after a
three-year period. The stock options vest twenty-five percent
per year over a four-year period. We account for these grants
under the recognition and measurement principles of Accounting
Principles
11
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
Board, or APB, Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. Under
APB Opinion No. 25, compensation expense is based on the
intrinsic value on the measurement date, calculated as the
difference between the fair value of the common stock and the
relevant exercise price. The fair value of the restricted shares
on the grant date was $16.3 million, which we are
amortizing on a straight-line basis over the three year vesting
period. We recognized compensation expense of $0.9 million
for the three months ended June 30, 2004 related to the
restricted shares. Additionally, we recognized $0.2 million in
stock-based employee compensation cost related to our employee
stock options as a result of accelerated vesting on certain
options for the three months ended June 30, 2004. No other
stock-based employee compensation cost related to our employee
stock options is reflected in net income as the relevant
exercise price of the options issued was equal to the fair value
on the date of the grant.
The following table illustrates the effect on net
(loss) income and net (loss) income per common share
if we had applied the fair value recognition provisions of
Statement of Financial Accounting Standards, or SFAS,
No. 123, as amended by SFAS No. 148, to stock-based
employee compensation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
Three Months Ended | |
|
|
June 30, | |
|
June 30, | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(in thousands, except per share data) | |
Net (loss) income, as reported
|
|
$ |
(25,911 |
) |
|
$ |
21,479 |
|
|
$ |
26,700 |
|
|
$ |
11,475 |
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based employee compensation expense included in reported
net income, net of related tax effects
|
|
|
1,148 |
|
|
|
|
|
|
|
1,148 |
|
|
|
|
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based employee compensation expense determined under
fair value-based method for all awards, net of related tax
effects
|
|
|
(3,498 |
) |
|
|
(413 |
) |
|
|
(3,129 |
) |
|
|
(239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss) income
|
|
$ |
(28,261 |
) |
|
$ |
21,066 |
|
|
$ |
24,719 |
|
|
$ |
11,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
(0.37 |
) |
|
$ |
0.35 |
|
|
$ |
0.38 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic pro forma
|
|
$ |
(0.41 |
) |
|
$ |
0.35 |
|
|
$ |
0.35 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported
|
|
$ |
(0.37 |
) |
|
$ |
0.33 |
|
|
$ |
0.36 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted pro forma
|
|
$ |
(0.41 |
) |
|
$ |
0.33 |
|
|
$ |
0.33 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications. We have reclassified some prior
period amounts in the unaudited condensed consolidated financial
statements to conform to our current year presentation.
New Accounting Pronouncements. In January 2003,
the Financial Accounting Standards Board, or FASB, issued FASB
Interpretation, or FIN, No. 46, Consolidation of
Variable Interest Entities An Interpretation of ARB
No. 51, which clarifies the application of Accounting
Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated
financial support from other parties. FIN No. 46 provides
guidance related to identifying variable interest entities
(previously known generally as special purpose entities or SPEs)
and determining whether such entities should be consolidated.
FIN No. 46 must be applied
12
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
immediately to variable interest entities created, or interests
in variable interest entities obtained, after January 31,
2003. For those variable interest entities created, or interests
in variable interest entities obtained, on or before
January 31, 2003, the guidance in FIN No. 46 must be
applied in the first fiscal year or interim period beginning
after December 15, 2003. The adoption of FIN No. 46 on
January 1, 2004 did not have a material impact on our
consolidated financial position, results of operations or cash
flows.
In March 2004, the Emerging Issues Task Force, or EITF, reached
a final consensus on Issue No. 03-6, Participating
Securities and the Two-Class Method Under FASB Statement
No. 128, Earnings Per Share. Issue No. 03-6
addresses a number of questions regarding the computation of
earnings per share (EPS) by companies that have issued
securities other than common stock that contractually entitle
the holder to participate in dividends and earnings of the
company when, and if, it declares dividends on its common stock.
The issue also provides further guidance in applying the
two-class method of calculating EPS. It clarifies what
constitutes a participating security and how to apply the
two-class method of computing EPS once it is determined that a
security is participating, including how to allocate
undistributed earnings to such a security. EITF 03-6 is
effective for the fiscal quarter ended June 30, 2004. The
adoption of EITF 03-6 did not have a material impact on our
basic or diluted earnings per share.
Note 2. Restatement of Previously Issued Condensed
Consolidated Financial Statements
We have restated our previously issued condensed consolidated
financial statements as of and for the six and three months
ended June 30, 2004, and 2003. We have also restated our
previously issued consolidated financial statements and related
footnotes as of and for the year ended December 31, 2003,
as set forth in Note 2 to our consolidated financial
statements included in our 2003 annual report on
Form 10-K/A. We are restating our condensed consolidated
financial statements to correct for the following items:
|
|
|
|
|
|
Bookkeeping errors at our operating company in Mexico; |
|
|
|
|
|
Accounting for deferred tax asset valuation allowance reversals; |
|
|
|
|
|
Certain errors in the calculation of income taxes for financial
statement purposes; |
|
|
|
|
|
Insurance claim receivables and write-downs for damaged
equipment in Mexico; |
|
|
|
|
|
Depreciation of handsets in Argentina; and |
|
|
|
|
|
Other insignificant miscellaneous adjustments. |
|
All amounts in these condensed consolidated financial statements
have been updated, as appropriate, to reflect this restatement.
Other than for the items discussed in this Note, we did not
update these condensed consolidated financial statements for
subsequent events that occurred after we filed our original
quarterly report on Form 10-Q on August 6, 2004.
Description
of Errors
We identified various bookkeeping errors at our operating
company in Mexico. These errors originated in the third quarter
of 2002 and occurred through the third quarter of 2004. The
identification of these bookkeeping errors occurred as a result
of our ongoing review of Nextel Mexicos internal accounts
and records in order to comply with the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002.
The nature of the errors relate to the following main areas:
|
|
|
|
|
Foreign currency adjustments Some foreign currency
transaction gains and losses were double-recorded through a
combination of manual entries and system-generated automatic
entries recorded upon payment of U.S. dollar denominated
payables; |
13
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
|
|
|
|
|
|
Accounts receivable adjustments Periodic
reconciliations between the accounts receivable subsidiary
ledger and the general ledger were not performed properly. As a
result, unreconciled differences related to the non-recognition
of commissions expense on credit card payments, returned checks,
manual adjustments and other items were classified to a current
liability account, but were not reversed from the liability
account upon resolution of these differences; and |
|
|
|
|
|
Liability accounts Certain liability accounts
contained balances that could not be supported by invoices or
subsequent disbursements. |
|
We determined the reversal of certain valuation allowances on
deferred tax assets that were established at the time of our
application of fresh-start accounting in 2002 were not correctly
reported in our consolidated financial statements for subsequent
periods. For the two-month period ended December 31, 2002,
the year ended December 31, 2003 and the six-month period
ended June 30, 2004, we reversed valuation allowances which
reduced the provision for income taxes. In accordance with the
American Institute of Certified Public Accountants
Statement of Position, or SOP, 90-7, Financial
Reporting by Entities in Reorganization Under Bankruptcy
Code, the reversal of valuation allowances established in
fresh-start accounting should first reduce intangible assets
existing at our emergence from reorganization until fully
exhausted, followed by increases to paid-in capital.
For the two months ended December 31, 2002 and the ten
months ended October 31, 2002, we identified errors in the
calculation of income tax expense in Mexico for financial
statement purposes. The adjustment to correct our income tax
expense for this matter increases our long-lived assets as of
October 31, 2002 because of the application of fresh-start
accounting under SOP 90-7. As a result, we understated
amortization and depreciation related to those long-lived assets
for periods subsequent to the ten months ended October 31,
2002.
We reviewed the accounting treatment for various insurance
claims related to damaged equipment at our operating company in
Mexico. As a result of this review, we determined that
write-downs of damaged equipment and recording of insurance
claims receivables were recorded in the incorrect quarters
within 2004 and that an insurance claim receivable should not
have been recorded as of June 30, 2004 as it was not deemed
to be probable of collection.
During the monthly process to convert the operating results from
accounting principles generally accepted in Argentina to
accounting principles generally accepted in the United States,
the depreciation expense related to handsets under operating
leases was erroneously omitted for financial reporting purposes,
for the three and six months ended June 30, 2004.
14
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
The following tables present the effects of the restatement
adjustments on our previously reported unaudited condensed
consolidated statements of operations for the six and three
months ended June 30, 2004 and 2003 and on our previously
reported unaudited condensed consolidated balance sheets as of
June 30, 2004 and 2003.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended | |
|
|
| |
|
|
June 30, 2004 | |
|
June 30, 2003 | |
|
|
| |
|
| |
|
|
As | |
|
|
|
As | |
|
As | |
|
|
|
As | |
|
|
Reported | |
|
Adjustment | |
|
Restated | |
|
Reported | |
|
Adjustment | |
|
Restated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands, except per share amounts) | |
Operating revenues
|
|
$ |
581,388 |
|
|
$ |
|
|
|
$ |
581,388 |
|
|
$ |
429,344 |
|
|
$ |
|
|
|
$ |
429,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
145,643 |
|
|
|
|
|
|
|
145,643 |
|
|
|
100,343 |
|
|
|
|
|
|
|
100,343 |
|
|
Cost of digital handset and accessory sales
|
|
|
92,534 |
|
|
|
|
|
|
|
92,534 |
|
|
|
58,785 |
|
|
|
|
|
|
|
58,785 |
|
|
Selling, general and administrative
|
|
|
179,564 |
|
|
|
1,317 |
(a) |
|
|
180,881 |
|
|
|
150,455 |
|
|
|
(3,322 |
)(a) |
|
|
147,133 |
|
|
Depreciation
|
|
|
38,543 |
|
|
|
1,503 |
(b) |
|
|
40,046 |
|
|
|
19,135 |
|
|
|
3 |
(b) |
|
|
19,138 |
|
|
Amortization
|
|
|
20,104 |
|
|
|
(13,217 |
)(c) |
|
|
6,887 |
|
|
|
18,750 |
|
|
|
(2,115 |
)(c) |
|
|
16,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
476,388 |
|
|
|
(10,397 |
) |
|
|
465,991 |
|
|
|
347,468 |
|
|
|
(5,434 |
) |
|
|
342,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
105,000 |
|
|
|
10,397 |
|
|
|
115,397 |
|
|
|
81,876 |
|
|
|
5,434 |
|
|
|
87,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt, net
|
|
|
(79,327 |
) |
|
|
|
|
|
|
(79,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(811 |
) |
|
|
3,191 |
(d) |
|
|
2,380 |
|
|
|
14,966 |
|
|
|
(352 |
)(d) |
|
|
14,614 |
|
|
Interest expense and all other non-operating expenses, net
|
|
|
(20,051 |
) |
|
|
(236 |
)(e) |
|
|
(20,287 |
) |
|
|
(32,741 |
) |
|
|
|
|
|
|
(32,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(100,189 |
) |
|
|
2,955 |
|
|
|
(97,234 |
) |
|
|
(17,775 |
) |
|
|
(352 |
) |
|
|
(18,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
4,811 |
|
|
|
13,352 |
|
|
|
18,163 |
|
|
|
64,101 |
|
|
|
5,082 |
|
|
|
69,183 |
|
Income tax provision
|
|
|
(19,788 |
) |
|
|
(24,286 |
)(f) |
|
|
(44,074 |
) |
|
|
(13,045 |
) |
|
|
(34,659 |
)(f) |
|
|
(47,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(14,977 |
) |
|
$ |
(10,934 |
) |
|
$ |
(25,911 |
) |
|
$ |
51,056 |
|
|
$ |
(29,577 |
) |
|
$ |
21,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share, basic
|
|
$ |
(0.22 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.37 |
) |
|
$ |
0.84 |
|
|
$ |
(0.49 |
) |
|
$ |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share, diluted
|
|
$ |
(0.22 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.37 |
) |
|
$ |
0.80 |
|
|
$ |
(0.47 |
) |
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
basic
|
|
|
69,396 |
|
|
|
|
|
|
|
69,396 |
|
|
|
60,816 |
|
|
|
|
|
|
|
60,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
diluted
|
|
|
69,396 |
|
|
|
|
|
|
|
69,396 |
|
|
|
64,219 |
|
|
|
|
|
|
|
64,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
The statements of operations components changed, as reflected in
the Adjustment column above, as a result of the
following restatement adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended | |
|
Six Months Ended | |
|
|
|
|
June 30, 2004 | |
|
June 30, 2003 | |
|
|
|
|
| |
|
| |
|
|
|
|
(in thousands) | |
(a)
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(1,067 |
) |
|
$ |
(3,322 |
) |
|
|
Insurance claims for damaged equipment |
|
|
2,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) |
|
$ |
1,317 |
|
|
$ |
(3,322 |
) |
|
|
|
|
|
|
|
|
|
(b)
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(100 |
) |
|
$ |
(105 |
) |
|
|
Tax provision calculation errors |
|
|
108 |
|
|
|
108 |
|
|
|
Argentina handset depreciation |
|
|
1,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
1,503 |
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
(c)
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(99 |
) |
|
$ |
(102 |
) |
|
|
Tax provision calculation errors |
|
|
142 |
|
|
|
142 |
|
|
|
Release of deferred tax asset valuation allowance |
|
|
(13,260 |
) |
|
|
(2,155 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease |
|
$ |
(13,217 |
) |
|
$ |
(2,115 |
) |
|
|
|
|
|
|
|
|
|
(d)
|
|
Foreign currency transaction (losses) gains, net |
|
|
|
|
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
3,191 |
|
|
$ |
(352 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
$ |
3,191 |
|
|
$ |
(352 |
) |
|
|
|
|
|
|
|
|
|
(e)
|
|
Interest expense and all other non-operating expenses, net |
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
(236 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
(236 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
(f)
|
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
Tax provision calculation errors |
|
$ |
478 |
|
|
$ |
|
|
|
|
Release of deferred tax asset valuation allowance, tax impact of
Mexico bookkeeping errors and other |
|
|
(24,764 |
) |
|
|
(34,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
(24,286 |
) |
|
$ |
(34,659 |
) |
|
|
|
|
|
|
|
|
|
16
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended | |
|
|
| |
|
|
June 30, 2004 | |
|
June 30, 2003 | |
|
|
| |
|
| |
|
|
As | |
|
|
|
As | |
|
As | |
|
|
|
As | |
|
|
Reported | |
|
Adjustment | |
|
Restated | |
|
Reported | |
|
Adjustment | |
|
Restated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands, except per share amounts) | |
Operating revenues
|
|
$ |
304,128 |
|
|
$ |
|
|
|
$ |
304,128 |
|
|
$ |
225,951 |
|
|
$ |
|
|
|
$ |
225,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service
|
|
|
78,082 |
|
|
|
|
|
|
|
78,082 |
|
|
|
54,458 |
|
|
|
|
|
|
|
54,458 |
|
|
Cost of digital handset and accessory sales
|
|
|
51,680 |
|
|
|
|
|
|
|
51,680 |
|
|
|
30,538 |
|
|
|
|
|
|
|
30,538 |
|
|
Selling, general and administrative
|
|
|
93,524 |
|
|
|
1,847 |
(g) |
|
|
95,371 |
|
|
|
78,444 |
|
|
|
2,093 |
(g) |
|
|
80,537 |
|
|
Depreciation
|
|
|
20,113 |
|
|
|
824 |
(h) |
|
|
20,937 |
|
|
|
10,489 |
|
|
|
1 |
(h) |
|
|
10,490 |
|
|
Amortization
|
|
|
9,982 |
|
|
|
(6,885 |
)(i) |
|
|
3,097 |
|
|
|
9,283 |
|
|
|
(1,307 |
)(i) |
|
|
7,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
253,381 |
|
|
|
(4,214 |
) |
|
|
249,167 |
|
|
|
183,212 |
|
|
|
787 |
|
|
|
183,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
50,747 |
|
|
|
4,214 |
|
|
|
54,961 |
|
|
|
42,739 |
|
|
|
(787 |
) |
|
|
41,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(3,707 |
) |
|
|
3,492 |
(j) |
|
|
(215 |
) |
|
|
26,128 |
|
|
|
(3,210 |
)(j) |
|
|
22,918 |
|
|
Interest expense and all other non-operating expenses, net
|
|
|
(5,240 |
) |
|
|
(236 |
)(k) |
|
|
(5,476 |
) |
|
|
(18,788 |
) |
|
|
|
|
|
|
(18,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(8,947 |
) |
|
|
3,256 |
|
|
|
(5,691 |
) |
|
|
7,340 |
|
|
|
(3,210 |
) |
|
|
4,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
41,800 |
|
|
|
7,470 |
|
|
|
49,270 |
|
|
|
50,079 |
|
|
|
(3,997 |
) |
|
|
46,082 |
|
Income tax provision
|
|
|
(16,738 |
) |
|
|
(5,832 |
)(l) |
|
|
(22,570 |
) |
|
|
(8,442 |
) |
|
|
(26,165 |
)(l) |
|
|
(34,607 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
25,062 |
|
|
$ |
1,638 |
|
|
$ |
26,700 |
|
|
$ |
41,637 |
|
|
$ |
(30,162 |
) |
|
$ |
11,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, basic
|
|
$ |
0.36 |
|
|
$ |
0.02 |
|
|
$ |
0.38 |
|
|
$ |
0.68 |
|
|
$ |
(0.49 |
) |
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share, diluted
|
|
$ |
0.34 |
|
|
$ |
0.02 |
|
|
$ |
0.36 |
|
|
$ |
0.65 |
|
|
$ |
(0.47 |
) |
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
Basic
|
|
|
69,643 |
|
|
|
|
|
|
|
69,643 |
|
|
|
61,173 |
|
|
|
|
|
|
|
61,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
Diluted
|
|
|
79,130 |
|
|
|
|
|
|
|
79,130 |
|
|
|
64,452 |
|
|
|
|
|
|
|
64,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
The statements of operations components changed, as reflected in
the Adjustment column above, as a result of the
following restatement adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Three Months Ended | |
|
|
|
|
June 30, 2004 | |
|
June 30, 2003 | |
|
|
|
|
| |
|
| |
|
|
|
|
(in thousands) | |
(g)
|
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(537 |
) |
|
$ |
2,093 |
|
|
|
Insurance claims for damaged equipment |
|
|
2,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
1,847 |
|
|
$ |
2,093 |
|
|
|
|
|
|
|
|
|
|
(h)
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(49 |
) |
|
$ |
(53 |
) |
|
|
Tax provision calculation errors |
|
|
54 |
|
|
|
54 |
|
|
|
Argentina handset depreciation |
|
|
819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
824 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
(i)
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(51 |
) |
|
$ |
(51 |
) |
|
|
Tax provision calculation errors |
|
|
71 |
|
|
|
71 |
|
|
|
Release of deferred tax asset valuation allowance |
|
|
(6,905 |
) |
|
|
(1,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net decrease |
|
$ |
(6,885 |
) |
|
$ |
(1,307 |
) |
|
|
|
|
|
|
|
|
|
(j)
|
|
Foreign currency transaction (losses) gains, net |
|
|
|
|
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
3,492 |
|
|
$ |
(3,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net change |
|
$ |
3,492 |
|
|
$ |
(3,210 |
) |
|
|
|
|
|
|
|
|
|
(k)
|
|
Interest expense and all other non-operating expenses, net |
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
(236 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
(236 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
(l)
|
|
Income tax provision |
|
|
|
|
|
|
|
|
|
|
Tax provision calculation errors |
|
$ |
742 |
|
|
$ |
|
|
|
|
Release of deferred tax asset valuation allowance, tax impact of
Mexico bookkeeping errors and other |
|
|
(6,574 |
) |
|
|
(26,165 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
(5,832 |
) |
|
$ |
(26,165 |
) |
|
|
|
|
|
|
|
|
|
18
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2004 | |
|
|
| |
|
|
As Reported | |
|
Adjustment | |
|
As Restated | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred income taxes, net
|
|
$ |
46,034 |
|
|
$ |
(8,724 |
)(m) |
|
$ |
37,310 |
|
Current assets, excluding current deferred income taxes, net
|
|
|
621,338 |
|
|
|
(3,739 |
)(n) |
|
|
617,599 |
|
Property, plant and equipment, net
|
|
|
424,436 |
|
|
|
(3,949 |
)(o) |
|
|
420,487 |
|
Intangible assets, net
|
|
|
175,301 |
|
|
|
(106,681 |
)(p) |
|
|
68,620 |
|
Other assets
|
|
|
43,736 |
|
|
|
|
|
|
|
43,736 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,310,845 |
|
|
$ |
(123,093 |
) |
|
$ |
1,187,752 |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other
|
|
$ |
189,611 |
|
|
$ |
(707 |
)(q) |
|
$ |
188,904 |
|
Other current liabilities
|
|
|
59,378 |
|
|
|
|
|
|
|
59,378 |
|
Other long-term liabilities
|
|
|
752,295 |
|
|
|
115 |
(r) |
|
|
752,410 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,001,284 |
|
|
|
(592 |
) |
|
|
1,000,692 |
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
70 |
|
|
|
|
|
|
|
70 |
|
|
Paid-in capital
|
|
|
182,082 |
|
|
|
|
|
|
|
182,082 |
|
|
Deferred compensation
|
|
|
(15,360 |
) |
|
|
|
|
|
|
(15,360 |
) |
|
Retained earnings
|
|
|
200,549 |
|
|
|
(122,482 |
)(s) |
|
|
78,067 |
|
|
Accumulated other comprehensive loss
|
|
|
(57,780 |
) |
|
|
(19 |
)(t) |
|
|
(57,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
309,561 |
|
|
|
(122,501 |
) |
|
|
187,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
1,310,845 |
|
|
$ |
(123,093 |
) |
|
$ |
1,187,752 |
|
|
|
|
|
|
|
|
|
|
|
19
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
The balance sheet components changed, as reflected in the
Adjustment column above, as a result of the
following restatement adjustments:
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
|
|
June 30, 2004 | |
|
|
|
|
| |
|
|
|
|
(in thousands) | |
(m)
|
|
Current deferred income taxes, net
|
|
|
|
|
|
|
Release of deferred tax asset valuation allowance, Mexico
bookkeeping errors and other
|
|
$ |
(8,724 |
) |
|
|
|
|
|
|
|
|
Net decrease
|
|
$ |
(8,724 |
) |
|
|
|
|
|
|
(n)
|
|
Current assets, excluding current deferred income taxes,
net
|
|
|
|
|
|
|
Mexico bookkeeping errors
|
|
$ |
(976 |
) |
|
|
Insurance claims for damaged equipment
|
|
|
(1,446 |
) |
|
|
Release of deferred tax asset valuation allowance
|
|
|
(1,317 |
) |
|
|
|
|
|
|
|
|
Net decrease
|
|
$ |
(3,739 |
) |
|
|
|
|
|
|
(o)
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
Mexico bookkeeping errors
|
|
$ |
(810 |
) |
|
|
Tax provision calculation errors
|
|
|
1,183 |
|
|
|
Insurance claims for damaged equipment
|
|
|
(2,319 |
) |
|
|
Argentina handset depreciation
|
|
|
(2,003 |
) |
|
|
|
|
|
|
|
|
Net decrease
|
|
$ |
(3,949 |
) |
|
|
|
|
|
|
(p)
|
|
Intangible assets, net
|
|
|
|
|
|
|
Mexico bookkeeping errors
|
|
$ |
(817 |
) |
|
|
Tax provision calculation errors
|
|
|
1,069 |
|
|
|
Release of deferred tax asset valuation allowance
|
|
|
(106,933 |
) |
|
|
|
|
|
|
|
|
Net decrease
|
|
$ |
(106,681 |
) |
|
|
|
|
|
|
(q)
|
|
Accounts payable, accrued expenses and other
|
|
|
|
|
|
|
Mexico bookkeeping errors
|
|
$ |
(9,164 |
) |
|
|
Insurance claims for damaged equipment
|
|
|
(1,497 |
) |
|
|
Tax provision calculation errors
|
|
|
9,954 |
|
|
|
|
|
|
|
|
|
Net decrease
|
|
$ |
(707 |
) |
|
|
|
|
|
|
(r)
|
|
Other long-term liabilities
|
|
|
|
|
|
|
Other
|
|
$ |
115 |
|
|
|
|
|
|
|
|
|
Net increase
|
|
$ |
115 |
|
|
|
|
|
|
|
(s)
|
|
Retained earnings
|
|
|
|
|
|
|
Mexico bookkeeping errors
|
|
$ |
7,043 |
|
|
|
Tax provision calculation errors
|
|
|
(7,701 |
) |
|
|
Insurance claims for damaged equipment
|
|
|
(2,384 |
) |
|
|
Release of deferred tax asset valuation allowance, tax impact of
Mexico bookkeeping errors and other
|
|
|
(117,437 |
) |
|
|
Argentina handset depreciation
|
|
|
(2,003 |
) |
|
|
|
|
|
|
|
|
Net decrease
|
|
$ |
(122,482 |
) |
|
|
|
|
|
|
(t)
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
Mexico bookkeeping errors
|
|
$ |
(484 |
) |
|
|
Release of deferred tax asset valuation allowance and other
|
|
|
467 |
|
|
|
Argentina handset depreciation
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
Net increase
|
|
$ |
(19 |
) |
|
|
|
|
|
|
20
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2003 | |
|
|
| |
|
|
As Reported | |
|
Adjustment | |
|
As Restated | |
|
|
| |
|
| |
|
| |
|
|
(in thousands) | |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
511,905 |
|
|
$ |
(154 |
)(s) |
|
$ |
511,751 |
|
Property, plant and equipment, net
|
|
|
327,022 |
|
|
|
384 |
(t) |
|
|
327,406 |
|
Intangible assets, net
|
|
|
179,743 |
|
|
|
(53,234 |
)(u) |
|
|
126,509 |
|
Other assets
|
|
|
22,443 |
|
|
|
|
|
|
|
22,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,041,113 |
|
|
$ |
(53,004 |
) |
|
$ |
988,109 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other
|
|
$ |
211,795 |
|
|
$ |
640 |
(v) |
|
$ |
212,435 |
|
Other current liabilities
|
|
|
87,737 |
|
|
|
|
|
|
|
87,737 |
|
Other long-term liabilities
|
|
|
624,334 |
|
|
|
(3,760 |
)(w) |
|
|
620,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
923,866 |
|
|
|
(3,120 |
) |
|
|
920,746 |
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
62 |
|
|
|
|
|
|
|
62 |
|
|
Paid-in capital
|
|
|
50,464 |
|
|
|
|
|
|
|
50,464 |
|
|
Retained earnings
|
|
|
93,622 |
|
|
|
(49,379 |
)(x) |
|
|
44,243 |
|
|
Accumulated other comprehensive loss
|
|
|
(26,901 |
) |
|
|
(505 |
)(y) |
|
|
(27,406 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
117,247 |
|
|
|
(49,884 |
) |
|
|
67,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
1,041,113 |
|
|
$ |
(53,004 |
) |
|
$ |
988,109 |
|
|
|
|
|
|
|
|
|
|
|
21
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
The balance sheet components changed, as reflected in the
Adjustment column above, as a result of the
following restatement adjustments:
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
|
|
|
June 30, 2003 | |
|
|
|
|
| |
|
|
|
|
(in thousands) | |
(s)
|
|
Current assets |
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(154 |
) |
|
|
|
|
|
|
|
|
Net decrease |
|
$ |
(154 |
) |
|
|
|
|
|
|
(t)
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(1,014 |
) |
|
|
Tax provision calculation errors |
|
|
1,398 |
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
384 |
|
|
|
|
|
|
|
(u)
|
|
Intangible assets, net |
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(1,016 |
) |
|
|
Tax provision calculation errors |
|
|
1,353 |
|
|
|
Release of deferred tax asset valuation allowance |
|
|
(53,571 |
) |
|
|
|
|
|
|
|
|
Net decrease |
|
$ |
(53,234 |
) |
|
|
|
|
|
|
(v)
|
|
Accounts payable, accrued expenses and other |
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(5,611 |
) |
|
|
Tax provision calculation errors |
|
|
6,251 |
|
|
|
|
|
|
|
|
|
Net increase |
|
$ |
640 |
|
|
|
|
|
|
|
(w)
|
|
Deferred income taxes |
|
|
|
|
|
|
Release of deferred tax asset valuation allowance and other |
|
$ |
(3,760 |
) |
|
|
|
|
|
|
|
|
Net decrease |
|
$ |
(3,760 |
) |
|
|
|
|
|
|
(x)
|
|
Retained earnings |
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
3,883 |
|
|
|
Tax provision calculation errors |
|
|
(3,386 |
) |
|
|
Release of deferred tax asset valuation allowance, tax impact of
Mexico bookkeeping errors and other |
|
|
(49,876 |
) |
|
|
|
|
|
|
|
|
Net decrease |
|
$ |
(49,379 |
) |
|
|
|
|
|
|
(y)
|
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
Mexico bookkeeping errors |
|
$ |
(457 |
) |
|
|
Release of deferred tax asset valuation allowance and other |
|
|
(48 |
) |
|
|
|
|
|
|
|
|
Net increase |
|
$ |
(505 |
) |
|
|
|
|
|
|
22
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
Note 3. Supplemental Balance Sheet Information
Prepaid Expenses and Other. The components of our
prepaid expenses and other are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Restated | |
|
|
|
|
(in thousands) | |
Value added tax receivables, current
|
|
$ |
21,181 |
|
|
$ |
22,596 |
|
Advances to suppliers
|
|
|
7,204 |
|
|
|
8,053 |
|
Insurance claims
|
|
|
1,146 |
|
|
|
4,853 |
|
Prepaid income taxes
|
|
|
|
|
|
|
4,470 |
|
Other prepaid expenses
|
|
|
27,966 |
|
|
|
19,156 |
|
|
|
|
|
|
|
|
|
|
$ |
57,497 |
|
|
$ |
59,128 |
|
|
|
|
|
|
|
|
Accounts Payable, Accrued Expenses and Other. The
components of our accounts payable, accrued expenses and other
are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Restated | |
|
|
|
|
(in thousands) | |
Accrued income taxes and income taxes payable
|
|
$ |
10,856 |
|
|
$ |
14,462 |
|
Accrued non-income based taxes
|
|
|
34,947 |
|
|
|
32,899 |
|
Accrued payroll, commissions and related items
|
|
|
30,978 |
|
|
|
32,816 |
|
Accrued expenses and amounts payable related to network system
and information technology
|
|
|
42,515 |
|
|
|
40,907 |
|
Accrued capital expenditures and capital expenditure related
payables
|
|
|
15,273 |
|
|
|
28,202 |
|
Customer deposits
|
|
|
14,421 |
|
|
|
11,485 |
|
Accrued tax and other contingencies
|
|
|
4,906 |
|
|
|
6,676 |
|
Other
|
|
|
35,008 |
|
|
|
33,726 |
|
|
|
|
|
|
|
|
|
|
$ |
188,904 |
|
|
$ |
201,173 |
|
|
|
|
|
|
|
|
23
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
Other Long-Term Liabilities. The components of our
other long-term liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
Restated | |
|
|
|
|
(in thousands) | |
Tax and other contingencies
|
|
$ |
56,114 |
|
|
$ |
69,627 |
|
Asset retirement obligations
|
|
|
3,374 |
|
|
|
3,021 |
|
Capital lease obligations
|
|
|
3,819 |
|
|
|
|
|
Other long-term liabilities
|
|
|
4,816 |
|
|
|
3,599 |
|
|
|
|
|
|
|
|
|
|
$ |
68,123 |
|
|
$ |
76,247 |
|
|
|
|
|
|
|
|
Note 4. Intangible Assets
Our intangible assets consist of our licenses, customer base and
tradename, all of which have finite useful lives, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2004 Restated | |
|
December 31, 2003 | |
|
|
| |
|
| |
|
|
Gross Carrying | |
|
Accumulated | |
|
Net Carrying | |
|
Gross Carrying | |
|
Accumulated | |
|
Net Carrying | |
|
|
Value | |
|
Amortization | |
|
Value | |
|
Value | |
|
Amortization | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$ |
67,080 |
|
|
$ |
(7,242 |
) |
|
$ |
59,838 |
|
|
$ |
73,595 |
|
|
$ |
(5,380 |
) |
|
$ |
68,215 |
|
|
Customer base
|
|
|
38,774 |
|
|
|
(31,788 |
) |
|
|
6,986 |
|
|
|
42,133 |
|
|
|
(27,684 |
) |
|
|
14,449 |
|
|
Tradename
|
|
|
2,962 |
|
|
|
(1,166 |
) |
|
|
1,796 |
|
|
|
4,132 |
|
|
|
(978 |
) |
|
|
3,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$ |
108,816 |
|
|
$ |
(40,196 |
) |
|
$ |
68,620 |
|
|
$ |
119,860 |
|
|
$ |
(34,042 |
) |
|
$ |
85,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOP 90-7 requires that reversals of valuation allowances
associated with deferred tax assets that exist as of the date of
application of fresh-start accounting be recorded as a reduction
to intangible assets. Substantially all of our deferred tax
asset valuation allowances existed as of the date of the
application of fresh-start accounting. As such, under
SOP 90-7, we record any valuation allowance reversals first
as a reduction to our remaining intangible assets existing at
our emergence from reorganization and then as an increase to
paid-in capital. This accounting methodology for deferred tax
asset valuation allowance reversals resulted in a decrease to
the bases of our intangible assets from December 31, 2003
to June 30, 2004.
