UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
| THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 20142015 |
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| o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
| THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
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Commission file number 0-32421001-37488 |
(Exact name of registrant as specified in its charter)
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| Delaware | | 91-1671412 |
| (State or other jurisdiction of | | (I.R.S. Employer Identification No.) |
| incorporation or organization) | | |
1875 Explorer Street, Suite 800 Reston, Virginia (Address of principal executive offices) | | 20190 (Zip Code) |
Registrant’s telephone number, including area code: (703) 390-5100
Securities registered pursuant to Section 12(g)12(b) of the Act:
Common Stock, par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o | | Accelerated filer þo
| | Non-accelerated filer oþ | | Smaller reporting company o |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2014: $94,798,9542015: N/A
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange 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 registrant’s classes of common stock, as of the latest practicable date. |
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| | Number of Shares Outstanding |
| Title of Class | on February 28, 201529, 2016 |
| Common Stock, $0.001 par value per share | 172,363,259100,911,009 |
NII HOLDINGS, INC.
TABLE OF CONTENTS
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PART I
Corporate History
Overview. We were originally organized in 1995 as a holding company for the operations of Nextel Communications, Inc. in selected international markets. The corporation that is currently known as NII Holdings, Inc. was incorporated in Delaware in 2000 as Nextel International, Inc. In December 2001, we changed our name from Nextel International, Inc. to NII Holdings, Inc. Our principal executive office is located at 1875 Explorer Street, Suite 800, Reston, Virginia 20190. Our telephone number at that location is (703) 390-5100. Unless the context requires otherwise, “NII Holdings, Inc.,” “NII Holdings,” “we,” “our,” “us” and “the Company” refer to the combined businesses of NII Holdings, Inc. and its consolidated subsidiaries. We refer to our wholly-owned Brazilian operating companies by the countries in which they operate, suchcompany, Nextel Telecomunicações Ltda., as Nextel Brazil,Brazil. Nextel MexicoBrazil's operations are headquartered in São Paulo, with branch offices in Rio de Janeiro and Nextel Argentina. For financial information about our operating companies, see Note 15 to our consolidated financial statements included at the end of this annual report on Form 10-K.various other cities.
Except as otherwise indicated, all amounts are expressed in United States, or U.S., dollars and references to “dollars” and “$” are to U.S. dollars. All historical financial statements contained in this report are prepared in accordance with accounting principles generally accepted in the U.S.
Business Update
Emergence from Chapter 11 Filing
Proceedings. On September 15, 2014, NII Holdings, Inc.we and eight of itsour U.S. and Luxembourg-domiciled subsidiaries, including NII Capital Corp. and NextelNII International Telecom, S.C.A,S.C.A., or NIIT, filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code, which we refer to as Chapter 11, in the United States Bankruptcy Court for the Southern District of New York, which we refer to as the Bankruptcy Court. SinceIn addition, subsequent to September 15, 2014, five additional subsidiaries of NII Holdings Inc. have filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy Court, with four subsidiaries filing on October 8, 2014 and one subsidiary filing on January 25, 2015. The entitiesCourt. We refer to the companies that have filed voluntary petitions seeking relief under Chapter 11 which we refer to collectively as the debtors, continueDebtors. Nextel Brazil and our previous other operating subsidiaries in Latin America were not Debtors in these Chapter 11 cases.
As described in more detail in Note 2 to operate as "debtors-in-possession" underour consolidated financial statements, on June 19, 2015, the jurisdictionBankruptcy Court entered an order approving and confirming the Plan of Reorganization. On June 26, 2015, the conditions of the Bankruptcy CourtCourt's order and inthe Plan of Reorganization were satisfied, the Plan of Reorganization became effective, and we and the other Debtors emerged from the Chapter 11 proceedings.
In accordance with the applicablerequirements of reorganization accounting, NII Holdings adopted the provisions of fresh start accounting as of June 30, 2015 and became a new entity for financial reporting purposes. References to the Bankruptcy Code and orders"Successor Company" relate to NII Holdings on or subsequent to June 30, 2015. References to the "Predecessor Company" relate to NII Holdings prior to June 30, 2015. For purposes of comparison to the year ended December 31, 2014, we combined the results of operations for the six months ended December 31, 2015 with the results of operations for the six months ended June 30, 2015. However, as a result of the Bankruptcy Court. Our operating subsidiaries in Brazil,application of fresh start accounting and other events related to our reorganization under Chapter 11, the Successor Company's financial results for the six months ended December 31, 2015 are prepared under a new basis of accounting and are not directly comparable to the Predecessor Company's financial results for the six months ended June 30, 2015. For the same reasons, our results of operations for the combined twelve-month period ended December 31, 2015 are not fully comparable to our results of operations for the year ended December 31, 2014.
Divestitures and Organizational Changes
Sales of Nextel Mexico and Argentina are not debtors inNextel Argentina. On April 30, 2015, we completed the Chapter 11 cases.
Under Chapter 11, we are permitted to continue to operate our business and manage our properties in the ordinary course of business without prior approval from the Bankruptcy Court. Transactions outside the ordinary course of business proposed to be undertaken by any of the debtors, including certain types of capital expenditures, as well as certain sales of assets, certain requests for additional financings and certain other arrangements, including material changes to agreements and employee compensation arrangements, require approval by the Bankruptcy Court. There can be no assurance that the Bankruptcy Court will grant any requests for such approvals. On October 14, 2014, the Bankruptcy Court issued a final order permitting us to pay pre-petition salaries, wages and benefits to all employeessale of our debtor entities and authorized the payment of certain other pre-petition claims,operations in limited circumstances,Mexico to avoid undue disruption to our operations.
On November 24, 2014, certain of the holders of the senior notes issued by NII Capital Corp. and NIIT, certain other creditors and the official committee of unsecured creditors appointed in the Chapter 11 cases, which we refer to as the Committee, reached agreement regarding the terms of a plan of reorganization, which we refer to as the Original Plan, and the debtors, consenting parties and the Committee entered into a plan support agreement, which we refer to as the Original PSA, that governed the respective parties' obligations in connection with the formulation and filing of, and the solicitation of votes with respect to, the Original Plan. The Original Plan and a related disclosure statement were filed with the Bankruptcy Court on December 22, 2014. As described below, on January 26, 2015, NII Holdings, Inc. and certain of its subsidiaries entered into a purchase and sale agreement withNew Cingular Wireless, an indirect subsidiary of AT&T, Inc., or AT&T,&T. The transaction was structured as a sale of all the outstanding stock of Nextel Mexico for a purchase price of approximately $1.875 billion, including $187.5 million deposited in escrow to satisfy potential indemnification claims. The net proceeds of the sale were $1.448 billion, after deducting Nextel Mexico's outstanding indebtedness net of our Mexico operations, which we refer to as Nextel Mexico. The agreement to sell Nextel Mexico is inconsistent with the terms of the Original PSAcash and the Original Plan, and as a result, NII Holdings, Inc. exercised its right to terminate the Original PSA.
On March 5, 2015, certain of the debtors, holders of approximately $1.93 billion, or 70%, of the senior notes issued by NII Capital Corp. and approximately $1.15 billion, or 72%, of the senior notes issued by NIIT, which we refer to collectively as the Consenting Creditors, and the Committee reached agreement regarding the terms of a revised plan of reorganization, which we refer to as the Revised Plan, that takes into account the impact of, and is contingent upon, the sale of Nextel Mexico. Certain debtors, the Consenting Creditors and the Committee entered into a Revised PSA that governs the respective parties' obligations
in connection with the formulation, filing and solicitation of votes with respect to the Revised PSA. The Revised Plan will provide for, amongapplying other things, the distribution ofspecified purchase price adjustments. We used a portion of the net proceeds of the sale of Nextel Mexico to holders of the senior notes issued by NII Capital Corp.repay all outstanding principal and NIITinterest under a debtor-in-possession loan agreement we entered into prior to our emergence from Chapter 11 and for the conversion of the remaining balance of these senior notes into equity interests in the reorganized company. The Revised Plan will also include a settlement of certain estate claims and claims relatedto fund distributions to specified creditors pursuant to the purported releasePlan of certain guaranteesReorganization.
On September 11, 2015, two of our NII Capital Corp. senior notes due 2016 and 2019. The terms of the Revised PSA do not provide for any return of value to equity holders. In addition, the Revised PSA requires, among other things, (i) the plan proponents to file and solicit votes on the Revised Plan; (ii) the consenting parties to vote in favor of and otherwise support the Revised Plan; and (iii) the parties thereto to use commercially reasonable efforts to obtain confirmation of the Revised Plan and consummate the transactions contemplated under the plan term sheet that is part of the Revised PSA. The Revised PSA may be terminated under various circumstances, including if the Revised Plan is not confirmed or is not confirmed by specified dates.
The Revised PSA also contemplates that certain of our creditors will provide up to $350.0 million in bridge loan financing while our Chapter 11 case is pending that would remain outstanding in order to provide us with the additional liquidity necessary to fund our business plan until the sale of Nextel Mexico is completed.
Proposed Sale of Mexico Operations
On January 26, 2015, NII Holdings, Inc. and certain of itsindirect subsidiaries entered into a purchase and salebinding agreement with an indirect subsidiary of AT&T for the sale of Nextel Mexico. The purchase agreement provides for a purchase price of $1.875 billion in cash, less Nextel Mexico's outstanding debt, net of its cash balances, on the closing date and subjectGrupo Clarin relating to other specified adjustments.
The purchase agreement provides that approximately $32.0 million of the purchase price will be deposited and held in escrow to secure specified obligations of AT&T under the purchase agreement. The purchase agreement also provides that $187.5 million of the purchase price will be held in escrow for two years in case of breaches by Nextel Mexico of representations, warranties and covenants.
The sale transaction is being implemented pursuant to Section 363 of the Bankruptcy Code and is subject to higher or better offers in accordance with bidding procedures approved by, and under the supervision of, the Bankruptcy Court. AT&T may terminate the purchase agreement if the hearing before the Bankruptcy Court with respect to the sale does not occur by March 23, 2015. The successful bidder in the auction process contemplated by the bidding procedures will be required to complete the transactions contemplated by the purchase agreement in accordance with its terms. In addition, if AT&T is not the successful bidder, NII Holdings will be required to pay AT&T a termination fee equal to approximately $32.0 million, reimburse up to $10.0 million of AT&T's expenses and return the deposit.
Completion of the sale is subject to several conditions, including: (i) the Bankruptcy Court having entered all appropriate orders; (ii) obtaining all required governmental approvals; (iii) the absence of a material adverse effect on Nextel Mexico; and (iv) certain other customary conditions. Assuming the successful sale of Nextel Mexico, we plan to focus our financial and other resources on our core operation in Brazil. We expect the sale transaction to be completed by mid-2015.
Argentina, Peru and Chile Operations
In an effort to focus our capital resources on our key markets, in August 2014, our wholly-owned subsidiaries, NII Mercosur Telecom, S.L., NII Mercosur Moviles, S.L. and NII International Telecom S.C.A., completed the sale of all of the outstanding equity interests of Nextel Argentina. This agreement provided for aggregate cash consideration of $178.0 million, of which $159.0 million was paid at signing in connection with the transfer of a 49% equity interest in Nextel Argentina and the grant of a call option that allowed Grupo Clarin or any of its affiliates to acquire the remaining 51% equity interest in Nextel Argentina upon receipt of required approvals from the regulatory authorities in Argentina. The remaining cash consideration was received in October 2015, including $6.0 million deposited in escrow to satisfy potential indemnification claims. On January 27, 2016, the agreement was amended to permit Grupo Clarin or any of its affiliates to exercise the right to acquire
the remaining 51% equity interest prior to receiving regulatory approval, and Grupo Clarin and its affiliate immediately acquired the remaining 51% of Nextel Argentina for no additional proceeds.
We plan to use the net proceeds received from the sales of Nextel Mexico and Nextel Argentina to provide additional liquidity to support our wholly-owned subsidiary, Nextel Chile S.A., or Nextel Chile, to Fucata, S.A., or Fucata, for a de minimus amount.operations in Brazil. In connection with these transactions, we have presented the saleresults of Nextel Chile to Fucata, we have reportedMexico and Nextel ChileArgentina for all periods as a discontinued operationoperations in this annual report on Form 10-K. Accordingly, we have reclassified Nextel Chile's results of operations for all periods presented to reflect Nextel Chile as discontinued operations. Unless otherwise noted, amounts included in this annual report on Form 10-K exclude amounts attributable to
Changes at Corporate Headquarters. Following the discontinued operations of Nextel Chile and Nextel del Peru, S.A., or Nextel Peru, which we sold to Empresa Nacional de Telecomunicaciones S.A. and one of its subsidiaries, Entel Inversiones, S.A., which we refer to collectively as Entel, in August 2013. While we continue to support our operation in Argentina, in lightsales of our results of operations in Mexico and this changeArgentina, we now operate only in emphasis,Brazil. As a result, we are actively pursuing strategic options such as partnerships, service arrangementstaking steps to further streamline the expenses incurred at our corporate headquarters by shifting costs and asset salesassociated responsibilities to Nextel Brazil. We implemented workforce reductions at our corporate headquarters in an effort to maximize Nextel Argentina's value.the fourth quarter of 2015 in connection with this effort.
Nextel Brazil Business Overview
We provide wireless communication services under the NextelTM brand. Historically,brand in Brazil with our principal operations located in major urban and suburban centers with high population densities and related transportation corridors of that country where we believe there is a concentration of Brazil’s business users and economic activity, including primarily Rio de Janeiro and São Paulo.
In the second half of 2013, Nextel Brazil commercially launched services on its wideband code division multiple access, or WCDMA, network in São Paulo, Rio de Janeiro and surrounding areas and extended those services to other areas in Brazil by expanding the coverage of its network and utilizing roaming services and network sharing arrangements pursuant to agreements that it reached with another network operator in Brazil. Nextel Brazil currently offers services supported by its WCDMA network in approximately 260 cities in Brazil. Our WCDMA network enables us to offer a wide range of products and services supported by that technology, including data services provided at substantially higher speeds than can be delivered on our legacy integrated digital enhanced network, or iDEN.
Prior to the deployment of our WCDMA network, our services were primarily targeted to meet the needs of business customers and individualscustomers. With the deployment of our WCDMA network in Brazil, our target market has shifted to individual consumers who useduse our services to meet both professional and personal needs. With the deployment of our wideband code division multiple access, or WCDMA, networks in our markets, ourOur target market has expanded to include both business subscribers and consumers whogenerally exhibit above average usage, revenue and loyalty characteristics and who wecharacteristics. We believe will beour target market is attracted to the services and attractive pricing plans we offer, as well as the quality of and data speeds provided by our WCDMA networks and the quality of our customer service.network.
We provide our services through operating companies located in Brazil, Mexico and Argentina, with our principal operations located in major business centers and related transportation corridors of these countries. We provide services in major urban and suburban centers with high population densities where we believe there is a concentration of the country’s business users and economic activity. We believe that the growing economic base, increase in the middle and upper class and lower wireline service penetration encourage the use of the mobile wireless communications services that we offer and plan to offer in the future. Our WCDMA networks in Brazil and Mexico serve these major business centers and, in some instances, a broader geographic area in order to meet the requirements of our spectrum licenses. We also utilize roaming arrangements to expand the geographic coverage of our WCDMA-based services in Brazil and Mexico.
Our original networks utilize integrated digital enhanced network, or iDEN, technology developed by Motorola, Inc. to provide mobile services on our 800 megahertz, or MHz, spectrum holdings in all of our markets. Our next generation networks utilize WCDMA technology, which is a standards-based technology that is being deployed by carriers throughout the world. We also offer long-term evolution, or LTE, services in Rio de Janeiro and continue to provide services on our legacy iDEN network throughout various regions in BrazilBrazil. Our transition to standards-based technologies such as WCDMA also gives us more flexibility to offer customers the option of purchasing services by acquiring the subscriber identity module, or SIM, cards from us separately, and in certain cities in Mexico. These technologies allow usby providing the customer with the option to use our spectrum efficiently and offer multiple wireless services integrated into a variety of handset and data devices.the SIM cards in one or more devices that they acquire from us or from other sources.
The services we currently offer include:
mobile telephone voice service;
wireless data services, including text messaging services, mobile internet services and email services;
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| • | push-to-talk services, including Direct Connect®, Prip and International Direct Connect® services, which allow subscribers to talk to each other instantly; |
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| • | other value-added services, including location-based services, which include the use of Global Positioning System, or GPS, technologies; digital media services; and a wide ranging set of applications available via our content management system, as well as the AndroidTM open application market; |
business solutions, such as security, work force management, logistics support and other applications that help our business subscribers improve their productivity; and
voice and data roaming services outside of our coverage areas.
The deployment and expansion of our WCDMA networks in Brazil and Mexico enables us to offer a wider range of products and services that are supported by that technology, including data services provided at substantially higher speeds than can be delivered on our iDEN networks. These WCDMA networks also support our unique push-to-talk services that provide differentiation from our competitors' offerings. In the third quarter of 2013, our WCDMA network reached geographic coverage parity with our iDEN network in Mexico, and in Brazil we are currently offering services supported by our WCDMA network in about 260 cities, including cities in and around Sao Paulo and Rio de Janeiro. In the second quarter of 2014, we launched LTE services in Rio de Janeiro, and during the fourth quarter of 2014, we began offering similar LTE services in certain cities in Mexico. We also offer service on our iDEN network in Argentina and continue to provide services on our iDEN networks in Brazil and Mexico.
As a result of our transition to WCDMA and LTE-based networks, we are able to offer a substantially broader range of services and devices that support our services, including our push-to-talk services, data services and, in some cases, both. For example, our Prip service, which is currently available in Brazil and Mexico, expands the availability of our push-to-talk services to a wider range of handsets.
Our transition to standards-based technologies also gives us more flexibility to offer customers the option of purchasing services by acquiring the subscriber identity module, or SIM, cards from us separately, and by providing the customer with the option to use the SIM cards in one or more devices that they acquire from us or from other sources.
As illustrated in the table below, as of December 31, 20142015, our operating companiesNextel Brazil had about 9.24.342 million total subscriber units in commercial service, which represented a decreasewe estimate to be about 2% of about 61 thousand, or 1%, from December 31, 2013.the total mobile handsets and other devices in commercial service in Brazil. We refer to these subscriber units in commercial service collectively as our subscriber base.
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| | Subscriber Units in Commercial Service |
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| Country | 2014 | | 2013 |
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| Brazil (1) | 4,341.5 |
| | 3,958.2 |
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| Mexico (1) | 2,888.5 |
| | 3,264.5 |
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| Argentina | 1,954.4 |
| | 2,023.1 |
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| Total | 9,184.4 |
| | 9,245.8 |
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(1) | Includes subscriber units on both our WCDMA and iDEN networks. |
Operating Strategy
Our goal is to generate higher revenues and increase our subscriber base by providing differentiated wireless communications services that are valued by our existing and potential customers, while managing our capital and operating expenditures in the near-term and improving our profitability and cash flow over the long term. Our strategy for achieving this goal is based on several core principles, including:
aligning our costs with our current business through continuous evaluation and streamlining of all capital and operating expenditures;
focusing on higher value customer segments in our core markets, such as segments that comprisegenerate higher average revenue per user, or ARPU, and lower customer turnover rates;
utilizing the small, medium and large business markets, as well as certain consumer market segments that value our differentiated wireless communications services;
expanding our service offerings to meet the needs of a broader range of potential customers, including by offering lower cost prepaid service plans;
offering a broad array of differentiated services and devices that build upon and complement our push-to-talk services, which give our customers the ability to communicate with each other instantly;
offering new services supported by high quality WCDMA networks;most profitable sales channels;
offering a superior customer experience;experience, including a reliable and high quality wireless network; and
building on the strength of the unique positioning of the Nextel brand.
To transition to a more consumer oriented business model and position our company to compete effectively, we have, among other things:
realigned our distribution channels to make our services more widely accessible to a broader range of customers;
refreshed and tailored our marketing approach to attract a broader set of customers, especially consumers, to make them aware of our new services and capabilities, our broader range of available handsets and devices, and the quality and performance of our networks;
worked with device suppliers to obtain new handset models and features supported by our WCDMA networks, including devices and smartphones from suppliers like Samsung, LG, Sony, Alcatel, Huawei, Motorola Mobility and Apple;
launched commercial campaigns offering handsets at a lower cost and offering service plans with prices and terms that are simple and attractive;
implemented customer retention programs that are focused on our high value customers that better fit our customers' needs and/or provide them with new handsets or other devices at reduced prices in exchange for their commitment to extend the term of their service contracts; and
developed and launched a high performance push-to-talk service, which we refer to as Prip, which operates on a wide range of standard smartphones on our WCDMA network.
To support our business plan, we have made significant capital and other investments as we deployed our WCDMA network and LTE upgrade. These investments have increased our costs and negatively impacted our profitability and are expected to continue to have that impact as we incur the fixed costs associated with our network while building the subscriber base it serves. However, we believe that our investments have enhanced, and will continue to enhance, the competitiveness of our service offerings while continuing to support the differentiated services and superior customer service that have historically been significant factors supporting our business.
As further described below, the current economic and competitive environments in Brazil are having a significant effect on the wireless telecommunications industry and impacting our financial results. While our subscriber base remained relatively unchanged during 2015, our consolidated operating revenues declined by 34% from 2014 to the combined period ended December 31, 2015 due to an 8% decline in Nextel Brazil's local currency ARPU, as well as a 42% decline in the Brazilian real compared to the U.S. dollar over the same period. While we were able to reduce our operating expenses by 36% during the combined period ended December 31, 2015, we still generated an operating loss for the period. We expect the current economic conditions in Brazil will continue to impact our results of operations for the foreseeable future. As a result, we have deployedtaken and continue to take actions to address pressure on our operating revenue and to reduce costs in our business in order to protect our existing cash resources.
Economic Environment
During 2015, the Brazilian economy contracted as domestic demand decreased due to a combination of high inflation, high interest rates, growing unemployment, tighter credit conditions, a decline in business investments and political issues. According to reports issued by the International Monetary Fund, or the IMF, it is estimated that Brazil's gross domestic product, or GDP, fell about 3.7% in 2015 compared to the end of 2014, and most economic forecasts for 2016 currently project continued economic contraction. The unemployment rate in Brazil was almost 7% at the end of 2015 and is expected to reach 9% in 2016. Real wages in Brazil have been falling since March 2015 and are continuing to enhance our networks that utilize WCDMA and LTE technologies. These networks enable us to offer a wider variety of applications and services, particularly applications and services that are supported by high speed data and internet access; increase our network capacity; and ultimately reduce the costs of supporting the services we offer when compared to our original iDEN networks. We planexpected to continue to focus on our current high value subscriber base usingfall. The foreign currency exchange rate in Brazil
declined 42% relative to the differentiated services available on both our networks andU.S. dollar from 2014 to expand our targeted subscriber base using2015. These economic conditions are affecting the handsets and devices, service offerings, applications and pricing plans made possible by our WCDMA networks.
Historically, we have focused on postpaid rate plans. With the expansion of our target customer base, we have been offering more prepaid rate plans in Mexico and Argentina and hybrid rate plans that combine both postpaid and prepaid features. We expect our sales of these types of service plans to continue to increase.
We are also utilizing domestic and international roaming agreements, including the roaming arrangements with Telefonicawireless telecommunications industry in Brazil, leading to lower customer credit and Mexico, to cost effectively expand our service to areas in our markets that we do not currently serve or plan to serve using our own networkspressure on customer demand, pricing and to provide our customers with services when they travel to other countries.customer turnover.
Competitive Environment
We believe that the wireless communications industry in the markets in which we operateBrazil has been and will continue to be highly competitivecharacterized by intense competition on the basis of price,price; the types of services offered, the diversityoffered; variety, features and pricing of handsets and other devices offered,handsets; speed of data accessaccess; and quality of service. In eachrecent years, the prices we have been able to charge for services in Brazil have declined as a result of intensified price competition, including the introduction by our markets,competitors of aggressive pricing promotions, such as plans that allow shared minutes between groups of callers. During the second half of 2015, our competitors in Brazil began introducing even more aggressive pricing plans that provided more services for lower rates than some of the plans we offer, which together with the impact of deteriorating economic conditions, reduced the number of new subscribers we added to our network in the fourth quarter of 2015. This increased competition may continue to affect our ability to attract and retain subscribers in the future.
We compete with at least two large, well-capitalized competitors within Brazil that have substantial financial and other resources. Nextel Brazil's largest competitors are Vivo, which is owned by Spain's Telefonica and has the largest market share in the São Paulo metropolitan area and Rio de Janeiro; Claro, which is controlled by Mexico's America Movil; Telecom Italia Mobile, or TIM, a subsidiary of Italy's Telecom Italia; and TNL PCS S.A., a subsidiary of Telemar Norte Leste, Brazil's largest wireline incumbent, that offers its services under the brand name "Oi."
Many of our competitors have a larger spectrum position than ours, including more spectrum that can be used to support a wide range of wireless technologies, and have greater coverage areas and/or name recognition than we do, making it easier for them to expand into new markets and offer new products and services. Our competitors typically have more extensive distribution channels than ours or are able to use their scale advantages to acquire subscribers at a lower cost than we can, and most of them have implemented network technology upgrades, including both WCDMA and LTE, that support high speed internet access and data services that are similar to the services supported by our WCDMA networks, making it more difficult for us to compete effectively using our iDEN networks.services. Some of these competitors also have the ability to offer bundled telecommunications services that include local, long distance, subscription television and data services, and can offer a larger variety of handsets and other devices with a wide range of prices, brands and features. In addition, the financial strength and operating scale of some of these competitors allows them to offer aggressive pricing plans, including those targeted at attracting our existing subscribers.
We compete with other communications service providers, including other wireless communications companies and wireline telephone companies, based primarily on our high quality customer service and differentiated wireless service offerings and products, including our push-to-talk services that make it easier for our subscribers to communicate quickly and efficiently. We continue to use this differentiated approach as we offer services on our WCDMA networks and pursue our plans to extend our target market with an expanded message that focuses on the quality and speed of the data services supported by these networks. In recent years, our largest competitors have increasingly focused their marketing efforts on attracting postpaid subscribers within our target segments by, among other things, enhancing their network quality and their customer service and customer care functions, which may minimize the value of our network quality and speed (for our WCDMA networks)network) and the quality of our customer service as points of differentiation. In addition, as we have pursued our plans to extend our target market to include more high-value consumers, we are increasingly competing more directly for subscribers that are also targeted by our largest competitors.
We compete with other communications service providers based primarily on our simple and attractive pricing plans, high quality customer experience and differentiated wireless service offerings. We are continuing to pursue our target market with an expanded message that focuses on our transition to a full service wireless operator capable of providing high quality and high speed data services supported by our WCDMA network. Since our legacy iDEN network does not support high speed data applications, we are experiencing higher levels of migrations to lower price rate plans both within our iDEN network and from our iDEN network to our WCDMA network.
We believe that the users who primarily make up our targeted subscriber base are likely to base their purchase decisions on network quality and quality of customer support, as well as on the availability of differentiated features and services that make it easier for them to communicate quickly, efficiently and economically. However, because pricing is one of a number of important factors in potential customers' purchasepurchasing decisions, and in light of the economic conditions discussed above, increased price competition in the customer segments we target could require us to decrease prices or increase service and product offerings, which would lower our revenues, increase our costs or both.
To addressIn response to recent trends in Brazil's competitive pressures, we have, among other things:
realigned our distribution channels to make our services more widely accessible to a broader range of customers;
refreshed and tailored our marketing approach to this broader set of customers, especially consumers, to make them aware of our new services and capabilities, our broader range of available handsets and devices, and the quality and performance of our networks;
worked with device suppliers to develop new handset models and features supported by our WCDMA networks, including devices and smartphones from suppliers like Samsung, LG, Sony, Alcatel, Huawei, Motorola Mobility and Apple;
launched commercial campaigns offering handsets at a lower cost and offering service plans with prices and terms that are more competitive, including prepaid and hybrid rate plans;
implemented customer retention programs that are focused on our high value customers that include lower priced plans that better fit our customers' needs and/or provide them with new handsets or other devices at reduced prices in exchange for their commitment to extend the term of their service contracts; and
developed and launched a high performance push-to-talk service, which we refer to as Prip, which operates on a wide range of standard smartphones on our WCDMA networks.
We have made significant capital and other investments as we pursue our plans to deploy networks that utilize WCDMA and LTE technologies in Brazil and Mexico. These investments have increased our costs and negatively impacted our profitability and are expected to continue to have that impact as we incur the costs of the networks that utilize these new technologies while building the subscriber base served by them. However, we believe that our investments in these networks have enhanced, and will continue to enhance, the competitiveness of our service offerings while continuing to support the differentiated services and superior customer service that have historically been significant factors supporting our business.
In addition, we have implemented and will continue to implement changes in our business to better align our organization and costs with our operational and financial goals,environment, as well as with the current trends in our business. These changes have included significant reductions in our headquarters staff in connection with the reorganization of the roles and responsibilities of our headquarters and market teams, as well as significant headcount reductions across all of our market operations designed to reduce costs while maintaining the support necessary to meet our customers' needs. Weeconomic climate, we are also taking steps to improve the performance and efficiency of our supporting systems and functions, including implementing improvements to our information technology and related supporting systems and processes, that are designed to improve the overall quality and efficiency of the service we provide to our customers.
Our Products, Services and Solutions
We offer a wide range of wireless communications services and related subscriber equipment, as well as a variety of service plans with different rate plan structures and bundles that are designed to meet the needs of our targeted customer groups. These services and equipment have been designed to provide innovative features that meet those customers’ needs for fast and reliable voice and data communications that allow them to conduct business quickly and efficiently. We offer the following servicesactions:
increasing our focus on high value customer segments in order to generate higher levels of ARPU;
implementing various cost reduction strategies in order to lower cash costs per user and products that we believe reflectimprove overall profitability;
implementing workforce reductions to further reduce operational costs;
eliminating certain points of differentiation from those offered by our competitors:distribution channels;
reviewing commission and subsidy strategies;
eliminating non-critical capital expenditures;
1. Voice Servicesfurther utilizing sales strategies that . We offer traditional mobile telephonyincentivize subscribers to use their existing handsets when purchasing our services with calling features that include voicemail, call waiting, call forwardingto keep subscriber acquisition costs at manageable levels;
increasing credit filters to reduce or eliminate collection and three-way calling. Our voice services also include our push-to-talk services that give our customersbad debt issues;
harvesting the ability to communicate with each other instantly. These push-to-talk services give our customers the ability to instantly set up a conference — either privately (one-to-one) or with a group (one-to-many) — which allows them to initiate and complete communications much more quickly than is possible using a traditional mobile telephone call. These push-to-talk services are available on most of the handsets we offer.
Although a numberprofitability of our competitors have introduced competitive push-to-talk products,legacy iDEN network; and while we do not believe that these services offer the same level of performance as
pursuing initiatives to maintain and enhance our push-to-talk services in terms of latency, quality, reliability or ease of use, our competitors could deploy new or upgraded technologies in their networks that could enable them to implement new features and services that compete more effectively with our push-to-talk services.
2. Wireless Data Services. We offer a variety of wireless data services and solutions that are designed to help our customers increase their productivity through the delivery of real-time information to mobile workers anytime and anywhere. Examples of these services include:
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• | Internet Access. We offer our customers always-on connectivity to the internet directly from their device through mobile internet access, which combines the resources of the internet with convenient mobile content services. Our WCDMA and LTE networks in Brazil and Mexico provide internet access at mobile broadband speeds supported by our WCDMA-and LTE-enabled handsets, data air cards and other data access devices via our Internet Nextel® data service plans in Mexico and other similar plans in Brazil;
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Messaging Services. We offer a range of messaging services, including short messaging services, or SMS, multimedia messaging, or MMS services, and mobile email;
Mobile Content and Applications. Our handsets can support a broad array of specialized and differentiated applications, and many of our handsets incorporate the Android operating system, which provides an open environment for the distribution and support of hundreds of thousands of business and consumer applications and digital media content to meet the needs of a broad set of subscribers; and
Business Solutions. Our data solutions, which are accessible via our wireless handsets, laptop computers and handheld computing devices, facilitate quick responses among workers in the field by streamlining operations through faster exchanges of information to support workforce mobility.
3. Roaming and International Calling Services. With the deployment and expansion of our WCDMA networks in Brazil and Mexico, we have entered into domestic and international roaming arrangements with operators of compatible networks to allow our customers using services supported by our new networks to roam in areas within our markets that we do not currently serve and in countries around the world. For example, in December 2013, we signed agreements with Telefonica under which Telefonica agreed to provide Nextel Brazil and Nextel Mexico with nationwide roaming voice and data coverage services on its networks.
We have also entered into international roaming arrangements that allow us to offer a number of traditional, as well as differentiated, international calling and roaming services. First, we complement our standard international voice calling services with our International Direct Connect service, which allows our subscribers to communicate instantly across national borders to other subscribers who use our push-to-talk services across our markets. We have also implemented network gateways designed to enable our subscribers who use services supported by our networks to use our International Direct Connect service to communicate with subscribers of Sprint Corporation's, or Sprint's, QChat service in the U.S. and for Sprint's subscribers to communicate to our subscribers anywhere in Latin America. Our customers are also able to communicate using push-to-talk services with users of the Prip service located throughout the world.
The availability of international voice and data roaming services is subject to reaching agreements with the operators of those networks and the implementation of required back office systems that support those arrangements.
4. Wireless Devices. We offer our customers a broad array of wireless handsets, including smartphones and other feature phones capable of supporting our push-to-talk services on both our WCDMA and iDEN networks. Our smartphone portfolio includes a variety of devices that enable our subscribers to access the internet on their handsets. Additionally, we offer mobile broadband devices, including data air cards and personal WiFi access devices, or MiFi, to our subscribers in Brazil and Mexico on our WCDMA and LTE networks.
Our Networks and Wireless Technologies
We currently offer services supported by networksa network that utilizeutilizes WCDMA technology in Brazil and Mexico.technology. WCDMA is a standards-based technology being deployed by wireless carriers throughout the world that provides service capabilities such as high speed internet access, increased network capacity and reduced costs for voice and data services when compared to previous technologies.
In late 2010, Nextel Brazil participated in a series of spectrum auctions and was the second quartersuccessful bidder for 20 megahertz, or MHz, of 2014, we launched LTE servicesspectrum in Rio de Janeiro. In addition, in October 2014, we began offering similar LTE services in certain cities in Mexico.
The following chart details our significant spectrum holdings in each of our markets inthe 1.9/2.1 gigahertz, or GHz, spectrum bands that support both the WCDMA and LTE technologies:
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Country | | Spectrum Band | | Amount/Coverage |
Brazil | | 1.9 GHz/2.1 GHz | | 20 MHz in 11 of 13 regions (includes all major
metropolitan areas)
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Mexico | | 1.7 GHz/2.1 GHz | | 30 MHz nationwide |
Additionally, we have significant spectrum holdings in the 800 MHz specialized mobile radio, or SMR, spectrum band that support our iDEN networks. Our 800 MHz holdings in each of our markets are as follows:
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Country | | Amount/Coverage (1) (2) |
Brazil | | 15 MHz nationwide weighted average |
Mexico | | 20 MHz nationwide weighted average |
Argentina | | 20 - 22 MHz nationwide weighted average |
(1) Weighted average coverage is a function of the 13 auction lots covering approximately 98% of the Brazlian population in each country, as well asfor $714.4 million based on foreign currency exchange rates at the amount of spectrum. Spectrum amounts vary greatly across regions and cities.
(2) This band was recently standardized and is available for use with LTE technology. The implementation of LTE technologytime. Nextel Brazil also successfully bid on our 800 MHz spectrum holdings requires support from and actions by the regulators in some of our markets in order to be effective.
We also have additional spectrum holdings in some of our markets, including 20 MHz of spectrum in the 1.8 GHz spectrum band in portions of Brazil, which we are using to support our LTE-based networks in Rio de Janeiro, Minas Gerais and 10 MHzsome states in the north and northeast regions of Brazil for a total bid price of approximately $121.7 million. Nextel Brazil is utilizing this 1.9/2.1 GHz spectrum to support its WCDMA network and is utilizing the 1.8 GHz spectrum to support the deployment of the LTE-based network in Rio de Janeiro. The licenses relating to the spectrum won by Nextel Brazil in the auction were granted in June 2011 and have a term of 15 years. These licenses are renewable once for an additional 15-year period and require Nextel Brazil to meet specified network coverage construction requirements within specified timeframes. In December 2015, Nextel Brazil participated in a spectrum auction and was the successful bidder for 30MHz of spectrum in the 1.91.8 GHz spectrum band in Monterrey and 50 MHz of spectrum infor 455.0 million Brazilian reais, or approximately $116.7 million based on foreign currency exchange rates at the 3.5 GHz spectrum band in Mexico.time.
As we continue to transition from our legacy iDEN networksnetwork to our WCDMA networks,network, we will evaluate ways in which we can use our 800 MHz spectrum to support existing or new services. In Brazil and Argentina, ourOur current 800 MHz spectrum holdings are largely contiguous, making it possible to use that spectrum to support future technologies, including LTE-based technologies, if certain technical, operational and regulatory requirements are met, including, for example, the availability of compatible network and subscriber equipment. The availability of that equipment will likely depend upon a number of factors, including the technology decisions made by other wireless carriers and the willingness of infrastructure and device manufacturers to produce the required equipment. In Mexico, our 800 MHz spectrum is either partially contiguous or non-contiguous. As a result, while it may be feasible
We also continue to use a portion of the spectrum to support future technologies, it will be necessary to reconfigure the spectrum band to increase the amount of contiguous spectrum for it to be used to efficiently support those technologies.
In each of our markets, we also offer services supported by networksour network that utilizeutilizes the legacy iDEN technology developed and designed by Motorola. The iDEN technology is a digital technology that is able to operate on non-contiguous spectrum frequencies, was previously usable only for two-way radio calls and is a proprietary technology that relies solely on the efforts of Motorola and any future licensees of this technology for product development and innovation. The iDEN technology is also based on an earlier technology platform that is not capable of transmitting the volume of data at speeds that are supported by current technologies like WCDMA. In addition, the more limited worldwide deployment of the iDEN technology makes services offered on the iDEN network less attractive to subscribers who travel internationally because most of the iDEN handsets that we offer are not currently designed to roam only on non-iDENiDEN wireless networks.
Motorola Solutions supplies a significant portion of our iDEN network equipment, and Motorola Mobility supplies a significant portion of theour iDEN handsets throughout our markets. We expect to continue to rely on Motorola Solutions and Motorola Mobility for iDEN network equipment and handsets, particularly in Argentina where our services are supported exclusively by the iDEN technology.handsets. The significant reduction in demand for iDEN network equipment and handsets worldwide may affect Motorola Solutions' and Motorola Mobility's ability or willingness to continue to provide support for our iDEN networks and Motorola Mobility's ability or willingness
to provide support for the development of new iDEN handsets. The impact of this transition will be most significant in Argentina where we do not currently hold spectrum that would support the deployment of a WCDMA network.
Because our next generation networks utilize WCDMA technology, which is a more widely utilized standards-based platform, we are now able to purchase network equipment and subscriber handsets and other devices from a broader range of suppliers. While we expect to capture cost benefits from our transition to a more widely-used technology, our plans to continue to offer handsets that feature push-to-talk services, as well as our smaller size relative to our competitors, may result in the cost of our handsets being higher, particularly those that are designed specifically to support push-to-talk services, because they will not be produced in the same quantities as our competitors' more standardized WCDMA handsets. Our Prip service, which is an application-based push-to-talk solution that can be implemented on standard smartphones, allows us to offer our customers the ability to connect instantly with our customer base without using a specialized device.
Network Implementation, Design and Construction
Our deployment of WCDMA networks, which are not compatible with our iDEN-based networks, requires us to pursue a network construction strategy that includes a substantially broader deployment of transmitter and receiver sites to support service that meets the coverage needs of our customers than would be the case if we were deploying a compatible technology that would allow more limited upgrades in specific markets. In addition, because we have deployed our WCDMA networks on spectrum that is at a higher frequency than the spectrum used for our iDEN networks, the propagation characteristics of that spectrum made it necessary for us to deploy significantly more sites to provide coverage that is comparable to our iDEN network coverage, particularly with respect to coverage that supports in-building use of our services.
As we optimize our WCDMA networks, we seek to maximize our capital efficiencies by utilizing our iDEN transmitter and receiver sites to support our WCDMA networks when feasible. We refer to our WCDMA and iDEN transmitter and receiver sites as communication towers or towers, although in some instances these towers are located on rooftops and other structures. However, our commercial strategies, the factors described above and the coverage requirements associated with the spectrum licenses being utilized for those networks require us to construct more transmitter and receiver sites in a shorter period of time and to identify and build sites that provide coverage that is competitive with the offerings of other carriers who have been building and expanding their network coverage using compatible network platforms for several years. As a result, we have encountered and are likely to continue to encounter, difficulties in acquiring necessary sites that can affect the quality of our services and the timing of our launch of those services.
Our network construction efforts incorporate frequency planning and a system design process that is focused on developing a network that will efficiently meet our coverage requirements and involves the selection of transmitter sites on the basis of their proximity to targeted customers, the ability to acquire and build the sites, and frequency propagation characteristics. Site procurement efforts include obtaining leases and permits and, in many cases, zoning approvals. See “Item 1A. — Risk Factors — 10c. Our operating companies are subject to local laws and government regulations in the countries in which they operate, and we are subject to the U.S. Foreign Corrupt Practices Act, which could limit our growth and strategic plans and negatively impact our financial results.” Any scheduled build-out or expansion may be delayed due to typical permitting, construction and other delays. These delays can affect the quality or coverage of our services.
Sales and Distribution
Consistent with our historic approach, ourOur target customers will continue to include consumer market segments that value our attractive pricing plans, high valuequality network and our superior level of customer segments suchservice, as well as the small, medium and large business markets as well as certain consumer market segments that value our differentiated wireless communications, including our push-to-talk services, quality networks and our high level of customer service. Our WCDMA networks also give us the opportunity to extend our target market to include additional corporate and business customers and consumers who exhibit above average usage, revenue and loyalty characteristics and who we believe will be attracted to the services supported by our WCDMA networks, the quality and speed of our data services and the quality of our customer service.
services. We use a variety of distribution channels that includeto reach our target customers, including direct sales representatives, indirect sales agents, retail stores and kiosks, and other subscriber-convenient sales channels such as online purchasing. Each of our operating companiesNextel Brazil is continuously optimizing the mix of sales channels to take into consideration the methods that best meet local subscriber preferences, most cost effectively sell and provide support to our different segments and facilitate our overall strategy of attracting and retaining subscribers in our targeted segments.
We employ sales representatives who market our services directly to potential and existing customers. The focus of our direct sales force is primarily on businessescustomers that value our industry expertise and differentiated services, as well as our ability to develop tailored custom communications capabilities that meet the specific needs of these customers. We also utilize indirect sales agents, which mainly consist of local and national non-affiliated dealers that solicit customers for our service and are generally
paid through commissions. These dealers participate with our operating companies’Nextel Brazil's direct sales forcesforce in varying degrees in pursuing each of our targeted customer groups.
Our sales channels also include distribution through subscriber-convenient channels, including telesales and sales through our Nextel retail stores, shopping center kiosks and other locations. With the expansion of services on our WCDMA networks,network, we have realigned these sales channels and locations and have also expanded our marketing through regional and national retailers with store kiosks and handset and prepaid card distribution offers. We also utilize our websiteswebsite as a marketing tool that allows subscribers to compare our various rate plans and research theour suite of our products and services, including handsets, accessories and special promotions, and in some of our markets, we also use online purchases as an additional sales channel to allow subscribers to purchase our services directly.
Marketing
We are a full service provider of wireless services, offering our customers packages of services and features that combine multiple communications services in one handset, including voice and data services and our differentiated push-to-talk services.
We offer a variety of pricing options and plans, including plans designed to combine features and services that meet the needs of the customers we serve and target. In some instances, our services are sold on a postpaid basis pursuant to a service contract, typically for periods of one to two years, with services billed on a monthly basis according to the applicable pricing plan. In some markets, we also offer prepaid services as a means of attracting customers within our targeted base who may not meet our customer credit requirements, who prefer the flexibility of paying for their service in advance, or who want to purchase certain services, such as wireless data services, on a prepaid basis as an add-on service to their postpaid contract. We also offer hybrid rate plans that incorporate a combination of postpaid services and prepaid characteristics. As we move forward with our goal to expand our targeted customer base, we expect that we will continue to expand our prepaid and hybrid service offerings to meet the needs of our existing and potential customers. As a result, we expect that the number of our subscribers who purchase services under these prepaid or hybrid plans will increase. Based on our experience in offering prepaid services and the experience of other carriers who have a substantially larger portion of their subscriber bases purchasing service under prepaid plans, including our competitors, we expect that the average revenue per subscriber for subscribers using prepaid plans will be at a lower level than we have experienced for subscribers under contract, and that the turnover for those subscribers will be higher. As a result, we are focusing our efforts on designing those plans in a way that is competitive in the market while preserving overall profitability by reducing the costs of acquiring and serving those subscribers.
Since 2002, we have offered services under the Nextel brand.brand under a trademark license agreement with Nextel Communications, Inc. In 2011, we launched a new brand identity, in each of our markets and at the corporate level, which we believe enhanced the recognition of our brand and unified our brand identity across our markets.identity. As a result of our efforts, the Nextel brand is recognized across our marketsin Brazil as standing for both quality of service and the differentiated services and customer support we provide. More recently, with the launch of services supported by our WCDMA networks,network, our marketing strategy has focused on the availability of the broader range of services and features of our services that appeal to a wider range of consumers. This positioning of our brand continues to focus on customers who are attracted to our differentiated services and our reputation for providing a high quality customer experience.
Competition
Regulation of SMR and PCS Operations
The Latin American mobile communications industry has undergone significant growth in recent years. We believe thatIn Brazil, the wireless communications industry in our markets has been and will continueregulations are based on a concept called calling party pays, which requires the mobile carrier of the subscriber initiating a call to be characterized by intense competitionpay the mobile carrier of the party receiving the call when mobile calls occur between subscribers of different carriers. These calling party pays charges are based on the basis of price, the types of services offered, variety, features and pricing of handsets and quality of service.rates that we refer to as mobile termination rates. In recent years, the prices we have been able to charge for services have declined as a result of intensified price competition across our markets, including the introduction by our competitors of aggressive pricing promotions, such as plans that allow shared minutes between groups of callers. We expect that this trend will continue in the coming years. This increased competition may also affect our ability to attract and retain subscribers.
In the countries in which we operate, there are principally two other multinational providers of mobile wireless voice communications with whom we compete:
America Movil, which has the largest wireless market share in Mexico and has significant operations in Brazil and Argentina; and
Telefonica, which has the largest wireless market share in Brazil, and has significant wireless operations in Mexico and Argentina.
We also compete with regional or national providers of mobile wireless voice communications, such as Telemar’s Oi in Brazil, Telecom Italia Mobile, or TIM, in Brazil and Personal in Argentina, which is in the process of being acquired by Fintech, and Iusacell in Mexico, which was recently acquired by AT&T.
Many of our competitors have a larger spectrum position than ours, including more spectrum that can be used to support a wide range of wireless technologies, and have greater coverage areas and/or name recognition than we do, making it easier for them to expand into new markets and offer new products and services. Our competitors typically have more extensive distribution channels than ours or are able to use their scale advantages to acquire subscribers at a lower cost than we can, and most of them have implemented network technology upgrades, including both WCDMA and LTE, that support high speed data services. Although we do not believe that the push-to-talk services launched by our competitors offer the same level of performance as our push-to-talk services in terms of latency, quality, reliability or ease of use, our competitors' current networks and their future deployments of new or upgraded technologies in their networks could enable them2012, ANATEL, Brazil's telecommunications regulatory agency, approved regulations to implement new features and services that compete more effectively with our push-to-talk services and other differentiated services that we offer. As we make the transition to WCDMA and focus on a broader target base that includes consumers, we expect that our push-to-talk services may become less significant as a differentiator. Finally, because a number of our competitors operate or are affiliated with entities that provide wireline-based telecommunications services, they have the ability to offer a wider range of services, including bundles of wireline voice, high speed internet and wireless services that may be more attractive to some subscribers.
We compete with other communications services providers, including other wireless communications companies and wireline telephone companies, based primarily on our high quality customer service and differentiated wireless service offerings and products, including our push-to-talk services, that make it easier for them to communicate quickly and efficiently and are particularly attractive to certain business customers that we serve. We have continued to focus on this differentiated approach as we offer iconic high-tier handsets and other devices and take advantage of the ample capacity on our WCDMA networks to offer attractive rate plans consisting of both voice minutes and data usage while jointly offering our push-to-talk services on these high-tier devices. In recent years, our largest competitors have increasingly focused their marketing efforts on attracting postpaid subscribers within our target segments by, among other things, enhancing their network quality and their customer care functions, which may minimize the value of our network quality and speed (for our WCDMA networks) and the quality of our customer service as points of differentiation. In addition, as we have pursued our plans to extend our target market to include more high-value consumers, we are increasingly competing more directly for subscribers that are also targeted by our largest competitors.
We believe that the users who primarily make up our targeted subscriber base are likely to base their purchase decisions on network quality and the quality of customer support, as well as on the availability of differentiated features and services, like our push-to-talk services, that make it easier for them to communicate quickly, efficiently and economically. However, because pricing is one of a number of important factors in potential customers’ purchase decisions, increased price competition in the customer segments we target has required us and could continue to require us to decrease prices or increase service and product offerings, which has lowered our revenues and increased our costs.
Many of our competitors are owned by or affiliated with large multinational communications companies. As a result, these competitors have substantially greater financial resources than we do, which allows them to spend substantially more than we do in their advertising/brand awareness campaigns and may enable them to reduce prices in an effort to gain market share. These competitors may also use those resources to deploy new services or technologies that could impact our ability to attract or retain customers. While we expect to capture cost benefits from our transition to a more widely-used WCDMA technology, our plans to continue to offer handsetscost-based model for determining mobile termination rates. Under the current regulations, the mobile termination rates are being gradually reduced over a transition period ending in 2019, when cost-based rates will take effect. The transition rules also provide for a partial "bill and keep" settlement process that feature push-to-talk services, as well as our smaller size relative to our competitors, may result in the cost of our handsets being higher, particularly those that are designed specifically to support push-to-talk services, because they will not be produced in the same quantities as our competitors' more standardized WCDMA handsets. This will not be the case for customers who utilize our Prip service that provides high performance push-to-talk capabilities on standard smartphones. In addition, because the iDEN technology has been adopted by fewer carriers worldwide and does not benefit from the scale of other more widely adopted technologies, the cost of our handsets is generally higher relativeapplies to the comparable handsets offered by our competitors. As a result, we must absorb a comparativelysettlement of mobile termination charges between smaller operators like Nextel Brazil and its larger part ofcompetitors (who are considered to hold significant market power under the cost of offering iDEN handsets or WCDMA handsets that are designed specifically to support our push-to-talk services to newBrazilian regulations), which further reduces mobile termination charges for smaller operators. The lower costs resulting from this partial bill and existing customers,keep settlement process, which can place us at a competitive disadvantage with respectis similar to the pricing of our handsets and our abilitysettlement process that has historically applied to offer new handsets at discounted prices as an incentivetermination charges relating to retain our existing subscribers.
For a more detailed description of the competitive factors affecting each operating company, see the “Competition” discussion for each of those operating companies under “— Operating Companies.”
Regulation
The licensing, construction, ownership and operation of wireless communications systems are regulated by governmental entities in the markets in which our operating companies conduct business. The granting, maintenance, and renewal of applicable licenses to use spectrum and radio frequency allocations are also subject to regulation. In addition, these matters and other aspects of wireless communications system operations, including rates charged to subscribers, the rates charged by carriers to terminate calls not originated on their networks and the resale of wireless communications services, may be subject to regulation in the jurisdiction in which service is provided. Further, statutes and regulations in some of the markets in which our operating companies conduct business impose limitations on the construction of transmitter and receiver sites by wireless carriers and on the ownership
of telecommunications companies by foreign entities. Changes in the current regulatory environments, the interpretation or application of current regulations, or future judicial intervention in those countries could impact our business. These changes may, among other things:
affect the terms of interconnection arrangements that allow our subscribers to complete calls to our competitors’ subscribers, including the charges imposed for the completion of those calls;
establish restrictions that limit or otherwise affect the deployment of transmitter and receiver sites needed to support the coverage and capacity of our networks;
establish minimum network construction, coverage or quality of service obligations that can result in increased capital investments or require other changes to our business;
establish prices our operating companies are required to charge for their services or impose other terms of service that can affect our revenues or costs; or
impose foreign ownership limitations on telecommunications providers that may affect our ability to own and operate our business.
In some of our markets, there is an increasing focus on more significant regulation of transmitter and receiver sites and the deployment of tower structures used to support wireless services, and local governments are adopting stringent rules and regulations related to the placement and construction of wireless towers, or have placed embargoes on some of the transmitter and receiver sites owned by our operating companies, which can significantly impede the planned expansion of our service coverage area, eliminate existing towers, result in unplanned costs, negatively impact network performance and impose new and onerous taxes and fees. There has also been an increased focus on service and quality standards in some of our markets as local governments monitor telecommunications providers' voice quality, customer complaints, call failure rates, capacity to handle call traffic levels in peak calling periods and failed interconnection of calls, which could potentially increase our operating costs and affect rates charged to subscribers. For a more detailed description of the regulatory environment in each of the countries in which our operating companies conduct business, see the “Regulatory and Legal Overview” discussion for each of those operating companies under “— Operating Companies.”
Foreign Currency Controls and Dividends
In some of the countries in which we operate, the purchase and sale of foreign currency is subject to governmental control, which may impose formal or informal limitations on our ability to transfer funds out of those countries. Additionally, local law in some of these countries may limit the ability of our operating companies to declare and pay dividends. Local law may also impose a withholding tax in connection with certain intercompany agreements and the payment of dividends, or otherwise limit our operating companies' ability to make payments to upstream companies. Financing arrangements that we enter into at the local level may also limit our ability to pay dividends or other upstream payments. For a more detailed description of the foreign currency controls and dividend limitations and taxes in each of the countries in which our operating companies conduct business, see the “Foreign Currency Controls, Dividends and Tax Regulation” discussion for each of those operating companies under “— Operating Companies.”
Operating Companies
Operating Company Overview. We refer to our wholly-owned Brazilian operating company, Nextel Telecomunicacoes Ltda., as Nextel Brazil. Nextel Brazil’s operationsiDEN services, decline as mobile termination rates are headquartered in Sao Paulo, with branch offices in Rio de Janeiro and various other cities. As of December 31, 2014, Nextel Brazil had 4,363 employees.
Nextel Brazil provides wireless services in major business centers, including Rio de Janeiro, Sao Paulo, Belo Horizonte and Brasilia, in areas inreduced during the northeast region of Brazil, including Salvador, Fortaleza and Recife, as well as in Vitoria, which is in the southeast region of Brazil and along related transportation corridors and in a number of smaller markets. In the second half of 2013, Nextel Brazil commercially launched services on its WCDMA network in Sao Paulo, Rio de Janeiro and surrounding areas and extended those services to other areas in Brazil in 2014 by expanding the coverage of its network and utilizing roaming services and network sharing arrangements pursuant to agreements that it reached with affiliates of Telefonica. As of December 31, 2014, Nextel Brazil provided service on both its WCDMA and iDEN networks to 4,341,500 handsets and other devices, which we estimate to be about 1.5% of the total mobile handsets and other devices in commercial service in Brazil.
In late 2010, Nextel Brazil participated in a series of spectrum auctions and was the successful bidder for 20 MHz of spectrum in 1.9/2.1 GHz spectrum bands in 11 of the 13 auction lots covering approximately 98% of the Brazilian population for $714.4 million based on foreign currency exchange rates at the time. Nextel Brazil also successfully bid on 20 MHz of spectrum in the
1.8 GHz band in Rio de Janeiro, Minas Gerais and some states in the north and northeast regions of Brazil for a total bid price of approximately $121.7 million. Nextel Brazil is utilizing this 1.9/2.1 GHz spectrum to support its WCDMA network and is utilizing the 1.8 GHz spectrum to support the deployment of the LTE-based network in Rio de Janeiro. The licenses relating to the spectrum won by Nextel Brazil in the auction were granted in June 2011 and have a term of 15 years. These licenses are renewable once for an additional 15-yeartransition period, and require Nextel Brazil to meet specified network coverage construction requirements within specified timeframes.
Competition. Nextel Brazil competes with cellular and personal communications services, or PCS, providers. The largest competitors are Vivo, which is owned by Spain's Telefonica and has the largest market share in the Sao Paulo metropolitan area and Rio de Janeiro; Claro, which is controlled by Mexico's America Movil; Telecom Italia Mobile, or TIM, a subsidiary of Italy's Telecom Italia; and TNL PCS S.A., a subsidiary of Telemar Norte Leste, Brazil’s largest wireline incumbent, that offers its services under the brand name “Oi.” All of Nextel Brazil's largest competitors have launched and offer services supported by WCDMA-based networks and some also launched LTE-based networks during 2013. Nextel Brazil also competes with other regional cellular and wireless operators.
We believe that the most important factors upon which Nextel Brazil competes are the quality of its customer service and network. With the launch of services on our WCDMA network in 2013, we expect to increasingly rely on the quality of our network, the speed of our data services and the unique value proposition of our service plans as key points of differentiation from our competitors' offerings. While its competition generally targets the prepaid market and competes on the basis of price, Nextel Brazil primarily targets subscribers who utilize its services in their businesses and individuals that have medium to high usage patterns who are more concerned with network quality and the quality of the customer care and service they receive. Nextel Brazil’s focus on the quality of its network, and the quality of its customer service and care are important components of our strategy to attract and retain subscribers within our targeted subscriber groups. Substantially all of our subscribers in Brazil purchase our services on a postpaid basis pursuant to contracts that provide for recurring monthly payments for services over a specified term. Nextel Brazil’s competitors compete aggressively, but with the launch of its WCDMA network, Nextel Brazil is able to not only continue to offer its differentiated push-to-talk services, but is also able to offer a more competitive portfolio of devicesbill and services, including high speed data services, thatkeep settlement process terminating when cost-based rates are supported by its new network. We expect to continue to experience intense competitive conditions in Brazil that have made it, and that are expected to continue to make it, more difficult and costly for Nextel Brazil to attract new subscribers and retain its existing subscribers.
Regulatory and Legal Overview.
SMR Operation. Prior to 2000, the Brazilian telecommunications regulations imposed various restrictions that significantly limited the ability of Nextel Brazil to provide mobile services to all potential subscriber groups. With the changes to the Brazilian regulations enacted by Brazil’s telecommunications regulatory agency, Agencia Nacional de Telecomunicacoes, known as ANATEL, in 2000 and in subsequent years, Brazil began opening its markets to wider competition in the mobile wireless communications market where we operate. These regulations govern services provided on our iDEN network in Brazil.
Some of the key regulatory changes that have been adopted include changes to the rules that limit the amount of spectrum in the 800 MHz band that Nextel Brazil is allowed to hold in a service area, the adoption of rules relating to the interconnection of Nextel Brazil’s networks with those of other carriers and the calculation of calling party pays charges. Under the changes to the rules adopted in November 2008, Nextel Brazil may own up to 25 MHz of 800 MHz spectrum, which allows Nextel Brazil to increase the capacity of its networks more efficiently.implemented.
Under the rules adopted by ANATEL relating to interconnection charges, we haveNextel Brazil has negotiated agreements for our SMR operation with all significant fixed line and wireless operators in Brazil to reflect the additional payments between carriers as a result of the calling party pays charges. The calling party pays charges, which are required to be paid to mobile operators in Brazil for termination of calls on their networks, are based on rates, which we refer to as mobile termination rates, that are substantially higher than those that apply in our other markets. Because Nextel Brazil's subscriber base is smaller than those of its competitors and its subscribers tend to make a higher number of calls terminating on other carriers' networks, these higher mobile termination rates result in substantial charges relating to the "off net""off-net" termination of calls by our subscribers. To partially address this the calling party pays structure adopted byissue, ANATEL permits Nextel Brazil to compensate other mobile operators for calls terminated on their network, including calls originated on our iDEN network, under a formula that reduces the amount paid to them by allowing a percentage of these calls to be treated as “partial bill and keep.” Since their adoption, these regulations have resulted in significant cost savings to Nextel Brazil when terminating calls originated on its iDEN network. Finally, in late 2011, ANATEL announced a plan to reevaluate the current methodology used to determine mobile termination rates in the calling party pays structure. ANATEL officially reduced the mobile termination rates in March 2012 and again in April 2013, both of which resulted in substantial reductions in the charges paid by Nextel Brazil to terminate calls on other mobile carriers’ networks. In November 2012, ANATEL confirmed its plans to make the transition to a cost-based model for determining mobile termination rates beginning in 2016 and announced further reductions in those rates through 2015 as part of the transition to cost-based rates. In July 2014, ANATEL published a schedule to reach cost-based mobile termination rates in February 2019. These changes do not affect the
current partial bill and keep payment structure that applies to the settlement of mobile termination charges for calls originated on our iDEN network and terminated on other wireless carriers' networks, but as described below, the recent decision by ANATEL to apply the regulatory regime applicable to PCS operations to our iDEN business is expected to result in the continued application of the partial bill and keep structure.
Nextel Brazil has, from time to time, been the target of complaints filed with the Brazilian regulatory authorities by one or more of our competitors in which our competitors seek to challenge the manner in which we conduct business, and certain competitors have also petitioned the Brazilian regulators seeking changes to the regulations applicable to our operations in an effort to make it more difficult or costly for us to operate. In this regard, some of our competitors in Brazil, through Brazil’s Associacao Nacional das Operadoras Celulares, or ACEL, filed a lawsuit against ANATEL to challengeimplemented the partial bill and keep settlement process that allows us to retain a portiondescribed above. Since the adoption of the amounts we would otherwise be obligated to pay to other carriers for calls originating on our iDEN-based network under the calling party pays structure in Brazil. Because the lawsuit against ANATEL would interfere with the regulation as it relates to Nextel Brazil, Nextel Brazil was also summoned to join the lawsuit as a co-defendant. Because the current settlementthis process, results in a significant reduction in our overall interconnection charges, our competitors have sought changes to these processes in order to increase our payments for call terminations. The court ruled against ACEL, thereby preserving the bill and keep rule currently favoring SMR operators like Nextel Brazil, as regulated by ANATEL. ACEL has appealed this decision, and the case will be reviewed by a higher court. We anticipate that our competitors may initiate other proceedings challenging the partial bill and keep settlement process. If ANATEL eliminates this settlement process or modifies it to increase the amounts we pay to terminate calls, those actions could have an adverse effect on the costs we incur to operate, which could adversely affect the results of our SMR operations that utilize our iDEN network.
In February 2015, ANATEL adopted significant changes to its regulatory regime with respect to providers of wireless services that have the effect of consolidating the regulation of SMR and PCS operations under a single regulatory structure, which we refer to as regulatory convergence. In general, these changes will have the effect of extending the regulatory regime applicable to our PCS operations to the SMR operations that are conducted using our iDEN network, including number portability requirements, minimum service availability and quality requirements, and the partial bill-and-keep settlement structure that applies to mobile termination charge settlements between PCS operators that hold significant market power and PCS operators like Nextel Brazil that do not have significant market power.
To take advantage of these changes, an SMR operator must submit a request to ANATEL to amend its spectrum grants at least 180 days before each SMR spectrum grant renewal date. The spectrum grant will be deemed adjusted when the SMR operator executes a new spectrum grant allowing the use of the 806-821 MHz/851-866 MHz sub-bands within its current PCS license. After execution of the new spectrum grant, the operator has 180 days to migrate its users to the PCS service. The new PCS spectrum grants on the 806-821 MHz/851-866 MHz sub-bands will be provided for the remaining term of the original SMR spectrum grants. The regulations applicable to PCS operations will apply immediately after new spectrum grants are executed, with the exception of certain quality of service, consumer protection and numbering plan regulations, which will apply 180 days after the end of the migration period. Convergence costs will be borne by the operator requesting the amendment of its SMR spectrum grants.
The transition of SMR operations to the PCS regulation as part of the regulatory convergence process is subject to the payment of a spectrum amendment fee. The amendment fee is expected to be equal to a net present value or public price for spectrum use formula, whichever is higher. Based on the terms that have been provided, Nextel Brazil currently expects to submit requests to amend its SMR spectrum grants to enable the provision of PCS services using the related spectrum as part of the regulatory convergence process.
PCS Operation. Nextel Brazil was the successful bidder for spectrum in the areas covered by 11 of the 13 auction lots offered in the 1.9/2.1 GHz spectrum auction completed in late 2010. These areas include approximately 98% of the Brazilian population. Nextel Brazil is currently offering services supported by its WCDMA network in about 260 cities, including cities in and around Sao Paulo and Rio de Janeiro. The rules require that Nextel Brazil’s services comply with start-up terms and minimum service availability and quality requirements detailed in the regulations, which are different from those that apply to services supported by our iDEN networks and which are subject to the regulations relating to our SMR operation. The rules also require Nextel Brazil to meet specified network coverage construction requirements within certain time frames. Failure to meet ANATEL’s requirements may result in enforcement of the performance bonds related to the licenses, forfeiture of the channels and revocation of licenses. We believe that Nextel Brazil is currently in compliance with the applicable operational requirements of its licenses in all material respects.