The gross carrying values of licenses, customer base and
tradename decreased by $7.8 million, $2.6 million, and
$1.1 million respectively from December 31, 2003 to
June 30, 2004 due to the reversal of deferred tax asset
valuation allowances.
Based on the carrying amount of amortizable intangible assets
existing as of June 30, 2004 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 | |
|
|
| |
2004
|
|
$ |
15,638 |
|
2005
|
|
|
13,158 |
|
2006
|
|
|
4,407 |
|
2007
|
|
|
3,746 |
|
2008
|
|
|
3,746 |
|
24
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
Actual amortization expense to be reported in future periods
could differ from these estimates as a result of additional
acquisitions of intangibles and the timing of releases of
deferred tax asset valuation allowances as well as changes in
exchange rates and other relevant factors. During the six and
three months ended June 30, 2004, we did not acquire,
dispose of or write down any goodwill or intangible assets with
indefinite useful lives.
Note 5. Debt
|
|
|
|
|
|
|
|
|
|
|
June 30, | |
|
December 31, | |
|
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(in thousands) | |
3.5% convertible notes due 2033
|
|
$ |
180,000 |
|
|
$ |
180,000 |
|
2.875% convertible notes due 2034
|
|
|
300,000 |
|
|
|
|
|
13.0% senior secured discount notes due 2009, net of
unamortized discount of $14 and $52,196
|
|
|
40 |
|
|
|
128,625 |
|
International equipment facility
|
|
|
52,493 |
|
|
|
125,000 |
|
Tower financing obligations
|
|
|
109,047 |
|
|
|
103,131 |
|
|
|
|
|
|
|
|
Total debt
|
|
|
641,580 |
|
|
|
536,756 |
|
Less: current portion
|
|
|
(1,661 |
) |
|
|
(1,466 |
) |
|
|
|
|
|
|
|
|
|
$ |
639,919 |
|
|
$ |
535,290 |
|
|
|
|
|
|
|
|
3.5% Convertible Notes Due 2033. Our 3.5%
convertible notes due 2033, which we refer to as our 3.5% notes,
are senior unsecured obligations and rank equal in right of
payment with all of our other existing and future senior
unsecured debt. Some of our other long-term debt is secured, and
therefore our 3.5% notes effectively rank junior in right of
payment to our secured debt to the extent of the value of the
assets securing each debt. Historically, some of our long-term
debt has been secured and may be secured in the future. In
addition, since we conduct all of our operations through our
subsidiaries, our 3.5% notes effectively rank junior in right of
payment to all liabilities of our subsidiaries. The notes bear
interest at a rate of 3.5% per year, payable semi-annually in
arrears and in cash on March 15 and September 15 of
each year, beginning March 15, 2004. Our 3.5% notes will
mature on September 15, 2033, when the entire principal
balance of $180.0 million will be due.
The noteholders have the right to require us to repurchase the
3.5% notes on September 15 of 2010, 2013, 2018, 2023 and
2028 at a repurchase price equal to 100% of the principal
amount, plus accrued and unpaid interest. In addition, if a
fundamental change or termination of trading, as defined, occurs
prior to maturity, the noteholders have the right to require us
to repurchase all or part of the notes at a repurchase price
equal to 100% of the principal amount, plus accrued and unpaid
interest.
The 3.5% notes are convertible, at the option of the holder,
into shares of our common stock at an adjusted conversion rate
of 37.5 shares per $1,000 principal amount of notes, or
6,750,000 aggregate common shares, at a conversion price of
about $26.67 per share. The 3.5% notes are convertible, subject
to adjustment, at any time prior to the close of business on the
final maturity date under any of the following circumstances:
|
|
|
|
|
during any fiscal quarter commencing after December 31,
2003, if the closing sale price of our common stock exceeds 110%
of the conversion price of $26.67 per share for at least 20
trading days in the 30 consecutive trading days ending on
the last trading day of the preceding fiscal quarter; |
|
|
|
during the five business day period after any five consecutive
trading day period in which the trading price per note for each
day of such period was less than 98% of the product of the
closing sale price of our common stock and the number of shares
issuable upon conversion of $1,000 principal amount of the
notes, or 6,750,000 aggregate common shares, subject to certain
limitations; |
25
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
|
|
|
|
|
if the notes have been called for redemption by us; or |
|
|
|
upon the occurrence of certain specified corporate events. |
The conversion feature related to the trading price per note
meets the criteria of an embedded derivative under SFAS
No. 133. As a result, we are required to separate out the
value of the conversion feature from the notes and record a
liability on our consolidated balance sheet. As of June 30,
2004, the conversion feature had a nominal value, and therefore
it did not have a material impact on our financial position or
results of operations. We will continue to evaluate the
materiality of the value of this conversion feature on a
quarterly basis and record the resulting adjustment, if any, in
our consolidated balance sheet and statement of operations.
For the fiscal quarters ended June 30, 2004 and
March 31, 2004, the closing sale price of our common stock
exceeded 110% of the conversion price of $26.67 per share for at
least 20 trading days in the 30 consecutive trading days
ending on June 30, 2004 and March 31, 2004. As a
result, the conversion contingency was met, and effective
April 1, 2004, our 3.5% notes became convertible into 37.5
shares of our common stock per $1,000 principal amount of notes,
or 6,750,000 aggregate common shares, at a conversion price of
about $26.67 per share. As presented for the six months ended
June 30, 2004, our calculation of diluted net loss per
share does not include the common shares resulting from the
potential conversion of our 3.5% notes since their effect would
have been antidilutive to our net loss. As presented for the
three months ended June 30, 2004, our calculation of
diluted net income per share includes the common shares
resulting from the potential conversion of our 3.5% notes.
The conversion rate of the 3.5% notes is subject to adjustment
if any of the following events occurs:
|
|
|
|
|
we issue common stock as a dividend or distribution on our
common stock; |
|
|
|
we issue to all holders of common stock certain rights or
warrants to purchase our common stock; |
|
|
|
we subdivide or combine our common stock; |
|
|
|
we distribute to all holders of our common stock shares of our
capital stock, evidences of indebtedness or assets, including
cash or securities but excluding the rights, warrants, dividends
or distributions specified above; |
|
|
|
we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the
extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
current market price per share of common stock on the trading
day next succeeding the last date on which tenders or exchanges
may be made pursuant to this tender or exchange offer; or |
|
|
|
someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of
the closing date of the offer, our board of directors is not
recommending the rejection of the offer, subject to certain
conditions. |
Prior to September 20, 2008, the 3.5% notes are not
redeemable. Beginning September 20, 2008, we may redeem the
3.5% notes in whole or in part at the following prices expressed
as a percentage of the principal amount:
|
|
|
|
|
Redemption Period |
|
Price | |
|
|
| |
Beginning on September 20, 2008 and ending on
September 14, 2009
|
|
|
101.0% |
|
Beginning on September 15, 2009 and ending on
September 14, 2010
|
|
|
100.5% |
|
Beginning on September 15, 2010 and thereafter
|
|
|
100.0% |
|
26
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
Neither we, nor any of our subsidiaries, are subject to any
financial covenants under our 3.5% notes. In addition, the
indenture governing our 3.5% notes does not restrict us or any
of our subsidiaries from paying dividends, incurring debt, or
issuing or repurchasing our securities.
2.875% Convertible Notes Due 2034. In January
2004, we issued $250.0 million aggregate principal amount of
2.875% convertible notes due 2034, which we refer to as our
2.875% notes. In addition, we granted the initial purchaser an
option to purchase up to an additional $50.0 million
principal amount of 2.875% notes, which was exercised in full in
February 2004. As a result, we issued an additional
$50.0 million aggregate principal amount of 2.875% notes,
resulting in total net proceeds of $291.6 million. Our
2.875% notes are senior unsecured obligations and rank equal in
right of payment with all of our other existing and future
senior unsecured debt. Some of our other long-term debt is
secured, and therefore our 2.875% notes effectively rank junior
in right of payment to our secured debt to the extent of the
value of the assets securing each debt. Historically, some of
our long-term debt has been secured and may be secured in the
future. In addition, since we conduct all of our operations
through our subsidiaries, our 2.875% notes effectively rank
junior in right of payment to all liabilities of our
subsidiaries. The 2.875% notes bear interest at a rate of 2.875%
per year, payable semi-annually in arrears and in cash on
February 1 and August 1 of each year, beginning August 1,
2004. The 2.875% notes will mature on February 1, 2034,
when the entire principal balance of $300.0 million will be
due.
The noteholders have the right to require us to repurchase the
2.875% notes on February 1 of 2011, 2014, 2019, 2024 and 2029 at
a repurchase price equal to 100% of the principal amount, plus
any accrued and unpaid interest up to but excluding the
repurchase date. In addition, if a fundamental change or
termination of trading, as defined, occurs prior to maturity,
the noteholders have a right to require us to repurchase all or
part of the notes at a repurchase price equal to 100% of the
principal amount, plus accrued and unpaid interest.
The 2.875% notes are convertible, at the option of the holder,
into shares of our common stock at an adjusted conversion rate
of 18.7830 shares per $1,000 principal amount of notes, or
5,634,900 aggregate common shares, at a conversion price of
about $53.24 per share. The 2.875% notes are convertible,
subject to adjustment, prior to the close of business on the
final maturity date under any of the following circumstances:
|
|
|
|
|
during any fiscal quarter commencing after March 31, 2004,
if the closing sale price of our common stock exceeds 120% of
the conversion price of $53.24 per share for at least 20 trading
days in the 30 consecutive trading days ending on the last
trading day of the preceding fiscal quarter; |
|
|
|
during the five business day period after any five consecutive
trading day period in which the trading price per note for each
day of this period was less than 98% of the product of the
closing sale price of our common stock and the number of shares
issuable upon conversion of $1,000 principal amount of the
2.875% notes, or 5,634,900 aggregate common shares, subject to
certain limitations; |
|
|
|
if the 2.875% notes have been called for redemption; or |
|
|
|
upon the occurrence of specified corporate events. |
We have the option to satisfy the conversion of the 2.875% notes
in shares of our common stock, in cash or a combination of both.
The conversion feature related to the trading price per note
meets the criteria of an embedded derivative under SFAS
No. 133. As a result, we are required to separate out the
value of the conversion feature from the notes and record a
liability on our consolidated balance sheet. As of June 30,
2004, the conversion feature had a nominal value, and therefore
it did not have a material impact on our financial position or
results of operations. We will continue to evaluate the
materiality of the value of this conversion feature on a
quarterly basis and record the resulting adjustment, if any, in
our consolidated balance sheet and statement of operations.
27
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
As of June 30, 2004, our 2.875% convertible notes did not
meet any of the criteria necessary for conversion into shares of
our common stock.
The conversion rate of the 2.875% notes is subject to adjustment
if any of the following events occurs:
|
|
|
|
|
we issue common stock as a dividend or distribution on our
common stock; |
|
|
|
we issue to all holders of common stock certain rights or
warrants to purchase our common stock; |
|
|
|
we subdivide or combine our common stock; |
|
|
|
we distribute to all holders of our common stock shares of our
capital stock, evidences of indebtedness or assets, including
cash or securities but excluding the rights, warrants, dividends
or distributions specified above; |
|
|
|
we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the
extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
current market price per share of common stock on the trading
day next succeeding the last date on which tenders or exchanges
may be made pursuant to this tender or exchange offer; or |
|
|
|
someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of
the closing date of the offer, our board of directors is not
recommending the rejection of the offer, subject to certain
conditions. |
Prior to February 7, 2011, the 2.875% notes are not
redeemable. On or after February 7, 2011, we may redeem for
cash some or all of the 2.875% notes, at any time and from time
to time, upon at least 30 days notice for a price
equal to 100% of the principal amount of the 2.875% notes to be
redeemed plus any accrued and unpaid interest up to but
excluding the redemption date.
Neither we, nor any of our subsidiaries, are subject to any
financial covenants under our 2.875% notes. In addition, the
indenture governing our 2.875% notes does not restrict us or any
of our subsidiaries from paying dividends, incurring debt, or
issuing or repurchasing our securities.
Repurchase and Defeasance of 13.0% Senior Secured Discount
Notes. In March 2004, NII Holdings (Cayman), Ltd. (NII
Cayman), one of our wholly-owned subsidiaries, retired
substantially all of its $180.8 million aggregate principal
amount 13.0% senior secured discount notes due 2009 through a
cash tender offer, resulting in about a $79.3 million
pre-tax loss, including a $47.2 million write-off of the
unamortized discount and $2.3 million in charges
representing the write-off of debt financing costs and the
payment of transaction costs. NII Cayman financed this tender
offer with intercompany loans from NII Holdings and cash on
hand. We used a portion of our proceeds from the issuance of our
2.875% notes to fund these intercompany loans to NII Cayman. For
the six months ended June 30, 2004, the basic and diluted
loss per share amount resulting from the loss on the early
extinguishment of our 13.0% senior secured discount notes was
$1.14.
Subsequent to the end of the second quarter of 2004, in July
2004, the trustee for our 13.0% senior secured discount notes
due 2009 released its security interests in the underlying
collateral, and the remaining amount under these notes was
defeased. As a result, our assets are no longer encumbered under
these notes.
Repayment of International Equipment Facility. In
February 2004, in compliance with our international equipment
facility credit agreement, we prepaid, at face value,
$72.5 million of the $125.0 million in outstanding
principal and related accrued interest of $0.4 million. We
did not realize a gain or loss on this prepayment.
28
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
Subsequent to the end of the second quarter of 2004, in July
2004, we paid the remaining $52.6 million in outstanding
principal and related accrued interest under our international
equipment facility. Under the terms of the international
equipment facility and related agreements, Motorola Credit
Corporation was a secured creditor and held senior liens on
substantially all of our assets, as well as the assets of our
various foreign and domestic subsidiaries and affiliates. As a
result of the pay-off of this facility, Motorola Credit
Corporation released its liens on these assets, all restrictive
covenants under this facility were terminated and all
obligations under this facility were discharged. We did not
recognize any gain or loss as a result of either of these
transactions.
Tower Financing Obligations. During the six and
three months ended June 30, 2004 and 2003, Nextel Mexico and
Nextel Brazil sold communications towers as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, | |
|
Three Months Ended June 30, | |
|
|
| |
|
| |
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Towers | |
|
Proceeds | |
|
Towers | |
|
Proceeds | |
|
Towers | |
|
Proceeds | |
|
Towers | |
|
Proceeds | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Nextel Mexico
|
|
|
35 |
|
|
$ |
6,622 |
|
|
|
301 |
|
|
$ |
56,138 |
|
|
|
12 |
|
|
$ |
2,244 |
|
|
|
78 |
|
|
$ |
14,609 |
|
Nextel Brazil
|
|
|
22 |
|
|
|
2,924 |
|
|
|
80 |
|
|
|
10,800 |
|
|
|
7 |
|
|
|
867 |
|
|
|
16 |
|
|
|
2,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
57 |
|
|
$ |
9,546 |
|
|
|
381 |
|
|
$ |
66,938 |
|
|
|
19 |
|
|
$ |
3,111 |
|
|
|
94 |
|
|
$ |
16,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to the end of the second quarter of 2004, Nextel
Mexico sold an additional 6 towers for $1.1 million in
proceeds and Nextel Brazil sold an additional 4 towers for
$0.4 million in proceeds.
We account for these tower sales as financing arrangements and,
as such, maintain the tower assets on our balance sheet and
continue to depreciate them. We recognize the proceeds received
as financing obligations that will be repaid through monthly
rent payments. To the extent that American Tower leases space on
these communication towers to third party companies, our base
rent and ground rent related to the towers leased are reduced.
We recognize ground rent payments as operating expenses in cost
of service and tower base rent payments as interest expense and
a reduction in the financing obligation using the effective
interest method. In addition, we recognize co-location rent
payments made by the third party lessees to American Tower as
other operating revenues because we are maintaining the tower
assets on our balance sheet. During the six months ended
June 30, 2004, we recognized $4.5 million in other
operating revenues related to these co-location lease
arrangements, a portion of which was recognized as interest
expense.
On January 1, 2004, we executed a binding term sheet with
American Tower whereby both parties agreed to make certain
amendments to the sale-leaseback agreement with respect to the
construction and/or the acquisition by American Tower of any new
towers to be constructed or purchased by our Mexican and our
Brazilian operating companies. The most significant of such
amendments provides for: the elimination of minimum purchase and
construction commitments; the establishment of new purchase
commitments for the following four years, subject to certain
collocation conditions; the extension for an additional four
years, subject to certain conditions and limitations, of the
right of American Tower to market for collocation existing and
new towers; and the reduction of the monthly rent payments, as
well as the purchase price, of any existing towers not
previously purchased or identified for purchase and of any new
sites built.
Note 6. Contingencies
Brazilian Contingencies. Nextel Brazil has
received tax assessment notices from state and federal Brazilian
tax authorities asserting deficiencies in tax payments related
primarily to value added taxes and import duties based on the
classification of equipment and services. Nextel Brazil has
filed various 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
29
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
denied and Nextel Brazil is currently appealing those decisions.
Nextel Brazil is also disputing certain non-tax related claims.
Nextel Brazil believes it has appropriately accrued for probable
losses related to tax and non-tax matters in accordance with
SFAS No. 5, Accounting for Contingencies. As a
result of ongoing analysis, further consultations with external
legal counsel, expirations of the statute of limitations and
settlements of certain matters during the first and second
quarters of 2004, Nextel Brazil reversed $4.3 million and
$10.2 million in accrued liabilities, of which
$2.5 million and $6.8 million, respectively, were
recorded as reductions to operating expenses. We currently
estimate the range of possible losses related to tax and non-tax
matters for which we have not accrued liabilities to be between
$34.0 million and $38.0 million. From time to time, Nextel
Brazil may also receive additional tax assessments or claim
notices of a similar nature. We are continuing to evaluate the
likelihood of possible losses, if any, related to all known tax
and non-tax contingencies. As a result, future increases or
decreases to our accrued contingencies may be necessary. As of
June 30, 2004, Nextel Brazil had accrued liabilities of
$35.1 million related to tax and non-tax contingencies.
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.
Note 7. Income Taxes
During the first and second quarters of 2004, we assessed the
realizability of certain deferred tax assets, consistent with
the methodology employed for 2003. In that assessment, we
considered the reversal of existing temporary differences
associated with deferred tax assets, future taxable income, tax
planning strategies as considered and historical and future
pre-tax book income as adjusted for permanent differences
between financial and tax accounting items. Accordingly, during
the first quarter of 2004, we reversed $13.2 million of the
valuation allowance associated with deferred tax assets in
Mexico due to additional information regarding our expected
profitability within certain Mexican operations. Since
substantially all of the Mexican valuation allowance existed as
of the date we applied fresh-start accounting,
$11.9 million of the valuation allowance reduced our
intangible assets in accordance with SOP 90-7. Additionally, we
recorded an income tax benefit of $1.3 million for the
remainder of the valuation allowance as that portion related to
deferred tax assets that were generated subsequent to our
reorganization.
Note 8. Segment Reporting
We operate in four reportable segments: (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, our corporate operations in the U.S. and
our Cayman entity that issued our senior secured discount notes.
We evaluate the performance of these segments and provide
resources to them based on operating income before depreciation
and amortization, which we refer to as segment earnings. We
allocate corporate overhead costs to some of our subsidiaries.
The segment information below does not reflect any allocations
of corporate overhead costs
30
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
because the amounts of these expenses are not provided to or
used by our chief operating decision maker in making operating
decisions related to these segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate | |
|
Intercompany | |
|
|
|
|
Mexico | |
|
Brazil | |
|
Argentina | |
|
Peru | |
|
and other | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Six Months Ended June 30, 2004 Restated
(see Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
359,172 |
|
|
$ |
91,801 |
|
|
$ |
83,454 |
|
|
$ |
46,427 |
|
|
$ |
793 |
|
|
$ |
(259 |
) |
|
$ |
581,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$ |
151,520 |
|
|
$ |
8,201 |
|
|
$ |
19,884 |
|
|
$ |
8,217 |
|
|
$ |
(25,492 |
) |
|
$ |
|
|
|
$ |
162,330 |
|
Depreciation and amortization
|
|
|
(33,934 |
) |
|
|
(5,270 |
) |
|
|
(5,035 |
) |
|
|
(2,426 |
) |
|
|
(479 |
) |
|
|
211 |
|
|
|
(46,933 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
117,586 |
|
|
|
2,931 |
|
|
|
14,849 |
|
|
|
5,791 |
|
|
|
(25,971 |
) |
|
|
211 |
|
|
|
115,397 |
|
Interest expense
|
|
|
(9,306 |
) |
|
|
(4,950 |
) |
|
|
(40 |
) |
|
|
(111 |
) |
|
|
(12,699 |
) |
|
|
16 |
|
|
|
(27,090 |
) |
Interest income
|
|
|
1,215 |
|
|
|
1,804 |
|
|
|
212 |
|
|
|
837 |
|
|
|
1,559 |
|
|
|
(16 |
) |
|
|
5,611 |
|
Loss on early extinguishment of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
debt, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,327 |
) |
|
|
|
|
|
|
(79,327 |
) |
Foreign currency transaction gains (losses), net
|
|
|
3,352 |
|
|
|
(488 |
) |
|
|
(487 |
) |
|
|
11 |
|
|
|
(8 |
) |
|
|
|
|
|
|
2,380 |
|
Other income (expense), net
|
|
|
(816 |
) |
|
|
1,875 |
|
|
|
357 |
|
|
|
(3 |
) |
|
|
(221 |
) |
|
|
|
|
|
|
1,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$ |
112,031 |
|
|
$ |
1,172 |
|
|
$ |
14,891 |
|
|
$ |
6,525 |
|
|
$ |
(116,667 |
) |
|
$ |
211 |
|
|
$ |
18,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
53,579 |
|
|
$ |
17,417 |
|
|
$ |
15,551 |
|
|
$ |
10,811 |
|
|
$ |
1,777 |
|
|
$ |
|
|
|
$ |
99,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2003 Restated
(see Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
264,610 |
|
|
$ |
68,767 |
|
|
$ |
49,091 |
|
|
$ |
46,376 |
|
|
$ |
767 |
|
|
$ |
(267 |
) |
|
$ |
429,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$ |
109,827 |
|
|
$ |
6,183 |
|
|
$ |
13,459 |
|
|
$ |
10,537 |
|
|
$ |
(16,923 |
) |
|
$ |
|
|
|
$ |
123,083 |
|
Depreciation and amortization
|
|
|
(31,998 |
) |
|
|
(1,366 |
) |
|
|
(1,009 |
) |
|
|
(1,445 |
) |
|
|
(236 |
) |
|
|
281 |
|
|
|
(35,773 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
77,829 |
|
|
|
4,817 |
|
|
|
12,450 |
|
|
|
9,092 |
|
|
|
(17,159 |
) |
|
|
281 |
|
|
|
87,310 |
|
Interest expense
|
|
|
(8,218 |
) |
|
|
(5,688 |
) |
|
|
(46 |
) |
|
|
(1,021 |
) |
|
|
(16,458 |
) |
|
|
508 |
|
|
|
(30,923 |
) |
Interest income
|
|
|
1,317 |
|
|
|
2,152 |
|
|
|
326 |
|
|
|
511 |
|
|
|
1,430 |
|
|
|
(508 |
) |
|
|
5,228 |
|
Foreign currency transaction (losses) gains, net
|
|
|
(6,848 |
) |
|
|
21,895 |
|
|
|
(510 |
) |
|
|
89 |
|
|
|
(12 |
) |
|
|
|
|
|
|
14,614 |
|
Other (expense) income, net
|
|
|
(568 |
) |
|
|
(2,939 |
) |
|
|
8,280 |
|
|
|
(867 |
) |
|
|
(7,461 |
) |
|
|
(3,491 |
) |
|
|
(7,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$ |
63,512 |
|
|
$ |
20,237 |
|
|
$ |
20,500 |
|
|
$ |
7,804 |
|
|
$ |
(39,660 |
) |
|
$ |
(3,210 |
) |
|
$ |
69,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
90,153 |
|
|
$ |
8,397 |
|
|
$ |
7,512 |
|
|
$ |
9,189 |
|
|
$ |
1,803 |
|
|
$ |
|
|
|
$ |
117,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
2004 Restated (see Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
186,209 |
|
|
$ |
48,607 |
|
|
$ |
45,765 |
|
|
$ |
23,281 |
|
|
$ |
386 |
|
|
$ |
(120 |
) |
|
$ |
304,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$ |
75,317 |
|
|
$ |
4,694 |
|
|
$ |
9,864 |
|
|
$ |
4,026 |
|
|
$ |
(14,906 |
) |
|
$ |
|
|
|
$ |
78,995 |
|
Depreciation and amortization
|
|
|
(17,017 |
) |
|
|
(2,754 |
) |
|
|
(2,814 |
) |
|
|
(1,292 |
) |
|
|
(262 |
) |
|
|
105 |
|
|
|
(24,034 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
58,300 |
|
|
|
1,940 |
|
|
|
7,050 |
|
|
|
2,734 |
|
|
|
(15,168 |
) |
|
|
105 |
|
|
|
54,961 |
|
Interest expense
|
|
|
(4,119 |
) |
|
|
(2,287 |
) |
|
|
(32 |
) |
|
|
(28 |
) |
|
|
(4,435 |
) |
|
|
10 |
|
|
|
(10,891 |
) |
Interest income
|
|
|
529 |
|
|
|
881 |
|
|
|
107 |
|
|
|
796 |
|
|
|
703 |
|
|
|
(10 |
) |
|
|
3,006 |
|
Foreign currency transaction gains (losses), net
|
|
|
156 |
|
|
|
(526 |
) |
|
|
155 |
|
|
|
5 |
|
|
|
(5 |
) |
|
|
|
|
|
|
(215 |
) |
Other income (expense), net
|
|
|
(262 |
) |
|
|
2,416 |
|
|
|
343 |
|
|
|
1 |
|
|
|
(89 |
) |
|
|
|
|
|
|
2,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$ |
54,604 |
|
|
$ |
2,424 |
|
|
$ |
7,623 |
|
|
$ |
3,508 |
|
|
$ |
(18,994 |
) |
|
$ |
105 |
|
|
$ |
49,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
28,786 |
|
|
$ |
8,371 |
|
|
$ |
7,319 |
|
|
$ |
5,565 |
|
|
$ |
871 |
|
|
$ |
|
|
|
$ |
50,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate | |
|
Intercompany | |
|
|
|
|
Mexico | |
|
Brazil | |
|
Argentina | |
|
Peru | |
|
and other | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in thousands) | |
Three Months Ended June 30,
2003 Restated (see Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
138,176 |
|
|
$ |
35,093 |
|
|
$ |
28,756 |
|
|
$ |
23,683 |
|
|
$ |
377 |
|
|
$ |
(134 |
) |
|
$ |
225,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings (losses)
|
|
$ |
54,351 |
|
|
$ |
2,698 |
|
|
$ |
6,995 |
|
|
$ |
4,884 |
|
|
$ |
(8,510 |
) |
|
$ |
|
|
|
$ |
60,418 |
|
Depreciation and amortization
|
|
|
(16,553 |
) |
|
|
(808 |
) |
|
|
(494 |
) |
|
|
(766 |
) |
|
|
(126 |
) |
|
|
281 |
|
|
|
(18,466 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
37,798 |
|
|
|
1,890 |
|
|
|
6,501 |
|
|
|
4,118 |
|
|
|
(8,636 |
) |
|
|
281 |
|
|
|
41,952 |
|
Interest expense
|
|
|
(4,563 |
) |
|
|
(3,457 |
) |
|
|
(46 |
) |
|
|
(486 |
) |
|
|
(8,670 |
) |
|
|
219 |
|
|
|
(17,003 |
) |
Interest income
|
|
|
566 |
|
|
|
1,548 |
|
|
|
230 |
|
|
|
504 |
|
|
|
666 |
|
|
|
(219 |
) |
|
|
3,295 |
|
Foreign currency transaction gains (losses), net
|
|
|
4,584 |
|
|
|
19,761 |
|
|
|
(1,394 |
) |
|
|
(37 |
) |
|
|
4 |
|
|
|
|
|
|
|
22,918 |
|
Other (expense) income, net
|
|
|
(744 |
) |
|
|
(2,868 |
) |
|
|
1,089 |
|
|
|
(792 |
) |
|
|
(384 |
) |
|
|
(1,381 |
) |
|
|
(5,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
$ |
37,641 |
|
|
$ |
16,874 |
|
|
$ |
6,380 |
|
|
$ |
3,307 |
|
|
$ |
(17,020 |
) |
|
$ |
(1,100 |
) |
|
$ |
46,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$ |
41,266 |
|
|
$ |
3,713 |
|
|
$ |
3,666 |
|
|
$ |
3,261 |
|
|
$ |
918 |
|
|
$ |
|
|
|
$ |
52,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2004 Restated
(see Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$ |
299,330 |
|
|
$ |
47,541 |
|
|
$ |
37,425 |
|
|
$ |
33,696 |
|
|
$ |
3,902 |
|
|
$ |
(1,407 |
) |
|
$ |
420,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$ |
660,429 |
|
|
$ |
140,995 |
|
|
$ |
112,531 |
|
|
$ |
78,553 |
|
|
$ |
196,651 |
|
|
$ |
(1,407 |
) |
|
$ |
1,187,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$ |
278,118 |
|
|
$ |
38,320 |
|
|
$ |
25,699 |
|
|
$ |
25,313 |
|
|
$ |
2,602 |
|
|
$ |
(1,618 |
) |
|
$ |
368,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$ |
675,035 |
|
|
$ |
138,824 |
|
|
$ |
94,158 |
|
|
$ |
76,935 |
|
|
$ |
145,102 |
|
|
$ |
(1,618 |
) |
|
$ |
1,128,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2003 Restated
(see Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$ |
275,529 |
|
|
$ |
18,212 |
|
|
$ |
13,203 |
|
|
$ |
20,473 |
|
|
$ |
1,818 |
|
|
$ |
(1,829 |
) |
|
$ |
327,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
$ |
656,048 |
|
|
$ |
97,884 |
|
|
$ |
64,928 |
|
|
$ |
65,407 |
|
|
$ |
105,671 |
|
|
$ |
(1,829 |
) |
|
$ |
988,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9. Condensed Consolidating Financial Information
We allocate corporate overhead costs to some of our
subsidiaries. The condensed consolidating financial information
below reflects the impact of our allocations as increases to
selling, general and administrative expenses of the guarantor
and non-guarantor subsidiaries and corresponding decreases to
the selling, general and administrative expenses of NII
Holdings, Inc.
32
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 2004
(in thousands)
Unaudited
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings | |
|
|
|
|
|
|
|
|
|
|
NII Holdings, | |
|
(Cayman), Ltd. | |
|
Guarantor | |
|
Non-Guarantor | |
|
Intercompany | |
|
|
|
|
Inc. (Parent) | |
|
(Issuer)(1) | |
|
Subsidiaries(2) | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
149,518 |
|
|
$ |
97,336 |
|
|
$ |
94,546 |
|
|
$ |
32,315 |
|
|
$ |
|
|
|
$ |
373,715 |
|
|
Short-term investments
|
|
|
|
|
|
|
26,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,859 |
|
|
Accounts receivable, net
|
|
|
145 |
|
|
|
73 |
|
|
|
108,900 |
|
|
|
19,095 |
|
|
|
|
|
|
|
128,213 |
|
|
Handset and accessory inventory, net
|
|
|
|
|
|
|
|
|
|
|
22,550 |
|
|
|
8,765 |
|
|
|
|
|
|
|
31,315 |
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
34,115 |
|
|
|
3,195 |
|
|
|
|
|
|
|
37,310 |
|
|
Prepaid expenses and other
|
|
|
79 |
|
|
|
|
|
|
|
47,882 |
|
|
|
9,536 |
|
|
|
|
|
|
|
57,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
149,742 |
|
|
|
124,268 |
|
|
|
307,993 |
|
|
|
72,906 |
|
|
|
|
|
|
|
654,909 |
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
382,873 |
|
|
|
37,614 |
|
|
|
|
|
|
|
420,487 |
|
Investments in and advances to affiliates
|
|
|
516,388 |
|
|
|
155,795 |
|
|
|
107,739 |
|
|
|
2,917 |
|
|
|
(782,839 |
) |
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
10,448 |
|
|
|
58,172 |
|
|
|
|
|
|
|
68,620 |
|
Other assets
|
|
|
16,867 |
|
|
|
|
|
|
|
19,011 |
|
|
|
7,858 |
|
|
|
|
|
|
|
43,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
682,997 |
|
|
$ |
280,063 |
|
|
$ |
828,064 |
|
|
$ |
179,467 |
|
|
$ |
(782,839 |
) |
|
$ |
1,187,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other
|
|
$ |
107 |
|
|
$ |
266 |
|
|
$ |
146,381 |
|
|
$ |
42,150 |
|
|
$ |
|
|
|
$ |
188,904 |
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
31,272 |
|
|
|
3,490 |
|
|
|
|
|
|
|
34,762 |
|
|
Accrued interest
|
|
|
5,431 |
|
|
|
|
|
|
|
1,377 |
|
|
|
|
|
|
|
|
|
|
|
6,808 |
|
|
Due to related parties
|
|
|
|
|
|
|
279,653 |
|
|
|
234,320 |
|
|
|
50,730 |
|
|
|
(548,556 |
) |
|
|
16,147 |
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
1,661 |
|
|
|
|
|
|
|
|
|
|
|
1,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
5,538 |
|
|
|
279,919 |
|
|
|
415,011 |
|
|
|
96,370 |
|
|
|
(548,556 |
) |
|
|
248,282 |
|
Long-term debt
|
|
|
480,000 |
|
|
|
40 |
|
|
|
159,879 |
|
|
|
|
|
|
|
|
|
|
|
639,919 |
|
Deferred revenues (related party)
|
|
|
|
|
|
|
|
|
|
|
44,368 |
|
|
|
|
|
|
|
|
|
|
|
44,368 |
|
Other long-term liabilities
|
|
|
10,399 |
|
|
|
|
|
|
|
56,726 |
|
|
|
998 |
|
|
|
|
|
|
|
68,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
495,937 |
|
|
|
279,959 |
|
|
|
675,984 |
|
|
|
97,368 |
|
|
|
(548,556 |
) |
|
|
1,000,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
187,060 |
|
|
|
104 |
|
|
|
152,080 |
|
|
|
82,099 |
|
|
|
(234,283 |
) |
|
|
187,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
682,997 |
|
|
$ |
280,063 |
|
|
$ |
828,064 |
|
|
$ |
179,467 |
|
|
$ |
(782,839 |
) |
|
$ |
1,187,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
NII Holdings (Cayman), Ltd. is the issuer of our senior secured
discount notes due 2009. See Note 5. |
|
|
|
(2) |
Represents our subsidiaries that have provided guarantees of the
obligations of NII Holdings (Cayman), Ltd. under our senior
secured discount notes due 2009. See Note 5. |
|
33
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2004
(in thousands)
Unaudited
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings | |
|
|
|
|
|
|
|
|
|
|
NII Holdings, | |
|
(Cayman), Ltd. | |
|
Guarantor | |
|
Non-Guarantor | |
|
Intercompany | |
|
|
|
|
Inc. (Parent) | |
|
(Issuer) | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Operating revenues
|
|
$ |
|
|
|
$ |
|
|
|
$ |
497,333 |
|
|
$ |
216,605 |
|
|
$ |
(132,550 |
) |
|
$ |
581,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation included below)
|
|
|
|
|
|
|
|
|
|
|
195,576 |
|
|
|
42,793 |
|
|
|
(192 |
) |
|
|
238,177 |
|
|
Selling, general and administrative
|
|
|
3,996 |
|
|
|
|
|
|
|
146,296 |
|
|
|
145,022 |
|
|
|
(114,433 |
) |
|
|
180,881 |
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
35,001 |
|
|
|
5,045 |
|
|
|
|
|
|
|
40,046 |
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
3,970 |
|
|
|
2,917 |
|
|
|
|
|
|
|
6,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,996 |
|
|
|
|
|
|
|
380,843 |
|
|
|
195,777 |
|
|
|
(114,625 |
) |
|
|
465,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(3,996 |
) |
|
|
|
|
|
|
116,490 |
|
|
|
20,828 |
|
|
|
(17,925 |
) |
|
|
115,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(7,740 |
) |
|
|
(4,933 |
) |
|
|
(13,435 |
) |
|
|
(982 |
) |
|
|
|
|
|
|
(27,090 |
) |
|
Interest income
|
|
|
929 |
|
|
|
613 |
|
|
|
3,681 |
|
|
|
388 |
|
|
|
|
|
|
|
5,611 |
|
|
Loss on early extinguishment of debt, net
|
|
|
|
|
|
|
(79,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,327 |
) |
|
Foreign currency transaction gains (losses), net
|
|
|
|
|
|
|
|
|
|
|
2,874 |
|
|
|
(494 |
) |
|
|
|
|
|
|
2,380 |
|
|
Equity in (losses) income of affiliates
|
|
|
(15,103 |
) |
|
|
10,057 |
|
|
|
12,162 |
|
|
|
|
|
|
|
(7,116 |
) |
|
|
|
|
|
Other (expense) income, net
|
|
|
|
|
|
|
(344 |
) |
|
|
1,360 |
|
|
|
176 |
|
|
|
|
|
|
|
1,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,914 |
) |
|
|
(73,934 |
) |
|
|
6,642 |
|
|
|
(912 |
) |
|
|
(7,116 |
) |
|
|
(97,234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax provision
|
|
|
(25,910 |
) |
|
|
(73,934 |
) |
|
|
123,132 |
|
|
|
19,916 |
|
|
|
(25,041 |
) |
|
|
18,163 |
|
Income tax provision
|
|
|
(1 |
) |
|
|
|
|
|
|
(42,329 |
) |
|
|
(1,744 |
) |
|
|
|
|
|
|
(44,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(25,911 |
) |
|
$ |
(73,934 |
) |
|
$ |
80,803 |
|
|
$ |
18,172 |
|
|
$ |
(25,041 |
) |
|
$ |
(25,911 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2004
(in thousands)
Unaudited
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings | |
|
|
|
|
|
|
|
|
|
|
NII Holdings, | |
|
(Cayman), Ltd. | |
|
Guarantor | |
|
Non-Guarantor | |
|
Intercompany | |
|
|
|
|
Inc. (Parent) | |
|
(Issuer) | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Operating revenues
|
|
$ |
|
|
|
$ |
|
|
|
$ |
258,070 |
|
|
$ |
104,263 |
|
|
$ |
(58,205 |
) |
|
$ |
304,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation included below)
|
|
|
|
|
|
|
|
|
|
|
104,644 |
|
|
|
25,212 |
|
|
|
(94 |
) |
|
|
129,762 |
|
|
Selling, general and administrative
|
|
|
1,663 |
|
|
|
|
|
|
|
77,450 |
|
|
|
66,767 |
|
|
|
(50,509 |
) |
|
|
95,371 |
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
18,118 |
|
|
|
2,819 |
|
|
|
|
|
|
|
20,937 |
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
1,646 |
|
|
|
1,451 |
|
|
|
|
|
|
|
3,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,663 |
|
|
|
|
|
|
|
201,858 |
|
|
|
96,249 |
|
|
|
(50,603 |
) |
|
|
249,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(1,663 |
) |
|
|
|
|
|
|
56,212 |
|
|
|
8,014 |
|
|
|
(7,602 |
) |
|
|
54,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(4,317 |
) |
|
|
(92 |
) |
|
|
(6,005 |
) |
|
|
(477 |
) |
|
|
|
|
|
|
(10,891 |
) |
|
Interest income
|
|
|
381 |
|
|
|
312 |
|
|
|
2,113 |
|
|
|
200 |
|
|
|
|
|
|
|
3,006 |
|
|
Foreign currency transaction (losses) gains, net
|
|
|
|
|
|
|
|
|
|
|
(366 |
) |
|
|
151 |
|
|
|
|
|
|
|
(215 |
) |
|
Equity in income of affiliates
|
|
|
32,299 |
|
|
|
6,666 |
|
|
|
6,425 |
|
|
|
|
|
|
|
(45,390 |
) |
|
|
|
|
|
Other (expense) income, net
|
|
|
|
|
|
|
(218 |
) |
|
|
2,320 |
|
|
|
307 |
|
|
|
|
|
|
|
2,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,363 |
|
|
|
6,668 |
|
|
|
4,487 |
|
|
|
181 |
|
|
|
(45,390 |
) |
|
|
(5,691 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax (provision) benefit
|
|
|
26,700 |
|
|
|
6,668 |
|
|
|
60,699 |
|
|
|
8,195 |
|
|
|
(52,992 |
) |
|
|
49,270 |
|
Income tax (provision) benefit
|
|
|
|
|
|
|
|
|
|
|
(23,428 |
) |
|
|
858 |
|
|
|
|
|
|
|
(22,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
26,700 |
|
|
$ |
6,668 |
|
|
$ |
37,271 |
|
|
$ |
9,053 |
|
|
$ |
(52,992 |
) |
|
$ |
26,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2004
(in thousands)
Unaudited
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings | |
|
|
|
|
|
|
|
|
|
|
NII Holdings, | |
|
(Cayman), Ltd. | |
|
Guarantor | |
|
Non-Guarantor | |
|
Intercompany | |
|
|
|
|
Inc. (Parent) | |
|
(Issuer) | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Cash and cash equivalents, beginning of period
|
|
$ |
108,688 |
|
|
$ |
123,730 |
|
|
$ |
137,931 |
|
|
$ |
35,057 |
|
|
$ |
|
|
|
$ |
405,406 |
|
Cash flows (used in) from operating activities
|
|
|
(34,548 |
) |
|
|
465 |
|
|
|
116,227 |
|
|
|
13,395 |
|
|
|
|
|
|
|
95,539 |
|
Cash flows used in investing activities
|
|
|
(1,622 |
) |
|
|
(26,859 |
) |
|
|
(96,503 |
) |
|
|
(17,267 |
) |
|
|
1,622 |
|
|
|
(140,629 |
) |
Cash flows from (used in) financing activities
|
|
|
77,000 |
|
|
|
|
|
|
|
(63,401 |
) |
|
|
1,099 |
|
|
|
(1,622 |
) |
|
|
13,076 |
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
292 |
|
|
|
31 |
|
|
|
|
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
149,518 |
|
|
$ |
97,336 |
|
|
$ |
94,546 |
|
|
$ |
32,315 |
|
|
$ |
|
|
|
$ |
373,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2003
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings | |
|
|
|
|
|
|
|
|
|
|
NII Holdings, | |
|
(Cayman), Ltd. | |
|
Guarantor | |
|
Non-Guarantor | |
|
Intercompany | |
|
|
|
|
Inc. (Parent) | |
|
(Issuer)(1) | |
|
Subsidiaries(2) | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
108,688 |
|
|
$ |
123,730 |
|
|
$ |
137,931 |
|
|
$ |
35,057 |
|
|
$ |
|
|
|
$ |
405,406 |
|
|
Accounts receivable, net
|
|
|
110 |
|
|
|
101 |
|
|
|
105,785 |
|
|
|
13,989 |
|
|
|
|
|
|
|
119,985 |
|
|
Handset and accessory inventory, net
|
|
|
|
|
|
|
|
|
|
|
17,485 |
|
|
|
3,653 |
|
|
|
|
|
|
|
21,138 |
|
|
Deferred income taxes, net
|
|
|
|
|
|
|
|
|
|
|
33,073 |
|
|
|
8,024 |
|
|
|
|
|
|
|
41,097 |
|
|
Prepaid expenses and other
|
|
|
112 |
|
|
|
|
|
|
|
50,187 |
|
|
|
8,829 |
|
|
|
|
|
|
|
59,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
108,910 |
|
|
|
123,831 |
|
|
|
344,461 |
|
|
|
69,552 |
|
|
|
|
|
|
|
646,754 |
|
Property, plant and equipment, net
|
|
|
2,401 |
|
|
|
|
|
|
|
340,133 |
|
|
|
25,900 |
|
|
|
|
|
|
|
368,434 |
|
Investments in and advances to affiliates
|
|
|
302,994 |
|
|
|
145,955 |
|
|
|
160,805 |
|
|
|
136 |
|
|
|
(609,890 |
) |
|
|
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
15,184 |
|
|
|
70,634 |
|
|
|
|
|
|
|
85,818 |
|
Other assets
|
|
|
5,097 |
|
|
|
1,728 |
|
|
|
19,557 |
|
|
|
1,048 |
|
|
|
|
|
|
|
27,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
419,402 |
|
|
$ |
271,514 |
|
|
$ |
880,140 |
|
|
$ |
167,270 |
|
|
$ |
(609,890 |
) |
|
$ |
1,128,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
257 |
|
|
$ |
|
|
|
$ |
24,970 |
|
|
$ |
8,454 |
|
|
$ |
|
|
|
$ |
33,681 |
|
|
Accrued expenses and other
|
|
|
185 |
|
|
|
519 |
|
|
|
140,767 |
|
|
|
26,021 |
|
|
|
|
|
|
|
167,492 |
|
|
Deferred revenues
|
|
|
|
|
|
|
|
|
|
|
29,608 |
|
|
|
2,432 |
|
|
|
|
|
|
|
32,040 |
|
|
Accrued interest
|
|
|
1,835 |
|
|
|
|
|
|
|
3,187 |
|
|
|
|
|
|
|
|
|
|
|
5,022 |
|
|
Due to related parties
|
|
|
9,135 |
|
|
|
68,454 |
|
|
|
189,040 |
|
|
|
57,784 |
|
|
|
(310,953 |
) |
|
|
13,460 |
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
|
|
|
1,466 |
|
|
|
|
|
|
|
|
|
|
|
1,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,412 |
|
|
|
68,973 |
|
|
|
389,038 |
|
|
|
94,691 |
|
|
|
(310,953 |
) |
|
|
253,161 |
|
Long-term debt
|
|
|
180,000 |
|
|
|
128,625 |
|
|
|
226,665 |
|
|
|
|
|
|
|
|
|
|
|
535,290 |
|
Deferred revenues (related party)
|
|
|
|
|
|
|
|
|
|
|
45,968 |
|
|
|
|
|
|
|
|
|
|
|
45,968 |
|
Other long-term liabilities
|
|
|
10,220 |
|
|
|
|
|
|
|
65,160 |
|
|
|
867 |
|
|
|
|
|
|
|
76,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
201,632 |