Nextel Brazil has negotiated interconnection agreements with mobile and fixed line operators to support its PCS operation. ANATEL has defined that Nextel Brazil is a new PCS entrant, and as a result, its mobile termination rate is 20% higher than PCS operators withrecognized significant market power in Brazil. In November 2012, ANATEL approved a general plan of competition, which establishes a number of rules that are aimed at promoting competition in the PCS market, including the transition to a cost-based model for determining mobile termination rates beginning in 2016 and additional reductions in those rates that began in 2013 and will continue through 2015 as part of the transition to cost-based rates. In July 2014, ANATEL published a schedule to reach cost-
based mobile termination rates in February 2019. A key component of ANATEL's plan includes the introduction of a partial bill and keep settlement structure similar to the one that applies to our SMR operation for mobile termination charge settlements between PCS operators that hold significant market power and PCS operators like Nextel Brazil that do not have significant market power. This partial bill and keep structure, which effectively reduces the amount of mobile termination charges paid by Nextel Brazil forcost savings when terminating calls originated on its WCDMA network, began in 2013 and will continue to be gradually phased out.networks. In February 2015, ANATEL amended and extended the bill and keep rule through 2019 so that the bill and keep rule will be phased out through 2019 rather than through 2015, as previously contemplated by the regulations. The application of this partial bill and keep settlement structure to our PCS operation in Brazil and to our SMR operation as a result of the regulatory convergence, combined with the scheduled mandatory reductions in mobile termination rates, will result in significantpast, these cost savings forenabled Nextel Brazil. These cost savings have also enabled usBrazil to develop and offer attractive pricing plans that reducereduced or eliminateeliminated the significant differentiation in the cost of on neton-net and off netoff-net calls that are common in Brazil due to the historically high mobile termination rates there, providing opportunities for Nextel Brazil to offer unique service plans. In connection with ANATEL’s transition plan, Nextel Brazil’s benefits under these partial bill and keep rules has declined, and recently, some of Nextel Brazil’s competitors have launched pricing plans that will improve its ability to compete more effectively.with the same rates for on-net and off-net calls. In addition, in December 2015, two of Nextel Brazil’s competitors filed a lawsuit against ANATEL challenging the bill and keep rules.
Foreign Currency Controls, Dividends and Tax Regulation.Regulation
The purchase and sale of foreign currency in Brazil continues to be subject to regulation by the Central Bank of Brazil despite regulatory changes enacted in 2005 that were designed to reduce the level of government regulation of foreign currency transactions. Exchange rates are freely negotiated by the parties, but purchase of currency for repatriation of capital invested in Brazil and for payment of dividends to foreign stockholders of Brazilian companies may only be made if the original investment of foreign capital and capital increases were registered with the Brazilian Central Bank. There are no significant restrictions on the repatriation of registered share capital and remittance of dividends. Nextel Brazil has registered substantially all of its investments with the Brazilian Central Bank.
The Nextel Brazil subsidiaries through which any dividend is expected to flow have applied to the Brazilian Central Bank for registration of their investments. We intend to structure future capital contributions to Brazilian subsidiaries to maximize the amount of share capital and dividends that can be repatriated through the exchange market.
Brazilian law provides that the Brazilian government may, for a limited period of time, impose restrictions on the remittance by Brazilian companies to foreign investors of the proceeds of investments in Brazil. These restrictions may be imposed whenever there is a material imbalance or a serious risk of a material imbalance in Brazil’s balance of payments. The Brazilian government may also impose restrictions on the conversion of Brazilian currency into foreign currency. These restrictions may hinder or prevent us from purchasing equipment required to be paid for in any currency other than Brazilian reais. Under current Brazilian law, a company may pay dividends from current or accumulated earnings. Dividend payments from current earnings are not subject to withholding tax. Interest on foreign loans is generally subject to a 15% withholding tax. The entry of funds into Brazil as a foreign loan is subject to a 6% foreign exchange transaction, or IOF, tax, except if the average repayment term of the loan is more than 180 days, in which case the IOF tax will be fully exempted. The first possible date of exercise for put or call provisions established on the foreign loan will be considered the date of effective repayment of the loan. Interest and payments of principal on foreign loans are currently exempted from the IOF tax.
Operating Company Overview. We refer to our wholly-owned Mexican operating company, Comunicaciones Nextel de Mexico, S.A. de C.V., as Nextel Mexico. Nextel Mexico is headquartered in Mexico City and has many regional offices throughout Mexico. As of December 31, 2014, Nextel Mexico had 4,194 employees.
Nextel Mexico provides wireless services in major business centers, including Mexico City, Guadalajara, Puebla, Leon, Monterrey, Toluca, Tijuana, Torreon, Ciudad Juarez and Cancun, as well as in smaller markets and along related transportation corridors throughout Mexico. As of December 31, 2014, Nextel Mexico provided service on both its WCDMA and iDEN networks to 2,888,500 handsets and other devices, including handsets supported by its WCDMA and iDEN networks, which we estimate to be about 2.9% of the total mobile handsets and other mobile devices in commercial service in Mexico. Our WCDMA network in Mexico uses the HSPA+ version of the WCDMA technology that supports significantly faster data delivery speeds than are available on earlier versions of the technology, allowing Nextel Mexico to offer high speed broadband services to customers on its new network. In the third quarter of 2013, Nextel Mexico's WCDMA network reached geographic parity with its iDEN network. In addition, as of December 31, 2014, approximately 11% of Nextel Mexico's subscriber base was comprised of subscribers who are utilizing prepaid service plans.
On January 26, 2015, NII Holdings, Inc. and certain of its subsidiaries entered into a purchase and sale agreement with an indirect subsidiary of AT&T for the sale of Nextel Mexico. The purchase agreement provides for a purchase price of $1.875 billion in cash, less Nextel Mexico's outstanding debt, net of its cash balances, on the closing date and subject to other specified adjustments. Completion of the transaction is subject to a number of conditions, including the approval of the Bankruptcy Court and the receipt of required regulatory approvals in Mexico. See "— Business Update"for more information.
Competition. Nextel Mexico competes with cellular and personal communications services system operators in all of its market areas. Nextel Mexico competes on a nationwide basis with Telcel, which is the largest provider of wireless services in
Mexico and is owned by America Movil; Movistar, which is owned by Telefonica; and with Iusacell, which was recently purchased by AT&T.
We believe that the most important factors upon which Nextel Mexico competes are network quality, including the speed of the data services supported by its WCDMA network, the quality of our customer service, the reputation of our brand and our differentiated services, including our push-to-talk services. Nextel Mexico’s competitors compete aggressively, and all three of its largest competitors offer services supported by WCDMA-based networks in a significant portion of their coverage areas. Movistar and Telcel have also introduced services supported by an LTE-based network in certain cities in Mexico. In the fourth quarter of 2014, Nextel Mexico launched LTE services commercially in Mexico City, Guadalajara and Monterrey.
Regulatory and Legal Overview. The Federal Institute of Telecommunications, or the IFT, regulates the telecommunications industry in Mexico. The IFT was created in September 2013 as a constitutional autonomous body whose purpose is the efficient development of the broadcasting and telecommunications industries. The IFT was created with the directive of regulating, promoting and supervising the use of spectrum, networks, and broadcasting and telecommunications services. The IFT also regulates economic competition in these sectors.
In March 2014, the IFT resolved that Telcel was a "Preponderant Economic Agent" in the telecommunications sector and imposed asymmetric regulations to promote competition. These regulations included requirements for shared infrastructure, asymmetric interconnection rates, wholesale national roaming, shared passive infrastructure (eg. towers, manholes, conduits, etc.), local loop unbundling and on-net/off-net restrictions on retail rates.
In July 2014, the new Telecommunication and Broadcasting Law was enacted. This law included the elimination of long distance charges, new subscriber rights, number portability within 24 hours, zero termination rates for the Preponderant Economic Agent and early termination of service contracts. As a part of this new law, the IFT committed to establishing cost-based interconnection rates. In December 2014, the IFT approved the new cost-based model to determine termination rates between operators that have not reached an agreement. Termination rates for 2015 were announced by the IFT at the end of December 2014.
The rates paid by Nextel Mexico to terminate calls on other carriers’ networks are negotiated between the parties, subject to the right of carriers to submit disputes to the IFT for resolution in instances where the carriers are unable to agree on the rates or other terms. Nextel Mexico entered into agreements with Telcel and most of the fixed operators that provided for reduced mobile termination rates for 2011 consistent with the Federal Telecommunications Commission, or COFETEL's, order, and agreements calling for further mobile termination rate reductions in 2012 through 2014. Iusacell agreed to the reduced mobile termination rates for 2011, but has not agreed to either extend the current mobile termination rates or to further reductions of mobile termination rates in subsequent years. Telefonica has not agreed to any reductions in mobile termination rates, including reductions consistent with COFETEL's order, and it has initiated an administrative appeal for review against COFETEL's decision, as well as other proceedings challenging that decision. In July 2014, the IFT resolved interconnection rates for 2012 with Telefonica and Iusacell. The proceedings for 2013 and 2014 are currently pending resolution by the IFT.
The agreed upon mobile interconnection rates with Telcel expired in December 2014. Currently, the termination rate applicable to Telcel is zero, however Telcel is required to pay Nextel Mexico for the termination of the traffic originated by their subscribers. Telcel is currently paying the agreed upon 2014 rate, however there is an interconnection dispute pending resolution by the IFT regarding the corresponding 2015 rate. When the IFT resolves this dispute, the rate that Telcel is expected to pay to Nextel Mexico for terminating its mobile traffic will be based on the IFT's announcement published in the Official Gazette on December 29, 2014 regarding the interconnection rates it would order when it resolves disputes regarding rates for 2015.
As a result of the spectrum auctions that were completed in 2010, a subsidiary of Nextel Mexico, NII Digital, was awarded a nationwide license for 30 MHz of spectrum in the 1.7 GHz and 2.1 GHz bands during the fourth quarter of 2010. In November 2012, Inversiones Nextel received authorization from the SCT to acquire a 100 MHz nationwide point-to-point 23 GHz link license from Miditel, S.A. de C.V., or Mitidel, which may be used for its WCDMA network, as well as to provide services to third parties. In January 2015, NII Digital received authorization from the IFT to acquire six point-to-multipoint 10.5 GHz link licenses from Miditel, which may be used for its WCDMA network, as well as to provide services to third parties. Previously, in March 2014, Miditel requested that the IFT extend these licenses in agreement with the Federal Telecommunications Act. This request is still pending.
The IFT has announced that in 2015, it will auction some spectrum bands for mobile services, including spectrum in the advanced wireless services, or AWS, band. The IFT expects to complete the auction and assign the spectrum by the end of 2015.
Foreign Currency Controls, Dividends and Tax Regulation. Because there are no foreign currency controls in place, Mexican currency is convertible into U.S. dollars and other foreign currency without restrictions. Mexican companies may distribute dividends and profits outside of Mexico if the Mexican company meets specified distribution and legal reserve requirements. Under Mexican corporate law, approval of a majority of stockholders attending an ordinary stockholders’ meeting of a corporation
is required to pay dividends. Beginning in 2014, dividends out of the post-2013 earnings of Mexican companies are subject to a 10% dividend withholding tax or a reduced withholding tax rate if a tax treaty is applicable. Prior to 2014, dividends paid out of Nextel Mexico's accumulated taxable income were not subject to withholding tax; a tax of up to 43% was imposed on Nextel Mexico if it paid dividends in excess of the accumulated taxable income. This tax was creditable against Nextel Mexico’s future tax liability. In addition, a 15% withholding tax applies to interest paid by Nextel Mexico to NII or its U.S. affiliates with respect to intercompany loans made by NII Holdings or its U.S. subsidiaries to Nextel Mexico. Effective January 1, 2014, the corporate tax rate was fixed at 30%, which repealed the scheduled reductions that were previously approved in December 2012.
Operating Company Overview. We refer to our wholly-owned Argentine operating company, Nextel Communications Argentina S.R.L., as Nextel Argentina. Nextel Argentina provides wireless services in major business centers including Buenos Aires, Cordoba, Rosario and Mendoza, along related transportation corridors and in a number of smaller markets. As of December 31, 2014, Nextel Argentina provided service to 1,954,400 handsets, which we estimate to be about 3.2% of the total mobile handsets and other mobile devices in commercial service in Argentina. As of December 31, 2014, approximately 49% of Nextel Argentina's subscriber base represented subscribers who are utilizing prepaid service plans.
Nextel Argentina is headquartered in Buenos Aires and has regional offices in Mar del Plata, Rosario, Mendoza and Cordoba, and numerous branches in the Buenos Aires area. As of December 31, 2014, Nextel Argentina had 1,194 employees.
Competition. Nextel Argentina competes with Movistar, which is controlled by Telefonica, Claro, which is controlled by America Movil, and Personal, which is controlled by Telecom Italia Mobile and is in the process of being acquired by Fintech. Each of these companies provides a variety of services, including mobile voice and data communications throughout Argentina. Nextel Argentina's competitors compete aggressively, and all three of the established mobile telephone service providers now offer services supported by a WCDMA-based network in a significant portion of their coverage areas.
We believe that the most important factors upon which Nextel Argentina competes are the quality of our customer service and network, brand recognition and our differentiated services, including our Direct Connect service. While its competition generally targets the mass market, Nextel Argentina primarily targets subscribers who utilize its services in their businesses and individuals that have medium to high usage patterns who are more concerned with the quality of customer care and service they receive.
In October 2014, the Argentine government held an auction of PCS (3G) and SCMA (4G) cellular spectrum based on auction rules that established minimum mandatory price and coverage requirements. The Argentine government has started the process of awarding the licenses relating to these frequencies to the winning bidders in the auction. Nextel Argentina did not participate in the auction, and as result, does not currently hold spectrum that would support the deployment of a WCDMA-based network in Argentina. Thus, Nextel Argentina expects to continue to use its iDEN technology. While we are in the process of evaluating spectrum options and strategic possibilities, it may become more difficult or costly for Nextel Argentina to acquire handsets that operate using the iDEN technology.
Regulatory and Legal Overview. For the time being, the Comision Nacional de Comunicaciones, referred to as the CNC, the Secretary of Communications, and the Ministry of Federal Planning, Public Investments and Services are the Argentine telecommunications authorities responsible for the administration and regulation of the telecommunications industry. Licenses and spectrum authorizations granted in Argentina may not be transferred or assigned without the regulators' authorization.
Under its licenses, Nextel Argentina is authorized to offer any and all types of telecommunications services and is free to choose the geographic area, technology and network architecture it uses to provide those services. Nextel Argentina is deemed to have registered SMR services, paging, data transmission and other value added services, as well as long distance telephony. Service fees are not regulated and may be freely established by Nextel Argentina.
The use of the SMR spectrum used by Nextel Argentina in support of its services is subject to the prior granting of an authorization to use that spectrum in a specified, limited geographical area. SMR authorizations granted through the year 2000 have an indefinite term, and those granted beginning in 2001 expire after a 10-year term. Nextel Argentina holds licenses to use 1,815 channels, including those covering the major business markets areas, with indefinite terms, and 1,760 channels with 10-year terms, mostly in smaller markets. SMR authorizations are subject to service launch and subscriber loading requirements. We believe that Nextel Argentina has met all material requirements of these authorizations.
In December 2014, the Argentine government passed a law establishing a new legal framework for telecommunication services in Argentina. The new law provides that the development of information and communications technologies and their associated resources are a public interest and creates a seven member board to oversee these resources. This law establishes that telecommunications operators may provide audio visual and media services and provides mandatory interconnection and access to associated and essential facilities. Particularities on these topics are uncertain since they are dependent on future regulations.
The new law also enables operators to set consumer pricing, but the regulatory authority is empowered to regulate for reasons of public interest, and provides for the regulation of wholesale charges among telecommunications operators for the use of network facilities and interconnection. Many of the provisions of the new law were already included in other laws currently in effect, and the new regulatory framework is not expected to materially impact the current operations of Nextel Argentina.
Nextel Argentina provides services to its subscribers that allow calls to be completed on other carriers’ networks under interconnection agreements with mobile operators, Telefonica de Argentina S.A. and Telecom Argentina S.A., as well as other smaller local carriers. Nextel Argentina has also implemented a calling party pays program with the fixed line carriers with whom it interconnects under which Nextel Argentina is compensated at agreed rates for calls made to its subscribers from fixed line networks for those subscribers who purchase our services under calling party pays rate plans. Charges recovered by Nextel Argentina for calling party pays calls originated on fixed lines depend on a reference price set periodically by the Minister of Federal Planning, Public Investments and Services.
In recent years, growing government involvement in key sectors of the economy, including the telecommunications sector, has resulted in new regulations that have set higher service standards, limited the right to freely establish service fees and increased reporting requirements, which have affected and may continue to affect Nextel Argentina's operations.
Foreign Currency Controls, Dividends and Tax Regulation. Formal and informal restrictions on the transfer of the cash held by Nextel Argentina effectively prevent the transfer of such funds outside of Argentina. On January 6, 2002, an Argentine emergency law became effective, and the government formally declared a public emergency in economic, administrative, financial and exchange control matters. The law empowered the Federal Executive Power to regulate those areas until December 10, 2003, subject to overview by the National Congress. The Emergency Law amended several provisions of the 1991 Convertibility Law No. 23,928, the most significant of which was to repeal the peg of the Argentine peso to the U.S. dollar. The effectiveness of the Argentine Emergency Law has been extended through December 31, 2015 by the passing of a subsequent law on October 22, 2013.
The Argentine Central Bank has implemented certain formal and informal requirements related to the acquisition of foreign currency by Argentine and non-Argentine residents and on the inflow and outflow of capital to and from Argentina, including those for the purposes of repayment of principal and interest, dividend payments and repatriation of capital. In addition, there are specific guidelines that must be complied with in order to make any repayment of principal or interest to foreign creditors. According to these regulations, payments of profits and dividends abroad may be carried out as long as they correspond to financial statements certified by external auditors. These formal and informal requirements have restricted the convertibility of currency and the ability to repatriate capital from Nextel Argentina to its parent companies in 2014 and are expected to continue to restrict convertibility and the ability to repatriate capital in 2015.
On June 9, 2005, the Federal Executive Power issued a decree that introduced certain requirements surrounding the transfer of funds to and from Argentina and created a mandatory deposit of 30% of the funds transferred to Argentina. This decree provides that, under certain circumstances, both Argentinean and non-Argentinean residents transferring funds from abroad to Argentina are obligated to make a 365-day registered non-transferable non-interest bearing cash deposit equal to 30% of the funds transferred by them to Argentina. Among others, foreign direct investment and subscription of primary issuances of debt or cash securities with public offering in the capital or stock markets are exempt from such restricted deposit requirement.
Under applicable Argentine corporate law, a company may pay dividends only from liquid and realized profits as reported in the company’s financial statements prepared in accordance with Argentine generally accepted accounting principles and duly approved by the shareholders meeting. Of those profits, 5% must be set aside until a reserve of 20% of the company’s capital stock has been established. Effective September 23, 2013, dividend payments are subject to a 10% withholding tax. In addition, when the dividend payments are the result of profits paid out in excess of the accumulated profits computed for income tax purposes as of the financial year preceding the date of the distribution of such dividends, a 35% withholding tax applies on the amount of the surplus. A withholding tax of 35% applies to interest paid by Nextel Argentina to NII Holdings or any of its U.S. subsidiaries with respect to intercompany loans made by NII Holdings or its U.S. subsidiaries to Nextel Argentina.
Employees
As of December 31, 20142015, we had about 9,800 employees.2,875 employees, of which 2,833 were employees of Nextel Brazil. Nextel Brazil is a party to a legally mandated collective bargaining agreement that covers allmost of its employees and expires on September 30, 2015. Although Nextel Mexico is a party to certain collective bargaining agreements, as of DecemberAugust 31, 2014, none of Nextel Mexico’s employees have chosen to participate under these agreements. In addition, beginning in February 2014, Nextel Argentina is also a party to a collective bargaining agreement that covers the majority of its employees.2016. NII Holdings is not a party to any collective bargaining agreement. We believe that the relationship between us and our employees, and between each of our operating companiesNextel Brazil and its employees, is good.
Access to Public Filings and Board Committee Charters
We maintain an internet website at www.nii.com. Information contained on our website is not part of this annual report on Form 10-K. Stockholders of the Company and the public may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed with or furnished to the SEC under the Securities Exchange Act of 1934, as amended, through the “investor relations” section of our website. This information is provided by a third party link to the SEC’s online EDGAR database, is free of charge and may be reviewed, downloaded and printed from our website at any time.
We also provide public access to our code of ethics, entitled the NII Holdings, Inc. Code of Conduct and Business Ethics, and the charters of the following committees of our Board of Directors: the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee and the Finance Committee. The committee charters may be viewed free of charge on the Investor Relations link of our website at the following address: www.nii.com. You may obtain copies of the committee charters and the Code of Conduct and Business Ethics free of charge by writing to: NII Holdings Investor Relations, 1875 Explorer Street, Suite 800, Reston, Virginia 20190. If a provision of our Code of Conduct and Business Ethics required under the Nasdaq Global Select Market corporate governance standards is materially modified, or if a waiver of our Code of Conduct and Business Ethics is granted to a director or executive officer, we will post a notice of such action on the Investor Relations link of our website at the following address: www.nii.com. Only the Board of Directors or the Audit Committee may consider a waiver of the Code of Business Conduct and Ethics for an executive officer or director.
Investors should be aware that we and our business are subject to various risks, including the risks described below. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of any investment. Our actual results could differ materially from those anticipated in theseany forward-looking statements that we make as a result of certaina variety of factors, including the risks faced by us described below and included elsewhere.below. Please note that additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations.
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1. | The filing of a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code will subject the Company to a number of risks and uncertainties and may have an adverse effect on the Company’s liquidity, results of operations, brand or business prospects, and any plan of reorganization implemented in the bankruptcy proceeding is expected to provide that holders of claims and interests with respect to our equity securities, or rights to acquire our equity securities, would be entitled to no recovery and that those claims and interests would be canceled for little or no consideration. |
On September 15, 2014, NII Holdings, Inc.Risks Relating to Our Business and certain of our subsidiaries filed voluntary petitions for relief under Chapter 11. As a result of this filing, our operations could be adversely affected, and there can be no assurances as to the length of the bankruptcy proceeding or whether any plan of reorganization will be approved by our creditors and confirmed by the Bankruptcy Court. While we expect to continue normal operations, upon commencement of the bankruptcy proceeding, transactions outside the ordinary course of business require Bankruptcy Court approval, which may limit our ability to timely respond to certain events or to take advantage of certain opportunities. The impact of the bankruptcy proceeding cannot be accurately predicted or quantified, and during the bankruptcy proceedings, we will be subject to additional risks and uncertainties relating to our ability to:
obtain Bankruptcy Court approval with respect to motions filed in the bankruptcy proceedings from time to time;
obtain creditor and Bankruptcy Court approval for, and then to confirm, a plan of reorganization to emerge from bankruptcy;
attract and retain customers who may be unwilling to conduct business with us as a result of the bankruptcy proceedings;
obtain and maintain acceptable terms with vendors and service providers and to maintain contracts that are critical to our operations;
attract, motivate and retain key employees;
execute transactions outside of the normal course of business; and
execute our business plan.
In addition, we currently expect that, under any plan of reorganization implemented in the bankruptcy proceedings, the holders of claims and interests with respect to our equity securities, or rights to acquire our equity securities, will not be entitled to any recovery and that those claims and interests will be canceled for no consideration.Results
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2. | The inability to complete the sale of Nextel Mexico may have an adverse effect on our ability to emerge from bankruptcy and future liquidity. |
The completion of the sale of Nextel Mexico is subject to several conditions, including: (i) the Bankruptcy Court having entered all appropriate orders; (ii) obtaining all required governmental approvals; (iii) the absence of a material adverse effect on Nextel Mexico; and (iv) certain other customary conditions. If these closing conditions are not satisfied or waived in accordance with the Purchase Agreement or if the Purchase Agreement is terminated for any other reason other than as a result of our decision to pursue a competing transaction, we may not be able to achieve certain milestone events included in the Revised PSA, including the Bankruptcy Court’s approval and completion of the sale of Nextel Mexico, confirmation of the Revised PSA and the occurrence of the effective date of the Revised Plan. If we fail to achieve any of these milestone events by the applicable date specified in the Revised PSA, the Revised PSA may be terminated and there can be no assurances that we will be able to reach a new plan support agreement or obtain creditor approval for a revised plan of reorganization to emerge from bankruptcy. Our failure to complete the sale of Nextel Mexico would also have an adverse impact on our liquidity requiring us to secure other sources of financing to support our business plan, which could also have an adverse impact on our ability to successfully develop and implement a plan of reorganization to emerge from bankruptcy.
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3.1. | Our failure to maintain effective internal controls over financial reporting may adversely affect the accuracy and timing of our financial reporting. |
As described in Part II. Item 9A. Controls and Procedures included in this annual report on Form 10-K, we disclosed a material weakness in internal control over financial reporting related to an aggregation of control deficiencies in Brazil resulting from Nextel Brazil's failure to establish an effective control environment and monitoring activities, including an organizational structure with sufficiently trained resources where supervisory roles, responsibilities and monitoring activities are aligned with our financial reporting objectives. Further, Nextel Brazil did not maintain effective operation of process level controls, including reconciliation and management review controls. Our efforts to remediate these deficiencies are ongoing and include reassessing the organizational structure within Nextel Brazil, providing training on the Company's policies and procedures and the Company's system of internal control over financial reporting, including individuals' responsibilities, improving the documentation and operating effectiveness of internal controls over financial reporting and increasing the level of involvement and oversight from the corporate office until the organizational structure and financial reporting processes in Brazil have matured.
Our inability to maintain effective internal control over financial reporting, as described above, combined with issues or delays in implementing the improvements described herein, could result in a material misstatement to our financial statements or other disclosures, which could have an adverse effect on our business, financial condition or results of operations.
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4. | Due to our Chapter 11 filing and recent results of operations make it unlikely that we may not be ablewill satisfy the applicable financial covenant included in some of our existing debt obligations, which creates uncertainty regarding our ability to continue as a going concern. |
Over the course of the last several years, our results of operations, including our operating revenues and operating cash flows, have been negatively affected by a number of factors, including significant deterioration in economic conditions in Brazil, increased competitive pressure, across all of our markets, the overall depreciation of the value of local currenciesthe Brazilian real relative to the U.S. dollar and the impact of previous delays in the deployment and launch of services on our WCDMA networks, which combined with competitive conditions to slow the pace ofnetwork in Brazil. These and other factors resulted in a reduction in our subscriber growth and revenues on those networks, andat a time when our costs reflected the increased costs to supportoperation of both of our networks. Thesenetworks and other factors had a significant negative impact on our results and as a result, we ended 2014 with a significantly smaller subscriber andour ability to grow our revenue base than was necessaryto a level sufficient to reach the scale required to generate positive operating income.
TheseWe believe that the wireless communications industry in Brazil has been and will continue to be characterized by intense competition on the basis of price; the types of services offered; variety, features and pricing of handsets; speed of data access; and quality of service. In recent years, the prices we have been able to charge for services in Brazil have declined as a result of intensified price competition, including the introduction by our competitors of aggressive pricing promotions, such as plans that allow shared minutes between groups of callers. During the second half of 2015, our competitors in Brazil began introducing even more aggressive pricing plans that provided more services for lower rates than some of the plans we offer, which together with the impact of deteriorating economic conditions, and their impact onreduced the number of new subscribers we added to our liquidity, raise substantial doubt aboutnetwork in the fourth quarter of 2015. This increased competition may continue to affect our ability to fundattract and retain subscribers in the future.
We have an obligation to meet a net debt financial covenant in Nextel Brazil's local bank loans that will apply semiannually beginning on June 30, 2016. We have made a number of changes within our debt obligations when they become due, whichsenior management team and modified our business plan to reflect our available cash resources and the impact of the current and expected economic and competitive conditions in additionBrazil on both our subscriber growth and revenues, and to align our failure to satisfy certain financial covenants under our existing debt obligations, raise substantial doubt about our ability to continue as a going concern. Forcosts with this purpose, we assume that a business is generally considered to be a going concern if there is neither the intention nor the need to liquidate or materially curtail the scope of its business plans.
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a. | We may not be able to execute our business plan or meet our obligations. |
Basedrevised outlook, but based on our current cash and investment balances and forecasted payment obligations,business plan, we believe that it is unlikely that we will be necessary forsatisfy the applicable financial covenant included in both of Nextel Brazil's local bank loan agreements at the June 30, 2016 measurement date. If we are unable to develop or implement changes to our business that allow us to raise debtor-in-possessionmeet this covenant, we will need to refinance or negotiate amendments to these financing byarrangements or secure waivers from the second quarter of 2015 to ensure we can continue to meet those obligations in the ordinary course of business. We plan to secure $350.0 million in bridge loan financing contemplated by the Revised PSA that would remain
outstandinglenders in order to provideavoid a potential default under the loan agreements. If a default occurs, the lenders could require us withto repay the additional liquidity necessaryamounts outstanding under these arrangements, and if they were to fund our business plan untildo so, the salelender of Nextel Mexico is completed. We expect to use a portion of the proceeds from the sale of Nextel Mexico to repay this debtor-in-possession loan and support our business plan going forward.
Our current circumstances, together with the restrictions in our current financing arrangements and/or general conditions in the financial and credit markets would be expected to make it difficult to obtain funding for our business either before or after we emerge from Chapter 11 pursuant to a confirmed plan of reorganization. If available, the cost of any funding could be both significant and higher than the cost of our existing financing arrangements. Moreover, the debtors' access to additional funding will be subject to the approval of the Bankruptcy Court while our Chapter 11 cases are pending, and we believe that our ability to secure significant additional funding, other than debtor-in-possession financing obtained while we are subject to the Chapter 11 proceedings, will not be available until we emerge from those proceedings. Our inability to obtain suitable financing when it is required for these or other reasons could, among other things, negatively impact our results of operations and liquidity and result in our inability to implement our current or future business plans.
Our current business plan assumes that customers will find our services attractive and that we will be able to continue to expand our subscriber base on our WCDMA networks. Our business plan also assumes that we will increase our operating revenues and ultimately generate positive operating cash flows. However, given the factors that have negatively affected our business, the difficulties associated with predicting our ability to overcome these factors and the uncertainty regarding our ability to complete the proposed sale of Nextel Mexico and confirm a plan of reorganization that would allow us to successfully restructure our debt obligations and emerge from the Chapter 11 proceedings, there can be no assurance that we will be able to achieve these results.
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b. | As of December 31, 2014, we were in violation of one or more of the financial covenants under some of our financing arrangements. |
The negative impact of the factors discussed above on our results of operations also adversely affected our ability to comply with certain financial covenants in our existing debt obligations. Specifically, as of the June 30, 2014 measurement date, we were not in compliance with certain financial covenants in ourBrazil's equipment financing facilities in Brazil and Mexico. In December 2014, Nextel Brazil and Nextel Mexico and the lender under the equipment financing facilities agreed to amendments to those facilities that removed all financial covenants beginning with the December 31, 2014 measurement date and continuing through the June 30, 2017 measurement date. In addition, in February 2015, Nextel Brazil and the lenders providing the Brazil local bank loans entered into standstill agreements under which the lenders agreed that they would not seek remedies under the provisions of the agreements related to Nextel Brazil's failure to satisfy the financial covenants in the loan agreements in the period before September 15, 2015 and that further principal repayment obligations due between the signing date and September 15, 2015 would be suspended. In addition, the standstill agreements formally commit the lenders to sign amendments once certain conditions are met. Among others, these conditions include an effective date of our emergence from Chapter 11 on or prior to September 15, 2015. In the event of a breach of one or more of the conditions listed above, the lenders have the right to terminate the standstill agreement and exercise all remedies under the agreements in place, including but not limited to declaring an event of default for noncompliance with the financial covenants and/or nonpayment of amounts due under the repayment schedule. Following the declaration of an event of default, the lenders will have the right tofacility could accelerate the loans and proceed with claims against the collateral.amount outstanding under that obligation as well. See Note 97 to our consolidated financial statements for more information.
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5.2. | Our independent registered public accounting firm has indicated that our financial condition raises substantial doubt as toabout our ability to continue as a going concern. |
Based on our resultsBecause it is unlikely that we will satisfy the applicable financial covenant included in both of operations, including our operating revenuesNextel Brazil's local bank loans and operating cash flows, andbecause of the impact such results have had on our liquidity,cross-default provisions included in combination with the uncertainty surrounding our Chapter 11 filing and other factors,Nextel Brazil's equipment financing facility, our independent registered public accounting firm has included a statement with respect to our ability to continue as a going concern in theirits report on our consolidated financial statements for the year ended December 31, 2014.2015. See “3. Due to our Chapter 11 filing and"1. Our recent results of operations make it unlikely that we may notwill be able to satisfy the applicable financial covenant included in some of our existing debt obligations, which creates uncertainty regarding our ability to continue as a going concern." and "— Business Update." However, our financial statements have been prepared assuming we will continue to operate as a going concern which contemplatesand contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The reaction of investors and others to the inclusion of a going concern statement by our auditors, our results of operations and questions regarding our potential inability to continue as a going concern may cause others to choose not to dealconduct business with us due to concerns about our ability to meet our contractual obligations and may materially adversely affect our share price and our ability to continue to execute our business plans, raise new capital and/or make our scheduled debt payments on a timely basis or at all.
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6.3. | Because our free cash flows from operating activities areflow was negative, and areis expected to continue to be negative, through 2015, we will likely need to meet our obligations and fund our working capital with cash on hand and proceeds from asset sales.through the recovery of amounts held in escrow and used to secure performance bonds. |
Our free cash flows from operating activities wereflow was negative in 2014,2015, and based on our current plans, we expect our free cash flows from operating activitiesflow to remain negative through 2015.at least 2016. Our current plans are based on a number of key assumptions relating to, among other things, our ability to manage our capital and operating expenses and to attract and retain customers and build our subscriber and revenue base without significantly increasing our costs.customers. If any of our assumptions are not borne out or are otherwise not correct, our free cash flows from operations could be significantly lower than expected. As a result, our cash flows from operating activitiesflow could continue to be negative or our capital expenditures could exceed our cash flows from operations beyond 2015 and for an extended period of time. There can be no assurance that we will succeed in executing on our plans or that we will generate positive free cash flows from operations or cash flows from operations sufficient to cover our capital expendituresflow in the future. See “3. Due to our Chapter 11 filing and recent results of operations we may not be able to continue as a going concern.”
Our current sources of funding are our cash and investments on hand; the ultimate amount recovered from cash currently held in escrow to secure our indemnification obligations in connection with the sales of Nextel Argentina, Nextel Mexico and Nextel Peru; the return of cash pledged as collateral to secure certain performance bonds relating to our obligations to deploy our spectrum in Brazil; and funds generated from our operations. As of December 31, 2015, assuming the availability of these funding sources, and if we are successful in making the necessary changes to our business that are factored into our revised business plan, assumes that we will complete the proposed sale of Nextel Mexico, that customers will find our services attractive and that we will be ableexpect to have sufficient liquidity to continue to expandfund our subscriber base onbusiness for about two years.
If we do not meet the results in our WCDMA networkrevised business plan, or if anticipated funding sources are not available to us, including the release of cash held in Brazil. We also assumeescrow, it is likely that we will be ablewould need to achieve a partial reversal ofobtain additional funding in the subscriber loss trends we have experienced recently. However, givennext twelve to eighteen months or sooner. We believe that the factors that have negatively affecteduncertainties relating to our business, together with the difficulties associated with predictingrestrictions in our ability to overcome these factorscurrent financing arrangements and general conditions in the uncertainty regarding our ability to complete the Nextel Mexico salefinancial and to confirm a plan of reorganization that would allowcredit markets, may make it challenging for us to successfully restructure our debt obligations and emerge fromobtain additional funding. In addition, the Chapter 11 proceedings, there can be no assurancecost of any additional funding that we willmay require, if available, could be ableboth significant and higher than the cost of our existing financing arrangements. Our inability to achieveobtain suitable financing if and when it is required for these results. In addition, we need to pay cash taxes and fundor other reasons could, among other things, have a material adverse impact on our working capital.
Due to the combined impact of the commencement of the Chapter 11 cases relating to NII Holdings, Inc. and certain of its non-operating subsidiaries, our recent and projected results of operations and other factors, our access to the capital markets is likely to be limited or nonexistent. The debtors' access to additional funding will also be subject to the approval of the Bankruptcy Court while they remain in Chapter 11 proceedings, and we believe that our ability to secure significant additional funding, other than any debtor-in-possession financing obtained while we are subject to the Chapter 11 proceedings that we would expect to repay with proceeds from the proposed sale of Nextel Mexico, will be conditioned upon our emergence from those proceedings pursuant to a confirmed plan of reorganization.liquidity.
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7.4. | If we are not able to compete effectively in the highly competitive wireless communications industry, our future growth and operating results will suffer. |
Our business involves selling wireless communications services to subscribers, and as a result, our economic success is based on our ability to attract new subscribers and retain current subscribers. Our success will depend on theNextel Brazil's ability of our operating companies to compete effectively with other telecommunications services providers, including other wireless telecommunications companies, internet and cable service providers and providers of fixed wireline services, in the markets in which they operate.Brazil. Our ability to compete successfully will depend on our ability to anticipate and respond to various competitive factors affecting the telecommunications industry in our markets,Brazil, including the availability of new services, features and technologies; changes in consumer preferences, demographic trends and economic conditions; our ability to fund our operations; and our competitors' pricing strategies.
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| a. | The wireless industriesindustry in our markets areBrazil is highly competitive, making it difficult for us to attract and retain customers. If we are unable to attract and retain customers, our financial performance will be impaired. |
Competition among telecommunications service providers in our marketsBrazil is intense as multiple carriers seek to attract and retain customers. Some of the factors contributing to this competitive environment include the current economic environment in Brazil; a higher relative penetration of wireless services in our markets compared to historic levels, which drives more aggressive competition as competitors seek to attract and retain customers that support the growth of their businesses in a more saturated market,market; the development and availability of new products and services, including services supported by new technologies,technologies; and the entry of new competitors. We also expect the current trend of alliances, cost-sharing arrangements and consolidation in the wireless and communications industries to continue as companies respond to the need for cost reduction and additional spectrum. This trend may result in the creation of larger and more efficient competitors with greater financial, technical, promotional and other resources to compete with our businesses. In addition, as we continue to pursue our plans to expand our marketing and sales focus to include a larger segment of high valueon consumers, we will be increasingly seeking to attract customers in segments that have historically been predominantly served by our competitors, many of which are larger companies with more extensive networks, financial resources and benefits of scale that allow them to spend more money on marketing and advertising than us and to exploit scale advantages that allow them to offer products and services at a lower cost.
In order to obtain a competitive advantage, our competitors have, among other things:
•provided discounted or free airtime or other services;
•provided increased handset subsidies;
provided increased handset subsidies;
•offered higher commissions to distributors;
•offered a broader range of handsets and, in some cases, offered those handsets through exclusivity periods;
provided discounted or free airtime or other services;
•expanded their networks to provide more extensive network coverage;
•developed and deployed networks that use new technologies and support new or improved services;
•offered incentives to larger customers to switch service providers, including reimbursement of cancellation fees; and
•offered bundled telecommunications services that include local, long distance and data services.
In addition, number portability requirements, which enable customers to switch wireless providers without changing their wireless numbers, have been implemented in all of our markets,Brazil, making it easier for wireless providers to effectively target and attract their competitors' customers.
The increasingly competitive environment in our marketsBrazil and competitive strategies of our competitors, including recent price competition, will put pressure on the prices we can charge for our services and for handsets and other devices that we sell in connection with our service offerings. These developments and actions by our competitors could continue to negatively impact our ARPU, our operating results and our ability to attract and retain customers. These competitive conditions may also require that we incur increased costs such as higher sales commissions or handset subsidies as we add new customers, which may reduce our profitability even while customer growth continues. If we are unable to respond to competition and compensate for declining prices by adding new customers, increasing usage and offering new services, our revenues and profitability could continue to decline.
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| b. | Competition and technological changes in the market for wireless services, including competition driven by our competitors' deployment of long-term evolution or other advanced technologies, could negatively affect our average revenue per subscriber, customer turnover, operating costs and our ability to attract new subscribers, resulting in adverse effects on our revenues, future cash flows, growth and profitability. If we do not keep pace with rapid technological changes or if we fail to deploy our WCDMA networks and offer new services on these networks in a manner that delivers a quality customer experience, we may not be able to attract and retain customers. |
The wireless telecommunications industry is experiencing significant technological change. Spending by our competitors on new wireless services and network improvements could enable them to obtain a competitive advantage with new technologies or enhancements that we do not offer. Rapid change in technology may lead to the development of wireless communications technologies that support products or services that consumers prefer over the products or services that we offer. If we are unable to keep pace with future advances in competing technologies on a timely basis, or at an acceptable cost, we may not be able to compete effectively and could lose subscribers to our competitors.
While we have deployed orand are in the process of deployingoffering services on our WCDMA networksnetwork in our markets other than Argentina, theyBrazil and are continuing to expand and supplement that network, including by offering services utilizing LTE technologies in Rio de Janeiro, those services have yet to achieve wide acceptance, and our competitors in each of our marketsBrazil have launched new or upgraded networks that use WCDMA and/or LTE technology similar to the WCDMA networks that we have deployed or are in the process of deploying and are designed to supportoffer services that use high speed data transmission capabilities, including internet access and video telephony, and some of those competitors have expended significant resources and made substantial investments to deploy upgrades to the technology used in their networks. Some of our competitors have also deployed or announced their plans to deploy new network technologies that could provide further enhancements to data speed and capacity in our markets, including services utilizing LTE technologies.telephony. These and other future technological advancements may enable competitors to offer features or services we cannot provide or exceed the quality of services we offer, thereby making our services less competitive. In addition, we may not be able to accurately predict technological trends or the success of new services in the market. If our services fail to gain acceptance in the marketplace in the near term, or if costs associated with implementation and completion of the introduction of these services materially increase, our ability to retain and attract customers could continue to be adversely affected. In particular, our push-to-talk services on our new WCDMA networksnetwork may not meet the continually changing demands of our customers and may no longer serve to differentiate our services in the future.
In Brazil, and Argentina, our current 800 MHz spectrum holdings are largely contiguous, making it possible to use that spectrum to support future technologies, if certain technical, operational and regulatory requirements are met, including, for example, the availability of compatible network and subscriber equipment. In Mexico,Although our spectrum holdings in Brazil are contiguous, they are not located in the same portion of the 800 MHz spectrum band that is either partially contiguous or non-contiguous. As a result, whilecurrently being used to support LTE network deployments elsewhere in the world including in the United States. Accordingly, it may be feasiblenecessary to use a portion of the spectrum to support future technologies, it will be necessaryseek regulatory changes and to reconfigure the spectrum band to increase the amount of contiguousand our spectrum holdings for itthem to be used to efficiently support thoseLTE technologies. In Argentina, we do not hold rights to use additional spectrum in bands that would facilitate a transition
to a new network technology, which could make it more difficult or impossible for us to deploy new and more competitive services in Argentina.
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| c. | SomeMost of our competitors are financially stronger than we are, which may limitlimits our ability to compete based on price. |
Because of their size, scale and resources, some of our competitors may be able to offer services to subscribers at prices that are below the prices that our operating companieswe can offer for comparable services. Many of our competitors are well-established companies that have:
•substantially greater financial and marketing resources;
•larger customer bases;
•larger spectrum positions;
•higher profitability and positive free cash flow;
•more access to funding, lower leverage and lower cost of financing; and
•larger service coverage areas than those of our operating companies.
If we cannot compete effectively based on the price of our service offerings and related cost structure, our results of operations may be adversely affected.
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| d. | The network and subscriber equipment we currently use and expect to useOur coverage is more expensive than the equipment used by our competitors,not as extensive as those of other wireless service providers, which may limit our ability to compete.attract and retain subscribers. |
Our iDEN-based networks utilize
We have deployed and will continue to expand and enhance our WCDMA network in Brazil, but our current network there does not offer nationwide coverage nor does it provide the coverage available on some of our competitors' networks. We have entered into a proprietary technology developed and designed by Motorola Solutions, and Motorola Mobility is the primary supplier for the network equipment and handsetsroaming agreement relating to our WCDMA services in Brazil that allows our customers to use roaming services in a broader area in Brazil. In addition, we sell for use onhave roaming agreements supporting our WCDMA services outside of Brazil. We are not able to supplement our iDEN networks. In contrast, allnetwork coverage using roaming arrangements because the uniqueness of our competitors use infrastructure and customer equipmentiDEN technology limits our potential roaming partners for subscribers solely on iDEN networks.
The implementation of the roaming services that support our WCDMA services are subject to risks. There is no guarantee we will be able to effectively implement or maintain these agreements to provide roaming service in areas where we do not have network coverage or that the terms of those agreements will allow us to utilize roaming services to economically extend our coverage areas. Utilization of these roaming arrangements requires our customers to rely on networks that are basedowned and operated by third parties and, in the case of in-market roaming, by one of our competitors. We are unable to ensure the availability of services or data speeds on standard technologies like the global system for mobile communications standard, or GSM, and WCDMA, which are substantially more widely used technologies than iDEN, are available from a significant number of suppliers and are produced in much larger quantities for a worldwide base of customers. While we expect to capture cost benefits from our transition to WCDMAthese networks, and services, our plans to continue to offer handsets that featurein most cases, push-to-talk services, as well as our smaller size relative to our competitors, may result in the costservice, which historically has been one of our handsets being higher, particularly those that are designed specifically to support push-to-talk services, because theykey differentiators, will not be produced inavailable or will not have the same quantities aslevel of performance when our competitors' more standardized WCDMA handsets. As a result, our competitors benefit from economies of scale and lower costs for handsets and infrastructure equipment thansubscribers are available to us. The higher costsroaming, which could negatively affect the service experience of our handsetscustomers and other equipment mayultimately make it more difficult to retain these subscribers.
We will not be able to utilize roaming arrangements to extend the coverage of our iDEN network and may not be able to economically extend the coverage of our WCDMA network using our existing or future roaming arrangements, making it difficult for us to provide geographic coverage for our services that is sufficient to attract orand retain customers,certain subscribers and may require us to absorb a comparatively larger cost of offering handsets to new and existing customers. The combination of these factors may place us at a competitive disadvantage and may reduce our growth and profitability.
In addition, the spectrum bandcompete effectively with competitors that we use to support our WCDMAoperate mobile networks and services in Mexico is not as widely used throughout the world to support WCDMA networks as other spectrum bands that are being used by some of our competitors. Utilizing this type of spectrum band may have an adverse impact on the availability of certain types of handsets that our customers may desire and may increase the costs of the handsets we offer.with more extensive service areas.
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| e. | Our operating companies may face disadvantages when competing against government-owned and formerly government-owned incumbent wireline operators or wireless operators affiliated with them.We are dependent on our competitors for support services that are critical to our operations. |
In some markets,
We rely on our operating companies compete against a government-owned telecommunications operator or a formerly government-owned telecommunications operator, some of which enjoy a near monopoly position relatingcompetitors for certain support services that are critical to the provision of wireline telecommunications services and may have a wireless affiliate. For example, an affiliate of Telcel, which is our largest competitor in Mexico, is the incumbent provider of wireline services in Mexico and was formerly a government-owned monopoly. In Argentina, we expect to compete against ARSAT, which is a government-owned telecommunications operator. Our operating companies may be at a competitive disadvantage in these markets because former government-owned incumbents or affiliated competitors may have:
close ties with national regulatory authorities;
control over connections to local telephone lines; or
the ability to subsidize competitive services with revenues generated from services they provide on a monopoly or near-monopoly basis.
operations. For example, the services that we provide on our new WCDMA networksnetwork require significantly greater data capacity than is the case on our iDEN networks,network, and this higher capacity demand havehas made it necessary for us to obtain wireline or other connecting
circuits between elements of our network such as switches and transmitter and receiver sites that are capable of transporting a significantly higher volume of data traffic. In some instances, the availability of those higher capacity circuits is limited, and in many cases, our access to those circuits is controlled by entities that are affiliated with our competitors. Similarly, we have entered into roaming arrangements with one of our competitors that allow us to expand the coverage of our WCDMA network in Brazil by allowing our subscribers to roam on that competitor's network in areas outside our coverage area. As a result, we are dependent on entities that are or are affiliated with our competitors to provide us with the data transport services needed to support our networks and services.services and roaming services that enhance our coverage area. Our ability to offer services and our results of operations could be adversely affected if those entities were to choose to allocate limited transport or network capacity to other customers including their wireless affiliates or otherwise make it more difficult for us to obtain the necessary transport and roaming capacity to support our networks and services.
Our operating companies may also encounter obstacles and setbacks if local governments adopt policies favoring these competitors or otherwise afford them preferential treatment. As a result, our operating companies may be at a competitive disadvantage to incumbent providers, particularly as our operating companies seek to offer new telecommunications services.
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| f. | Our coverage is not as extensive as those of other wireless service providers in our markets, which may limit our ability to attract and retain subscribers. |
In recent years, we have deployed and will continue to expand and enhance our WCDMA networks, but our current networks do not offer nationwide coverage in the countries in which we operate nor will they provide the coverage available on some of our competitors' networks. Although we have entered into roaming agreements relating to our WCDMA services in Brazil and Mexico that allow our customers to use roaming services in a broader area in those markets, we are not able to supplement our iDEN network coverage using roaming arrangements because the uniqueness of our iDEN technology limits our potential roaming partners for subscribers solely on iDEN networks. In addition, the implementation of the roaming services that support our WCDMA services are subject to the risks described below, and the costs of such services may be uneconomical, particularly if the competitive environment continues to put pressure on the prices we are able to charge for services provided to our customers. As a result, we will not be able to utilize roaming arrangements to extend the coverage of our iDEN networks and may not be able to economically extend the coverage of our WCDMA networks using our existing or future roaming arrangements, making it difficult for us to provide geographic coverage for our services that is sufficient to attract and retain certain subscribers and compete effectively with competitors that operate mobile networks with more extensive service areas.
We have entered into roaming arrangements with respect to services supported by our WCDMA networks in Brazil and Mexico that enable our customers in Brazil and Mexico to roam within those markets in areas where we do not offer network coverage. There is no guarantee we will be able to effectively implement or maintain these agreements to provide roaming service in areas where we do not have network coverage or that the terms of those agreements will allow us to utilize roaming services to economically extend our coverage areas. In addition, we have entered into agreements with wireless carriers in a number of countries that allow customers whose service is supported by our WCDMA networks to utilize roaming services in those countries. Both in-market and international roaming requires our customers to rely on networks that are owned and operated by third parties and, in the case of in-market roaming, by our competitors. We are unable to ensure the availability of services or data speeds on these networks, and in most cases, push-to-talk service, one of our key differentiators, will not be available or will not have the same level of performance when our subscribers are roaming, which could negatively affect the service experience of our customers and ultimately make it more difficult to retain these subscribers.
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g. | If there is a substantial increase in our customer turnover rate, our business could be negatively affected. |
In recent years, we have experienced a higher consolidated customer turnover raterates compared to earlier periods, which resulted primarily from the combined impact of weaker economic conditions and a more competitive sales environmentsenvironment in the marketsBrazil. In particular, there has recently been a significant increase in which we operate and our offering of prepaid and hybridcustomer turnover rate for subscribers to services toon our iDEN network as customers whoincreasingly prefer services that are more likely to change service providers.supported by high speed data capabilities including services on smartphones.
In addition, we have broadened our target market to include customers that have typically demonstrated a willingness to change service providers more frequently and have increased our usage of prepaid and hybrid post and prepaid hybrid payment terms as part of our service plans in order to attract more price sensitive customers, both of which had an adverse impact on our consolidated customer turnover rate. These and other changes in our marketing strategies and the types of customers we target have recently had a negative impact on our consolidated customer turnover rate and could continue to have that impact in the future. Subscriber losses adversely affect our business and results of operations because these losses result in lost revenues and cash flow, drive higher bad debt expenses and require us to attract replacement customers and incur the related sales commissions and other costs. Although attracting new subscribers and retaining existing subscribers are both important to the financial viability of our business, there is an added focus on retaining existing subscribers because the average cost of acquiring a new subscriber is much higher. Accordingly, increased levels of subscriber deactivations have had and could continue to have a negative impact on our results, even if we are able to attract new subscribers at a rate sufficient to offset those deactivations. If we experience further increases in our customer turnover rate, or if the higher customer turnover rates we are currently experiencing do not decline, to levels that are closer to what we have historically experienced, our results of operations could be adversely affected.
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h.g. | If our networks do not perform in a manner that meets subscriber expectations, we will be unable to attract and retain customers. |
Customer acceptance of the services we offer on our networks is and will continue to be affected by technology-based differences and by the operational performance and reliability of these networks. We may have difficulty attracting and retaining customers if: we are unable to satisfactorily address and resolve performance or other transmission quality issues as they arise; these issues limit our ability to deploy or expand our network capacity as currently planned; or these issues place us at a competitive disadvantage to other wireless providers in our markets. In Mexico, our subscriber base, operating revenues and operating cash flows were negatively impacted by Sprint's decision to deactivate its iDEN network in the U.S. in mid-2013 and our failure to effectively deploy and optimize our WCDMA network to meet the needs of customers who were seeking new services to replace their iDEN services, particularly customers living in areas near the border of Mexico and the U.S. These factors contributed to the negative market perception of our brand and services provided using our WCDMA network that developed in Mexico in late 2013, and our competitors in Mexico used this negative perception as an opportunity to aggressively target our existing and potential subscribers, making it difficult for us to attract and retain subscribers and resulting in a significant decline in our subscriber base from December 31, 2013 to December 31, 2014.providers.
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i.h. | Customer concerns about our financial condition, ability to continue as a going concern and ability to implement our business plan, including our network development and deployment efforts, may have an additional adverse effect on our ability to attract and retain customers. |
We believe that our customers may take our medium- to long-term operating and financial outlook, particularly to the extent that it is perceived to impact our network deployment and development, into account when deciding whether to continue or begin service with us. Recently, our results of operations, including our operating revenues and operating cash flows, have been negatively affected by a number of factors. See “3. Duefactors including competitive pressure in Brazil, the overall depreciation of the Brazilian real relative to the U.S. dollar, the impact of previous delays in the deployment and launch of services on our Chapter 11 filingWCDMA network and recent results of operations, we may not be able to continue as a going concern.”significant deterioration in economic conditions in Brazil. If customers or potential customers who are aware of our recent results of operations, or of current and future adjustments to our business plan in response to those results, become concerned that we will be unable to continue to provide service to them at a quality level that meets their needs, customer deactivations could increase and new subscribers could decrease relative to our business plans. Our current business plan assumesdecrease. We assume that customers will find our services attractive and that we will be able to increase our subscriber base. However, given the factors that have negatively affected our business and the difficulties associated with predicting our ability to overcome these factors, there can be no assurance that these assumptions will prove to be correct. Increases in customer deactivations and decreases in new subscribers relative to our business plan would adversely affect our revenues and our ability to generate the cash needed to fund our business and meet our other obligations.
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8.5. | If we are not able to manage our future growth, our operating results will suffer. |
Our ability to achieve our long-range business goals and to grow profitably is dependent on our ability to manage changes to our business model and cost structure that are necessary to allow us to pursue our plans to expand both our service offerings and our targeted customer segments, including by implementing new and more efficient supporting business systems and processes. Our inability to complete these efforts in a timely fashion, or to manage the related costs, could have an adverse impact on our business.
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a. | We may be limited in our ability to grow unless we successfully expand network capacity and launch competitive services. |
To continue to successfully retain our existing customers, increase our customer base and pursue our business plan, we must economically:
expand the capacity and coverage of our WCDMA networks;
secure sufficient transmitter and receiver sites at appropriate locations to meet planned system coverage and capacity targets;
obtain adequate quantities of base radios and other system infrastructure equipment; and
obtain an adequate volume and mix of handsets to meet customer demand.
In particular, the deployment and expansion of the coverage and capacity of our WCDMA networks will require us to deploy a significant number of new transmitter and receiver sites in order to meet the expanded coverage and capacity requirements for those networks resulting from differences in our commercial strategies, differences in the propagation characteristics of the spectrum bands being used to support those networks and the coverage requirements associated with the spectrum licenses being utilized for those networks. In some of our markets, individuals and governments are opposing new tower construction and supporting laws restricting the construction of towers and other transmitter and receiver sites. Compliance with such laws could increase the time and costs associated with our planned network deployments. The effort required to locate and build a significant number of
additional transmitter sites across our markets in coming years will be substantial, and our failure to meet this demand could delay or impair the expansion of our WCDMA networks, which would adversely affect our business.
In addition, as we launch a broader array of services on our WCDMA networks, we must develop, test and deploy new supporting technologies, software applications and systems intended to enhance our competitiveness both by supporting existing and new services and features, and by reducing the costs associated with providing those services. Successful deployment and implementation of new services and technology on our WCDMA networks depend, in part, on the willingness and ability of third parties to develop new handsets and applications that are attractive to our customers and that are available in a timely manner. We may not be able to successfully expand our WCDMA networks as needed or complete the development and deployment of competitive services using our new networks. Failure to successfully expand those networks and services could also be expected to result in subscriber dissatisfaction that could affect our ability to retain subscribers and could have an adverse effect on our results of operations and growth prospects. If this occurs, we may be unable to recover the substantial investment we are making in our new networks and the related costs we incur to offer these new services.
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b. | Failure to successfully implement core information technology and operating systems may adversely affect our business operations. |
Our business strategy envisions growing our business by successfully building and deploying our WCDMA networks, expanding our product and service offerings and expanding our target customer base. Even if we do expand our business, if we fail to manage our growth effectively, our financial results could be adversely affected. Separately, growth may place a strain on our management systems and resources. We must continue to refine and expand our business development and sales capabilities, our network operations and information technology infrastructure, and the hardware, software, systems, processes and people to effectively support current and future sales, customer service and information requirements of our business in an efficient and cost-effective manner. In addition, failure to prioritize technology initiatives and effectively allocate resources in order to achieve our strategic goals could result in a failure to realize those goals, including the expected benefits of our growth, and could negatively affect our financial results.
Changes to our networks and business strategies require us to implement new operating and supporting systems to improve our ability to address the needs of our customers, as well as to create additional efficiencies and strengthen our internal controls over financial reporting. We may not be able to successfully implement these new systems in an effective or timely manner or we could fail to complete all necessary data reconciliation or other conversion controls when implementing the new systems. In addition, we may incur significant increases in costs and encounter extensive delays in the implementation and rollout of these new systems. Failure to effectively implement our new operating systems may adversely affect our results of operations, customer perceptions and internal controls over financial reporting.
As we grow, we must continue to hire, train, supervise and manage new employees. We cannot assure you that we will be able to allocate our human resources optimally or identify and hire qualified employees or retain valued employees. If we are unable to manage our growth and operations, our results of operations could be adversely affected.
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c. | Costs, regulatory requirements and other problems we encounter as we deploy our WCDMA networks could adversely affect our operations. |
In some instances, the rights to use the spectrum that supports our WCDMA networks come with significant regulatory requirements governing the coverage of these networks, the timing of deployment of these networks and the loading of new customers on these networks. If we fail to meet these regulatory requirements, the applicable regulators could assess fines and, in some instances, take action to revoke our spectrum rights.[In addition, our deployment of these new networks will require significant capital expenditures and will result in incremental operating expenses prior to fully launching services. Costs could increase beyond expected levels as a result of unforeseen delays, cost overruns, unanticipated expenses, regulatory changes, engineering design changes, problems with network or systems compatibility, equipment unavailability and technological or other complications.
In addition, regulators could require us to provide competitors with the ability to interconnect with our push-to-talk services and, accordingly, gain access to our push-to-talk customers in the future. This access could dilute the competitive advantage and negatively affect the quality of this key differentiator, which could affect the willingness of current customers to remain on our network and negatively impact the willingness of potential customers to choose our service.
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9. | Laws restricting the exchange of currencies or expatriating funds limit the ability of our subsidiaries to make funds available to us. |
Because almost all of our business operations and assets are conducted and held by our foreign subsidiaries, we depend on those subsidiaries to provide us with cash to satisfy our obligations whether in the form of advances from our subsidiaries, the repayment by our subsidiaries of intercompany loans or the payment of dividends and other distributions from the net earnings and cash flow generated by these subsidiaries. Laws or regulations restricting the exchange of currencies or expatriation of funds limit the ability of these subsidiaries to distribute cash or assets. For example, in Argentina, the Argentine Central Bank has
implemented certain formal and informal requirements related to the acquisition of foreign currency by Argentine and non-Argentine residents and on the inflow and outflow of capital to and from Argentina, including those for the purposes of repayment of principal and interest, dividend payments and repatriation of capital. From time to time, the Argentine Central Bank and other authorities in Argentina have used these formal and informal requirements to limit the convertibility of currency and our ability to repatriate capital from Nextel Argentina to its parent companies. Due to these restrictions, cash and investments held by Nextel Argentina are not available to our holding company or our subsidiaries located outside of Argentina. Brazilian law provides that the Brazilian government may, for a limited period of time, impose restrictions on the remittance by Brazilian companies to foreign investors of the proceeds of investments in Brazil. These restrictions may be imposed whenever there is a material imbalance or a serious risk of a material imbalance in Brazil's balance of payments. The inability to receive sufficient cash from our subsidiaries to satisfy our obligations would require us to obtain additional debt or equity financing or sell assets to meet those obligations. There can be no assurance that we would be able to obtain such financing or sell assets at acceptable terms or at all and, under such circumstances, our failure to do so could prevent us from satisfying our obligations and from maintaining cash for dividends.
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10. | We operate exclusively in foreign markets,Brazil, and our assets, subscribers and cash flows are concentrated in Latin America,Brazil, which presents risks to our operating plans. These risks will become more concentrated in Brazil if we complete the sale of Nextel Mexico. |
As a holding company with operations concentratedsolely in Latin America,Brazil, our growth and operating results are dependent on the strength and stability of the economic, political and regulatory environments in which we operate. If we successfully complete the proposed sale of Nextel Mexico, as discussed in "Item 1. Business — Business Update," the risks associated with operating exclusively in foreign markets will relate primarily to the events and conditions in Brazil, and changesthat country. Changes in the economic, political and regulatory environment or foreign currency exchange rates in Brazil will have a more significant impact on our operating results than has been the case historically withwhen we held operations in multiple Latin American markets. As a result, our business and operations maywill be subject to a higher degree of risk and volatility due to the impact of the risks described below.
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| a. | A decline in the foreign exchange rates for currencies in our marketsrate of the Brazilian real may adversely affect our growth and our operating results. |
Historically, in the countries in which we do business, the valuesvalue of the local currencies in relationBrazilian real relative to the U.S. dollar havehas been volatile. The unstable global economic environment and recentRecent weakness in the economies of some of the countries where we operateeconomy in Brazil has led to increased volatility in these currencies.the real compared to the U.S. dollar. Nearly all of our revenues are earned in non-U.S. currencies,Brazilian reais, but we report our results in U.S. dollars. As a result, fluctuations in foreign currency exchange rates have had and can have a significant impact on our reported results that may not reflect the operating trends in our business. In addition, almost 50%all of our outstanding debt that has not been classified as subject to compromiseis owed by Nextel Brazil, and 52% of our total debt outstanding is denominated in U.S. dollars. A decline in the valuesvalue of the local currencies in the markets in which we operateBrazilian real makes it more costly for us to service our U.S. dollar-denominated debt obligations and affects our operating results because we generate nearly all of our revenues in foreign currencies,Brazilian reais, but we pay for some of our operating expenses and capital expenditures in U.S. dollars. Further, because we report our results of operations in U.S. dollars, declinesa decline in the value of local currencies in our marketsthe Brazilian real relative to the U.S. dollar result in reductions in our reported revenues, as well as a reduction in the carrying value of our assets, including the value of cash investments held in local currencies.Brazilian reais. Depreciation of the local currenciesBrazilian real also results in increased costs to us for imported equipment. WeHistorically, we have entered into some limited hedging arrangements to mitigate short-term volatility in foreign exchange rates, but have not hedged against long-term movements in foreign exchange rates because the alternatives currently available for hedging against those movements are limited and costly. As a result, if the valuesvalue of local currencies in the countries in which our operating companies conduct businessBrazilian real continues to depreciate relative to the U.S. dollar, we would expect our reported operating results in future periods, and the value of our assets held in local currencies,Brazilian reais, to be adversely affected.
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| b. | We face economic and political risks operating in our markets,Brazil, which may limit our ability to implement our strategy and could negatively impact our financial flexibility, including our ability to repatriate and redeploy profits, and may disrupt our operations or hurt our performance. |
Our operations depend on the economies of the marketseconomy in Brazil, which our operating companies conduct business, all of which areis considered to be an emerging markets. These markets are in countries with economies in various stages of development, some of which aremarket and has historically been subject to volatile economic cyclescycles. More recently, the economy in Brazil has experienced significant and significant, rapid fluctuationsfluctuation in terms of commodity prices, local consumer prices, employment levels, gross domestic product, interest rates and inflation rates. These economic conditions are affecting the wireless telecommunications industry in Brazil, leading to lower customer credit and pressure on customer demand, pricing and customer turnover, and are negatively impacting our ability to attract and retain subscribers. During 2015, the Brazilian economy contracted as domestic demand decreased due to a combination of high inflation, high interest rates, which have been generally higher, and at times, significantly higher than the inflation rate in the U.S. If these economic fluctuations and higher inflation rates make it more difficult for customers to pay for our products and services, we may experience lower demand for our products and services andgrowing unemployment, tighter credit conditions, a decline in business investments and political issues. It is estimated that Brazil's gross domestic product, or GDP, fell about 3.7% in 2015 compared to the growthend of their customer base2014, and most economic forecasts for 2016 currently project continued economic contraction. The unemployment rate in revenues. Brazil was almost 7% at the end of 2015 and is expected to reach 9% in 2016. Real wages in Brazil have been falling since March 2015 and are expected to continue to fall. The foreign currency exchange rate in Brazil declined 42% relative to the U.S. dollar from 2014 to 2015. If the current economic conditions continue or worsen, the economic environment in Brazil may negatively impact our ability to meet our business plan.
In addition, in recent years,some instances, the economieseconomy in some of the markets in which we operate haveBrazil has also been negatively affected by other factors, including volatile political conditions and, in some instances, by significant intervention by the relevant government authorities relating to economic and currency exchange policies. For more information, see "9. Laws restricting the exchange of currencies or expatriating funds limit the ability of our subsidiaries to make funds available
to us." Limitations on our ability to convert currency and repatriate and redeploy capital may prevent us from managing our business and financial obligations in a cost effective manner, compete effectively, take advantage of new business opportunities and grow our business.
conditions. We are unable to predict the impact that local or national elections and the associated transfer of power from incumbent officials or political parties to newly elected officials or parties may have on the local economy or the growth and development of the local telecommunications industry. Changes in leadership or in the ruling party in the countries in which we operateBrazil may affect the economic programs developed under the prior administration, which in turn, may adversely affect the economies in the countries in which we operate.economy there. Other risks associated with political instability could include the risk of expropriation or nationalization of our assets by the governments in the markets where we operate. Althoughgovernment. We expect political, economic and social conditions differ in each country in which we currently operate, political and economic developments in one country or in the U.S. mayBrazil to affect our business, as a whole, including our access to international capital markets to obtain funding needed for our business or to refinance our existing indebtedness.
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| c. | Our operating companies arecompany is subject to local laws and government regulations, in the countries in which they operate, and we are subject to the U.S. Foreign Corrupt Practices Act,laws and regulations, which could limit our growth and strategic plans and negatively impact our financial results. |
Our operations are subject to local laws and regulations in the countries in which we operate,Brazil, which may differ substantially from those in the U.S., and we could become subject to legal penalties in foreign countries if we do not comply with those local laws and regulations. In some foreign countries, particularly in those with developing economies, persons may engage in business practices thataddition, we are prohibited bysubject to U.S. laws and regulations, applicable to us such as the Foreign Corrupt Practices Act, or the FCPA. The FCPA prohibits us from providing anything of value to foreign officials for the purpose of influencing official decisions or obtaining or retaining business. Our employees and agents interact with government officials on our behalf, including interactions necessary to obtain licenses and other regulatory approvals necessary to operate our business and through contracts to provide wireless service to government entities, creating a risk that actions may occur that could violate the FCPA. Although we have implemented policies and procedures designed to ensure compliance with local laws and regulations as well as U.S. laws and regulations, including the FCPA, there can be no assurance that all of our employees, consultants, contractors and agents will abide by our policies. The penalties for violating the FCPA can be severe. Any violations of law, even if prohibited by our policies, could have a material adverse effect on our business.
In addition, in each market in which we operate, one or moreBrazil, government regulatory entitiesagencies regulate the licensing, construction, acquisition, ownership and operation of our wireless communications systems.systems, as well as the granting, maintenance and renewal of licenses to use spectrum and radio frequencies. Adoption of new regulations, changes in the current telecommunications laws or regulations or changes in the manner in which they are interpreted or applied could adversely affect our operations by increasing our costs, reducing our revenues or making it more difficult for us to compete. Our business may be negatively impacted if changes are implemented that:
The regulatory schemesaffect the terms of interconnection arrangements that allow our subscribers to complete calls to our competitors’ subscribers, including the charges imposed for the completion of those calls;
establish restrictions that limit or otherwise affect the deployment of transmitter and receiver sites needed to support the coverage and capacity of our networks;
establish minimum network construction, coverage or quality of service obligations that can result in increased capital investments or require other changes to our business;
establish prices Nextel Brazil is required to charge for its services or impose other terms of service that can affect our revenues or costs; or
impose foreign ownership limitations on telecommunications providers that may affect our ability to own and operate our business.
Recently, there has also been an increased focus on service and quality standards in Brazil as the countrieslocal government monitors telecommunications providers' voice quality, customer complaints, call failure rates, capacity to handle call traffic levels in peak calling periods and failed interconnection of calls, which we operate allowcould potentially increase our operating costs and affect rates charged to subscribers. In addition, regulations in Brazil permit third parties, including our competitors, to challenge our actions or decisions of the regulators in our markets that potentially benefit us, such as decisions regarding the allocation and licensing of spectrum. If our competitors are successful in pursuing claims such as these, or if the regulators in our marketsBrazil take actions against us in response to actions initiated by our competitors, our ability to pursuegrow our business plans and improve our results of operations could be adversely affected.
Finally, rules and regulations affecting placement and construction of our transmitter and receiver sites affect our ability to deploy and operate our networks, in each of our markets, and therefore impact our business strategies. In some of our markets,instances, local governments have adopted very stringent rules and regulations related to the placement and construction of wireless towers, or have placed embargoes on some of the cell sites owned by our operating companies, which can significantly impede the planned expansion of our service coverage area or require us to remove or modify existing towers, which can result in unplanned costs, negatively impact network performance and impose new and onerous taxes and fees. Compliance with such laws, rules and regulations could increase the time and costs associated with our planned network deployments. The propagation characteristics of the spectrum bands being used to support our WCDMA networksnetwork in Brazil and the coverage requirements associated with the spectrum licenses being utilized for those networks, particularly in Brazil, will require substantially more transmitter and receiver sites to meet the minimum coverage requirements of those licenses and to provide coverage to the areas needed to provide competitive services. In addition, our licenses to use spectrum in some of our marketsBrazil require us to build our networks within proscribedprescribed time periods, and rulesfailure to meet the requirements may result in enforcement of performance bonds related to the licenses, forfeiture of the channels and revocation of licenses. Rules and regulations affecting tower placement and construction could make it difficult to meet our build requirements in a timely manner or at all, which could lead us to incur unplanned costs or result in fines or, in some instances, the loss of spectrum licenses. We believe that Nextel Brazil is currently in compliance with the applicable operational requirements of its licenses in all material respects.
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| d. | We pay significant import duties on our network equipment and handsets, and any increases could impact our financial results. |
Our operations are highly dependent upon the successful and cost-efficient importation of network equipment and handsets and other devices from locations outside the countries in which we operate.Brazil. Network equipment and handsets may be subject to
significant import duties and other taxes in the countries in which our operating companies conduct business.taxes. Any significant increase in import duties in the future could significantly increase our costs. To the extent we cannot pass these costs on to our customers, our financial results will be negatively impacted.
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| e. | We are subject to foreign taxes, in the countries in which we operate, which may reduce the revenues of our operating subsidiary in Brazil, reduce the amounts we receive from our operating companiesNextel Brazil or may increase our tax costs. |
Many of
The government in Brazil, including the foreign countries in which we operate havelocal municipalities, has increasingly turned to new taxes, as well as aggressive interpretations of current tax law, as a method of increasing revenue. For example, our operating company inNextel Brazil is required to pay two types of income taxes, which include a corporate income tax and a social contribution tax, and is subject to various types of non-income related taxes, including value-added tax, excise tax, service tax, importation tax and property tax. In addition, the reduction in tax revenues resulting from the economic downturn that has occurred in the last several years has led to proposals and new laws in some of our markets that increase the taxes imposed on sales of handsets and on telecommunications services. The provisions of new tax laws may attempt
to prohibit us from passing these taxes on to our customers or our ability to do so may be limited by competitive conditions. These taxes may reduce the amount of earnings that we can generate from our services or in some cases may result in operating losses.
Distributions of earnings and other payments, including interest, received from our operating companiesNextel Brazil may be subject to withholding taxes imposed by some countries in which these entities operate.Brazil. Any of these taxes will reduce the amount of after-tax cash we can receive from those operating companies.our operations.
In general, a U.S. corporation may claim a foreign tax credit against its federal income tax expense for foreign withholding taxes and, under certain circumstances, for its share of foreign income taxes paid directly by foreign corporate entities in which the company owns 10% or more of the voting stock. Our ability to claim foreign tax credits is, however, subject to numerous limitations, and we may incur incremental tax costs as a result of these limitations or because we do not have U.S. Federal taxable income.
We may also be required to include in our income for U.S. federalFederal income tax purposes our proportionate share of specified earnings of our foreign corporate subsidiaries that are classified as controlled foreign corporations, without regard to whether distributions have been actually received from these subsidiaries.
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| f. | We have entered into a number of agreements that are subject to enforcement in foreign countries, which may limit efficient dispute resolution. |
A number of the agreements that we and our operating companiessubsidiaries enter into with third parties are governed by the laws of, and are subject to dispute resolution in the courts of or through arbitration proceedings in, the countries or regions in which the operations are located. We cannot accurately predict whether these forums will provide effective and efficient means of resolving disputes that may arise. Even if we are able to obtain a satisfactory decision through arbitration or a court proceeding, we could have difficulty enforcing any award or judgment on a timely basis. Our ability to obtain or enforce relief in the U.S. is also uncertain.
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11.6. | The costs we incur to connect our operating companies’ networks with those of other carriers are subject to local laws in the countries in which they operate and may increase, which could adversely impact our financial results. |
Our operating companies
Nextel Brazil must connect theirits telecommunication networks with those of other carriers in order to provide the services we offer. We incur costs relating to these interconnection arrangements and for local, long distance and data transport services relating to the connection of our transmitter sites and other network equipment. These costs include interconnection charges and fees, charges for terminating calls on the other carriers’ networks and transport costs, most of which are measured based on the level of our use of the related services. We are able to recover a portion of these costs through revenues earned from charges we are entitled to bill other carriers for terminating calls on our network, but because users of mobile telecommunications services who purchase those services under contract generally, and business customers like ours in particular, tend to make more calls that terminate on other carriers’ networks and because we have a smaller number of customers than most other carriers, we incur more charges than we are entitled to receive under these arrangements. The terms of the interconnection and transport arrangements, including the rates that we pay, are subject to varying degrees of local regulation, in most of the countries in which we operate, and often require us to negotiate agreements with the other carriers, most of whomwhich are our competitors, in order to provide our services. In some instances, other carriers offer their services to some of their subscribers at prices that are near or lower than the rates that we pay to terminate calls on their networks, which may make it more difficult for us to compete profitably. Our costs relating to these interconnection and transport arrangements are subject to fluctuation both as a result of changes in regulations in the countries in which we operate and the negotiations with the other carriers. Changes in our customers’ calling patterns that result in more of our customers’ calls terminating on our competitors’ networks and changes in the interconnection arrangements either as a result of regulatory changes or negotiated terms that are less favorable to us could result in increased
costs for the related services that we may not be able to recover through increased revenues, which could adversely impact our financial results.
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12.7. | Because we rely on one supplier for equipment used in our iDEN networks, anyOur failure of that supplier to perform couldmaintain effective internal controls over financial reporting may adversely affect the accuracy and timeliness of our operations.financial reporting. |
Some
As described in "Part II, Item 9A. Controls and Procedures" included in this annual report on Form 10-K, we disclosed a material weakness in internal control over financial reporting related to certain deficiencies in Nextel Brazil's control environment and risk assessment process. The material weakness was initially disclosed during the quarter ended September 30, 2014. Nextel Brazil did not establish an effective control environment and monitoring activities, including an organizational structure with sufficiently trained resources where supervisory roles, responsibilities and monitoring activities were aligned with financial reporting objectives. Subsequently, significant turnover disrupted staffing throughout the organization, particularly within the accounting function, and management had difficulty attracting and retaining employees technically qualified to comply with U.S. GAAP reporting requirements. Management has taken numerous actions since then to improve the control environment, including implementing a new organizational structure and hiring additional accounting professionals. We continue to monitor the maturity of Nextel Brazil’s newly implemented organizational structure and resources.
Our inability to maintain effective internal control over financial reporting, as described above, combined with issues or delays in implementing the spectrum thatimprovements described herein, could result in a material misstatement to our operating companies are licensed to use,financial statements or other than the spectrum that supports our WCDMA networks, is non-contiguous, and the iDEN technology is the only commercially available technology that operates on non-contiguous spectrum. As a result, Motorola Solutions is the primary supplier for the network equipment and Motorola Mobility,disclosures, which is currently owned by Lenovo Group, is the primary supplier of the handsets we sell for usecould have an adverse effect on our iDEN networks. If either Motorola Solutionsbusiness, financial condition or Motorola Mobility fails to deliver system infrastructure equipment and handsets or enhancements to the features and functionalityresults of our iDEN-based networks and handsets on a timely, cost-effective basis, we may not be able to adequately service our existing customers or attract new customers to services supported by our iDEN networks, particularly in Argentina where we do not currently hold rights to use spectrum that would support the deployment of a WCDMA-based network. Accordingly, if Motorola Solutions is unable to, or determines not to, continue supporting our iDEN-based infrastructure or if Motorola Mobility is unable to, or determines not to, continue to manufacture iDEN-based handsets, our business in Argentina will be materially adversely affected.operations.
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13.8. | Our business could be negatively impacted by our reliance on indirect distribution channels for a significant portion of our sales. |
Our business depends heavily upon third party distribution channels for securing a substantial portion of the new customers to our services, and with the expansion of our target market, we expect to rely more heavily on retailers and other sales channels for a growing portion of our sales. In many instances, we rely on these third party dealers and retailers to serve as the primary contact between us and the customer and to interact with other third parties on our behalf. As a result, there may be risks associated with the actions taken by our distributors or the operators of our other retail channels, including potential risks associated with the failure of our distributors or other retail channels to follow regulatory requirements. The volume of our new customer additions, our ability to retain customers and our profitability could also be adversely affected if these third party dealers or retailers terminate their relationship with us, if there are adverse changes in our relationships with them, if we alter our compensation arrangements with these dealers or retailers or if the financial condition of these dealers or retailers deteriorates.
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14.9. | If our licenses to provide mobile services are not renewed, or are modified or revoked, our business may be restricted. |
Wireless communications licenses and spectrum allocations are subject to ongoing review and, in some cases, to modification or early termination for failure to comply with applicable regulations. If our operating companies failNextel Brazil fails to comply with the terms of theirits licenses and other regulatory requirements, including installation deadlines and minimum loading or service availability requirements, they could be fined or their licenses could be revoked. This is particularly true with respect to the grants of licenses for spectrum we use to support our WCDMA networks, most ofnetwork in Brazil, which impose strict deadlines for the construction of network infrastructure and supporting systems as a condition of the license. Further, compliance with these requirements is a condition for eligibility for license renewal. Most of our wireless communications licenses have fixed terms and are not renewed automatically. Because governmental authorities have discretion to grant or renew licenses, our licenses may not be renewed or, if renewed, renewal may not be on acceptable economic terms. In addition, the regulatory schemesregulations in the countries in which we operate allowBrazil permit third parties, including our competitors, to challenge the award and use of our licenses. If our competitors are successful in pursuing claims such as these, or if regulators in our marketsBrazil take actions modifying or revoking our licenses in response to these claims, our ability to pursuegrow our business plans, including our plans to deploy WCDMA networks, and improve our results of operations could be materially adversely affected.
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15.10. | If we are not able to manage our future growth, our operating results will suffer. |
Our ability to achieve our long-range business goals and to grow profitably is dependent on our ability to manage changes to our business model and cost structure that are necessary to allow us to pursue our plans to expand both our service offerings and our targeted customer segments, including by implementing new and more efficient supporting business systems and processes. Our inability to complete these efforts in a timely fashion, or to manage the related costs, could have an adverse impact on our business.
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| a. | We may be limited in our ability to grow unless we successfully expand network capacity and launch competitive services. |
To continue to successfully retain our existing customers, increase our customer base and grow our business, we must economically:
•expand the capacity and coverage of our network in Brazil;
secure sufficient transmitter and receiver sites at appropriate locations to meet planned system coverage and capacity targets;
•obtain adequate quantities of base radios and other system infrastructure equipment; and
•obtain an adequate volume and mix of handsets to meet customer demand.
In particular, the deployment and expansion of the coverage and capacity of our WCDMA network and the deployment of LTE technology in Brazil has required us to deploy new transmitter and receiver sites in order to meet the expanded coverage and capacity requirements for those networks resulting from differences in our commercial strategies, differences in the propagation characteristics of the spectrum bands being used to support our network in Brazil and the coverage requirements associated with the spectrum licenses being utilized to support our services. In some areas that we serve, individuals and governments are opposing
new tower construction and supporting laws restricting the construction of towers and other transmitter and receiver sites. Compliance with such laws could increase the time and costs associated with our planned network deployments. The effort required to locate and build a significant number of additional transmitter sites to support our services in coming years will be substantial, and our failure to meet this demand could adversely affect our business.
In addition, as we launch a broader array of services on our network in Brazil, we must develop, test and deploy new supporting technologies, software applications and systems intended to enhance our competitiveness both by supporting existing and new services and features, and by reducing the costs associated with providing those services. Successful deployment and implementation of new services and technology depend, in part, on the willingness and ability of third parties to develop new handsets and applications that are attractive to our customers and that are available in a timely manner. We may not be able to successfully expand our new network in Brazil as needed or complete the development and deployment of competitive services. Failure to successfully expand our network coverage and capacity and the services we offer could also be expected to result in subscriber dissatisfaction that could affect our ability to retain subscribers and could have an adverse effect on our results of operations and growth prospects. If this occurs, we may be unable to recover the substantial investment we have made in our new networks and the related costs we have incurred and will continue to incur to offer these new services.
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| b. | Failure to successfully implement core information technology and operating systems may adversely affect our business operations. |
Our business strategy envisions growing our business by successfully building and expanding our new network in Brazil, expanding our product and service offerings and expanding our target customer base. Even if we do expand our business, if we fail to manage our growth effectively, our financial results could be adversely affected. Separately, growth may place a strain on our management systems and resources. We must continue to refine and expand our business development and sales capabilities; our network operations and information technology infrastructure; and the hardware, software, systems, processes and people to effectively support current and future sales, customer service and information requirements of our business in an efficient and cost-effective manner. In addition, failure to prioritize technology initiatives and effectively allocate resources in order to achieve our strategic goals could result in a failure to realize those goals, including the expected benefits of our growth, and could negatively affect our financial results.
Changes to our networks and business strategies require us to implement new operating and supporting systems to improve our ability to address the needs of our customers, as well as to create additional efficiencies and strengthen our internal controls over financial reporting. We may not be able to successfully implement these new systems in an effective or timely manner or we could fail to complete all necessary data reconciliation or other conversion controls when implementing the new systems. In addition, we may incur significant increases in costs and encounter extensive delays in the implementation and rollout of these new systems. Failure to effectively implement our new operating systems may adversely affect our results of operations, customer perceptions and internal controls over financial reporting.
As our business evolves, we must continue to hire, train, supervise and manage new employees. We cannot assure you that we will be able to allocate our human resources optimally or identify and hire qualified employees or retain valued employees. If we are unable to manage our operations, our results of operations could be adversely affected.
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| c. | Costs, regulatory requirements and other problems we encounter as we continue to deploy our new networks could adversely affect our operations. |
The rights to use the spectrum that supports our new network in Brazil comes with significant regulatory requirements governing the coverage of the network, the timing of deployment and the loading of customers on the network. If we fail to meet these regulatory requirements, we could face fines and, in some instances, actions to revoke our spectrum rights. Our deployment and the expansion of the coverage and capacity of our new network in Brazil will require significant capital expenditures and will result in incremental operating expenses prior to fully launching services. Costs could increase beyond expected levels as a result of unforeseen delays, cost overruns, unanticipated expenses, regulatory changes, engineering design changes, problems with network or systems compatibility, equipment unavailability and technological or other complications.
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| 11. | Any modification or termination of our trademark license with Nextel Communications could increase our costs. |
Nextel Communications has licensed to us the right to use “Nextel” and other of its trademarks on a perpetual basis in Latin America. However, Nextel Communications may terminate the license on 60 daysdays’ notice if we commit one of several specified defaults (namely, unauthorized use, failure to maintain agreed quality controls or a change in control of NII Holdings). If there is a change in control of one of our subsidiaries, upon 90 daysdays’ notice, Nextel Communications may terminate the sublicense granted by us to the subsidiary with respect to the licensed marks. The loss of the use of the “Nextel” name and trademark could require us to incur significant costs to establish a new brand, in our markets, which could have a material adverse effect on our operations.
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16.12. | Our business could be negatively impacted by security threats and other material disruptions of our wireless networks. |
Major equipment failures and the disruption of our wireless networks as a result of natural disasters, severe weather, terrorist attacks, acts of war, cyber attacks or other breaches of network or information technology security, even for a limited period of time, may result in significant expenses, result in a loss of subscribers or impair our ability to attract new subscribers, which in
turn could have a material adverse effect on our business, results of operations and financial condition. In the past, more stringent network performance standards and reporting obligations have been adopted by the governments in some of our markets in order to ensure quality of service during unforeseen disturbances. We could be required to make significant investments in our existing networks in order to comply with these types of network performance standards. In addition, while we maintain information security policies and procedures designed to comply with relevant privacy and security laws and restrictions, if we suffer a security breach of customer or employee confidential data, we may be subject to significant legal and financial exposure, damage to our reputation, and loss of confidence in the security of our products and services.
Risks Relating to Our Common Stock
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| 13. | There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of other stockholders. |
Funds associated with Capital World Investors and entities managed by Aurelius Capital Management, LP currently own approximately 33.5% and 13.5%, respectively, of our outstanding common stock. Circumstances may arise in which these stockholders may have an interest in pursuing or preventing acquisitions, divestitures or other transactions, including the issuance of additional shares or debt, that, in their judgment, could enhance their investment in us or another company in which they invest. Such transactions might adversely affect us or other holders of our common stock. In addition, our significant concentration of share ownership may adversely affect the trading price of our common shares because investors may perceive disadvantages in owning shares in companies with significant stockholders.
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| 14. | The price of our common stock may be volatile. |
The price of our common stock may fluctuate due to a variety of factors, including:
concentration of our business operations in Brazil;
low trading volumes for our common stock and the inability to sustain an active trading marketing for our common stock;
actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry;
industry cycles and trends;
mergers and strategic alliances in the telecommunications industry;
changes in government regulation;
potential or actual military conflicts or acts of terrorism;
the failure of securities analysts to publish research about us, or shortfalls in our operating results from levels forecast by securities analysts;
future sales of our common stock by our stockholders, including in particular, those stockholders whose shares were included in our Registration Statement on Form S-1;
announcements concerning us or our competitors; and
the general state of the securities market.
As a result of these factors, investors in our common stock may not be able to resell their stock at or above the price they paid or at all. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.
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| 15. | Certain provisions of our certificate of incorporation and our bylaws may make it difficult for stockholders to change the composition of our Board and may discourage, delay or prevent a merger or acquisition that some stockholders may consider beneficial. |
Certain provisions of our Amended and Restated Certificate of Incorporation (the “Charter”) and our Fifth Amended and Restated Bylaws (the “Bylaws”) may have the effect of delaying or preventing changes in control if our Board determines that such changes in control are not in the best interests of the Company and our stockholders. The provisions in our Charter and Bylaws include, among other things, those that:
provide for a classified board of directors until the 2017 annual meeting;
authorize our Board to issue preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval;
establish advance notice procedures for nominating directors or presenting matters at stockholder meetings; and
limit the persons who may call special meetings of stockholders.
While these provisions have the effect of encouraging persons seeking to acquire control of our Company to negotiate with our Board, they could enable the Board to hinder or frustrate a transaction that some, or a majority, of the stockholders may believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board, which is responsible for appointing the members of our management.
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| Item 1B. | Unresolved Staff Comments |
None.
Our principal executive and administrative offices are located in Reston, Virginia, where we lease about 34,00026,000 square feet of office space of which theunder a lease of about 26,000 square feet expiresexpiring in January 2020 and the lease of the remaining 8,000 square feet expires in June 2015.2020. In addition, each of our operating companies own and leaseNextel Brazil leases office space in each of the countries where they conduct business.
Each operating companySão Paulo. Nextel Brazil also leases transmitter and receiver sites for the transmission of radio service in the countries in which they operate under various individual site leases. As of December 31, 20142015, our operating companiesNextel Brazil had 9,875 constructed sites at leased and owned locations, for their business, including those constructed for our networks, as shown below:
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Operating Company | Number
of Sites (1)
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Brazil | 9,157 |
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Mexico | 6,520 |
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Argentina | 1,012 |
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Total | 16,689 |
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(1) These amounts do not include 605its networks. In addition, Nextel Brazil also had 469 indoor sites in Brazil and Mexico and 388433 global system for mobile, or GSM, sites in Brazil.as of December 31, 2015.
Securities Litigation. On March 4, 2014, a purported class action lawsuit was filed against the Company, NII Capital Corp. and certain of the Company’s current and former directors and executive officers in the United States District Court for the Eastern District of Virginia on behalf of a putative class of persons who purchased or otherwise acquired the securities of the Company or NII Capital Corp. between February 25, 2010 and February 27, 2014. The lawsuit is captioned In re NII Holdings, Inc. Securities Litigation, Case Number 14-CV-227. On July 18, 2014, the parties that have been designated as the lead plaintiffs in the lawsuit filed a second amended complaint against only NII Holdings and three current and former officers, whichgenerally alleges that the defendants made false or misleading statements or concealed material adverse information about the Company’s financial condition and operations in violation of Section 10(b), Rule 10b-5 and Section 20(a) of the Securities Exchange Act of 1934. The complaint seeks class certification and unspecified damages, fees and injunctive relief. On September 22, 2014, the judge issued an order staying all proceedings against the Company following the Company's filing of its petition for relief under Chapter 11. On October 6, 2014, the Company's and the individual defendants' motion to dismiss was denied, and the case is currently continuing as to the remaining individual defendants. On November 3, 2014, at the request of the parties, the court ordered that the case against the three individual defendants be stayed indefinitely, and on January 7, 2015, the court extended the stay until the earlier of May 22, 2015 or the effective date of a plan of reorganization. The Company and the named individuals will continue to vigorously defend themselves in this matter.
Chapter 11 Proceedings. On September 15, 2014, NII Holdings, Inc. and eight of its U.S. and Luxembourg-domiciled subsidiaries filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy Court (Case No. 14-12611). On October 8, 2014, four additional subsidiaries of NII Holdings filed voluntary petitions seeking relief under Chapter 11, and a fifth subsidiary filed a voluntary petition seeking relief under Chapter 11 on January 25, 2015. The entities that have filed petitions seeking relief under Chapter 11, which we refer to collectively as the debtors, include Nextel International (Services), Ltd.; NII Capital Corp.; NII Aviation, Inc.; NII Funding Corp.; NII Global Holdings, Inc.; NII International Telecom S.C.A.; NII International Holdings S.à r.l.; NII International Services S.à r.l.; Airfone Holdings, LLC; Nextel International (Uruguay), LLC; McCaw International (Brazil), LLC; NII Mercosur, LLC; and NIU Holdings LLC. The debtors continue to operate as "debtors-in-possession" under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company’s other subsidiaries, including its operating subsidiaries in Brazil, Mexico and Argentina, are not debtors in the Chapter 11 case. As a result of the bankruptcy proceedings, the pending litigation against the debtors is stayed. Subject to certain exceptions and approval by the Bankruptcy Court, during the Chapter 11 proceedings, no party can take further actions to recover pre-petition claims against the Company.
In addition, weWe are subject to other claims and legal actions that may arise in the ordinary course of business. We do not believe that any of these pending claims or legal actions will have a material effect on our business, financial condition, results of operations or cash flows. See Note 119 to our consolidated financial statements at the end of this annual report on Form 10-K for more information.
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| Item 4. | Mine Safety Disclosures |
Not applicable.
PART II
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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| 1. | Market for Common Stock |
OurIn connection with our Chapter 11 proceedings, all shares of our common stock tradedthat were outstanding prior to our emergence from Chapter 11 were canceled on June 26, 2015. On July 6, 2015, our new common stock was listed on the Nasdaq Global Select Market (NASDAQ) under the trading symbol “NIHD” through September 24, 2014. Based on our announcement that we filed for protection under Chapter 11 of the U.S. Bankruptcy Code and the associated public interest concerns raised by the filing, as well as concerns regarding the residual equity interest of the existing listed securities holders and about our ability to sustain compliance with all requirements for continued listing on the Nasdaq Market, including in particular the listing rule that requires a minimum bid price of $1 per share, on September 25, 2014, trading of our common stock was suspended at the opening of the Nasdaq Market. Since September 25, 2014, our common stock has traded on the Over-the-Counter (OTC) Bulletin Board under the trading symbol “NIHDQ.“NIHD.” The following table sets forth on a per share basis the reported high and low salessale prices for our common stock, as reported on the market at the time, for the quarters indicated.since July 6, 2015.
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| | | |
| | Price Range of Common Stock |
| | High | | Low |
| 2013 | | | |
| First Quarter | $7.85 | | $4.20 |
| Second Quarter | 9.82 | | 4.11 |
| Third Quarter | 8.28 | | 5.76 |
| Fourth Quarter | 6.71 | | 1.90 |
| 2014 | | | |
| First Quarter | $3.51 | | $0.83 |
| Second Quarter | 1.27 | | 0.43 |
| Third Quarter | 0.84 | | 0.05 |
| Fourth Quarter | 0.10 | | 0.02 |
|
| | | |
| | Price Range of Common Stock |
| | High | | Low |
| 2015 | | | |
| Third Quarter | $16.88 | | $6.21 |
| Fourth Quarter | 7.81 | | 4.43 |
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| 2. | Number of Stockholders of Record |
As of February 28, 2015,29, 2016, there were approximately six130 holders of record of our common stock, including the Depository Trust Corporation, which acts as a clearinghouse for multiple brokerage and custodial accounts.
We have not paid any dividends on our common stock and do not plan to pay dividends on our common stock for the foreseeable future. In addition, some of our financing documents contain and future financing agreements may contain restrictions on the payment of dividends. We anticipate that for the foreseeable future any cash flow generated from our operations will be used to develop and expand our business and operations and make contractual payments under our debt facilities in accordance with our business plan.
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| 4. | Issuer Purchases of Equity Securities |
We did not repurchase any of our equity securities during the fourth quarter of 2014.2015.
Performance Graph
The following graph presents the cumulative total stockholder return on our common stock as listed on the Nasdaq Global Select Market from December 31, 2009 through September 24, 2014 and on the Over-The-Counter Bulletin Board from September 25, 2014July 6, 2015 through December 31, 2014.2015. This graph also compares our common stock to the cumulative total stockholder return on the Nasdaq 100 Index, the common stock of America Movil,OI S.A. de C.V. and Millicom International CellularTelefônica Brasil S.A. The graph assumes an initial investment of $100 in our common stock as of December 31, 2009July 6, 2015 and in each of the comparative indices or peer issuers, and that all dividends were reinvested.
| | | Index | 12/31/2009 | | 12/31/2010 | | 12/31/2011 | | 12/31/2012 | | 12/31/2013 | | 12/31/2014 | 7/6/2015 | | 7/31/2015 | | 8/31/2015 | | 9/30/2015 | | 10/31/2015 | | 11/30/2015 | | 12/31/2015 |
| NII Holdings | $ | 100.00 |
| | $ | 133.00 |
| | $ | 63.43 |
| | $ | 21.23 |
| | $ | 8.19 |
| | $ | 0.06 |
| $ | 100.00 |
| | $ | 84.72 |
| | $ | 50.89 |
| | $ | 38.57 |
| | $ | 41.59 |
| | $ | 40.94 |
| | $ | 29.92 |
|
| Nasdaq 100 | $ | 100.00 |
| | $ | 119.04 |
| | $ | 122.03 |
| | $ | 142.36 |
| | $ | 192.26 |
| | $ | 225.68 |
| $ | 100.00 |
| | $ | 103.95 |
| | $ | 96.85 |
| | $ | 94.73 |
| | $ | 105.47 |
| | $ | 106.11 |
| | $ | 104.42 |
|
| America Movil | $ | 100.00 |
| | $ | 122.93 |
| | $ | 97.80 |
| | $ | 107.73 |
| | $ | 116.43 |
| | $ | 118.81 |
| |
| Millicom International | $ | 100.00 |
| | $ | 141.33 |
| | $ | 151.84 |
| | $ | 128.70 |
| | $ | 149.40 |
| | $ | 112.58 |
| |
| OI S.A. | | $ | 100.00 |
| | $ | 79.65 |
| | $ | 43.60 |
| | $ | 39.53 |
| | $ | 34.30 |
| | $ | 26.74 |
| | $ | 26.74 |
|
| Telefônica Brasil S.A. | | $ | 100.00 |
| | $ | 92.41 |
| | $ | 79.29 |
| | $ | 65.39 |
| | $ | 74.28 |
| | $ | 67.42 |
| | $ | 65.22 |
|
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| Item 6. | Selected Financial Data |
On September 15, 2014, we and eight of our U.S. and Luxembourg-domiciled subsidiaries, including NII Capital Corp. and NIIT filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code, which we refer to as Chapter 11, in the United States Bankruptcy Court for the Southern District of New York, which we refer to as the Bankruptcy Court. In addition, subsequent to September 15, 2014, five additional subsidiaries of NII Holdings, Inc. filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy Court. We refer to the companies that filed voluntary petitions seeking relief under Chapter 11 collectively as the Debtors. Nextel Brazil and our previous other operating subsidiaries in Latin America were not Debtors in these Chapter 11 cases.
On June 19, 2015, the Bankruptcy Court entered an order approving and confirming the First Amended Joint Plan of Reorganization Proposed by the Plan Debtors and the Official Committee of Unsecured Creditors, dated April 20, 2015. We refer to this plan, as amended, as the Plan of Reorganization. On June 26, 2015, the conditions of the Bankruptcy Court's order and the Plan of Reorganization were satisfied, the Plan of Reorganization became effective, and we and the other Debtors emerged from the Chapter 11 proceedings. We refer to June 26, 2015 as the Emergence Date.
In connection with our emergence from Chapter 11, we were required to apply the provisions of fresh start accounting to our financial statements. Because our results of operations during the period from June 26, 2015 to June 30, 2015 were not material, we applied fresh start accounting to our consolidated financial statements as of the close of business on June 30, 2015. As a result of the application of fresh start accounting and other events related to our reorganization under Chapter 11, the Successor Company's financial results for the six months ended December 31, 2015 are prepared under a new basis of accounting and are not directly comparable to the Predecessor Company's financial results for the six months ended June 30, 2015.
The tables below set forth selected consolidated financial data for the periods or as of the dates indicated and should be read in conjunction with the consolidated financial statements and notes thereto in Item 8 of this report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this report. The selected consolidated financial data presented below includes the results of Nextel Brazil and our corporate headquarters. In connection with the sales of Nextel Argentina and Nextel Mexico, we have presented the results of these companies for all periods as discontinued operations in the tables below. For more information regarding material uncertainties in our business, see Note 21 and Note 119 to our consolidated financial statements.
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| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 | | 2011 | | 2010 |
| | (in thousands, except per share data) |
| Consolidated Statement of Operations Data: | |
| | |
| | |
| | |
| | |
|
| Operating revenues | $ | 3,688,720 |
| | $ | 4,711,567 |
| | $ | 5,693,235 |
| | $ | 6,353,714 |
| | $ | 5,271,603 |
|
| Impairment and restructuring charges | $ | 220,742 |
| | $ | 168,543 |
| | $ | 30,401 |
| | $ | — |
| | $ | — |
|
| Foreign currency transaction (losses) gains, net | $ | (130,499 | ) | | $ | (123,369 | ) | | $ | (63,330 | ) | | $ | (30,120 | ) | | $ | 48,436 |
|
| Net (loss) income from continuing operations | $ | (1,777,312 | ) | | $ | (1,434,088 | ) | | $ | (81,839 | ) | | $ | 373,665 |
| | $ | 419,104 |
|
Net (loss) income from continuing operations per common share, basic | $ | (10.31 | ) | | $ | (8.34 | ) | | $ | (0.48 | ) | | $ | 2.18 |
| | $ | 2.49 |
|
Net (loss) income from continuing operations per common share, diluted | $ | (10.31 | ) | | $ | (8.34 | ) | | $ | (0.48 | ) | | $ | 2.16 |
| | $ | 2.43 |
|
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| | | | | | | | | | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2015 | | | 2015 | | 2014 | | 2013 | | 2012 | | 2011 |
| | (in thousands, except per share data) |
| Consolidated Statement of Operations Data: | | | | |
| | |
| | |
| | |
| | |
|
| Operating revenues | $ | 529,434 |
| | | $ | 683,711 |
| | $ | 1,848,954 |
| | $ | 2,203,040 |
| | $ | 2,898,461 |
| | $ | 3,455,341 |
|
| Impairment, restructuring and other charges | $ | 32,308 |
| | | $ | 36,792 |
| | $ | 105,664 |
| | $ | 121,578 |
| | $ | 29,889 |
| | $ | — |
|
| Foreign currency transaction losses, net | $ | (99,737 | ) | | | $ | (63,948 | ) | | $ | (51,149 | ) | | $ | (92,456 | ) | | $ | (25,946 | ) | | $ | (56,301 | ) |
| Net (loss) income from continuing operations | $ | (285,611 | ) | | | $ | 1,519,401 |
| | $ | (1,224,671 | ) | | $ | (1,200,425 | ) | | $ | (362,939 | ) | | $ | (265,551 | ) |
| Net (loss) income from continuing operations per common share, basic | $ | (2.86 | ) | | | $ | 8.73 |
| | $ | (7.11 | ) | | $ | (6.98 | ) | | $ | (2.12 | ) | | $ | (1.56 | ) |
| Net (loss) income from continuing operations per common share, diluted | $ | (2.86 | ) | | | $ | 8.71 |
| | $ | (7.11 | ) | | $ | (6.98 | ) | | $ | (2.12 | ) | | $ | (1.56 | ) |
| | | | | | | | | | | | | | Successor Company | | | Predecessor Company |
| | December 31, | December 31, | | | December 31, |
| | 2014 | | 2013 | | 2012 | | 2011 | | 2010 | 2015 | | | 2014 | | 2013 | | 2012 | | 2011 |
| | (in thousands) | (in thousands) |
| Consolidated Balance Sheet Data: | |
| | |
| | |
| | |
| | |
| |
| | | |
| | |
| | |
| | |
|
| Total assets | $ | 5,430,591 |
| | $ | 8,679,954 |
| | $ | 9,223,078 |
| | $ | 9,822,136 |
| | $ | 8,195,100 |
| $ | 2,729,908 |
| | | $ | 5,374,034 |
| | $ | 8,679,954 |
| | $ | 9,223,078 |
| | $ | 9,822,136 |
|
| Long-term debt, including current portion | $ | 1,512,392 |
| | $ | 5,793,471 |
| | $ | 4,709,545 |
| | $ | 4,641,895 |
| | $ | 3,127,597 |
| $ | 665,067 |
| | | $ | 925,271 |
| | $ | 5,298,412 |
| | $ | 4,066,487 |
| | $ | 4,194,719 |
|
| Liabilities subject to compromise | $ | 4,593,493 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | — |
| | | $ | 4,593,493 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Impairment, Restructuring and RestructuringOther Charges. During the yearsix months ended December 31, 2014,2015 and the six months ended June 30, 2015, we recognized $220.7$32.3 million and $36.8 million, respectively, in impairment, restructuring and restructuringother charges primarily related to the reductionshutdown or abandonment of certain transmitter and receiver sites in Brazil, retail store closures related to the carrying valuerealignment of Nextel Argentina's asset groupdistribution channels and restructuring charges incurred in connection with the realignment of our organization and staffing structure. During 2014, we recognized $105.7 million in impairment, restructuring and other charges primarily related to its estimated fair value, the discontinuation of certain projects related to the next generation of our push-to-talk services, restructuring charges incurred in connection with the realignment of our organization and staffing structure, and other asset impairment charges related to store closures and the shutdown or abandonment of transmitter and receiver sites in Brazil and Mexico.Brazil. During the year ended December 31, 2013, we recognized $168.5$121.6 million in impairment, restructuring and restructuringother charges primarily related to the discontinuation of our use of software relating to customer relationship management, the restructuring of certain outsourcing agreements to manage our network infrastructure and restructuring charges incurred in connection with the realignment of our organization and staffing structure, including costs associated with staff reductions that occurred primarily at our corporate headquarters and in Mexico. During the year ended December 31, 2012, we recognized $22.8 million in impairment charges related to the write-off of certain information technology projects and $7.6 million in restructuring charges at the corporate level, primarily related to the separation of employees in conjunction with certain actions taken to realign resources and roles between our corporate headquarters and operating segments.headquarters.
Foreign Currency Transaction (Losses) Gains,Losses, Net. Consolidated foreign currency transaction losses for each of the years ended December 31, 2014, 2013, 2012 and 2011periods presented primarily relate to the impact of the depreciation in the value of our local currenciesthe Brazilian real relative to the U.S. dollar on our operating companies'Nextel Brazil's assets and liabilities. Consolidated foreign currency transaction gains of $48.4 million for the year ended December 31, 2010 are primarily related to the impact of the appreciation in the value of the Mexican peso relative to the U.S. dollar on peso-denominated receivables due to corporate from Nextel Mexico. See “Critical Accounting Policies and Estimates — Foreign Currency.” for more information.
Net (Loss) Income From Continuing Operations. DuringFor the second halfsix months ended June 30, 2015, net income from continuing operations included $1,956.9 million in reorganization items, which represented a $1,775.8 million gain we recognized in connection with the settlement of 2013 and throughout most of 2014, we experienced a significant decline in subscribers in Mexicoour liabilities subject to compromise upon our emergence from Chapter 11 and a reduction$261.8 million gain we recognized as a result of the implementation of fresh start accounting, partially offset by professional fees and other costs incurred in operating revenues and operating cash flows generated by Nextel Brazil and Nextel Mexico.connection with our Chapter 11 filing.
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
INDEX TO MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Forward-Looking and Cautionary Statements
This annual report on Form 10-K includesmay contain “forward-looking statements” within the meaning of Section 27A of the Private Securities Litigation Reform Act of 1995.1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Statements regarding expectations, including forecasts regarding operating results, performance assumptions and estimates relating to capital requirements, as well as other statements that are not historical facts, are forward-looking statements. When used in this annual report on Form 10-K, theseThese forward-looking statements are generally identified by thesuch words or phrases as “we expect,” “we believe,” “would be,” “will allow,” “expects to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions. These forward-looking statements involve risk and uncertainty, and a variety of facts could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. We do not have a policy of updating or revising forward-looking statements except as otherwise required by law.
While we provide forward-looking statements to assist in the understanding of our anticipated future financial performance, we caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date that we make them. Forward-looking statements are based on current expectations and assumptions that are subject to significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Except as otherwise required by law, we undertake no obligation to publicly release any updates to forward-looking statements to reflect events after the date of this annual report on Form 10-K, including unforeseen events.
We
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have included risk factors and uncertainties that might cause differences between anticipated and actual future results in Part I, Item 1A. "Risk Factors” of this annual reporta material adverse effect on Form 10-K. 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 operations and results of our wireless communications business also may be subject to the effects of other risks and uncertainties, including,include, but are not limited to:
beliefs and assumptions regarding our ability to continue as a going concern, including our ability to successfully confirm a plan of reorganization that would restructure certain of our debt obligations to address our liquidity issues and allow the debtors to emerge from the Chapter 11 proceedings, or to execute one or more strategic transactions either as part of such a plan of reorganization or otherwise;
our ability to attract and retain customers;
our ability to satisfy the requirements of our debt obligations;
our ability to access sufficient debt or equity capital to meet any future operating and financial needs;
our ability to meet theestablished operating goals established by our business plan and generate cash flow;
the availability of other funding sources, including proceeds from the sales of Nextel Argentina, Nextel Mexico and Nextel Peru held in escrow and proceeds derived from other asset sales;
general economic conditions in the U.S. or in Latin America, including specifically in the countries in which we operateBrazil and in the market segments that we are targeting for our services, including the impact of uncertainties in global economic conditions;services;
the political and social conditions in the countries in which we operate,Brazil, including political instability, which may affect the economies of our marketsBrazil's economy and the regulatory schemes in these countries;scheme there;
the impact of foreign currency exchange rate volatility in our marketsthe local currency in Brazil when compared to the U.S. dollar and the impact of related currency depreciation in countries in which Brazil;
our operating companies conduct business;
having reasonable access to and the successful performance of the technology being deployed in our service areas, and improvements thereon, including technology deployed in connection with the introduction of digital two-way mobile data or internet connectivity services in our markets;
the availability of adequate quantities of system infrastructure and subscriber equipment and components at reasonable pricing to meet our service deployment and marketing plans and customer demand;
Motorola Mobility’s abilityrisks related to the operation and willingness to provide handsets and related equipment for use onexpansion of our iDENWCDMA network including the availability of iDEN handsets, particularly in Argentina where we do not have the spectrum resources to deploy a WCDMA network;
the risk of deploying WCDMA networks,Brazil, including the potential need for additional funding to support that deployment, delays in deployment, cost over-runs,enhanced coverage and capacity, and the risk that new services supported by the new networksWCDMA network will not attract enough subscribers to support the related costs of deploying or operating the new networks and the potential distraction of management;network;
our ability to successfully scale our billing, collection, customer care and similar back-office operations to keep pace with customer growth as necessary, increased system usage rates and growth or to successfully deploy new systems that support those functions;
the success of efforts to change customer perceptions about the quality and performance of our network in Mexico and any similar future issues in Mexico or our other markets;
future legislation or regulatory actions relating to our services, other wireless communications services or telecommunications generally and the costs and/or potential customer impacts of compliance with regulatory mandates;
the ability to achieve and maintain market penetration and average subscriber revenue levels sufficient to provide financial viability to our network business;
the quality and price of similar or comparable wireless communications services offered or to be offered by our competitors, including providers of cellular services and personal communications services;
market acceptance of our new service offerings;
our ability to successfully manage and support our legacy iDEN network in Brazil;
equipment failure, natural disasters, terrorist acts or other breaches of network or information technology security; and
other risks and uncertainties described in Part I, Item 1A. "Risk Factors," in this annual report on Form 10-K including in Part I, Item 1A. “Risk Factors,” and, from time to time, in our other reports filed with the SEC.
Introduction
The following is a discussion and analysis of:
our consolidated financial condition as of December 31, 20142015 and 20132014 and our consolidated results of operations for the six-month periods ended December 31, 2015 and June 30, 2015, the combined twelve-month period ended December 31, 2015 and for the years ended December 31, 2014 2013 and 2012;2013; and
significant factors which we believe could affect our prospective financial condition and results of operations.
Historical results may not indicate future performance. See “Item 1A. — Risk Factors” for risks and uncertainties that may impact our future performance.
We refer to our wholly-owned Brazilian operating companies by the countries in which they operate, suchcompany, Nextel Telecomunicações Ltda., as Nextel Brazil, Nextel Mexico and Nextel Argentina.Brazil.
A. Executive Overview
Business Update
Emergence from Chapter 11 Filing.Proceedings. On September 15, 2014, NII Holdings, Inc.we and eight of itsour U.S. and Luxembourg-domiciled subsidiaries, including NII Capital Corp. and NII International Telecom, S.C.A., or NIIT, filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code, which we refer to as Chapter 11, in the United States Bankruptcy Court for the Southern District of New York, which we refer to as the Bankruptcy Court. In addition, subsequent to September 15, 2014, five additional subsidiaries of NII Holdings, Inc. filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy Court. Since September 15, 2014, five additional subsidiaries of NII Holdings, Inc. haveWe refer to the companies that filed voluntary petitions seeking relief under Chapter 11 with four subsidiaries filing on October 8, 2014collectively as the Debtors. Nextel Brazil and one subsidiary filing on January 25, 2015. The debtor entities continue to operate as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Ourour previous other operating subsidiaries in Brazil, Mexico and Argentina areLatin America were not debtorsDebtors in thethese Chapter 11 cases.
As described in more detail in Note 2 to our consolidated financial statements, on June 19, 2015, the Bankruptcy Court entered an order approving and confirming the Plan of Reorganization. On June 26, 2015, the conditions of the Bankruptcy Court's order and the Plan of Reorganization were satisfied, the Plan of Reorganization became effective, and we and the other Debtors emerged from the Chapter 11 proceedings.
In accordance with the requirements of reorganization accounting, NII Holdings adopted the provisions of fresh start accounting as of June 30, 2015 and became a new entity for financial reporting purposes. References to the "Successor Company" relate to NII Holdings on or subsequent to June 30, 2015. References to the "Predecessor Company" relate to NII Holdings prior to June 30, 2015.
Proposed Sale of Mexico Operations.Nextel Mexico. On January 26,April 30, 2015, NII Holdings, Inc. and certainwe completed the sale of its subsidiaries entered into a purchase and sale agreement withour operations in Mexico to New Cingular Wireless, an indirect subsidiary of AT&T for the&T. The transaction was structured as a sale of all the outstanding stock of Nextel Mexico. The purchase agreement providesMexico for a purchase price of approximately $1.875 billion, including $187.5 million deposited in cash, lessescrow to satisfy potential indemnification claims. The net proceeds of the sale were $1.448 billion, after deducting Nextel Mexico's outstanding debt,indebtedness net of its cash balances, on the closing date and subject toapplying other specified purchase price adjustments. CompletionWe used a portion of the transaction is subjectnet proceeds to repay all outstanding principal and interest under a numberdebtor-in-possession loan agreement we entered into prior to our emergence from Chapter 11 and to fund distributions to specified creditors pursuant to the Plan of conditions, includingReorganization.
Sale of Nextel Argentina. On September 11, 2015, two of our indirect subsidiaries entered into a binding agreement with Grupo Clarin relating to the approvalsale of all of the Bankruptcy Courtoutstanding equity interests of Nextel Argentina. This agreement provided for aggregate cash consideration of $178.0 million, of which $159.0 million was paid at signing in connection with the transfer of a 49% equity interest in Nextel Argentina and the grant of a call option that allowed Grupo Clarin or any of its affiliates to acquire the remaining 51% equity interest in Nextel Argentina upon receipt of required approvals from the regulatory approvals. Assumingauthorities in Argentina. The remaining cash consideration was received in October 2015, including $6.0 million deposited in escrow to satisfy potential indemnification claims. On January 27, 2016, the successful saleagreement was amended to permit Grupo Clarin or any of its affiliates to exercise the right to acquire the remaining 51% equity interest prior to receiving regulatory approval, and Grupo Clarin and its affiliate immediately acquired the remaining 51% of Nextel Argentina for no additional proceeds.
We plan to use the net proceeds received from the sales of Nextel Mexico we planand Nextel Argentina to focusprovide additional liquidity to support our financial and other resources on our core operationoperations in Brazil. In connection with this transaction, we have presented the results of Nextel Mexico and Nextel Argentina for all periods as discontinued operations in this annual report on Form 10-K.
Changes at Corporate Headquarters. Following the sales of our operations in Mexico and Argentina, we now operate only in Brazil. As a result, we are taking steps to further streamline the expenses incurred at our corporate headquarters by shifting costs and associated responsibilities to Nextel Brazil. We implemented workforce reductions at our corporate headquarters in the fourth quarter of 2015 in connection with this effort.
Nextel Brazil Business Overview
We provide wireless communication services under the NextelTM brand. Historically,brand in Brazil with our principal operations located in major urban and suburban centers with high population densities and related transportation corridors of that country where we believe there is a concentration of Brazil's business users and economic activity, including primarily Rio de Janeiro and São Paulo.
In the second half of 2013, Nextel Brazil commercially launched services on its wideband code division multiple access, or WCDMA, network in São Paulo, Rio de Janeiro and surrounding areas and extended those services to other areas in Brazil by expanding the coverage of its network and utilizing roaming services and network sharing arrangements pursuant to agreements that it reached with another network operator in Brazil. Nextel Brazil currently offers services supported by its WCDMA network in approximately 260 cities in Brazil. Our WCDMA network enables us to offer a wide range of products and services supported by that technology, including data services provided at substantially higher speeds than can be delivered on our legacy integrated digital enhanced network, or iDEN.
Prior to the deployment of our WCDMA network, our services were primarily targeted to meet the needs of business customers and individualscustomers. With the deployment of our WCDMA network in Brazil, our target market has shifted to individual consumers who useduse our services to meet both professional and personal needs. With the deployment of our wideband code division multiple access, or WCDMA, networks in our markets, ourOur target market has expanded to include both business subscribers and consumers whogenerally exhibit above average usage, revenue and loyalty characteristics and who wecharacteristics. We believe will beour target market is attracted to the services and attractive pricing plans we offer, as well as the quality of and data speeds provided by our WCDMA networks and the quality of our customer service.network.
We provide our services through operating companies located in Brazil, Mexico and Argentina, with our principal operations located in major business centers and related transportation corridors of these countries. We provide services in major urban and
suburban centers with high population densities where we believe there is a concentration of the country’s business users and economic activity. We believe that the growing economic base, increase in the middle and upper class and lower wireline service penetration encourage the use of the mobile wireless communications services that we offer and plan to offer in the future. Our WCDMA networks in Brazil and Mexico serve these major business centers and, in some instances, a broader geographic area in order to meet the requirements of our spectrum licenses. We also utilize roaming arrangements to expand the geographic coverage of our WCDMA-based services in Brazil and Mexico.
Our original networks utilize integrated digital enhanced network, or iDEN, technology developed by Motorola, Inc. to provide mobile services on our 800 MHz spectrum holdings in all of our markets. Our next generation networks utilize WCDMA technology, which is a standards-based technology that is being deployed by carriers throughout the world. We also offer long-term evolution, or LTE, services in Rio de Janeiro and continue to provide services on our legacy iDEN network throughout various regions in BrazilBrazil. Our transition to standards-based technologies such as WCDMA also gives us more flexibility to offer customers the option of purchasing services by acquiring the subscriber identity module, or SIM, cards from us separately, and in certain cities in Mexico. These technologies allow usby providing the customer with the option to use our spectrum efficiently and offer multiple wireless services integrated into a variety of handset and data devices.the SIM cards in one or more devices that they acquire from us or from other sources.
The services we currently offer include:
mobile telephone voice service;
wireless data services, including text messaging services, mobile internet services and email services;
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| • | push-to-talk services, including Direct Connect®, Prip and International Direct Connect® services, which allow subscribers to talk to each other instantly; |
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| • | other value-added services, including location-based services, which include the use of Global Positioning System, or GPS, technologies; digital media services; and a wide ranging set of applications available via our content management system, as well as the AndroidTM open application market; |
business solutions, such as security, work force management, logistics support and other applications that help our business subscribers improve their productivity; and
voice and data roaming services outside of our coverage areas.
The deployment and expansion of our WCDMA networks in Brazil and Mexico enables us to offer a wider range of products and services that are supported by that technology, including data services provided at substantially higher speeds than can be delivered on our iDEN networks. These WCDMA networks also support our unique push-to-talk services that provide differentiation from our competitors' offerings. In the third quarter of 2013, our WCDMA network reached geographic coverage parity with our iDEN network in Mexico, and in Brazil we are currently offering services supported by our WCDMA network in about 260 cities, including cities in and around Sao Paulo and Rio de Janeiro. In the second quarter of 2014, we launched LTE services in Rio de Janeiro, and during the fourth quarter of 2014, we began offering similar LTE services in certain cities in Mexico. We also offer service on our iDEN network in Argentina and continue to provide services on our iDEN networks in Brazil and Mexico.
Our goal is to generate higher revenues and increase our subscriber base by providing differentiated wireless communications services that are valued by our existing and potential customers, while managing our capital and operating expenditures in the near term and improving our profitability and cash flow over the long term. Our strategy for achieving this goal is based on several core principles, including:
aligning our costs with our current business through continuous evaluation and streamlining of all capital and operating expenditures;
focusing on higher value customer segments in our core markets, such as segments that comprisegenerate higher average revenue per user, or ARPU, and lower customer turnover;
utilizing the small, medium and large business markets, as well as certain consumer market segments that value our differentiated wireless communications services;
expanding our service offerings to meet the needs of a broader range of potential customers, including by offering lower cost prepaid service plans;
offering a broad array of differentiated services and devices that build upon and complement our push-to-talk services, which give our customers the ability to communicate with each other instantly;
offering new services supported by high quality WCDMA networks;most profitable sales channels;
offering a superior customer experience;experience, including a reliable and high quality wireless network; and
building on the strength of the unique positioning of the Nextel brand.
To further support this goal,our business plan, we plan to manage our costs in a manner designed to improve our operating results. While ourhave made significant capital and other investments inas we deployed our WCDMA networksnetwork and LTE upgradesupgrade. These investments have increased our costs and negatively impacted our profitability and are expected to continue to have that impact as we incur the fixed costs ofassociated with our new networksnetwork while building the subscriber base served by them,it serves. However, we believe that theseour investments in our new networks have begunenhanced, and will continue to enhance, the competitiveness of our service offerings.
41offerings while continuing to support the differentiated services and superior customer service that have historically been significant factors supporting our business.
Consistent with this strategy, weWe have implemented and will continue to implement changes in our business to better align our organization and costs with our operational and financial results and goals, andas well as with the trends in our business. These changes have included changes to our leadership team in Brazil, significant reductions in our headquarters staff in connection withthrough the reorganization of the roles and responsibilities of both our headquartersBrazil and marketcorporate teams, and headcount reductions acrossin Brazil, all of our market operationswhich are designed to reduce costs while maintaining the support necessary to meet our customers' needs. We are also taking steps to improve the performance and efficiency of our supporting systems and functions, including implementing improvements to our information technology and related supporting systems and processes, that are designed to improve the overall quality and efficiency of the service we provide our customers.
As part of our efforts to reorganize our business and emerge from the Chapter 11 proceedings, we have recently agreed to sell Nextel Mexico to AT&T. This transaction follows our sale of all of the outstanding equity interests of Nextel Chile to Fucata in August 2014 and our sale of all of the outstanding equity interests of Nextel Peru to Entel in August 2013, which were implemented as part of our strategy to focus on our largest markets. Assuming that the proposed sale of Nextel Mexico is completed as planned, we expect that we will allocate most of our financial and other resources to our operation in Brazil. While we will continue to support our operation in Argentina, our results of operations and this change in emphasis make it appropriate for us to consider and explore a variety of strategic options for this market, such as partnerships, service arrangements and asset sales in an effort to maximize Nextel Argentina's value.
Subscriber Units in Commercial Service
As we transition to our WCDMA networks, we are able to offer a substantially broader range of services and subscriber units that support voice services, including our push-to-talk services, data services and, in many cases, both. In some instances, we offer customers the option of purchasing services by acquiring the subscriber identity module, or SIM, cards from us separately, providing the customer with the flexibility to use the SIM cards in one or more devices that they acquire from us or from other sources. In addition, certain subscriber units that we offer support two SIM cards, enabling subscribers to seamlessly transition between our iDEN and WCDMA networks on the same device. Because these handsets include two SIM cards and require two contracts, they are reported as two subscribers for regulatory and external reporting purposes consistent with industry practice. Accordingly, each of these dual SIM handsets that are provisioned with two separate SIM cards is included in the table below as two "Subscriber Units in Commercial Service."
During the third quarter of 2014, Nextel Brazil automated its deactivation and collections processes, extended the deactivation period for some of its subscriber units and aligned some of these policies with its competitors. These actions are expected to improve collections in Brazil and provide additional time to retain certain subscribers. As a result of the extension of the deactivation period, Nextel Brazil did not deactivate approximately 42 thousand subscribers during the second half of 2014 that would have been deactivated under the original policy.
We use the term "subscriber unit," which we also refer to as a subscriber, to represent an active SIM card, which is the level at which we have tracked and will continue to track subscribers. The table below provides an overview of our subscriber units in commercial service on both our iDEN and WCDMA networks in the countries indicated as of December 31, 2013 and as of and for the year ended December 31, 2014.
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| | Brazil | | Mexico | | Argentina | | Total |
| | (in thousands) |
| iDEN subscriber units | 3,620.3 |
| | 2,074.6 |
| | 2,023.1 |
| | 7,718.0 |
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| WCDMA subscriber units | 337.9 |
| | 1,189.9 |
| | — |
| | 1,527.8 |
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| Total subscriber units in commercial service — December 31, 2013 | 3,958.2 |
| | 3,264.5 |
| | 2,023.1 |
| | 9,245.8 |
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| | | | | | | | |
| iDEN net subscriber losses | (537.1 | ) | | (552.7 | ) | | (68.7 | ) | | (1,158.5 | ) |
| WCDMA net subscriber additions | 920.4 |
| | 176.7 |
| | — |
| | 1,097.1 |
|
| Total net subscriber additions (losses) | 383.3 |
| | (376.0 | ) | | (68.7 | ) | | (61.4 | ) |
| | | | | | | | |
| Migrations from iDEN to WCDMA | 414.0 |
| | 632.5 |
| | — |
| | 1,046.5 |
|
| | | | | | | | |
| iDEN subscriber units | 2,669.2 |
| | 889.4 |
| | 1,954.4 |
| | 5,513.0 |
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| WCDMA subscriber units | 1,672.3 |
| | 1,999.1 |
| | — |
| | 3,671.4 |
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| Total subscriber units in commercial service — December 31, 2014 | 4,341.5 |
| | 2,888.5 |
| | 1,954.4 |
| | 9,184.4 |
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The following table shows our customer turnover rates for subscribers on both our iDEN and WCDMA networks in the countries indicated for the year ended December 31, 2014.
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| | Brazil | | Mexico | | Argentina | | Total |
| Total customer turnover (1) | 2.55 | % | | 3.93 | % | | 4.40 | % | | 3.40 | % |
| iDEN customer turnover | 2.72 | % | | 5.25 | % | | 4.40 | % | | 3.75 | % |
| WCDMA customer turnover | 2.03 | % | | 2.90 | % | | — |
| | 2.57 | % |
(1) Customer turnover is calculated by dividing subscriber deactivations for the period by the average number of subscriber units during that period.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. We consider the accounting policies and estimates addressed below to be the most important to our financial position and results of operations, either because of the significance of the financial statement item or because they require the exercise of significant judgment and/or use of significant estimates. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.
Revenue Recognition. While our revenue recognition policy does not require the exercise of significant judgment or the use of significant estimates, we believe that our policy is significant as revenue is a key component of our results of operations.
Operating revenues primarily consist of wireless service revenues and revenues generated from the sale of handsets and accessories. We present our operating revenues net of value-added taxes, but we include certain revenue-based taxes that are our primary obligation.
Service revenues primarily consist of fixed monthly access charges. Other components of service revenue include revenues from calling party pays programs, where applicable, variable charges for airtime and two-way radio usage in excess of plan minutes or data in excess of plan limits, long-distance charges, international roaming revenues derived from calls placed by our subscribers on other carriers’ networks and revenues generated from broadband data services we provide on our WCDMA networks.network. We recognize service revenue as service is provided, net of credits and adjustments for service discounts and value-added taxes. We recognize excess usage, local, long distance and calling party pays revenue at contractual rates per minute as minutes are used. We record cash received in excess of revenues earned as deferred revenues. We recognize handset revenue when title and risk of loss passes to the customer.
We bill excess usage to certain of our subscribers in arrears. In order to recognize the revenues originating from excess usage, we estimate the unbilled portion based on the usage that the subscriber had during the part of the month already billed, and we use this actual usage to estimate the unbilled usage for the rest of the month taking into consideration working days and seasonality. Our estimates are based on our experience in each market. We periodically evaluate our estimates by comparing them to actual excess usage revenue billed the following month. While our estimates have been consistent with our actual results, actual usage in future periods could differ from our estimates.
Other revenues primarily include amounts generated from our handset maintenance programs, roaming revenues generated from other companies’ subscribers that roam on our networks and co-location rental revenues from third party tenants that rent space on our transmitter and receiver sites, which we also refer to as communication towers or towers, although in some instances these towers are located on rooftops and other structures. We recognize revenue generated from our handset maintenance programs on a monthly basis at fixed amounts over the service period. We recognize roaming revenues at contractual rates per minute as minutes are used. We recognize co-location revenues from third party tenants on a monthly basis based on the terms set by the underlying agreements.
Allowance for Doubtful Accounts. We establish an allowance for doubtful accounts receivable sufficient to cover probable and reasonably estimatedestimable losses. We estimate this allowance based on historical experience, aging of accounts receivable and individual subscriber payment history.collections trends. Actual write-offs in the future could be impacted by general economic and business conditions, as well as fluctuations in subscriber deactivations, that are difficult to predict and therefore may differ from our estimates. A 10% increase in our consolidated allowance for doubtful accounts as of December 31, 20142015 would have resulted in $5.5$4.0 million of additional bad debt expense for the yearcombined period ended December 31, 2014.2015.