|
|
|
197,598 |
|
|
|
726,831 |
|
|
|
95,558 |
|
|
|
(310,953 |
) |
|
|
910,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
217,770 |
|
|
|
73,916 |
|
|
|
153,309 |
|
|
|
71,712 |
|
|
|
(298,937 |
) |
|
|
217,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
419,402 |
|
|
$ |
271,514 |
|
|
$ |
880,140 |
|
|
$ |
167,270 |
|
|
$ |
(609,890 |
) |
|
$ |
1,128,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
NII Holdings (Cayman), Ltd. is the issuer of our senior secured
discount notes due 2009. See Note 5. |
|
|
|
(2) |
Represents our subsidiaries that have provided guarantees of the
obligations of NII Holdings (Cayman), Ltd. under our senior
secured discount notes due 2009. See Note 5. |
|
37
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003
(in thousands)
Unaudited
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings | |
|
|
|
|
|
|
|
|
|
|
NII Holdings, | |
|
(Cayman), Ltd. | |
|
Guarantor | |
|
Non-Guarantor | |
|
Intercompany | |
|
|
|
|
Inc. (Parent) | |
|
(Issuer) | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Operating revenues
|
|
$ |
|
|
|
$ |
|
|
|
$ |
373,230 |
|
|
$ |
56,317 |
|
|
$ |
(203 |
) |
|
$ |
429,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation included below)
|
|
|
|
|
|
|
|
|
|
|
139,365 |
|
|
|
19,966 |
|
|
|
(203 |
) |
|
|
159,128 |
|
|
Selling, general and administrative
|
|
|
15,291 |
|
|
|
|
|
|
|
107,208 |
|
|
|
24,634 |
|
|
|
|
|
|
|
147,133 |
|
|
Depreciation
|
|
|
188 |
|
|
|
|
|
|
|
17,933 |
|
|
|
1,017 |
|
|
|
|
|
|
|
19,138 |
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
14,268 |
|
|
|
2,367 |
|
|
|
|
|
|
|
16,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,479 |
|
|
|
|
|
|
|
278,774 |
|
|
|
47,984 |
|
|
|
(203 |
) |
|
|
342,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(15,479 |
) |
|
|
|
|
|
|
94,456 |
|
|
|
8,333 |
|
|
|
|
|
|
|
87,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(14,985 |
) |
|
|
(15,426 |
) |
|
|
(779 |
) |
|
|
267 |
|
|
|
(30,923 |
) |
|
Interest income
|
|
|
128 |
|
|
|
738 |
|
|
|
4,063 |
|
|
|
566 |
|
|
|
(267 |
) |
|
|
5,228 |
|
|
Foreign currency transaction gains (losses), net
|
|
|
|
|
|
|
|
|
|
|
15,135 |
|
|
|
(521 |
) |
|
|
|
|
|
|
14,614 |
|
|
Equity in income (losses) of affiliates
|
|
|
37,215 |
|
|
|
(10,140 |
) |
|
|
(3,376 |
) |
|
|
|
|
|
|
(23,699 |
) |
|
|
|
|
|
Other (expense) income, net
|
|
|
(363 |
) |
|
|
|
|
|
|
(7,798 |
) |
|
|
1,115 |
|
|
|
|
|
|
|
(7,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,980 |
|
|
|
(24,387 |
) |
|
|
(7,402 |
) |
|
|
381 |
|
|
|
(23,699 |
) |
|
|
(18,127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision
|
|
|
21,501 |
|
|
|
(24,387 |
) |
|
|
87,054 |
|
|
|
8,714 |
|
|
|
(23,699 |
) |
|
|
69,183 |
|
Income tax provision
|
|
|
(22 |
) |
|
|
|
|
|
|
(39,883 |
) |
|
|
(7,799 |
) |
|
|
|
|
|
|
(47,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
21,479 |
|
|
$ |
(24,387 |
) |
|
$ |
47,171 |
|
|
$ |
915 |
|
|
$ |
(23,699 |
) |
|
$ |
21,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended June 30, 2003
(in thousands)
Unaudited
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings | |
|
|
|
|
|
|
|
|
|
|
NII Holdings, | |
|
(Cayman), Ltd. | |
|
Guarantor | |
|
Non-Guarantor | |
|
Intercompany | |
|
|
|
|
Inc. (Parent) | |
|
(Issuer) | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Operating revenues
|
|
$ |
|
|
|
$ |
|
|
|
$ |
194,773 |
|
|
$ |
31,283 |
|
|
$ |
(105 |
) |
|
$ |
225,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of depreciation included below)
|
|
|
|
|
|
|
|
|
|
|
71,961 |
|
|
|
13,140 |
|
|
|
(105 |
) |
|
|
84,996 |
|
|
Selling, general and administrative
|
|
|
7,636 |
|
|
|
|
|
|
|
60,223 |
|
|
|
12,678 |
|
|
|
|
|
|
|
80,537 |
|
|
Depreciation
|
|
|
113 |
|
|
|
|
|
|
|
9,798 |
|
|
|
579 |
|
|
|
|
|
|
|
10,490 |
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
7,109 |
|
|
|
867 |
|
|
|
|
|
|
|
7,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,749 |
|
|
|
|
|
|
|
149,091 |
|
|
|
27,264 |
|
|
|
(105 |
) |
|
|
183,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(7,749 |
) |
|
|
|
|
|
|
45,682 |
|
|
|
4,019 |
|
|
|
|
|
|
|
41,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
(7,970 |
) |
|
|
(8,679 |
) |
|
|
(386 |
) |
|
|
32 |
|
|
|
(17,003 |
) |
|
Interest income
|
|
|
92 |
|
|
|
355 |
|
|
|
2,534 |
|
|
|
346 |
|
|
|
(32 |
) |
|
|
3,295 |
|
|
Foreign currency transaction gains (losses), net
|
|
|
|
|
|
|
|
|
|
|
24,306 |
|
|
|
(1,388 |
) |
|
|
|
|
|
|
22,918 |
|
|
Equity in income (losses) of affiliates
|
|
|
19,495 |
|
|
|
5,279 |
|
|
|
(9,326 |
) |
|
|
|
|
|
|
(15,448 |
) |
|
|
|
|
|
Other (expense) income, net
|
|
|
(363 |
) |
|
|
|
|
|
|
(5,908 |
) |
|
|
1,191 |
|
|
|
|
|
|
|
(5,080 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,224 |
|
|
|
(2,336 |
) |
|
|
2,927 |
|
|
|
(237 |
) |
|
|
(15,448 |
) |
|
|
4,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision
|
|
|
11,475 |
|
|
|
(2,336 |
) |
|
|
48,609 |
|
|
|
3,782 |
|
|
|
(15,448 |
) |
|
|
46,082 |
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
(32,232 |
) |
|
|
(2,375 |
) |
|
|
|
|
|
|
(34,607 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
11,475 |
|
|
$ |
(2,336 |
) |
|
$ |
16,377 |
|
|
$ |
1,407 |
|
|
$ |
(15,448 |
) |
|
$ |
11,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
NII HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial
Statements (Continued)
Unaudited
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2003
(in thousands)
Unaudited
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NII Holdings | |
|
|
|
|
|
|
|
|
|
|
NII Holdings, | |
|
(Cayman), Ltd. | |
|
Guarantor | |
|
Non-Guarantor | |
|
Intercompany | |
|
|
|
|
Inc. (Parent) | |
|
(Issuer) | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Cash and cash equivalents, beginning of period
|
|
$ |
9,811 |
|
|
$ |
122,499 |
|
|
$ |
81,156 |
|
|
$ |
17,695 |
|
|
$ |
|
|
|
$ |
231,161 |
|
Cash flows (used in) from operating activities
|
|
|
(19,179 |
) |
|
|
626 |
|
|
|
115,477 |
|
|
|
16,189 |
|
|
|
|
|
|
|
113,113 |
|
Cash flows used in investing activities
|
|
|
(1,943 |
) |
|
|
|
|
|
|
(98,251 |
) |
|
|
(5,912 |
) |
|
|
4,012 |
|
|
|
(102,094 |
) |
Cash flows from financing activities
|
|
|
19,051 |
|
|
|
|
|
|
|
43,806 |
|
|
|
1,611 |
|
|
|
(4,012 |
) |
|
|
60,456 |
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
|
|
|
|
|
|
|
|
1,053 |
|
|
|
2,875 |
|
|
|
|
|
|
|
3,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$ |
7,740 |
|
|
$ |
123,125 |
|
|
$ |
143,241 |
|
|
$ |
32,458 |
|
|
$ |
|
|
|
$ |
306,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Subsequent Events
Mexican Taxes. During the second quarter of 2004,
the Mexican tax authorities issued a technical description of
their position on their official website regarding specific
transactions which they consider harmful and illegal. One such
transaction relates to current Mexican tax law that allows a
taxpayer to deduct from the basis of property amounts not
previously deducted when assets are sold. However, the tax
authorities have not yet amended the law currently permitting
the use of this deduction or other specifically mentioned
transactions. Our Mexican operations included a deduction with
respect to the aforementioned transaction in their 2002 and 2003
Mexican income tax filings.
As a result of the Mexican tax authoritys current
interpretation regarding this matter, and potential sanctions
against Nextel Mexico, the Mexican operating companies affected
by this potential disallowance amended their 2002 and 2003
income tax returns during the third quarter of 2004 to reflect
the reversal of these deductions. The relevant Nextel Mexico
companies immediately initiated the process of recovering these
amounts. We have received three independent third party Mexican
legal opinions supporting the tax position taken in 2002 and
2003, which conclude that it is probable that the tax positions
will be sustained. Based on these opinions, we will not reverse
the prior year benefits of approximately $14.0 million in
our financial statements as a result of applying this tax law.
Additionally, we have included a deferred tax benefit of
$1.4 million in our 2004 income tax provision related to
this item, which is consistent with the position that the amount
should be a supportable deduction based on current Mexican tax
law.
New Director. On July 28, 2004, following
nomination by the Nominating Committee of our Board of
Directors, George A. Cope, President and Chief Executive Officer
of Telus Mobility, was elected by our Board of Directors to fill
a vacancy as a Class III director whose term of office will
continue until the 2006 Annual Meeting of Shareholders.
40
|
|
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
|
|
|
42 |
|
Restatement of Previously Issued Condensed Consolidated
Financial Statements
|
|
|
42 |
|
Critical Accounting Policies and Estimates
|
|
|
42 |
|
Business Overview
|
|
|
43 |
|
Recent Developments
|
|
|
44 |
|
Ratio of Earnings to Fixed Charges
|
|
|
45 |
|
Results of Operations
|
|
|
45 |
|
|
a. Consolidated
|
|
|
46 |
|
|
b. Nextel Mexico
|
|
|
51 |
|
|
c. Nextel Brazil
|
|
|
54 |
|
|
d. Nextel Argentina
|
|
|
58 |
|
|
e. Nextel Peru
|
|
|
61 |
|
|
f. Corporate and other
|
|
|
63 |
|
Liquidity and Capital Resources
|
|
|
64 |
|
Future Capital Needs and Resources
|
|
|
65 |
|
Forward Looking Statements
|
|
|
67 |
|
Effect of New Accounting Standards
|
|
|
68 |
|
41
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, 2004
and 2003; 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 2003
annual report on Form 10-K/A, including, but not limited
to, the discussion regarding our critical accounting judgments,
as described below and our quarterly report on Form 10-Q/A
for the quarter ended March 31, 2004. Historical results
may not indicate future performance. See Forward Looking
Statements for risks and uncertainties that may impact our
future performance.
We present the accounts of our consolidated foreign operating
companies utilizing accounts as of a date one month earlier than
the accounts of our parent company, our U.S. subsidiaries
and our non-operating non-U.S. subsidiaries to ensure
timely reporting of consolidated results. As a result, the
financial position and results of operations of each of our
operating companies in Mexico, Brazil, Argentina, Peru and Chile
are presented as of and for the six and three months ended
May 31, 2004 and 2003, respectively. In contrast, financial
information relating to our parent company, our
U.S. subsidiaries and our non-operating
non-U.S. subsidiaries is presented as of and for the six
and three months ended June 30, 2004 and 2003.
Restatement of Previously Issued Condensed Consolidated
Financial Statements
We have restated our previously issued condensed consolidated
financial statements and related footnotes as of and for the six
and three months ended June 30, 2004 and 2003. We have also
restated our previously issued consolidated financial statements
and related footnotes as of and for the year ended
December 31, 2003, as set forth in Note 2 to our
consolidated financial statements included in our annual report
on Form 10-K/A. We are restating our condensed consolidated
financial statements to correct for the following items:
|
|
|
|
|
|
Bookkeeping errors at our operating company in Mexico; |
|
|
|
|
|
Accounting for deferred tax asset valuation allowance reversals; |
|
|
|
|
|
Certain errors in the calculation of income taxes for financial
statement purposes; |
|
|
|
|
|
Insurance claim receivables and write-downs for damaged
equipment in Mexico; |
|
|
|
|
|
Depreciation of handsets in Argentina; and |
|
|
|
|
|
Other insignificant miscellaneous adjustments. |
|
For additional information regarding this restatement, see
Note 2 to our unaudited condensed consolidated financial
statements included in this quarterly report on
Form 10-Q/A. All amounts in this quarterly report on
Form 10-Q/A have been updated, as appropriate, to reflect
this restatement. Other than for the items discussed herein, we
did not update these condensed consolidated financial statements
for subsequent events that occurred after we filed our original
quarterly report on Form 10-Q on August 6, 2004.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses and related disclosures of contingent assets and
liabilities in the condensed consolidated financial statements
and related notes for the period presented. Due to the inherent
uncertainty involved in making those estimates, actual results
to be reported in future periods could differ from those
estimates.
42
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; |
|
|
|
valuation of long-lived assets; |
|
|
|
depreciation of property, plant and equipment; |
|
|
|
amortization of intangible assets; |
|
|
|
foreign currency; |
|
|
|
loss contingencies; |
|
|
|
stock-based compensation; and |
|
|
|
income taxes. |
A description of these policies is included in our 2003 annual
report on Form 10-K/A under Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Business Overview
We provide digital wireless communication services targeted at
meeting the needs of business customers through operating
companies located in selected Latin American markets. Our
principal operations are in major business centers and related
transportation corridors of Mexico, Brazil, Argentina and Peru.
We also provide analog specialized mobile radio services in
Mexico, Brazil and Peru, as well as in Chile. 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. Our markets are generally characterized by
high population densities and, we believe, a concentration of
each countrys business users and economic activity. In
addition, vehicle traffic congestion, low landline penetration
and unreliability of the land-based telecommunications
infrastructure encourage the use of mobile wireless
communications services in these areas.
We use a transmission technology called integrated digital
enhanced network, or
iDENR,
developed by Motorola, Inc., to provide our digital mobile
services on 800 MHz spectrum holdings in all of our digital
markets. This technology allows us to use our spectrum more
efficiently and offer multiple digital wireless services
integrated on one digital handset device. We are designing our
digital mobile networks to support multiple digital wireless
services, including:
|
|
|
|
|
digital mobile telephone service, including advanced calling
features such as speakerphone, conference calling, voice-mail,
call forwarding and additional line service; |
|
|
|
|
Nextel Direct
ConnectSM
service, which allows subscribers anywhere on our network to
talk to each other instantly, on a push-to-talk
basis, on a private one-to-one call or on a group call; |
|
|
|
|
|
International Direct
ConnectSM
service, in partnership with Nextel Communications and Nextel
Partners, which allows subscribers to communicate instantly
across national borders with our subscribers in Mexico, Brazil,
Argentina and Peru and with Nextel Communications and Nextel
Partners subscribers in the United States; |
|
|
|
|
Internet services, mobile messaging services, e-mail and
advanced Java enabled business applications, which are
marketed as Nextel
OnlineSM
services; and |
|
|
|
international roaming capabilities, which are marketed as
Nextel
WorldwideSM. |
The table below provides an overview of our total digital
handsets in commercial service in the countries indicated as of
June 30, 2004 and 2003. For purposes of the table, digital
handsets in commercial service
43
represent all digital handsets in use by our customers on the
digital mobile networks in each of the listed countries.
|
|
|
|
|
|
|
|
|
|
|
Total Digital | |
|
|
Handsets In | |
|
|
Commercial Service | |
|
|
| |
|
|
June 30, | |
|
June 30, | |
Country |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
|
(In thousands) | |
Mexico
|
|
|
753 |
|
|
|
581 |
|
Brazil
|
|
|
424 |
|
|
|
369 |
|
Argentina
|
|
|
322 |
|
|
|
238 |
|
Peru
|
|
|
165 |
|
|
|
140 |
|
|
|
|
|
|
|
|
Total
|
|
|
1,664 |
|
|
|
1,328 |
|
|
|
|
|
|
|
|
Recent Developments
Repurchase and Defeasance of 13.0% Senior Secured
Discount Notes. On March 8, 2004, NII Holdings
(Cayman), Ltd. (NII Cayman), one of our wholly-owned
subsidiaries, retired substantially all of its
$180.8 million aggregate principal amount 13.0% senior
secured discount notes due 2009 through a cash tender offer,
resulting in a $79.3 million pre-tax loss, including a
$47.2 million write-off of the unamortized discount and
$2.3 million in charges representing the write-off of debt
financing costs and the payment of transaction costs. NII Cayman
financed this tender offer with intercompany loans from NII
Holdings and cash on hand. We used a portion of our proceeds
from the issuance of our 2.875% convertible notes to fund
these intercompany loans to NII Cayman.
Subsequent to the end of the second quarter of 2004, in July
2004, the trustee for our 13.0% senior secured discount
notes due 2009 released its security interests in the underlying
collateral, and the remaining amount under these notes was
defeased. As a result, our assets are no longer encumbered under
these notes.
Repayment of International Equipment Facility. In
February 2004, in compliance with our international equipment
facility credit agreement, we prepaid, at face value,
$72.5 million of the $125.0 million in outstanding
principal and related accrued interest of $0.4 million. We
did not realize a gain or loss on this prepayment.
Subsequent to the end of the second quarter of 2004, in July
2004, we paid the remaining $52.6 million in outstanding
principal and related accrued interest under our international
equipment facility. Under the terms of the international
equipment facility and related agreements, Motorola Credit
Corporation was a secured creditor and held senior liens on
substantially all of our assets, as well as the assets of our
various foreign and domestic subsidiaries and affiliates. As a
result of the pay-off of this facility, Motorola Credit
Corporation released its liens on these assets, and all
restrictive covenants under this facility were terminated and
all obligations under this facility were discharged. We did not
recognize any gain or loss as a result of either of these
transactions.
Stock Split. On February 26, 2004, we
announced a 3-for-1 common stock split which was effected in the
form of a stock dividend that was paid on March 22, 2004 to
holders of record as of March 12, 2004. As a result of the
stock split, we retroactively restated all historical share and
earnings per share data, par value and additional paid-in
capital balances for prior periods in this Form 10-Q/A.
Income Taxes. During the first and second quarters
of 2004, we assessed the realizability of certain deferred tax
assets, consistent with the methodology employed during 2003. In
that assessment, we considered the reversal of existing
temporary differences associated with deferred tax assets,
future taxable income, tax planning strategies as considered and
historical and future pre-tax book income as adjusted for
permanent differences between financial and tax accounting
items. Accordingly, during the first quarter of 2004, we
reversed $13.2 million of the valuation allowance
associated with deferred tax assets in Mexico due to additional
information regarding our expected profitability within certain
Mexican operations. Since substan-
44
tially all of the Mexican valuation allowance existed as of the
date we applied fresh-start accounting, $11.9 million of
the valuation allowance reduced our intangible assets in
accordance with SOP 90-7. Additionally, we recorded an
income tax benefit of $1.3 million for the remainder of the
valuation allowance as that portion related to deferred tax
assets that were generated subsequent to our reorganization.
Ratio of Earnings to Fixed Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
Restated |
|
Restated |
|
|
|
|
|
4.24x |
|
|
|
3.07x |
|
|
|
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, equity in
(losses) gains of unconsolidated affiliates and minority
interest in losses of subsidiaries. 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. |
Results of Operations
Operating revenues primarily consist of wireless service
revenues and revenues generated from the sale of digital
handsets and accessories. Service revenues primarily include
fixed monthly access charges for digital mobile telephone
service and digital two-way radio and other services, revenues
from calling party pays programs and variable charges for
airtime and digital two-way radio usage in excess of plan
minutes and local and long distance charges derived from calls
placed by our customers.
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 and handset upgrades
provided during the year.
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, insurance costs, utility costs, maintenance
costs and rent for the network switches and sites used to
operate our digital mobile networks. Interconnection costs have
fixed and variable components. The fixed component of
interconnection costs consists of monthly flat-rate fees for
facilities leased from local exchange carriers. The variable
component of interconnection costs, which fluctuates in relation
to the volume and duration of wireless calls, generally consists
of per-minute use fees charged by wireline and wireless
providers for wireless calls from our digital handsets
terminating on their networks. Cost of digital handset and
accessory sales consists largely of the cost of the handset and
accessories, order fulfillment and installation related
expenses, as well as write-downs of digital handset and related
accessory inventory for shrinkage or obsolescence.
Selling and marketing expenses include all of the expenses
related to acquiring customers, excluding the cost of digital
handset sales.
General and administrative expenses include expenses related to
billing, customer care, corrections including bad debt,
management information systems and corporate overhead.
45
a. Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
Change from | |
|
|
|
|
Consolidated | |
|
|
|
Consolidated | |
|
Previous Year | |
|
|
June 30, | |
|
Operating | |
|
June 30, | |
|
Operating | |
|
| |
|
|
2004 | |
|
Revenues | |
|
2003 | |
|
Revenues | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(Dollars in thousands) | |
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
554,815 |
|
|
|
95 |
% |
|
$ |
409,431 |
|
|
|
95 |
% |
|
$ |
145,384 |
|
|
|
36 |
% |
|
Digital handset and accessory sales revenues
|
|
|
26,573 |
|
|
|
5 |
% |
|
|
19,913 |
|
|
|
5 |
% |
|
|
6,660 |
|
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
581,388 |
|
|
|
100 |
% |
|
|
429,344 |
|
|
|
100 |
% |
|
|
152,044 |
|
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(145,643 |
) |
|
|
(25 |
)% |
|
|
(100,343 |
) |
|
|
(23 |
)% |
|
|
(45,300 |
) |
|
|
45 |
% |
|
Cost of digital handset and accessory sales
|
|
|
(92,534 |
) |
|
|
(16 |
)% |
|
|
(58,785 |
) |
|
|
(14 |
)% |
|
|
(33,749 |
) |
|
|
57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(238,177 |
) |
|
|
(41 |
)% |
|
|
(159,128 |
) |
|
|
(37 |
)% |
|
|
(79,049 |
) |
|
|
50 |
% |
Selling and marketing expenses
|
|
|
(73,902 |
) |
|
|
(13 |
)% |
|
|
(57,092 |
) |
|
|
(13 |
)% |
|
|
(16,810 |
) |
|
|
29 |
% |
General and administrative expenses
|
|
|
(106,979 |
) |
|
|
(18 |
)% |
|
|
(90,041 |
) |
|
|
(21 |
)% |
|
|
(16,938 |
) |
|
|
19 |
% |
Depreciation and amortization
|
|
|
(46,933 |
) |
|
|
(8 |
)% |
|
|
(35,773 |
) |
|
|
(8 |
)% |
|
|
(11,160 |
) |
|
|
31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
115,397 |
|
|
|
20 |
% |
|
|
87,310 |
|
|
|
21 |
% |
|
|
28,087 |
|
|
|
32 |
% |
Interest expense
|
|
|
(27,090 |
) |
|
|
(4 |
)% |
|
|
(30,923 |
) |
|
|
(7 |
)% |
|
|
3,833 |
|
|
|
(12 |
)% |
Interest income
|
|
|
5,611 |
|
|
|
1 |
% |
|
|
5,228 |
|
|
|
1 |
% |
|
|
383 |
|
|
|
7 |
% |
Loss on early extinguishment of debt, net
|
|
|
(79,327 |
) |
|
|
(14 |
)% |
|
|
|
|
|
|
|
|
|
|
(79,327 |
) |
|
|
NM |
|
Foreign currency transaction gains, net
|
|
|
2,380 |
|
|
|
|
|
|
|
14,614 |
|
|
|
3 |
% |
|
|
(12,234 |
) |
|
|
(84 |
)% |
Other income (expense), net
|
|
|
1,192 |
|
|
|
|
|
|
|
(7,046 |
) |
|
|
(2 |
)% |
|
|
8,238 |
|
|
|
(117 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
18,163 |
|
|
|
3 |
% |
|
|
69,183 |
|
|
|
16 |
% |
|
|
(51,020 |
) |
|
|
(74 |
)% |
Income tax provision
|
|
|
(44,074 |
) |
|
|
(7 |
)% |
|
|
(47,704 |
) |
|
|
(11 |
)% |
|
|
3,630 |
|
|
|
(8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(25,911 |
) |
|
|
(4 |
)% |
|
$ |
21,479 |
|
|
|
5 |
% |
|
$ |
(47,390 |
) |
|
|
(221 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
288,783 |
|
|
|
95 |
% |
|
$ |
214,834 |
|
|
|
95 |
% |
|
$ |
73,949 |
|
|
|
34 |
% |
|
Digital handset and accessory sales revenues
|
|
|
15,345 |
|
|
|
5 |
% |
|
|
11,117 |
|
|
|
5 |
% |
|
|
4,228 |
|
|
|
38 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304,128 |
|
|
|
100 |
% |
|
|
225,951 |
|
|
|
100 |
% |
|
|
78,177 |
|
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(78,082 |
) |
|
|
(26 |
)% |
|
|
(54,458 |
) |
|
|
(24 |
)% |
|
|
(23,624 |
) |
|
|
43 |
% |
|
Cost of digital handset and accessory sales
|
|
|
(51,680 |
) |
|
|
(17 |
)% |
|
|
(30,538 |
) |
|
|
(14 |
)% |
|
|
(21,142 |
) |
|
|
69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129,762 |
) |
|
|
(43 |
)% |
|
|
(84,996 |
) |
|
|
(38 |
)% |
|
|
(44,766 |
) |
|
|
53 |
% |
Selling and marketing expenses
|
|
|
(39,990 |
) |
|
|
(13 |
)% |
|
|
(29,750 |
) |
|
|
(13 |
)% |
|
|
(10,240 |
) |
|
|
34 |
% |
General and administrative expenses
|
|
|
(55,381 |
) |
|
|
(18 |
)% |
|
|
(50,787 |
) |
|
|
(22 |
)% |
|
|
(4,594 |
) |
|
|
9 |
% |
Depreciation and amortization
|
|
|
(24,034 |
) |
|
|
(8 |
)% |
|
|
(18,466 |
) |
|
|
(8 |
)% |
|
|
(5,568 |
) |
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
54,961 |
|
|
|
18 |
% |
|
|
41,952 |
|
|
|
19 |
% |
|
|
13,009 |
|
|
|
31 |
% |
Interest expense
|
|
|
(10,891 |
) |
|
|
(4 |
)% |
|
|
(17,003 |
) |
|
|
(8 |
)% |
|
|
6,112 |
|
|
|
(36 |
)% |
Interest income
|
|
|
3,006 |
|
|
|
1 |
% |
|
|
3,295 |
|
|
|
1 |
% |
|
|
(289 |
) |
|
|
(9 |
)% |
Foreign currency transaction (losses) gains, net
|
|
|
(215 |
) |
|
|
|
|
|
|
22,918 |
|
|
|
10 |
% |
|
|
(23,133 |
) |
|
|
(101 |
)% |
Other income (expense), net
|
|
|
2,409 |
|
|
|
1 |
% |
|
|
(5,080 |
) |
|
|
(2 |
)% |
|
|
7,489 |
|
|
|
(147 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
49,270 |
|
|
|
16 |
% |
|
|
46,082 |
|
|
|
20 |
% |
|
|
3,188 |
|
|
|
7 |
% |
Income tax provision
|
|
|
(22,570 |
) |
|
|
(7 |
)% |
|
|
(34,607 |
) |
|
|
(15 |
)% |
|
|
12,037 |
|
|
|
(35 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
26,700 |
|
|
|
9 |
% |
|
$ |
11,475 |
|
|
|
5 |
% |
|
$ |
15,225 |
|
|
|
133 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
46
1. Operating revenues
The $152.0 million, or 35%, and $78.2 million, or 35%,
increases in consolidated operating revenues from the six and
three months ended June 30, 2003 to the six and three
months ended June 30, 2004 are primarily due to
$145.4 million, or 36%, and $73.9 million, or 34%,
increases in service and other revenues resulting from 20% and
22% increases in average digital subscribers caused by increases
in handset sales and lower customer turnover. Also contributing
to this increase were increases in average consolidated
U.S. dollar-based revenues per handset caused by higher
access charges and higher revenue generated from service
agreements between mobile carriers, despite the depreciation of
the Mexican peso. These increases are also the result of the
recognition of $21.0 million and $11.5 million in
revenues related to handset maintenance programs,
$7.1 million and $3.4 million increases in roaming
revenues and the recognition of $4.5 million and
$2.3 million in revenues earned by Nextel Mexico and Nextel
Brazil related to the co-location of third party tenants on
their communication towers.
The $6.7 million, or 33%, and $4.2 million, or 38%,
increases in digital handset and accessory sales revenues from
the six and three months ended June 30, 2003 to the six and
three months ended June 30, 2004 are largely due to
increases in consolidated handset sales of 32% and 38%,
respectively, and more handset upgrades provided to current
customers.
2. Cost of revenues
The $45.3 million, or 45%, and $23.6 million, or 43%,
increases in consolidated cost of service from the six and three
months ended June 30, 2003 to the six and three months
ended June 30, 2004 are principally due to the following:
|
|
|
|
|
$25.0 million, or 46%, and $11.6 million, or 38%,
increases in interconnect costs mainly resulting from 34%
increases in consolidated minutes of use for the six-month and
three-month periods ended June 30, 2004 from the same
periods last year (due to the 20% and 22% increases in the
consolidated customer base) and higher interconnect rates
primarily in Brazil and Argentina; |
|
|
|
|
$10.8 million, or 147%, and $7.0 million, or 159%,
increases in service and repair costs related to increased
claims under our handset maintenance programs in place in all of
our markets; and |
|
|
|
|
$7.3 million, or 20%, and $2.7 million, or 15%,
increases in consolidated direct switch and transmitter and
receiver site costs primarily due to a 14% increase in
transmitter and receiver sites in service from June 30,
2003 to June 30, 2004. |
3. Selling and marketing expenses
The $16.8 million, or 29%, increase in selling and
marketing costs from the six months ended June 30, 2003 to
the same period in 2004 is primarily a result of the following:
|
|
|
|
|
|
a $10.1 million, or 47%, increase in direct commissions and
payroll expenses principally due to a 55% increase in handset
sales by market sales personnel; |
|
|
|
|
a $4.3 million, or 22%, increase in indirect commissions
primarily due to a 16% increase in handset sales by outside
dealers; and |
|
|
|
a $2.4 million, or 20%, increase in advertising costs
largely due to increased advertising promoting the launch of the
Morelia market in Mexico during the first quarter of 2004 and
additional advertising campaigns in Mexico and Brazil. |
The $10.2 million, or 34%, increase in selling and
marketing costs from the second quarter of 2003 to the second
quarter of 2004 is largely due to a $5.6 million, or 49%,
increase in direct commissions and payroll expenses principally
resulting from a 63% increase in handset sales by market sales
personnel and a $3.1 million, or 31%, increase in indirect
commissions primarily due to a 23% increase in handset sales by
outside dealers.
47
4. General and administrative expenses
The $16.9 million, or 19%, and $4.6 million, or 9%,
increases in general and administrative costs from the six and
three months ended June 30, 2003 to the same periods in
2004 are largely a result of the following:
|
|
|
|
|
|
$9.9 million, or 20%, and $2.3 million, or 8%,
increases in general corporate costs and taxes on operating
revenues in Mexico and Argentina; |
|
|
|
|
$5.6 million, or 27%, and $2.9 million, or 26%,
increases in customer care expenses primarily due to increases
in payroll and employee related expenses caused by increases in
customer care personnel necessary to support a larger customer
base; and |
|
|
|
|
$2.5 million, or 21%, and $1.1 million, or 17%,
increases in information technology expenses due to several
maintenance contracts entered into during the first half of 2004
and increases in engineering management expenses. |
|
These increases were partially offset by the following:
|
|
|
|
|
the reversal of $9.2 million and $6.8 million in
accrued contingencies in Brazil as a result of the expiration of
the statute of limitations on certain tax contingencies, as well
as the resolution of certain other contingencies; and |
|
|
|
$2.4 million, or 48%, and $2.3 million, or 80%,
decreases in bad debt expense, which also decreased as
percentages of revenues, mostly as a result of improved
collections. |
5. Depreciation and amortization
In connection with the application of fresh-start accounting
principles on October 31, 2002, we recorded
$148.6 million in fixed asset write-downs during the fourth
quarter of 2002. These write-downs substantially reduced the
cost bases of our consolidated fixed assets and resulted in
relatively lower depreciation during the six and three months
ended June 30, 2003. During 2003 and the first half of
2004, we invested $313.5 million in consolidated capital
expenditures, which resulted in a significant increase in our
gross property plant and equipment from the first half of 2003
to the first half of 2004. The $11.2 million, or 31%, and
$5.6 million, or 30%, increases in depreciation and
amortization from the six and three months ended June 30,
2003 to the six and three months ended June 30, 2004 are
primarily the result of increased depreciation on our higher
property, plant and equipment base partially offset by a
decrease in amortization. This decrease is the result of the
reversal of certain valuation allowances for deferred tax assets
created in connection with our application of fresh-start
accounting, which was recorded as a reduction to the intangible
assets that existed as of the date of our application of
fresh-start accounting.
6. Interest expense
The $3.8 million, or 12%, and $6.1 million, or 36%,
declines in interest expense from the six and three months ended
June 30, 2003 to the six and three months ended
June 30, 2004 are primarily the result of the elimination
of interest related to our 13.0% senior secured discount
notes in connection with the retirement of substantially all of
these notes during the first quarter of 2004 and a decrease in
interest expense related to our international equipment facility
in connection with the partial pay-down of this facility in the
third quarter of 2003 and the first quarter of 2004. These
decreases were partially offset by interest incurred on our new
3.5% convertible notes and 2.875% convertible notes in
the first half of 2004, as well as higher interest related to
our tower financing transactions. Interest expense incurred in
connection with our tower financing transactions includes
interest related to the co-location of third party tenants on
our communication towers.
7. Loss on early extinguishment of debt, net
The $79.3 million net loss on early extinguishment of debt
for the six months ended June 30, 2004 represents a loss we
incurred in connection with the retirement of substantially all
of our 13.0% senior secured discount notes through a cash
tender offer in March 2004.
48
8. Foreign currency transaction (losses) gains, net
Foreign currency transaction gains of $14.6 million and
$22.9 million for the six and three months ended
June 30, 2003 are primarily the result of the appreciation
of the Brazilian real and the Mexican peso compared to the
U.S. dollar on our U.S. dollar-denominated credit
facilities during the six and three months ended June 30,
2003, which resulted in significant gains in those periods.
Foreign currency transaction losses during the six and three
months ended June 30, 2004 are primarily due to the impact
of the depreciation of the Mexican peso compared to the
U.S. dollar on Nextel Mexicos U.S. dollar-based
international equipment facility.
We expect our exposure to foreign currency losses to be reduced
in the future due to the pay-down of our international equipment
facility.
9. Income tax provision
The $3.6 million, or 8%, decrease in the consolidated
income tax provision from the six months ended June 30,
2003 to the same period in 2004 is primarily due to a decrease
in profitability in Brazil, partially offset by higher taxes in
Mexico resulting from greater profitability.
The $12.0 million, or 35%, decrease in the consolidated
income tax provision from the three months ended June 30,
2003 to the same period in 2004 is primarily due to the benefit
of transfer pricing in Mexico, as well as a decrease in
profitability in Brazil and Argentina.
Segment Results
We evaluate performance of our segments and provide resources to
them based on operating income before depreciation and
amortization, which we refer to as segment earnings. The tables
below provide a summary of the components of our consolidated
segments for the six and three months ended June 30, 2004
and 2003. The results of Nextel Chile are included in
Corporate and other. We allocate corporate overhead
costs to some of our subsidiaries. The segment information below
does not reflect any allocations of corporate overhead costs
because the amounts of these expenses are not provided to or
used by our chief operating decision maker in making operating
decisions related to these segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% 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, 2004 |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Expenses | |
|
Expenses | |
|
(Losses) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(dollars in thousands) | |
Nextel Mexico
|
|
$ |
359,172 |
|
|
|
62 |
% |
|
$ |
(110,047 |
) |
|
|
46 |
% |
|
$ |
(97,605 |
) |
|
|
54 |
% |
|
$ |
151,520 |
|
Nextel Brazil
|
|
|
91,801 |
|
|
|
16 |
% |
|
|
(61,337 |
) |
|
|
26 |
% |
|
|
(22,263 |
) |
|
|
12 |
% |
|
|
8,201 |
|
Nextel Argentina
|
|
|
83,454 |
|
|
|
14 |
% |
|
|
(41,963 |
) |
|
|
18 |
% |
|
|
(21,607 |
) |
|
|
12 |
% |
|
|
19,884 |
|
Nextel Peru
|
|
|
46,427 |
|
|
|
8 |
% |
|
|
(24,259 |
) |
|
|
10 |
% |
|
|
(13,951 |
) |
|
|
8 |
% |
|
|
8,217 |
|
Corporate and other
|
|
|
793 |
|
|
|
|
|
|
|
(830 |
) |
|
|
|
|
|
|
(25,455 |
) |
|
|
14 |
% |
|
|
(25,492 |
) |
Intercompany eliminations
|
|
|
(259 |
) |
|
|
|
|
|
|
259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$ |
581,388 |
|
|
|
100 |
% |
|
$ |
(238,177 |
) |
|
|
100 |
% |
|
$ |
(180,881 |
) |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% 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, 2004 |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Expenses | |
|
Expenses | |
|
(Losses) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(dollars in thousands) | |
Nextel Mexico
|
|
$ |
186,209 |
|
|
|
61 |
% |
|
$ |
(58,318 |
) |
|
|
45 |
% |
|
$ |
(52,574 |
) |
|
|
55 |
% |
|
$ |
75,317 |
|
Nextel Brazil
|
|
|
48,607 |
|
|
|
16 |
% |
|
|
(34,318 |
) |
|
|
26 |
% |
|
|
(9,595 |
) |
|
|
10 |
% |
|
|
4,694 |
|
Nextel Argentina
|
|
|
45,765 |
|
|
|
15 |
% |
|
|
(24,801 |
) |
|
|
19 |
% |
|
|
(11,100 |
) |
|
|
12 |
% |
|
|
9,864 |
|
Nextel Peru
|
|
|
23,281 |
|
|
|
8 |
% |
|
|
(12,035 |
) |
|
|
9 |
% |
|
|
(7,220 |
) |
|
|
8 |
% |
|
|
4,026 |
|
Corporate and other
|
|
|
386 |
|
|
|
|
|
|
|
(410 |
) |
|
|
1 |
% |
|
|
(14,882 |
) |
|
|
15 |
% |
|
|
(14,906 |
) |
Intercompany eliminations
|
|
|
(120 |
) |
|
|
|
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$ |
304,128 |
|
|
|
100 |
% |
|
$ |
(129,762 |
) |
|
|
100 |
% |
|
$ |
(95,371 |
) |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated | |
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
Selling, | |
|
Selling, | |
|
|
|
|
|
|
Consolidated | |
|
|
|
Consolidated | |
|
General and | |
|
General and | |
|
Segment | |
Six Months Ended |
|
Operating | |
|
Operating | |
|
Cost of | |
|
Cost of | |
|
Administrative | |
|
Administrative | |
|
Earnings | |
June 30, 2003 |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Expenses | |
|
Expenses | |
|
(Losses) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(dollars in thousands) | |
Nextel Mexico
|
|
$ |
264,610 |
|
|
|
62 |
% |
|
$ |
(80,970 |
) |
|
|
51 |
% |
|
$ |
(73,813 |
) |
|
|
50 |
% |
|
$ |
109,827 |
|
Nextel Brazil
|
|
|
68,767 |
|
|
|
16 |
% |
|
|
(35,520 |
) |
|
|
22 |
% |
|
|
(27,064 |
) |
|
|
19 |
% |
|
|
6,183 |
|
Nextel Argentina
|
|
|
49,091 |
|
|
|
11 |
% |
|
|
(19,247 |
) |
|
|
12 |
% |
|
|
(16,385 |
) |
|
|
11 |
% |
|
|
13,459 |
|
Nextel Peru
|
|
|
46,376 |
|
|
|
11 |
% |
|
|
(22,467 |
) |
|
|
14 |
% |
|
|
(13,372 |
) |
|
|
9 |
% |
|
|
10,537 |
|
Corporate and other
|
|
|
767 |
|
|
|
|
|
|
|
(1,191 |
) |
|
|
1 |
% |
|
|
(16,499 |
) |
|
|
11 |
% |
|
|
(16,923 |
) |
Intercompany eliminations
|
|
|
(267 |
) |
|
|
|
|
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$ |
429,344 |
|
|
|
100 |
% |
|
$ |
(159,128 |
) |
|
|
100 |
% |
|
$ |
(147,133 |
) |
|
|
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, 2003 |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Revenues | |
|
Expenses | |
|
Expenses | |
|
(Losses) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(dollars in thousands) | |
Nextel Mexico
|
|
$ |
138,176 |
|
|
|
61 |
% |
|
$ |
(41,261 |
) |
|
|
48 |
% |
|
$ |
(42,564 |
) |
|
|
53 |
% |
|
$ |
54,351 |
|
Nextel Brazil
|
|
|
35,093 |
|
|
|
16 |
% |
|
|
(18,553 |
) |
|
|
22 |
% |
|
|
(13,842 |
) |
|
|
17 |
% |
|
|
2,698 |
|
Nextel Argentina
|
|
|
28,756 |
|
|
|
13 |
% |
|
|
(12,786 |
) |
|
|
15 |
% |
|
|
(8,975 |
) |
|
|
11 |
% |
|
|
6,995 |
|
Nextel Peru
|
|
|
23,683 |
|
|
|
10 |
% |
|
|
(11,920 |
) |
|
|
14 |
% |
|
|
(6,879 |
) |
|
|
9 |
% |
|
|
4,884 |
|
Corporate and other
|
|
|
377 |
|
|
|
|
|
|
|
(610 |
) |
|
|
1 |
% |
|
|
(8,277 |
) |
|
|
10 |
% |
|
|
(8,510 |
) |
Intercompany eliminations
|
|
|
(134 |
) |
|
|
|
|
|
|
134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated
|
|
$ |
225,951 |
|
|
|
100 |
% |
|
$ |
(84,996 |
) |
|
|
100 |
% |
|
$ |
(80,537 |
) |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
A discussion of the results of operations in each of our
reportable segments is provided below.
b. Nextel Mexico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
|
|
Nextel | |
|
|
|
Nextel | |
|
Change from | |
|
|
|
|
Mexicos | |
|
|
|
Mexicos | |
|
Previous Year | |
|
|
June 30, | |
|
Operating | |
|
June 30, | |
|
Operating | |
|
| |
|
|
2004 | |
|
Revenues | |
|
2003 | |
|
Revenues | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(dollars in thousands) | |
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
349,204 |
|
|
|
97 |
% |
|
$ |
255,895 |
|
|
|
97 |
% |
|
$ |
93,309 |
|
|
|
36 |
% |
|
Digital handset and accessory sales revenues
|
|
|
9,968 |
|
|
|
3 |
% |
|
|
8,715 |
|
|
|
3 |
% |
|
|
1,253 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
359,172 |
|
|
|
100 |
% |
|
|
264,610 |
|
|
|
100 |
% |
|
|
94,562 |
|
|
|
36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(62,151 |
) |
|
|
(17 |
)% |
|
|
(46,770 |
) |
|
|
(18 |
)% |
|
|
(15,381 |
) |
|
|
33 |
% |
|
Cost of digital handset and accessory sales
|
|
|
(47,896 |
) |
|
|
(14 |
)% |
|
|
(34,200 |
) |
|
|
(13 |
)% |
|
|
(13,696 |
) |
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110,047 |
) |
|
|
(31 |
)% |
|
|
(80,970 |
) |
|
|
(31 |
)% |
|
|
(29,077 |
) |
|
|
36 |
% |
Selling and marketing expenses
|
|
|
(46,509 |
) |
|
|
(13 |
)% |
|
|
(35,343 |
) |
|
|
(13 |
)% |
|
|
(11,166 |
) |
|
|
32 |
% |
General and administrative expenses
|
|
|
(51,096 |
) |
|
|
(14 |
)% |
|
|
(38,470 |
) |
|
|
(15 |
)% |
|
|
(12,626 |
) |
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
151,520 |
|
|
|
42 |
% |
|
|
109,827 |
|
|
|
41 |
% |
|
|
41,693 |
|
|
|
38 |
% |
Depreciation and amortization
|
|
|
(33,934 |
) |
|
|
(9 |
)% |
|
|
(31,998 |
) |
|
|
(12 |
)% |
|
|
(1,936 |
) |
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
117,586 |
|
|
|
33 |
% |
|
|
77,829 |
|
|
|
29 |
% |
|
|
39,757 |
|
|
|
51 |
% |
Interest expense
|
|
|
(9,306 |
) |
|
|
(3 |
)% |
|
|
(8,218 |
) |
|
|
(3 |
)% |
|
|
(1,088 |
) |
|
|
13 |
% |
Interest income
|
|
|
1,215 |
|
|
|
|
|
|
|
1,317 |
|
|
|
|
|
|
|
(102 |
) |
|
|
(8 |
)% |
Foreign currency transaction gains (losses), net
|
|
|
3,352 |
|
|
|
1 |
% |
|
|
(6,848 |
) |
|
|
(2 |
)% |
|
|
10,200 |
|
|
|
(149 |
)% |
Other income (expense), net
|
|
|
(816 |
) |
|
|
|
|
|
|
(568 |
) |
|
|
|
|
|
|
(248 |
) |
|
|
44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$ |
112,031 |
|
|
|
31 |
% |
|
$ |
63,512 |
|
|
|
24 |
% |
|
$ |
48,519 |
|
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
181,266 |
|
|
|
97 |
% |
|
$ |
133,220 |
|
|
|
96 |
% |
|
$ |
48,046 |
|
|
|
36 |
% |
|
Digital handset and accessory sales revenues
|
|
|
4,943 |
|
|
|
3 |
% |
|
|
4,956 |
|
|
|
4 |
% |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186,209 |
|
|
|
100 |
% |
|
|
138,176 |
|
|
|
100 |
% |
|
|
48,033 |
|
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(32,654 |
) |
|
|
(17 |
)% |
|
|
(23,720 |
) |
|
|
(17 |
)% |
|
|
(8,934 |
) |
|
|
38 |
% |
|
Cost of digital handset and accessory sales
|
|
|
(25,664 |
) |
|
|
(14 |
)% |
|
|
(17,541 |
) |
|
|
(13 |
)% |
|
|
(8,123 |
) |
|
|
46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58,318 |
) |
|
|
(31 |
)% |
|
|
(41,261 |
) |
|
|
(30 |
)% |
|
|
(17,057 |
) |
|
|
41 |
% |
Selling and marketing expenses
|
|
|
(25,056 |
) |
|
|
(14 |
)% |
|
|
(18,537 |
) |
|
|
(14 |
)% |
|
|
(6,519 |
) |
|
|
35 |
% |
General and administrative expenses
|
|
|
(27,518 |
) |
|
|
(15 |
)% |
|
|
(24,027 |
) |
|
|
(17 |
)% |
|
|
(3,491 |
) |
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
75,317 |
|
|
|
40 |
% |
|
|
54,351 |
|
|
|
39 |
% |
|
|
20,966 |
|
|
|
39 |
% |
Depreciation and amortization
|
|
|
(17,017 |
) |
|
|
(9 |
)% |
|
|
(16,553 |
) |
|
|
(12 |
)% |
|
|
(464 |
) |
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
58,300 |
|
|
|
31 |
% |
|
|
37,798 |
|
|
|
27 |
% |
|
|
20,502 |
|
|
|
54 |
% |
Interest expense
|
|
|
(4,119 |
) |
|
|
(2 |
)% |
|
|
(4,563 |
) |
|
|
(3 |
)% |
|
|
444 |
|
|
|
(10 |
)% |
Interest income
|
|
|
529 |
|
|
|
|
|
|
|
566 |
|
|
|
|
|
|
|
(37 |
) |
|
|
(7 |
)% |
Foreign currency transaction gains, net
|
|
|
156 |
|
|
|
|
|
|
|
4,584 |
|
|
|
3 |
% |
|
|
(4,428 |
) |
|
|
(97 |
)% |
Other income (expense), net
|
|
|
(262 |
) |
|
|
|
|
|
|
(744 |
) |
|
|
|
|
|
|
482 |
|
|
|
(65 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$ |
54,604 |
|
|
|
29 |
% |
|
$ |
37,641 |
|
|
|
27 |
% |
|
$ |
16,963 |
|
|
|
45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
In accordance with accounting principles generally accepted in
the United States, we translated Nextel Mexicos results of
operations using the average exchange rates for the six and
three months ended June 30, 2004. The average exchange
rates of the Mexican peso for the six and three months ended
June 30, 2004 decreased in value compared to the
U.S. dollar by 5% and 6%, respectively. As a result,
compared to Nextel Mexicos results of operations for the
six and three months ended June 30, 2003, the components of
Nextel Mexicos results of operations for 2004 after
translation into U.S. dollars reflect lower increases
compared to the same periods in 2003 than would have occurred if
it were not for the impact of the depreciation of the peso,
taking into consideration our one-month lag financial reporting
policy for our non-U.S. operating subsidiaries.