Depreciation of Property, Plant and Equipment. We record at cost our network assets and other improvements that extend the useful lives of the underlying assets at cost and depreciate those assets over their estimated useful lives with the exception of property, plant and equipment owned as of the date of our implementation of fresh start accounting. As of June 30, 2015, as a result of the application of fresh start accounting in connection with our emergence from Chapter 11, we adjusted all existing property, plant and equipment to its estimated fair value and revised the associated depreciable lives. See Note 2 to our consolidated financial statements for more information. We calculate depreciation
using the straight-line method based on estimated useful lives ranging from 3 to 30 years for mobile network equipment, communication towers and network software and 3 to 10 years for software, office equipment, furniture and fixtures, and other, which includes non-network internal use software. We amortize leasehold
improvements over the shorter of the lease terms or the useful lives of the improvements. Our networks are highly complex and, due to constant innovation and enhancements, certain components of those networks may lose their utility sooner than anticipated. We periodically reassess the economic life of these components and make adjustments to their useful lives after considering historical experience and capacity requirements, consulting with the vendor and assessing new product and market demands and other factors. When our assessment indicates that the economic life of a network component is shorter than originally anticipated, we depreciate its remaining book value over its revised useful life. Further, the deployment of any new technologies could adversely affect the estimated remaining useful lives of our network assets, which could significantly impact future results of operations. During the fourth quarter of 2013, we reviewed the useful lives of our communication towers and determined that the useful lives of some of these towers should be increased to 30 years compared to the 10- or 15-year useful lives over which we were previously depreciating these sites.
Amortization of Intangible Assets. IntangiblePrior to the implementation of fresh start accounting in connection with our emergence from Chapter 11, our intangible assets primarily consistconsisted of our telecommunications licenses. As a result of the implementation of fresh start accounting in connection with our emergence from Chapter 11, we recorded our intangible assets, which consisted of our telecommunications licenses, our exclusive right to use the Nextel tradename in Brazil and our customer relationships, at their estimated fair values. We calculate amortization on our licenses and our tradename using the straight-line method based on an estimated useful liveslife of 3 to 2026 years. We calculate amortization on our customer relationships using the straight-line method based on an estimated useful life of 4 years. While the terms of our licenses, including renewals, range from 10 to 40 years, the political and regulatory environmentsenvironment in the markets we serve areBrazil is continuously changing and, as a result, the cost of renewing our licenses beyond that range could be significant. Therefore, we do not view the renewal of our licenses to be perfunctory. In addition, the wireless telecommunications industry is experiencing significant technological change, and the commercial life of any particular technology is difficult to predict. Our licenses in Mexico give us the right to use 800 MHz spectrum that is non-contiguous, and the iDEN technology is the only commercially available technology that operates on non-contiguous spectrum. As a result, our ability to deploy new technologies using 800MHz spectrum in Mexico may be limited. In light of these uncertainties, we classify our licenses as definite lived intangible assets. Many of our licenses are subject to renewal after the initial term, provided that we have complied with applicable rules and policies in each of our markets. We intend to comply, and believe we have complied, with these rules and policies in all material respects as they relate to licenses that are material to our business. However, because governmental authorities have discretion as to the renewal of licenses, our licenses may not be renewed or we may be required to pay significant renewal fees, either of which could have a significant impact on the estimated useful lives of our licenses, which could significantly impact future results of operations. As a result of the implementation of fresh start accounting, we revised the remaining estimated useful lives of our licenses to include renewal periods in cases where it is probable that a renewal will occur.
Valuation of Long-Lived Assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Long-lived asset groups were determined based on an assessment of the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the total of the expected undiscounted future cash flows is less than the carrying amountvalue of our assets, we recognize a loss for the difference between the estimated fair value and the carrying value of the assets. As
During the fourth quarter of 2015, we reviewed our Nextel Brazil segment for potential impairment using a resultprobability-weighted cash flow analysis. Our estimation of the review ofundiscounted future cash flows was partially based on assumptions that we will be able to fund our long-lived assetsbusiness plan and that it is not probable that our exploration of strategic options for Nextel Argentina, in December 2014,Brazil segment will be disposed of. Based on our current estimated undiscounted future cash flows, we determined that the carrying value of Nextel Argentina's asset group, which includes all of the operating assets and liabilities held by our Argentine segment, was not recoverable. Accordingly, we recorded a non-cash asset impairment charge of $84.7 million to reduce the carrying amount of Nextel Argentina's asset group to its estimated fair value. In addition, during 2014, we tested long-lived assets in our Nextel Brazil and Nextel Mexico segments for recoverability and, based onsegment is recoverable. If our estimates of undiscounted cash flows, determined the carrying values to be recoverable. Our estimates of undiscounted cash flows for Nextel Brazil and Nextel Mexico exceeded the carrying value of the respective asset groups. If we continue to have operational challenges, including obtaining and retaining subscribers, future cash flows may not be sufficient to recover the carrying values of our asset groups, and we could record asset impairments that are material to our consolidated results of operations and financial condition.
Asset Retirement Obligations. We record an asset retirement obligation, or ARO, and an associated asset retirement cost, or ARC, when we have a legal obligation in connection with the retirement of tangible long-lived assets. Our obligations under the FASB's authoritative guidance on asset retirement obligations arise from certain of our leases and relate primarily to the cost of removing our network infrastructure and administrative assets from the leased space where these assets are located at the end of the lease. Estimating these obligations requires us to make certain assumptions that are highly judgmental in nature. The significant assumptions used in estimating our asset retirement obligations include the following: the expected settlement dates; removal costs that are indicative of what third party vendors would charge us to remove the assets; expected inflation rates; and credit-adjusted risk-free interest rates. We periodically review these assumptions to ensure that the estimates are reasonable. Any change in the assumptions used could significantly affect the amounts recorded with respect to the future funding and ownership of our asset retirement obligations.Nextel Brazil segment were to change, it is possible that we could recognize a material impairment charge.
Foreign Currency. We translate theNextel Brazil's results of operations for our non-U.S. subsidiaries from the designated functional currencyBrazilian real to the U.S. dollar using average exchange rates for the relevant period. We translate assets and liabilities using the exchange rate in effect at the relevant reporting date. We report the resulting gains or losses from translating foreign currency financial statements as other comprehensive income or loss. Because we translate theNextel Brazil's operations of our non-U.S. subsidiaries using average exchange rates, ourits operating companies’ trends may be impacted by the translation.
We report the effect of changes in exchange rates on U.S. dollar-denominated assets and liabilities held by Nextel Brazil as foreign currency transaction gains or losses. We report the effect of changes in exchange rates on intercompany transactions of a long-term investment
nature as part of the cumulative foreign currency translation adjustment in our consolidated financial statements. The intercompany transactions that, in our view, are of a long-term investment nature include certain intercompany loans and advances from our U.S. and Luxembourg subsidiaries to Nextel Brazil and Nextel Chile.Brazil. In contrast, we report the effect of exchange rates on U.S. dollar-denominated intercompany loans and advances to our foreign subsidiaries that are due, or for which repayment is anticipated in the foreseeable future, as foreign currency transaction gains or losses in our consolidated statements of comprehensive loss. As a result, our determination of whether intercompany loans and advances are of a long-term investment nature can have a significant impact on how we report foreign currency transaction gains and losses in our consolidated financial statements.
Loss Contingencies. We account for and disclose loss contingencies such as pending litigation and actual or possible claims and assessments in accordance with the FASB’s authoritative guidance on accounting for contingencies. We accrue for loss contingencies if it is probable that a loss will occur and if the loss can be reasonably estimated. We disclose, but do not accrue for,
material loss contingencies if it is reasonably possible that a loss will occur or if the loss cannot be reasonably estimated. We do not accrue for or disclose loss contingencies if there is only a remote possibility that the loss will occur. The FASB’s authoritative guidance requires us to make judgments regarding future events, including an assessment relating to the likelihood that a loss may occur and an estimate of the amount of such loss. In assessing loss contingencies, we often seek the assistance of our legal counsel and in some instances, of third party legal counsel. As a result of the significant judgment required in assessing and estimating loss contingencies, actual losses realized in future periods could differ significantly from our estimates.
Income Taxes. We account for income taxes using the asset and liability method, under which we recognize deferred income taxes for differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, as well as for tax loss carryforwards and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. We recognize the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. We provide a valuation allowance against deferred tax assets if, based upon the weight of available evidence, we do not believe it is “more-likely-than-not” that some or all of the deferred tax assets will be realized.
The realization of deferred tax assets is dependent on the generation of future taxable income sufficient to realize our tax loss carryforwards and other tax deductions. As of December 31, 20142015, we recorded full valuation allowances on the deferred tax assets of our foreign operating companies,Nextel Brazil, our U.S. parent company and subsidiaries and our foreign holding companies due to substantial negative evidence, including the recent history of cumulative losses and the projected losses for 20152016 and subsequent years. As a result, the valuation allowance on our deferred tax assets increased by $532.6 million$1.1 billion during 2014.2015. We do not anticipate that we will recognize significant tax benefits with respect to our deferred tax assets.
We are subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which we operate. Certain of our entities are under examination by the relevant taxing authorities for various tax years. We regularly assess the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. We have only recorded financial statement benefits for tax positions that we believe reflect the “more-likely-than-not” criteria of the FASB’s authoritative guidance on accounting for uncertainty in income taxes, and we have established income tax reserves in accordance with this guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve is established, we adjust it only when there is more information available or when an event occurs necessitating a change. While we believe that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may result in a reduction to the tax benefits previously recorded on our consolidated financial statements or may exceed the current income tax reserves in amounts that could be material.
Operating revenues primarily consistFor purposes of wireless service revenues and revenues generated fromcomparison to the saleyear ended December 31, 2014, we combined the results of handsets and accessories. Service revenues primarily include fixed monthly access charges for mobile telephone service and two-way radio and other services, including revenues from calling party pays programs and variable charges for airtime and two-way radio usage, long-distance charges, international roaming revenues derived from calls placed by our subscribers and revenues generated from broadband data services we provide on our WCDMA networks. Handset and accessory revenues represent revenues we earn on the sale of handsets and accessories to our subscribers.
In addition, we also have other less significant sources of revenues. These revenues primarily include revenues generated from our handset maintenance programs, roaming revenues generated from other companies' subscribers that roam on our networks and co-location rental revenues from third-party tenants that rent space on our towers.
See "Revenue Recognition" above and Note 3 to our consolidated financial statements included at the end of this annual report on Form 10-K for a description of our revenue recognition accounting policies.
Cost of revenues primarily includes the cost of providing wireless service and the cost of handsets and accessories. Cost of providing service consists of:
costs of interconnection with local exchange carrier facilities;
costs relating to terminating calls originated on our network on other carriers' networks;
direct switch, transmitter and receiver site costs, including property taxes;
expenses related to our handset maintenance programs; and
insurance costs, utility costs, maintenance costs, spectrum license fees and rentoperations for the network switches and transmitter sites used to operate our mobile networks.
Interconnection costs have fixed and variable components. The fixed componentsix months ended December 31, 2015 with the results of interconnection costs consists of monthly flat-rate feesoperations for facilities leased from local exchange carriers, primarily for circuits required to connect our transmitter sites to our network switches, to connect our switches and to connect our networks with those of other 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 carriers relating to wireless calls from our handsets that terminate on their networks.
Cost of handsets and accessories consists largely of the cost of the handset and accessories, order fulfillment and installation-related expenses, as well as write-downs of handset and related accessory inventory for shrinkage or obsolescence.
Our service and other revenues and the variable component of our cost of service are primarily driven by the number of subscriber units in commercial service and the rate plans applicable to, and the levels of usage of, those subscriber units. Our handset and accessory revenues and cost of handsets and accessories are primarily driven by the number of new handsets placed into service, as well as handset upgrades provided to existing subscribers.
Selling and marketing expenses include all of the expenses related to acquiring subscribers to our services, exclusive of costs to subsidize our handsets.
General and administrative expenses include expenses related to revenue-based taxes, billing, customer care, collections, provisions for doubtful accounts, maintenance of management information systems, corporate overhead and payroll, including share-based payments for stock options and restricted stock.
Reorganization items include all income, expenses, gains or losses that are incurred or realizedsix months ended June 30, 2015. However, as a result of the commencementapplication of thefresh start accounting and other events related to our reorganization under Chapter 11, cases. These costs include unamortized discounts, premiumsthe Successor Company's financial results for the six months ended December 31, 2015 are prepared under a new basis of accounting and financing costs relatedare not directly comparable to debt that is subjectthe Predecessor Company's financial results for the six months ended June 30, 2015. For the same reasons, our results of operations for the combined twelve-month period ended December 31, 2015 are not fully comparable to compromise as a resultour results of our Chapter 11 filing, as well as professional fees and related costs associated with and incurred duringoperations for the Chapter 11 cases.year ended December 31, 2014.
In accordance with accounting principles generally accepted in the U.S., we translated the results of operations of our Brazilian operating segmentssegment using the average exchange rates for the combined period ended December 31, 2015 and for the years ended December 31, 2014 2013 and 2012.2013. The following table presents the average exchange rates we used to translate theNextel Brazil's results of operations, of our operating segments, as well as changes from the average exchange rates utilized in prior periods.
|
| | | | | | | | | | | | | | |
| | 2014 | | 2013 | | 2012 | | 2013 to 2014 Percent Change | | 2012 to 2013 Percent Change |
| Brazilian real | 2.35 |
| | 2.16 |
| | 1.95 |
| | (8.8 | )% | | (10.8 | )% |
| Mexican peso | 13.30 |
| | 12.77 |
| | 13.17 |
| | (4.2 | )% | | 3.0 | % |
| Argentine peso | 8.13 |
| | 5.48 |
| | 4.55 |
| | (48.4 | )% | | (20.4 | )% |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company | | Combined | | Predecessor Company | | | | |
| | Six Months Ended December 31, 2015 | | | Six Months Ended June 30, 2015 | | Year Ended December 31, 2015 | | Year Ended December 31, 2014 | | Year Ended December 31, 2013 | | 2014 to 2015 Percent Change | | 2013 to 2014 Percent Change |
| Brazilian real | 3.70 |
| | | 2.97 |
| | 3.33 |
| | 2.35 |
| | 2.16 |
| | (41.7 | )% | | (8.8 | )% |
Late in 2012During 2014 and continuing throughout 2013 and 2014,2015, foreign currency exchange rates in the countries where we operateBrazil generally depreciated in value relative to the U.S. dollar. The following table presents the currency exchange rates in effect at the end of 2012,2013, as well as the end of each of the quarters in 20132014 and 2014.2015. If the values of these exchange rates remain at levels similar to the end of 20142015 or depreciate further relative to the U.S. dollar, our future operating results and the values of our assets held in local currencies will be adversely affected.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2012 | | 2013 | | 2014 |
| | December | | March | | June | | September | | December | | March | | June | | September | | December |
| Brazilian real | 2.04 |
| | 2.01 |
| | 2.22 |
| | 2.23 |
| | 2.34 |
| | 2.26 |
| | 2.20 |
| | 2.45 |
| | 2.66 |
|
| Mexican peso | 13.01 |
| | 12.35 |
| | 13.19 |
| | 13.01 |
| | 13.08 |
| | 13.08 |
| | 13.03 |
| | 13.45 |
| | 14.72 |
|
| Argentine peso | 4.92 |
| | 5.12 |
| | 5.39 |
| | 5.79 |
| | 6.52 |
| | 8.00 |
| | 8.13 |
| | 8.43 |
| | 8.55 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Predecessor Company | | | Successor Company |
| | 2013 | | 2014 | | 2015 |
| | December | | March | | June | | September | | December | | March | | June | | | September | | December |
| Brazilian real | 2.34 |
| | 2.26 |
| | 2.20 |
| | 2.45 |
| | 2.66 |
| | 3.21 |
| | 3.10 |
| | | 3.97 |
| | 3.90 |
|
To provide better insight into theNextel Brazil's results, of some of our operating segments, we present the year-over-year percentage change in each of the line items presented on a consolidated basis and for Nextel Brazil Nextel Mexico and Nextel Argentina on a constant currency basis in the "Constant Currency Change from Previous Year" columns in the tables below. The comparison of results
for these line items on a constant currency basis shows the impact of changes in foreign currency exchange rates (i) by adjusting the relevant measures for the year ended December 31, 20132014 to amounts that would have resulted if the average foreign currency exchange rates for the year ended December 31, 20132014 were the same as the average foreign currency exchange rates that were in effect for the yearcombined period ended December 31, 2014;2015; and (ii) by comparing the constant currency financial measures for the year ended December 31, 20132014 to the actual financial measures for the yearcombined period ended December 31, 2014.2015. This constant currency comparison applies consistent exchange rates to the operating revenues earned in foreign currencies and to the other components of segment earnings for the year ended December 31, 2013, other than certain components2014, with the exception of those measures consisting ofhandsets and accessories, which are purchased in U.S. dollar-based operating expenses, whichdollars and therefore were not adjusted. The constant currency information reflected in the tables below is not a measurement under accounting principles generally accepted in the U.S. and should be considered in addition to, but not as a substitute for, the information contained in our results of operations.
| |
| 1. | YearCombined Period Ended December 31, 20142015 vs. Year Ended December 31, 20132014 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, 2014 | | % of Consolidated
Operating Revenues | | Year Ended
December 31, 2013 | | % of Consolidated
Operating Revenues | | Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | Dollars | | Percent | | Percent |
| | (dollars in thousands) | | |
| Operating revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Service and other revenues | $ | 3,447,167 |
| | 93 | % | | $ | 4,517,154 |
| | 96 | % | | $ | (1,069,987 | ) | | (24 | )% | | (16 | )% |
| Handset and accessory revenues | 241,553 |
| | 7 | % | | 194,413 |
| | 4 | % | | 47,140 |
| | 24 | % | | 47 | % |
| | 3,688,720 |
| | 100 | % | | 4,711,567 |
| | 100 | % | | (1,022,847 | ) | | (22 | )% | | (13 | )% |
| Cost of revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
Cost of service (exclusive of depreciation and amortization included below) | 1,308,835 |
| | 36 | % | | 1,392,140 |
| | 30 | % | | (83,305 | ) | | (6 | )% | | 4 | % |
| Cost of handsets and accessories | 973,491 |
| | 26 | % | | 884,789 |
| | 18 | % | | 88,702 |
| | 10 | % | | 20 | % |
| | 2,282,326 |
| | 62 | % | | 2,276,929 |
| | 48 | % | | 5,397 |
| | — |
| | 10 | % |
| Selling and marketing expenses | 527,970 |
| | 14 | % | | 573,884 |
| | 12 | % | | (45,914 | ) | | (8 | )% | | (5 | )% |
| General and administrative expenses | 1,171,088 |
| | 32 | % | | 1,367,889 |
| | 29 | % | | (196,801 | ) | | (14 | )% | | (6 | )% |
| Impairment and restructuring charges | 220,742 |
| | 6 | % | | 168,543 |
| | 4 | % | | 52,199 |
| | 31 | % | | 31 | % |
| Gain on sale of towers | (74,631 | ) | | (2 | )% | | — |
| | — |
| | (74,631 | ) | | NM |
| | NM |
|
| Depreciation and amortization | 672,705 |
| | 18 | % | | 692,927 |
| | 15 | % | | (20,222 | ) | | (3 | )% | | 5 | % |
| Operating loss | (1,111,480 | ) | | (30 | )% | | (368,605 | ) | | (8 | )% | | (742,875 | ) | | 202 | % | | 186 | % |
| Interest expense, net | (449,345 | ) | | (12 | )% | | (526,530 | ) | | (11 | )% | | 77,185 |
| | (15 | )% | | (13 | )% |
| Interest income | 66,425 |
| | 2 | % | | 43,327 |
| | 1 | % | | 23,098 |
| | 53 | % | | 81 | % |
Foreign currency transaction losses, net | (130,499 | ) | | (4 | )% | | (123,369 | ) | | (3 | )% | | (7,130 | ) | | 6 | % | | 22 | % |
| Other expense, net | (6,721 | ) | | — |
| | (12,859 | ) | | — |
| | 6,138 |
| | (48 | )% | | (43 | )% |
| Loss from continuing operations before reorganization items and income tax provision | (1,631,620 | ) | | (44 | )% | | (988,036 | ) | | (21 | )% | | (643,584 | ) | | 65 | % | | 66 | % |
| Reorganization items | (71,601 | ) | | (2 | )% | | — |
| | — |
| | (71,601 | ) | | NM |
| | NM |
|
| Income tax provision | (74,091 | ) | | (2 | )% | | (446,052 | ) | | (9 | )% | | 371,961 |
| | (83 | )% | | (82 | )% |
| Net loss from continuing operations | (1,777,312 | ) | | (48 | )% | | (1,434,088 | ) | | (30 | )% | | (343,224 | ) | | 24 | % | | 27 | % |
| Loss from discontinued operations, net of income taxes | (180,386 | ) | | (5 | )% | | (215,511 | ) | | (5 | )% | | 35,125 |
| | (16 | )% | | 1 | % |
| Net loss | $ | (1,957,698 | ) | | (53 | )% | | $ | (1,649,599 | ) | | (35 | )% | | $ | (308,099 | ) | | 19 | % | | 24 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company | | Combined | | Predecessor Company | | | | | | |
| | Six Months Ended December 31, 2015 | | | Six Months Ended June 30, 2015 | | Year Ended December 31, 2015 | | Year Ended December 31, 2014 | | Actual Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | | Dollars | | Percent | | Percent |
| | | | | | | (dollars in thousands) | | |
| Brazil segment losses | (9,045 | ) | | | (75,234 | ) | | (84,279 | ) | | (133,691 | ) | | 49,412 |
| | (37 | )% | | (61 | )% |
| Corporate segment losses and eliminations | (26,100 | ) | | | (37,982 | ) | | (64,082 | ) | | (123,141 | ) | | 59,059 |
| | (48 | )% | | (48 | )% |
| Consolidated segment losses | (35,145 | ) | | | (113,216 | ) | | (148,361 | ) | | (256,832 | ) | | 108,471 |
| | (42 | )% | | (30 | )% |
| Impairment, restructuring and other charges | (32,308 | ) | | | (36,792 | ) | | (69,100 | ) | | (105,664 | ) | | 36,564 |
| | (35 | )% | | (26 | )% |
| Depreciation and amortization | (85,364 | ) | | | (153,878 | ) | | (239,242 | ) | | (394,061 | ) | | 154,819 |
| | (39 | )% | | (15 | )% |
| Operating loss | (152,817 | ) | | | (303,886 | ) | | (456,703 | ) | | (756,557 | ) | | 299,854 |
| | (40 | )% | | (22 | )% |
| Interest expense, net | (55,563 | ) | | | (82,820 | ) | | (138,383 | ) | | (372,904 | ) | | 234,521 |
| | (63 | )% | | (59 | )% |
| Interest income | 17,200 |
| | | 15,327 |
| | 32,527 |
| | 38,345 |
| | (5,818 | ) | | (15 | )% | | 19 | % |
| Foreign currency transaction losses, net | (99,737 | ) | | | (63,948 | ) | | (163,685 | ) | | (51,149 | ) | | (112,536 | ) | | 220 | % | | NM |
|
| Other expense, net | (1,176 | ) | | | (137 | ) | | (1,313 | ) | | (5,829 | ) | | 4,516 |
| | (77 | )% | | (65 | )% |
| Loss from continuing operations before reorganization items and income tax benefit (provision) | (292,093 | ) | | | (435,464 | ) | | (727,557 | ) | | (1,148,094 | ) | | 420,537 |
| | (37 | )% | | (22 | )% |
| Reorganization items | 1,467 |
| | | 1,956,874 |
| | 1,958,341 |
| | (71,601 | ) | | 2,029,942 |
| | NM |
| | NM |
|
| Income tax benefit (provision) | 5,015 |
| | | (2,009 | ) | | 3,006 |
| | (4,976 | ) | | 7,982 |
| | (160 | )% | | (161 | )% |
| Net (loss) income from continuing operations | (285,611 | ) | | | 1,519,401 |
| | 1,233,790 |
| | (1,224,671 | ) | | 2,458,461 |
| | (201 | )% | | (222 | )% |
| Income (loss) from discontinued operations, net of income taxes | 11,608 |
| | | 221,114 |
| | 232,722 |
| | (733,027 | ) | | 965,749 |
| | (132 | )% | | (135 | )% |
| Net (loss) income | $ | (274,003 | ) | | | $ | 1,740,515 |
| | $ | 1,466,512 |
| | $ | (1,957,698 | ) | | $ | 3,424,210 |
| | (175 | )% | | (187 | )% |
NM-Not Meaningful
We continued to experience deteriorating financialdefine segment losses as operating loss before depreciation, amortization and operational results in 2014 due to a number of factors, including the economic and competitive environments in our markets, declining local currency values, the impact of previous delays in the deployment and launch of services on our WCDMA networks and the increased costs to support these networks. The delays in the deployment and launch of services on our WCDMA networks resulted in a significant decline in our subscriber base in Mexico and substantially lower levels of average revenue per subscriber in Brazil. As a result of theseimpairment, restructuring and other factors, our consolidated operating revenuescharges. Consolidated segment losses decreased 22% on a reported basis, and 13% on a constant currency basis, from 2013 to 2014.
During 2014, we implemented a number of measures designed to reduce our costs, including significant headcount reductions at$108.5 million, or 42%, for the corporate level and in our markets. Despite some of these reductions in our cost structure, which reduced a number of categories of costscombined period ended December 31, 2015 compared to 2013,2014 and include the overall combined impactresults of operations of our lower consolidated operating revenues, weaker average foreign currency exchange ratesBrazil segment and higher cost of handsets and accessories led to increases in our consolidated cost of revenues, selling and marketing expenses and general and administrative expenses as percentages of consolidated operating revenues in 2014 compared to 2013. Consolidated impairment and restructuring charges as a percentage of consolidated operating revenues also increased from 2013 to 2014. As a result of these factors, our operating loss increased $742.9 million from 2013 to 2014.
In 2014, our investments in consolidated capital expenditures were $428.4 million,corporate operations, which represents a 51% decrease from 2013. We plan to continue to invest in the enhancement of our WCDMA network in Brazil in 2015 and will continue to make these types of investments in Mexico pending the completion of the proposed sale of Nextel Mexico to AT&T. We also expect to rely on our roaming agreements with Telefonica to provide expanded coverage in certain geographic areas on a cost effective basis rather than investing additional capital expenditures to facilitate network expansion.are discussed individually below.
Consolidated operating revenues decreased $1,022.8 million, or 22%, on a reported basis from 2013 to 2014 as a result of a $1,070.0 million, or 24%, decrease in serviceImpairment, restructuring and other revenues, partially offset by a $47.2 million, or 24%, increase in handset and accessory revenues. On a constant currency basis, consolidated operating revenues decreased 13% from 2013 to 2014.
As discussed above, the decrease in consolidated service and other revenues was largely a result of the decline in our consolidated subscriber base, most significantly in Mexico, and a decrease in consolidated average revenue per subscriber in local currency, principally in Brazil, compounded by weaker foreign currency exchange rates across all markets for 2014 compared to 2013. See further discussion in "— Segment Results" below.
The increase in consolidated handset and accessory revenues was primarily caused by higher gross subscriber additions in Brazil resulting from the launch of our WCDMA network there in late 2013.
Consolidated cost of revenues increased $5.4 million on a reported basis from 2013 to 2014 primarily as a result of:
a $111.9 million, or 20%, increase in consolidated direct switch and transmitter and receiver site costs due to a 10% increase in the number of sites in service from December 31, 2013 to December 31, 2014 in connection with the deployment and expansion of our WCDMA networks and LTE upgrades in Brazil and Mexico; and
an $88.7 million, or 10%, increase in the consolidated cost of handsets and accessories resulting from an 11% increase in consolidated gross subscriber additions and a change in the mix of handsets toward higher cost smartphones and other high-tier handsets.
These increases were partially offset by:
a $136.0 million, or 25%, decrease in consolidated interconnect costs related to lower interconnect minutes of use, primarily caused by the reduction in our consolidated subscriber base, and lower interconnect costs per minute in Brazil;
a $45.4 million, or 33%, decrease in consolidated service and repair costs, mostly in Brazil and Argentina, resulting from the utilization of more refurbished handsets and a lower overall number of repaired handsets; and
weaker foreign currency exchange rates across all markets for 2014 compared to 2013.
On a constant currency basis, consolidated cost of revenues increased 10% for 2014 compared to 2013.
| |
3. | Selling and marketing expenses |
The $45.9 million, or 8%, decrease in consolidated selling and marketing expenses on a reported basis, and 5% decrease on a constant currency basis, in 2014 compared to 2013 was principally caused by a decrease in commissions earned by both sales personnel and third party dealers, mostly in Mexico, partially offset by an increase in advertising costs, mostly in Brazil.
| |
4. | General and administrative expenses |
The $196.8 million, or 14%, decrease in consolidated general and administrative expenses on a reported basis, and 6% decrease on a constant currency basis, for 2014 compared to 2013 was primarily the result of lower payroll costs related to fewer general and administrative personnel resulting from reductions in force, lower revenue-based taxes associated with the decline in Nextel Brazil and Nextel Mexico's operating revenues, a decrease in customer care expenses, mostly in Mexico and Argentina, and a decrease in information technology costs, mostly in Mexico and at the corporate level.
| |
5. | Impairment and restructuring charges |
Consolidated impairment, restructuring and restructuringother charges recognized in 2014for the combined period ended December 31, 2015 primarily related toconsisted of the following:
an $84.7$43.7 million in non-cash asset impairment chargecharges, the majority of which related to reduce the carrying amountshutdown or abandonment of Nextel Argentina's asset group to its estimated fair value;transmitter and receiver sites and the discontinuation of certain information technology projects in Brazil;
$48.414.4 million in severance and other related costs incurred across all of our marketsin Brazil and at the corporate level resulting from the separation of employees in an effort to streamline our organizational structure and reduce general and administrative expenses; and
$8.4 million in restructuring charges in Brazil related to future lease costs for certain transmitter and receiver sites that are no longer necessary in our business plan.
Consolidated impairment, restructuring and other charges recognized in 2014 primarily related to the following:
a $47.9$42.8 million non-cash asset impairment charge related to our decision to cease further development on one of the strategic options for the next generation of our push-to-talk services;
$27.7 million in severance and related costs incurred at the corporate level and in Brazil from the separation of employees in an effort to streamline our organizational structure and reduce general and administrative expenses; and
$25.521.9 million in other non-cash asset impairment charges, the majority of which related to the shutdown or abandonment of certain transmitter and receiver sites in Brazil and Mexicocertain retail store closures in Brazil related to the realignment of our distribution channels.
| |
| 2. | Depreciation and amortization |
The $154.8 million, or 39%, decrease in consolidated depreciation and amortization on a reported basis, and the 15% decrease on a constant currency basis, for the combined period ended December 31, 2015 compared to 2014 was principally the result of a decrease in the value of Nextel Brazil's property, plant and equipment resulting from the implementation of fresh start accounting. See Note 2 to our consolidated financial statements for more information.
Consolidated net interest expense decreased $234.5 million, or 63%, on a reported basis, and 59% on a constant currency basis, for the combined period ended December 31, 2015 compared to 2014 primarily as a result of the suspension of interest on all series of our senior notes in connection with our Chapter 11 filing and subsequent cancellation of these notes in connection with our emergence from Chapter 11. See Note 2 to our consolidated financial statements for more information.
Reorganization items of $1,958.3 million in 2015 were primarily related to the $1,775.8 million gain we recognized in connection with the settlement of our liabilities subject to compromise upon our emergence from Chapter 11 and a $261.8 million gain as a result of the implementation of fresh start accounting, partially offset by professional fees and other costs incurred in connection with our Chapter 11 filing.
Reorganization items of $71.6 million in 2014 were related to the write-off of discounts, premiums and unamortized financing costs associated with our NII Capital Corp. and NIIT senior notes, as well as professional fees and other costs incurred in connection with our Chapter 11 filing.
| |
| 5. | Income tax benefit (provision) |
The $8.0 million, or 160%, change in the consolidated income tax provision from 2014 to the combined period ended December 31, 2015 is primarily due to the reversal of a liability for uncertain tax positions due to the expiration of certain statutes of limitations in Brazil and the reduction of the valuation allowance.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company | | Combined | | Predecessor Company | | | | | | |
| | Six Months Ended December 30, 2015 | | |
Six Months Ended June 30, 2015 | | Year Ended December 31, 2015 | | % of
Nextel Brazil’s Operating Revenues | | Year Ended December 31, 2014 | | % of
Nextel Brazil’s Operating Revenues | | Actual Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | | | | Dollars | | Percent | | Percent |
| | | | | | | (dollars in thousands) | | |
Service and other revenues | $ | 501,028 |
| | | $ | 643,804 |
| | $ | 1,144,832 |
| | 94 | % | | $ | 1,694,181 |
| | 92 | % | | $ | (549,349 | ) | | (32 | )% | | (4 | )% |
| | | | | | | | | | | | | | | | | | | |
Handset and accessory revenues | 28,304 |
| | | 39,807 |
| | 68,111 |
| | 6 | % | | 154,737 |
| | 8 | % | | (86,626 | ) | | (56 | )% | | (38 | )% |
Cost of handsets and accessories | (46,904 | ) | | | (121,143 | ) | | (168,047 | ) | | (14 | )% | | (415,082 | ) | | (22 | )% | | 247,035 |
| | (60 | )% | | (60 | )% |
| Handset and accessory net subsidy | (18,600 | ) | | | (81,336 | ) | | (99,936 | ) | | (8 | )% | | (260,345 | ) | | (14 | )% | | 160,409 |
| | (62 | )% | | (67 | )% |
Cost of service (exclusive of depreciation and amortization) | (212,866 | ) | | | (256,153 | ) | | (469,019 | ) | | (39 | )% | | (693,004 | ) | | (38 | )% | | 223,985 |
| | (32 | )% | | (4 | )% |
Selling and marketing expenses | (71,557 | ) | | | (105,357 | ) | | (176,914 | ) | | (14 | )% | | (267,574 | ) | | (14 | )% | | 90,660 |
| | (34 | )% | | (6 | )% |
General and administrative expenses | (207,050 | ) | | | (276,192 | ) | | (483,242 | ) | | (40 | )% | | (606,949 | ) | | (33 | )% | | 123,707 |
| | (20 | )% | | 13 | % |
| Segment losses | $ | (9,045 | ) | | | $ | (75,234 | ) | | $ | (84,279 | ) | | (7 | )% | | $ | (133,691 | ) | | (7 | )% | | $ | 49,412 |
| | (37 | )% | | (61 | )% |
We use the term "subscriber unit," which we also refer to as a subscriber, to represent an active subscriber identity module, or SIM, card, which is the level at which we track subscribers. The table below provides an overview of Nextel Brazil's subscriber units in commercial service on both its iDEN and WCDMA networks, as well as Nextel Brazil's customer turnover rates for each of the quarters in 2014 and 2015. We calculate customer turnover by dividing subscriber deactivations for the period by the average number of subscriber units during that period.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Predecessor Company | | | Successor Company |
| | Three Months Ended | | | Three Months Ended |
| | March 31, 2014 | | June 30, 2014 | | September 30, 2014 | | December 31, 2014 | | March 31, 2015 | | June 30, 2015 | | | September 30, 2015 | | December 31, 2015 |
| | (subscribers in thousands) |
| iDEN subscriber units | 3,620.3 |
| | 3,455.6 |
| | 3,137.7 |
| | 2,942.5 |
| | 2,669.2 |
| | 2,420.7 |
| | | 2,177.4 |
| | 1,857.8 |
|
| WCDMA subscriber units | 337.9 |
| | 673.8 |
| | 1,050.6 |
| | 1,333.8 |
| | 1,672.3 |
| | 1,971.9 |
| | | 2,258.0 |
| | 2,605.0 |
|
| Total subscriber units in commercial service — beginning of period | 3,958.2 |
| | 4,129.4 |
| | 4,188.3 |
| | 4,276.3 |
| | 4,341.5 |
| | 4,392.6 |
| | | 4,435.4 |
| | 4,462.8 |
|
| | | | | | | | | | | | | | | | | |
| iDEN net subscriber losses | (88.3 | ) | | (175.1 | ) | | (97.3 | ) | | (176.3 | ) | | (190.2 | ) | | (184.0 | ) | | | (203.5 | ) | | (197.6 | ) |
| WCDMA net subscriber additions | 259.5 |
| | 234.0 |
| | 185.3 |
| | 241.5 |
| | 241.3 |
| | 226.8 |
| | | 230.8 |
| | 76.8 |
|
Total net subscriber additions (losses) | 171.2 |
| | 58.9 |
| | 88.0 |
| | 65.2 |
| | 51.1 |
| | 42.8 |
| | | 27.3 |
| | (120.8 | ) |
| | | | | | | | | | | | | | | | | |
| Migrations from iDEN to WCDMA | 76.4 |
| | 142.8 |
| | 97.9 |
| | 97.0 |
| | 58.3 |
| | 59.3 |
| | | 116.2 (1) |
| | 78.5 |
|
| | | | | | | | | | | | | | | | | |
| iDEN subscriber units | 3,455.6 |
| | 3,137.7 |
| | 2,942.5 |
| | 2,669.2 |
| | 2,420.7 |
| | 2,177.4 |
| | | 1,857.8 |
| | 1,581.7 |
|
| WCDMA subscriber units | 673.8 |
| | 1,050.6 |
| | 1,333.8 |
| | 1,672.3 |
| | 1,971.9 |
| | 2,258.0 |
| | | 2,605.0 |
| | 2,760.3 |
|
| Total subscriber units in commercial service — end of period | 4,129.4 |
| | 4,188.3 |
| | 4,276.3 |
| | 4,341.5 |
| | 4,392.6 |
| | 4,435.4 |
| | | 4,462.8 |
| | 4,342.0 |
|
| | | | | | | | | | | | | | | | | |
| Total customer turnover | 2.39 | % | | 2.81 | % | | 2.28 | % | | 2.71 | % | | 3.10 | % | | 3.28 | % | | | 3.47 | % | | 3.55 | % |
| iDEN customer turnover | 2.53 | % | | 3.05 | % | | 2.32 | % | | 3.00 | % | | 3.19 | % | | 3.46 | % | | | 3.83 | % | | 4.16 | % |
WCDMA customer turnover | 1.44 | % | | 1.86 | % | | 2.16 | % | | 2.21 | % | | 2.97 | % | | 3.09 | % | | | 3.16 | % | | 3.16 | % |
(1) For the three months ended September 30, 2015, migrations from iDEN to WCDMA included approximately 31,000 migrations which were not properly reported in prior quarters. This change in migrations did not impact total subscriber units at the end of any period presented.
The following table represents Nextel Brazil's average monthly revenue per subscriber, or ARPU, for subscribers on both its iDEN and WCDMA networks for each of the quarters in 2014 and 2015, in both U.S. dollars (US$) and in Brazilian reais (BR). We calculate ARPU by dividing service revenues per period by the weighted average number of subscriber units in commercial service during that period.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Predecessor Company | | | Successor Company |
| | Three Months Ended | | | Three Months Ended |
| | March 31, 2014 | | June 30, 2014 | | September 30, 2014 | | December 31, 2014 | | March 31, 2015 | | June 30,
2015 | | | September 30, 2015 | | December 31, 2015 |
| Total ARPU (US$) | 31 |
| | 30 |
| | 30 |
| | 27 |
| | 23 |
| | 20 |
| | | 18 |
| | 16 |
|
| WCDMA ARPU (US$) | 20 |
| | 27 |
| | 30 |
| | 29 |
| | 25 |
| | 21 |
| | | 19 |
| | 17 |
|
| iDEN ARPU (US$) | 33 |
| | 31 |
| | 30 |
| | 26 |
| | 22 |
| | 19 |
| | | 17 |
| | 15 |
|
| | | | | | | | | | | | | | | | | |
| Total ARPU (BR) | 73 |
| | 67 |
| | 69 |
| | 68 |
| | 66 |
| | 62 |
| | | 62 |
| | 61 |
|
| WCDMA ARPU (BR) | 47 |
| | 59 |
| | 69 |
| | 74 |
| | 70 |
| | 66 |
| | | 66 |
| | 64 |
|
| iDEN ARPU (BR) | 77 |
| | 69 |
| | 69 |
| | 66 |
| | 62 |
| | 58 |
| | | 58 |
| | 57 |
|
The average value of the Brazilian real depreciated relative to the U.S. dollar during the combined period ended December 31, 2015 by 42% compared to the average value that prevailed during 2014. As a result, the components of Nextel Brazil's results of operations for the combined period ended December 31, 2015, after translation into U.S. dollars, reflect lower revenues and expenses in U.S. dollars than would have occurred if the Brazilian real had not depreciated relative to the U.S. dollar. If the value
of the Brazilian real remains at current levels or depreciates further relative to the U.S. dollar, Nextel Brazil's future reported results of operations will be adversely affected.
The economic environment in Brazil continues to reflect a significant downturn from prior years with low consumer confidence, negative real wage growth, a net loss of jobs and higher unemployment. Consumers in Brazil are also being impacted by rising costs of food and other essentials, with the inflation of food costs significantly exceeding both inflation levels experienced in 2014 and the consumer price index. These conditions and trends have resulted in a decline in the amount of consumer disposable income that is available to purchase telecommunications services and have had an adverse impact on our ability to attract and retain subscribers and on our collection rates. We expect that the current economic conditions and weak foreign currency exchange rates will continue to have a negative impact on Nextel Brazil's reported results of operations through at least the end of 2016.
Nextel Brazil began offering a full range of voice and data services on its WCDMA network in late 2013, and since that time, has experienced substantial subscriber growth on its WCDMA network and a steady increase in its WCDMA ARPU in Brazilian reais through the end of 2014. Nextel Brazil's WCDMA subscriber units increased from 337.9 thousand subscribers as of January 1, 2014 to 2.8 million subscribers as of December 31, 2015. However, Nextel Brazil's WCDMA ARPU in Brazilian reais decreased over the course of the first half of 2015 as a result of more intense competition in the wireless market and the economic factors discussed above. In addition, the competitive environment in the Brazilian wireless industry was characterized by aggressive pricing and service offerings throughout 2015. In the second quarter of 2015, Nextel Brazil implemented several new rate plans and promotions to improve the attractiveness of its service offerings, expand targeted customer segments and provide economic incentives to attract customers. Specifically, in June 2015, Nextel Brazil began offering new simplified rate plans that further incentivize subscribers to utilize their existing handsets when purchasing Nextel Brazil's services, which generally result in similar or higher ARPU levels.
Nextel Brazil continues to offer services on its iDEN network, which does not support data services that are competitive with the higher speed data services offered by its competitors or available on its WCDMA network. As a result, Nextel Brazil has had to offer iDEN service plans with lower average revenues per subscriber to retain and attract high value subscribers on its iDEN network and offer incentives to transition those subscribers to services on its WCDMA network. Despite these efforts, Nextel Brazil has experienced net subscriber losses and declines in its average revenue per subscriber on its iDEN network, and we expect that these trends will continue.
As a result of these factors, Nextel Brazil's average revenue per subscriber during the combined period ended December 31, 2015 was lower than its average revenue per subscriber during 2014, which, in combination with the impact of weaker foreign currency exchange rates, caused the $549.3 million, or 32%, decline in Nextel Brazil's service and other revenues over the same period. On a constant currency basis, Nextel Brazil's service and other revenues decreased 4%, and its average revenue per subscriber decreased 8% in the combined period ended December 31, 2015 compared to 2014.
During the combined period ended December 31, 2015, Nextel Brazil continued to invest in the development of its WCDMA network and in its LTE upgrade in Rio de Janeiro both to meet its regulatory obligations and to improve the capacity of its network. Nextel Brazil's capital expenditures were $140.5 million for the combined period ended December 31, 2015, which represents a 36% decline from 2014.
Despite implementing cost reductions in overall operating expenses, Nextel Brazil had a segment loss margin of 7% for both the combined period ended December 31, 2015 and 2014. Nextel Brazil recognized segment losses of $84.3 million during the combined period ended December 31, 2015 compared to segment losses of $133.7 million during 2014 as a result of the following:
| |
| 1. | Service and other revenues |
The $549.3 million, or 32%, decrease in service and other revenues on a reported basis in the combined period ended December 31, 2015 compared to 2014 is primarily the result of the impact of weaker foreign currency exchange rates on our reported results and the decline in ARPU discussed above. On a constant currency basis, Nextel Brazil's service and other revenues decreased 4% in the combined period ended December 31, 2015 compared to 2014.
Nextel Brazil's WCDMA subscriber base grew from 1.7 million subscribers as of the end of 2014 to 2.8 million subscribers as of the end of 2015. During 2015, Nextel Brazil strategically facilitated the migration of iDEN subscribers to its WCDMA network, which resulted in 312 thousand migrations during the combined period ended December 31, 2015. As a result of these migrations and the overall growth in its WCDMA subscriber base, Nextel Brazil's WCDMA-based service and other revenues increased $245.4 million, or 71%, from 2014 to the combined period ended December 31, 2015. This increase was offset by a $794.8 million, or 59%, decrease in Nextel Brazil's iDEN-based service and other revenues from 2014 to the combined period ended December 31, 2015 driven by a decrease in Nextel Brazil's iDEN subscriber base from 2.7 million subscribers as of the end
of 2014 to 1.6 million subscribers as of the end of 2015 and a decline in its iDEN-based average revenue per subscriber from $30 for 2014 to $17 for the combined period ended December 31, 2015. On a constant currency basis, Nextel Brazil's WCDMA-based service and other revenues increased 142% from 2014 to the combined period ended December 31, 2015 and its iDEN-based service and other revenues decreased 42% over the same period.
| |
| 2. | Handset and accessory net subsidy |
The $160.4 million, or 62%, decrease in handset and accessory net subsidy on a reported basis from 2014 to the combined period ended December 31, 2015 is largely related to an increased emphasis on new service plans under which services are provided to new subscribers using their existing handsets, as well as lower subsidies per handset. As a result of the new service plans, 70% of Nextel Brazil's new WCDMA subscribers during the combined period ended December 31, 2015 represented customers who utilized their existing handsets compared to 34% of new WCDMA subscribers utilizing their existing handsets during 2014. This decrease in handset and accessory net subsidy was partially offset by a $25.3 million charge recognized in the second quarter of 2015 related to certain tax credits that we do not believe are probable of being recovered. On a constant currency basis, Nextel Brazil's handset and accessory net subsidy decreased 67% for the combined period ended December 31, 2015 compared to 2014.
The $224.0 million, or 32%, decrease in cost of service on a reported basis for the combined period ended December 31, 2015 compared to 2014 is primarily caused by the impact of weaker foreign currency exchange rates described above. On a constant currency basis, Nextel Brazil's cost of service decreased 4% from 2014 to the combined period ended December 31, 2015 primarily as the result of a decrease in interconnect costs related to the changes in the regulated interconnect cost structure described below. In addition, on a constant currency basis, Nextel Brazil recognized significant cost savings in the combined period ended December 31, 2015 compared to 2014 as a result of insourcing certain engineering functions that were previously performed by third party service providers. Also, with the continuing decline in the number of iDEN subscribers in Nextel Brazil's subscriber base, Nextel Brazil's service and repair costs related to its iDEN handset maintenance program continued to decrease. These decreases were partially offset by an increase in costs related to our nationwide roaming arrangement, as well as an increase in direct switch and transmitter and receiver site costs on a local currency basis resulting from an 8% increase in the number of sites in service from December 31, 2014 to December 31, 2015.
In 2012, Brazil's telecommunications regulatory agency approved regulations to implement a transition to a cost-based model for determining mobile termination rates. Under the current regulations, the mobile termination rates are being gradually reduced over a transition period ending in 2019, when cost-based rates will take effect. The transition rules also provide for a partial "bill and keep" settlement process that applies to the settlement of mobile termination charges between smaller operators like Nextel Brazil and its larger competitors (who are considered to hold significant market power under the Brazilian regulations), which further reduces mobile termination charges for smaller operators. The lower costs resulting from this partial bill and keep settlement process, which is similar to the settlement process that has historically applied to termination charges relating to our iDEN services, decline as mobile termination rates are reduced during the transition period, with the bill and keep settlement process terminating when cost-based rates are implemented.
| |
| 4. | Selling and marketing expenses |
The $90.7 million, or 34%, decrease in selling and marketing expenses on a reported basis during the combined period ended December 31, 2015 compared to 2014 is largely due to the impact of weaker foreign currency exchange rates described above. On a constant currency basis, Nextel Brazil's selling and marketing expenses decreased 6% in the combined period ended December 31, 2015 compared to 2014 as a result of a reduction in sales and marketing personnel and reduced advertising and media expenses.
| |
| 5. | General and administrative expenses |
The $123.7 million, or 20%, decrease in general and administrative expenses on a reported basis for the combined period ended December 31, 2015 compared to 2014 is primarily due to the impact of weaker foreign currency exchange rates described above. On a constant currency basis, Nextel Brazil's general and administrative expenses increased 13% over the same period primarily as a result of an increase in bad debt expense caused by a significant decrease in collections related to deteriorating economic conditions in Brazil and higher costs related to civil contingencies initiated by customers. These increases were partially offset by a decrease in payroll and related expenses on a local currency basis resulting from workforce reductions, as well as lower customer care expenses on a local currency basis resulting from the outsourcing of Nextel Brazil's customer care function and a reduction in the volume of customer care calls received.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company | | Combined | | Predecessor Company | | | | |
| | Six Months Ended December 31, 2015 | | |
Six Months Ended June 30, 2015 | | Year Ended December 31, 2015 | | Year Ended December 31, 2014 | | Actual Change from Previous Year |
| | | | | | | Dollars | | Percent |
| | | | | | | |
| Service and other revenues | $ | 116 |
| | | $ | 168 |
| | $ | 284 |
| | $ | 351 |
| | $ | (67 | ) | | (19 | )% |
| Selling and marketing expenses | (141 | ) | | | (107 | ) | | (248 | ) | | (5,544 | ) | | 5,296 |
| | (96 | )% |
| General and administrative expenses | (26,075 | ) | | | (38,964 | ) | | (65,039 | ) | | (123,060 | ) | | 58,021 |
| | (47 | )% |
| Segment losses | $ | (26,100 | ) | | | $ | (38,903 | ) | | $ | (65,003 | ) | | $ | (128,253 | ) | | 63,250 |
| | (49 | )% |
Segment losses decreased $63.3 million, or 49%, in the combined period ended December 31, 2015 compared to 2014 primarily due to reduced payroll costs resulting from fewer general and administrative personnel following reductions in force that we implemented in 2014 and 2015, lower consulting expenses, lower information technology costs and $22.6 million in professional fees incurred in 2014 in connection with the preparation of our Chapter 11 filing.
| |
| 2. | Year Ended December 31, 2014 vs. Year Ended December 31, 2013 |
|
| | | | | | | | | | | | | | | | | |
| | Predecessor Company | | | | | | |
| | Year Ended December 31, 2014 | | Year Ended December 31, 2013 | | Actual Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | Dollars | | Percent | | Percent |
| | (dollars in thousands) | | |
| Brazil segment (losses) earnings | (133,691 | ) | | 311,129 |
| | (444,820 | ) | | (143 | )% | | (151 | )% |
| Corporate segment losses and eliminations | (123,141 | ) | | (176,642 | ) | | 53,501 |
| | (30 | )% | | (30 | )% |
| Consolidated segment (losses) earnings | (256,832 | ) | | 134,487 |
| | (391,319 | ) | | (291 | )% | | NM |
|
| Impairment, restructuring and other charges | (105,664 | ) | | (121,578 | ) | | 15,914 |
| | (13 | )% | | (12 | )% |
| Depreciation and amortization | (394,061 | ) | | (382,610 | ) | | (11,451 | ) | | 3 | % | | 12 | % |
| Operating loss | (756,557 | ) | | (369,701 | ) | | (386,856 | ) | | 105 | % | | 115 | % |
| Interest expense, net | (372,904 | ) | | (455,539 | ) | | 82,635 |
| | (18 | )% | | (16 | )% |
| Interest income | 38,345 |
| | 20,105 |
| | 18,240 |
| | 91 | % | | 106 | % |
| Foreign currency transaction losses, net | (51,149 | ) | | (92,456 | ) | | 41,307 |
| | (45 | )% | | (40 | )% |
| Other expense, net | (5,829 | ) | | (11,818 | ) | | 5,989 |
| | (51 | )% | | (46 | )% |
| Loss from continuing operations before reorganization items and income tax provision | (1,148,094 | ) | | (909,409 | ) | | (238,685 | ) | | 26 | % | | 31 | % |
| Reorganization items | (71,601 | ) | | — |
| | (71,601 | ) | | NM |
| | NM |
|
| Income tax provision | (4,976 | ) | | (291,016 | ) | | 286,040 |
| | (98 | )% | | (98 | )% |
| Net loss from continuing operations | (1,224,671 | ) | | (1,200,425 | ) | | (24,246 | ) | | 2 | % | | 7 | % |
| Loss from discontinued operations, net of income taxes | (733,027 | ) | | (449,174 | ) | | (283,853 | ) | | 63 | % | | 73 | % |
| Net loss | $ | (1,957,698 | ) | | $ | (1,649,599 | ) | | $ | (308,099 | ) | | 19 | % | | 25 | % |
NM-Not Meaningful
| |
| 1. | Impairment, restructuring and other charges |
Consolidated impairment, restructuring and other charges recognized in 2014 primarily related to the following:
a $42.8 million non-cash asset impairment charge related to our decision to cease further development on one of the strategic options for the next generation of our push-to-talk services;
$27.7 million in severance and related costs resulting from the separation of employees in Brazil and at the corporate level in an effort to streamline our organizational structure and reduce general and administrative expenses; and
$21.9 million in other non-cash asset impairment charges, the majority of which related to the shutdown or abandonment of certain transmitter and receiver sites and certain retail store closures in Brazil related to the realignment of our distribution channels.
Consolidated impairment, restructuring and restructuringother charges recognized in 2013 primarily related to the following.
a non-cash asset impairment charge of $85.3$76.3 million related to the discontinuation of software previously developed to support our customer relationship management systems, of which $76.3 million was recognized at the corporate level and $9.0 million was recognized by Nextel Mexico;level;
a $39.7$23.8 million non-cash charge in connection with the restructuring of our network outsourcing agreements reflecting the write-off of a portion of the base contractual fees that we had classified as a prepayment and that were being recognized over the life of the agreements prior to their restructuring;
$30.18.0 million in restructuring charges, the majority of which was at the corporate level, and in Mexico, related to the separation of employees and other restructuring activities in conjunction with actions taken to realign staffing and other resources;
$6.8 million in contract termination costs incurred in connection with the sublease of certain excess space located in one of our corporate office buildings; and
$5.9 million in asset impairment charges incurred at the corporate level related to the discontinuation of the development of certain network features.
During the third quarter of 2014, Nextel Mexico completed the sale of 1,483 communication towers. After the finalization of the price adjustments, Nextel Mexico began accounting for this transaction as a sale-leaseback and recognized a $75.4 million gain related to the completion of the sale of these towers. Separately, during the fourth quarter of 2014, Nextel Brazil completed the sale of 2,034 communication towers. After the finalization of the price adjustments, Nextel Brazil began accounting for this transaction as a sale-leaseback and recognized an immaterial loss related to the completion of the sale of these towers.
| |
7.2. | Interest expense, net |
In accordance with the U.S. Bankruptcy Code, subsequent to September 15, 2014, we havedid not accruedaccrue interest on any series of our senior notes as we dodid not believe it iswas probable of being treated as an allowed claim in the Chapter 11 cases. As a result, consolidated net interest expense decreased $77.2$82.6 million, or 15%18%, on a reported basis, and 13%16% on a constant currency basis, from 2013 to 2014.
Reorganization items of $71.6 million in 2014 were related to the write off of discounts, premiums and unamortized financing costs associated with our NII Capital Corp. and NIIT senior notes, as well as professional fees and other costs incurred in connection with our Chapter 11 filing.
The $372.0$286.0 million, or 83%98%, decrease in the consolidated income tax provision from 2013 to 2014 is primarily due to the valuation allowances that were recorded in 2013 in Brazil and Mexico.Brazil. During 2013, the $446.1$291.0 million income tax provision was primarily the result of establishing $572.8$382.9 million in valuation allowances with respect to certain of our Brazilian and Mexican subsidiaries. During 2014, we established a $49.1 million valuation allowance with respect to our Argentine operating company.
Segment Results
We evaluate performance of our segments and provide resources to them based on operating income before depreciation and amortization and impairment, restructuring and other charges, which we refer to as segment earnings. A discussion of our segment results is provided below.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2014 | | % of
Nextel Brazil’s Operating Revenues | | Year Ended December 31, 2013 | | % of
Nextel Brazil’s Operating Revenues | | Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | Dollars | | Percent | | Percent |
| | (dollars in thousands) | | |
| Operating revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Service and other revenues | $ | 1,694,181 |
| | 92 | % | | $ | 2,109,363 |
| | 96 | % | | $ | (415,182 | ) | | (20 | )% | | (12 | )% |
| Handset and accessory revenues | 154,737 |
| | 8 | % | | 98,671 |
| | 4 | % | | 56,066 |
| | 57 | % | | 71 | % |
| | 1,848,918 |
| | 100 | % | | 2,208,034 |
| | 100 | % | | (359,116 | ) | | (16 | )% | | (9 | )% |
| Cost of revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
Cost of service (exclusive of depreciation and amortization) | 693,004 |
| | 38 | % | | 767,908 |
| | 35 | % | | (74,904 | ) | | (10 | )% | | (2 | )% |
| Cost of handsets and accessories | 415,082 |
| | 22 | % | | 250,749 |
| | 11 | % | | 164,333 |
| | 66 | % | | 81 | % |
| | 1,108,086 |
| | 60 | % | | 1,018,657 |
| | 46 | % | | 89,429 |
| | 9 | % | | 19 | % |
| Selling and marketing expenses | 267,574 |
| | 14 | % | | 207,646 |
| | 9 | % | | 59,928 |
| | 29 | % | | 41 | % |
| General and administrative expenses | 606,949 |
| | 33 | % | | 670,602 |
| | 31 | % | | (63,653 | ) | | (9 | )% | | (1 | )% |
| Segment (losses) earnings | $ | (133,691 | ) | | (7 | )% | | $ | 311,129 |
| | 14 | % | | $ | (444,820 | ) | | (143 | )% | | (147 | )% |
Nextel Brazil contributed 50% of our consolidated operating revenues for 2014 compared to 47% in 2013, and comprised 47% of our total subscriber base at the end of 2014 compared to 43% at the end of 2013. Over the last several years, Nextel Brazil has operated in a highly competitive environment that reflected a significant increase in promotional activity, including price reductions and other special offers, by its competitors. In addition, Nextel Brazil did not begin offering full voice and data services on its WCDMA network until late in 2013, which reflected a delay from the service launch dates that we had originally planned. Prior to that time, Nextel Brazil was competing using its iDEN network, which does not support data services that are competitive with the higher speed data services offered by its competitors, and found it necessary to offer iDEN rate plans with lower average revenue per subscriber in order to retain customers on its iDEN network. Consequently, many iDEN customers migrated to lower rate service plans, and new customers on the iDEN network have been and are continuing to select lower rate service plans. In addition, as of December 31, 2014, Nextel Brazil's subscriber base included approximately 246 thousand data-only subscribers, which typically generate lower levels of average revenue per subscriber. As a result of these factors, Nextel Brazil's average revenue per subscriber during 2014 was significantly lower than its average revenue per subscriber during 2013, which caused the $415.2 million, or 20%, decline in Nextel Brazil's service and other revenues from 2013 to 2014 despite a 10% increase in Nextel Brazil's ending subscriber base from December 31, 2013 to December 31, 2014 that resulted from the launch of Nextel Brazil's WCDMA network in late 2013. On a constant currency basis, Nextel Brazil's service and other revenues decreased 12%, and its average revenue per subscriber decreased 26% in 2014 compared to 2013.
During 2014, Nextel Brazil experienced WCDMA subscriber growth, which was partially offset by deactivations by iDEN subscribers, and increasing levels of WCDMA-based average revenue per subscriber for new subscriber additions. As of December 31, 2014, excluding average revenue per subscriber for data-only subscribers, Nextel Brazil's WCDMA-based average revenue per subscriber for combined voice and data plans was higher than its iDEN-based average revenue per subscriber.
During 2014, Nextel Brazil continued to invest in the development of its WCDMA network and in its LTE upgrade in Rio de Janeiro both for regulatory purposes and to improve the capacity of its network. As a result, Nextel Brazil incurred increased operating expenses in connection with an increase in the number of transmitter and receiver sites on air from the end of 2013 to the end of 2014. Nextel Brazil also incurred higher cost of handset sales and advertising costs to support an increase in gross subscriber additions. These increased operating costs were partially offset by cost reductions in other areas, but led to an increase in overall operating expenses. This increase combined with the decline in operating revenues discussed above resulted in a reduction in Nextel Brazil's segment earnings margin from 14% in 2013 to a segment loss margin of 7% in 2014. Nextel Brazil's capital expenditures were $218.9 million for 2014, which represented 51% of our consolidated capital expenditures, compared to 53% of our consolidated capital expenditures for 2013.
The average value of the Brazilian real depreciated relative to the U.S. dollar during 2014 by 9% compared to the average value that prevailed during 2013. As a result, the components of Nextel Brazil's results of operations for 2014, after translation into U.S. dollars, reflect lower revenues and expenses in U.S. dollars than would have occurred if the Brazilian real had not
depreciated relative to the U.S. dollar. If the value of the Brazilian real remains at current levels or depreciates further relative to the U.S. dollar,b. Nextel Brazil's future reported results of operations will be adversely affected.Brazil
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Predecessor Company | | | | | | |
| | Year Ended December 31, 2014 | | % of
Nextel Brazil’s Operating Revenues | | Year Ended
December 31, 2013 | | % of
Nextel Brazil’s Operating Revenues | | Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | Dollars | | Percent | | Percent |
| | (dollars in thousands) | | |
| Service and other revenues | $ | 1,694,181 |
| | 92 | % | | $ | 2,109,363 |
| | 96 | % | | $ | (415,182 | ) | | (20 | )% | | (12 | )% |
| | | |
|
| | | |
|
| |
|
| |
|
| | |
| Handset and accessory revenues | 154,737 |
| | 8 | % | | 98,671 |
| | 4 | % | | 56,066 |
| | 57 | % | | 71 | % |
Cost of handsets and
accessories | (415,082 | ) | | (22 | )% | | (250,749 | ) | | (11 | )% | | (164,333 | ) | | 66 | % | | 66 | % |
| Handset and accessory net subsidy | (260,345 | ) | | (14 | )% | | (152,078 | ) | | (7 | )% | | (108,267 | ) | | 71 | % | | 62 | % |
| Cost of service (exclusive of depreciation and amortization) | (693,004 | ) | | (38 | )% | | (767,908 | ) | | (35 | )% | | 74,904 |
| | (10 | )% | | (2 | )% |
| Selling and marketing expenses | (267,574 | ) | | (14 | )% | | (207,646 | ) | | (9 | )% | | (59,928 | ) | | 29 | % | | 41 | % |
General and administrative
expenses | (606,949 | ) | | (33 | )% | | (670,602 | ) | | (31 | )% | | 63,653 |
| | (9 | )% | | (1 | )% |
| Segment (losses) earnings | $ | (133,691 | ) | | (7 | )% | | $ | 311,129 |
| | 14 | % | | (444,820 | ) | | (143 | )% | | (151 | )% |
Nextel Brazil’s segment earnings decreased $444.8 million, or 143%, on a reported basis, and 147%151% on a constant currency basis, in 2014 compared to 2013, as a result of the following:
The $415.2 million, or 20%, decrease in service and other revenues on a reported basis in 2014 compared to 2013 is primarily the result of the decline in average revenue per subscriber described above and weaker foreign currency exchange rates. On a constant currency basis, Nextel Brazil's service and other revenues decreased 12% in 2014 compared to 2013.
The $56.1 million, or 57%, increase in handset and accessory revenues on a reported basis in 2014 compared to 2013 is primarily the result of a 24% increase in gross subscriber additions, the majority of which related to WCDMA handset sales, as well as a change in the mix of handsets toward higher cost smartphones and other high-tier handsets. On a constant currency basis, Nextel Brazil's handset and accessory revenues increased 71% in 2014 compared to 2013.
In 2012, Brazil's telecommunications regulatory agency approved theregulations to implement a transition to a cost-based model for determining mobile termination rates. Under the current regulations, the mobile termination rates beginningare being gradually reduced over a transition period ending in 2016 and additional reductions in those2019, when cost-based rates for 2013 through 2015 as part of the transition to the cost-based rates.will take effect. The transition rules also provide for a partial "bill and keep" settlement process that applies to the settlement of mobile termination charges between smaller operators like Nextel Brazil and its larger competitors (who are considered to hold significant market power under the Brazilian regulations), which further reduces mobile termination charges for smaller operators. The benefit oflower costs resulting from this partial bill and keep settlement process, which previously onlyis similar to the settlement process that has historically applied to termination charges relating to our iDEN services, provided on Nextel Brazil's WCDMA network but will soon apply to all of Nextel Brazil's services, including services provided using its iDEN network as a result of recent regulatory changes in Brazil, declinesdecline as mobile termination rates in Brazilare reduced during the transition to aperiod, with the bill and keep settlement process terminating when cost-based model. rates are implemented.
The $74.9 million, or 10%, decrease in cost of service on a reported basis from 2013 to 2014 is largely due to a $112.3 million, or 31%, decrease in interconnect costs related to the changes in the regulated interconnect cost structure described above and a $23.0 million, or 36%, decrease in service and repair costs. These decreases were partially offset by a $62.4 million, or 23%, increase in site and switch expenses, primarily due to an increase in direct switch and transmitter and receiver site costs resulting from a 9% increase in the number of sites in service from December 31, 2013 to December 31, 2014 in connection with the deployment and expansion of Nextel Brazil's WCDMA network and LTE upgrade.
The $164.3 million, or 66%, increase in the cost of handsets and accessories on a reported basis from 2013 to 2014 is largely related to the increase in gross subscriber additions on Nextel Brazil's WCDMA network discussed above, as well as a change in the mix of handsets toward higher cost smartphones and other high-tier handsets.
| |
| 3. | Selling and marketing expenses |
The $59.9 million, or 29%, increase in selling and marketing expenses on a reported basis, and 41% on a constant currency basis, in 2014 compared to 2013 was largely due to higher advertising costs resulting from new marketing campaigns in connection with our efforts to increase awareness of Nextel Brazil as a next generation service provider, as well as an increase in commissions resulting from higher gross subscriber additions and an increase in average commission per gross subscriber addition related to a change in the mix of commissions toward more costly indirect sales channels.
| |
| 4. | General and administrative expenses |
The $63.7 million, or 9%, decrease in general and administrative expenses on a reported basis, and 1% on a constant currency basis, in 2014 compared to 2013 is principally due to lower payroll costs related to fewer general and administrative personnel resulting from a reduction in force, a decrease in revenue-based taxes associated with the decline in operating revenues described above and a reduction in bad debt expense from 2013 to 2014 related to the delays in processing billing cycles that Nextel Brazil experienced in 2013 that resulted in higher bad debt expense during that year.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2014 | | % of
Nextel Mexico's Operating Revenues | | Year Ended
December 31, 2013 | | % of
Nextel Mexico’s Operating Revenues | | Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | Dollars | | Percent | | Percent |
| | (dollars in thousands) | | |
| Operating revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Service and other revenues | $ | 1,375,379 |
| | 97 | % | | $ | 1,832,737 |
| | 98 | % | | $ | (457,358 | ) | | (25 | )% | | (22 | )% |
| Handset and accessory revenues | 41,784 |
| | 3 | % | | 39,960 |
| | 2 | % | | 1,824 |
| | 5 | % | | 9 | % |
| | 1,417,163 |
| | 100 | % | | 1,872,697 |
| | 100 | % | | (455,534 | ) | | (24 | )% | | (21 | )% |
| Cost of revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Cost of service (exclusive of depreciation and amortization) | 511,069 |
| | 36 | % | | 484,367 |
| | 26 | % | | 26,702 |
| | 6 | % | | 10 | % |
| Cost of handsets and accessories | 491,003 |
| | 35 | % | | 547,123 |
| | 29 | % | | (56,120 | ) | | (10 | )% | | (7 | )% |
| | 1,002,072 |
| | 71 | % | | 1,031,490 |
| | 55 | % | | (29,418 | ) | | (3 | )% | | 1 | % |
| Selling and marketing expenses | 207,468 |
| | 14 | % | | 292,800 |
| | 16 | % | | (85,332 | ) | | (29 | )% | | (26 | )% |
| General and administrative expenses | 298,104 |
| | 21 | % | | 368,511 |
| | 19 | % | | (70,407 | ) | | (19 | )% | | (16 | )% |
| Segment (losses) earnings | $ | (90,481 | ) | | (6 | )% | | $ | 179,896 |
| | 10 | % | | $ | (270,377 | ) | | (150 | )% | | (152 | )% |
Nextel Mexico represented 38% of our consolidated operating revenues for 2014 compared to 40% for 2013, and comprised 32% of our total subscriber base at the end of 2014 compared to 35% at the end of 2013.
Nextel Mexico experienced significant disruption to its business plans, and a decline in its subscriber base, operating revenues and operating cash flows, in connection with Sprint’s deactivation of its iDEN network in the U.S. in mid-2013, which was compounded by the insufficient capacity of Nextel Mexico's WCDMA network to handle the number of subscribers that migrated from service on our iDEN network to service on our WCDMA network, as well as the inability of our customer operations to respond to problems encountered by those subscribers. The deactivation of Sprint's iDEN network also resulted in changes to the connections previously available between our subscribers and their contacts in the U.S., as well as our customers’ ability to roam in the U.S. These changes had an adverse impact on our customers' experience in using their services and created a negative perception of our services and reputation as a provider of high quality services in Mexico, which has made it more difficult for us to attract and retain subscribers in 2014. As a result of these factors and the competitive environment in Mexico, Nextel Mexico experienced higher iDEN customer turnover and was not able to effectively offset the loss of iDEN subscribers with new WCDMA subscribers, resulting in a 12% reduction in Nextel Mexico's ending subscriber base from December 31, 2013 to December 31, 2014.
Over the course of the last year, Nextel Mexico has experienced deteriorating financial and operational results due to these and other factors, including the economic and competitive environments in Mexico. As a result, Nextel Mexico's operating revenues decreased 24% on a reported basis, and its average revenue per subscriber decreased 6%, for 2014 compared to 2013. On a constant currency basis, Nextel Mexico's operating revenues decreased 21%, and its average revenue per subscriber decreased 2%, in 2014 compared to 2013 primarily as a result of subscriber migrations to lower rate service plans, particularly for iDEN subscribers, as well as a higher mix of prepaid subscribers with lower average revenues per subscriber. The percentage of Nextel Mexico's total subscriber base that represented prepaid subscribers increased from 3% as of December 31, 2013 to 11% as of December 31, 2014.
Nextel Mexico has taken and continues to take actions designed to improve its WCDMA network performance and the quality of service experienced by our customers, including improving its retail distribution channels, launching awareness campaigns to inform subscribers of the improvements to its WCDMA network and offering new service plans. As a result of these efforts, Nextel Mexico experienced some recovery in the second half of 2014, and its gross subscriber additions increased 13% from 2013 to 2014.
The average value of the Mexican peso depreciated relative to the U.S. dollar by 4% during 2014 compared to the average value that prevailed in 2013. As a result, the components of Nextel Mexico's results of operations for 2014, after translation into U.S. dollars, reflect slightly lower revenues and expenses in U.S. dollars than would have occurred if the Mexican peso had not depreciated relative to the U.S. dollar. If the value of the Mexican peso remains at current levels or depreciates further relative to the U.S. dollar, Nextel Mexico's future reported results of operations will be adversely affected.
Nextel Mexico's segment earnings decreased $270.4 million, or 150%, on a reported basis, and 152% on a constant currency basis, in 2014 compared to 2013. Nextel Mexico's segment earnings margin of 10% in 2013 declined to a segment loss margin of 6% in 2014 as a result of the following:
The $457.4 million, or 25%, decrease in service and other revenues on a reported basis, and 22% on a constant currency basis, in 2014 compared to 2013 is primarily due to a 12% reduction in Nextel Mexico's subscriber base from December 31, 2013 to December 31, 2014 and lower average revenue per subscriber.
The $26.7 million, or 6%, increase in cost of service on a reported basis from 2013 to 2014 is largely due to a $50.3 million, or 20%, increase in direct switch and transmitter and receiver site costs resulting from a 13% increase in the number of sites in service from December 31, 2013 to December 31, 2014 in connection with the deployment and expansion of Nextel Mexico's WCDMA network, partially offset by a $27.2 million, or 99%, decrease in managed services expenses related to the insourcing of certain activities and an $8.4 million, or 6%, decrease in interconnect costs related to lower interconnect minutes of use.
The decrease in cost of handsets and accessories on a reported basis from 2013 to 2014 was caused by a $175.9 million, or 72%, decrease in the cost of iDEN handsets, partially offset by a $119.7 million, or 40%, increase in the cost of WCDMA handsets.
| |
3. | Selling and marketing expenses |
The $85.3 million, or 29%, decrease in selling and marketing expenses on a reported basis, and 26% on a constant currency basis, in 2014 compared to 2013 is primarily the result of lower indirect commissions resulting from a 27% decrease in indirect gross subscriber additions, a decrease in average commission per gross subscriber addition resulting from a change in Nextel Mexico's commissions structure and lower advertising costs.
| |
4. | General and administrative expenses |
The $70.4 million, or 19%, decrease in general and administrative expenses on a reported basis, and 16% on a constant currency basis, in 2014 compared to 2013 is primarily the result of lower customer care expenses associated with Nextel Mexico's smaller subscriber base, lower payroll costs related to fewer general and administrative personnel resulting from a reduction in force and a decrease in information technology costs.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2014 | | % of
Nextel Argentina's Operating Revenues | | Year Ended
December 31, 2013 | | % of
Nextel Argentina’s Operating Revenues | | Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | Dollars | | Percent | | Percent |
| | (dollars in thousands) | | |
| Operating revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Service and other revenues | $ | 379,939 |
| | 89 | % | | $ | 575,536 |
| | 90 | % | | $ | (195,597 | ) | | (34 | )% | | (2 | )% |
| Handset and accessory revenues | 45,032 |
| | 11 | % | | 60,912 |
| | 10 | % | | (15,880 | ) | | (26 | )% | | 10 | % |
| | 424,971 |
| | 100 | % | | 636,448 |
| | 100 | % | | (211,477 | ) | | (33 | )% | | (1 | )% |
| Cost of revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Cost of service (exclusive of depreciation and amortization) | 105,165 |
| | 25 | % | | 140,390 |
| | 22 | % | | (35,225 | ) | | (25 | )% | | 11 | % |
| Cost of handsets and accessories | 69,686 |
| | 16 | % | | 90,879 |
| | 14 | % | | (21,193 | ) | | (23 | )% | | 14 | % |
| | 174,851 |
| | 41 | % | | 231,269 |
| | 36 | % | | (56,418 | ) | | (24 | )% | | 12 | % |
| Selling and marketing expenses | 47,462 |
| | 11 | % | | 61,607 |
| | 10 | % | | (14,145 | ) | | (23 | )% | | 14 | % |
| General and administrative expenses | 126,417 |
| | 30 | % | | 164,154 |
| | 26 | % | | (37,737 | ) | | (23 | )% | | 14 | % |
| Segment earnings | $ | 76,241 |
| | 18 | % | | $ | 179,418 |
| | 28 | % | | $ | (103,177 | ) | | (58 | )% | | (37 | )% |
Nextel Argentina comprised 12% of our consolidated operating revenues for 2014 compared to 13% for 2013, and represented 21% of our total subscriber base at the end of 2014 compared to 22% at the end of 2013. Almost half of Nextel Argentina's subscriber base as of December 31, 2014 represented subscribers who are utilizing prepaid service plans that generate lower average monthly revenues per subscriber unit. Nextel Argentina generated a segment earnings margin of 18% in 2014 compared to 28% in 2013. Over the last several years, the inflation rate in Argentina has risen significantly, and we expect that it may continue to rise in future years. The higher inflation rate has affected costs that are incurred in Argentine pesos. If the higher inflation rates in Argentina continue, Nextel Argentina's results of operations may be adversely affected. In addition, Nextel Argentina continues to compete utilizing its iDEN network, which does not support data services that are competitive with the higher speed data services offered by some of its competitors. As a result, Nextel Argentina experienced a higher customer turnover rate in 2014 compared to 2013 as its customers were targeted by competitors’ aggressive offers.
The average value of the Argentine peso during 2014 depreciated relative to the U.S. dollar by 48% compared to the same period in 2013. As a result, the components of Nextel Argentina's results of operations for 2014 after translation into U.S. dollars reflect significantly lower U.S. dollar-denominated revenues and expenses than would have occurred if the Argentine peso had not depreciated relative to the U.S. dollar. The average exchange rate used to translate Nextel Argentina's results of operations may not be indicative of the economic reality in Argentina.
Nextel Argentina's segment earnings decreased $103.2 million, or 58%, on a reported basis in 2014 compared to 2013, and its segment earnings margin decreased to 18% in 2014 compared to 28% in 2013, primarily as a result of the significant depreciation in the value of the Argentine peso relative to the U.S. dollar. On a constant currency basis, Nextel Argentina's segment earnings decreased 37% in 2014 compared to 2013, primarily as a result of lower operating revenues and higher overall costs resulting from higher inflation rates.
| | | | Year Ended December 31, 2014 | | Year Ended
December 31, 2013 | | Change from Previous Year | Predecessor Company | | | | |
| | | Dollars | | Percent | Year Ended December 31, 2014 | | Year Ended
December 31, 2013 | | Change from Previous Year |
| | (dollars in thousands) | | Dollars | | Percent |
| Operating revenues | |
| | |
| | |
| | |
| |
| | | (dollars in thousands) |
| Service and other revenues | $ | 351 |
| | $ | 42 |
| | $ | 309 |
| | NM |
| $ | 351 |
| | $ | 42 |
| | $ | 309 |
| | NM |
|
| Selling and marketing expenses | 5,544 |
| | 11,831 |
| | (6,287 | ) | | (53 | )% | (5,544 | ) | | (11,831 | ) | | 6,287 |
| | (53 | )% |
| General and administrative expenses | 144,932 |
| | 169,813 |
| | (24,881 | ) | | (15 | )% | (123,060 | ) | | (152,875 | ) | | 29,815 |
| | (20 | )% |
| Segment losses | $ | (150,125 | ) |
| $ | (181,602 | ) | | $ | 31,477 |
| | (17 | )% | $ | (128,253 | ) | | $ | (164,664 | ) | | $ | 36,411 |
| | (22 | )% |
NM-Not Meaningful
Segment losses decreased $31.5$36.4 million, or 17%22%, in 2014 compared to 2013 primarily due to a $24.9$29.8 million, or 15%20%, decrease in general and administrative expenses largely resulting from reduced payroll expenses related to fewer general and administrative personnel following a reduction in personnel and lower information technology costs. General and administrative expenses for 2014 also included $22.6 million in consulting costs and other professional fees incurred in connection with our exploration of strategic and restructuring options and in preparation for our Chapter 11 filing.
| |
2. | Year Ended December 31, 2013 vs. Year Ended December 31, 2012 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, 2013 | | % of Consolidated
Operating Revenues | | Year Ended
December 31, 2012 | | % of Consolidated
Operating Revenues | | Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | Dollars | | Percent | | Percent |
| | (dollars in thousands) | | |
| Operating revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Service and other revenues | $ | 4,517,154 |
| | 96 | % | | $ | 5,424,766 |
| | 95 | % | | $ | (907,612 | ) | | (17 | )% | | (12 | )% |
| Handset and accessory revenues | 194,413 |
| | 4 | % | | 268,469 |
| | 5 | % | | (74,056 | ) | | (28 | )% | | (22 | )% |
| | 4,711,567 |
| | 100 | % | | 5,693,235 |
| | 100 | % | | (981,668 | ) | | (17 | )% | | (12 | )% |
| Cost of revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
Cost of service (exclusive of
depreciation and amortization
included below) | 1,392,140 |
| | 30 | % | | 1,509,543 |
| | 27 | % | | (117,403 | ) | | (8 | )% | | (1 | )% |
| Cost of handsets and accessories | 884,789 |
| | 18 | % | | 792,466 |
| | 13 | % | | 92,323 |
| | 12 | % | | 14 | % |
| | 2,276,929 |
| | 48 | % | | 2,302,009 |
| | 40 | % | | (25,080 | ) | | (1 | )% | | 5 | % |
| Selling and marketing expenses | 573,884 |
| | 12 | % | | 668,783 |
| | 11 | % | | (94,899 | ) | | (14 | )% | | (13 | )% |
| General and administrative expenses | 1,367,889 |
| | 29 | % | | 1,593,139 |
| | 27 | % | | (225,250 | ) | | (14 | )% | | (8 | )% |
| Impairment and restructuring charges | 168,543 |
| | 4 | % | | 30,401 |
| | 2 | % | | 138,142 |
| | NM |
| | NM |
|
| Depreciation and amortization | 692,927 |
| | 15 | % | | 605,161 |
| | 11 | % | | 87,766 |
| | 15 | % | | 21 | % |
| Operating (loss) income | (368,605 | ) | | (8 | )% | | 493,742 |
| | 9 | % | | (862,347 | ) | | (175 | )% | | (178 | )% |
| Interest expense, net | (526,530 | ) | | (11 | )% | | (359,795 | ) | | (7 | )% | | (166,735 | ) | | 46 | % | | 49 | % |
| Interest income | 43,327 |
| | 1 | % | | 33,785 |
| | 1 | % | | 9,542 |
| | 28 | % | | 33 | % |
Foreign currency transaction losses,
net | (123,369 | ) | | (3 | )% | | (63,330 | ) | | (2 | )% | | (60,039 | ) | | 95 | % | | 107 | % |
| Other expense, net | (12,859 | ) | | — |
| | (28,097 | ) | | — |
| | 15,238 |
| | (54 | )% | | (54 | )% |
| (Loss) income from continuing operations before income tax provision | (988,036 | ) | | (21 | )% | | 76,305 |
| | 1 | % | | (1,064,341 | ) | | NM |
| | NM |
|
| Income tax provision | (446,052 | ) | | (9 | )% | | (158,144 | ) | | (2 | )% | | (287,908 | ) | | 182 | % | | 200 | % |
| Net loss from continuing operations | (1,434,088 | ) | | (30 | )% | | (81,839 | ) | | (1 | )% | | (1,352,249 | ) | | NM |
| | NM |
|
| Loss from discontinued operations, net of income taxes | (215,511 | ) | | (5 | )% | | (683,410 | ) | | (12 | )% | | 467,899 |
| | (68 | )% | | (58 | )% |
| Net loss | $ | (1,649,599 | ) | | (35 | )% | | $ | (765,249 | ) | | (13 | )% | | $ | (884,350 | ) | | 116 | % | | 176 | % |
NM-Not Meaningful
The $981.7 million, or 17%, decrease in consolidated service and other revenues on a reported basis, and the 12% decrease on a constant currency basis, from 2012 to 2013 were primarily due to the decline in our consolidated subscriber base and a decrease in consolidated average revenue per subscriber in local currency caused by an increase in the number of subscribers on lower rate service plans in both Brazil and Mexico, adjustments to promotional offers in response to a more competitive environment in Brazil and retention credits offered to certain customers in Mexico. The decrease in consolidated service and other revenues on a reported basis also reflects weaker average foreign currency exchange rates in Brazil and Argentina, which were partially offset by a slightly stronger average foreign currency exchange rate in Mexico.
Consolidated cost of revenues remained relatively stable on a reported basis from 2012 to 2013 despite the lower consolidated operating revenue levels primarily as a result of:
a $106.2 million, or 23%, increase in consolidated direct switch and transmitter and receiver site costs due to a 34% increase in the number of sites in service from December 31, 2012 to December 31, 2013 in connection with the deployment of our WCDMA networks in Brazil and Mexico; and
a $92.3 million, or 12%, increase in cost of handsets and accessories resulting from a change in the mix of handsets in Brazil and Mexico toward higher-tier handsets and losses related to inventory obsolescence that Nextel Brazil and Nextel Mexico recognized in the second half of 2013.
These increases were partially offset by:
a $169.2 million, or 24%, decrease in consolidated interconnect costs related to lower interconnect minutes of use in Brazil and Mexico as a result of the reduction in our consolidated subscriber base and lower usage levels per subscriber, as well as a decline in mobile termination rates in Brazil;
a $66.8 million, or 32%, decrease in consolidated service and repair costs resulting from the utilization of more refurbished handsets and a lower overall number of repaired handsets; and
weaker average foreign currency exchange rates in Brazil and Argentina that were partially offset by slightly stronger foreign currency exchange rates in Mexico.
On a constant currency basis, consolidated cost of revenues increased 5% for 2013 compared to 2012.
Consolidated cost of revenues as a percentage of consolidated operating revenues increased from 40% in 2012 to 48% in 2013 primarily as a result of an increase in direct switch and transmitter and receiver site costs, an increase in the cost of handsets and accessories and the decline in operating revenues described above over the same period.
| |
3. | Selling and marketing expenses |
Significant factors contributing to the $94.9 million, or 14%, decrease in consolidated selling and marketing expenses on a reported basis in 2013 compared to 2012, and a 13% decrease on a constant currency basis, included a significant reduction in commissions generated through direct and indirect channels, mostly in Brazil and Mexico, and a $27.6 million, or 14%, decrease in consolidated advertising and other marketing expenses resulting from fewer advertising campaigns launched in 2013 compared to 2012.
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4. | General and administrative expenses |
The $225.3 million, or 14%, decrease in consolidated general and administrative expenses on a reported basis, and 8% on a constant currency basis, in 2013 compared to 2012 was due to a decrease in consulting and information technology costs at the corporate level, a decrease in revenue-based taxes in Brazil associated with a decline in Nextel Brazil's operating revenues as well as a $103.0 million, or 48%, decrease in the consolidated provision for doubtful accounts in 2013 compared to 2012, which is mostly attributable to changes made to Nextel Brazil's collection and retention policy and other processes in the fourth quarter of 2012 in connection with efforts to deactivate unprofitable customers. These changes resulted in an increase in the consolidated provision for doubtful accounts in the fourth quarter of 2012 and improved customer credit quality in 2013, which led to a lower consolidated provision for doubtful accounts in 2013.
Consolidated general and administrative expenses as a percentage of consolidated operating revenues increased from 27% in 2012 to 29% in 2013 largely as a result of the decline in operating revenues over the same period.
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5. | Impairment and restructuring charges |
Consolidated impairment and restructuring charges recognized in 2013 primarily related to the following:
a non-cash asset impairment charge of $85.3 million related to the discontinuation of software previously developed for use in multiple markets to support our customer relationship management systems;
a $39.7 million non-cash charge in connection with the restructuring of certain outsourcing agreements reflecting the write-off of a portion of the base contractual fees that we had classified as a prepayment and that were being recognized over the life of the agreements prior to their restructuring;
$30.1 million in restructuring charges, the majority of which was at the corporate level and in Mexico, related to the separation of employees and other restructuring activities in conjunction with actions taken to realign staffing and other resources;
$6.8 million in contract termination costs incurred in connection with the sublease of certain excess space located in one of our corporate office buildings; and
$5.9 million in charges incurred at the corporate level related to the discontinuation of the development of certain network features.
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6. | Depreciation and amortization |
The $87.8 million, or 15%, increase in consolidated depreciation and amortization on a reported basis, and the 21% increase on a constant currency basis, from 2012 to 2013 is principally the result of an increase in consolidated property, plant and equipment in service resulting from continued investments in our WCDMA networks.
The $166.7 million, or 46%, increase in consolidated net interest expense on a reported basis, and the 49% increase on a constant currency basis, from 2012 to 2013 is largely related to interest incurred in connection with the issuance of $900.0 million in 11.375% senior notes in February and April 2013 and $700.0 million in 7.875% senior notes in May 2013, as well as lower capitalized interest.
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8. | Foreign currency transaction losses, net |
The $60.0 million, or 95%, increase in consolidated foreign currency losses from 2012 to 2013 is primarily the result of the impact of the depreciation in the value of the Brazilian real relative to the U.S. dollar on Nextel Brazil's U.S. dollar-denominated net liabilities, partially offset by the slight appreciation in the value of the Mexican peso relative to the U.S. dollar on Nextel Mexico's U.S. dollar-denominated net liabilities.
The $287.9 million, or 182%, increase in the consolidated income tax provision from 2012 to 2013 is primarily due to the $572.8 million valuation allowance established with respect to the deferred tax assets of certain Brazilian and Mexican subsidiaries, partially offset by a reduction in withholding taxes, tax benefits associated with various tax planning strategies in our foreign markets and a reduction in the income from continuing operations before income taxes of our foreign markets.
Segment Results
We evaluate performance of our segments and provide resources to them based on operating income before depreciation and amortization and impairment, restructuring and other charges, which we refer to as segment earnings. A discussion of our segment results is provided below.
b. Nextel Brazil
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| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 | | % of
Nextel Brazil’s Operating Revenues | | Year Ended
December 31, 2012 | | % of
Nextel Brazil’s Operating Revenues | | Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | Dollars | | Percent | | Percent |
| | (dollars in thousands) | | |
| Operating revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Service and other revenues | $ | 2,109,363 |
| | 96 | % | | $ | 2,756,167 |
| | 95 | % | | $ | (646,804 | ) | | (23 | )% | | (15 | )% |
| Handset and accessory revenues | 98,671 |
| | 4 | % | | 146,183 |
| | 5 | % | | (47,512 | ) | | (33 | )% | | (25 | )% |
| | 2,208,034 |
| | 100 | % | | 2,902,350 |
| | 100 | % | | (694,316 | ) | | (24 | )% | | (16 | )% |
| Cost of revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
Cost of service (exclusive of depreciation and amortization) | 767,908 |
| | 35 | % | | 909,908 |
| | 32 | % | | (142,000 | ) | | (16 | )% | | (7 | )% |
| Cost of handsets and accessories | 250,749 |
| | 11 | % | | 210,294 |
| | 7 | % | | 40,455 |
| | 19 | % | | 24 | % |
| | 1,018,657 |
| | 46 | % | | 1,120,202 |
| | 39 | % | | (101,545 | ) | | (9 | )% | | (1 | )% |
| Selling and marketing expenses | 207,646 |
| | 9 | % | | 262,620 |
| | 9 | % | | (54,974 | ) | | (21 | )% | | (12 | )% |
| General and administrative expenses | 670,602 |
| | 31 | % | | 844,896 |
| | 29 | % | | (174,294 | ) | | (21 | )% | | (12 | )% |
| Segment earnings | $ | 311,129 |
| | 14 | % | | $ | 674,632 |
| | 23 | % | | $ | (363,503 | ) | | (54 | )% | | (46 | )% |
The average value of the Brazilian real during 2013 depreciated relative to the U.S. dollar by 11% compared to the average rate that prevailed during the same period in 2012. As a result, the components of Nextel Brazil's results of operations for 2013, after translation into U.S. dollars, reflect lower revenues and expenses in U.S. dollars than would have occurred if the Brazilian real had not depreciated relative to the U.S. dollar. If the value of the Brazilian real remains at levels similar to the end of 2013 or depreciates further relative to the U.S. dollar, Nextel Brazil's future results of operations may be adversely affected.
Nextel Brazil’s segment earnings decreased $363.5 million, or 54%, on a reported basis, and 46% on a constant currency basis, in 2013 compared to 2012, as a result of the following:
The $646.8 million, or 23%, decrease in service and other revenues on a reported basis in 2013 compared to 2012 is primarily the result of lower average revenue per subscriber in local currency as described above and weaker foreign currency exchange rates. On a constant currency basis, Nextel Brazil's service and other revenues decreased 15% in 2013 compared to 2012.
The $142.0 million, or 16%, decrease in cost of service on a reported basis from 2012 to 2013 is largely due to the $127.3 million, or 26%, decrease in interconnect costs related to a decrease in interconnect minutes of use and lower mobile termination rates, as well as a decrease in Nextel Brazil's service and repair costs caused primarily by the utilization of more refurbished handsets. The $40.5 million, or 19%, increase in cost of handsets and accessories on a reported basis from 2012 to 2013 is largely related to a change in the mix of handsets toward higher-tier smartphones and other handsets, as well as losses related to inventory obsolescence.
On a constant currency basis, Nextel Brazil's total cost of revenues decreased 1% in 2013 compared to 2012. Despite these decreases, Nextel Brazil's cost of revenues increased as a percentage of operating revenues as a result of the more significant year-over-year decline in operating revenues described above and an increase in costs associated with the deployment of Nextel Brazil's WCDMA network.
In November 2012, Brazil's telecommunications regulatory agency approved the transition to a cost-based model for determining mobile termination rates beginning in 2016 and additional reductions in those rates for 2013 through 2015 as part of the transition to the cost-based rates. The transition rules also provide for a partial "bill and keep" settlement process that applies the settlement of mobile termination charges between smaller operators like Nextel Brazil and its larger competitors, which has the effect of further reducing the mobile termination charges of the smaller operators. The benefit of this partial bill and keep settlement process, which only applies to services provided on our WCDMA network, declines as mobile termination rates in Brazil transition to a cost-based model. We expect these changes will reduce the cost to provide wireless services to our customers
as we transition subscribers to our WCDMA network in Brazil and will allow us to offer unique pricing plans that we believe will be attractive to our current and potential customers.
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3. | Selling and marketing expenses |
The $55.0 million, or 21%, decrease in selling and marketing expenses on a reported basis, and 12% on a constant currency basis, in 2013 compared to 2012 is largely due to significantly lower advertising costs resulting from fewer advertising campaigns, as well as cost reduction initiatives in 2013 compared to 2012 and a decrease in direct and indirect commissions that resulted mostly from acquiring subscribers with lower average revenues.
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4. | General and administrative expenses |
The $174.3 million, or 21%, decrease in general and administrative expenses on a reported basis, and 12% on a constant currency basis, in 2013 compared to 2012 is principally due to a $108.7 million, or 58%, decrease in provision for doubtful accounts on a reported basis 2013 compared to 2012 as a result of the changes made to Nextel Brazil's collection and retention policy and other processes during the fourth quarter of 2012 in connection with the deactivation of unprofitable customers. These changes resulted in an increase in Nextel Brazil's provision for doubtful accounts in the fourth quarter of 2012 and improved customer credit quality in 2013. Additionally, Nextel Brazil experienced a significant decrease in revenue-based taxes associated with the decline in operating revenues described above and other cost reduction initiatives.
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| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 | | % of
Nextel Mexico's Operating Revenues | | Year Ended
December 31, 2012 | | % of
Nextel Mexico’s Operating Revenues | | Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | Dollars | | Percent | | Percent |
| | (dollars in thousands) | | |
| Operating revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Service and other revenues | $ | 1,832,737 |
| | 98 | % | | $ | 2,033,255 |
| | 96 | % | | $ | (200,518 | ) | | (10 | )% | | (13 | )% |
| Handset and accessory revenues | 39,960 |
| | 2 | % | | 76,318 |
| | 4 | % | | (36,358 | ) | | (48 | )% | | (49 | )% |
| | 1,872,697 |
| | 100 | % | | 2,109,573 |
| | 100 | % | | (236,876 | ) | | (11 | )% | | (14 | )% |
| Cost of revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Cost of service (exclusive of depreciation and amortization) | 484,367 |
| | 26 | % | | 413,457 |
| | 20 | % | | 70,910 |
| | 17 | % | | 15 | % |
| Cost of handsets and accessories | 547,123 |
| | 29 | % | | 504,962 |
| | 24 | % | | 42,161 |
| | 8 | % | | 5 | % |
| | 1,031,490 |
| | 55 | % | | 918,419 |
| | 44 | % | | 113,071 |
| | 12 | % | | 9 | % |
| Selling and marketing expenses | 292,800 |
| | 16 | % | | 299,022 |
| | 14 | % | | (6,222 | ) | | (2 | )% | | (5 | )% |
| General and administrative expenses | 368,511 |
| | 19 | % | | 331,073 |
| | 15 | % | | 37,438 |
| | 11 | % | | 8 | % |
| Segment earnings | $ | 179,896 |
| | 10 | % | | $ | 561,059 |
| | 27 | % | | $ | (381,163 | ) | | (68 | )% | | (69 | )% |
The average value of the Mexican peso appreciated relative to the U.S. dollar by 3% during 2013 compared to the average value that prevailed in 2012. As a result, the components of Nextel Mexico's results of operations for 2013, after translation into U.S. dollars, reflect slightly higher revenues and expenses in U.S. dollars than would have occurred if the Mexican peso had not appreciated relative to the U.S. dollar.
As a result of the increase in operating expenses in connection with the deployment of our WCDMA network, including cost of service, general and administrative expenses and other factors described below, Nextel Mexico's segment earnings decreased $381.2 million, or 68%, on a reported basis, and 69% on a constant currency basis, in 2013 compared to 2012. Nextel Mexico's segment earnings margin declined from 27% in 2012 to 10% in 2013 as a result of the following:
The $200.5 million, or 10%, decrease in service and other revenues on a reported basis, and 13% on a constant currency basis, in 2013 compared to 2012 is primarily due to a decline in average revenue per subscriber on a local currency basis resulting from the implementation of lower rate service plans in response to the competitive environment in Mexico, as well as the 16% reduction in Nextel Mexico's subscriber base from December 31, 2012 to December 31, 2013.
The $70.9 million, or 17%, increase in cost of service on a reported basis, and 15% on a constant currency basis, in 2013 compared to 2012 is primarily the result of a $101.7 million, or 71%, increase in direct switch and transmitter and receiver site costs resulting from a significant increase in transmitter and receiver sites in service from December 31, 2012 to December 31, 2013 related to the deployment and expansion of Nextel Mexico's WCDMA network. These amounts were partially offset by a $26.4 million, or 16%, decrease in interconnect expenses related to a decline in interconnect minutes of use and a reduction in mobile termination rates. The increase in Nextel Mexico's cost of revenues was also partially due to a $42.2 million, or 8%, increase in cost of handsets and accessories resulting from a change in the mix of handsets toward higher tier smartphones and other handsets and losses related to inventory obsolescence.
| |
3. | General and administrative expenses |
The $37.4 million, or 11%, increase in general and administrative expenses on a reported basis, and 8% on a constant currency basis, in 2013 compared to 2012 is primarily the result of higher information technology and customer care expenses.
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| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 | | % of
Nextel Argentina's Operating Revenues | | Year Ended
December 31, 2012 | | % of
Nextel Argentina’s Operating Revenues | | Change from Previous Year | | Constant Currency Change from Previous Year |
| | | | | | Dollars | | Percent | | Percent |
| | (dollars in thousands) | | |
| Operating revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Service and other revenues | $ | 575,536 |
| | 90 | % | | $ | 636,807 |
| | 93 | % | | $ | (61,271 | ) | | (10 | )% | | 9 | % |
| Handset and accessory revenues | 60,912 |
| | 10 | % | | 48,394 |
| | 7 | % | | 12,518 |
| | 26 | % | | 51 | % |
| | 636,448 |
| | 100 | % | | 685,201 |
| | 100 | % | | (48,753 | ) | | (7 | )% | | 12 | % |
| Cost of revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| Cost of service (exclusive of depreciation and amortization) | 140,390 |
| | 22 | % | | 187,641 |
| | 27 | % | | (47,251 | ) | | (25 | ) | | (15 | )% |
| Cost of handsets and accessories | 90,879 |
| | 14 | % | | 79,563 |
| | 12 | % | | 11,316 |
| | 14 | % | | 16 | % |
| | 231,269 |
| | 36 | % | | 267,204 |
| | 39 | % | | (35,935 | ) | | (13 | )% | | (5 | )% |
| Selling and marketing expenses | 61,607 |
| | 10 | % | | 68,754 |
| | 10 | % | | (7,147 | ) | | (10 | )% | | 8 | % |
| General and administrative expenses | 164,154 |
| | 26 | % | | 168,287 |
| | 25 | % | | (4,133 | ) | | (2 | )% | | 17 | % |
| Segment earnings | $ | 179,418 |
| | 28 | % | | $ | 180,956 |
| | 26 | % | | $ | (1,538 | ) | | (1 | )% | | 43 | % |
The average value of the Argentine peso during 2013 depreciated relative to the U.S. dollar by 20% compared to the same period in 2012. As a result, the components of Nextel Argentina's results of operations for 2013 after translation into U.S. dollars reflect lower U.S. dollar-denominated revenues and expenses than would have occurred if the Argentine peso had not depreciated relative to the U.S. dollar.
Nextel Argentina's segment earnings decreased $1.5 million, or 1%, on a reported basis in 2013 compared to 2012 primarily as the result of a $48.8 million, or 7%, decrease in operating revenues caused by the impact of the decrease in value of the Argentine peso compared to the U.S. dollar during 2013, partially offset by a corresponding $47.2 million decrease in operating expenses that was also driven primarily by the decrease in value of the Argentine peso. On a constant currency basis, Nextel Argentina's segment earnings increased 43% in 2013 compared to 2012, primarily as a result of a 15% increase in Nextel Argentina's subscriber base from 2012 to 2013.
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| | | | | | | | | | | | | | |
| | Year Ended December 31, 2013 | | Year Ended
December 31, 2012 | | Change from Previous Year |
| | | | Dollars | | Percent |
| | (dollars in thousands) |
| Operating revenues | |
| | |
| | |
| | |
|
| Service and other revenues | $ | 42 |
| | $ | — |
| | $ | 42 |
| | NM |
|
| Selling and marketing expenses | 11,831 |
| | 38,395 |
| | (26,564 | ) | | (69 | )% |
| General and administrative expenses | 169,813 |
| | 259,057 |
| | (89,244 | ) | | (34 | )% |
| Segment losses | $ | (181,602 | ) | | $ | (297,452 | ) | | $ | 115,850 |
| | (39 | )% |
Segment losses decreased $115.9 million, or 39%, in 2013 compared to 2012 primarily due to a $89.2 million, or 34%, decrease in general and administrative expenses. This decrease in general and administrative expenses was largely the result of a $32.4 million, or 24%, decrease in consulting and other outside service costs, a $35.3 million, or 55%, decrease in information technology costs, a decrease in payroll expenses, and a decrease in stock-based compensation expense.
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| C. | Liquidity and Capital Resources |
We derive our liquidity and capital resources primarily from a combination of cash flows from our operations and cash we raise in connection with external financings and asset sales. As of December 31, 2014,2015, we had a working capital which is defined as total current assets less total current liabilities,deficit of $4.0$170.6 million a $1,457.6 million decrease compared to a working capital deficit of $1,461.6$40.7 million as of December 31, 2013. The decrease in our working capital was the result of cash used in our operations, as well as the reclassification of the balances of our local bank loans and our equipment financing facility in Brazil as current liabilities in our consolidated balance sheet.2014. As of December 31, 2014,2015, our working capital included $573.6$342.2 million in cash and cash equivalents, of which $12.3$3.7 million was held by Nextel Brazil $153.9 million was held by Nextel Mexico, $85.5 million was held by Nextel Argentinain Brazilian reais, and $175.2 million was held by NIIT. As of December 31, 2014, $223.2 million of our cash and cash equivalents was held in currencies other than U.S. dollars, with 66% of that amount held in Mexican pesos and 28% of that amount held in Argentine pesos. The majority of the cash and cash equivalents held in Argentina is denominated in Argentine pesos and remains subject to Argentina’s foreign currency controls and to fluctuations in foreign currency exchange rates. Due to these restrictions, cash and investments held by Nextel Argentina are not available to our holding company or our subsidiaries located outside of Argentina. As of December 31, 2014, our working capital also included $153.6$84.3 million in short-term investments, the majority of which was held in Brazilian reais. In addition, as of December 31, 2014,2015, we pledged $119.7had $141.7 million asof cash collateral to securesecuring certain performance bonds relating to our obligations to deploy our spectrum in Brazil, of which we recorded $94.2 million as a component of other assets and the remaining $47.5 million of which we recorded as long-terma component of prepaid expenses and other assets in our consolidated balance sheet. As of December 31, 2015, we also had $226.9 million in cash held in escrow in connection with the sales of Nextel Argentina, Nextel Mexico and Nextel Peru and $54.3 million in judicial deposits in Brazil, all of which we classified as restricted cash.
A substantial portion of our U.S. dollar-denominated cash, and cash equivalents and short-term investments is held in money market funds, bank deposits and U.S. treasury securities, and our cash, cash equivalents and short-term investments held in local currenciesBrazilian reais are typically maintained in a combination of money market funds, highly liquid overnight securities and fixed income investments. The values of our cash, cash equivalents and short-term investments that are held in the local currencies of the countries in which we do businessBrazilian reais will fluctuate in U.S. dollars based on changes in the exchange ratesrate of these local currenciesthe Brazilian real relative to the U.S. dollar. Our current sources of funding include our cash, cash equivalent and short-term investment balances. Pursuant to our Chapter 11 filing, our uses of cash are subject to review and approval by the Bankruptcy Court.
Cash Flows
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | Change from 2013 to 2014 | | Change from 2012 to 2013 |
| | 2014 | | 2013 | | 2012 | | |
| | (in thousands) |
| Cash and cash equivalents, beginning of year | $ | 1,730,335 |
| | $ | 1,364,953 |
| | $ | 2,282,155 |
| | $ | 365,382 |
| | $ | (917,202 | ) |
| Net cash (used in) provided by operating activities | (628,716 | ) | | (192,451 | ) | | 353,183 |
| | (436,265 | ) | | (545,634 | ) |
| Net cash used in investing activities | (347,538 | ) | | (177,612 | ) | | (1,055,160 | ) | | (169,926 | ) | | 877,548 |
|
| Net cash (used in) provided by financing activities | (128,272 | ) | | 776,591 |
| | (238,295 | ) | | (904,863 | ) | | 1,014,886 |
|
Effect of exchange rate changes on cash and cash equivalents | (55,657 | ) | | (56,236 | ) | | 844 |
| | 579 |
| | (57,080 | ) |
| Change in cash and cash equivalents related to discontinued operations | 3,448 |
| | 15,090 |
| | 22,226 |
| | (11,642 | ) | | (7,136 | ) |
| Cash and cash equivalents, end of year | $ | 573,600 |
| | $ | 1,730,335 |
| | $ | 1,364,953 |
| | $ | (1,156,735 | ) | | $ | 365,382 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | Six Months Ended December 31, | | | Six Months Ended June 30, | | Combined Year Ended December 31, | | Year Ended December 31, |
| | 2015 | | | 2015 | | 2015 | | 2014 | | 2013 |
| | (in thousands) |
| Cash and cash equivalents, beginning of period | 423,135 |
| | | 334,194 |
| | 334,194 |
| | 1,147,682 |
| | 1,070,301 |
|
| Net cash used in operating activities | (78,485 | ) | | | (254,757 | ) | | (333,242 | ) | | (628,716 | ) | | (192,465 | ) |
| Net cash (used in) provided by investing activities | (976 | ) | | | 1,027,821 |
| | 1,026,845 |
| | (347,538 | ) | | (177,612 | ) |
| Net cash (used in) provided by financing activities | (25,068 | ) | | | (778,231 | ) | | (803,299 | ) | | (128,272 | ) | | 776,605 |
|
| Effect of exchange rate changes on cash and cash equivalents | 916 |
| | | (9,152 | ) | | (8,236 | ) | | (55,657 | ) | | (56,236 | ) |
| Change in cash and cash equivalents related to discontinued operations | 22,662 |
| | | 103,260 |
| | 125,922 |
| | 346,695 |
| | (272,911 | ) |
| Cash and cash equivalents, end of period | $ | 342,184 |
| | | $ | 423,135 |
| | $ | 342,184 |
| | $ | 334,194 |
| | $ | 1,147,682 |
|
The following is a discussion of the primary sources and uses of cash in our operating, investing and financing activities.
We used $78.5 million and $254.8 million of cash in our operating activities during the six months ended December 31, 2015 and June 30, 2015, respectively, primarily to fund operating losses. We used $176.3 million less cash during the six months ended December 31, 2015 compared to the six months ended June 30, 2015 primarily as a result of lower operating losses in Brazil and cash conservation efforts both in Brazil and at the corporate level. We used $628.7 million of cash in our operating activities during 2014, a $436.3 million increase from 2013, primarily due to increased operating losses and a $125.5 millionthe prepayment of certain costs associated with our roaming arrangements with Telefonicaarrangement in Brazil and Mexico. Brazil.
We used $192.5$1.0 million of cash in our operatinginvesting activities during 2013, a $545.6 million, or 154%, change from the net cash provided by operating activities in 2012,six months ended December 31, 2015, primarily due to increased operating losses$76.6 million in cash capital expenditures and higher interest expense related$50.5 million in deposits to secure certain performance bonds relating to our obligations to deploy spectrum in Brazil, offset by net cash proceeds of $153.8 million that we received in connection with the sale of Nextel Argentina (excluding $18.1 million of U.S. treasury notes received as part of the proceeds). Our investing activities provided us with $1,027.8 million in cash during the six months ended June 30, 2015, primarily due to the senior notessale of Nextel Mexico for which we issuedreceived net proceeds of $1.448 billion, including $187.5 million in 2013.
cash deposited in escrow. The net proceeds from the sale of Nextel Mexico were partially offset by $88.5 million in cash capital expenditures and $20.0 million in deposits to secure certain performance bonds relating to our obligations to deploy spectrum in Brazil.
We used $347.5 million of cash in our investing activities during 2014, primarily due to $612.2$372.7 million in cash used by our discontinued operations, $326.2 million in cash capital expenditures and $119.7 million in deposits to secure certain performance bonds relating to our obligationsobligation to deploy our spectrum in Brazil, partially offset by $454.5 million in net proceeds received from maturities of our short-term investments in Brazil and at the corporate level. We used $177.6 million of cash in our investing activities during 2013, primarily due to $620.9 million in cash capital expenditures, $417.6 million in net purchases of investments, $52.9 million in fees related to placing new transmitter and receiver sites into service in Brazil and $39.4 million related to changes in restricted cash, partially offset by $721.4 million in proceeds from the sale of towers and $355.5 million in proceeds from the sale of Nextel Peru. We used $1,055.2 million of cash in our investing activities during 2012, primarily driven by $953.9 million in cash capital expenditures, partially offset by $134.9$499.2 million in net proceeds received from maturities of our short-term investments in Brazil and at the corporate level.
We used $177.6 million of cash in our investing activities during 2013, primarily due to $387.3 million in cash capital expenditures, $417.6 million in net purchases of investments, $52.4 million in fees related to placing new transmitter and receiver sites into service in Brazil and $26.3 million related to changes in restricted cash, partially offset by $346.0 million in proceeds from the sale of towers in Brazil and $355.5 million in proceeds from the sale of Nextel Peru.
We used $25.1 million of cash in our financing activities during the six months ended December 31, 2015, largely due to a principal repayment under Nextel Brazil's equipment financing facility. We used $778.2 million of cash in our financing activities during the six months ended June 30, 2015, largely due to $745.2 million of cash distributions paid in settlement of certain claims in connection with our emergence from Chapter 11.
We used $128.3 million of cash in our financing activities during 2014, largely due to $142.2$107.1 million in repayments of bank loans, capital leases and other borrowings, partially offset by $14.6 million in borrowings under ourNextel Brazil's equipment financing facilitiesfacility and other borrowings.
Our financing activities provided us with $776.6 million of cash during 2013, primarily due to $900.0 million in gross proceeds we received from the issuance of our 11.375% senior notes in February 2013 and April 2013 and $700.0 million in gross
proceeds we received from the issuance of our 7.875% senior notes in May 2013, partially offset by $686.7$362.7 million used to repay our bank loan in Mexico and one of our bank loans in Brazil and $37.4 million to repay our import financing loans in Brazil. We used $238.3 million of cash in our financing activities during 2012, primarily due to the principal repayment of $97.4 million under our syndicated loan facility in Brazil, and the repayment of $212.8 million face amount of our 3.125% convertible notes in the U.S., partially offset by $212.8 million in borrowings under a Brazilian real-denominated loan agreement.
| |
| D. | Future Capital Needs and Resources |
Over the course of the last several years, our results of operations, including our operating revenues and operating cash flows, have been negatively affected by a number of factors, including significant deterioration in economic conditions in Brazil, increased competitive pressure, across all of our markets, the overall depreciation of the value of local currenciesthe Brazilian real relative to the U.S. dollar and the impact of previous delays in the deployment and launch of services on our WCDMA networks, which combined with competitive conditions to slow the pace ofnetwork in Brazil. These and other factors resulted in a reduction in our subscriber growth and revenues on those networks, andat a time when our costs reflected the increased costs to supportoperation of both of our networks. Thesenetworks and other factors had a significant negative impact on our results and as a result, we ended 2014 with a significantly smaller subscriber andour ability to grow our revenue base than was necessaryto a level sufficient to reach the scale required to generate positive operating income.
As ofa result, of the factors described above,in 2014, we areconcluded that we were not currently able to maintain sufficient liquidity to support our business plan and repay our debts when they come due. As a result, ondue, including $4.35 billion of senior notes issued by NIIT and NII Capital Corp. On September 15, 2014, NII Holdings, Inc.we and eight of itsour U.S. and Luxembourg-domiciled subsidiaries, including NII Capital Corp. and Nextel International Telecom, S.C.A, or NIIT, filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code, which we refer to as Chapter 11, in the United States Bankruptcy Court for the Southern District of New York, which we refer to as the Bankruptcy Court. Since
September 15, 2014, five additional subsidiaries of NII Holdings, Inc. have filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy Court, with fourCourt. Subsequent to September 15, 2014, five additional subsidiaries filing on October 8, 2014 and one subsidiary filing on January 25, 2015. The entities that have filed voluntary petitions seeking relief under Chapter 11 which wein the Bankruptcy Court.
On June 19, 2015, the Bankruptcy Court entered an order approving and confirming the First Amended Joint Plan of Reorganization Proposed by the Plan Debtors and the Official Committee of Unsecured Creditors, dated April 20, 2015. We refer to collectivelythis plan, as amended, as the debtors, continue to operate as "debtors-in-possession" underPlan of Reorganization. On June 26, 2015, the jurisdictionconditions of the Bankruptcy CourtCourt's order and in accordance with the applicable provisionsPlan of Reorganization were satisfied, the Bankruptcy CodePlan of Reorganization became effective, and orders ofwe and the Bankruptcy Court. Ourother Debtors emerged from the Chapter 11 proceedings. Nextel Brazil and our previous other operating subsidiaries in Brazil, Mexico and Argentina areLatin America were not debtorsDebtors in the Chapter 11 cases.
The circumstances leading See Note 2 to our decision to seek relief under Chapter 11, including those described above and their impact on our business, including on our liquidity, andconsolidated financial statements for more information regarding the uncertainties associated with the Chapter 11 process, in combination with the potential impact of our failure to satisfy certain financial covenants under our existing debt obligations, raise substantial doubt about our ability to continue as a going concern. See "— B. Resultsthe implementation of Operations — Business Update"and "— Future Outlook and Liquidity Plans" for further information.the Plan of Reorganization.
On January 26,April 30, 2015, NII Holdings, Inc. and certainwe completed the sale of its subsidiaries entered into a purchase and sale agreement withour operations in Mexico to an indirect subsidiary of AT&T for the&T. The transaction was structured as a sale of all the outstanding stock of Nextel Mexico. The purchase agreement providesMexico for a purchase price of $1.875 billion, including $187.5 million deposited in cash, lessescrow to satisfy potential indemnification claims. The net proceeds of the sale were $1.448 billion, after deducting Nextel Mexico's outstanding debt,indebtedness net of its cash balances, on the closing date and subject toapplying other specified purchase price adjustments. CompletionWe also used a portion of the transaction is subjectnet proceeds from the sale of Nextel Mexico to repay all outstanding principal and interest under a numberdebtor-in-possession loan agreement we entered into during our Chapter 11 proceedings and to fund distributions to specified creditors pursuant to our Plan of conditions, includingReorganization.
On September 11, 2015, two of our indirect subsidiaries entered into a binding agreement with Grupo Clarin relating to the approvalsale of all of the Bankruptcy Courtoutstanding equity interests of Nextel Argentina. This agreement provided for aggregate cash consideration of $178.0 million, of which $159.0 million was paid at signing in connection with the transfer of a 49% equity interest in Nextel Argentina and the grant of a call option that allowed Grupo Clarin or any of its affiliates to acquire the remaining 51% equity interest in Nextel Argentina upon receipt of required approvals from the regulatory approvals.authorities in Argentina. The remaining cash consideration was received in October 2015, including $6.0 million deposited in escrow to satisfy potential indemnification claims. On January 27, 2016, the agreement was amended to permit Grupo Clarin or any of its affiliates to exercise the right to acquire the remaining 51% equity interest prior to receiving regulatory approval, and Grupo Clarin and its affiliate immediately acquired the remaining 51% of Nextel Argentina for no additional proceeds.
We plan to use the proceeds received from the sale of Nextel Argentina, as well as the remaining net proceeds from the sale of Nextel Mexico, to fund our operations in Brazil.
Capital Resources. Our ongoing capital resources depend on a variety of factors, including our existing cash, cash equivalents and investment balances, cash flows generated by our operating companies,activities, cash that we recover from the amounts held in escrow to secure our indemnification obligations in connection with the sales of Nextel Argentina, Nextel Mexico and Nextel Peru, the return of cash pledged as collateral to secure certain performance bonds relating to our obligations to deploy our spectrum in Brazil, external financial sources, the availability of debtor-in-possession financing while our Chapter 11 cases are pending and other financing after we emerge from Chapter 11,arrangements and the availability of cash proceeds from the sale of assets, including from the proposed sale of Nextel Mexico.assets.
Our ability to generate sufficient net cash from our operating activities in the future is dependent upon, among other things:
the amount of revenue we are able to generate and collect from our subscribers, including our ability to increase the size of our subscriber base;
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 subscribers; and
changes in foreign currency exchange rates.
Due to the combined impact of our filing for Chapter 11 protection, our recent and projected results of operations and other factors, we expect our access to the capital markets in the near term is expected tomay be limited to debtor-in-possession financing. We plan to secure $350.0 million in bridge loan financing contemplated by the Revised PSA and to seek the Bankruptcy Court's approval of that financing in order to fund our business plan while our Chapter 11 cases are pending. In addition, we plan to repay any amounts borrowed with a portion of the proceeds expected to be received from the proposed sale of Nextel Mexico. Our access to debtor-in-possession financing will be subject to the approval of the Bankruptcy Court.limited. See "— Future Outlook and Liquidity Plans" for more information.
Capital Needs Contingencies and Contractual Obligations. We currently anticipate that our future capital needs will principally consist of funds required for:
operating expenses and capital expenditures relating to our existing networksnetwork and the planned deployment of LTE upgrades;in other commercial areas in Brazil;
payments in connection with spectrum purchases, including ongoing spectrum license fees;
debt service requirements;
obligations relating to our tower financing arrangements and capital lease obligations;
cash taxes; and
other general corporate expenditures.
Brazilian Contingencies. Nextel Brazil has received various assessment notices from state and federal Brazilian authorities asserting deficiencies in payments related primarily to value-added taxes, excise taxes on imported equipment and other non-income based taxes. Nextel Brazil has filed various administrative and legal petitions disputing these assessments. In some cases,
Nextel Brazil has received favorable decisions, which are currently being appealed by the respective governmental authority. In other cases, Nextel Brazil's petitions have been denied, and Nextel Brazil is currently appealing those decisions. Nextel Brazil also had contingencies related to certain regulatory, civil and labor-related matters as of December 31, 2014 and 2013.
As of December 31, 2014 and 2013, Nextel Brazil had accrued liabilities of $69.7 million and $70.9 million, respectively, related to contingencies, all of which were classified in accrued contingencies reported as a component of other long-term liabilities, of which $8.0 million and $11.2 million related to unasserted claims, respectively. We currently estimate the reasonably possible losses related to matters for which Nextel Brazil has not accrued liabilities, as they are not deemed probable, to be approximately $430.0 million as of December 31, 2014. We continually evaluate the likelihood of probable and reasonably possible losses, if any, related to all known contingencies. As a result, future increases or decreases to our accrued liabilities may be necessary and will be recorded in the period when such amounts are determined to be probable and reasonably estimable.
Contractual Obligations. The following table sets forth the amounts and timing of contractual payments for our most significant contractual obligations determined as of December 31, 2014. The amounts included in the table below exclude liabilities subject to compromise. See Note 2 to our consolidated financial statements for more information.2015. The information included in the table below reflects future unconditional payments and is based upon, among other things, the current terms of the relevant agreements and certain assumptions, such as future interest rates. Most of the amounts included in the table below will be settled in local currencies.Brazilian reais. Future events could cause actual payments to differ significantly from these amounts. The table below does not include approximately $116.7 million that Nextel Brazil is committed to pay for spectrum for which it was the successful bidder in December 2015. Nextel Brazil is committed to pay 10% of the total acquisition price on the date the license agreement is signed. See “Forward-Looking and Cautionary Statements.”
|
| | | | | | | | | | | | | | | | | | | |
| | Payments due by Period |
| | Less than | | | | | | More than | | |
| Contractual Obligations | 1 Year | | 1-3 Years | | 3-5 Years | | 5 Years | | Total |
| | (in thousands) |
| Purchase obligations (1) | $ | 1,586,205 |
| | $ | 621,960 |
| | $ | 268,501 |
| | $ | — |
| | $ | 2,476,666 |
|
| Capital leases and tower financing obligations (2) | 166,655 |
| | 339,192 |
| | 258,855 |
| | 1,581,487 |
| | 2,346,189 |
|
| Operating leases (3) | 219,767 |
| | 414,771 |
| | 304,984 |
| | 1,025,445 |
| | 1,964,967 |
|
| Spectrum fees (4) | 130,091 |
| | 257,254 |
| | 257,254 |
| | 1,119,874 |
| | 1,764,473 |
|
| Equipment financing (5) | 432,272 |
| | 137,269 |
| | 126,692 |
| | 110,774 |
| | 807,007 |
|
| Bank loans (6) | 389,610 |
| | 72,222 |
| | 9,858 |
| | — |
| | 471,690 |
|
| Other long-term obligations (7) | 13,087 |
| | 14,806 |
| | 16,605 |
| | 798,276 |
| | 842,774 |
|
| Total contractual commitments | $ | 2,937,687 |
| | $ | 1,857,474 |
| | $ | 1,242,749 |
| | $ | 4,635,856 |
| | $ | 10,673,766 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Payments due by Period |
| | Less than | | | | | | More than | | |
| Contractual Obligations | 1 Year | | 1-3 Years | | 3-5 Years | | 5 Years | | Total |
| | (in thousands) |
| Operating leases (1) | $ | 86,931 |
| | $ | 153,661 |
| | $ | 132,461 |
| | $ | 491,101 |
| | $ | 864,154 |
|
| Capital leases and tower financing obligations (2) | 45,410 |
| | 85,504 |
| | 68,829 |
| | 554,348 |
| | 754,091 |
|
| Purchase obligations (3) | 334,018 |
| | 146,716 |
| | 56,046 |
| | — |
| | 536,780 |
|
| Equipment financing (4) | 353,248 |
| | 20,723 |
| | 14,296 |
| | 5,755 |
| | 394,022 |
|
| Bank loans (5) | 275,536 |
| | 42,087 |
| | 3,481 |
| | — |
| | 321,104 |
|
| Other long-term obligations (6) | 3,987 |
| | 6,689 |
| | 3,486 |
| | 303,740 |
| | 317,902 |
|
| Total contractual commitments | $ | 1,099,130 |
| | $ | 455,380 |
| | $ | 278,599 |
| | $ | 1,354,944 |
| | $ | 3,188,053 |
|
| |
| (1) | These amounts principally include maximum contractual purchase obligations under various agreements withfuture lease costs related to our vendors.transmitter and receiver sites and switches, as well as our office facilities. |
| |
| (2) | These amounts represent principal and interest payments due under our co-location agreements, our tower financing arrangements and our sale of towers in Brazil and Mexico in 2013.2013, which are guaranteed by NIIT. |
| |
| (3) | These amounts principally include future lease costs related tomaximum contractual purchase obligations under various agreements with our transmitter and receiver sites and switches and office facilities.vendors. |
| |
| (4) | These amounts are subject to increases in the Mexican Consumer Pricing Index. |
| |
(5) | These amounts include a loan agreementsagreement with the China Development Bank in Brazil and Mexico to finance infrastructure equipment, and assist in the deployment of the WCDMA networks in these markets.which is guaranteed by NII Holdings. These amounts also include future interest payments to which we are contractually obligated in the periods in which they are due. Because of certain cross-default provisions included in Brazil'sthis loan agreement, we classified the principal amount outstanding under this facility as due in less than one year. |
| |
(6)(5) | These amounts represent principal and interest payments associated with our local bank loans in Brazil and include future interest payments to which we are contractually obligated in the periods in which they are due. Because it is unlikely that we will be able to satisfy the applicable financial covenant in both of Nextel Brazil's noncompliance with certain financial covenants atlocal bank loan agreements as of the December 31June 30, 2016 measurement date, we classified the principal amounts outstanding under these local bank loans as due in less than one year. |
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(7)(6) | These amounts include our current estimates of asset retirement obligations based on our expectations as to future retirement costs, inflation rates and timing of retirements, as well as amounts related to our uncertain income tax positions. |
Capital Expenditures. Our capital expenditures, including capitalized interest, were $428.4$72.6 million for 2014 and $872.1the six months ended December 31, 2015, $69.2 million for 2013. In light of the liquidity issues we face, wesix months ended June 30, 2015 and $233.4 million for the year ended December 31, 2014. We have reduced our investments in capital expenditures, including making substantial reductions to our investments in network development and deployment efforts.deployment. We expect these efforts to conserve our cash resources to continue.
Our capital spending and related expenses are expected to be driven by several factors, including:
the amount we spend to enhance our WCDMA networksnetwork in Brazil and deploy our planned LTE upgrades;upgrade;
the extent to which we expand the coverage of our networksnetwork in new or existing market areas;
the number of additional transmitter and receiver sites we build in order to increase system capacity, maintain system quality and meet our regulatory requirements, as well as the costs associated with the installation of network infrastructure and switching equipment; and
the costs we incur in connection with non-network related information technology projects.
Our future capital expenditures may also be affected by future technology improvements, technology choices and our available capital.
Maintenance Covenants Under Financing Agreements. As of the December 31, 2014 measurement date, we were not in compliance with the net debt financial covenant included in each of Nextel Brazil's outstanding local bank loans. As a result, we classified these bank loans as current liabilities in our consolidated balance sheet as of December 31, 2014. As of December 31, 2015, we had $233.8 million principal amount outstanding under Nextel Brazil's local bank loans. As discussed in more detail in Note 1 and Note 7 to our consolidated financial statements, we are required to meet a net debt financial covenant included in the local bank loan agreements that will apply semiannually beginning on June 30, 2016. Based on our current business plan, we believe that it is unlikely that we will satisfy the applicable financial covenant at the June 30, 2016 measurement date. If we are unable to develop or implement changes to our business that allow us to meet this covenant, we will need to refinance or negotiate amendments to these financing arrangements or secure waivers from the lenders in order to avoid a potential default under the loan agreements. If a default occurs, the lenders could require us to repay the amounts outstanding under these arrangements. As a result of this uncertainty, we have continued to classify the amounts outstanding under Nextel Brazil's local bank loans as current liabilities in our consolidated balance sheet as of December 31, 2015.
In December 2014, Nextel Brazil and the lender under the equipment financing facility agreed to amend this facility to remove all financial covenants beginning with the December 31, 2014 measurement date through the June 30, 2017 measurement date so that the first measurement date under the amended facility will be December 31, 2017. In exchange for that covenant relief, Nextel Brazil granted the lender preferential rights to the amounts held in certain bank accounts. As of December 31, 2015, we had $342.5 million in principal amount outstanding under Nextel Brazil's equipment financing facility. Because of the uncertainty regarding our ability to meet the financial covenant contained in Nextel Brazil's local bank loans discussed above and certain cross-default provisions that are included in the loan agreement under Nextel Brazil's equipment financing facility, we have continued to classify the amount outstanding under this facility as a current liability in our consolidated balance sheet as of December 31, 2015.
Future Outlook and Liquidity Plans. BasedIn connection with our emergence from Chapter 11, we made a number of changes within our senior management team and modified our business plan to reflect our available cash resources and the impact of the current and expected economic and competitive conditions in Brazil on both our subscriber growth and revenues, and to align our costs with this revised outlook. Our current sources of funding are our cash and investment balances and forecasted payment obligations, it will be necessary for usinvestments on hand; the ultimate amount recovered from cash currently held in escrow to raise debtor-in-possession financing by the second quarter of 2015 to ensure we can continue to meet thosesecure our indemnification obligations in connection with the ordinary coursesales of business. We planNextel Argentina, Nextel Mexico and Nextel Peru; the return of cash pledged as collateral to secure $350.0 millioncertain performance bonds relating to our obligations to deploy our spectrum in bridge loan financing contemplated byBrazil; and funds generated from our operations. As of December 31, 2015, assuming the Revised PSAavailability of these funding sources, and if we are successful in making the necessary changes to our business that would remain outstanding in orderare factored into our revised business plan, we expect to provide us with the additionalhave sufficient liquidity necessaryto continue to fund our business for about two years.
If we do not meet the results in our revised business plan, untilor if anticipated funding sources are not available to us, including the salerelease of Nextel Mexicocash held in escrow, it is completed.likely that we would need to obtain additional funding in the next twelve to eighteen months. We expectbelieve that the uncertainties relating to use a portion of the proceeds from the sale of Nextel Mexico to repay this debtor-in-possession loan and support our business, plan going forward.
Our current circumstances, together with the restrictions in our current financing arrangements and/orand general conditions in the financial and credit markets, would be expected tomay make it difficultchallenging for us to obtain funding for our business either before or after we emerge from Chapter 11 pursuant to a confirmed plan of reorganization. If available,additional funding. In addition, the cost of any additional funding that we may require, if available, could be both significant and higher than the cost of our existing financing arrangements. Moreover, the debtors' access to additional funding will be subject to the approval of the Bankruptcy Court while our Chapter 11 cases are pending, and we believe that our ability to secure significant additional funding, other than debtor-in-possession financing obtained while we are subject to the Chapter 11 proceedings, will not be available until we emerge from those proceedings. Our inability to obtain suitable financing if and when it is required for these or other reasons could, among other things, negatively impact our results of operations and liquidity and result in our inability to implement our current or future business plans.
Our current business plan assumes that customers will find our services attractive and that we will be able to continue to expand our subscriber base on our WCDMA networks. Our business plan also assumes that we will increase our operating revenues and ultimately generate positive operating cash flows. However, given the factors that have negatively affected our business, the difficulties associated with predicting our ability to overcome these factors and the uncertainty regarding our ability to complete the proposed sale of Nextel Mexico and confirm a plan of reorganization that would allow us to successfully restructure our debt obligations and emerge from the Chapter 11 proceedings, there can be no assurance that we will be able to achieve these results.liquidity.