1. Operating revenues
The $93.3 million, or 36%, and $48.0 million, or 36%,
increases in service and other revenues from the six and three
months ended June 30, 2003 to the six and three months
ended June 30, 2004 are primarily due to the following:
|
|
|
|
|
28% increases in the average number of digital handsets in
service from the six and three months ended June 30, 2003
to the same periods in 2004 resulting from Nextel Mexicos
expansion of service coverage into new markets, as well as
growth in existing markets; |
|
|
|
|
$12.3 million and $6.3 million in revenues generated
from Nextel Mexicos handset maintenance program during the
six and three months ended June 30, 2004 due to a
restructuring of the maintenance program which resulted in the
recognition of these revenues that were netted against costs
during 2003, as well as growth in Nextel Mexicos customer
base utilizing this program; and |
|
|
|
|
increases in average revenues per handset on a local currency
basis largely due to the successful implementation of previously
introduced monthly service plans with higher access charges and
price increases applied to the existing customer base. |
The $1.3 million, or 14%, increase in digital handset and
accessory sales revenues from the six months ended June 30,
2003 to the same period in 2004 is primarily a result of a 27%
increase in handset sales.
2. Cost of revenues
The $15.4 million, or 33%, and $8.9 million, or 38%,
increases in cost of service from the six and three months ended
June 30, 2003 to the six and three months ended
June 30, 2004 are principally due to the following:
|
|
|
|
|
increases in interconnect costs primarily resulting from 37%
increases in total system minutes of use, partially offset by
decreases in variable interconnect cost per minute of use due to
the renegotiation of interconnect rates with some of Nextel
Mexicos traffic carriers; |
|
|
|
|
increases in service and repair costs largely due to Nextel
Mexicos restructured handset maintenance program which
resulted in the recognition of these costs that were netted
against revenues during 2003 and increased claims under this
program resulting from growth in Nextel Mexicos customer
base; and |
|
|
|
|
increases in direct switch and transmitter and receiver site
costs resulting from a 22% increase in the number of transmitter
and receiver sites in service from June 30, 2003 to
June 30, 2004. |
The $13.7 million, or 40%, and $8.1 million, or 46%,
increases in cost of digital handset and accessory sales from
the six and three months ended June 30, 2003 to the same
periods in 2004 are primarily due to 27% and 32% increases in
handset sales, respectively, which included a higher proportion
of more expensive models during 2004 compared to 2003, as well
as increases in handset upgrades provided to current customers.
52
3. Selling and marketing expenses
The $11.2 million, or 32%, increase in selling and
marketing costs from the six months ended June 30, 2003 to
the same period in 2004 is primarily a result of the following:
|
|
|
|
|
a $6.9 million, or 67%, increase in direct commissions and
payroll expenses principally due to a 75% increase in handset
sales by Nextel Mexicos sales personnel; |
|
|
|
a $2.5 million, or 17%, increase in indirect commissions
primarily due to a 9% increase in handset sales by Nextel
Mexicos outside dealers, as well as an increase in
indirect commissions per handset sale; and |
|
|
|
a $1.4 million, or 16%, increase in advertising costs
largely due to new advertising campaigns promoting the launch of
the Morelia market during the first quarter of 2004. |
The $6.5 million, or 35%, increase in selling and marketing
costs from the second quarter of 2003 to the second quarter of
2004 is largely due to a $3.8 million, or 69%, increase in
direct commissions and payroll expenses principally due to a 76%
increase in handset sales by Nextel Mexicos sales
personnel and a $2.0 million, or 27%, increase in indirect
commissions primarily due to a 15% increase in handset sales by
Nextel Mexicos outside dealers, as well as an increase in
indirect commissions per handset sale.
4. General and administrative expenses
The $12.6 million, or 33%, and $3.5 million, or 15%,
increases in general and administrative costs from the six and
three months ended June 30, 2003 to the same periods in
2004 are largely a result of the following:
|
|
|
|
|
|
$9.8 million, or 48%, and $2.7 million, or 20%,
increases in general corporate costs resulting from increases in
taxes on operating revenues, as well as expenses recognized as a
result of government-mandated employee profit sharing; |
|
|
|
|
$2.8 million, or 26%, and $1.4 million, or 25%,
increases in customer care expenses primarily due to increases
in payroll and employee related expenses caused by increases in
customer care personnel necessary to support a larger customer
base; and |
|
|
|
$1.5 million, or 38%, and $0.7 million, or 31%,
increases in information technology expenses resulting from
several maintenance contracts entered into during the first half
of 2004. |
These increases were partially offset by $1.6 million, or
59%, and $1.4 million, or 83%, decreases in bad debt
expense, which also decreased as a percentage of revenue from
1.0% and 1.3% for the six and three months ended June 30,
2003 to less than 1.0% for the six and three months ended
June 30, 2004, mostly as a result of improved collections.
5. Depreciation and amortization
The $1.9 million, or 6% increase, and $0.5 million, or
3%, increase in depreciation and amortization from the six and
three months ended June 30, 2003 to the same periods in
2004 are primarily due to a 22% increase in Nextel Mexicos
gross property, plant and equipment mostly due to the build-out
of new service areas partially offset by a decrease in
amortization. This decrease is the result of the reversal of
certain valuation allowances for deferred tax assets created in
connection with our application of fresh-start accounting, which
we recorded as a reduction to the intangible assets that existed
as of the date of our application of fresh-start accounting.
6. Interest expense
The $1.1 million, or 13%, increase in interest expense from
the six months ended June 30, 2003 to the same period in
2004 is primarily due to an increase in interest incurred on
Nextel Mexicos tower financing obligations, partially
offset by a decrease in interest related to the international
equipment facility in connection with the incremental pay-downs
of this facility during the third quarter of 2003 and the first
quarter of 2004. The remaining amount outstanding under this
facility was paid off in July 2004.
53
The $0.4 million, or 10%, decrease in interest expense from
the three months ended June 30, 2003 to the three months
ended June 30, 2004 is largely a result of decreased
interest related to the incremental pay-downs of the
international equipment facility described above.
7. Foreign currency transaction gains (losses), net
Foreign currency transaction losses of $6.8 million for the
six months ended June 30, 2003 are mostly due to the
relative weakening of the peso compared to the U.S. dollar
on Nextel Mexicos U.S. dollar-denominated
liabilities, principally its portion of the international
equipment facility, which was paid down incrementally during the
third quarter of 2003 and the first quarter of 2004.
As a result of the pay-off of this facility in July 2004, Nextel
Mexicos exposure to foreign currency transaction losses
will be substantially reduced.
Foreign currency transaction gains of $4.6 million for the
three months ended June 30, 2003 are mostly due to the
relative strengthening of the peso compared to the
U.S. dollar on Nextel Mexicos
U.S. dollar-denominated liabilities, primarily its portion
of the international equipment facility, which was paid off in
July 2004 as described above.
c. Nextel Brazil
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
|
|
Nextel | |
|
|
|
Nextel | |
|
Change from | |
|
|
|
|
Brazils | |
|
|
|
Brazils | |
|
Previous Year | |
|
|
June 30, | |
|
Operating | |
|
June 30, | |
|
Operating | |
|
| |
|
|
2004 | |
|
Revenues | |
|
2003 | |
|
Revenues | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(dollars in thousands) | |
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
83,839 |
|
|
|
91 |
% |
|
$ |
63,628 |
|
|
|
93 |
% |
|
$ |
20,211 |
|
|
|
32 |
% |
|
Digital handset and accessory sales revenues
|
|
|
7,962 |
|
|
|
9 |
% |
|
|
5,139 |
|
|
|
7 |
% |
|
|
2,823 |
|
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,801 |
|
|
|
100 |
% |
|
|
68,767 |
|
|
|
100 |
% |
|
|
23,034 |
|
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(37,893 |
) |
|
|
(41 |
)% |
|
|
(24,566 |
) |
|
|
(36 |
)% |
|
|
(13,327 |
) |
|
|
54 |
% |
|
Cost of digital handset and accessory sales
|
|
|
(23,444 |
) |
|
|
(26 |
)% |
|
|
(10,954 |
) |
|
|
(16 |
)% |
|
|
(12,490 |
) |
|
|
114 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(61,337 |
) |
|
|
(67 |
)% |
|
|
(35,520 |
) |
|
|
(52 |
)% |
|
|
(25,817 |
) |
|
|
73 |
% |
Selling and marketing expenses
|
|
|
(13,148 |
) |
|
|
(14 |
)% |
|
|
(9,147 |
) |
|
|
(13 |
)% |
|
|
(4,001 |
) |
|
|
44 |
% |
General and administrative expenses
|
|
|
(9,115 |
) |
|
|
(10 |
)% |
|
|
(17,917 |
) |
|
|
(26 |
)% |
|
|
8,802 |
|
|
|
(49 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
8,201 |
|
|
|
9 |
% |
|
|
6,183 |
|
|
|
9 |
% |
|
|
2,018 |
|
|
|
33 |
% |
Depreciation and amortization
|
|
|
(5,270 |
) |
|
|
(6 |
)% |
|
|
(1,366 |
) |
|
|
(2 |
)% |
|
|
(3,904 |
) |
|
|
286 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,931 |
|
|
|
3 |
% |
|
|
4,817 |
|
|
|
7 |
% |
|
|
(1,886 |
) |
|
|
(39 |
)% |
Interest expense
|
|
|
(4,950 |
) |
|
|
(5 |
)% |
|
|
(5,688 |
) |
|
|
(8 |
)% |
|
|
738 |
|
|
|
(13 |
)% |
Interest income
|
|
|
1,804 |
|
|
|
2 |
% |
|
|
2,152 |
|
|
|
3 |
% |
|
|
(348 |
) |
|
|
(16 |
)% |
Foreign currency transaction (losses) gains, net
|
|
|
(488 |
) |
|
|
(1 |
)% |
|
|
21,895 |
|
|
|
32 |
% |
|
|
(22,383 |
) |
|
|
(102 |
)% |
Other income (expense), net
|
|
|
1,875 |
|
|
|
2 |
% |
|
|
(2,939 |
) |
|
|
(4 |
)% |
|
|
4,814 |
|
|
|
(164 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$ |
1,172 |
|
|
|
1 |
% |
|
$ |
20,237 |
|
|
|
30 |
% |
|
$ |
(19,065 |
) |
|
|
(94 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
|
|
Nextel | |
|
|
|
Nextel | |
|
Change from | |
|
|
|
|
Brazils | |
|
|
|
Brazils | |
|
Previous Year | |
|
|
June 30, | |
|
Operating | |
|
June 30, | |
|
Operating | |
|
| |
|
|
2004 | |
|
Revenues | |
|
2003 | |
|
Revenues | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(dollars in thousands) | |
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
43,285 |
|
|
|
89 |
% |
|
$ |
32,712 |
|
|
|
93 |
% |
|
$ |
10,573 |
|
|
|
32 |
% |
|
Digital handset and accessory sales revenues
|
|
|
5,322 48,607 |
|
|
|
11 |
% 100% |
|
|
2,381 35,093 |
|
|
|
7 |
% 100% |
|
|
2,941 13,514 |
|
|
|
124 |
% 39% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(20,315 |
) (14,003) |
|
|
(42 |
)% (29)% |
|
|
(13,324 |
) (5,229) |
|
|
(38 |
)% (15)% |
|
|
(6,991 |
) (8,774) |
|
|
52 |
% 168% |
|
Cost of digital handset and accessory sales
|
|
|
(34,318 |
) |
|
|
(71 |
)% |
|
|
(18,553 |
) |
|
|
(53 |
)% |
|
|
(15,765 |
) |
|
|
85 |
% |
|
|
|
(7,236 |
) |
|
|
(15 |
)% |
|
|
(4,403 |
) |
|
|
(12 |
)% |
|
|
(2,833 |
) |
|
|
64 |
% |
Selling and marketing expenses
|
|
|
(2,359 |
) |
|
|
(4 |
)% |
|
|
(9,439 |
) |
|
|
(27 |
)% |
|
|
7,080 |
|
|
|
(75 |
)% |
General and administrative expenses
|
|
|
4,694 |
|
|
|
10 |
% |
|
|
2,698 |
|
|
|
8 |
% |
|
|
1,996 |
|
|
|
74 |
% |
Segment earnings
|
|
|
(2,754 |
) |
|
|
(6 |
)% |
|
|
(808 |
) |
|
|
(2 |
)% |
|
|
(1,946 |
) |
|
|
241 |
% |
Depreciation and amortization
|
|
|
1,940 |
|
|
|
4 |
% |
|
|
1,890 |
|
|
|
6 |
% |
|
|
50 |
|
|
|
3 |
% |
Operating income
|
|
|
(2,287 |
) |
|
|
(5 |
)% |
|
|
(3,457 |
) |
|
|
(10 |
)% |
|
|
1,170 |
|
|
|
(34 |
)% |
Interest expense
|
|
|
881 |
|
|
|
2 |
% |
|
|
1,548 |
|
|
|
4 |
% |
|
|
(667 |
) |
|
|
(43 |
)% |
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency transaction (losses) gains, net
|
|
|
(526 |
) 2,416 |
|
|
(1 |
)% 5% |
|
|
19,761 (2,868 |
) |
|
|
56 |
% (8)% |
|
|
(20,287 |
) 5,284 |
|
|
(103 |
)% (184)% |
Other income (expense), net
|
|
$ |
2,424 |
|
|
|
5 |
% |
|
$ |
16,874 |
|
|
|
48 |
% |
|
$ |
(14,450 |
) |
|
|
(86 |
)% |
Income before income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with accounting principles generally accepted in
the United States, we translated Nextel Brazils results of
operations using the average exchange rates for the six and
three months ended June 30, 2004 and 2003. The average
exchange rates for the six and three months ended June 30,
2004 appreciated against the U.S. dollar by 14% and 7%,
respectively. As a result, after translation into
U.S. dollars, most of Nextel Brazils revenues and
expenses for the six and three months ended June 30, 2004
reflect increases compared to the same periods in 2003, taking
into consideration our one-month lag financial reporting policy
for our non-U.S. operating subsidiaries.
1. Operating revenues
The $20.2 million, or 32%, and $10.6 million, or 32%,
increases in service and other revenues from the six and three
months ended June 30, 2003 to the same periods in 2004 are
largely the result of the following:
|
|
|
|
|
increases in average revenues per handset on a local currency
basis caused by higher revenues generated through calling party
pays service agreements; |
|
|
|
3% and 8% increases in the average number of digital handsets in
service; |
|
|
|
increases in revenues earned by Nextel Brazil related to the
co-location of third party tenants on its communication
towers; and |
|
|
|
|
higher revenues resulting from Nextel Brazils handset
maintenance program. |
|
The $2.8 million, or 55%, increase in digital handset and
accessory sales revenues from the six months ended June 30,
2003 to the same period in 2004 is primarily a result of a 44%
increase in handset sales. The $2.9 million, or 124%,
increase in digital handset and accessory sales revenues from
the second quarter of 2003 to the same period in 2004 is
principally due to a 46% increase in handset sales, as well as a
change in the mix
55
of handsets sold and leased, which included a higher proportion
of expensive models during the second quarter of 2004 compared
to the second quarter of 2003 when more refurbished handsets
were sold.
2. Cost of revenues
The $13.3 million, or 54%, and $7.0 million, or 52%,
increases in cost of service from the six and three months ended
June 30, 2003 to the same periods in 2004 are mostly due to
the following:
|
|
|
|
|
significant increases in interconnect costs largely resulting
from 35% and 37% increases in total system minutes of use as a
result of an increase in the number of subscribers with higher
usage profiles, as well as increases in interconnect costs per
minute of use; and |
|
|
|
increases in direct switch and transmitter and receiver site
costs that Nextel Brazil incurred as a result of an 11% increase
in the number of transmitter and receiver sites in service from
June 30, 2003 to June 30, 2004. |
The $12.5 million, or 114%, and $8.8 million, or 168%,
increases in cost of digital handset and accessory sales from
the six and three months ended June 30, 2003 to the same
periods in 2004 are largely the result of 44% and 46% increases
in handset sales, respectively, as well as a significant
increase in handset upgrades provided to customers and a change
in the mix of handsets sold and leased, which included a higher
proportion of expensive models during 2004 compared to 2003 and
fewer refurbished handsets.
3. Selling and marketing expenses
The $4.0 million, or 44%, and $2.8 million, or 64%,
increases in selling and marketing expenses from the six and
three months ended June 30, 2003 to the same periods in
2004 are largely due to the following:
|
|
|
|
|
$2.0 million, or 45%, and $1.0 million, or 43%,
increases in direct commissions and payroll related costs
primarily due to 60% and 66% increases in handset sales by
Nextel Brazils sales personnel, as well as increases in
sales and marketing salaries; |
|
|
|
$1.1 million, or 58%, and $0.7 million, or 72%,
increases in indirect commissions largely due to 28% and 27%
increases in handset sales by outside dealers and increases in
indirect commissions per handset sale; and |
|
|
|
$0.8 million, or 55%, and $0.9 million, or 169%,
increases in advertising costs due to more advertising campaigns
during 2004 compared to 2003 in connection with Nextel
Brazils objectives to reinforce market awareness of its
brandname. |
4. General and administrative expenses
The $8.8 million, or 49%, and $7.1 million, or 75%,
decreases in general and administrative expenses from the six
and three months ended June 30, 2003 to the same periods in
2004 are principally due to decreases in general corporate costs
resulting from $9.2 million and $6.8 million in tax
and other contingency liability reversals during the six and
three months ended June 30, 2004. These decreases were
partially offset by $0.9 million, or 18%, and
$0.4 million, or 14%, increases in customer care expenses
resulting from increases in payroll and related expenses due to
increased customer care personnel necessary to support a larger
customer base.
5. Depreciation and amortization
In connection with the application of fresh-start accounting
principles on October 31, 2002, Nextel Brazil recorded
$27.8 million in fixed asset write-downs, which
substantially reduced the cost bases of Nextel Brazils
fixed assets and resulted in less depreciation during the first
half of 2003. For the year ended December 31, 2003, Nextel
Brazil spent $33.0 million on capital expenditures,
resulting in a significant increase in gross property, plant and
equipment from June 30, 2003 to June 30, 2004. The
$3.9 million and $1.9 million increases in
depreciation from the six and three months ended June 30,
2003 to the same periods in 2004 are primarily due to
depreciation on this higher property, plant and equipment base.
56
6. Interest expense
The $0.7 million, or 13%, and $1.2 million, or 34%,
decreases in interest expense from the six and three months
ended June 30, 2003 to the same periods in 2004 are
primarily the result of the elimination of interest related to
the Brazil equipment facility in connection with the
extinguishment of this facility during the third quarter of
2003, partially offset by increases in interest incurred on
Nextel Brazils tower financing obligations due to an
increase in tower sales during 2004.
7. Interest income
The $0.7 million, or 43%, decrease in interest income from
the second quarter of 2003 to the second quarter of 2004 is
largely a result of a decrease in Nextel Brazils
outstanding cash balances, as well as a decrease in interest
rates.
8. Foreign currency transaction (losses) gains, net
Foreign currency transaction gains of $21.9 million and
$19.8 million for the six and three months ended
June 30, 2003 are primarily due to the effect of the
strengthening of the Brazilian real on Nextel Brazils
U.S. dollar-denominated liabilities during those periods,
primarily the Brazil equipment facility, which was extinguished
during the third quarter of 2003. As a result of this
transaction, Nextel Brazils exposure to foreign currency
transaction losses was significantly reduced.
9. Other income (expense), net
Other income, net, of $1.9 million and $2.4 million
for the six and three months ended June 30, 2004 primarily
represents the reversal of monetary corrections on certain tax
and non-tax related contingencies.
Other expense, net, of $2.9 million for the six and three
months ended June 30, 2003 primarily represents monetary
corrections on certain tax and non-tax related contingencies.
57
d. Nextel Argentina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
|
|
Nextel | |
|
|
|
Nextel | |
|
Change from Previous | |
|
|
|
|
Argentinas | |
|
|
|
Argentinas | |
|
Year | |
|
|
June 30, | |
|
Operating | |
|
June 30, | |
|
Operating | |
|
| |
|
|
2004 | |
|
Revenues | |
|
2003 | |
|
Revenues | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(dollars in thousands) | |
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
75,894 |
|
|
|
91 |
% |
|
$ |
44,189 |
|
|
|
90 |
% |
|
$ |
31,705 |
|
|
|
72 |
% |
|
Digital handset and accessory sales revenues
|
|
|
7,560 |
|
|
|
9 |
% |
|
|
4,902 |
|
|
|
10 |
% |
|
|
2,658 |
|
|
|
54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,454 |
|
|
|
100 |
% |
|
|
49,091 |
|
|
|
100 |
% |
|
|
34,363 |
|
|
|
70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(27,551 |
) |
|
|
(33 |
)% |
|
|
(11,968 |
) |
|
|
(24 |
)% |
|
|
(15,583 |
) |
|
|
130 |
% |
|
Cost of digital handset and accessory sales
|
|
|
(14,412 |
) |
|
|
(17 |
)% |
|
|
(7,279 |
) |
|
|
(15 |
)% |
|
|
(7,133 |
) |
|
|
98 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,963 |
) |
|
|
(50 |
)% |
|
|
(19,247 |
) |
|
|
(39 |
)% |
|
|
(22,716 |
) |
|
|
118 |
% |
Selling and marketing expenses
|
|
|
(6,567 |
) |
|
|
(8 |
)% |
|
|
(4,700 |
) |
|
|
(10 |
)% |
|
|
(1,867 |
) |
|
|
40 |
% |
General and administrative expenses
|
|
|
(15,040 |
) |
|
|
(18 |
)% |
|
|
(11,685 |
) |
|
|
(24 |
)% |
|
|
(3,355 |
) |
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
19,884 |
|
|
|
24 |
% |
|
|
13,459 |
|
|
|
27 |
% |
|
|
6,425 |
|
|
|
48 |
% |
Depreciation and amortization
|
|
|
(5,035 |
) |
|
|
(6 |
)% |
|
|
(1,009 |
) |
|
|
(2 |
)% |
|
|
(4,026 |
) |
|
|
399 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
14,849 |
|
|
|
18 |
% |
|
|
12,450 |
|
|
|
25 |
% |
|
|
2,399 |
|
|
|
19 |
% |
Interest expense
|
|
|
(40 |
) |
|
|
|
|
|
|
(46 |
) |
|
|
|
|
|
|
6 |
|
|
|
(13 |
)% |
Interest income
|
|
|
212 |
|
|
|
|
|
|
|
326 |
|
|
|
1 |
% |
|
|
(114 |
) |
|
|
(35 |
)% |
Foreign currency transaction losses, net
|
|
|
(487 |
) |
|
|
|
|
|
|
(510 |
) |
|
|
(1 |
)% |
|
|
23 |
|
|
|
(5 |
)% |
Other income, net
|
|
|
357 |
|
|
|
|
|
|
|
8,280 |
|
|
|
17 |
% |
|
|
(7,923 |
) |
|
|
(96 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$ |
14,891 |
|
|
|
18 |
% |
|
$ |
20,500 |
|
|
|
42 |
% |
|
$ |
(5,609 |
) |
|
|
(27 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
41,219 |
|
|
|
90 |
% |
|
$ |
25,606 |
|
|
|
89 |
% |
|
$ |
15,613 |
|
|
|
61 |
% |
|
Digital handset and accessory sales revenues
|
|
|
4,546 |
|
|
|
10 |
% |
|
|
3,150 |
|
|
|
11 |
% |
|
|
1,396 |
|
|
|
44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,765 |
|
|
|
100 |
% |
|
|
28,756 |
|
|
|
100 |
% |
|
|
17,009 |
|
|
|
59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(16,172 |
) |
|
|
(35 |
)% |
|
|
(8,241 |
) |
|
|
(28 |
)% |
|
|
(7,931 |
) |
|
|
96 |
% |
|
Cost of digital handset and accessory sales
|
|
|
(8,629 |
) |
|
|
(19 |
)% |
|
|
(4,545 |
) |
|
|
(16 |
)% |
|
|
(4,084 |
) |
|
|
90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,801 |
) |
|
|
(54 |
)% |
|
|
(12,786 |
) |
|
|
(44 |
)% |
|
|
(12,015 |
) |
|
|
94 |
% |
Selling and marketing expenses
|
|
|
(3,685 |
) |
|
|
(8 |
)% |
|
|
(2,711 |
) |
|
|
(10 |
)% |
|
|
(974 |
) |
|
|
36 |
% |
General and administrative expenses
|
|
|
(7,415 |
) |
|
|
(16 |
)% |
|
|
(6,264 |
) |
|
|
(22 |
)% |
|
|
(1,151 |
) |
|
|
18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
9,864 |
|
|
|
22 |
% |
|
|
6,995 |
|
|
|
24 |
% |
|
|
2,869 |
|
|
|
41 |
% |
Depreciation and amortization
|
|
|
(2,814 |
) |
|
|
(6 |
)% |
|
|
(494 |
) |
|
|
(2 |
)% |
|
|
(2,320 |
) |
|
|
470 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7,050 |
|
|
|
16 |
% |
|
|
6,501 |
|
|
|
22 |
% |
|
|
549 |
|
|
|
8 |
% |
Interest expense
|
|
|
(32 |
) |
|
|
|
|
|
|
(46 |
) |
|
|
|
|
|
|
14 |
|
|
|
(30 |
)% |
Interest income
|
|
|
107 |
|
|
|
|
|
|
|
230 |
|
|
|
1 |
% |
|
|
(123 |
) |
|
|
(53 |
)% |
Foreign currency transaction gains (losses), net
|
|
|
155 |
|
|
|
|
|
|
|
(1,394 |
) |
|
|
(5 |
)% |
|
|
1,549 |
|
|
|
(111 |
)% |
Other income, net
|
|
|
343 |
|
|
|
1 |
% |
|
|
1,089 |
|
|
|
4 |
% |
|
|
(746 |
) |
|
|
(69 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$ |
7,623 |
|
|
|
17 |
% |
|
$ |
6,380 |
|
|
|
22 |
% |
|
$ |
1,243 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
In accordance with accounting principles generally accepted in
the United States, we translated Nextel Argentinas results
of operations using the average exchange rates for the six and
three months ended June 30, 2004 and 2003. The average
exchange rates of the Argentine peso for the six and three
months ended June 30, 2004 appreciated against the
U.S. dollar by 7% and 2% from the same periods in 2003. As
a result, the components of Nextel Argentinas results of
operations for the six months ended June 30, 2004 after
translation into U.S. dollars reflect increases compared to
its results of operations for the same period in 2003, taking
into consideration our one-month lag financial reporting policy
for our non-U.S. operating subsidiaries.