In making the assessment of our funding needs under our current business plan and the adequacy of our current sources of funding, for 2015, we have considered:
cash and cash equivalents on hand and short-term investments available to fund our operations;
restricted cash currently held in escrow to secure our indemnification obligations in connection with the transactions involving Nextel Argentina, Nextel Mexico and Nextel Peru;
the future return of cash pledged as collateral to secure certain performance bonds relating to our obligations to deploy our spectrum in Brazil;
cash proceeds expected to be received from sales of assets, including from the proposedpotential sale of Nextel Mexico;additional transmitter and receiver sites in Brazil;
expected cash flows from our operations;operation in Brazil;
the cost of purchasing spectrum, the financing available to fund such purchases, and timing of spectrum payments, including ongoing fees for spectrum use;
the anticipated level of capital expenditures required to meet both minimum build-out requirements and our business plans for ourplanned deployment of the WCDMA networks andnetwork in Brazil, as well as our planned deployment of LTE upgrades in certain markets;other commercial areas in Brazil;
our scheduled debt service obligations relating to financing that is not expected to be restructured in the Chapter 11 proceedings and our current expectations regarding the treatment of certain of our debt obligations pursuant to a plan of reorganization that may be confirmed in those proceedings;obligations;
our other contractual obligations;
the costs associated with the Chapter 11 proceedings; and
cash income and other taxes.
In addition to the factors described above, the anticipated cash needs of our business, as well as the conclusions presented herein regarding our liquidity needs, could change significantly:
if we are unable to completebased on the proposed salecontinued development of Nextel Mexico or to confirm a plan of reorganizationour business plans and emerge from the Chapter 11 proceedings;
if our plans change;
if we are not able to satisfy the conditions of the amendments to our equipment financing facilities and other financing agreements that have the effect of waiving certain financial covenants in the existing agreements (see "Maintenance Covenants Under Financing Agreements"below);
strategy;if we decide to expand into new markets or expand our geographic coverage or network capacity in our existing markets beyond our current plans, as a result of the construction of additional portions of our networksnetwork or the acquisition of competitors or others;
if currency values in our marketsBrazil depreciate or appreciate relative to the U.S. dollar in a manner that is more significant than we currently expect and assume as part of our plans;
if economic conditions in any of our markets change;Brazil do not improve;
if competitive practices in the mobile wireless telecommunications industry in our markets changeBrazil changes 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 business.
Maintenance Covenants Under Financing Agreements. We are required to meet certain financial covenants in our equipment financing facilities in Brazil and Mexico and in Brazil's local bank loans semiannually, calculated as of June 30 and December 31 of each year.
As of the June 30, 2014 measurement date, we were not in compliance with certain financial covenants in our equipment financing facilities in Brazil and Mexico. As of December 31, 2014, we had $689.9 million principal amount outstanding under these equipment financing facilities. In December 2014, Nextel Brazil and Nextel Mexico and the lenders under the equipment financing facilities agreed to amendments to those facilities that removed all financial covenants beginning with the December 31, 2014 measurement date and continuing through the June 30, 2017 measurement date. In exchange for covenant relief, Nextel Brazil granted the lender of its equipment financing facility preferential rights to the amounts held in certain bank accounts, and Nextel Mexico's parent company, Nextel International Uruguay, LLC, granted the lender of its equipment financing facility a pledge on the shares it holds in Nextel Mexico. In addition, Nextel Brazil and Nextel Mexico have the option to defer principal amortization payments in exchange for an upfront payment of 17% of the amounts outstanding under the equipment financing facilities on August 31, 2014. As a result of the amendment of our equipment financing facility in Mexico, we classified the principal amount outstanding under this facility as long-term debt in our consolidated balance sheet as of December 31, 2014. Because of certain cross-default provisions included in our equipment financing facility in Brazil, we classified the principal amount outstanding under this facility as a current liability in our consolidated balance sheet as of December 31, 2014. We do not have the ability to borrow additional amounts under these equipment financing facilities.
As of December 31, 2014, we were not in compliance with the net debt financial covenants included in each of Nextel Brazil's outstanding local bank loans. As of December 31, 2014, Nextel Brazil had a total of $343.9 million principal amount outstanding under its bank loans. Because of our noncompliance at the December 31 measurement date, we classified the principal amounts outstanding under these local bank loans as current liabilities in our consolidated balance sheet as of December 31, 2014. In February 2015, Nextel Brazil and the lenders providing the local bank loans entered into standstill agreements under which the lenders agreed that they would not seek remedies under the provisions of the agreements related to Nextel Brazil's failure to satisfy the financial covenants in the loan agreements in the period before September 15, 2015 and that further principal repayment obligations due between the signing date and September 15, 2015 would be suspended. In addition, the standstill agreements formally commit the lenders to sign amendments, which we refer to as the second amendments, once certain conditions are met that implement permanent amendments to the terms of the local bank loans, including with respect to the financial covenants and principal repayment schedule for these loans. Among others, these conditions include:
our emergence from the Chapter 11 proceedings on or prior to September 15, 2015;
the absence of an insolvency event involving Nextel Brazil;
the absence of events of default other than those waived or suspended in the standstill agreements; and
the execution of subordination agreements subordinating any amounts due under intercompany loans between NIIT and Nextel Brazil.
In the event of a breach of one or more of the conditions listed above, the lenders providing the local bank loans have the right to terminate the standstill agreement and exercise all remedies under the agreements in place, including but not limited to declaring an event of default for noncompliance with the financial covenants and/or nonpayment of amounts due under the
repayment schedule. Following the declaration of an event of default, the lenders will have the right to accelerate the loans and proceed with claims against the collateral.
Concurrent with the execution of the standstill agreements, Nextel Brazil and the lenders entered into amendments to the agreements relating to the local bank loans, which we refer to as the first amendments, under which Nextel Brazil granted the lenders a security interest over amounts held at any given time in certain collection accounts maintained with each lender. These first amendments also adjust the interest rates on the loans.
Intercompany Transactions. In the past, we have entered into intercompany loans with some of our subsidiaries for cash management purposes. As of December 31, 2014, these long-term intercompany loans included $2.7 billion principal amount, plus accrued interest, owed by NII Holdings, Inc. to NII Capital Corp. and $644.0 million principal amount, plus accrued interest, owed by NIIT to NII Capital Corp, both of which are considered subject to compromise. These intercompany loans also included $1,123.3 million principal amount, plus accrued interest, owed by Nextel Brazil to NIIT, which is eliminated within the non-guarantor subsidiaries column in the condensed consolidating balance sheets included in Note 17 to our consolidated financial statements. In some instances, these intercompany obligations are subordinated to other third-party obligations of the borrower. We also have intercompany agreements in place to transfer costs and expenses paid by one entity on behalf of others, including intercompany management, royalty and equity recharge agreements. As of December 31, 2014, approximately $71.5 million in intercompany payables were due from our operating companies to NII Holdings, Inc. and one of our corporate subsidiaries pursuant to these agreements.
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| E. | Effect of Inflation and Foreign Currency Exchange |
Our net assets are subject to foreign currency exchange risks since they are primarily maintained in local currencies.Brazilian reais. Additionally, a significant portionsome of our long-termNextel Brazil's debt including some long-term debt incurred by our operating subsidiaries, is denominated entirely in U.S. dollars, which exposes us to foreign currency exchange risks. We conduct business solely in countries in whichBrazil where the rate of inflation has historically been significantly higher than that of the U.S. We seek to protect our earnings from inflation and possible currency depreciation by periodically adjusting the local currency prices charged by each operating companyNextel Brazil for sales of handsets and services to its subscribers. We routinely monitor our foreign currency exposure and the cost effectiveness of hedging instruments.
Inflation is not currently a material factor affecting our business, although rates of inflation in some of the countries in which we operateBrazil have been historically volatile. In the last several years, the inflation rate in Argentina has risen significantly, and we expect that it may continue to rise, which will increase our costs and could reduce our profitability in Argentina. General operating expenses such as salaries, employee benefits and lease costs are, however, subject to normal inflationary pressures. From time to time, we may experience price changes in connection with the purchase of system infrastructure equipment and handsets, but we do not currently believe that any of these price changes will be material to our business.
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| F. | Effect of New Accounting Standards |
OnIn May 28, 2014, the Financial Accounting Standards Board, or the FASB, issued new authoritative guidance surrounding revenue recognition,Accounting Standards Update, or ASU, No. 2014-09, "Revenue from Contracts with Customers," which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new authoritative guidance will replace most existing revenue recognition guidance when it becomes effective. The new standard is effective on January 1, 2017,2018, and early application is not permitted.permitted on January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that the new revenue recognition guidance will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
On April 10, 2014,In November 2015, the FASB issued new authoritative guidance surrounding discontinued operationsASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes," requiring all deferred tax assets and disclosures of components of an entity, which updatesliabilities, and any related valuation allowance, to be classified as noncurrent on the definition of discontinued operations. Going forward only those disposals of components of an entity that represent a strategic shift that hasbalance sheet. The classification change for all deferred taxes as non-current simplifies entities’ processes as it eliminates the need to separately identify the net current and net noncurrent deferred tax asset or will have a major effect on an entity's operationsliability in each jurisdiction and financial results will be reported as discontinued operations in a company's financial statements. The new standard is effective for disposals of components of an entity that occur within annual periods beginning on or after December 15, 2014, andallocate valuation allowances. We early adoption is permitted. We intend to adoptadopted this standard in the firstfourth quarter of 2015 and applied the requirements retroactively to all periods presented. The adoption of this standard resulted in the reclassification of $39.1 million from current deferred tax assets and $0.2 million from noncurrent deferred tax assets to a $39.3 million reduction in noncurrent deferred tax liabilities in our consolidated balance sheet as of December 31, 2014.
In May 2015, the FASB issued ASU No. 2015-07, "Fair Value Measurement: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." This guidance eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value per share practical expedient in the FASB’s fair value measurement guidance. We reviewed this authoritative guidance and have elected to early adopt as of the fourth quarter of 2015. We do not expectapplied the requirements of this guidance retroactively to all periods presented. The adoption of this standard todid not have a material impact on our financial statements.
On August 27, 2014,
In July 2015, the FASB issued new authoritativeASU No. 2015-11, "Simplifying the Measurement of Inventory." This guidance surroundingreplaces the evaluationlower of cost or market test with a lower of cost and disclosuresnet realizable value test, which is intended to simplify the measurement of uncertainties about an entity's ability to continue as a going concern. The new guidance requires management to perform an assessment of going concern and, under certain circumstances, disclose information regarding this assessment in the footnotes to the financial statements. The newinventories. This standard is effective for periods beginning after December 15, 2016. We intend to adoptearly adopted this standard inas of the firstfourth quarter of 2017.2015 and plan to apply the requirements of this guidance prospectively. We do not expect the adoption of this standard to have a material impact on our financial statements.
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| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Our revenues are primarily denominated in foreign currencies,Brazilian reais, while a significant portion of our operations are financed in U.S. dollars. As a result, fluctuations in exchange ratesthe Brazilian real 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.Brazilian real. In addition, Nextel Brazil Nextel Mexico and Nextel Argentina paypays the purchase price for some of its capital assets and a portion of its handsets in U.S. dollars, but generategenerates revenue from theirits operations in local currency.
We occasionally enter into derivative transactions for hedging or risk management purposes. We have not and will not enter into any derivative transactions for speculative or profit generating purposes. During the six months ended December 31, 2015, the six months ended June 30, 2015 and the years ended December 31, 2014 and 2013, Nextel Brazil and Nextel Mexico entered into hedge agreements to manage foreign currency risk on certain forecasted transactions. The fair values of these instruments are not material.
Interest rate changes expose our fixed rate long-term borrowings to changes in fair value and expose our variable rate long-term borrowings to changes in future cash flows. As of December 31, 2014, $479.1 million, or 32%,2015, approximately 13% of our consolidated principal amount of debt that was not classified as liabilities subject to compromise was fixed rate debt, and the remaining $1,033.3 million, or 68%,87% of our total consolidated debt was variable rate debt.
The table below presents projected principal amounts, related interest rates by year of maturity and aggregate amounts as of December 31, 20142015 for both our fixed and variable rate debt obligations, including our equipment financing facilities in Brazil and Mexico, our bank loans in Brazil and our tower financing obligations, all of which have been determined at their fair values. See Note 2 to our consolidated financial statements for more information. Because it is unlikely that we were unable towill meet the applicable financial covenantscovenant included in ourboth of Brazil's local bank loans in Brazil as of the complianceJune 30, 2016 measurement date, on December 31, 2014 and because of the associated cross-default provisions included in Brazil's equipment financing facility, we classified the principal amounts outstanding under these facilities as current liabilities in our consolidated balance sheet as of December 31, 2014.
2015. The changes in the fair values of our consolidated debt obligations compared to their fair values as of December 31, 20132014 reflect changes in applicable market conditions and changes in other company-specific conditions during 2014.2015, including changes resulting from the implementation of fresh start accounting in connection with our emergence from Chapter 11. In addition, the interest rates presented below reflect the impact of the implementation of fresh start accounting on our tower financing obligations. All of the information in the table is presented in U.S. dollar equivalents, which is our reporting currency. The actual cash flows associated with our consolidated long-term debt obligations are denominated in U.S. dollars (US$), Mexican pesos (MP) and Brazilian reais (BR).
| | | | Year of Maturity | | 2014 | | 2013 | Successor Company | | | Predecessor Company |
| | 1 Year | | 2 Years | | 3 Years | | 4 Years | | 5 Years | | Thereafter | | Total | | Fair Value | | Total | | Fair Value | Year of Maturity | | 2015 | | | 2014 |
| | | | | | | | | | (dollars in thousands) | | | | | | | | | 1 Year | | 2 Years | | 3 Years | | 4 Years | | 5 Years | | Thereafter | | Total | | Fair Value | | | Total | | Fair Value |
| Fixed Rate (US$) | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4,385,758 |
| | $ | 2,535,078 |
| |
| Average Interest Rate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | | | 9.0 | % | | | |
| Fixed Rate (MP) | $ | 14,001 |
| | $ | 16,703 |
| | $ | 19,982 |
| | $ | 14,548 |
| | $ | 13,668 |
| | $ | 185,228 |
| | $ | 264,130 |
| | $ | 264,130 |
| | $ | 194,227 |
| | $ | 194,227 |
| |
| Average Interest Rate | 18.1 | % | | 18.1 | % | | 18.2 | % | | 19.6 | % | | 20.5 | % | | 17.1 | % | | 17.6 | % | | | | 12.8 | % | | | |
| | | | | | | | | | | (dollars in thousands) | | | | | | | | | |
| Fixed Rate (BR) | $ | 7,141 |
| | $ | 8,531 |
| | $ | 10,890 |
| | $ | 6,726 |
| | $ | 2,527 |
| | $ | 179,169 |
| | $ | 214,984 |
| | $ | 214,984 |
| | $ | 126,693 |
| | $ | 126,693 |
| $ | 689 |
| | $ | 3,651 |
| | $ | 3,637 |
| | $ | 991 |
| | $ | 1,661 |
| | $ | 74,426 |
| | $ | 85,055 |
| | $ | 85,055 |
| | | $ | 214,984 |
| | $ | 214,984 |
|
| Average Interest Rate | 22.9 | % | | 24.7 | % | | 25.0 | % | | 25.5 | % | | 26.0 | % | | 17.0 | % | | 18.3 | % | | | | 19.0 | % | | | 82.6 | % | | 96.6 | % | | 99.2 | % | | 110.6 | % | | 91.4 | % | | 71.3 | % | | 74.5 | % | | | | | 18.3 | % | | |
| Variable Rate (US$) | $ | 413,079 |
| | $ | 46,142 |
| | $ | 46,142 |
| | $ | 46,142 |
| | $ | 46,142 |
| | $ | 92,283 |
| | $ | 689,930 |
| | $ | 620,125 |
| | $ | 653,559 |
| | $ | 620,173 |
| $ | 342,475 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 342,475 |
| | $ | 340,189 |
| | | $ | 366,937 |
| | $ | 337,295 |
|
| Average Interest Rate | 3.1 | % | | 3.1 | % | | 3.1 | % | | 3.1 | % | | 3.1 | % | | 3.1 | % | | 3.1 | % | | | | 3.1 | % | | | 3.0 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | 3.0 | % | | | | | 3.2 | % | | |
| Variable Rate (BR) | $ | 343,348 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 343,348 |
| | $ | 273,832 |
| | $ | 443,951 |
| | $ | 369,578 |
| $ | 233,559 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 233,559 |
| | $ | 228,606 |
| | | $ | 343,348 |
| | $ | 273,832 |
|
| Average Interest Rate | 13.3 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | 13.3 | % | | | | 11.3 | % | | | 19.7 | % | | — |
| | — |
| | — |
| | — |
| | — |
| | 19.7 | % | | | | | 13.3 | % | | |
| |
| Item 8. | Financial Statements and Supplementary Data |
We have listed the consolidated financial statements required under this Item in Part IV, Item 15(a)(1) of this annual report on Form 10-K. We have also listed the financial statement schedules required under Regulation S-X in Part IV, Item 15(a)(2) of this annual report on Form 10-K. The financial statements and schedules appear following the signature page of this annual report on Form 10-K.
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
| |
| Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to the Company's management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
As of December 31, 2014,2015, 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,Brazil, including our chief executive officer and chief financial officer. Based on and as of the date of such evaluation, our chief executive officer and chief financial officer concluded that the design and operation of our disclosure controls and procedures were not effective due to thea material weakness in the Company's internal control over financial reporting in its Brazil, segment, as described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, that creates a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934, as amended). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In order to evaluate the effectiveness of internal control over financial reporting, management conducted an assessment using the criteria established in Internal Control - Integrated Framework (1992)(2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on this assessment, management identified a material weakness in the Company’s internal controls. As a result, management has concluded that as of December 31, 2014,2015, our internal control over financial reporting was not effective.
A
The material weakness is a deficiency, or a combination ofrelates to certain deficiencies in internalNextel Brazil’s control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. As a result of theenvironment and risk assessment processes. The material weakness discussed below, management has concluded that as of December 31, 2014, our internal control over financial reporting was not effective.
As part of its evaluation of internal control over financial reporting as described above, management concluded thatinitially disclosed during the quarter ended September 30, 2014. Nextel Brazil failed todid not establish an effective control environment and monitoring activities, including an organizational structure with sufficiently trained resources where supervisory roles, responsibilities and monitoring activities arewere aligned with our financial reporting objectives. Further,Subsequently, significant turnover disrupted staffing throughout the organization, particularly within the accounting function, and management had difficulty attracting and retaining employees technically qualified to comply with U.S. GAAP reporting requirements. As described below, management has taken numerous actions since then to improve the control environment, including implementing a new organizational structure and hiring additional accounting professionals. We continue to monitor the maturity of Nextel Brazil did not maintain effective operation ofBrazil’s newly implemented organizational structure and resources.
The material weakness has resulted in multiple deficiencies and significant deficiencies in process level controls, including reconciliationcontrol activities primarily related to accounting for revenue, accounts receivable, bad debt expense and management review controls.
leases. The control deficiencies resulted in immaterial misstatements and were primarily the result of the inappropriate application of U.S. GAAP, the failure to consistently perform account reconciliations and a lack of controls over the completeness and accuracy of data used in Nextel Brazil's accounts. Theaccounting calculations.
These control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis, and therefore we concluded thatbasis. We performed additional procedures to mitigate the impact of these deficiencies in aggregate, represent a material weakness in Nextel Brazil's internal control over financial reporting.
KPMG LLP, an independent registered public accounting firm who audited theon our consolidated financial statements, included in this annual report on Form 10-K, has issued an adverse report on the effectivenessincluding reviews and validations performed by staff at our headquarters office who were not part of the Company's internal control over financial reporting as of December 31, 2014. This attestation report appears on Page F-2 of this annual report on Form 10-K.close process in Brazil.
Plan for Remediation of Nextel Brazil's Material Weakness
In light of Nextel Brazil's material weakness, we performed additional procedures, including reviews and validations by groups other than those performing the financial close procedures in Nextel Brazil, to ensure that our financial results are not materially misstated.
In order to remediate Nextel Brazil's material weakness, the Company, led by our chief financial officer and our principal accountingthe chief financial officer of Nextel Brazil, are implementing and monitoring the following actions in Brazil:
reassessingperiodic evaluations of the newly implemented organizational structure within Nextel Brazil to properly align roles and responsibilities in orderresources to ensure that we have an adequate complement of properly trainedmaintain personnel with appropriate skills and experience;expertise properly suited to our financial reporting objectives;
providingenhancing U.S. GAAP training on the Company's policies and procedures and the Company's system of internal control overinitiatives;
performing a detailed financial reporting including individuals' responsibilities;risk assessment to identify areas that require improvement and developing and implementing plans to address these areas;
improving the documentationaccount reconciliation and operating effectiveness of internal controls over financial reporting;review procedures; and
increasing themaintaining an increased level of involvement and oversight from the corporateour headquarters office until the organizational structurecontrol environment and financial reportingrisk assessment processes in Nextel Brazil have matured.
In addition, as a result of the sale of our other operating segments during 2015, Nextel Brazil now comprises a much larger portion of our Company, increasing the level of precision required to ensure our financial results are stated properly in all material respects.
Changes in Internal Control over Financial Reporting
ThereOther than those discussed above, there have been no changes in the Company's internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
| |
| Item 9B. | Other Information |
None.
PART III
| |
| Item 10. | Directors, Executive Officers of the Registrant and Corporate Governance |
BoardThe information required by this item will be provided by being incorporated herein by reference to the Company’s definitive proxy statement for the 2016 Annual Meeting of Directors
SummaryStockholders, which will be held on May 25, 2016. Stockholder proposals intended for consideration for inclusion in the Company’s definitive proxy statement for the 2016 Annual Meeting of Qualifications. Below is a summaryStockholders must be forwarded in writing and received at the Company’s principal executive offices at 1875 Explorer Street, Suite 800, Reston, Virginia 20190 no later than April 1, 2016, directed to the attention of the qualifications of the members of the Company's Board of Directors (the "Board") that led the Board to conclude that each director is qualified to serve on the Board.
|
| | | | | | | | | |
| Beebe | Guthrie | Herington | Katz | Knoepfelmacher | Parra | Rego Barros | Risner | Shindler |
Senior executive
experience in large, complex
organizations
| * | * | * | | * | * | * | * | * |
Telecommunications experience | | * | * | | * | * | * | * | * |
Diverse experience in multiple
industries
| | | * | * | * | * | | * | |
Experience in our markets or
similar Latin American or
emerging markets
| * | * | * | * | * | * | * | | * |
Service on the board of other
public companies
| * | * | * | * | | * | | * | |
Managerial experience evaluating
risks
| * | * | * | * | * | * | * | * | * |
Experience in financial and capital
markets and strategic transactions
| * | * | * | * | * | | | * | * |
Director Biographies. Set forth below is biographical information of the members of the Board.
Kevin L. Beebe (Chairman, Independent)
President and Chief Executive Officer, 2BPartners, LLC
Director Since: 2010
Mr. Beebe, 55, has been president and chief executive officer of 2BPartners, LLC, a partnership that provides strategic, financial and operational advice to private equity clients, investors and management since November 2007. Previously, he was group president of operations at ALLTEL Corporation, a telecommunications services company, from 1998 to 2007. From 1996 to 1998, Mr. Beebe served as executive vice president of operations for 360° Communications Co., a wireless communications company. Prior to that time, he has held a variety of executive and senior management positions at several divisions and affiliates of Sprint Corporation. Mr. Beebe began his career at AT&T/Southwestern Bell as a Manager. Mr. Beebe also serves as a director for Skyworks Solutions, Inc., a semiconductor and wireless handset chip supplier, and SBA Communications Corporation, a provider of wireless and broadcast infrastructure communications. In addition, Mr. Beebe is a founding partner of Astra Capital, a private equity company based in Washington, D.C.
Donald Guthrie (Independent)
Managing Director, Trilogy Equity Partners
Director Since: 2008
Mr. Guthrie, 59, has served as a managing director of Trilogy Equity Partners, a private investment firm since February 2006. From 1995 to 2005, he served as vice chairman of the Western Wireless Corporation, a wireless communications company, where he also served as chief financial officer from February 1997 to May 1999. From 1995 to 2002, Mr. Guthrie served as vice chairman of VoiceStream Wireless, a wireless communications company, now T-Mobile USA, subsequent to its acquisition by Deutsche Telekom AG. From 1986 to 1995, Mr. Guthrie served as senior vice president and treasurer of McCaw Cellular and, from 1990 to 1995, as senior vice president, finance for LIN Broadcasting.
Charles M. Herington (Independent)
Executive Vice Chair, Zumba Fitness LLC
Director Since: 2003
Mr. Herington, 55, serves as executive vice chair, Zumba Fitness LLC. Previously, Mr. Herington served as president and executive vice president, emerging and developing markets of Avon Products, Inc., a global beauty company, from March 2010
to September 2012 and in other executive positions at Avon Products, Inc., from March 2006 to March 2010 with full business responsibility for Latin America, Central and Eastern Europe, and Asia Pacific. From 1999 to February 2006, he was the president and chief executive officer of AOL Latin America. From 1997 until 1999, he served as president of Revlon America Latina. From 1990 through 1997, he held a variety of executive positions with PepsiCo Restaurants International, and from 1981 through 1990 he lived in three different countries marketing P&G Brands. Mr. Herington currently serves as a director of Molson Coors Brewing Company.
Carolyn F. Katz (Independent)
Executive Chair, Author & Company
Director Since: 2002
Ms. Katz, 53, has served as executive chair of Author & Company, a digital publisher, since 2012. Prior to her service as executive chair of Author & Company, Ms. Katz served on the board of directors of multiple companies. She was also a principal at Providence Equity Partners, a private equity firm specializing in media and telecommunications, from 2000 to 2001. From 1984 to 2000, Ms. Katz worked for Goldman Sachs, an investment bank, most recently as managing director. Ms. Katz currently is a director of American Tower Corporation, a provider of wireless and broadcast communications infrastructure and Vonage Corporation, a cloud-based communications provider.
Ricardo Knoepfelmacher (Independent)
Managing Partner, Angra Partners
Director Since: 2013
Mr. Knoepfelmacher, 48, co-founded Angra Partners, a financial advisory and private equity firm, in 2003 and is currently a managing partner of the firm. Prior to his service as managing partner at Angra Partners, Mr. Knoepfelmacher served as chief executive officer of Brasil Telecom from 2005 to 2009 and chief executive officer of Pegasus Telecom from 2000 to 2002. He also worked for Citibank and McKinsey & Company before starting his first company, MGDK & Associados, a restructuring and consulting firm later sold to Monitor Group. He also serves as director of Vicunha Textil, a Brazilian textile company.
Rosendo G. Parra (Independent)
Partner, Daylight Partners
Director Since: 2008
Mr. Parra, 55, is a retired executive of Dell Inc., an international information technology company, and a founder of Daylight Partners, a technology-focused venture capital firm, where he has been a partner since December 2007. From 1993 until his retirement in 2007, Mr. Parra held various executive and senior management positions at Dell Inc., including senior vice president for the Home and Small Business Group from June 2006 to April 2007 and senior vice president and general manager, Dell Americas from April 2002 until June 2006. Mr. Parra currently serves on the board of directors of Brinker International, Inc. and PG&E Corporation.
John W. Risner (Independent)
Chairman, Accuride Corporation
Director Since: 2002
Mr. Risner, 55, is currently the non-executive chairman of the board of directors of Accuride Corporation, a manufacturer of commercial vehicle components. Previously, Mr. Risner served as president of The Children’s Tumor Foundation, from 2002 until January 2014. From 1997 to 2002, he served as senior vice president - portfolio manager at AIG/SunAmerica Asset Management, a money management firm. Prior to that, Mr. Risner was vice president-senior portfolio manager at Value Line Asset Management, a money management firm where he worked from 2002 to 2007.
Paulino do Rego Barros, Jr. (Independent)
President, International, Equifax Inc.
Director Since: 2012
Mr. Rego Barros, 58, has served as president, international for Equifax Inc. since April 2010. Previously, Mr. Rego Barros was president, PB&C Global Investments, LLC, an international consulting and investment firm, from October 2008 to April 2010 and served in multiple senior leadership positions at AT&T Inc. and BellSouth Corporation (acquired by AT&T in 2006), including president, global operations from January 2007 to October 2008; chief product officer, U.S. Telecommunications Group from January 2005 to January 2007; and president, Bellsouth International, Latin America Operations from January 2004 to January 2005. Mr. Rego Barros has also held senior leadership positions at Motorola, Inc.
Steven M. Shindler (Chief Executive Officer, Non-Independent)
Chief Executive Officer, NII Holdings, Inc.
Director Since: 1997
Mr. Shindler, 52, was appointed the chief executive officer of NII Holdings in May 2013 after serving as interim chief executive officer from December 2012 to May 2013. Mr. Shindler has served as a director on the board of NII Holdings since 1997 and was NII Holdings' chairman of the board from 2002 to May 2013, including serving as executive chairman from February 2008 to July 2012. Prior to his most recent appointment as chief executive officer, Mr. Shindler served as chief executive officer of NII Holdings from 2000 to February 2008. Mr. Shindler also served as executive vice president and chief financial officer of Nextel Communications, Inc. from 1996 until 2000. From 1987 to 1996, Mr. Shindler was an officer with Toronto Dominion Bank, a bank where he was a senior managing director in its communications finance group.
Executive Officers
The following people were serving as our executive officers as of February 28, 2015. These executive officers were elected to serve until their successors are elected. There is no family relationship between any of our executive officers or between any of these officers and any of our directors.
Steven M. Shindler, 52, see biography above under "Board of Directors - Director Biographies".
Gokul Hemmady, 54, is currently the chief operating officer of NII Holdings and president, Nextel Brazil. From June 2012 to June 2013, Mr. Hemmady was the interim president of Nextel Brazil and chief operations officer of NII Holdings. Prior to June 2012, Mr. Hemmady served as executive vice president and chief financial officer. He was also NII Holdings' chief transformation officer from October 2011 through June 2012. From the time he joined NII Holdings in June 2007 to February 2011, Mr. Hemmady served as vice president and chief financial officer. From June 1998 to June 2007, Mr. Hemmady served in various positions with ADC Telecommunications, Inc., a provider of global network infrastructure products and services, including as vice president and chief financial officer from August 2003 through June 2007, as vice president and treasurer from June 1998 through August 2003 and as controller from May 2002 through August 2003. Mr. Hemmady joined ADC as assistant treasurer in October 1997. Prior to 1997, he was employed by U.S. West International, a communications service provider, where he served as director of international finance.
Juan R. Figuereo, 59, is currently the executive vice president, chief financial officer of NII Holdings. Prior to October 2012, Mr. Figuereo served as executive vice president and chief financial officer of Newell Rubbermaid, Inc., a global marketer of consumer and commercial products since 2009. Prior to joining Newell Rubbermaid, Mr. Figuereo served as chief financial officer of Cott Corporation from 2007 to 2009, vice president of mergers and acquisitions for Wal-Mart International from 2003 to 2007 and various international, finance and general management positions at PepsiCo. from 1988 to 2003.
Gary D. Begeman, 56, is currently the executive vice president, general counsel of NII Holdings. Prior to February 2011, Mr. Begeman served as vice president and general counsel since February 2007, having joined NII Holdings as vice president and deputy general counsel in November 2006. From 2005 through 2006, he served as senior vice president and deputy general counsel of Sprint Corporation, and was vice president and deputy general counsel of Nextel Communications, Inc. from 2003 until its merger with Sprint in 2005. From 1999 through 2003, he was senior vice president and general counsel of XO Communications, Inc. From 1997 to 1999, Mr. Begeman was vice president and deputy general counsel of Nextel Communications, Inc. From 1991 until he joined Nextel, Mr. Begeman was a partner with the law firm of Jones, Day, Reavis & Pogue.
Raul Ramirez, 59, is currently the executive vice president, chief technology officer of NII Holdings. From 2003 to 2013, Mr. Ramirez served as the chief technology officer of Nextel Mexico. Prior to 2003, Mr. Ramirez was a technical director with Nextel Mexico. Prior to joining Nextel Mexico in 1998, Mr. Ramirez was a technical director with Motorola for its Latin American operations.
Salvador Alvarez, 49, is currently the president of Nextel Mexico. Prior to July 2014, Mr. Alvarez served as chief executive officer of Maxcom, a fixed line telecommunications company in Mexico, from 2009 to 2013. He also served as chief executive officer of Corporativo Corvi, a holding company for companies engaged in the distribution of groceries and merchandise in Mexico from 2003 to 2008 and served in various leadership roles at ConAgra foods both in Mexico and internationally from 1997 to 2003.
David Truzinski, 56, is currently the executive vice president, chief information officer and chief digital officer of NII Holdings. From January 2012 to December 2013, Mr. Truzinski served as NII Holdings' executive vice president, chief information officer. Prior to January 2012, Mr. Truzinski served as senior vice president and chief information officer at Leap Wireless/Cricket Communications beginning in 2005. Prior to joining Leap Wireless, he was the chief information officer for Cingular/AT&T Wireless' International business. Mr. Truzinski also served as chief technology officer at ClickCollect, Inc. and as chief information officer at Insurancenow.com. From 1989 to 1999, he served in a variety of leadership capacities at AT&T Wireless/Cellular One.
Board Committees
Committee Role and Responsibilities. The Board has the following standing committees: Audit Committee, Compensation Committee, Finance Committee, Nominating and Corporate Governance Committee and Risk Committee. The specific roles and responsibilities of the Board’s committees are delineated in written charters adopted by the Board for each committee. Each member of the Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee are independent in accordance with the Company's Corporate Governance Guidelines, which applies the independence standards included in NASDAQ Stock Market listing rules and the Securities Exchange Act of 1934, as amended.The Company's Corporate Governance Guidelines and each of the charters of the Board's committees are available on the Investor Relations page of our website at: www.nii.com. As provided in their charters, each committee is authorized to engage or consult from time to time, as appropriate, at our expense, with outside independent legal counsel or other experts or advisors it deems necessary, appropriate or advisable to discharge its duties.
Committee Membership. Membership on the Board and each standing committee as of February 28, 2015 and the number of formal meetings and actions of the Board and each standing committee during 2014 was as follows:
|
| | | | | | | |
| Name | | Board | Audit | Compensation | Corporate Governance and Nominating | Finance | Risk |
| Steven M. Shindler | | M | | | | M | M |
| Kevin L. Beebe | I | C | | M | | | C |
| Donald Guthrie | I,A | M | M | | | C | |
| Charles M. Herington | I | M | | C | M | | |
| Carolyn F. Katz | I,A | M | C | | M | M | |
| Ricardo Knoepflemacher | I | M | | | | | |
| Rosendo G. Parra | I | M | | M | C | | |
| Paulino do Rego Barros, Jr. | I | M | | | | | M |
| John W. Risner | I,A | M | M | | | M | |
| TOTAL NUMBER OF MEETINGS IN 2014 | | 44 | 5 | 8 | 1 | 3 | - |
I: Independent A: Audit Committee Financial Expert C: Chair M: Member
In addition, the Board regularly held informal meetings with management during 2014 to discuss the Company's business plan, performance, potential need to restructure the Company's balance sheet, Chapter 11 Bankruptcy proceedings and any other matters presented to the Board.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the Securities and Exchange Commission initial reports of beneficial ownership and reports of changes in beneficial ownership of our equity securities. Based solely upon a review of Forms 3, 4 and 5 furnished to us under Rule 16a-3(e) during 2014, and written representations of our directors and executive officers that no additional filings were required, we believe that all directors, executive officers and beneficial owners of more than 10% of our common stock have filed with the Securities and Exchange Commission on a timely basis all reports required to be filed under Section 16(a) of the Securities Exchange Act.
Code of Conduct and Business Ethics
The Board has approved a Code of Conduct and Business Ethics for our directors, officers and employees, including the directors, officers and employees of each of our subsidiaries and controlled affiliates. The Code of Conduct and Business Ethics addresses such topics as protection and proper use of our assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting, conflicts of interest and insider trading. The Company requires that all employees receive annual training relating to the Code of Conduct and Business Ethics and related policies in order to ensure that employees are familiar with those standards of conduct. The Code of Conduct and Business Ethics is available on the Investor Relations link of our website at www.nii.com.
Only the Board or the Audit Committee may consider a waiver of the Code of Conduct and Business Ethics for an executive officer or director. If a provision of the Code of Conduct and Business Ethics is materially modified, or if a waiver of the Code of
Conduct and Business Ethics is granted to a director or executive officer, we will post a notice of such action on the Investor Relations link of our website at www.nii.com. No such waivers were granted during 2014.Company’s General Counsel.
| |
| Item 11. | Executive Compensation |
Compensation Committee Report
The Compensation Committee of the Board of Directors is responsible for the development, oversight and implementation of our compensation program for executive officers and is committed to a philosophy that links a significant portion of each executive's compensation to performance.
The Compensation Committee has reviewed the Compensation Discussion and Analysis included ininformation required by this report and discussed it with our management. Based on this review and discussion, the Compensation Committee recommended that the Compensation Discussion and Analysisitem will be included in this Form 10-K.
Compensation Committee
Charles M. Herington, Chairman
Kevin L. Beebe
Rosendo G. Parra
Compensation Discussion and Analysis
Introduction
This Compensation Discussion and Analysis provides the principles, objectives, structure, analysis and determinations of the Compensation Committee with respectprovided by being incorporated herein by reference to the 2014 compensation of the following named executive officers:
Steven M. Shindler, Chief Executive Officer
Juan R. Figuereo, Executive Vice President, Chief Financial Officer
Gokul Hemmady, Chief Operating Officer and President, Nextel Brazil
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• | Salvador Alvarez, President, Nextel Mexico(1)
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Gary D. Begeman, Executive Vice President, General Counsel
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• | Peter Foyo, Former Executive Vice President, Business Development(2)
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(1) Mr. Alvarez was appointed President, Nextel Mexico effective July 14, 2014 and is employed by Comunicaciones Nextel de Mexico, S.A. de C.V., our wholly owned subsidiary, which we refer to as Nextel Mexico. In 2014, Mr. Alvarez’s salary and annual bonus were paid in Mexican pesos. The compensation amounts provided in this Compensation Discussion and Analysis are based on the exchange rate of 13.00 Mexican Pesos to 1.00 U.S. Dollar that was used in Mr. Alvarez's employment agreement. The amounts disclosed in the Summary Compensation Table are based on the average exchange rate during 2014, which was 13.30 Mexican Pesos to 1.00 U.S. Dollar.
(2) Mr. Foyo resigned as the Company's Executive Vice President, Business Development effective February 28, 2014. For more information related to Mr. Foyo’s separation from the Company, please see “2014 Management Changes – Former Executive Vice President, Business Development.”
Compensation Objectives and Philosophy. Our executive compensation program is designed to provide competitive, flexible, and market-based compensation that is substantially linked to our performance and aligned with long-term stockholder interests. The Compensation Committee’s primary objective in designing our compensation program is to recruit and retain the high caliber executive officers and employees necessary to deliver strong and consistent performance to our stockholders, customers and communities in which we operate. Within this framework, the Compensation Committee has developed a compensation program that incorporates salary and benefits that allow us to retain and motivate our executive officers, short-term incentives that challenge our executive officers to achieve our financial and operational goals, and long-term incentives that link our executives’ risks and rewards with those of our stakeholders.
2014 Total Direct Compensation. In 2014, the Compensation Committee approved the following elements of our executive compensation program:
Base Salary. Base salary provides a fixed source of income and allows the Company to attract and retain experienced executives.
Short-Term Incentives. Short-term incentives provide variable cash compensation that allows the Company to motivate executives to achieve the Company's operating and financial objectives.
Long-Term Incentives. Long-term incentives provide variable equity awards, in the form of stock options, restricted stock and performance share units, that build executive stock ownership, encourage retention, drive strategic and operating performance and align our executives' interests with those of our stockholders.
In 2014, the Compensation Committee based their executive compensation decisions on the analysis of various factors that it deemed relevant to those decisions when they were made. Most of those decisions were made in April 2014, and while management and the Board had begun to analyze the necessity of restructuring the Company's balance sheet prior to the Compensation Committee making those decisions, the Compensation Committee did not take into account the impact of such a restructuring or the possibility that it would be implemented in a Chapter 11 bankruptcy proceeding on equity compensation or on our actual performance for the full year in those decisions. The Compensation Committee reviews our compensation policies and practices throughout the year, and based on recent financial and operational results, the Compensation Committee generally set the target ranges for our named executive officers’ total direct compensation opportunities below the lower quartile for comparable positions within our Peer Group (as defined below) in 2014 due primarily to the significant decline in the value of the 2014 long-term incentives as described below. In addition, as a result of our Chapter 11 filing and the proposals for reorganization, which do not contemplate any recoveries with respect to equity interests in the Company, the named executive officers will not realize any value or receive any recovery from the long-term incentives granted during 2014 or in prior years.
The Compensation Committee approved the following composition of our executive compensation program in April 2014. Please see "2014 Management Changes" for information related to the compensation provided to Messrs. Alavarez and Foyo, who were not employed by the Company at that time.
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| Name | Base Salary ($) | Target Bonus at 100% Payout | Value of 2014 Long-Term Incentives(1)($) | 2014 Target Total Direct Compensation(2) | Percent Change From 2013(3) |
Steven Shindler(4) | 945,996 |
| 1,844,692 |
| 1,019,513 |
| 3,810,201 |
| N/A |
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| Juan R. Figuereo | 550,000 |
| 825,000 |
| 186,358 |
| 1,561,358 |
| (37.5 | )% |
| Gokul V. Hemmady | 647,500 |
| 971,250 |
| 260,235 |
| 1,878,985 |
| (42.2 | )% |
Gary D. Begeman(5) | 463,380 |
| 556,056 |
| 115,918 |
| 1,135,354 |
| (33.4 | )% |
(1) The fair market value of the stock options, restricted stock and performance share units granted to the executives in the current year determined using the closing price of our common stock on April 8, 2014 of $1.15, a date prior to the April 2014 Compensation Committee meeting in accordance with FASB ASC Topic 718.
(2) Target total direct compensation is calculated as the sum of (a) base salary, (b) the target annual bonus amount for the year assuming a payout of 100% and (c) value of the 2014 stock options, restricted stock and performance share units granted to named executive officers.
(3) Target total direct compensation for 2013 has been computed using the same formulas, but incorporating the grant date fair values for the restricted stock and option grants made in 2013.
(4) As disclosed in the Company’s definitive proxy statement for the 2012 annual meeting of stockholders, Mr. Shindler was granted 685,912 nonqualified stock options and 377,937 shares of restricted stock on December 18, 2012 in connection with his appointment as interim Chief Executive Officer. In April 2013, Mr. Shindler only received a grant of performance share units in connection with his appointment as Chief Executive Officer, therefore Mr. Shindler does not have comparable 2013 Target Total Direct Compensation.
(5) Mr. Begeman's base salary and target bonus were set in April 2014. In June 2014, due to his enhanced role and expanded duties his base salary was increased to $550,000 and his target bonus was increased to 150%.
2014 Base Salary. Base salary is the only fixed element of our named executive officers’ target total direct compensation and is based primarily on historic base salary levels and internal pay equity and base salaries paid to executives in comparable positions at the Peer Group companies. In April 2014, the Compensation Committee determined to not increase the base salaries of the named executive officers . Our named executive officers’ annual base salaries in 2014 (effective from April 1, 2014 through March 31, 2015) and the percentage of target total direct compensation represented by the base salaries are as follows:
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| Name | 2014 Base Salary ($) | Percent Change From 2013 | Percent of Target Total Direct Compensation |
| Steven Shindler | 945,996 |
| - | 24.8 | % |
| Juan R. Figuereo | 550,000 |
| - | 35.2 | % |
| Gokul V. Hemmady | 647,500 |
| - | 34.5 | % |
Gary D. Begeman(1) | 463,380 |
| - | 40.8 | % |
(1) Subsequent to the approval of his 2014 base salary, Mr. Begeman's base salary was increased to $550,000 due to his enhanced role and expanded duties in June 2014.
2014 Bonus. Our 2014 Bonus Plan rewards executive officers for performance relative to key financial and operating measures that are designed to enhance the value of the Company. The target bonus percentage of base salary for each executive is determined based on historic target levels and internal equity, and the comparison of annual incentive compensation targets for executives in comparable positions at the Peer Group. For 2014, the bonus payout percentage is determined after the conclusion of each fiscal quarter by evaluating the Company’s performance relative to pre-determined performance goals and performance “intervals” for that quarter. Performance intervals are the upper and lower boundaries of performance in which actual bonus payouts are awarded. The bonus payout percentage is designed to provide payments in a range from 200% of the target bonus, if performance greatly exceeds the Company’s targets, to 0% of the target bonus, if performance fails to reach minimum threshold levels. The use of these intervals is intended to provide a greater performance incentive to participating employees by providing a more significant increase in the bonus award in instances where there is over performance in relation to our performance targets and a more significant decrease in the bonus award where there is under performance in relation to those targets. The Company was required to seek Bankruptcy Court approval for all targets and payouts under the 2014 Bonus Plan after filing a petition for relief under Chapter 11 on September 15, 2014, and the Bankruptcy Court approved the 2014 Bonus Plan and payouts as described below that occurred after that date.
2014 Target Bonus. The Compensation Committee sets our executive officers’ target bonus percentages at a level that balances fixed and at-risk short-term compensation. In 2014, the Compensation Committee increased our named executive officers’ target bonus percentages in order to partially offset the significant reduction in the value of the long-term equity incentives that were granted in 2014. The 2014 target bonus percentage as determined by the Compensation Committee, the potential cash payout under the 2014 Bonus Plan at 100% of target and the percentage of each named executive officer’s target total direct compensation represented by the target bonus at 100% payout were as follows:
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| | Target Bonus Percentage of Base Salary | 2014 Target Bonus at 100% Payout ($) | Percent of Target Total Direct Compensation |
| | 2014 | 2013 | | |
| Steven Shindler | 195% | 130% | 1,844,692 |
| 48.4 | % |
| Juan R. Figuereo | 150% | 100% | 825,000 |
| 52.8 | % |
| Gokul V. Hemmady | 150% | 100% | 971,250 |
| 51.7 | % |
Gary D. Begeman(1) | 120% | 80% | 556,056 |
| 49 | % |
(1) Subsequent to the approval of his 2014 target bonus percentage, Mr. Begeman's target bonus percentage was increased to 150% due to his enhanced role and expanded duties in June 2014.
2014 Performance Goals. In 2014, the Compensation Committee reviewed the 2014 Bonus Plan and determined that in order to set appropriate performance measures and weightings throughout the year, the Compensation Committee should set performance measures and weightings on a quarterly basis to allow the Compensation Committee to respond to changes in the Company's business plan. In addition, the Compensation Committee determined that quarterly payouts of earned bonus awards provided the strongest performance incentives to the Company's named executive officers and to other employees participating in the 2014 Bonus Plan. Each of the following performance measures and weightings were selected in order to provide balanced incentives as any unsound actions to improve one performance measure would be expected to have a corresponding negative impact on the other performance measure, and the plans for the third and fourth quarters were developed with the input of the Company's stakeholders. The quarterly criteria and weightings under the 2014 Bonus Plan for named executive officers were as follows:
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| Performance Measures | First Quarter Weight | Second Quarter Weight | Third Quarter Weight | Fourth Quarter Weight |
| Consolidated Revenues | 60% | 60% | 40% | 40% |
Consolidated Operating Cashflow(1) | 40% | 40% | 60% | 60% |
(1) Operating income before depreciation and amortization ("OIBDA") - Capital Expenditures
2014 Targets and Calculation of Bonus Payout. To determine bonus amounts earned by our executive officers during the 2014 Plan year, the Compensation Committee met following each fiscal quarter-end to review our financial and operating performance as compared to the applicable performance measures for that quarter and to discuss performance factors and other criteria related to the bonus awards. At each quarterly meeting, the applicable targets set for each performance measure were compared to the results for the quarter in order to determine the appropriate bonus payout percentage, which may range from 0% to 200% depending on the Company’s performance relative to the performance targets. Performance at levels below a minimum threshold for a particular performance measure result in no payout under the 2014 Bonus Plan, and performance at levels above the target threshold will result in a combined payout limited to 200% under the 2014 Bonus Plan. In addition, in order to balance growth and profitability under the 2014 Bonus Plan, the Compensation Committee determined that an additional performance bonus would be rewarded if the performance
targets were achieved in conjunction with predefined levels of net subscriber additions and average monthly revenue per subscriber unit (ARPU) for new subscribers in Mexico and Brazil.
The Compensation Committee approved the 2014 quarterly performance targets and intervals for each of the performance measures based upon the Company's business plan. The performance targets and corresponding intervals are designed to drive Company performance against challenging performance standards, but are not goals that would cause our executives to take inappropriate business risks. In 2014, our quarterly performance targets and minimum threshholds for each of the performance measures were as follows:
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| | First Quarter | Second Quarter | Third Quarter | Fourth Quarter |
| | Min. | Target | Min. | Target | Min. | Target | Min. | Target |
Revenues(1) (in millions) | 868 | 964 | 860 | 955 | 837 | 930 | 756 | 840 |
Operating Cashflow(1) (in millions) | (331) | (276) | (300) | (250) | (233) | (194) | (231) | (193) |
(1) As adjusted and approved by the Compensation Committee
In some instances, the Compensation Committee, upon the recommendation of management, makes adjustments to the bonus payments or, if appropriate, the methodology used to calculate the bonus target or our performance relative to the target to take into account, among other things, changes in our Company’s goals and plans and changes in business conditions in the relevant bonus period if it concludes that such adjustments are appropriate and are consistent with our overall goals and strategy. The Compensation Committee adjusted the 2014 bonus targets and payments for the named executive officers to reflect: the sale of Nextel Chile; deviations in timing of certain capital expenditures; the reallocation of certain costs between market and headquarter operations; one-time, non-operational items and strategic operational decisions made after the targets were set; and foreign currency translations.
2014 Financial Results and Bonus Payouts. The Company’s 2014 results were as follows:
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| | First Quarter | Second Quarter | Third Quarter | Fourth Quarter |
| | Target | Results | Payout(1) | Target | Results | Payout | Target | Results | Payout | Target | Results | Payout(2) |
Revenues(3) (in millions) | 964 | 914 | 66% | 955 | 893 | 30% | 930 | 844 | 8% | 840 | 808 | 96% |
Operating Cash Flow(3) (in millions) | (276) | (199) | 128% | (250) | (244) | 103% | (194) | (94) | 152% | (193) | (212) | 90% |
Weighted Average Payout (as percentage of target) | | | 84% | | | 62% | | | 94% | | | 95% |
(1) Bonus kicker (140%) applied to Revenue payout in accordance with net subscriber additions and ARPU achievement in Mexico and Brazil.
(2) Bonus kicker (170%) applied to Revenue payout in accordance with net subscriber additions and ARPU achievement in Mexico.
(3) As adjusted and approved by the Compensation Committee.
Based on the foregoing, the bonuses awarded to the named executive officers with respect to our performance in 2014 were as follows:
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| Name | Bonus Payout Percentage (% of Target) | 2014 Actual Bonus Payout ($) | Percent Change From 2013 Actual |
Steven Shindler
| 78% | 1,437,323 | 484% |
| Juan R. Figuereo | 78% | 642,813 | 484% |
| Gokul V. Hemmady | 78% | 756,766 | 484% |
Gary D. Begeman(1) | 78% | 602,023 | 712% |
(1) Mr. Begeman's 2014 Actual Bonus Payout reflects his base salary at the time the bonus award was earned and paid.
2014 Long-Term Equity Incentives. In 2014, due to the Company's stock price and available equity grant pool, the Compensation Committee determined that the grants made to the named executive officers would reflect the same number of shares as was granted in April 2013. Due to the decline in the Company's stock price, value of the target long-term equity incentives reflected a significant year over year decline and was below the lower quartile of the Peer Group. In 2014, the Compensation Committee awarded approximately one-third of the target value of each named executive officer’s long-term equity award in the form of performance share units, one-third of the target value of each named executive officer’s long-term equity award in the form of stock options and the remaining one-third of such value in the form of restricted stock with the exception of the chief executive officer who received long-term equity compensation in the proportion as was granted when he was appointed chief executive officer.
As a result of our Chapter 11 filing and the proposals for reorganization, which do not contemplate any recoveries with respect to equity interests in the Company, the named executive officers will not realize any value or receive any recovery from the long-term incentives granted during 2014 or in prior years.
Performance Share Units. In 2014, one-third of the target value for our named executive officers' long-term incentive award was granted in the form of performance share units that are earned at the end of a one-year period linked to the Company’s performance compared to a pre-determined OIBDA target for that period and vest on a pro-rata basis on the second and third anniversary of the grant date. The OIBDA target for the performance share units granted in 2014 was not met and therefore as of December 31, 2014 the performance share units have been forfeited.
Stock Options. In 2014, one-third of the target total value for our named executive officers’ long-term incentive equity awards was granted in the form of nonqualified stock options that vest ratably over a three-year period and expire after 10 years. The exercise price of each option is the closing price of our common stock on the date of grant. The number of options granted is determined by dividing the target value for each executive of the portion of the incentive equity grant to be paid in stock options by the value of each option, which is computed using the Black-Scholes option-pricing model using the closing price of our common stock on the date of grant, and using the same assumptions that we use in calculating the compensation expense attributable to such grants under FASB ASC Topic 718.
Restricted Stock. In 2014, one-third of the target value for our named executive officer’s long-term incentive award was granted in the form of restricted stock that vests ratably over a three year period. The number of shares of restricted stock awarded to each executive is determined by dividing the target value for each executive of the portion of the incentive equity grant to be paid in restricted stock by the closing price of our common stock on the grant date, which is the fair value computed in accordance with FASB ASC Topic 718.
The grant date value of the annual long-term equity grants provided to each of our named executive officers in 2014, the percent change of the grant date fair value of the equity grant for 2014 compared to the grant date fair value of the equity grant for 2013 and the percentage of target total direct compensation the 2014 long-term equity grants represented based on values reviewed by the Compensation Committee in April 2014 were as follows:
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| Name | Value of 2014 Performance Share Units at Target ($) | Value of 2014 Stock Option Grants ($) | Value of 2014 Restricted Stock Grant ($) | Percent Change From 2013(1) | Percent of Target Total Direct Compensation |
Steven Shindler(2) | 132,183 |
| 452,702 |
| 434,628 |
| - |
| 26.8 | % |
| Juan R. Figuereo | 61,686 |
| 62,986 |
| 61,686 |
| (86.69 | )% | 11.9 | % |
| Gokul V. Hemmady | 86,140 |
| 87,955 |
| 86,140 |
| (86.69 | )% | 13.9 | % |
| Gary D. Begeman | 38,370 |
| 39,178 |
| 38,370 |
| (86.69 | )% | 10.2 | % |
(1) The value of long-term equity for 2013 was computed using the same formulas and methodology as 2014, but with a stock price based on April 18, 2013, which was the valuation date used by the Compensation Committee to approve the 2013 compensation.
(2) As disclosed in the Company’s 2012 Proxy Statement, Mr. Shindler was granted 685,912 nonqualified stock options and 377,937 shares of restricted stock on December 18, 2012 in connection with his appointment as interim Chief Executive Officer. The stock options and restricted stock vest over a three-year period with one-third vesting each year. In April 2013, Mr. Shindler was appointed Chief Executive Officer and was granted performance share units in connection with the appointment.
2014 Management Changes
President, Nextel Mexico. Salvador Alvarez was appointed president Nextel Mexico effective July 18, 2014. As is customary in Mexico, Mr. Alvarez entered into an employment agreement with Nextel Mexico. In accordance with his employment agreement, Mr. Alvarez was granted a base salary of $675,000, a 2014 target bonus payout under the 2014 Bonus Plan of 150% (on a prorated basis) and $800,000 in restricted stock awards (in connection with our bankruptcy proceedings Mr. Alvarez will not realize any value from the restricted stock award) . In addition, Mr. Alvarez was awarded a sign-on bonus of $200,000 which would be paid if he was still employed by the Company on December 31, 2014. In 2014, Mr. Alvarez received both the sign-on bonus and a pro rated bonus payout of $494,006, which represents a bonus payout percentage of 109% based on the performance of our Mexico operations.
Former Executive Vice President, Business Development.On February 25, 2014, the Company announced that Peter Foyo would no longer serve as the Company’s executive vice president, business development effective February 28, 2014. In accordance with an offer letter between Mr. Foyo and the Company, Mr. Foyo received a payment of $1,100,000 and was not eligible for any further severance payments or benefits. Mr. Foyo did not receive any accelerated vesting for his unvested equity awards in connection with his severance.
Compensation Framework
Roles and Responsibilities. The following tables summarize the roles and responsibilities of the Compensation Committee, Management and the Independent Compensation Consultant retained by the Compensation Committee in connection with the development and implementation of our compensation program for our executive officers.
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Compensation Committee (3 Independent Directors) | Quarterly reviews and approves corporate goals and objectives with respect to our executive officers’ compensation. |
| Annually reviews and approves the evaluation process and compensation structures with respect to our executive officers’ compensation. |
| Evaluates our performance in light of the Committee’s established goals and objectives |
| Approves the annual compensation for our executive officers, considering the recommendations made by the chief executive officer (for compensation other than his own) and the independent compensation consultant. |
| Evaluates the performance of the chief executive officer relative to the performance goals determined by the Board. |
Management | Recommends the compensation structure for the Company’s executive officers. |
| Chief executive officer recommends the level of annual compensation for the Company’s executive officers (other than the chief executive officer). |
| Chief executive officer evaluates each executive officer’s performance of their respective business or function and their retention considerations (other than for the chief executive officer). |
| Provides input to the Compensation Committee on the strategy, design and funding of our incentive compensation plans. |
| Makes plan design recommendations for broad-based benefit programs in which our executive officers participate. |
Independent Compensation Consultant | Conducts annual review of our executive compensation program, advising on the external competitiveness of our executive compensation packages and practices. |
| Provides data relating to total compensation levels and relative amounts of cash and equity compensation earned by executives in comparable positions within the Peer Group. |
| Provides a comparison of our performance with that of our Peer Group over one and three year periods with respect to various performance measures. |
| Provides no services to our company other than those provided directly to or on behalf of the Compensation Committee. |
| Performs other work at the direction and under the supervision of the Committee. |
| Reviews and reports on Compensation Committee materials, participates in Compensation Committee meetings and communicates with the chair of the Compensation Committee between meetings. |
Compensation Committee Consultant and Independence. The Compensation Committee considers the advice of its independent compensation consultant, together with information and analysis from management and its own judgment and experience, when evaluating the Company’s executive compensation program. In 2014, the Compensation Committee was advised by Pearl Meyer & Partners.
Use of Comparative Industry Data. In order to design our compensation programs, the Compensation Committee reviews the executive salaries, compensation structures and the financial performance of comparable corporations in a designated Peer Group established by the Compensation Committee. As part of its annual compensation process, with assistance from Pearl Meyer & Partners, the Compensation Committee evaluated the Company’s historical peer group in order to ensure that the most appropriate industry data was utilized in the evaluation of the Company’s compensation programs. The Committee focused on ensuring that our Peer Group companies operated in the telecommunication, technology or consumer industries and recognized revenues within 50% to 200% of the Company. The Committee also sought to ensure that our Peer Group companies were engaged primarily in service and/or technology based businesses and maintained a significant international presence with headquarters in the United States. Based on these criteria and the advice and recommendations provided by Pearl Meyer & Partners, the Compensation Committee approved the following Peer Group for 2014:
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CA, Inc. | Motorola Solutions, Inc. |
Cablevisions Systems Corporation | MetroPCS Communications, Inc. (now T-Mobile US, Inc.) |
CyberLink, Inc. | NetApp, Inc. |
Charter Communications, Inc. | Sandisk Corporation |
Frontier Communications Corporation | Symantec Corporation |
Harris Corporation | Telephone and Data Systems, Inc. |
Juniper Networks, Inc. | United States Cellular Corporation |
Leap Wireless International, Inc. | Windstream Communications |
Level 3 Communications, Inc. | |
To assess the competitiveness of our executive compensation programs, we analyze Peer Group compensation data included in proxy statements or other public filings as well as compensation and benefits survey data developed by global compensation consulting firms. As part of this process, we measure pay levels within each of our three primary elements of compensation (base salary, target bonus and equity incentive grants) and in the aggregate. We also review the mix of our compensation attributable to these elements with respect to their characteristics including fixed versus variable, short-term versus long-term, and cash versus equity-based pay. The Compensation Committee generally compares the compensation of each named executive officer in relation to various percentiles reflected in the Peer Group data for similar positions based on proxy ranking and job title and responsibilities.
Additional Compensation and Compensation Plans
Benefits. In the United States, the named executive officers participate in the same benefit plans as the general employee population of the Company. International plans vary, and incremental amounts paid to executives who work outside the United States pursuant to foreign government required programs, including mandatory vacation allowances and retirement benefits, or to compensate them for the additional costs and other obligations relating to those assignments, such as amounts paid for security services, housing costs, travel costs and certain related tax obligations, are not taken into consideration in determining base salary and are not used in calculating the annual target bonus amounts or in determining those executives’ target total direct compensation. In general, benefits are designed to provide a safety net of protection against the financial catastrophes that can result from illness, disability or death, and to provide a reasonable level of retirement income based on years of service with the Company. Benefits help keep employees focused on serving the Company and not distracted by matters related to paying for health care, saving for retirement or similar issues.
Retirement, Deferred Compensation and Pension Plans. Our executive officers who are eligible may participate at their election in our 401(k) retirement savings plan that provides employees with an opportunity to contribute a portion of their cash compensation to the plan on a tax-deferred basis to be invested in specified investment options and distributed upon their retirement. Consistent with the 401(k) plan, we match 100% of each employee’s contributions to the 401(k) plan up to a maximum of 4% of the employee’s eligible annual compensation. Our matching contribution for 2014 for named executive officers was $35,102 in the aggregate.
We do not have any pension plans that entitle our named executive officers to additional benefits. In addition, we have not adopted a supplemental executive retirement plan or other “excess plan” that pays benefits to highly compensated executives whose salaries exceed the Internal Revenue Service’s maximum allowable salary for qualified plans. In December 2008, the Compensation Committee approved the adoption of an Executive Deferral Plan, which became effective January 1, 2009. Under the Executive Deferral Plan, executives may defer a portion of their compensation with the amount deferred by a participating executive attributed to a hypothetical account and treated as if it is invested in deferred stock units with the value of those units linked to the value of our common stock. No compensation was deferred by executive officers under this plan in 2014 and the Executive Deferral Plan is not available to executive officers during 2015. We do not have any other nonqualified deferred compensation plans.
Severance Plans. We previously adopted two severance plans that provide for the payment of severance benefits to our U.S.-based employees, including our U.S. based executive officers, if their employment is terminated in specified circumstances. One plan provides for the payment of severance benefits if the executive officer’s employment is terminated without cause for certain reasons and the other plan provides for the payment of severance benefits if the executive officer’s employment is terminated without cause, or if the executive officer of the Company terminates his or her employment with good reason, in connection with or following a change of control. The two severance plans are mutually exclusive meaning that an executive may be eligible to receive payments under one or the other of the plans depending on the circumstances surrounding the termination of the executive’s employment, but it is not possible for an executive to receive payments under both plans. While the Compensation Committee generally does not take into account the potential payments to executives under our severance plans, including termination and change of control arrangements, in performing its annual evaluation of the target total direct compensation that may be realized by our executive officers, the Compensation Committee believes that the terms of these arrangements are generally consistent with those offered by similarly situated companies including those in the Peer Group. As part of the Chapter 11 proceedings, the Bankruptcy Court must approve the terms of the Severance Plan and the Change of Control Severance Plan before any payments can be provided to eligible employees. The Bankruptcy Court has reviewed and approved the terms of our Severance Plan, but has not reviewed our Change of Control Severance Plan. A description of the terms of our severance plans, the specific circumstances that trigger payment of benefits, an estimate of benefits payable upon the occurrence of those triggering events and other information relating to such plans can be found below under the caption “Executive Compensation - Potential Payments under Severance Plans.”
Executive Compensation Governance Practices
We believe that our compensation programs should ensure that our executives remain accountable for business results and take responsibility for the assets of the business and its employees. Consistent with these objectives, our Board has incorporated the following governance features into our compensation governance programs.
Compensation Risk Mitigation. The Company’s executive compensation program includes features designed to discourage executives from taking unnecessary risks that could harm the financial health and viability of the Company, including:
Balanced Performance Measures. The Compensation Committee believes that the performance criteria used in our 2014 Bonus Plan strike an appropriate balance between growth and profitability and mitigate risk to the Company because actions taken to improve our performance with respect to one of the criteria would normally be expected to have a corresponding negative impact on other criteria. For example, if management were to implement promotional programs designed to aggressively pursue growth in revenue, those actions would be expected to increase expenses, resulting in a potential deterioration in operational free cash flow.
Emphasis on Long-Term Stockholder Value. Long-term incentive awards focus executives on creating long-term stockholder value and delivering exceptional long-term operating results.
Stock Ownership Requirements. Executive officers are subject to stock ownership requirements as described below, which focus executives on long-term stockholder value and aligns the interests of our executive officers with those of our stockholders.
The Compensation Committee reviewed the risk profile of our compensation policies and practices and determined that our compensation programs are not reasonably likely to have a material adverse effect on the Company.
Tax Deductibility Under Section 162(m). Section 162(m) of the Internal Revenue Code imposes a limitation on the deductibility of non-performance-based compensation in excess of $1 million paid to certain named executive officers of public companies. The Compensation Committee has implemented a compensation program that links a substantial portion of each executive’s compensation to performance and requires each executive officer to attain designated stock ownership levels, and therefore maintain a vested interest in our equity performance, but has not implemented a policy that limits the amount of compensation based on the limitations of Section 162(m). We intend to qualify executive compensation for deductibility under Section 162(m) if doing so is consistent with our best interests and the interests of our stockholders.
Stock Ownership Guidelines. The Board has adopted stock ownership guidelines that require our executive officers to retain a vested interest in our equity performance by maintaining certain designated stock ownership levels until retirement. Executive officers may not sell stock in the Company until their stock ownership levels reach specified values based on pre-determined multiples of their base salary. Further, except for sales of shares to cover taxes due at vesting of equity awards, executive officers may not sell shares after those stock ownership levels have been met if, following the potential sale, the value of the equity interests they own would be below the levels specified in the guidelines. Individuals subject to our stock ownership guidelines have a five-year period, which commences upon the appointment of the individual as an executive officer, to achieve their designated ownership requirement in accordance with a pre-determined schedule. Executive officers will be deemed to be in compliance with the guidelines and will not be required to purchase additional shares to meet the ownership requirement if they met their target ownership level in compliance with the guidelines following any sale of shares.
The following are the ownership requirements for our named executive officers:
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Position | Requirement |
CEO | 5x Base Salary |
Other NEOs | 3x Base Salary |
The types of stock ownership that are applied to satisfy the ownership requirements under our guidelines include the value of stock directly owned by the executives, the value of unexercised but vested options to the extent that the fair market value of our common stock exceeds the option exercise price and the value of deferred stock units granted pursuant to our executive deferral plan.
Each of our executive officers subject to an ownership target under the executive stock ownership guidelines at December 31, 2014 was in compliance with the guidelines. In 2014, there were no sales of stock by the named executive officers and as a result of the bankruptcy proceedings the named executives officers will not receive any value for their stock.
Trading and Derivatives Policy. The Board has adopted a policy prohibiting our directors, officers and members of their immediate families from entering into any transactions in our securities without first obtaining pre-clearance of the transaction from our general counsel. In addition, we prohibit directors and employees from engaging in any transaction involving our common stock that may be viewed as speculative, including buying or selling puts, calls or options, short sales, hedging transactions or purchases of our common stock on margin.
Employment Agreements. Generally, we do not enter into employment contracts with our employees unless otherwise required or customary based on local law or practice. As is customary for executives in Mexico, the Company has entered into an employment Agreement with Mr. Alvarez in connection with his service as president of Nextel Mexico. The terms of Mr. Alvarez's employment agreement are summarized under "2014 Management Changes - President, Nextel Mexico." We do not have employment contracts with any of our other named executive officers.
Timing of Long-Term Incentive Awards. We have historically granted our annual long-term incentive awards to our employees, executive officers and directors in late April of each year. These grants are timed to coincide with our regularly scheduled April Board and committee meetings. In 2014, our annual equity grants were made to our employees, executive officers and directors on April 30, 2014. The number of options and shares of restricted stock and restricted stock units awarded were based on the closing market price on the date of grant and the exercise price of the stock options granted was the closing market price on the date of the grant.
We follow a practice of disclosing our financial results for the first quarter of the fiscal year following the April Board meeting at which we make equity grants. The 2014 first quarter earnings release was made publicly available on May 12, 2014. It is the policy of the Compensation Committee not to use information relating to first quarter results when determining the amount, timing or other characteristics of our annual equity grants to employees, executive officers and directors. We have consistently granted our annual long-term incentive awards in April, regardless of the content or timing of the issuance of the first quarter earnings release. Although our quarterly financial results may have an impact on the market price of our common stock, and therefore the number of options and shares of restricted stock and restricted stock units awarded as well as the exercise price of the option awarded, we believe that the April board meeting is the appropriate time during the year to grant our annual long-term incentive awards and that a consistent application of our granting practices from year to year is appropriate. The equity grants by the Compensation Committee are designed to create incentives for the creation of long-term stockholder value and contain delayed vesting provisions that prevent any advantages from short-term fluctuations in the market price of our common stock.
We have not planned in the past, nor do we plan in the future, to time the release of material non-public information for the purpose of affecting the value of executive compensation. We do not have a practice of setting the exercise price of options based on the stock price on any date other than the grant date, nor do we use a formula or any other method to select an exercise price of options based on a period before, after or surrounding the grant date. Nonqualified stock options are always granted at the closing price of our common stock on the date of grant.
No Repricing Options. The 2012 Incentive Compensation Plan (the "2012 Plan") approved by our stockholders at the 20122016 Annual Meeting prohibits the repricing of stock options governed by the 2012 Plan.
Compensation Recoupment Policy. The Compensation Committee believes that the Company’s compensation programs should provide for the reduction or recovery of certain incentive payments made to our executives in the event our financial statements were to be restated in the future in a manner that would have negatively impacted the size or payment of the award at the time of payment. Although the Compensation Committee has not adopted a formal policy in addition to remedies available under applicable law, the Compensation Committee intends to adopt a policy to recover payments in compliance with the rules issued by the Securities and Exchange Commission pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act when such rules are finalized. As described above, long-term equity incentives comprise a significant portion of our executives’ target direct compensation and when combined with our ownership guidelines, subject our executives to substantial financial risk should there be a material negative restatement of our financial results.
Summary Compensation Table
As previously disclosed, the Company and several of its subsidiaries filed for relief under Chapter 11 in September 2014 and any plan of reorganization implemented in the bankruptcy proceeding is expected to cancel our equity securities for no consideration. The long-term equity incentives disclosed in the following tables reflect the grant date or current fair value of our outstanding equity awards and does not reflect the expected cancellation of all outstanding equity awards granted to our named executive officers as a result of the Chapter 11 proceedings.
|
| | | | | | | | |
| Name and Principal Position | Year | Salary ($) | Bonus($) | Stock Awards(1) ($) | Option Awards(2) ($) | Non-Equity Incentive Plan Compensation(3) ($) | All Other Compensation(4) ($) | Total ($) |
| Steven M. Shindler | 2014 | 945,996 | - | 423,876 | 466,420 | 1,437,323 | 9,483 | 3,283,098 |
| Chief Executive Officer | 2013 | 945,996 | - | 999,995 | - | 245,959 | 23,792 | 2,215,742 |
| | 2012 | 243,025 | - | 2,582,914 | 1,884,271 | - | 5,580 | 4,715,790 |
| Juan R. Figuereo | 2014 | 550,000 | - | 92,261 | 64,895 | 642,813 | 13,032 | 1,363,001 |
| Executive Vice President, | 2013 | 550,000 | - | 933,340 | 466,673 | 110,000 | 31,394 | 2,091,407 |
| Chief Financial Officer | 2012 | 114,583 | - | 156,200 | 131,423 | - | 76,006 | 478,212 |
| Gokul V. Hemmady | 2014 | 647,500 | - | 128,835 | 90,620 | 756,765 | 785,053 | 2,408,773 |
| Chief Operating Officer and | 2013 | 647,500 | - | 1,303,330 | 651,666 | 129,500 | 329,293 | 3,061,289 |
| President, Nextel Brazil | 2012 | 605,079 | - | 981,369 | 749,020 | 194,250 | 11,855 | 2,541,573 |
Salvador Alvarez(5) | 2014 | 301,212 | 195,489 | 800,000 | - | 494,006 | 115,388 | 1,906,095 |
| President, Nextel Mexico | | | | | | | |
|
| Gary D. Begeman | 2014 | 503,081 | - | 57,388 | 40,365 | 602,023 | 10,400 | 1,213,257 |
| Executive Vice President, | 2013 | 463,380 | - | 580,551 | 290,275 | 74,141 | 10,200 | 1,418,547 |
| General Counsel | 2012 | 456,310 | - | 727,949 | 555,600 | 111,211 | 11,029 | 1,862,099 |
| Peter Foyo | 2014 | 133,957 | - | - | - | - | 1,105,642 | 1,239,599 |
| Executive Vice President, | 2013 | 535,829 | - | 533,274 | 266,636 | - | 578,683 | 1,914,422 |
| Business Development | 2012 | 529,450 | - | 721,333 | 550,548 | 112,524 | 691,242 | 2,605,097 |
(1)The amounts in this column reflect the grant date fair value of restricted stock awards and performance share units computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718), but disregarding estimated forfeitures related to service-based vesting conditions. We value restricted common stock awards and performance share units at the date of grant based on the number of shares subject to the grant multiplied by the closing price of our common stock on the date of grant.
For all performance share units the amounts included under Stock Awards reflect the grant date fair value based upon the estimated performance during the performance period. Based on the grant date fair value, the maximum values of the 2014 Stock Awards are as follows:
|
| |
Name | 2014 Stock Awards Maximum Value ($) |
Steven M. Shindler | 423,876 |
Juan R. Figuereo | 92,261 |
Gokul V. Hemmady | 128,835 |
Salvador Alvarez | 800,000 |
Gary D. Begeman | 57,388 |
Peter Foyo | - |
Additional information regarding the awards of restricted common stock and performance share units to the named executive officers in 2014 is included in the Grants of Plan-Based Awards table below.
(2) The amounts in this column reflect the grant date fair value of awards computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718) of options to purchase common stock, but disregarding estimated forfeitures related to service-based vesting conditions. The valuation assumptions used in determining these amounts are described in Note 14 to our consolidated financial statements. Additional information regarding the awards of options to purchase common stock to the named executive officers in 2014 is included in the Grants of Plan-Based Awards table below.
(3) The amounts in this column represent the bonus that we paid under the Bonus Plans in effect in 2012, 2013 and 2014. The bonus is determined based on a target bonus amount, which is a predetermined percentage of base salary, and is adjusted based on achievement of operating unit and/or consolidated performance goals as well as personal performance.
(4) Consists of: (a) amounts contributed by us under our 401(k) plan, (b) in the case of Mr. Hemmady, amounts contributed by Nextel Brazil to the Fundo de Garantia de Tempo de Servico, or FGTS, and a private savings plan, and in the case of Mr. Alvarez, amounts contributed by Nextel Mexico to government mandated retirement and savings plans or other government mandated payments, (c) perquisites and other personal benefits described in more detail below, (d) severance payments and (e) tax gross-up payments made in connection with the foregoing:
|
| | | | | | | | | | | |
| | Year | Company Contributions to 401(k) Plan ($) |
| Company Contributions to Government Plans ($) |
| Company Contributions to Private Savings Plan ($)(a) | Perquisites and Other Personal Benefits ($)(b) |
| Tax Gross-Up Payments ($)(c) |
| Severance Payments($) |
| Mr. Shindler | 2014 | - |
| N/A |
| N/A | 9,483 |
| - |
| N/A |
| | 2013 | - |
| N/A |
| N/A | 22,046 |
| 1,745 |
| N/A |
| | 2012 | 5,576 |
| N/A |
| N/A | - |
| 4 |
| N/A |
| Mr. Figuereo | 2014 | 10,400 |
| N/A |
| N/A | 1,977 |
| 654 |
| N/A |
| | 2013 | 9,167 |
| N/A |
| N/A | 14,952 |
| 7,276 |
| N/A |
| | 2012 | - |
| N/A |
| N/A | 51,193 |
| 24,813 |
| N/A |
| Mr. Hemmady | 2014 | 8,944 |
| N/A |
| 46,817 | 524,147 |
| 205,145 |
| N/A |
| | 2013 | 10,200 |
| N/A |
| N/A | 304,606 |
| 14,487 |
| N/A |
| | 2012 | 9,800 |
| N/A |
| N/A | - |
| 2,055 |
| N/A |
| Mr. Alvarez | 2014 | - |
| 60,691 |
| N/A | 54,697 |
| - |
| N/A |
| | | | | | | | |
| Mr. Begeman | 2014 | 10,400 |
| N/A |
| N/A | - |
| - |
| N/A |
| | 2013 | 10,200 |
| N/A |
| N/A | - |
| - |
| N/A |
| | 2012 | 9,800 |
| N/A |
| N/A | - |
| 1,229 |
| N/A |
| Mr. Foyo | 2014 | 5,358 |
| N/A |
| N/A | 277 |
| 7 |
| 1,100,000 |
| | 2013 | 10,200 |
| 14,487 |
| N/A | 457,820 |
| 96,176 |
| N/A |
| | 2012 | 9,800 |
| 14,556 |
| N/A | 583,950 |
| 82,936 |
| N/A |
| |
(a) | Represents the contribution by Nextel Brazil to a private savings program designed to complement Brazilian social security in which Nextel Brazil matches employee contributions up to 8% of an employee’s annual salary. The employer contribution vests based on length of service. |
| |
(b) | The dollar value of perquisites and other personal benefits received by Messrs. Hemmady and Alvarez each exceeded $10,000 in 2014. |
Pursuant to an international assignment agreement with Mr. Hemmady, who is a U.S. citizen, we agreed to provide certain benefits and expatriation/repatriation assistance for the period of his assignment in Brazil that are reflected as perquisites and other personal benefits. Some of these benefits are paid to Mr. Hemmady or to third parties on Mr. Hemmady's behalf in Brazilian Reais, the amounts of which are reflected in Benefits column of the table above and the All Other Compensation column of the Summary Compensation Table in U.S. dollars based on the average exchange rate of 2.35 Brazilian Reais to 1.00 U.S. Dollar for 2014. Perquisites and other personal benefits received by Mr. Hemmady in 2014 consist of $244,761 for housing and utilities; $194,250 representing Mr. Hemmady’s foreign services differential; $79,009 for expenses relating to a car and driver; $6,128 for language training. We also provide Mr. Hemmady with tax counseling and make tax equalization payments on his behalf so that Mr. Hemmady pays the same taxes as he would as a U.S. citizen working in the U.S.
The perquisites and benefits paid to Mr. Alvarez in 2014 consist of an annual allowance for a Company supplied automobile, including related maintenance and fuel, which is a customary element of compensation for senior executives in Mexico and which had an incremental cost to Nextel Mexico of $13,192, $39,568 in security costs and $1,937 for wireless handsets and service for Mr. Alvarez's family.
| |
(c) | Tax gross up payments in 2014 reflect amounts paid for Mr. Figuereo for travel by family members on our corporate aircraft to business events and Mr. Hemmady for tax equalization, housing allowance, language courses and travel by family members on our corporate aircraft to business events. |
| |
(5) | In 2014, Mr. Alvarez’s salary, bonus and benefits, other than his equity grants, were paid in Mexican Pesos. As a result, the amount of compensation provided to Mr. Alvarez as reflected in U.S. dollars in the Salary, Bonus, Non-Equity Incentive Plan Compensation and All Other Compensation columns varies based on the applicable exchange rate of the Mexican Peso relative to the U.S. dollar. Mr. Alvarez’s compensation as reported in U.S. dollars can vary significantly with no actual change to the compensation paid to Mr. Alvarez in Mexican currency if the exchange rates are volatile. The amounts for Mr. Alvarez reflected in the Salary, Bonus, Non-Equity Incentive Plan Compensation and All Other Compensation columns in the table above are based on the average exchange rate of 13.30 Mexican Pesos to 1.00 U.S. Dollar for 2014. |
Grants of Plan-Based Awards Table
In the table below and discussion that follows, we summarize the grants of stock options and stock awards to each of the named executive officers during 2014. Our 2014 Bonus Plan does not provide for payouts in fiscal years after 2014.
|
| | | | | | | | | | | |
| Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/sh) | Grant Date Fair Value of Stock and Option Awards(3) ($) |
Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) |
| Steven M. Shindler | | | | | | | | | | | |
| Annual Bonus | | — | 1,844,692 | 3,689,384 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| Restricted Stock | 4/30/2014 | N/A | N/A | N/A | N/A | N/A | N/A | 377,937 | N/A | N/A | 325,025 |
| Stock Options | 4/30/2014 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 685,912 | 0.86 | 466,420 |
| Performance Shares | 4/30/2014 | N/A | N/A | N/A | — | 98,850 | — | N/A | N/A | N/A | N/A |
| Juan R. Figuereo | | | | | | | | | | | |
| Annual Bonus | | — | 825,000 | 1,650,000 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| Restricted Stock | 4/30/2014 | N/A | N/A | N/A | N/A | N/A | N/A | 53,640 | N/A | N/A | 46,130 |
| Stock Options | 4/30/2014 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 95,434 | 0.86 | 64,895 |
| Performance Shares | 4/30/2014 | N/A | N/A | N/A | — | 46,130 | — | N/A | N/A | N/A | N/A |
| Gokul V. Hemmady | | | | | | | | | | | |
| Annual Bonus | | — | 971,250 | 1,942,500 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| Restricted Stock | 4/30/2014 | N/A | N/A | N/A | N/A | N/A | N/A | 74,904 | N/A | N/A | 64,417 |
| Stock Options | 4/30/2014 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 133,265 | 0.86 | 90,620 |
| Performance Shares | 4/30/2014 | N/A | N/A | N/A | — | 64,417 | — | N/A | N/A | N/A | N/A |
| Salvador Alvarez | | | | | | | | | | | |
Annual Bonus(4) | | — | 451,819 | 903,637 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| Restricted Stock | 7/14/2014 | N/A | N/A | N/A | N/A | N/A | N/A | 975,610 | N/A | N/A | 800,000 |
| Gary D. Begeman | | N/A | | | | | | | | | |
| Annual Bonus | | — | 556,056 | 1,112,112 | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
| Restricted Stock | 4/30/2014 | N/A | N/A | N/A | N/A | N/A | N/A | 33,365 | N/A | N/A | 28,694 |
| Stock Options | 4/30/2014 | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 59,361 | 0.86 | 40,365 |
| Performance Shares | 4/30/2014 | N/A | N/A | N/A | — | 28,694 | — | N/A | N/A | N/A | N/A |
| Peter Foyo | | | | | | | | | | | |
| Annual Bonus | | — | — | — | — | — | — | — | — | — | — |
| Restricted Stock | 4/30/2014 | — | — | — | — | — | — | — | — | — | — |
| Stock Options | 4/30/2014 | — | — | — | — | — | — | — | — | — | — |
| Performance Shares | 4/30/2014 | — | — | — | — | — | — | — | — | — | — |
| |
(1) | The amounts reflect the potential range of payouts pursuant to the 2014 Bonus Plan. The actual amounts of the payments made under this plan to the named executive officers are reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. |
| |
(2) | The amounts reflect the potential range of payouts pursuant to the performance share units granted in 2014. There were no payments made pursuant to the performance share units as the OIBDA target for December 31, 2014 was not achieved. |
| |
(3) | The amounts in this column reflect the grant date fair value of the restricted stock and option awards on the date of grant computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718), with respect to awards of shares of restricted common stock and awards of options to purchase shares of common stock held by each of the named executives, but disregarding estimated forfeitures related to service-based vesting conditions. We value restricted stock awards at the date of grant based on the number of shares subject to the grant multiplied by the closing price of our common stock on the date of grant. We determined the fair market value of option awards based on the Black-Scholes option pricing model. The valuation assumptions used in determining these amounts are described in footnote 14 to our consolidated financial statements.The long-term equity incentives disclosed in this table do not reflect the expected cancellation of all outstanding equity awards granted to our named executive officers as a result of the Chapter 11 proceedings. |
(4) Mr. Alvarez was eligible to participate in the 2014 Bonus Plan on a pro rata basis beginning July 14, 2014. The target and maximum annual bonus amounts for Mr. Alvarez have been adjusted to reflect his start date of July 14, 2014.
Outstanding Equity Awards at Fiscal Year-End 2014 Table
|
| | | | | | | | | | | | | | | | | |
| Name | Grant Date | Option Awards | Stock Awards |
| Number of Securities Underlying Unexercised Options Exercisable (#) | | Number of Securities Underlying Unexercised Options Unexercisable (#) | | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested(#) | | Market Value of Shares or Units of Stock That Have Not Vested (1) ($) | Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(1) ($) |
Steven M. Shindler (2) | 4/27/2005 | 150,000 |
| (3) | - |
| | 26.20 |
| 4/27/2015 | - |
| | - | - | | - |
| | 4/26/2006 | 130,000 |
| (3) | - |
| | 60.77 |
| 4/26/2016 | - |
| | - | - | | - |
| | 4/25/2007 | 135,000 |
| (3) | - |
| | 78.30 |
| 4/25/2017 | - |
| | - | - | | - |
| | 4/22/2009 | - |
| | - |
| | - |
| - | - |
| | - | - | | - |
| | 4/23/2010 | - |
| | - |
| | - |
| - | - |
| | - | - | | - |
| | 4/20/2011 | - |
| | - |
| | - |
| - | | | | - | | - |
| | 4/24/2012 | - |
| | - |
| | - |
| - | 2,033 |
| (4) | 41 | - | | - |
| | 12/17/2012 | 457,274 |
| (5) | 228,638 |
| (5) | 6.53 |
| 12/17/2022 | 125,979 |
| (6) | 2,520 | - | | - |
| | 4/30/2013 | - |
| | - |
| | - |
| - | - |
| | - | 114,942 | (7) | 2,298 |
| | 4/30/2014 | - |
| | 685,912 |
| (8) | 0.86 |
| 4/30/2024 | 377,937 |
| (9) | 7,559 | 114,942 | (10) | 2,299 |
| Juan R. Figuereo | 10/17/2012 | 26,667 |
| (11) | 13,333 |
| (11) | 7.81 |
| 10/17/2022 | 20,000 |
| (12) | 400 | - | | - |
| | 4/30/2013 | 31,811 |
| (13) | 63,623 |
| (13) | 8.70 |
| 4/30/2023 | 35,757 |
| (14) | 715 | 53,640 | (7) | 1,073 |
| | 4/30/2014 | | | 95,434 |
| (8) | 0.86 |
| 4/30/2024 | 53,640 |
| (9) | 1,073 | 53,640 | (10) | 1,073 |
| Gokul V. Hemmady | 5/21/2007 | 50,000 |
| (3) | - |
| | 78.87 |
| 5/21/2017 | - |
| | - | - | | - |
| | 4/23/2008 | 85,000 |
| (3) | - |
| | 40.62 |
| 4/23/2018 | - |
| | - | - | | - |
| | 4/22/2009 | 83,333 |
| (15) | - |
| | 14.33 |
| 4/22/2019 | - |
| | - | - | | - |
| | 4/23/2010 | 59,000 |
| (15) | - |
| | 40.40 |
| 4/23/2020 | - |
| | - | - | | - |
| | 4/20/2011 | 42,254 |
| (15) | - |
| | 40.28 |
| 4/20/2021 | - |
| | - | - | | - |
| | 4/24/2012 | 62,970 |
| (16) | 31,484 |
| (16) | 18.85 |
| 4/24/2022 | 17,354 |
| (4) | 347 | - | | - |
| | 4/30/2013 | 44,422 |
| (13) | 88,843 |
| (13) | 8.70 |
| 4/30/2023 | 49,936 |
| (14) | 999 | 74,904 | (7) | 1,498 |
| | 4/30/2014 | - |
| | 133,265 |
| (8) | 0.86 |
| 4/30/2024 | 74,904 |
| (9) | 1,498 | 74,904 | (10) | 1,498 |
| Salvador Alvarez | 7/14/2014 | - |
| | - |
| | - |
| - | 957,610 |
| (17) | 19,512 | - | | - |
| Gary D. Begeman | 11/27/2006 | 40,000 |
| (3) | - |
| | 65.17 |
| 11/27/2016 | - |
| | - | - | | - |
| | 4/25/2007 | 40,000 |
| (3) | - |
| | 78.30 |
| 4/25/2017 | - |
| | - | - | | - |
| | 4/23/2008 | 70,000 |
| (3) | - |
| | 40.62 |
| 4/23/2018 | - |
| | - | - | | - |
| | 4/22/2009 | 93,333 |
| (15) | - |
| | 14.33 |
| 4/22/2019 | - |
| | - | - | | - |
| | 4/23/2010 | 31,900 |
| (15) | - |
| | 40.40 |
| 4/23/2020 | - |
| | - | - | | - |
| | 4/20/2011 | 31,362 |
| (15) | | | 40.28 |
| 4/20/2021 | | | | - | | - |
| | 4/24/2012 | 46,709 |
| (16) | 23,354 |
| (16) | 18.85 |
| 4/24/2022 | 12,873 |
| (4) | 257 | - | | - |
| | 4/30/2013 | 19,787 |
| (13) | 39,574 |
| (13) | 8.70 |
| 4/30/2023 | 22,243 |
| (14) | 445 | 33,365 | (7) | 667 |
| | 4/30/2014 | - |
| | 59,361 |
| (8) | 0.86 |
| 4/30/2024 | 33,365 |
| (9) | 667 | 33,365 | (10) | 667 |
Peter A. Foyo(17) | - | - |
| | - |
| | - |
| - | - |
| | - | - | | - |
| |
(1) | The market value of the restricted stock and performance share units are based on the reported $0.02 closing price of a share of our common stock on the over the counter market, on December 31, 2014. The long-term equity incentives disclosed in this table reflect the current fair value of our outstanding equity awards and do not reflect the expected cancellation of all outstanding equity awards granted to our named executive officers as a result of the Chapter 11 proceedings. |
| |
(2) | Mr. Shindler was not granted any awards in 2008. Mr. Shindler was only granted restricted stock awards in April of 2009, 2010 and 2011 in his capacity as a member of our Board. Mr. Shindler was granted restricted stock awards in April 2012 in his capacity as a member of our Board and was granted restricted stock awards and stock option in December 2012 upon his appointment as interim, chief executive officer. Mr. Shindler was not granted stock options or restricted stock awards in April of 2013. |
| |
(3) | Stock options vested 25% on the four anniversary dates following the date of grant. |
| |
(4) | Restricted stock vests/vested 33 1/3% on each of April 24, 2013, April 24, 2014 and April 24, 2015. |
| |
(5) | Stock option award vests/vested 33 1/3% on each of December 17, 2013, December 17, 2014 and December 17, 2015. |
| |
(6) | Restricted stock vests/vested 33 1/3% on each of December 17, 2013, December 17, 2014 and December 17, 2015. |
| |
(7) | Performance share units vest on the third anniversary following the date of grant in an amount based on the Company’s performance during the performance period. |
| |
(8) | Stock option award vests 33 1/3% on each of April 30, 2015, April 30, 2016 and April 30, 2017.
|
| |
(9) | Restricted stock vests 33 1/3% on each of April 30, 2015, April 30, 2016 and April 30, 2017. |
| |
(10) | Performance share units vest on the second and third anniversary following the date of grant in an amount based on the Company’s performance during the performance period. |
(11) Stock option vests/vested 33 1/3% on each of October 17, 2013, October 17, 2014 and October 17, 2015.
| |
(12) | Restricted stock vests on the third anniversary following the date of grant. |
| |
(13) | Stock option award vests/vested 33 1/3% on each of April 30, 2014, April 30, 2015 and April 30, 2016. |
| |
(14) | Restricted stock vests/vested 33 1/3% on each of April 30, 2014, April 30, 2015 and April 30, 2016. |
| |
(15) | Stock options vested 33 1/3% on the three anniversary dates following the date of grant. |
| |
(16) | Stock options vests/vested 33 1/3% on each of April 24, 2013, April 24, 2014 and April 24, 2015. |
(17) Restricted stock vests/vested 33 1/3% on each of July 14, 2015, July 14, 2016 and July 14, 2017.
Option Exercises and Stock Vested Table
In the table below, we list information on the exercise of options and the vesting of restricted stock during the year ended December 31, 2014.
OPTION EXERCISES AND STOCK VESTED FISCAL YEAR 2014
|
| | | | | | |
| Name | Option Awards | Stock Awards |
Number of Shares Acquired on Exercise(#) | Value Realized on Exercise($) | Number of Shares Acquired on Vesting(#) |
| Value Realized on Vesting(1)($) |
|
| Steven M. Shindler | - | - | 128,964 |
| 6,644 |
|
| Juan R. Figuereo | - | - | 17,880 |
| 15,377 |
|
| Gokul V. Hemmady | - | - | 51,406 |
| 46,860 |
|
| Salvador Alvarez | - | - | - |
| - |
|
| Gary D. Begeman | - | - | 30,737 |
| 28,401 |
|
| Peter Foyo | - | - | - |
| - |
|
| |
(1) | The value realized on vesting is calculated as the number of shares vested multiplied by the closing price of the shares on the date of vesting, unless vesting occurs on a Saturday or Sunday, in which case the shares vested are multiplied by the closing price on the Friday preceding the vesting date. In accordance with our stock ownership guidelines the executive officers retained all of the shares acquired at vesting and will not realize any value or receive any recovery for the vested shares in connection with the Chapter 11 bankruptcy proceedings.
|
Pension Benefits and Nonqualified Deferred Compensation
None of our executive officers are entitled to pension benefits from us. None of our executive officers participated in our Executive Deferral Plan in 2014.
Potential Payments under Severance Plans
We have arrangements with each of our U.S.-based named executive officers under our Change of Control Severance Plan that provide for payments and benefits if an executive officer’s employment is terminated in connection with the occurrence of certain events involving a change in control. In addition, we have an obligation to make payments and provide certain benefits to our U.S.-based named executive officers under our Severance Plan and the 2012 Plan resulting from termination of employment upon the occurrence of certain events. The following is a summary of the payments that we or our successor may make under each of these arrangements.
Payments upon Termination of Employment. Each of our U.S.-based named executive officers is covered by our Change of Control Severance Plan and our Severance Plan. As part of the Chapter 11 proceedings, the Bankruptcy Court must approve the terms of each compensatory plan and any payments provided for under each plan. The Bankruptcy Court has reviewed and approved the terms of our Severance Plan, but has not reviewed our Change of Control Severance Plan. Absent such approval, no payments can be made pursuant to the Change of Control Severance Plan. The Change of Control Severance Plan provides for the payment of certain benefits if an executive officer’s employment is terminated by the company without cause or by the executive officer for good reason in connection with a change of control. No benefits are required to be paid unless the executive officer’s employment is terminated. The named executive officers are also entitled to severance benefits if their employment is terminated by the Company in specified circumstances under the Severance Plan. Although the benefits under the Severance Plan apply without regard to whether any change of control has occurred or is pending, the Change of Control Severance Plan provides that employees entitled to receive amounts paid under the Change in Control Severance Plan will not be entitled to cash severance under any other severance plan, including the Severance Plan. Each of the named executive officers has also received awards of stock options, restricted stock and performance share units under the 2012 Plan, which contains provisions that may accelerate the vesting of awards made to a named executive officer if we terminate the executive officer’s employment with us or if the executive officer terminates his or her employment with us for good reason in connection with a change of control. As a result of our Chapter 11 filing and the proposals for reorganization, which do not contemplate any recoveries with respect to equity interests in the Company, the named executive officers will not realize any value or receive any recovery from any awards that receive accelerated vesting based on a change of control.
Except as noted below, we otherwise have not entered into any employment agreements or other arrangements that provide for benefits in connection with a termination of employment of our named executive officers.
The following table shows the estimated amount of the payments to be made to each of the named executive officers upon termination of their employment in connection with their involuntary termination under the Severance Plan, which has been approved by the Bankruptcy Court, or upon their termination in connection with their death or disability. For purposes of calculating the value of the benefits, we have assumed that the triggering event for payment occurred under each of the arrangements as of December 31, 2014. The footnotes to the table contain an explanation of the assumptions made by us to calculate the payments, and the discussion that follows the table provides additional details on these arrangements. The Company cannot currently issue payments under the Change of Control Severance Plan because the Change of Control Severance Plan has not been approved by the Bankruptcy Court.
POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT
|
| | | | | | | |
Termination Event(1) | Base Salary (2) ($) | Bonus(3) ($) | Other Payments (4) ($) | Equity Awards (5) ($) |
| Total(6) ($) |
|
Severance Plan - Involuntary Termination (7)(8) | | | | | |
| Steven M. Shindler | 945,996 | 1,437,323 | - | - |
| 2,383,319 |
|
| Juan R. Figuereo | 550,000 | 642,813 | - | - |
| 1,192,813 |
|
| Gokul V. Hemmady | 647,500 | 756,766 | - | - |
| 1,404,266 |
|
| Gary D. Begeman | 550,000 | 602,023 | - | - |
| 1,152,023 |
|
| Death, Disability or Retirement | | | | | |
| Steven M. Shindler | - | - | - | 11,652 |
| 11,652 |
|
| Juan R. Figuereo | - | - | - | 2,903 |
| 2,903 |
|
| Gokul V. Hemmady | - | - | - | 3,842 |
| 3,842 |
|
| Gary D. Begeman | - | - | - | 1,815 |
| 1,815 |
|
| |
(1) | No payments are required to be made to any named executive officer under the Severance Plan if the executive is terminated for cause or if the executive voluntarily terminates his employment. |
| |
(2) | Amounts included in this column with respect to the Severance Plan reflect the portion of the severance payment attributable to base salary. Amounts attributable to the target bonus are included in the “Bonus” column (see note 3 below). The severance payment under the Severance Plan for the named executive officers is 12 months of the named executive officer’s annualized base salary at the time of termination. |
| |
(3) | Amounts included in this column with respect to the Severance Plan reflect the portion of the severance payment attributable to the target bonus. The portion of the severance payment attributable to base salary is included in the “Base Salary” column (see note 2 above). The Severance Plan provides for the payment of an amount equal to a prorated portion of the actual annual bonus payment for the period ending on the termination event for each named executive officer, payable when bonuses are paid for the applicable plan year. |
| |
(4) | Other Payments include repatriation relocation benefits for Mr. Hemmady. |
| |
(5) | Amounts included in the Equity Awards column reflect the value (calculated in the case of options as the difference between the exercise price of the options and the market value of the related shares on December 31, 2014 and in the case of restricted shares and performance share units as the value of shares on that date) of any awards granted under the 2012 Plan whose vesting or payment are accelerated upon the triggering event. The 2012 Plan and the grant agreements made under that plan also provide that outstanding and unvested options and restricted stock and a pro rata portion of the outstanding and unvested performance share units will vest upon an employee’s death or disability,
|
and for options if the employee retires at or after age 65 or at an earlier age with the consent of the Compensation Committee, with vested options remaining exercisable for a period of one year after the date the employee ceases to be an employee of the Company. The 2012 Plan and the grant agreements also provide for continued exercisability of vested options for a period of 90 days from the employee’s date of termination in all other situations.
| |
(6) | In addition to the amounts specified in this column, upon termination in each of the circumstances noted the executive officer is entitled to receive base salary and cash or non-cash benefits earned prior to the date of the named executive officer’s termination, including payments with respect to accrued and unused vacation time and any reimbursements for the reasonable and necessary business expenses incurred by the named executive officer prior to termination. |
| |
(7) | Severance Plan - Involuntary Termination describes the benefits payable to a named executive officer if the named executive officer’s employment is terminated by us other than in connection with a change of control under the circumstances described below under “Severance Plan.” |
| |
(8) | Section 503(c)(2) of the Bankruptcy Code prohibits the payment of any severance to an "insider" (as defined under the Bankruptcy Code) unless: (a) the payment is part of a program that is generally applicable to all full-time employees; and (b) the amount of the payment is no more than 10 times the amount of the mean severance pay given to non-management employees during the calendar year in which the payment is made. Pursuant to Section 503(c)(2), any severance payment provided to our named executive officers in 2014 would have been limited to $840,750. |
Change of Control Severance Plan. Any payments under our Change of Control Severance Plan are contingent on approval from the Bankruptcy Court. At this time, the Company has not presented the Change of Control Severance Plan for approval and the Bankruptcy Court has not reviewed or approved the terms or potential payments under our Change of Control Severance Plan. The Change of Control Severance Plan provides that each named executive officer will receive a payment if a change of control, as defined below, occurs and he either is terminated without cause or resigns for good reason. Each named executive officer will be entitled to receive 250% of their annual base salary and target bonus at the date of his termination upon such an event as provided in the Change of Control Severance Plan. Each named executive officer will be entitled to receive their payment under the Change of Control Severance Plan in a lump sum within thirty days following his termination of employment.
We or the surviving entity will also pay the full premium cost of continued health care coverage for each named executive officer under the federal “COBRA” law in such a termination. We will make the COBRA payments up to the lesser of 18 months or the time at which the named executive officer is reemployed and is eligible to receive group health coverage benefits under another employer-provided plan. The payments may also cease for any of the reasons provided in the COBRA law.
In addition, in the event that any of the named executive officers incur any legal, accounting or other fees and expenses in a good faith effort to obtain benefits under the Change of Control Severance Plan, we or the surviving entity will reimburse the named executive officer for such reasonable expenses. The named executive officer will be entitled to receive a tax gross-up payment in the event that any payment made under the Change of Control Severance Plan is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code. Such reimbursement and gross-up payments will be subject to Section 409A of the Internal Revenue Code and will be paid within the timeframe prescribed by the regulations thereunder.
A change of control will be deemed to occur under the Change of Control Severance Plan when:
we are merged, consolidated or reorganized into or with another company, or we sell or otherwise transfer all or substantially all of our assets to another company, and, as a result of either transaction, less than a majority of the combined voting power of the then outstanding securities of the resulting company immediately after the transaction is held by the holders of our voting securities immediately prior to the transaction;
the directors on our board as of the effective date of the Change of Control Severance Plan or directors elected subsequent to that date and whose nomination or election was approved by a vote of at least two-thirds of the directors on the board as of effective date of the Change of Control Severance Plan cease to be a majority of our board;
our stockholders approve our complete liquidation or dissolution;
an individual, entity or group acquires beneficial ownership of 50% or more of our then outstanding shares or 50% of our then outstanding voting power to vote in an election of our directors, excluding any acquisition directly from us; or
our board approves a resolution stating that a change of control has occurred.
A named executive officer will receive compensation under the Change of Control Severance Plan if:
the named executive officer is terminated without cause, as defined in the 2012 Plan, within 18 months from a change of control or prior to the change of control if the named executive officer reasonably demonstrates that the termination was at the request of a third party attempting to effect a change of control or otherwise in connection with a change of control; or
the named executive officer voluntarily terminates his employment for good reason during the 18 months following a change of control, defined as when, after the change of control:
there was a material and adverse change in or reduction of the named executive officer's duties, responsibilities and authority that the named executive officer held preceding the change of control;
the named executive officer's principal work location was moved to a location more than 40 miles away from his prior work location;
the named executive officer was required to travel on business to a substantially greater extent than prior to the change of control, which results in a material adverse change in his employment conditions;
the named executive officer's salary, bonus or bonus potential were materially reduced or any other significant adverse financial consequences occurred;
the benefits provided to the named executive officer were materially reduced in the aggregate; or
we or any successor fail to assume or comply with any material provisions of the Change of Control Severance Plan.
Severance Plan. The Severance Plan provides payments to our named executive officers in the event of an involuntary termination of employment, which includes termination due to job elimination, work force reductions, lack of work, a determination by us that the executive officer’s contributions no longer meet the needs of the business and any other reason determined by us. Under the Severance Plan, each of the named executive officers will be entitled to a payment equal to 12 months of his annualized base salary, not including any bonus, incentive payments or commission payments. Each eligible named executive officer will also receive a pro rata payment of his bonus based on the portion of the year that the named executive officer was employed by us. We will pay the bonus to the named executive officer when we pay bonuses to employees at the same position level for the bonus plan year in the following year, and such bonus will be based on the achievement level of the named executive officer’s business unit for the applicable year.
We expect to make a lump sum payment of the amount due under the Severance Plan although we reserve the right to make the payments periodically for a period not to exceed 24 months. In order to receive payments under the Severance Plan, each named executive officer must return all of our property and execute a release agreement:
acknowledging that the payments to be received represent the full amount that the named executive officer is entitled to under the Severance Plan;
releasing any claims that the named executive officer has or may have against us; and
in our discretion, agreeing not to compete with us for a certain period.
The release agreement will also require the named executive officer to comply with specified confidentiality, non-disparagement and non-solicitation obligations. Our obligation to make or continue severance payments to the executive officer will cease if the executive officer does not comply with those obligations. The terms of the Severance Plan have been reviewed and approved by the Bankruptcy Court.
2012 Incentive Compensation Plan. The 2012 Plan currently covers the grant of certain incentives and awards, including stock options, restricted stock, restricted stock units and cash-based incentives, to our employees, including the named executive officers. Under the 2012 Plan, if a change of control occurs and the incentives and awards granted under the 2012 Plan are not assumed by the surviving entity, or the employee is terminated within a certain period following a change of control, each outstanding award is treated as explained below. A change of control under the 2012 Plan is defined the same as in the Change of Control Severance Plan and the same events that trigger payments to the named executive officer under the Change of Control Severance Plan trigger payments under the 2012 Plan.
Options. If the surviving entity assumes, replaces or converts the options and the named executive officer is terminated within 24 months under circumstances that would trigger payment, the options will become fully exercisable, vested or earned. If the options are not assumed, replaced or converted, each option shall be fully exercisable upon a change of control.
Restricted Stock and Restricted Stock Units. If the surviving entity assumes, replaces or converts the stock award and the named executive officer is terminated within 24 months under circumstances that would trigger payment, the stock awards shall be vested. If the restricted stock and restricted stock unit awards are not assumed, replaced or converted, the restricted stock or restricted stock units shall be vested upon a change of control.
Performance Share Units. If the surviving entity assumes, replaces or converts the performance share units and the named executive officer is terminated within 24 months under circumstances that would trigger payment, the performance share units shall vest at the target level of performance. If the performance share units are not assumed, replaced or converted, the performance share units shall vest at the target level of performance upon a change of control.
Cash-based Incentives. If the surviving entity assumes, replaces or converts cash-based incentives and the named executive officer is terminated within 24 months under circumstances that would trigger payment, each outstanding cash-based incentive award shall be deemed earned pro-rata based on the fraction of the performance period that has elapsed from the beginning of the performance period until termination. If the cash-based incentives are not assumed, replaced or converted, the cash-based incentives shall be deemed earned upon a change of control.
The 2012 Plan provides that the Compensation Committee, as administrator of the plan, shall determine what amounts will be payable to the named executive officer upon death, disability or retirement in the agreement under which awards are made under the 2012 Plan.
Offer Letter with Mr. Foyo. Mr. Foyo resigned as the Company’s executive vice president, business development effective February 28, 2014 and under the terms of his Offer Letter dated December 16, 2013, Mr. Foyo received a payment of $1,100,000. Mr. Foyo did not receive any accelerated vesting for his outstanding and unvested equity awards.
Retention Agreement with Mr. Alvarez. In connection with the proposed sale of Nextel Mexico, Nextel Mexico has entered into a retention agreement with Mr. Alvarez that provides for a payment of $510,923 on the earlier of 30 days after closing of the sale transaction, September 30, 2015 or the date Mr. Alvarez is involuntarily terminated without cause. In the event that Mr. Alvarez is terminated without cause prior to the closing date or the sale transaction is not completed by September 30, 2015, the retention payment will be provided by Nextel Mexico, otherwise the purchaser will be responsible for the retention payment.
Director Compensation
Fees Payable to Non-Employee Directors. Each of our non-employee directors receives an annual retainer and equity grant for serving on the Board. In addition our non-employee directors receive additional fees for their service on committees. Our director compensation for 2014 consisted of the following components:
|
| | | | |
| Board: | | |
| Annual Retainer | $ | 70,000 |
| |
| Annual Equity Grant | $ | 10,378 |
| (1) |
| Lead Independent Director | $ | 20,000 |
| |
| Non-Executive Chairman | $ | 45,000 |
| |
| | | |
| |
| Committees: | | | |
| Committee Chairs | $ | 5,000 |
| |
| Audit Committee | $ | 25,000 |
| |
| Compensation Committee | $ | 20,000 |
| |
| Corporate Governance and Nominating Committee | $ | 15,000 |
| |
| Finance Committee | $ | 15,000 |
| |
| Risk Committee | $ | 15,000 |
| |
| |
(1) | On April 30, 2014, each non-employee director then serving received 12,068 restricted shares that vest 33 1/3 % annually over a three year period. The number of restricted shares granted was determined consistent with the philosophy applied to the long-term equity grants provided to the named executive officers and equals the number of restricted shares received in 2013. |
We pay all retainers in arrears in quarterly installments. We also reimburse directors for travel expenses incurred in connection with attending Board, committee and stockholder meetings and for other related expenses. We do not provide any additional compensation to employees who serve as a director or a committee member in periods in which they are also employees. Non-employee directors are also permitted to defer all or a portion of their annual retainer pursuant to the NII Holdings, Inc. Outside Directors Deferral Plan described below.
Director Compensation Table
In the table and discussion below, we summarize the compensation paid to our directors during 2014 who were not our employees as of December 31, 2014.
DIRECTOR COMPENSATION FISCAL YEAR 2014
|
| | | | | | | | |
| Name | Fees Earned or Paid in Cash ($) | Stock Awards(1) ($) | Option Awards(2) ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total ($) |
|
| Kevin L. Beebe | 155,000 | 10,378 | N/A | N/A | - | - | 165,378 |
|
| Donald Guthrie | 115,000 | 10,378 | N/A | N/A | - | - | 125,378 |
|
Charles M. Herington (3) | 110,000 | 10,378 | N/A | N/A | - | - | 120,378 |
|
| Carolyn F. Katz | 130,000 | 10,378 | N/A | N/A | - | - | 140,378 |
|
| Ricardo Knoepfelmacher | 70,000 | 10,378 | N/A | N/A | - | - | 80,378 |
|
| Rosendo G. Parra | 110,000 | 10,378 | N/A | N/A | - | - | 120,378 |
|
| Paulino do Rego Barros, Jr. | 85,000 | 10,378 | N/A | N/A | - | - | 95,378 |
|
| John W. Risner | 110,000 | 10,378 | N/A | N/A | - | - | 120,378 |
|
| |
(1) | The amounts in this column reflect the grant date fair value of awards computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718), but disregarding estimated forfeitures related to service-based vesting conditions. We value restricted stock awards at the date of grant based on the number of shares subject to the grant multiplied by the closing price of our common stock on the date of grant. On April 30, 2014, we provided each non-employee director then serving with a grant of 12,068 shares of restricted stock that vest 33 1/3 % on each of April 30, 2015, April 30, 2016 and April 30, 2017. The grant date fair value was $0.86 per share. The dollar value of the shares subject to those grants, based on the $0.02 closing price of a share of our common stock as reported on the over the counter market on December 31, 2014, was $241. |
The aggregate number of shares of unvested restricted stock held by each of our non-employee directors on December 31, 2014, and the dollar value of the shares based on the closing price on that date, were as follows: Ms. Katz and Messrs. Beebe, Guthrie, Herington, Parra, and Risner -22,147, $443; Mr. Rego Barros -21,638, $432; and Mr. Knoepfelmacher -20,264, $405.
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(2) | In 2009, we discontinued our prior practice of making annual grants of options to purchase our common stock to our directors. Consistent with that change, no awards of options to purchase common stock were made to our directors in 2014. The aggregate number of shares of our common stock underlying options held by each of the non-employee directors on December 31, 2014 were as follows: Messrs. Beebe, Knoepfelmacher and Rego Barros - 0; Mr. Guthrie - 19,700; Ms. Katz and Messrs. Herington and Risner - 63,500; and Mr. Parra - 17,100. |
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(3) | As of December 31, 2014, Mr. Herington held approximately 22,676 deferred share units under that plan that were granted in lieu of director fees earned in 2008, 2009, 2010, 2011, 2012 and 2013. |
Outside Directors Deferral Plan. The Company maintains the NII Holdings, Inc. Outside Directors Deferral Plan, which we refer to as the Director Deferral Plan. The Director Deferral Plan allows our non-employee directors to elect to defer 0%, 50% or 100% of his or her annual retainer and committee fees with the amount deferred by a participant attributed to a hypothetical account and treated as if it is invested in deferred stock units with the value of those units linked to the value of our common stock. Payments out of the participating director’s hypothetical account are made in shares of the Company’s common stock, except that any fractional share is paid in cash. The Company may also elect to make the payment in a lump sum in cash in an amount equal to the value of the deferred stock units credited to the participating director’s hypothetical account. Shares are issued under and governed in accordance with the 2012 Plan. A participating director’s account is payable to the participating director on the first day of the month following his termination of service on the Board. None of our non-employee directors currently participate in our Director Deferral Plan and the Director Deferral Plan is not available for 2015.
Stock Ownership Guidelines
We have adopted director stock ownership guidelines that require our non-employee directors to attain certain stock ownership levels and therefore maintain a vested interest in our equity performance. Over a five-year period from the date a director joins the Board, non-employee directors are expected to reach an ownership level of five times their cash base retainer and to retain that ownership. Our current base retainer is $70,000, thus our non-employee directors currently have a share ownership target of $350,000.
Under our policy, an increase in the base retainer of non-employee directors will result in an increase in the ownership requirement. The types of stock ownership that qualify toward the ownership requirement under our policy include direct stock ownership and the value of unexercised but vested options to the extent that the fair market value of our common stock exceeds the option exercise price.
Non-employee directors must hold all equity received until their target is met. Directors will be deemed to be in compliance with the guidelines and will not be required to purchase additional shares to meet the ownership requirement if they met their target ownership level in compliance with the guidelines following any sale of shares.
On December 5, 2014, the Company granted a waiver under the stock ownership guidelines for the sale of common stock by a non-employee director who had previously attained his required stock ownership level. There were no other dispositions of Company common stock during 2014 and as of December 31, 2014, each of the non-employee directors were in compliance with the guidelines. Mr. Shindler is covered by the employee stock ownership guidelines, and as chief executive officer, he is expected to hold equity equivalent to five times his base salary.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is a current or former officer of us or any of our subsidiaries. In addition, there are no compensation committee interlocks with other entities with respect to any such member.Stockholders.
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| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2014, with respectrequired by this item will be provided by being incorporated herein by reference to the 2012 Plan,Company’s definitive proxy statement for the equity compensation plan under which shares2016 Annual Meeting of our common stock are authorized for issuance.
|
| | | | | | | |
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights |
| Weighted-average exercise price of outstanding options, warrants and rights |
| Number of securities remaining available for future issuance under equity compensation plans(1) |
| |
| Equity compensation plans approved by security holders | 6,034,151 |
| 26.57 |
| 23,824,039 |
| (2) |
| Total | 6,034,151 |
| | 23,824,039 |
| |
(1) Amounts exclude any securities to be issued upon exercise of outstanding options, warrants and rights, and shares subject to an outstanding but unvested restricted stock or restricted stock unit award.
(2) The 2012 Plan permits the grant of one or more of the following awards: options, restricted stock, restricted stock units and cash-based incentives. The number of shares authorized to be issued under the 2012 Plan will be reduced by one share of common stock for each share of common stock issued pursuant to a stock option and by one and one-half shares of common stock for each share of common stock issued pursuant to all other equity-based awards. As of December 31, 2014, common stock reserved for future issuance does not include 2,386,673 restricted stock units that were issued in 2012, 2013 and 2014 that, if settled in shares of common stock, would reduce the shares available for grant under our 2012 Plan by 3,580,009 shares.
Securities Ownership of Directors and Management
In the table and the related footnotes below, we list the amount and percentage of shares of our common stock that are deemed under the rules of the Securities and Exchange Commission to be beneficially owned on February 28, 2015 by:
each person who served as one of our directors as of that date;
each of the named executive officers; and
all directors and executive officers as a group.
|
| | | | | | | |
| | Shares Covered by |
| Name of Beneficial Owner | Shares Owned and Vested Options (1) |
| Options to Vest (2) | Restricted Stock to Vest (3) | Percent of Class (4) | |
| Salvador Alvarez | - |
| - | - | * | |
| Kevin L. Beebe | 38,543 |
| - | - | * | |
| Gary D. Begeman | 489,420 |
| - | - | * | |
| Juan R. Figuereo | 70,439 |
| - | - | * | |
| Donald Guthrie | 64,522 |
| - | - | * | |
| Gokul V. Hemmady | 581,467 |
| - | - | * | |
Charles M. Herington(5) | 93,322 |
| - | - | * | |
| Carolyn F. Katz | 124,322 |
| - | - | * | |
| Ricardo Knoepfelmacher | 4,113 |
| - | - | * | |
| Rosendo G. Parra | 41,922 |
| - | - | * | |
| Paulino do Rego Barros, Jr. | 7,073 |
| - | - | * | |
| John W. Risner | 74,573 |
| - | - | * | |
| Steven M. Shindler | 1,209,855 |
| - | - | * | |
| All directors and executive officers as a group (15 persons) | 2,982,527 |
| | | 1.73 | % |
* Indicates ownership of less than 1%.
| |
(1) | Includes common stock currently owned, deferred share units and exercisable options, including those options with an exercise price that is greater than the trading price of our common stock on February 28, 2015. This column does not include shares covered by options and restricted stock that vest within 60 days of February 28, 2015, which are reflected in the second and third columns in the table. Unless otherwise indicated by footnote, the named individuals have sole voting and investment power with respect to beneficially owned shares of stock. A person is also deemed to be a beneficial owner of any securities if that person has the right to acquire beneficial ownership within 60 days of the relevant date. Shares beneficially owned as a result of the right to acquire beneficial ownership within 60 days are reflected in the second and third columns of the table. |
| |
(2) | Indicates shares that may be acquired upon the exercise of stock options exercisable on or within 60 days of February 28, 2015. |
| |
(3) | Indicates shares of restricted common stock that are scheduled to vest on or within 60 days of February 28, 2015. |
| |
(4) | Based on the total amount of shares reflected in columns one through three and 172,363,259 shares of common stock issued and outstanding on February 28, 2015. |
| |
(5) | Includes 22,677 deferred share units granted in lieu of cash compensation pursuant to the Company’s Outside Director Deferral Plan. |
Securities Ownership of Principal Stockholders
There is no person or group, as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, known by us to be the beneficial owner of more than 5% of our outstanding common stock as of February 28, 2015.Stockholders.
| |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Director Independence
In accordance with our Corporate Governance Guidelines, a majority of our Board mustThe information required by this item will be independent as definedprovided by the NASDAQ listing rules and the Securities Exchange Act of 1934, as amended. On February 11, 2015, the Board determined that the following eight of its nine current members (89%) are independent: Kevin L. Beebe, Donald Guthrie, Charles M. Herington, Carolyn F. Katz, Ricardo Knoepfelmacher, Rosendo G. Parra, Paulino do Rego Barros, Jr. and John W. Risner. In making that determination, the Board considered the relationships described below in “Certain Relationships and Related Transactions.” The Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee are comprised entirely of independent directors.
Certain Relationships and Related Transactions
Our Corporate Governance Guidelines require that the Audit Committee review and approve or ratify transactions involving the Company and related persons (such asbeing incorporated herein by reference to the Company’s officers, directors, family members of the officers and directors and other related parties). In determining whether to approve or ratify a related party transaction, the Audit Committee evaluates whether the transaction is in the best interests of the Company taking into consideration all relevant factors, including as applicable the Company’s business rationale for entering into the transaction and the fairness of the transaction to the Company. The Audit Committee generally seeks to consider and approve these transactions in advance where practicable, but may also ratify them after the transactions are entered into, particularly in instances where the transactions are entered into in the ordinary course of business or if the transaction is on terms that are consistent with a policy previously approved by the Audit Committee or the Board. In
instances where the transaction is subject to renewal or if the Company has the right to terminate the relationship, the Audit Committee expects to periodically monitor the transaction to ensure that there are no changed circumstances that would render it advisabledefinitive proxy statement for the Company to amend or terminate the transaction.
Currently, the only related person transaction is the transaction described below.
|
| |
Transaction | Description of Relationship; Audit Committee Determination |
Equifax, Inc. | In accordance with our Corporate Governance Guidelines, the Audit Committee has continued to monitor the Company’s relationship with Equifax, Inc., which provided customer credit evaluation services to the Company during 2014. |
| As of December, 31, 2014, Paulino do Rego Barros, Jr., a member of the Board, serves as president, international of Equifax. |
| The Audit Committee has continued to monitor the Company’s relationship with Equifax and its affiliates to ensure there were no changed circumstances that would render it advisable for the Company to amend or terminate the transaction. The Company made payments of approximately $2,000,000 to Equifax and its affiliates for the services provided in 2014, excluding any payments made by Nextel Chile, which was sold in August 2014. In February 2015, the Board determined, upon review, that the transaction continued to be in the best interest of the Company and ratified the transaction. |
2016 Annual Meeting of Stockholders.
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| Item 14. | Principal Accountant Fees and Services |
Fees Paid to Independent Registered Public Accounting Firms
KPMG LLP audited our consolidated financial statements for the fiscal year ended December 31, 2014 and PricewaterhouseCoopers LLP audited our consolidated financial statements for the fiscal year ended December 31, 2013. The following table sets forth the fees accrued or paidinformation required by this item will be provided by being incorporated herein by reference to the Company’s independent registered public accounting firmdefinitive proxy statement for the years ended December 31, 2014 and December 31, 2013.2016 Annual Meeting of Stockholders.
|
| | | | | | |
| | KPMG | PwC |
| | 2014 | 2013 |
Audit Fees(1) | $ | 9,609,173 |
| $ | 9,766,035 |
|
Audit-Related Fees(2) | $ | — |
| $ | 31,304 |
|
Tax Fees(3) | $ | 39,890 |
| $ | 202,373 |
|
All Other Fees(4) | $ | — |
| $ | 210,102 |
|
| TOTAL | $ | 9,649,063 |
| $ | 10,209,814 |
|
(1) Audit fees consist of those fees rendered for the audit of our annual consolidated financial statements, audit of the effectiveness of internal controls over financial reporting, review of financial statements included in our quarterly reports and for services normally provided in connection with statutory and regulatory filings or engagements, such as comfort letters or attest services.
(2) Audit-related fees consist of those fees for assurance and related services that are reasonably related to the review of our financial statements.
(3) Tax fees consist of those fees billed for professional services for tax compliance, tax advice, tax planning, transfer pricing and expatriate tax services.
(4) Fees incurred for services other than those described above for consulting, assessment of information technology systems, salary and human resources projects, research and disclosure tools and expenses.
Audit Committee Pre-Approval Policies and Procedures
It is the policy of the Audit Committee that our independent registered public accounting firm may provide only those services that have been pre-approved by the Audit Committee. Unless a type of service to be provided by the independent registered public accounting firm has received general pre-approval, it requires specific pre-approval by the Audit Committee or, in specified circumstances, the Audit Committee chair pursuant to authority delegated by the Audit Committee. The term of any general pre-approval is eighteen months from the date of pre-approval, unless the Audit Committee or a related engagement letter specifically provides for a different period. The Audit Committee annually reviews and pre-approves the services that may be provided by the independent registered public accounting firm without obtaining specific pre-approval. The Audit Committee has delegated its pre-approval authority to Carolyn Katz, the chair of the Audit Committee.
Requests or applications to provide services that require specific approval by the Audit Committee must be submitted to the Audit Committee by both the independent registered public accounting firm and our controller, and must include a joint statement as to whether, in their view, the request or application is consistent with the Securities and Exchange Commission’s rules on auditor independence. For the years ended December 31, 2014 and December 31, 2013, all services provided by our independent registered public accounting firms were pre-approved in accordance with the Audit Committee policy described above.
PART IV
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| Item 15. | Exhibits, Financial Statement Schedules. |
(a)(1) Financial Statements. Consolidated financial statements and reports of independent registered public accounting firms filed as part of this report are listed below:
|
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| | Page |
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Report of Independent Registered Public Accounting Firm | |
Consolidated Balance Sheets — As of December 31, 2015 (Successor Company) and December 31, 2014 and 2013(Predecessor Company) | |
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| |
| |
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| (2) | Financial Statement Schedules. The following financial statement schedules are filed as part of this report. Schedules other than the schedules listed below are omitted because they are either not required or not applicable. |
| |
| (3) | List of Exhibits. The exhibits filed as part of this report are listed in the Exhibit Index, which is incorporated in this item by reference. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NII HOLDINGS, INC.
|
| | |
| | By: | /s/ ESTEBAN NARANJOTIMOTHY M. MULIERI |
| | | Esteban NaranjoTimothy M. Mulieri
Vice President, Corporate Controller (on behalf of the registrant and as Principal Accounting Officer) |
March 10, 20153, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 10, 20153, 2016.
|
| | |
Signature | | Title |
| | | |
| /s/ Steven M. Shindler | | Chief Executive Officer |
| Steven M. Shindler | | |
| | | |
/s/ Juan R. FiguereoDaniel E. Freiman | | Executive Vice President, Chief Financial Officer (Principal Financial Officer) |
Juan R. FiguereoDaniel E. Freiman | | |
| | | |
| /s/ Kevin L. Beebe | | Chairman of the Board of Directors |
| Kevin L. Beebe | | |
| | | |
/s/ Donald GuthrieJames V. Continenza | | Director |
Donald GuthrieJames V. Continenza | | |
| | | |
/s/ Charles M. HeringtonHoward S. Hoffmann | | Director |
Charles M. HeringtonHoward S. Hoffmann | | |
| | | |
/s/ Carolyn Katz | | Director |
Carolyn Katz | | |
| | |
| Ricardo Knoepfelmacher | | Director |
| Ricardo Knoepfelmacher | | |
| | | |
/s/ Rosendo G. ParraChristopher T. Rogers | | Director |
Rosendo G. ParraChristopher T. Rogers | | |
| | | |
/s/ Paulino do Rego BarrosRobert A. Schriesheim | | Director |
Paulino do Rego Barros | | |
| | |
/s/ John W. Risner | | Director |
John W. RisnerRobert A. Schriesheim | | |
NII HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
|
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| |
| |
| CONSOLIDATED FINANCIAL STATEMENTS | |
| |
| |
| |
| |
| |
| |
| FINANCIAL STATEMENT SCHEDULES | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
NII Holdings, Inc. (Debtor-In-Possession):
We have audited the accompanying consolidated balance sheetsheets of NII Holdings, Inc. (Debtor-In-Possession) and subsidiaries (the Company) as of December 31, 2015 (Successor) and December 31, 2014 (Predecessor), and the related consolidated statements of comprehensive loss,(loss) income, changes in stockholders’ equity (deficit) equity,, and cash flows for the six month periods ended December 31, 2015 (Successor) and June 30, 2015 (Predecessor) and for the year then ended.ended December 31, 2014 (Predecessor). In connection with our auditaudits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audit.audits.
We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit providesaudits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NII Holdings, Inc. (Debtor-In-Possession) and subsidiaries as of December 31, 2015 (Successor) and December 31, 2014 (Predecessor), and the results of their operations and their cash flows for the six month periods ended December 31, 2015 (Successor) and June 30, 2015 (Predecessor) and for the year then ended December 31, 2014 (Predecessor), in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements and financial statement schedules have been prepared assuming that the Company will continue as a going concern. As discussed in Note 21 to the consolidated financial statements, the Company has suffered recurring losses from operations, hasis unlikely to satisfy a net capital deficiency,financial covenant included in Nextel Brazil’s local bank loans and filed a voluntary petition for relief under Chapter 11the existence of Title 11 of the United States Bankruptcy Code, whichcross default provisions included in Nextel Brazil’s equipment financing facility raise substantial doubt about itsthe Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2.1. The consolidated financial statements and financial statement schedules do not include any adjustments that might result from the outcome of this uncertainty.
We alsoAs discussed in Note 2 to the consolidated financial statements, on June 26, 2015 the Company satisfied the conditions to emerge from Chapter 11 bankruptcy proceedings. Accordingly, the accompanying consolidated financial statements as of and for the six month period ended December 31, 2015 (Successor) have audited,been prepared in accordance with the standards of the PublicAccounting Standards Codification Topic 852, Reorganizations. The Company Accounting Oversight Board (United States), NII Holdings, Inc.’s (Debtor-In-Possession) internal control over financialapplied fresh start reporting as of December 31, 2014, based on criteria establishedJune 30, 2015 and recognized net assets at fair value, resulting in Internal Control - Integrated Framework(1992) issued bya lack of comparability with the Committee of Sponsoring Organizationsconsolidated financial statements of the Treadway Commission (COSO), and our report dated March 10, 2015 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.Predecessor.
/s/ KPMG LLP
McLean, Virginia
March 10, 20153, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
NII Holdings, Inc. (Debtor-in-Possession):
We have audited NII Holdings, Inc.’s (Debtor-in-Possession) internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). NII Holdings, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting (Item 9A). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness was identified at the Company’s reportable segment in Brazil (Nextel Brazil) related to the failure to establish an effective control environment and monitoring activities, including an organizational structure with sufficiently trained resources where supervisory roles, responsibilities, and monitoring activities are aligned with the Company’s financial reporting objectives. Further, Nextel Brazil did not maintain effective operation of process level controls, including reconciliation and management review controls. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of NII Holdings, Inc. (Debtor-in-Possession) and subsidiaries as of December 31, 2014 and the related consolidated statements of comprehensive loss, changes in stockholders’ (deficit) equity, and cash flows for the year then ended. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2014 consolidated financial statements, and this report does not affect our report dated March 10, 2015, which expressed an unqualified opinion on those consolidated financial statements.
In our opinion, because of the effect of the aforementioned material weakness on the achievement of the objectives of the control criteria, NII Holdings, Inc. (Debtor-in-Possession) has not maintained effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)..