1. Operating revenues
The $31.7 million, or 72%, and $15.6 million, or 61%,
increases in service and other revenues from the six and three
months ended June 30, 2003 to the six and three months
ended June 30, 2004 are primarily a result of the following:
|
|
|
|
|
33% and 34% increases in the average number of digital handsets
in service, resulting from growth in Nextel Argentinas
existing markets; |
|
|
|
increases in average revenues per handset on a local currency
basis, primarily due to the implementation of a termination fee
between mobile carriers during the second quarter of
2003; and |
|
|
|
|
increased revenues under Nextel Argentinas handset
maintenance program. |
|
The $2.7 million, or 54%, and $1.4 million, or 44%,
increases in digital handset and accessory sales revenues from
the six and three months ended June 30, 2003 to the six and
three months ended June 30, 2004 are due to 35% and 49%
increases in handset sales and leases, as well as a change in
the mix of handsets sold and leased, which included a
significantly larger proportion of more expensive models during
2004 compared to 2003 when more lower cost as well as
refurbished models were sold and leased in Argentina.
2. Cost of revenues
The $15.6 million, or 130%, and $7.9 million, or 96%,
increases in cost of service from the six and three months ended
June 30, 2003 to the six and three months ended
June 30, 2004 are principally a result of the following:
|
|
|
|
|
increases in interconnect costs largely as a result of 41% and
35% increases in total system minutes of use, as well as
significant increases in variable interconnect costs per minute
of use resulting from higher costs under the agreement between
Nextel Argentina and other mobile carriers reached in the second
quarter of 2003 that allows each of the carriers to charge a fee
for mobile calls that terminate on their networks; |
|
|
|
|
increases in service and repair costs due to increased claims
under Nextel Argentinas handset maintenance
program; and |
|
|
|
|
increases in direct switch and transmitter and receiver site
costs due to a 5% increase in the number of transmitter and
receiver sites in service from June 30, 2003 to
June 30, 2004. |
The $7.1 million, or 98%, and $4.1 million, or 90%,
increases in cost of digital handset and accessory sales are
largely a result of 35% and 49% increases in handset sales,
respectively, a change in the mix of handsets sold toward more
expensive models and away from refurbished models that were
predominantly sold during 2003 and increases in handset upgrades
provided to existing customers.
3. Selling and marketing expenses
The $1.9 million, or 40%, and $1.0 million, or 36%,
increases in selling and marketing expenses from the six and
three months ended June 30, 2003 to the six and three
months ended June 30, 2004 are largely a result of
$0.7 million, or 44%, and $0.3 million or 36%,
increases in indirect commissions mainly caused by 36% and 44%
increases in handset sales by outside dealers, as well as a
$0.3 million increase in advertising expenses from the six
months ended June 30, 2003 to the same period in 2004
resulting from more advertising campaigns focused on promoting
International Direct
ConnectSM.
59
4. General and administrative expenses
The $3.4 million, or 29%, and $1.2 million, or 18%,
increases in general and administrative expenses from the six
and three months ended June 30, 2003 to the same periods in
2004 are largely a result of the following:
|
|
|
|
|
$3.5 million, or 52%, and $1.5 million, or 40%,
increases in general corporate costs primarily as a result of
increases in operating taxes on gross revenues in
Argentina; and |
|
|
|
$0.9 million, or 45%, and $0.5 million, or 47%,
increases in customer care expenses from the six and three
months ended June 30, 2003 to the same periods in 2004
primarily due to increases in payroll and related expenses
caused by increased salaries and 23% and 20% increases in
customer care personnel required to support a larger customer
base. |
These increases were partially offset by $1.2 million, or
111%, and $1.0 million, or 191%, decreases in bad debt
expense from the six and three months ended June 30, 2003
to the same periods in 2004 resulting from lower customer
turnover and improved economic conditions in Argentina during
2004 compared to 2003. Bad debt expense also decreased as a
percentage of revenues from 2.3% and 1.7% during the six and
three months ended June 30, 2003 to less than 1.0% during
the same periods in 2004.
5. Depreciation and amortization
The $4.0 million and $2.3 million increases in
depreciation and amortization from the six and three months
ended June 30, 2003 to the six and three months ended
June 30, 2004 are due to increased depreciation resulting
from a significant increase in Nextel Argentinas gross
property, plant and equipment.
6. Foreign currency transaction gains (losses), net
Net foreign currency transaction losses of $1.4 million for
the three months ended June 30, 2003 are primarily the
result of the strengthening of the Argentine peso relative to
the U.S. dollar on Nextel Argentinas
U.S. dollar-based net assets.
7. Other income, net
In connection with our emergence from Chapter 11
reorganization in 2002, one of our corporate entities
repurchased Nextel Argentinas credit facilities from its
creditors. While this corporate entity contributed the principal
balance to Nextel Argentina as a capital investment, it forgave
the accrued interest during the first quarter of 2003. Other
income, net, of $8.3 million for the six months ended
June 30, 2003 consists primarily of the gain related to the
forgiveness of this accrued interest.
Other income, net, of $1.1 million for the three months
ended June 30, 2003 primarily represents a gain related to
the reversal of a contingency for withholding taxes, which
resulted from the forgiveness of accrued interest related to
Nextel Argentinas credit facilities described above.
60
e. Nextel Peru
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
|
|
Nextel | |
|
|
|
Nextel | |
|
Change from | |
|
|
|
|
Perus | |
|
|
|
Perus | |
|
Previous Year | |
|
|
June 30, | |
|
Operating | |
|
June 30, | |
|
Operating | |
|
| |
|
|
2004 | |
|
Revenues | |
|
2003 | |
|
Revenues | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(dollars in thousands) | |
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
45,344 |
|
|
|
98 |
% |
|
$ |
45,219 |
|
|
|
98 |
% |
|
$ |
125 |
|
|
|
|
|
|
Digital handset and accessory sales revenues
|
|
|
1,083 |
|
|
|
2 |
% |
|
|
1,157 |
|
|
|
2 |
% |
|
|
(74 |
) |
|
|
(6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,427 |
|
|
|
100 |
% |
|
|
46,376 |
|
|
|
100 |
% |
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(17,477 |
) |
|
|
(38 |
)% |
|
|
(16,589 |
) |
|
|
(36 |
)% |
|
|
(888 |
) |
|
|
5 |
% |
|
Cost of digital handset and accessory sales
|
|
|
(6,782 |
) |
|
|
(14 |
)% |
|
|
(5,878 |
) |
|
|
(12 |
)% |
|
|
(904 |
) |
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,259 |
) |
|
|
(52 |
)% |
|
|
(22,467 |
) |
|
|
(48 |
)% |
|
|
(1,792 |
) |
|
|
8 |
% |
Selling and marketing expenses
|
|
|
(5,522 |
) |
|
|
(12 |
)% |
|
|
(5,837 |
) |
|
|
(13 |
)% |
|
|
315 |
|
|
|
(5 |
)% |
General and administrative expenses
|
|
|
(8,429 |
) |
|
|
(18 |
)% |
|
|
(7,535 |
) |
|
|
(16 |
)% |
|
|
(894 |
) |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
8,217 |
|
|
|
18 |
% |
|
|
10,537 |
|
|
|
23 |
% |
|
|
(2,320 |
) |
|
|
(22 |
)% |
Depreciation and amortization
|
|
|
(2,426 |
) |
|
|
(5 |
)% |
|
|
(1,445 |
) |
|
|
(3 |
)% |
|
|
(981 |
) |
|
|
68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
5,791 |
|
|
|
13 |
% |
|
|
9,092 |
|
|
|
20 |
% |
|
|
(3,301 |
) |
|
|
(36 |
)% |
Interest expense
|
|
|
(111 |
) |
|
|
|
|
|
|
(1,021 |
) |
|
|
(2 |
)% |
|
|
910 |
|
|
|
(89 |
)% |
Interest income
|
|
|
837 |
|
|
|
1 |
% |
|
|
511 |
|
|
|
1 |
% |
|
|
326 |
|
|
|
64 |
% |
Foreign currency transaction gains, net
|
|
|
11 |
|
|
|
|
|
|
|
89 |
|
|
|
|
|
|
|
(78 |
) |
|
|
(88 |
)% |
Other expense, net
|
|
|
(3 |
) |
|
|
|
|
|
|
(867 |
) |
|
|
(2 |
)% |
|
|
864 |
|
|
|
(100 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$ |
6,525 |
|
|
|
14 |
% |
|
$ |
7,804 |
|
|
|
17 |
% |
|
$ |
(1,279 |
) |
|
|
(16 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
22,747 |
|
|
|
98 |
% |
|
$ |
23,052 |
|
|
|
97 |
% |
|
$ |
(305 |
) |
|
|
(1 |
)% |
|
Digital handset and accessory sales revenues
|
|
|
534 |
|
|
|
2 |
% |
|
|
631 |
|
|
|
3 |
% |
|
|
(97 |
) |
|
|
(15 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,281 |
|
|
|
100 |
% |
|
|
23,683 |
|
|
|
100 |
% |
|
|
(402 |
) |
|
|
(2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(8,651 |
) |
|
|
(37 |
)% |
|
|
(8,924 |
) |
|
|
(38 |
)% |
|
|
273 |
|
|
|
(3 |
)% |
|
Cost of digital handset and accessory sales
|
|
|
(3,384 |
) |
|
|
(15 |
)% |
|
|
(2,996 |
) |
|
|
(12 |
)% |
|
|
(388 |
) |
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,035 |
) |
|
|
(52 |
)% |
|
|
(11,920 |
) |
|
|
(50 |
)% |
|
|
(115 |
) |
|
|
1 |
% |
Selling and marketing expenses
|
|
|
(2,974 |
) |
|
|
(13 |
)% |
|
|
(2,978 |
) |
|
|
(13 |
)% |
|
|
4 |
|
|
|
|
|
General and administrative expenses
|
|
|
(4,246 |
) |
|
|
(18 |
)% |
|
|
(3,901 |
) |
|
|
(16 |
)% |
|
|
(345 |
) |
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment earnings
|
|
|
4,026 |
|
|
|
17 |
% |
|
|
4,884 |
|
|
|
21 |
% |
|
|
(858 |
) |
|
|
(18 |
)% |
Depreciation and amortization
|
|
|
(1,292 |
) |
|
|
(5 |
)% |
|
|
(766 |
) |
|
|
(4 |
)% |
|
|
(526 |
) |
|
|
69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,734 |
|
|
|
12 |
% |
|
|
4,118 |
|
|
|
17 |
% |
|
|
(1,384 |
) |
|
|
(34 |
)% |
Interest expense
|
|
|
(28 |
) |
|
|
|
|
|
|
(486 |
) |
|
|
(2 |
)% |
|
|
458 |
|
|
|
(94 |
)% |
Interest income
|
|
|
796 |
|
|
|
3 |
% |
|
|
504 |
|
|
|
2 |
% |
|
|
292 |
|
|
|
58 |
% |
Foreign currency transaction gains (losses), net
|
|
|
5 |
|
|
|
|
|
|
|
(37 |
) |
|
|
|
|
|
|
42 |
|
|
|
(114 |
)% |
Other income (expense), net
|
|
|
1 |
|
|
|
|
|
|
|
(792 |
) |
|
|
(3 |
)% |
|
|
793 |
|
|
|
(100 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
|
|
$ |
3,508 |
|
|
|
15 |
% |
|
$ |
3,307 |
|
|
|
14 |
% |
|
$ |
201 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Because the U.S. dollar is the functional currency in Peru,
Nextel Perus results of operations are not significantly
impacted by the changes in the U.S. dollar to Peruvian sol
exchange rate.
61
1. Operating revenues
The $0.1 million increase in service and other revenues
from the six months ended June 30, 2003 to the six months
ended June 30, 2004 is primarily a result of a 14% increase
in the average number of digital handsets in service, partially
offset by a decrease in average revenue per handset resulting
from the implementation of a new rate plan with lower access
charges.
The $0.3 million decrease in service and other revenues
from the three months ended June 30, 2003 to the three
months ended June 30, 2004 is primarily a result of a
decrease in average revenue per handset resulting from the
implementation of a new rate plan with lower access charges,
partially offset by a 15% increase in the average number of
digital handsets in service.
2. Cost of revenues
The $0.9 million, or 5%, increase in cost of service from
the six months ended June 30, 2003 to the same period in
2004 is primarily due to a $0.6 million, or 29%, increase
in service and repair costs resulting from an increase in
repaired and refurbished units, as well as a $0.4 million,
or 9%, increase in site and switch costs largely resulting from
a 9% increase in the number of transmitter and receiver sites in
service from June 30, 2003 to June 30, 2004.
The $0.9 million, or 15%, increase in cost of digital
handset and accessory sales from the six months ended
June 30, 2003 to the same period in 2004 is primarily the
result of a 22% increase in handset sales, as well as Nextel
Perus implementation of a handset leasing program during
the first quarter of 2004.
3. General and administrative expenses
The $0.9 million, or 12%, and $0.3 million, or 9%,
increases in general and administrative expenses from the six
and three months ended June 30, 2003 to the same periods in
2004 are primarily due to higher customer care and general
corporate payroll and related expenses due to more customer care
and general corporate personnel necessary to support a larger
customer base.
4. Depreciation and amortization
The $1.0 million, or 68%, and $0.5 million, or 69%,
increases in depreciation and amortization from the six and
three months ended June 30, 2003 to the six and three
months ended June 30, 2004 are primarily due to increased
depreciation resulting from a significant increase in Nextel
Perus gross property, plant and equipment.
5. Interest expense
The $0.9 million, or 89%, and $0.5 million, or 94%,
decreases in interest expense from the six and three months
ended June 30, 2003 to the six and three months ended
June 30, 2004 are primarily due to the elimination of
interest on Nextel Perus portion of the international
equipment facility which it paid-down during the third quarter
of 2003.
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
|
|
|
Corporate | |
|
|
|
Corporate | |
|
Change from | |
|
|
|
|
and other | |
|
|
|
and other | |
|
Previous Year | |
|
|
June 30, | |
|
Operating | |
|
June 30, | |
|
Operating | |
|
| |
|
|
2004 | |
|
Revenues | |
|
2003 | |
|
Revenues | |
|
Dollars | |
|
Percent | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
Restated | |
|
|
(dollars in thousands) | |
Six Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
793 |
|
|
|
100 |
% |
|
$ |
767 |
|
|
|
100 |
% |
|
$ |
26 |
|
|
|
3 |
% |
|
Digital handset and accessory sales revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
793 |
|
|
|
100 |
% |
|
|
767 |
|
|
|
100 |
% |
|
|
26 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(830 |
) |
|
|
(105 |
)% |
|
|
(717 |
) |
|
|
(93 |
)% |
|
|
(113 |
) |
|
|
16 |
% |
|
Cost of digital handset and accessory sales
|
|
|
|
|
|
|
|
|
|
|
(474 |
) |
|
|
(62 |
)% |
|
|
474 |
|
|
|
(100 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(830 |
) |
|
|
(105 |
)% |
|
|
(1,191 |
) |
|
|
(155 |
)% |
|
|
361 |
|
|
|
(30 |
)% |
Selling and marketing expenses
|
|
|
(2,156 |
) |
|
|
(272 |
)% |
|
|
(2,065 |
) |
|
|
(269 |
)% |
|
|
(91 |
) |
|
|
4 |
% |
General and administrative expenses
|
|
|
(23,299 |
) |
|
|
NM |
|
|
|
(14,434 |
) |
|
|
NM |
|
|
|
(8,865 |
) |
|
|
61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(25,492 |
) |
|
|
NM |
|
|
|
(16,923 |
) |
|
|
NM |
|
|
|
(8,569 |
) |
|
|
51 |
% |
Depreciation and amortization
|
|
|
(479 |
) |
|
|
(60 |
)% |
|
|
(236 |
) |
|
|
(31 |
)% |
|
|
(243 |
) |
|
|
103 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(25,971 |
) |
|
|
NM |
|
|
|
(17,159 |
) |
|
|
NM |
|
|
|
(8,812 |
) |
|
|
51 |
% |
Interest expense
|
|
|
(12,699 |
) |
|
|
NM |
|
|
|
(16,458 |
) |
|
|
NM |
|
|
|
3,759 |
|
|
|
(23 |
)% |
Interest income
|
|
|
1,559 |
|
|
|
197 |
% |
|
|
1,430 |
|
|
|
186 |
% |
|
|
129 |
|
|
|
9 |
% |
Loss on early extinguishment of debt, net
|
|
|
(79,327 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
(79,327 |
) |
|
|
NM |
|
Foreign currency transaction losses, net
|
|
|
(8 |
) |
|
|
(1 |
)% |
|
|
(12 |
) |
|
|
(2 |
)% |
|
|
4 |
|
|
|
(33 |
)% |
Other expense, net
|
|
|
(221 |
) |
|
|
(28 |
)% |
|
|
(7,461 |
) |
|
|
(973 |
)% |
|
|
7,240 |
|
|
|
(97 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$ |
(116,667 |
) |
|
|
NM |
|
|
$ |
(39,660 |
) |
|
|
NM |
|
|
$ |
(77,007 |
) |
|
|
194 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service and other revenues
|
|
$ |
386 |
|
|
|
100 |
% |
|
$ |
378 |
|
|
|
100 |
% |
|
$ |
8 |
|
|
|
2 |
% |
|
Digital handset and accessory sales revenues
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
NM |
|
|
|
1 |
|
|
|
(100 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
386 |
|
|
|
100 |
% |
|
|
377 |
|
|
|
100 |
% |
|
|
9 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service (exclusive of depreciation included below)
|
|
|
(410 |
) |
|
|
(106 |
)% |
|
|
(383 |
) |
|
|
(102 |
)% |
|
|
(27 |
) |
|
|
7 |
% |
|
Cost of digital handset and accessory sales
|
|
|
|
|
|
|
|
|
|
|
(227 |
) |
|
|
(60 |
)% |
|
|
227 |
|
|
|
(100 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(410 |
) |
|
|
(106 |
)% |
|
|
(610 |
) |
|
|
(162 |
)% |
|
|
200 |
|
|
|
(33 |
)% |
Selling and marketing expenses
|
|
|
(1,039 |
) |
|
|
(269 |
)% |
|
|
(1,121 |
) |
|
|
(297 |
)% |
|
|
82 |
|
|
|
(7 |
)% |
General and administrative expenses
|
|
|
(13,843 |
) |
|
|
NM |
|
|
|
(7,156 |
) |
|
|
NM |
|
|
|
(6,687 |
) |
|
|
93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment losses
|
|
|
(14,906 |
) |
|
|
NM |
|
|
|
(8,510 |
) |
|
|
NM |
|
|
|
(6,396 |
) |
|
|
75 |
% |
Depreciation and amortization
|
|
|
(262 |
) |
|
|
(68 |
)% |
|
|
(126 |
) |
|
|
(33 |
)% |
|
|
(136 |
) |
|
|
108 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(15,168 |
) |
|
|
NM |
|
|
|
(8,636 |
) |
|
|
NM |
|
|
|
(6,532 |
) |
|
|
76 |
% |
Interest expense
|
|
|
(4,435 |
) |
|
|
NM |
|
|
|
(8,670 |
) |
|
|
NM |
|
|
|
4,235 |
|
|
|
(49 |
)% |
Interest income
|
|
|
703 |
|
|
|
182 |
% |
|
|
666 |
|
|
|
177 |
% |
|
|
37 |
|
|
|
6 |
% |
Foreign currency transaction (losses) gains, net
|
|
|
(5 |
) |
|
|
(1 |
)% |
|
|
4 |
|
|
|
1 |
% |
|
|
(9 |
) |
|
|
(225 |
)% |
Other expense, net
|
|
|
(89 |
) |
|
|
(23 |
)% |
|
|
(384 |
) |
|
|
(102 |
)% |
|
|
295 |
|
|
|
(77 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
$ |
(18,994 |
) |
|
|
NM |
|
|
$ |
(17,020 |
) |
|
|
NM |
|
|
$ |
(1,974 |
) |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-Not Meaningful
Corporate and other operating revenues and cost of revenues
primarily represent the results of analog operations reported by
Nextel Chile.
|
|
1. |
General and administrative expenses |
The $8.9 million, or 61%, and $6.7 million, or 93%,
increases in general and administrative expenses from the six
and three months ended June 30, 2003 to the six and three
months ended June 30, 2004 are due to tax
63
equalization expenses recognized during the second quarter of
2004 for which we expect to be reimbursed in future periods,
stock compensation expense recognized during the second quarter
of 2004 and an increase in business development costs,
professional fees and other general and administrative expenses.
The $3.8 million, or 23%, and the $4.2 million, or
49%, decreases in interest expense from the six and three months
ended June 30, 2003 to the six and three months ended
June 30, 2004 are primarily the result of the elimination
of interest related to our 13.0% senior secured discount
notes in connection with the retirement of substantially all of
these notes during the first quarter of 2004 and a decrease in
interest expense related to our international equipment facility
in connection with the partial pay-down of this facility in the
third quarter of 2003 and the first quarter of 2004. These
decreases were partially offset by interest incurred on our new
3.5% convertible notes and 2.875% convertible notes in
the first half of 2004.
|
|
3. |
Loss on early extinguishment of debt, net |
The $79.3 million net loss on early extinguishment of debt
for the six months ended June 30, 2004 represents a loss we
incurred in connection with the retirement of substantially all
of our 13.0% senior secured discount notes through a cash
tender offer in March 2004.
Liquidity and Capital Resources
We had a working capital surplus of $406.6 million as of
June 30, 2004 and $393.6 million as of
December 31, 2003. The increase in our working capital is
largely the result of cash flows generated by our financing
activities described below.
We recognized a net loss of $25.9 million for the six
months ended June 30, 2004 and net income of
$26.7 million for the three months ended June 30,
2004. The net loss for the six months ended June 30, 2004
primarily resulted from the $79.3 million loss related to
the early extinguishment of substantially all of our
13.0% senior discount notes in the first quarter of 2004.
We recognized net income of $21.5 million and
$11.5 million for the six and three months ended
June 30, 2003. Prior to 2003, our operating expenses and
capital expenditures associated with developing, enhancing and
operating our digital mobile networks more than offset our
operating revenues. During 2003 and the first two quarters of
2004, our operating revenues more than offset our operating
expenses, excluding depreciation and amortization, and cash
capital expenditures. While we expect this trend to continue, if
business conditions, timing of capital expenditures or expansion
plans change, we may not be able to maintain this trend. See
Future Capital Needs and Resources for a discussion
of our future outlook and anticipated sources and uses of funds
for the remainder of 2004.
Cash Flows. Our operating activities provided us
with $95.5 million of net cash during the six months ended
June 30, 2004 and $113.1 million of net cash during
the six months ended June 30, 2003. The $17.6 million
decrease in generation of cash is primarily due to the pay-down
of current liabilities during the first quarter of 2004, an
increase in inventory during 2004 and $9.3 million of cash
received from Nextel Communications during the six months ended
June 30, 2003 related to our spectrum sharing agreement in
Mexico.
We used $140.6 million of net cash in our investing
activities during the six months ended June 30, 2004
compared to $102.1 million during the six months ended
June 30, 2003. The $38.5 million increase in cash used
in our investing activities is mainly due to $26.9 million
in purchases of short-term investments during the six months
ended June 30, 2004 and a $9.2 million increase in
cash used for capital expenditures.
Our financing activities provided us with $13.1 million of
net cash during the six months ended June 30, 2004,
primarily due to the following:
|
|
|
|
|
$300.0 million in gross proceeds that we raised in
connection with the issuance of our 2.875% convertible
notes; and |
|
|
|
$9.5 million in proceeds received in connection with tower
sale-leaseback financing transactions; |
64
partially offset by:
|
|
|
|
|
$211.2 million in cash used to retire substantially all of
our 13.0% senior secured discount notes in connection with
our tender offer; |
|
|
|
$72.5 million in cash used to repay a portion of our
international equipment facility with Motorola; |
|
|
|
$8.5 million in cash used to pay debt financing costs in
connection with the issuance of our 2.875% convertible
notes; and |
|
|
|
$4.1 million in transfers to restricted cash. |
Our financing activities provided us with $60.5 million of
net cash during the six months ended June 30, 2003,
primarily due to $66.9 million in proceeds that we received
from our tower sale-leaseback financing transactions that closed
during the first half of 2003, partially offset by
$7.8 million that we placed in an escrow account as
collateral for our former interest rate swap.
Future Capital Needs and Resources
Capital Resources. Our ongoing capital resources
depend on a variety of factors, including our existing cash and
short-term investments, cash flows generated by our operating
companies and external financial sources that may be available.
As of June 30, 2004, our capital resources included
$400.6 million of cash, cash equivalents and short-term
investments. Our ability to generate sufficient operating cash
flows by our operating companies is dependent upon, among other
things:
|
|
|
|
|
the amount of revenue we are able to generate and collect from
our customers; |
|
|
|
the amount of operating expenses required to provide our
services; |
|
|
|
the cost of acquiring and retaining customers, including the
subsidies we incur to provide handsets to both our new and
existing customers; |
|
|
|
our ability to continue to grow our customer base; and |
|
|
|
fluctuations in foreign exchange rates. |
While we plan to fund our operations using existing cash and
short-term investments balances and internally generated cash
flows for the foreseeable future, we may access the capital
markets if we are able to meet our objectives of lowering our
cost of capital, improving our financial flexibility and/or
reducing our foreign currency exposure, or if we should decide
to expand our operations. Consistent with these objectives,
during the first quarter of 2004, we issued $300.0 million
aggregate principal amount of 2.875% convertible notes due
2034 for net proceeds of $291.6 million. The notes bear
interest at a rate of 2.875% per year, payable
semi-annually in arrears and in cash on February 1 and
August 1 of each year, beginning August 1, 2004. The
notes will mature on February 1, 2034, unless earlier
converted or redeemed by the holders or repurchased by us.
In February 2004, we prepaid, at face value, $72.5 million
of the $125.0 million in outstanding principal under our
international equipment facility. In addition, in March 2004,
NII Holdings (Cayman), Ltd., one of our wholly-owned
subsidiaries, used $211.2 million to complete a cash tender
offer to purchase substantially all of its 13.0% senior
secured discount notes due 2009. NII Holdings (Cayman), Ltd.
financed the tender offer with intercompany loans from NII
Holdings and cash on hand. We used a portion of our proceeds
from the issuance of our 2.875% convertible notes to fund
these intercompany loans to NII Holdings (Cayman), Ltd.
Subsequent to the end of the second quarter, in July 2004, we
repaid the remaining $52.6 million in principal and related
accrued interest due under our international equipment facility.
In addition, we defeased the remaining $40 thousand due under
our 13.0% senior secured discount notes due 2009. The full
repayment of our international equipment facility will reduce
our future interest costs and foreign currency exposures.
Combined with the defeasance of our senior secured discount
notes, the repayment of the international equipment facility
will increase our financial and operational flexibility due to
the release of the vast majority
65
of our assets that formed part of the collateral package that
was securing these facilities and the elimination of restrictive
covenants requiring the maintenance of certain financial ratios
relative to leverage, segment earnings, revenues, subscribers
and fixed charges.
Under an existing agreement with American Tower, during the six
and three months ended June 30, 2004, we received
$9.5 million and $3.1 million from tower
sale-leaseback transactions, respectively. In addition, Nextel
Brazil has a facility in place under which it can finance
handset purchases. Borrowings under this facility have
180 day maturities and interest is prepaid in
U.S. dollars at variable market rates. As of June 30,
2004, there were no amounts outstanding under the Nextel Brazil
handset credit facility.
Capital Needs. We currently anticipate that our
future capital needs will principally consist of funds required
for:
|
|
|
|
|
operating expenses relating to our digital mobile networks; |
|
|
|
capital expenditures to expand and enhance our digital mobile
networks, as discussed below under Capital
Expenditures; |
|
|
|
future spectrum purchases; |
|
|
|
debt service requirements, including tower financing obligations; |
|
|
|
cash taxes; and |
|
|
|
other general corporate expenditures. |
Capital Expenditures. Our capital expenditures,
including capitalized interest, were $99.1 million and
$50.9 million for the six and three months ended
June 30, 2004 compared to $117.1 million and
$52.8 million for the six and three months ended
June 30, 2003. The decrease in capital expenditures is
primarily due to additional funds invested to build-out our
network in the Baja California region of Mexico during 2003. In
the future, we expect to finance our capital spending using cash
from operations, cash on hand, cash from tower-sale leaseback
transactions and any other external financing that becomes
available. Our capital spending is driven by several factors,
including:
|
|
|
|
|
the construction of additional transmitter and receiver sites to
increase system capacity and maintain system quality and the
installation of related switching equipment in some of our
existing market coverage areas; |
|
|
|
the enhancement of our digital mobile network coverage around
some major market areas; |
|
|
|
the expansion of our digital mobile networks to new market areas; |
|
|
|
enhancements to our existing iDEN technology to increase voice
capacity; and |
|
|
|
non-network related information technology projects. |
Our future capital expenditures will be significantly affected
by future technology improvements and technology choices. In
October 2001, Motorola and Nextel Communications announced an
anticipated significant technology upgrade to the iDEN digital
mobile network, the 6:1 voice coder software upgrade. We have
implemented the network software upgrade for this technology in
Mexico. We expect that this software upgrade, which requires
that compatible handsets be distributed throughout the network
for it to become fully operational, will significantly increase
our voice capacity for interconnect calls and leverage our
existing investment in infrastructure in Mexico. We do not
expect to realize significant benefits from the operation of the
6:1 voice coder until after 2004. If there are substantial
delays in realizing the benefits of the 6:1 voice coder, we
could be required to invest additional capital in our
infrastructure to satisfy our network capacity needs. See
Forward Looking Statements.
Future Outlook. Our current business plan, under
which we have been operating since emerging from Chapter 11
reorganization in November 2002, does not contemplate a
significant expansion and does not require any additional
external funding. However, we are currently evaluating expansion
plans, primarily in
66
Mexico, but also in Brazil and other Latin American markets. If
we decide to pursue these expansion plans, we would seek
external financing to fund them in whole or in part.
If our business plans change, including as a result of changes
in technology, or if we decide to expand into new markets, or if
economic conditions in any of our markets generally, or
competitive practices in the mobile wireless telecommunications
industry change materially from those currently prevailing or
from those now anticipated, or if other presently unexpected
circumstances arise that have a material effect on the cash flow
or profitability of our mobile wireless business, then the
anticipated cash needs of our business as well as the
conclusions presented herein as to the adequacy of the available
sources of cash and timing on our ability to generate net income
could change significantly. Any of these events or circumstances
could involve significant additional funding needs in excess of
the identified currently available sources, and could require us
to raise additional capital to meet those needs. However, our
ability to seek additional capital, if necessary, is subject to
a variety of additional factors that we cannot presently predict
with certainty, including:
|
|
|
|
|
the commercial success of our operations; |
|
|
|
the volatility and demand of the capital markets; and |
|
|
|
the future market prices of our securities. |
Forward Looking Statements
Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995. A number of
the statements made in this quarterly report on
Form 10-Q/A are not historical or current facts, but
deal with potential future circumstances and developments and
our expectations based on them. They can be identified by the
use of forward-looking words such as believes,
expects, intends, plans,
may, will, would,
could, should or anticipates
or other comparable words, or by discussions of strategy that
involve risks and uncertainties. We caution you that these
forward-looking statements are only predictions, which are
subject to risks and uncertainties, including technical
uncertainties, financial variations, changes in the regulatory
environment, industry growth and trend predictions. We have
attempted to identify, in context, some of the factors that we
currently believe may cause actual future experience and results
to differ from our current expectations regarding the relevant
matter or subject area. The operation and results of our
wireless communications business also may be subject to the
effects of other risks and uncertainties in addition to the
other qualifying factors identified in the foregoing
Managements Discussion and Analysis of Financial
Condition and Results of Operations section, including,
but not limited to:
|
|
|
|
|
our ability to meet the operating goals established by our
business plan; |
|
|
|
general economic conditions in Latin America and in the market
segments that we are targeting for our digital mobile services; |
|
|
|
the political and social conditions in the countries in which we
operate, including political instability, which may affect the
economies of our markets and the regulatory schemes in these
countries; |
|
|
|
substantive terms of any international financial aid package
that may be made available to any country in which our operating
companies conduct business; |
|
|
|
the impact of foreign exchange volatility in our markets
compared to the U.S. dollar and related currency
devaluations in countries in which our operating companies
conduct business; |
|
|
|
reasonable access to and the successful performance of the
technology being deployed in our service areas, and improvements
thereon, including technology deployed in connection with the
introduction of digital two-way mobile data or Internet
connectivity services in our markets; |
|
|
|
the availability of adequate quantities of system infrastructure
and subscriber equipment and components to meet our service
deployment and marketing plans and customer demand; |
|
|
|
the success of efforts to improve and satisfactorily address any
issues relating to our digital mobile network performance; |
67
|
|
|
|
|
future legislation or regulatory actions relating to our
specialized mobile radio services, other wireless communication
services or telecommunications generally; |
|
|
|
the ability to achieve and maintain market penetration and
average subscriber revenue levels sufficient to provide
financial viability to our digital mobile network business; |
|
|
|
the quality and price of similar or comparable wireless
communications services offered or to be offered by our
competitors, including providers of cellular services and
personal communications services; |
|
|
|
market acceptance of our new service offerings, including Nextel
Worldwide,sm
Nextel
Onlinesm
and International Direct
Connectsm; |
|
|
|
our ability to access sufficient debt or equity capital to meet
any future operating and financial needs; and |
|
|
|
|
other risks and uncertainties described from time to time in our
reports filed with the Securities and Exchange Commission,
including our 2003 annual report on Form 10-K/A and our
quarterly report on Form 10-Q/A for the quarter ended
March 31, 2004. |
|
Effect of New Accounting Standards
In January 2003, the Financial Accounting Standards Board, or
FASB, issued FASB Interpretation, or FIN, No. 46,
Consolidation of Variable Interest Entities An
Interpretation of ARB No. 51, which clarifies the
application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain
entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. FIN No. 46 provides guidance
related to identifying variable interest entities (previously
known generally as special purpose entities or SPEs) and
determining whether such entities should be consolidated.
FIN No. 46 must be applied immediately to variable
interest entities created, or interests in variable interest
entities obtained, after January 31, 2003. For those
variable interest entities created, or interests in variable
interest entities obtained, on or before January 31, 2003,
the guidance in FIN No. 46 must be applied in the
first fiscal year or interim period beginning after
December 15, 2003. The adoption of FIN No. 46 on
January 1, 2004 did not have a material impact on our
financial position, results of operations or cash flows.
In March 2004, the Emerging Issues Task Force, or EITF, reached
a final consensus on Issue No. 03-6, Participating
Securities and the Two Class Method Under FASB
Statement No. 128, Earnings Per Share. Issue
No. 03-6 addresses a number of questions regarding the
computation of earnings per share (EPS) by companies that
have issued securities other than common stock that
contractually entitle the holder to participate in dividends and
earnings of the company when, and if, it declares dividends on
its common stock. The issue also provides further guidance in
applying the two-class method of calculating EPS. It clarifies
what constitutes a participating security and how to apply the
two-class method of computing EPS once it is determined that a
security is participating, including how to allocate
undistributed earnings to such a security. EITF 03-6 is
effective for the fiscal quarter ended June 30, 2004. The
adoption of EITF 03-6 did not have a material impact on our
basic or diluted earnings per share.
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. As a result,
fluctuations in exchange rates relative to the U.S. dollar
expose us to foreign currency exchange risks. These risks
include the impact of translating our local currency reported
earnings into U.S. dollars when the U.S. dollar
strengthens against the local currencies of our foreign
operations. In addition, we have local currency-based
communication tower sale-leaseback transactions in Mexico and
Brazil, which we are accounting for as financing transactions
(see Note 5). Due to the limited availability of long-term
instruments, we currently do not hedge assets or liabilities
denominated in foreign currencies or foreign currency
transactions.
68
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,
2004, substantially all of our borrowings were fixed-rate
long-term debt obligations. In some cases, we have used
derivative instruments to manage this interest rate exposure by
achieving a desired proportion of fixed rate versus variable
rate borrowings. We only used derivative instruments for
non-trading purposes. We do not have any derivative instruments
in place as of June 30, 2004 other than one of the
conversion features embedded in each of our convertible notes,
which are not material in value.
The table below presents principal amounts, related interest
rates by year of maturity and aggregate amounts as of
June 30, 2004 for our fixed and variable rate debt
obligations, including our 3.5% convertible notes, our
2.875% convertible notes, our international equipment
facility and our tower financing obligations. We determined the
fair values included in this section based on:
|
|
|
|
|
quoted market prices for our convertible notes; |
|
|
|
carrying values for our international equipment facility as of
June 30, 2004 as interest rates are reset
periodically; and |
|
|
|
carrying values for our tower financing obligations as interest
rates were set recently when we entered into these transactions. |
The changes in the fair values of our debt compared to their
fair values as of December 31, 2003 reflect changes in
applicable market conditions. In addition, the table reflects
the prepayment of $72.5 million in outstanding principal
and related accrued interest under our international equipment
facility in February 2004, as well as the payment of the
remaining $52.6 million in outstanding principal and
related accrued interest under this facility in July 2004. The
table also reflects the extinguishment of substantially all of
our senior secured discount notes in March 2004 and the
defeasance of the remaining amount under these notes in July
2004. All of the information in the table is presented in
U.S. dollar equivalents, which is our reporting currency.
The actual cash flows associated with our long-term debt are
denominated in U.S. dollars (US$), Mexican pesos
(MP) and Brazilian reais (BR).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity | |
|
June 30, 2004 | |
|
December 31, 2003 | |
|
|
| |
|
| |
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
Thereafter | |
|
Total | |
|
Fair Value | |
|
Total | |
|
Fair Value | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(dollars in thousands) | |
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate (US$)
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
480,000 |
|
|
$ |
480,000 |
|
|
$ |
562,200 |
|
|
$ |
360,821 |
|
|
$ |
383,580 |
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
% |
|
|
3.1 |
% |
|
|
|
|
|
|
8.3 |
% |
|
|
|
|
|
Fixed Rate (MP)
|
|
$ |
1,488 |
|
|
$ |
1,758 |
|
|
$ |
2,079 |
|
|
$ |
2,461 |
|
|
$ |
2,914 |
|
|
$ |
65,784 |
|
|
$ |
76,484 |
|
|
$ |
76,484 |
|
|
$ |
71,204 |
|
|
$ |
71,204 |
|
|
Average Interest Rate
|
|
|
17.2 |
% |
|
|
17.2 |
% |
|
|
17.2 |
% |
|
|
17.2 |
% |
|
|
17.2 |
% |
|
|
17.2 |
% |
|
|
17.2 |
% |
|
|
|
|
|
|
17.8 |
% |
|
|
|
|
|
Fixed Rate (BR)
|
|
$ |
173 |
|
|
$ |
231 |
|
|
$ |
309 |
|
|
$ |
414 |
|
|
$ |
555 |
|
|
$ |
30,881 |
|
|
$ |
32,563 |
|
|
$ |
32,563 |
|
|
$ |
31,880 |
|
|
$ |
31,880 |
|
|
Average Interest Rate
|
|
|
28.3 |
% |
|
|
28.3 |
% |
|
|
28.3 |
% |
|
|
28.3 |
% |
|
|
28.3 |
% |
|
|
28.3 |
% |
|
|
28.3 |
% |
|
|
|
|
|
|
28.4 |
% |
|
|
|
|
|
Variable Rate (US$)
|
|
$ |
52,493 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
52,493 |
|
|
$ |
52,493 |
|
|
$ |
125,000 |
|
|
$ |
125,000 |
|
|
Average Interest Rate
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.2 |
% |
|
|
|
|
|
|
6.2 |
% |
|
|
|
|
Item 4. 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 is recorded, processed, summarized and reported within
the time periods required by the Securities and Exchange
Commission. We continuously monitor all of our controls and
procedures to ensure that they are operating effectively and
consistently across the company as a whole.
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. This
evaluation was subsequently modified due to the identification
of the items described below. Based on and as of the date of
such evaluation, as modified, these
69
officers concluded that our disclosure controls and procedures
were not effective for the reasons described in the following
paragraphs.
Our chief executive officer and chief financial officer are also
responsible for establishing and maintaining adequate internal
controls over our financial reporting. Subsequent to the filing
of our quarterly report on Form 10-Q for the period ended
June 30, 2004, we identified bookkeeping errors in various
balance sheet accounts at our operating company in Mexico.
Separately, on November 4, 2004, we were notified by our
independent registered public accountants of errors related to
our accounting policy and treatment of the subsequent reversal
of deferred tax asset valuation reserves established at the time
of fresh-start accounting as of October 31, 2002. These
items are described in further detail below.
During our evaluation of these items, we concluded the errors
(i) reflected a material weakness in our internal control
over financial reporting with respect to account reconciliations
at Nextel Mexico and (ii) reflected a material weakness in
our internal control over financial reporting with respect to
the accounting and reporting of income taxes. In addition, the
occurrence of a number of significant deficiencies may also
indicate a material weakness. A material weakness, as defined by
the Public Company Accounting Oversight Board (PCAOB), is a
reportable condition in which the design or operation of one or
more elements of the internal control structure does not
sufficiently reduce the risk of material errors and
irregularities occurring and not being timely detected. Our
management has communicated the material weaknesses and their
background to our board of directors and its audit committee and
our independent registered public accounting firm.
As a result of these errors and other adjustments identified
through our review, we have restated our condensed consolidated
financial statements as of and for the six and three months
ended June 30, 2004 and 2003, as set forth in this report.
Except as described herein, there were no changes in our
internal control over financial reporting identified in
connection with our evaluation that occurred during the
three-month period ended June 30, 2004 that materially
affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Nextel Mexico Bookkeeping Errors
The identification of the bookkeeping errors occurred as a
result of our ongoing review of Nextel Mexicos internal
accounts and records in order to comply with the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002.
Subsequent to the identification of these errors, we completed
an account reconciliation project at Nextel Mexico to review and
analyze these liability accounts and all other material
accounts. The errors impacted accounts receivable, accounts
payable, accrued expenses, operating expenses and gains and
losses regarding foreign currency transactions. The errors
occurred due to our failure to perform account reconciliations
and resolve differences in a timely manner, and the errors did
not result from any fraudulent activities.
The nature of the errors relate to three main areas:
|
|
|
|
|
|
Foreign Currency Adjustments Some of our foreign
currency transaction gains and losses were double-recorded
through a combination of manual entries and system generated
automatic entries recorded upon payment of U.S. dollar
denominated payables; |
|
|
|
|
|
Accounts receivable adjustments Periodic
reconciliations between the accounts receivable subsidiary
ledger and the general ledger were not performed properly or
timely. As a result, unreconciled differences related to the
non-recognition of commissions expense on credit card payments,
returned checks, manual adjustments and other items were
classified to a current liability account, but were not reversed
from the liability account upon resolution of these
differences; and |
|
|
|
|
|
Liability accounts Certain liability accounts
contained balances that could not be supported by invoices or
subsequent disbursements. |
|
70
We have taken or are taking the following corrective actions,
which we believe will strengthen our internal controls and
prevent the possibility of this type of error from occurring in
the future:
|
|
|
|
|
|
personnel changes, including the termination of the controller
responsible for the unreconciled accounts; |
|
|
|
|
|
the implementation of additional procedures surrounding the
account reconciliation process as well as manual journal entries
in our operating companies and related to the monitoring by NII
Holdings of key control procedures in our operating companies; |
|
|
|
|
|
revisions to system controls regarding general ledger posting
restrictions; and |
|
|
|
|
|
the provision of more specific guidance regarding steps that
must be completed by our operating companies executives
before signing the certifications related to the
Section 302 of the Sarbanes-Oxley Act of 2002. |
|
Accounting for Income Taxes
Beginning with our emergence from Chapter 11 reorganization
on October 31, 2002, we recognized the release of valuation
allowances on deferred tax assets established at the time we
applied fresh-start accounting as a non-cash reduction to our
income tax provision. Upon further review, our current
independent registered public accounting firm notified us that
our accounting was in error and that in accordance with
SOP 90-7, the reversal of valuation allowances established
at fresh-start accounting should not be recorded as a reduction
to our income tax provision but rather a reduction to intangible
assets existing at our emergence from reorganization until these
are fully exhausted, followed by increases to paid-in capital.
We have reviewed and corrected our accounting policy for income
taxes to accurately track and record the reversal of deferred
tax asset valuation allowances established at the time we
applied fresh-start accounting. We recorded the reversal of
these valuation allowances first as a reduction to our remaining
intangible assets existing at our emergence from reorganization.
Once these intangible assets are fully exhausted, we will record
any additional reversals as an increase to paid-in capital. In
addition we have identified various other errors in the
calculation of income taxes. These errors occurred as a result
of the misapplication of the appropriate financial accounting
standard and from the lack of proper review procedures and did
not result from any fraudulent activities. We acknowledge that
this accounting resulted in a material error and reflects a
material weakness as defined by the PCAOB. Lastly, we have
restated our historical consolidated financial statements as of
and for the six and three months ended June 30, 2004 and
2003, as set forth in this report.
71
PART II OTHER INFORMATION.
Item 1. Legal Proceedings.
We and/or our operating companies are parties to certain legal
proceedings that are described in our 2003 annual report on
Form 10-K/A. During the three months ended June 30,
2004, there were no material changes in the status of or
developments regarding those legal proceedings that have not
been previously disclosed in our 2003 annual report on
Form 10-K/A and our quarterly report on Form 10-Q/A
for the quarter ended March 31, 2004.
Item 4. Submission of Matters to a Vote of Security
Holders.
|
|
|
|
(a) |
Our Annual Meeting of Stockholders was held on Tuesday,
April 28, 2004. |
|
|
(b) |
Not applicable. |
|
|
(c) |
The common stockholders voted for the election of two
(2) directors to serve for terms of three (3) years
each, expiring on the date of the annual meeting in 2007 or
until their successors are elected. In addition, Charles F.
Wright was nominated and elected to the Board of Directors
pursuant to Motorola Credit Corporations rights under the
Special Director Preferred Stock. Mr. Wright was not
subject to the vote of holders of our common stock. The results
of the voting in these elections are set forth below. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominee |
|
Votes For | |
|
Votes Withheld | |
|
Broker Non-votes | |
|
|
| |
|
| |
|
| |
Steven P. Dussek
|
|
|
52,602,631 |
|
|
|
10,162,909 |
|
|
|
N/A |
|
Steven M. Shindler
|
|
|
61,448,298 |
|
|
|
1,317,242 |
|
|
|
N/A |
|
Charles F. Wright
|
|
|
1 |
|
|
|
|
|
|
|
N/A |
|
The terms of office of the following directors continued after
the meeting:
|
|
|
Class of 2005 |
|
Class of 2006 |
|
|
|
Neal P. Goldman
Charles M. Herington
John W. Risner |
|
George A. Cope
Carolyn Katz
Donald E. Morgan |
In addition, the stockholders voted (1) to approve an
Amendment to our Restated Certificate of Incorporation to
increase the number of authorized shares of common stock from
100 million to 300 million shares, (2) to approve
our 2004 Incentive Compensation Plan, and (3) to approve an
adjournment of the Annual Meeting to a later date or dates, if
necessary, in order to permit the further solicitation of
proxies. The results of the voting are set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes | |
|
Votes | |
|
|
Proposal |
|
Votes For | |
|
Against | |
|
Withheld | |
|
Broker Non-votes | |
|
|
| |
|
| |
|
| |
|
| |
Amendment to our Restated Certificate of Incorporation
|
|
|
55,623,157 |
|
|
|
7,134,302 |
|
|
|
8,081 |
|
|
|
N/A |
|
2004 Incentive Compensation Plan
|
|
|
37,623,952 |
|
|
|
12,474,182 |
|
|
|
27,528 |
|
|
|
12,639,878 |
|
Adjournment of the Annual Meeting
|
|
|
32,756,777 |
|
|
|
20,984,279 |
|
|
|
9,024,484 |
|
|
|
N/A |
|
No other matters were voted upon at the Annual Meeting or during
the quarter covered by this report.
72
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
|
|
12 |
.1 |
|
Ratio of Earnings to Fixed Charges (filed herewith). |
|
31 |
.1 |
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a) (filed herewith). |
|
31 |
.2 |
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a) (filed herewith). |
|
32 |
.1 |
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 (filed herewith). |
|
32 |
.2 |
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 (filed herewith). |
(b) Reports on Form 8-K.
We filed or furnished the following reports on Form 8-K
with the Securities and Exchange Commission during the three
months ended June 30, 2004:
|
|
|
|
|
On April 16, 2004, we filed a Current Report on
Form 8-K, dated April 15, 2004, which reported under
Item 5 a detail of fees billed and expected to be billed by
PricewaterhouseCoopers LLP for professional services rendered
for the audit of our annual financial statements for 2003, as
well as fees billed for audit-related services, tax services and
all other services rendered for 2003; |
|
|
|
On April 29, 2004, we furnished a Current Report on
Form 8-K, dated April 29, 2004, which furnished under
Item 12 a press release announcing certain financial and
operating results for the three months ended March 31,
2004; and |
|
|
|
On May 13, 2004, we filed a Current Report on
Form 8-K, dated March 12, 2004, which reported under
Item 5 the coverage of an additional 23,122,566 shares of
our common stock resulting from the three-for-one split of our
common shares which were initially registered in connection with
the filing of our Registration Statement on Form S-1 dated
December 20, 2002. |
73
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
|
|
|
By: |
/s/ Ricardo L. Israele
|
|
|
|
|
|
Ricardo L. Israele |
|
|
Vice President and Controller |
|
Date: March 28, 2005
74
EXHIBIT INDEX
|
|
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Exhibit Description |
|
|
|
|
|
|
|
|
12 |
.1 |
|
Ratio of Earnings to Fixed Charges (filed herewith). |
|
|
|
|
|
31 |
.1 |
|
Statement of Chief Executive Officer Pursuant to
Rule 13a-14(a) (filed herewith). |
|
|
|
|
|
31 |
.2 |
|
Statement of Chief Financial Officer Pursuant to
Rule 13a-14(a) (filed herewith). |
|
|
|
|
|
32 |
.1 |
|
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 (filed herewith). |
|
|
|
|
|
32 |
.2 |
|
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 (filed herewith). |
|
|
|
|
75