/s/ KPMG LLP
McLean, Virginia
March 10, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of NII Holdings, Inc.:
In our opinion, the consolidated balance sheet as of December 31, 2013 and the related consolidated statements of comprehensive loss,(loss) income, of changes in stockholders’ equity (deficit) equity and of cash flows for each of two years in the periodyear ended December 31, 2013 present fairly, in all material respects, the financial positionresults of operations and cash flows of NII Holdings, Inc. (Debtor-in-Possession) and its subsidiaries at December 31, 2013, and(Predecessor Company) for the results of their operations and their cash flows for each of the two years in the periodyear ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules for each of the two years in the periodyear ended December 31, 2013 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.audit. We conducted our auditsaudit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 1 to the consolidated financial statements appearing under Item 15 of the Company's 2013 annual report on Form 10-K (not presented herein), the Company projected that it was likely that it would not be able to comply with certain debt covenants throughout 2014. This condition and its impact on the Company’s liquidity raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 1 to the consolidated financial statements appearing under Item 15 of the Company's 2013 annual report on Form 10-K (not presented herein). The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
February 28, 2014, except for the effects of discontinued operations discussed in Note 5 to the consolidated financial statements, as to which the date is March 10, 20153, 2016
NII HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (in thousands, except par values) |
| | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | December 31,
2015 | | | December 31,
2014 |
| ASSETS |
| Current assets | |
| | | |
|
| Cash and cash equivalents | $ | 342,184 |
| | | $ | 334,194 |
|
| Short-term investments | 84,317 |
| | | 110,064 |
|
Accounts receivable, net of allowance for doubtful accounts of $39,033 — Successor Company and $30,749 — Predecessor Company | 144,629 |
| | | 256,133 |
|
| Handset and accessory inventory | 24,358 |
| | | 65,885 |
|
| Prepaid expenses and other | 132,534 |
| | | 198,466 |
|
| Assets related to discontinued operations | — |
| | | 697,979 |
|
| Total current assets | 728,022 |
| | | 1,662,721 |
|
| Property, plant and equipment, net | 555,023 |
| | | 1,352,705 |
|
| Intangible assets, net | 892,622 |
| | | 688,153 |
|
| Other assets | 554,241 |
| | | 372,912 |
|
| Assets related to discontinued operations | — |
| | | 1,297,543 |
|
| Total assets | $ | 2,729,908 |
| | | $ | 5,374,034 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| Liabilities not subject to compromise | | | | |
| Current liabilities | |
| | | |
|
| Accounts payable | $ | 43,765 |
| | | $ | 132,642 |
|
| Accrued expenses and other | 262,038 |
| | | 337,651 |
|
| Deferred revenues | 10,386 |
| | | 28,843 |
|
| Current portion of long-term debt | 582,420 |
| | | 717,427 |
|
| Liabilities related to discontinued operations | — |
| | | 486,850 |
|
| Total current liabilities | 898,609 |
| | | 1,703,413 |
|
| Long-term debt | 82,647 |
| | | 207,844 |
|
| Other long-term liabilities | 197,837 |
| | | 209,140 |
|
| Liabilities related to discontinued operations | — |
| | | 624,908 |
|
| Total liabilities not subject to compromise | 1,179,093 |
| | | 2,745,305 |
|
| Liabilities subject to compromise (Note 2) | — |
| | | 4,593,493 |
|
| Commitments and contingencies (Note 9) | | | | |
| Stockholders’ equity (deficit) | |
| | | |
|
Undesignated preferred stock, par value $0.001, 10,000 shares authorized, no shares issued or outstanding — Successor Company | — |
| | | — |
|
Undesignated preferred stock, par value $0.001, 10,000 shares authorized, no shares issued or outstanding — Predecessor Company | — |
| | | — |
|
Common stock, par value $0.001, 140,000 shares authorized, 100,001 shares issued and outstanding — Successor Company | 100 |
| | | — |
|
Common stock, par value $0.001, 600,000 shares authorized, 172,363 shares issued and outstanding — Predecessor Company | — |
| | | 172 |
|
| Paid-in capital — Successor Company | 2,070,497 |
| | | — |
|
| Paid-in capital — Predecessor Company | — |
| | | 1,517,081 |
|
| Accumulated deficit | (274,003 | ) | | | (2,150,664 | ) |
| Accumulated other comprehensive loss | (245,779 | ) | | | (1,331,353 | ) |
| Total stockholders’ equity (deficit) | 1,550,815 |
| | | (1,964,764 | ) |
| Total liabilities and stockholders’ equity (deficit) | $ | 2,729,908 |
| | | $ | 5,374,034 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except par values)
|
| | | | | | | |
| | December 31,
2014 | | December 31,
2013 |
| ASSETS |
| Current assets | |
| | |
|
| Cash and cash equivalents | $ | 573,600 |
| | $ | 1,730,335 |
|
| Short-term investments | 153,612 |
| | 585,760 |
|
| Accounts receivable, net of allowance for doubtful accounts of $55,015 and $54,531 | 398,678 |
| | 511,406 |
|
| Handset and accessory inventory | 207,633 |
| | 336,620 |
|
| Deferred income taxes, net | 50,692 |
| | 127,395 |
|
| Prepaid expenses and other | 329,197 |
| | 397,574 |
|
| Assets related to discontinued operations | — |
| | 59,096 |
|
| Total current assets | 1,713,412 |
| | 3,748,186 |
|
| Property, plant and equipment, net | 2,432,933 |
| | 3,337,545 |
|
| Intangible assets, net | 822,124 |
| | 980,369 |
|
| Deferred income taxes, net | 5,767 |
| | 26,713 |
|
| Other assets | 456,355 |
| | 477,306 |
|
| Assets related to discontinued operations | — |
| | 109,835 |
|
| Total assets | $ | 5,430,591 |
| | $ | 8,679,954 |
|
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY |
| Liabilities not subject to compromise | | | |
| Current liabilities | |
| | |
|
| Accounts payable | $ | 279,804 |
| | $ | 346,128 |
|
| Accrued expenses and other | 562,988 |
| | 959,059 |
|
| Deferred revenues | 89,019 |
| | 127,782 |
|
| Current portion of long-term debt | 777,569 |
| | 96,839 |
|
| Deposits related to 2013 sale of towers | — |
| | 720,013 |
|
| Liabilities related to discontinued operations | — |
| | 36,769 |
|
| Total current liabilities | 1,709,380 |
| | 2,286,590 |
|
| Long-term debt | 734,823 |
| | 5,696,632 |
|
| Deferred income tax liabilities | 58,088 |
| | 108,991 |
|
| Other long-term liabilities | 299,571 |
| | 227,028 |
|
| Liabilities related to discontinued operations | — |
| | 5,326 |
|
| Total liabilities not subject to compromise | 2,801,862 |
| | 8,324,567 |
|
| Liabilities subject to compromise (Note 2) | 4,593,493 |
| | — |
|
| Commitments and contingencies (Note 11) |
|
| |
|
|
| Stockholders’ (deficit) equity | |
| | |
|
Undesignated preferred stock, par value $0.001, 10,000 shares authorized — 2014 and 2013, no shares issued or outstanding — 2014 and 2013 | — |
| | — |
|
Common stock, par value $0.001, 600,000 shares authorized — 2014 and 2013, 172,363 shares issued and outstanding — 2014, 172,105 shares issued and outstanding — 2013 | 172 |
| | 172 |
|
| Paid-in capital | 1,517,081 |
| | 1,504,258 |
|
| Accumulated deficit | (2,150,664 | ) | | (192,966 | ) |
| Accumulated other comprehensive loss | (1,331,353 | ) | | (956,077 | ) |
| Total stockholders’ (deficit) equity | (1,964,764 | ) | | 355,387 |
|
| Total liabilities and stockholders’ (deficit) equity | $ | 5,430,591 |
| | $ | 8,679,954 |
|
NII HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (in thousands, except per share amounts) |
| | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2015 | | | 2015 | | 2014 | | 2013 |
| Operating revenues | |
| | | | | |
| | |
|
| Service and other revenues | $ | 501,130 |
| | | $ | 643,904 |
| | $ | 1,691,849 |
| | $ | 2,108,881 |
|
| Handset and accessory revenues | 28,304 |
| | | 39,807 |
| | 157,105 |
| | 94,159 |
|
| | 529,434 |
| | | 683,711 |
| | 1,848,954 |
| | 2,203,040 |
|
| Operating expenses | |
| | | |
| | |
| | |
|
Cost of service (exclusive of depreciation and amortization included below) | 212,852 |
| | | 256,085 |
| | 692,601 |
| | 767,383 |
|
| Cost of handsets and accessories | 46,904 |
| | | 121,143 |
| | 415,450 |
| | 263,407 |
|
| Selling, general and administrative | 304,823 |
| | | 419,699 |
| | 997,735 |
| | 1,037,763 |
|
| Impairment, restructuring and other charges | 32,308 |
| | | 36,792 |
| | 105,664 |
| | 121,578 |
|
| Depreciation | 64,108 |
| | | 126,789 |
| | 340,159 |
| | 347,466 |
|
| Amortization | 21,256 |
| | | 27,089 |
| | 53,902 |
| | 35,144 |
|
| | 682,251 |
| | | 987,597 |
| | 2,605,511 |
| | 2,572,741 |
|
| Operating loss | (152,817 | ) | | | (303,886 | ) | | (756,557 | ) | | (369,701 | ) |
| Other (expense) income | |
| | | |
| | |
| | |
|
| Interest expense, net | (55,563 | ) | | | (82,820 | ) | | (372,904 | ) | | (455,539 | ) |
| Interest income | 17,200 |
| | | 15,327 |
| | 38,345 |
| | 20,105 |
|
| Foreign currency transaction losses, net | (99,737 | ) | | | (63,948 | ) | | (51,149 | ) | | (92,456 | ) |
| Other expense, net | (1,176 | ) | | | (137 | ) | | (5,829 | ) | | (11,818 | ) |
| | (139,276 | ) | | | (131,578 | ) | | (391,537 | ) | | (539,708 | ) |
| Loss from continuing operations before reorganization items and income tax benefit (provision) | (292,093 | ) | | | (435,464 | ) | | (1,148,094 | ) | | (909,409 | ) |
| Reorganization items (Note 2) | 1,467 |
| | | 1,956,874 |
| | (71,601 | ) | | — |
|
| Income tax benefit (provision) (Note 11) | 5,015 |
| | | (2,009 | ) | | (4,976 | ) | | (291,016 | ) |
| Net (loss) income from continuing operations | (285,611 | ) | | | 1,519,401 |
| | (1,224,671 | ) | | (1,200,425 | ) |
Income (loss) from discontinued operations, net of income taxes (Note 5) | 11,608 |
| | | 221,114 |
| | (733,027 | ) | | (449,174 | ) |
| Net (loss) income | $ | (274,003 | ) | | | $ | 1,740,515 |
| | $ | (1,957,698 | ) | | $ | (1,649,599 | ) |
| | | | | | | | | |
Net (loss) income from continuing operations per common share, basic | $ | (2.86 | ) | | | $ | 8.73 |
| | $ | (7.11 | ) | | $ | (6.98 | ) |
Net income (loss) from discontinued operations per common share, basic | 0.12 |
| | | 1.27 |
| | (4.25 | ) | | (2.62 | ) |
| Net (loss) income per common share, basic | $ | (2.74 | ) | | | $ | 10.00 |
| | $ | (11.36 | ) | | $ | (9.60 | ) |
| | | | | | | | | |
Net (loss) income from continuing operations per common share, diluted | $ | (2.86 | ) | | | $ | 8.71 |
| | $ | (7.11 | ) | | $ | (6.98 | ) |
| Net income (loss) from discontinued operations per common share, diluted | $ | 0.12 |
| | | $ | 1.27 |
| | $ | (4.25 | ) | | $ | (2.62 | ) |
| Net (loss) income per common share, diluted | $ | (2.74 | ) | | | $ | 9.98 |
| | $ | (11.36 | ) | | $ | (9.60 | ) |
| | | | | | | | | |
| Weighted average number of common shares outstanding, basic | 100,000 |
| | | 172,363 |
| | 172,283 |
| | 171,912 |
|
| | | | | | | | | |
| Weighted average number of common shares outstanding, diluted | 100,000 |
| | | 172,691 |
| | 172,283 |
| | 171,912 |
|
| | | | | | | | | |
| Comprehensive (loss) income, net of income taxes | | | | | | | | |
| Foreign currency translation adjustment | $ | (248,841 | ) | | | $ | (205,899 | ) | | $ | (340,847 | ) | | $ | (334,893 | ) |
| Reclassification adjustment for sale of Nextel Argentina, Nextel Mexico and Nextel Chile (Note 5) | (1,672 | ) | | | 421,953 |
| | (33,885 | ) | | — |
|
| Other | 4,734 |
| | | 2,956 |
| | (544 | ) | | 2,257 |
|
| Other comprehensive (loss) income | (245,779 | ) | | | 219,010 |
| | (375,276 | ) | | (332,636 | ) |
| Net (loss) income | (274,003 | ) | | | 1,740,515 |
| | (1,957,698 | ) | | (1,649,599 | ) |
| Total comprehensive (loss) income | $ | (519,782 | ) | | | $ | 1,959,525 |
| | $ | (2,332,974 | ) |
| $ | (1,982,235 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands, except per share amounts)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 |
| Operating revenues | |
| | |
| | |
|
| Service and other revenues | $ | 3,447,167 |
| | $ | 4,517,154 |
| | $ | 5,424,766 |
|
| Handset and accessory revenues | 241,553 |
| | 194,413 |
| | 268,469 |
|
| | 3,688,720 |
| | 4,711,567 |
| | 5,693,235 |
|
| Operating expenses | |
| | |
| | |
|
Cost of service (exclusive of depreciation and amortization included below) | 1,308,835 |
| | 1,392,140 |
| | 1,509,543 |
|
| Cost of handsets and accessories | 973,491 |
| | 884,789 |
| | 792,466 |
|
| Selling, general and administrative | 1,699,058 |
| | 1,941,773 |
| | 2,261,922 |
|
| Impairment and restructuring charges | 220,742 |
| | 168,543 |
| | 30,401 |
|
| Gain on sale of towers, net (Note 9) | (74,631 | ) | | — |
| | — |
|
| Depreciation | 592,056 |
| | 629,606 |
| | 558,224 |
|
| Amortization | 80,649 |
| | 63,321 |
| | 46,937 |
|
| | 4,800,200 |
| | 5,080,172 |
| | 5,199,493 |
|
| Operating (loss) income | (1,111,480 | ) | | (368,605 | ) | | 493,742 |
|
| Other (expense) income | |
| | |
| | |
|
| Interest expense, net | (449,345 | ) | | (526,530 | ) | | (359,795 | ) |
| Interest income | 66,425 |
| | 43,327 |
| | 33,785 |
|
| Foreign currency transaction losses, net | (130,499 | ) | | (123,369 | ) | | (63,330 | ) |
| Other expense, net | (6,721 | ) | | (12,859 | ) | | (28,097 | ) |
| | (520,140 | ) | | (619,431 | ) | | (417,437 | ) |
| (Loss) income from continuing operations before reorganization items and income tax provision | (1,631,620 | ) | | (988,036 | ) | | 76,305 |
|
| Reorganization items (Note 2) | (71,601 | ) | | — |
| | — |
|
| Income tax provision (Note 13) | (74,091 | ) | | (446,052 | ) | | (158,144 | ) |
| Net loss from continuing operations | (1,777,312 | ) | | (1,434,088 | ) | | (81,839 | ) |
| Loss from discontinued operations, net of income taxes (Note 5) | (180,386 | ) | | (215,511 | ) | | (683,410 | ) |
| Net loss | $ | (1,957,698 | ) | | $ | (1,649,599 | ) | | $ | (765,249 | ) |
| | | | | | |
Net loss from continuing operations per common share, basic and diluted | $ | (10.31 | ) | | $ | (8.34 | ) | | $ | (0.48 | ) |
Net loss from discontinued operations per common share, basic and diluted | (1.05 | ) | | (1.26 | ) | | (3.98 | ) |
| Net loss per common share, basic and diluted | $ | (11.36 | ) | | $ | (9.60 | ) | | $ | (4.46 | ) |
| | | | | | |
| Weighted average number of common shares outstanding, basic and diluted | 172,283 |
| | 171,912 |
| | 171,499 |
|
| | | | | | |
| Comprehensive loss, net of income taxes | | | | | |
| Foreign currency translation adjustment | $ | (340,847 | ) | | $ | (334,893 | ) | | $ | (97,589 | ) |
| Reclassification adjustment for sale of Nextel Chile (Note 5) | (33,885 | ) | | — |
| | — |
|
| Other | (544 | ) | | 2,257 |
| | (1,802 | ) |
| Other comprehensive loss | (375,276 | ) | | (332,636 | ) | | (99,391 | ) |
| Net loss | (1,957,698 | ) | | (1,649,599 | ) | | (765,249 | ) |
| Total comprehensive loss | $ | (2,332,974 | ) | | $ | (1,982,235 | ) |
| $ | (864,640 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY (in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Paid-in Capital | | (Accumulated Deficit) Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders’ (Deficit) Equity |
| | Shares | | Amount | | | | |
| Balance, January 1, 2012 | 171,177 |
| | $ | 171 |
| | $ | 1,440,079 |
| | $ | 2,221,882 |
| | $ | (524,050 | ) | | $ | 3,138,082 |
|
| Net loss | — |
| | — |
| | — |
| | (765,249 | ) | | — |
| | (765,249 | ) |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (99,391 | ) | | (99,391 | ) |
| Purchase of convertible notes | — |
| | — |
| | (526 | ) | | — |
| | — |
| | (526 | ) |
| Share-based compensation activity | 476 |
| | — |
| | 43,533 |
| | — |
| | — |
| | 43,533 |
|
| Balance, December 31, 2012 | 171,653 |
| | 171 |
| | 1,483,086 |
| | 1,456,633 |
| | (623,441 | ) | | 2,316,449 |
|
| Net loss | — |
| | — |
| | — |
| | (1,649,599 | ) | | — |
| | (1,649,599 | ) |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (332,636 | ) | | (332,636 | ) |
| Share-based compensation activity | 452 |
| | 1 |
| | 21,172 |
| | — |
| | — |
| | 21,173 |
|
| Balance, December 31, 2013 | 172,105 |
| | 172 |
| | 1,504,258 |
| | (192,966 | ) | | (956,077 | ) | | 355,387 |
|
| Net loss | — |
| | — |
| | — |
| | (1,957,698 | ) | | — |
| | (1,957,698 | ) |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (375,276 | ) | | (375,276 | ) |
| Share-based compensation activity | 258 |
| | — |
| | 12,823 |
| | — |
| | — |
| | 12,823 |
|
| Balance, December 31, 2014 | 172,363 |
| | $ | 172 |
| | $ | 1,517,081 |
| | $ | (2,150,664 | ) | | $ | (1,331,353 | ) | | $ | (1,964,764 | ) |
NII HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Paid-in Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity (Deficit) |
| | Shares | | Amount | | | | |
Balance, January 1, 2013 — Predecessor Company | 171,653 |
| | $ | 171 |
| | $ | 1,483,086 |
| | $ | 1,456,633 |
| | $ | (623,441 | ) | | $ | 2,316,449 |
|
| Net loss | — |
| | — |
| | — |
| | (1,649,599 | ) | | — |
| | (1,649,599 | ) |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (332,636 | ) | | (332,636 | ) |
| Share-based compensation activity | 452 |
| | 1 |
| | 21,172 |
| | — |
| | — |
| | 21,173 |
|
Balance, December 31, 2013 — Predecessor Company | 172,105 |
| | 172 |
| | 1,504,258 |
| | (192,966 | ) | | (956,077 | ) | | 355,387 |
|
| Net loss | — |
| | — |
| | — |
| | (1,957,698 | ) | | — |
| | (1,957,698 | ) |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (375,276 | ) | | (375,276 | ) |
| Share-based compensation activity | 258 |
| | — |
| | 12,823 |
| | — |
| | — |
| | 12,823 |
|
Balance, December 31, 2014 — Predecessor Company | 172,363 |
| | 172 |
| | 1,517,081 |
| | (2,150,664 | ) | | (1,331,353 | ) | | (1,964,764 | ) |
| Net income | — |
| | — |
| | — |
| | 1,740,515 |
| | — |
| | 1,740,515 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 219,010 |
| | 219,010 |
|
| Share-based compensation activity | — |
| | — |
| | 5,239 |
| | — |
| | — |
| | 5,239 |
|
Balance, June 30, 2015 — Predecessor Company | 172,363 |
| | 172 |
| | 1,522,320 |
| | (410,149 | ) | | (1,112,343 | ) | | — |
|
| Elimination of Predecessor Company's equity | (172,363 | ) | | (172 | ) | | (1,522,320 | ) | | 410,149 |
| | 1,112,343 |
| | — |
|
| Issuance of Successor Company's common stock | 100,000 |
| | 100 |
| | 2,067,565 |
| | — |
| | — |
| | 2,067,665 |
|
Balance, July 1, 2015 — Successor Company | 100,000 |
| | 100 |
| | 2,067,565 |
| | — |
| | — |
| | 2,067,665 |
|
| Net loss | — |
| | — |
| | — |
| | (274,003 | ) | | — |
| | (274,003 | ) |
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (245,779 | ) | | (245,779 | ) |
| Share-based compensation activity | 1 |
| | — |
| | 2,932 |
| | — |
| | — |
| | 2,932 |
|
Balance, December 31, 2015 — Successor Company | 100,001 |
| | $ | 100 |
| | $ | 2,070,497 |
| | $ | (274,003 | ) | | $ | (245,779 | ) | | $ | 1,550,815 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) | |
NII HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) | | NII HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) |
| | | | | | | | | Successor Company | | | Predecessor Company |
| | Year Ended December 31, | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, | | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 | 2015 | | | 2015 | | 2014 | | 2013 |
| Cash flows from operating activities: | |
| | |
| | |
| |
| | | | | |
| | |
|
| Net loss | $ | (1,957,698 | ) | | $ | (1,649,599 | ) | | $ | (765,249 | ) | |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | |
| | |
| |
| Loss from discontinued operations | 180,386 |
| | 215,511 |
| | 683,410 |
| |
| Reorganization items | 54,851 |
| | — |
| | — |
| |
| Amortization of debt discount and financing costs | 16,816 |
| | 31,283 |
| | 21,598 |
| |
| Net (loss) income | | $ | (274,003 | ) | | | $ | 1,740,515 |
| | $ | (1,957,698 | ) | | $ | (1,649,599 | ) |
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | | | | | | | |
| | |
|
| (Income) loss from discontinued operations | | (11,608 | ) | | | (221,114 | ) | | 733,027 |
| | 449,174 |
|
| Amortization of debt discounts and financing costs | | 181 |
| | | 18,753 |
| | 14,889 |
| | 26,704 |
|
| Depreciation and amortization | 672,705 |
| | 692,927 |
| | 605,161 |
| 85,364 |
| | | 153,878 |
| | 394,061 |
| | 382,610 |
|
| Provision for doubtful accounts | 114,784 |
| | 111,460 |
| | 214,454 |
| |
| Provision for losses on accounts receivable | | 32,279 |
| | | 65,396 |
| | 57,418 |
| | 77,528 |
|
| Provision for inventory obsolescence | 40,768 |
| | 56,077 |
| | 1,470 |
| 2,156 |
| | | — |
| | 29,308 |
| | 28,869 |
|
| Foreign currency transaction losses, net | 130,499 |
| | 123,369 |
| | 63,330 |
| 99,737 |
| | | 63,948 |
| | 51,149 |
| | 92,456 |
|
| Impairment charges, restructuring charges and losses on disposal of fixed assets | 176,577 |
| | 149,227 |
| | 38,535 |
| 13,354 |
| | | 31,471 |
| | 79,929 |
| | 119,543 |
|
| Gain on sale of towers | (74,631 | ) | | — |
| | — |
| |
| Deferred income tax provision (benefit) | 48,453 |
| | 382,070 |
| | (17,877 | ) | |
| Deferred income tax (benefit) provision | | (2,513 | ) | | | 905 |
| | 2,052 |
| | 268,810 |
|
| Share-based compensation expense | 13,845 |
| | 27,255 |
| | 40,430 |
| 2,932 |
| | | 5,239 |
| | 10,041 |
| | 19,293 |
|
| Reorganization items in connection with emergence from Chapter 11 | | — |
| | | (1,775,787 | ) | | 54,851 |
| | — |
|
| Fresh start adjustments, net | | — |
| | | (248,709 | ) | | — |
| | — |
|
| Other, net | (5,002 | ) | | (11,537 | ) | | 30,981 |
| (3,838 | ) | | | (11,083 | ) | | (9,560 | ) | | 7,319 |
|
| Changes in assets and liabilities: | | | |
| | |
| | | | | | |
| | |
|
| Accounts receivable | (52,706 | ) | | (29,458 | ) | | (83,946 | ) | (38,756 | ) | | | (35,013 | ) | | (73,430 | ) | | (15,884 | ) |
| Prepaid value-added taxes | | 9,311 |
| | | 50,564 |
| | (72,657 | ) | | (37,128 | ) |
| Handset and accessory inventory | 57,465 |
| | (112,919 | ) | | (48,705 | ) | 13,940 |
| | | 7,513 |
| | (32,963 | ) | | (31,660 | ) |
| Prepaid expenses and other | (66,218 | ) | | (24,495 | ) | | (239,876 | ) | (21,027 | ) | | | (26,688 | ) | | (18,426 | ) | | (66,124 | ) |
| Other long-term assets | (166,366 | ) | | (52,875 | ) | | (99,862 | ) | 20,981 |
| | | 47,253 |
| | (136,056 | ) | | (21,683 | ) |
| Accrued value-added taxes | | (285 | ) | | | (7,941 | ) | | (1,772 | ) | | (22,256 | ) |
| Accounts payable, accrued expenses and other | 249,339 |
| | 63,386 |
| | 119,865 |
| (29,678 | ) | | | (14,254 | ) | | 281,385 |
| | 94,528 |
|
| Total operating cash (used in) provided by continuing operations | (566,133 | ) | | (28,318 | ) | | 563,719 |
| |
| Total operating cash used in discontinued operations | (62,583 | ) | | (164,133 | ) | | (210,536 | ) | |
| Net cash (used in) provided by operating activities | (628,716 | ) | | (192,451 | ) | | 353,183 |
| |
| Total operating cash used in continuing operations | | (101,473 | ) | | | (155,154 | ) | | (594,452 | ) | | (277,500 | ) |
| Total operating cash provided by (used in) discontinued operations | | 22,988 |
| | | (99,603 | ) | | (34,264 | ) | | 85,035 |
|
| Net cash used in operating activities | | (78,485 | ) | | | (254,757 | ) | | (628,716 | ) | | (192,465 | ) |
| Cash flows from investing activities: | | | |
| | |
| | | | | | |
| | |
|
| Capital expenditures | (612,161 | ) | | (620,895 | ) | | (953,882 | ) | (76,630 | ) | | | (88,485 | ) | | (326,246 | ) | | (387,286 | ) |
| Purchase of investments | (1,637,913 | ) | | (2,360,529 | ) | | (1,678,918 | ) | |
| Purchases of investments | | (558,883 | ) | | | (757,714 | ) | | (1,593,250 | ) | | (2,360,529 | ) |
| Proceeds from sales of investments | 2,092,459 |
| | 1,942,886 |
| | 1,813,783 |
| 575,838 |
| | | 756,546 |
| | 2,092,459 |
| | 1,942,886 |
|
| (Payments) proceeds related to 2013 sale of towers, net | (39,618 | ) | | 721,404 |
| | — |
| |
| Change in restricted cash and escrow accounts | (137,827 | ) | | (39,436 | ) | | (4,087 | ) | |
| (Costs) proceeds related to 2013 sale of towers, net | | — |
| | | — |
| | (15,517 | ) | | 346,018 |
|
| Change in restricted cash, escrow accounts and other deposits | | (51,235 | ) | | | (57,074 | ) | | (132,080 | ) | | (26,267 | ) |
| Proceeds from sale of corporate aircraft | 32,390 |
| | — |
| | — |
| — |
| | | — |
| | 32,390 |
| | — |
|
| Purchase of licenses and other | (30,870 | ) | | (52,859 | ) | | (99,167 | ) | |
| Total investing cash used in continuing operations | (333,540 | ) | | (409,429 | ) | | (922,271 | ) | |
| Total investing cash (used in) provided by discontinued operations | (13,998 | ) | | 231,817 |
| | (132,889 | ) | |
| Net cash used in investing activities | (347,538 | ) | | (177,612 | ) | | (1,055,160 | ) | |
| Other, net | | 679 |
| | | (1,890 | ) | | (32,643 | ) | | (52,440 | ) |
| Total investing cash (used in) provided by continuing operations | | (110,231 | ) | | | (148,617 | ) | | 25,113 |
| | (537,618 | ) |
| Total investing cash provided by (used in) discontinued operations | | 109,255 |
| | | 1,176,438 |
| | (372,651 | ) | | 360,006 |
|
| Net cash (used in) provided by investing activities | | (976 | ) | | | 1,027,821 |
| | (347,538 | ) | | (177,612 | ) |
| Cash flows from financing activities: | | | |
| | |
| | | | | | |
| | |
|
| Claims paid to senior noteholders | | — |
| | | (745,221 | ) | | — |
| | — |
|
| Net proceeds from debtor-in-possession loan | | — |
| | | 340,375 |
| | — |
| | — |
|
| Repayment of debtor-in-possession loan | | — |
| | | (340,375 | ) | | — |
| | — |
|
| Borrowings under equipment financing facilities and other | 14,590 |
| | 145,122 |
| | 446,546 |
| — |
| | | — |
| | 14,590 |
| | 145,122 |
|
| Proceeds from issuance of senior notes | — |
| | 1,600,000 |
| | — |
| — |
| | | — |
| | — |
| | 1,600,000 |
|
| Repayments and purchases of convertible notes | — |
| | — |
| | (212,782 | ) | |
| Repayments under bank loans, capital leases and other borrowings | (142,230 | ) | | (787,572 | ) | | (352,048 | ) | |
| Repayments under capital leases, equipment financing and other | | (25,068 | ) | | | (2,008 | ) | | (107,099 | ) | | (451,984 | ) |
| Other, net | (632 | ) | | (27,994 | ) | | (46,001 | ) | — |
| | | (4,291 | ) | | (396 | ) | | (26,794 | ) |
| Total financing cash (used in) provided by continuing operations | (128,272 | ) | | 929,556 |
| | (164,285 | ) | (25,068 | ) | | | (751,520 | ) | | (92,905 | ) | | 1,266,344 |
|
| Total financing cash used in discontinued operations | — |
| | (152,965 | ) | | (74,010 | ) | — |
| | | (26,711 | ) | | (35,367 | ) | | (489,739 | ) |
| Net cash (used in) provided by financing activities | (128,272 | ) | | 776,591 |
| | (238,295 | ) | (25,068 | ) | | | (778,231 | ) | | (128,272 | ) | | 776,605 |
|
| Effect of exchange rate changes on cash and cash equivalents | (55,657 | ) | | (56,236 | ) | | 844 |
| 916 |
| | | (9,152 | ) | | (55,657 | ) | | (56,236 | ) |
| Change in cash and cash equivalents related to discontinued operations | 3,448 |
| | 15,090 |
| | 22,226 |
| 22,662 |
| | | 103,260 |
| | 346,695 |
| | (272,911 | ) |
| Net (decrease) increase in cash and cash equivalents | (1,156,735 | ) | | 365,382 |
| | (917,202 | ) | (80,951 | ) | | | 88,941 |
| | (813,488 | ) | | 77,381 |
|
| Cash and cash equivalents, beginning of year | 1,730,335 |
| | 1,364,953 |
| | 2,282,155 |
| |
| Cash and cash equivalents, end of year | $ | 573,600 |
| | $ | 1,730,335 |
| | $ | 1,364,953 |
| |
| Cash and cash equivalents, beginning of period | | 423,135 |
| | | 334,194 |
| | 1,147,682 |
| | 1,070,301 |
|
| Cash and cash equivalents, end of period | | $ | 342,184 |
| | | $ | 423,135 |
| | $ | 334,194 |
| | $ | 1,147,682 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Operations
Unless the context requires otherwise, “NII Holdings, Inc.,” “NII Holdings,” “we,” “our,” “us” and “the Company” refer to the combined businesses of NII Holdings, Inc. and its consolidated subsidiaries. We refer to our wholly-owned Brazilian operating company, Nextel Telecomunicações Ltda., as Nextel Brazil. We provide wireless communication services under the NextelTM brand. Historically,brand in Brazil with our principal operations located in major urban and suburban centers with high population densities and related transportation corridors of that country where we believe there is a concentration of Brazil's business users and economic activity, including primarily Rio de Janeiro and São Paulo.
In the second half of 2013, Nextel Brazil commercially launched services on its wideband code division multiple access, or WCDMA, network in São Paulo, Rio de Janeiro and surrounding areas and extended those services to other areas in Brazil by expanding the coverage of its network and utilizing roaming services and network sharing arrangements pursuant to agreements that it reached with another network operator in Brazil. Nextel Brazil currently offers services supported by its WCDMA network in approximately 260 cities in Brazil. Our WCDMA network enables us to offer a wide range of products and services supported by that technology, including data services provided at substantially higher speeds than can be delivered on our legacy integrated digital enhanced network or iDEN.
Prior to the deployment of our WCDMA network, our services were primarily targeted to meet the needs of business customers and individualscustomers. With the deployment of our WCDMA network in Brazil, our target market has shifted to individual consumers who useduse our services to meet both professional and personal needs. With the deployment of our wideband code division multiple access, or WCDMA, networks in our markets, ourOur target market has expanded to include both business subscribers and consumers whogenerally exhibit above average usage, revenue and loyalty characteristics and who wecharacteristics. We believe will beour target market is attracted to the services and attractive pricing plans we offer, as well as the quality of and data speeds provided by our WCDMA networks and the quality of our customer service.network.
We provide our services through operating companies located in Brazil, Mexico and Argentina, with our principal operations located in major business centers and related transportation corridors of these countries. We provide services in major urban and suburban centers with high population densities where we believe there is a concentration of the country’s business users and economic activity. We believe that the growing economic base, increase in the middle and upper class and lower wireline service penetration encourage the use of the mobile wireless communications services that we offer and plan to offer in the future. Our WCDMA networks in Brazil and Mexico serve these major business centers and, in some instances, a broader geographic area in order to meet the requirements of our spectrum licenses. We also utilize roaming arrangements to expand the geographic coverage of our WCDMA-based services in Brazil and Mexico.
Our original networks utilize integrated digital enhanced network, or iDEN, technology developed by Motorola, Inc. to provide mobile services on our 800 megahertz, or MHz, spectrum holdings in all of our markets. Our next generation networks utilize WCDMA technology, which is a standards-based technology that is being deployed by carriers throughout the world. We also offer long-term evolution, or LTE, services in Rio de Janeiro and continue to provide services on our legacy iDEN network throughout various regions in BrazilBrazil. Our transition to standards-based technologies such as WCDMA also gives us more flexibility to offer customers the option of purchasing services by acquiring the subscriber identity module, or SIM, cards from us separately, and in certain cities in Mexico. These technologies allow usby providing the customer with the option to use our spectrum efficiently and offer multiple wireless services integrated into a variety of handset and data devices.the SIM cards in one or more devices that they acquire from us or from other sources.
The services we currently offer include:
mobile telephone voice service;
wireless data services, including text messaging services, mobile internet services and email services;
| |
| • | push-to-talk services, including Direct Connect®, Prip and International Direct Connect® services, which allow subscribers to talk to each other instantly; |
| |
| • | other value-added services, including location-based services, which include the use of Global Positioning System, or GPS, technologies; digital media services; and a wide ranging set of applications available via our content management system, as well as the AndroidTM open application market; |
business solutions, such as security, work force management, logistics support and other applications that help our business subscribers improve their productivity; and
voice and data roaming services outside of our coverage areas.
The deploymentSales of Nextel Argentina and expansionNextel Mexico. On April 30, 2015, we completed the sale of our WCDMA networks in Brazil and Mexico enables us to offer a wider range of products and services that are supported by that technology, including data services provided at substantially higher speeds than can be delivered on our iDEN networks. These WCDMA networks also support our unique push-to-talk services that provide differentiation from our competitors' offerings. In the third quarter of 2013, our WCDMA network reached geographic coverage parity with our iDEN networkoperations in Mexico to New Cingular Wireless, Inc., or New Cingular Wireless, an indirect subsidiary of AT&T, Inc., or AT&T. In addition, on September 11, 2015, two of our indirect subsidiaries entered into a binding agreement with Grupo Clarin S.A., or Grupo Clarin, relating to the sale of all of the outstanding equity interests of Nextel Argentina, which was completed on January 27, 2016. See Note 5 for more information on these sales. In connection with these transactions, we have presented Nextel Argentina's and Nextel Mexico's results for all periods presented as discontinued operations in Brazil we are currently offering services supported by our WCDMA networkthis annual report on Form 10-K.
Going Concern.The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in about 260 cities, including cities in and around Sao Paulo and Rio de Janeiro. In the second quarternormal course of 2014, we launched LTE services in Rio de Janeiro, and duringbusiness. These consolidated financial statements do not include any adjustments that might result from the fourth quarteroccurrence of 2014, we began offering similar LTE services in certain cities in Mexico. We also offer service on our iDEN network in Argentina and continue to provide services on our iDEN networks in Brazil and Mexico.the uncertainties described below.
We have an obligation to meet a net debt financial covenant in Nextel Brazil's local bank loans that will apply semiannually beginning on June 30, 2016. We have made a number of changes within our senior management team and modified our business
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
plan to reflect our available cash resources and the impact of the current and expected economic and competitive conditions in Brazil on both our subscriber growth and revenues, and to align our costs with this revised outlook, but based on our current business plan, we believe that it is unlikely that we will satisfy the applicable financial covenant included in both of Nextel Brazil's local bank loan agreements at the June 30, 2016 measurement date. If we are unable to develop or implement changes to our business that allow us to meet this covenant, we will need to refinance or negotiate amendments to these financing arrangements or secure waivers from the lenders in order to avoid a potential default under the loan agreements. If a default occurs, the lenders could require us to repay the amounts outstanding under these arrangements, and if they were to do so, the lender of Nextel Brazil's equipment financing facility could accelerate the amount outstanding under that obligation as well. As of December 31, 2015, we had $233.8 million principal amount outstanding under Nextel Brazil's local bank loans and $342.5 million principal amount outstanding under Nextel Brazil’s equipment financing facility. See Note 7 for more information.
Because it is unlikely that we will satisfy the applicable financial covenant included in both of Nextel Brazil's local bank loans and because of the cross-default provisions included in Nextel Brazil's equipment financing facility as described above, we concluded that the circumstances described above raise substantial doubt about our ability to continue as a going concern.
2. Emergence from Chapter 11 FilingProceedings and Fresh Start Accounting
Overview.
On September 15, 2014, NII Holdings, Inc.we and eight of itsour U.S. and Luxembourg-domiciled subsidiaries, including NII Capital Corp. and NextelNII International Telecom, S.C.A,S.C.A., or NIIT, filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code, which we refer to as Chapter 11, in the United States Bankruptcy Court for the Southern District of New York, which we refer to as the Bankruptcy Court. SinceIn addition, subsequent to September 15, 2014, five additional subsidiaries of NII Holdings, Inc. have filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy Court, with four subsidiaries filing on October 8, 2014 and one subsidiary filing on January 25, 2015. The entitiesCourt. We refer to the companies that have filed voluntary petitions seeking relief under Chapter 11 which we refer to collectively as the debtors, continue to operate as "debtors-in-possession" under the jurisdiction of the Bankruptcy CourtDebtors. Nextel Brazil and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Ourour previous other operating subsidiaries in Brazil, Mexico and Argentina areLatin America were not debtorsDebtors in thethese Chapter 11 cases.
UnderOn June 19, 2015, the Bankruptcy Court entered an order approving and confirming the First Amended Joint Plan of Reorganization Proposed by the Plan Debtors and the Official Committee of Unsecured Creditors, dated April 20, 2015. We refer to this plan, as amended, as the Plan of Reorganization. On June 26, 2015, the conditions of the Bankruptcy Court's order and the Plan of Reorganization were satisfied, the Plan of Reorganization became effective, and we and the other Debtors emerged from the Chapter 11 we are permittedproceedings. We refer to continueJune 26, 2015 as the Emergence Date.
The significant transactions that occurred on the Emergence Date in connection with the effectiveness of our Plan of Reorganization included the following:
NII Holdings canceled all shares of its common stock, preferred stock and other equity interests that existed prior to operate our businessJune 26, 2015;
NII Holdings amended and manage our propertiesrestated its Bylaws and filed an Amended and Restated Certificate of Incorporation authorizing the Company to issue up to 140,000,000 shares of common stock, par value $0.001 per share, and up to 10,000,000 shares of undesignated preferred stock, par value $0.001 per share;
NII Holdings issued 99,999,992 shares of new common stock, with a per share value of $20.68, and distributed cash of $776.3 million to the holders of claims and service providers in the ordinary coursecomprehensive settlement of business without prior approval from the Bankruptcy Court. Transactions outside the ordinary course of business proposed to be undertaken by any of the debtors, including certain types of capital expenditures, as well as certain sales of assets, certain requests for additional financingsnumerous integrated claims and certain other arrangements, including material changes to agreements and employee compensation arrangements, require approvaldisputes approved by the Bankruptcy Court. There can be no assurance thatCourt in connection with the Bankruptcy Court will grant any requests for such approvals. On October 14, 2014,confirmation of the Bankruptcy Court issued a final order permitting us to pay pre-petition salaries, wages and benefits to all employeesPlan of our debtor entities and authorized the payment of certain other pre-petition claims, in limited circumstances, to avoid undue disruption to our operations.Reorganization;
On November 24, 2014, certainIn accordance with the Plan of Reorganization, all of the holdersobligations of the Debtors with respect to the following indebtedness were canceled:
$700.0 million aggregate principal amount of 7.875% senior notes due 2019 issued by NIIT pursuant to an indenture, dated as of May 23, 2013, among NIIT (as issuer), the Company (as guarantor), and Wilmington Trust National Association (as trustee) and all amendments, supplements or modifications thereto and extensions thereof;
$900.0 million aggregate principal amount of 11.375% senior notes due 2019 issued by NIIT pursuant to an indenture, dated as of February 19, 2013, among NIIT (as issuer), the Company (as guarantor), and Wilmington Trust National Association (as trustee) and all amendments, supplements or modifications thereto and extensions thereof;
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$1.45 billion aggregate principal amount of 7.625% senior notes due 2021 issued by NII Capital Corp. and NIIT, certain other creditors and the official committeepursuant to an indenture, dated as of unsecured creditors appointed in the Chapter 11 cases, which we refer to as the Committee, reached agreement regarding the terms of a plan of reorganization, which we refer to as the Original Plan, and the debtors, consenting parties and the Committee entered into a plan support agreement, which we refer to as the Original PSA, that governed the respective parties' obligations in connection with the formulation and filing of, and the solicitation of votes with respect to, the Original Plan. The Original Plan and a related disclosure statement were filed with the Bankruptcy Court on December 22, 2014. As described below, on January 26, 2015,March 29, 2011, among NII Holdings, Inc. and certain of its subsidiaries entered into a purchase and sale agreement with an indirect subsidiary of AT&T, Inc.Capital Corp. (as issuer), or AT&T, for the sale of our Mexico operations, which we refer to as Nextel Mexico. The agreement to sell Nextel Mexico is inconsistent with the termseach of the Original PSAguarantors party thereto and the Original Plan,Wilmington Savings Fund Society, FSB (as successor trustee) and as a result, NII Holdings, Inc. exercised its right to terminate the Original PSA.all amendments, supplements or modifications thereto and extensions thereof;
On March 5, 2015, certain$500.0 million aggregate principal amount of the debtors, holders of approximately $1.93 billion, or 70%, of the8.875% senior notes due 2019 issued by NII Capital Corp. and approximately $1.15 billion, or 72%pursuant to an indenture, dated as of December 15, 2009, among NII Capital Corp. (as issuer), each of the guarantors party thereto and U.S. Bank National Association (as successor trustee) and all amendments, supplements or modifications thereto and extensions thereof; and
$800.0 million aggregate principal amount of 10.0% senior notes issued by NIIT, which we refer to collectively as the Consenting Creditors, and the Committee reached agreement regarding the terms of a revised plan of reorganization, which we refer to as the Revised Plan, that takes into account the impact of, and is contingent upon, the sale of Nextel Mexico. Certain debtors, the Consenting Creditors and the Committee entered into a Revised PSA that governs the respective parties' obligations in connection with the formulation, filing and solicitation of votes with respect to the Revised PSA. The Revised Plan will provide for, among other things, the distribution of a portion of the net proceeds of the sale of Nextel Mexico to holders of the senior notesdue 2016 issued by NII Capital Corp. pursuant to an indenture, dated as of August 18, 2009, among NII Capital Corp. (as issuer), each of the guarantors party thereto and Wilmington Savings Fund Society, FSB (as successor trustee) and all amendments, supplements or modifications thereto and extensions thereof.
Pursuant to our Plan of Reorganization, we entered into a registration rights agreement to provide registration rights to parties that, together with their affiliates, received upon emergence 10% or more of the issued and outstanding common stock of NII Holdings in connection with the Plan of Reorganization. In satisfaction of this registration rights agreement, on July 14, 2015, we filed a Registration Statement on Form S-1 under the Securities Act of 1933 to register our common stock that may be offered for sale from time to time by certain selling stockholders. On July 21, 2015, this Form S-1 was declared effective. We are not selling any common stock under the related prospectus and will not receive any proceeds from the sale of common stock by the selling stockholders.
In connection with our emergence from Chapter 11, we were required to apply the provisions of fresh start accounting to our financial statements because: (i) the holders of existing voting shares of NII Holdings prior to its emergence from the Chapter 11 proceedings received less than 50% of the voting shares of NII Holdings outstanding following its emergence from the Chapter 11 proceedings; and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan of Reorganization was less than the post-petition liabilities and allowed claims. Because our results of operations during the period from June 26, 2015 to June 30, 2015 were not material, we applied fresh start accounting to our consolidated financial statements as of the close of business on June 30, 2015. Under the principles of fresh start accounting, a new reporting entity is considered to be created, and as a result, we allocated the reorganization value of NII Holdings as of June 30, 2015 to our individual assets based on their estimated fair values at the date we applied fresh start accounting.
The total value of the cash and shares of common stock distributed under the Plan of Reorganization was $2.813 billion. We refer to this value as the Plan Distributable Value. The Plan Distributable Value was comprised of $745.2 million of cash paid to the holders of our NIIT and for the conversion of the remaining balance of these senior notes into equity interests in the reorganized company. The Revised Plan will also include a settlement of certain estate claims and claims related to the purported release of certain guarantees of our NII Capital Corp. senior notes due 2016 and 2019. The terms$2,067.7 million of new common stock. We also distributed an additional $2.8 million to other creditors. We determined the equity value of the Revised PSA do not provide for any return of valueSuccessor Company to equity holders. In addition,be approximately $2,067.7 million, which represents the Revised PSA requires, among other things, (i) the plan proponents to file and solicit votes on the Revised Plan; (ii) the consenting parties to vote$2.813 billion Plan Distributable Value less $745.2 million in favor of and otherwise support the Revised Plan; and (iii) the parties thereto to use commercially reasonable efforts to obtain confirmation of the Revised Plan and consummate the transactions contemplated under the plan term sheet that is part of the Revised PSA. The Revised PSA may be terminated under various circumstances, including if the Revised Plan is not confirmed or is not confirmed by specified dates.cash distributions.
The Revised PSA also contemplates that certainfollowing condensed consolidated balance sheet reconciles the balance sheet of the Predecessor Company immediately prior to our creditors will provide up to $350.0 million in bridge loan financing while ouremergence from Chapter 11 case is pendingto the balance sheet of the Successor Company immediately subsequent to our emergence from Chapter 11. The adjustments set forth in the condensed consolidated balance sheet presented below reflect the consummation of the Plan of Reorganization, which are reflected in the "Reorganization Adjustments" column, and the fair value adjustments required by the implementation of fresh start accounting, which are reflected in the "Fresh Start Adjustments" column. The information presented below reflects changes in the estimated fair values of certain assets and liabilities that would remain outstandingoccurred in order to provide usthe second half of 2015 as we finalized fresh start accounting. This condensed consolidated balance sheet should be read in conjunction with the additional liquidity necessary to fund our business plan untilexplanatory notes following the sale of Nextel Mexico is completed.table.
The accompanying consolidated financial statements have been prepared onfollowing is a going concern basis, which contemplatesreconciliation of the realizationSuccessor Company's equity value to its reorganization value as of assets and the satisfaction of liabilities in the normal course of business. The circumstances leading to our decisionJune 30, 2015 (in thousands):
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to seek relief under Chapter 11 and their impact on our business, including on our liquidity and the uncertainties associated with the Chapter 11 process, in combination with the potential impact of our failure to satisfy certain financial covenants under our existing debt obligations, raise substantial doubt about our ability to continue as a going concern. See Note 9 for more information on financial covenants. These consolidated financial statements do not include any adjustments that might result from the outcome of any of the uncertainties described herein. |
| | | |
| Fair value of Successor Company's common stock | $ | 2,067,665 |
|
| Fair value of debt | 774,616 |
|
| Fair value of other liabilities | 638,916 |
|
| Reorganization value of Successor Company's assets | $ | 3,481,197 |
|
Liabilities Subject to Compromise.
We have segregated liabilities and obligations whose treatment and satisfaction are dependent on the outcome of our reorganization in the Chapter 11 proceedings and have classified these items as liabilities subject to compromise. Generally, all actions to enforce or otherwise effect repayment of pre-petition liabilities of the debtors, as well as all pending litigation against the debtors, are stayed while we are subject to the Chapter 11 proceedings. The ultimate amount of and settlement terms for these types of liabilities will be subject to the claims resolution processes in the Chapter 11 cases and the terms of any plan of reorganization confirmed by the Bankruptcy Court in the Chapter 11 cases. Only those liabilities that are obligations of the debtors (and not the obligations of our operating subsidiaries that are not debtors in the Chapter 11 cases) are included in liabilities subject to compromise. These liabilities subject to compromise may vary significantly from the stated amounts of claims filed with the Bankruptcy Court. Obligations classified as liabilities subject to compromise may be subject to future adjustments depending on the decisions of the Bankruptcy Court in the Chapter 11 cases, further developments with respect to potential disputed claims and/or determination as to the value of any collateral securing claims or other events. Further, additional claims may arise subsequent to the Chapter 11 filing date resulting from the rejection of executory contracts and from a determination by the Bankruptcy Court, or agreed to by parties in interest, of allowed claims for contingencies and other disputed amounts.
We report interest expense incurred subsequent to our Chapter 11 filing date only to the extent that it will be paid during the cases or that it is probable that it will be an allowed claim. Principal and interest payments may not be made on pre-petition debt subject to compromise without approval from the Bankruptcy Court or until a plan of reorganization defining the repayment terms, if any, has been confirmed. Further, the Bankruptcy Code generally disallows the payment of post-petition interest that accrues with respect to unsecured or undersecured claims. As a result, we have not accrued interest that we believe is not probable of being treated as an allowed claim in the Chapter 11 cases. As a result, during the year ended December 31, 2014, we did not accrue interest aggregating $119.6 million on our NII Capital Corp. and NIIT senior notes subsequent to our Chapter 11 filing date.
As of December 31, 2014, we classified the entire principal balance of our NII Capital Corp. and NIIT senior notes, as well as interest that was accrued and due but unpaid prior to our Chapter 11 filing date, as liabilities subject to compromise in accordance with the requirements of reorganization accounting since these notes are obligations of the debtors. The components of our liabilities subject to compromise are as follows (in thousands):
|
| | | |
| | December 31,
2014 |
| 7.625% Capital Corp. senior notes due 2021 | $ | 1,450,000 |
|
| 8.875% Capital Corp. senior notes due 2019 | 500,000 |
|
| 10.0% Capital Corp. senior notes due 2016 | 800,000 |
|
| 7.875% NII International Telecom S.C.A. senior notes due 2019 | 700,000 |
|
| 11.375% NII International Telecom S.C.A. senior notes due 2019 | 900,000 |
|
| Total debt subject to compromise | 4,350,000 |
|
| Accrued interest on debt subject to compromise | 203,010 |
|
| Accounts payable | 3,644 |
|
| Accrued expenses and other | 36,839 |
|
| Total liabilities subject to compromise | $ | 4,593,493 |
|
|
| | | | | | | | | | | | | | | |
| | Predecessor Company | | Reorganization Adjustments | | Fresh Start Adjustments | | Successor Company |
| | June 30, 2015 | | | | July 1, 2015 |
| | (in thousands) |
| ASSETS |
| Current assets | |
| | | | | | |
| Cash and cash equivalents | $ | 1,199,441 |
| | $ | (776,306 | ) | (a) | $ | — |
| | $ | 423,135 |
|
| Short-term investments | 97,395 |
| | — |
| | — |
| | 97,395 |
|
| Accounts receivable, net | 174,649 |
| | — |
| | — |
| | 174,649 |
|
| Handset and accessory inventory | 49,835 |
| | — |
| | — |
| | 49,835 |
|
| Prepaid expenses and other | 159,346 |
| | — |
| | (19,494 | ) | (d) | 139,852 |
|
| Assets related to discontinued operations | 242,487 |
| | — |
| | — |
| | 242,487 |
|
| Total current assets | 1,923,153 |
| | (776,306 | ) | | (19,494 | ) | | 1,127,353 |
|
| Property, plant and equipment, net | 1,079,947 |
| | — |
| | (376,519 | ) | (e) | 703,428 |
|
| Intangible assets, net | 571,076 |
| | — |
| | 562,702 |
| (f) | 1,133,778 |
|
| Other assets | 516,235 |
| | — |
| | (18,739 | ) | (g) | 497,496 |
|
| Assets related to discontinued operations | 32,246 |
| | — |
| | (13,104 | ) | (h) | 19,142 |
|
| Total assets | $ | 4,122,657 |
| | $ | (776,306 | ) | | $ | 134,846 |
| | $ | 3,481,197 |
|
| | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY |
| Liabilities not subject to compromise | | | | | | | |
| Current liabilities | |
| | | | | | |
| Accounts payable | $ | 102,317 |
| | $ | — |
| | $ | — |
| | $ | 102,317 |
|
| Accrued expenses and other | 323,480 |
| | — |
| | (2,677 | ) | (i) | 320,803 |
|
| Deferred revenues | 17,908 |
| | — |
| | (1,805 | ) | (j) | 16,103 |
|
| Current portion of long-term debt | 667,617 |
| | — |
| | 2,616 |
| (k) | 670,233 |
|
| Liabilities related to discontinued operations | 96,161 |
| | — |
| | (1,727 | ) | (h) | 94,434 |
|
| Total current liabilities | 1,207,483 |
| | — |
| | (3,593 | ) | | 1,203,890 |
|
| Long-term debt | 176,738 |
| | — |
| | (72,355 | ) | (k) | 104,383 |
|
| Other long-term liabilities | 149,632 |
| | — |
| | (56,541 | ) | (l) | 93,091 |
|
| Liabilities related to discontinued operations | 5,763 |
| | — |
| | 6,405 |
| (h) | 12,168 |
|
| Total liabilities not subject to compromise | 1,539,616 |
| | — |
| | (126,084 | ) | | 1,413,532 |
|
| Liabilities subject to compromise | 4,591,452 |
| | (4,591,452 | ) | (b) | — |
| | — |
|
| Stockholders’ (deficit) equity | |
| | |
| | |
| | |
| Undesignated preferred stock - Successor Company | — |
| | — |
| | — |
| | — |
|
| Undesignated preferred stock - Predecessor Company | — |
| | — |
| | — |
| | — |
|
| Common stock - Successor Company | — |
| | 100 |
| (b) | — |
| | 100 |
|
| Common stock - Predecessor Company | 172 |
| | (172 | ) | (c) | — |
| | — |
|
| Paid-in capital - Successor Company | — |
| | 2,067,565 |
| (b) | — |
| | 2,067,565 |
|
| Paid-in capital - Predecessor Company | 1,522,320 |
| | (1,522,320 | ) | (c) | — |
| | — |
|
| Accumulated deficit | (2,418,560 | ) | | 3,269,973 |
| (c) | (851,413 | ) | (m) | — |
|
| Accumulated other comprehensive loss | (1,112,343 | ) | | — |
| | 1,112,343 |
| (m) | — |
|
| Total stockholders’ (deficit) equity | (2,008,411 | ) | | 3,815,146 |
| | 260,930 |
| | 2,067,665 |
|
| Total liabilities and stockholders’ (deficit) equity | $ | 4,122,657 |
| | $ | (776,306 | ) | | $ | 134,846 |
| | $ | 3,481,197 |
|
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION)AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our condensed consolidated balance sheet as of July 1, 2015 presented above reflects the effect of the following adjustments:
| |
| (a) | Reflects cash payments made in connection with the implementation of the Plan of Reorganization (in thousands): |
|
| | | |
| Claims paid to senior noteholders | $ | 745,221 |
|
| Payments to other creditors | 2,779 |
|
| Total claims paid | 748,000 |
|
| Reorganization-related professional fees | 28,306 |
|
| Total cash payments | $ | 776,306 |
|
| |
(b) | Represents the cancellation of debt and related transactions in connection with the implementation of the Plan of Reorganization on the Emergence Date. In accordance with the Plan of Reorganization, we distributed cash and shares of new common stock to holders of claims. The following table reflects the calculation of the total gain on the settlement of our liabilities subject to compromise (in thousands): |
|
| | | |
| Total Predecessor Company liabilities subject to compromise | $ | 4,591,452 |
|
| Less: Common stock, Successor (at par) | (100 | ) |
| Paid-in-capital, Successor | (2,067,565 | ) |
| Total claims paid | (748,000 | ) |
| Gain on settlement of liabilities subject to compromise | $ | 1,775,787 |
|
| |
(c) | Reflects the cumulative impact of the reorganization adjustments discussed above. Additionally, these adjustments reflect the cancellation of the Predecessor Company's common stock and paid-in capital to accumulated deficit (in thousands): |
|
| | | |
| Gain on settlement of liabilities subject to compromise | $ | 1,775,787 |
|
| Reorganization-related professional fees | (28,306 | ) |
| Net gain on reorganization adjustments | 1,747,481 |
|
| Cancellation of Predecessor Company equity | 1,522,492 |
|
| Net impact to accumulated deficit | $ | 3,269,973 |
|
| |
(d) | Represents the write-off of unamortized debt issuance costs primarily related to Nextel Brazil's equipment financing facility and local bank loans. |
| |
| (e) | Reflects the impact of fresh start adjustments on property, plant and equipment in Nextel Brazil and our corporate segment. We measured the fair value of property, plant and equipment using the cost approach as the primary method. The cost approach is based on the premise that a prudent investor would pay no more for an asset than its replacement or reproduction cost. The cost to replace the asset would include the cost of constructing a similar asset of equivalent utility at prices applicable at the time of the valuation analysis. The replacement or reproduction cost estimates were adjusted by losses in value attributable to physical deterioration, as well as functional and economic obsolescence. The following reflects the impact of fresh start adjustments (in thousands): |
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| | Consolidated |
| | Predecessor Company | | Fresh Start Adjustments | | Successor Company |
| Land | $ | 3,341 |
| | $ | — |
| | $ | 3,341 |
|
| Leasehold improvements | 35,515 |
| | (20,188 | ) | | 15,327 |
|
| Network equipment, communication towers and network software | 1,819,759 |
| | (1,291,712 | ) | | 528,047 |
|
| Software, office equipment, furniture and fixtures and other | 342,210 |
| | (261,342 | ) | | 80,868 |
|
| Less: Accumulated depreciation and amortization | (1,207,834 | ) | | 1,207,834 |
| | — |
|
| | 992,991 |
| | (365,408 | ) | | 627,583 |
|
| Construction in progress | 86,956 |
| | (11,111 | ) | | 75,845 |
|
| | $ | 1,079,947 |
| | $ | (376,519 | ) | | $ | 703,428 |
|
| |
(f) | Reflects the impact of fresh start adjustments on our intangible assets (in thousands): |
|
| | | | | | | | | | | |
| | Nextel Brazil |
| | Predecessor Company | | Fresh Start Adjustments | | Successor Company |
| Licenses | $ | 553,076 |
| | $ | 513,002 |
| | $ | 1,066,078 |
|
| Customer relationships | — |
| | 29,000 |
| | 29,000 |
|
In Brazil, our spectrum holdings include 20 megahertz, or MHz, of 1.9 gigahertz, or GHz,/2.1 GHz spectrum and 20 MHz of 1.8 GHz spectrum that support our WCDMA network and, in Rio de Janeiro, our LTE network. We also have spectrum holdings in the 800 MHz specialized mobile radio, or SMR, spectrum band that currently can only be used to support our iDEN network. We valued Nextel Brazil's spectrum licenses using both the income approach and the market approach. The resulting value of these licenses was similar to the prices observed for comparable licenses in Brazil in recent guideline transactions. Our income approach used the Greenfield method specifically, whereby we estimated the discounted future cash flows of a hypothetical start-up business, based on certain assumptions, including: (i) forecasted revenues, profit margins, capital expenditures and cash flows attributable to the spectrum for the period from July 1, 2015 to June 1, 2041. This date represents the end of the current term of our spectrum licenses, including renewals solely at our option; and (ii) a discount rate of 16.5%, which is based on an after-tax weighted average cost of capital.
We valued our customer relationships using the excess earnings method, which is a form of the income approach, by estimating the discounted future cash flows attributable to existing subscribers. This estimation was based on certain assumptions, including: (i) forecasted revenues and cash flows attributable to the current subscriber base beginning on July 1, 2015; (ii) a churn rate ranging from 1.9% to 2.6%; and (iii) a discount rate of 16.5%, based on an after-tax weighted average cost of capital.
|
| | | | | | | | |
| | Corporate |
| | Predecessor Company | | Fresh Start Adjustments | | Successor Company |
| Trade name | 18,000 |
| | 20,700 |
| | 38,700 |
|
Our trade name represents the right to use the Nextel name exclusively in our markets. We valued our trade name using the relief from royalty method, a form of the income approach that estimates the amount a market participant would pay to utilize that trade name, based on certain assumptions, including (i) forecasted revenues attributable to the trade name from July 1, 2015 to June 1, 2041; (ii) a royalty rate of 0.25% of expected revenues determined with regard to comparable market transactions; and (iii) a discount rate of 16.5%, which was based on an after-tax weighted average cost of capital.
| |
| (g) | Represents a $13.5 million decrease in non-income based tax assets to reduce their values to their estimated fair values based on discounted cash flows to reflect the timing of their anticipated realization and a $5.2 million write-off of prepaid rent. |
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| (h) | Represents the net change in assets and liabilities related to Nextel Argentina as a result of remeasurement to their respective fair values. |
| |
(i) | Represents the write-off of unamortized deferred gains related to the 2013 tower transactions. |
| |
| (j) | Represents the revaluation of deferred revenues to the fair value of related future performance obligations. |
| |
(k) | Adjustments to Nextel Brazil's debt balances related to the remeasurement of its equipment financing facility, local bank loans, tower financings and capital lease obligations to their fair values were as follows (in thousands): |
|
| | | | | | | | | | | |
| | Nextel Brazil |
| | Predecessor Company | | Fresh Start Adjustments | | Successor Company |
| Brazil equipment financing | $ | 366,937 |
| | $ | (2,989 | ) | | $ | 363,948 |
|
| Brazil bank loans | 294,322 |
| | 9,987 |
| | 304,309 |
|
| Brazil capital lease and tower financing obligations | 182,108 |
| | (76,737 | ) | | 105,371 |
|
| Other | 988 |
| | — |
| | 988 |
|
| Total debt | 844,355 |
| | (69,739 | ) | | 774,616 |
|
| Less: current portion | (667,617 | ) | | (2,616 | ) | | (670,233 | ) |
| | $ | 176,738 |
| | $ | (72,355 | ) | | $ | 104,383 |
|
| |
| (l) | Primarily represents the $61.3 million write-off of unamortized deferred gains related to the 2013 tower transactions and a $5.4 million increase related to the remeasurement of asset retirement obligations to their fair values. |
| |
| (m) | Reflects the cumulative impact of all fresh start adjustments and the elimination of the Predecessor Company’s accumulated other comprehensive loss as follows (in thousands): |
|
| | | |
| Intangible asset fair value adjustment | $ | 562,702 |
|
| Property, plant and equipment fair value adjustment | (376,519 | ) |
| Debt fair value adjustment | 69,739 |
|
| Write-off of unamortized deferred gains on 2013 tower transactions | 63,940 |
|
| Other | (58,090 | ) |
| Net gain on fresh start fair value adjustments | 261,772 |
|
| Tax impact of fresh start adjustments | (842 | ) |
| Elimination of Predecessor Company's accumulated other comprehensive loss | (1,112,343 | ) |
| Net impact on accumulated deficit | $ | (851,413 | ) |
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reorganization Items.
We classify all income, expenses, gains or losses that are incurred or realized as a resultThe components of the commencement of the Chapter 11 cases asour reorganization items in our consolidated statements of comprehensive loss. In addition, we report professional feesfor the six months ended December 31, 2015, the six months ended June 30, 2015 and related costs associated with and incurred during the Chapter 11 cases as reorganization items. We also reclassify interest income earned by the debtors that would not have been earned but for our Chapter 11 filing as reorganization items. During 2014, we wrote off $8.6 million in net unamortized discounts and premiums, as well as $48.2 million in unamortized financing costs related to all series of our NII Capital Corp. and NIIT senior notes, both of which are included as reorganization items in our consolidated statements of comprehensive loss. We also recognized $14.8 million in professional fees and other costs related to our Chapter 11 filing as reorganization items in our consolidated statements of comprehensive loss for the year ended December 31, 2014.2014 are as follows (in thousands):
|
| | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | Six Months Ended | | | Six Months Ended | | Year Ended |
| | December 31, 2015 | | | June 30, 2015 | | December 31, 2014 |
| Gain on settlement of liabilities subject to compromise | $ | — |
| | | $ | 1,775,787 |
| | $ | — |
|
| Net gain on fresh start fair value adjustments | — |
| | | 261,772 |
| | — |
|
| Reorganization-related professional fees and other costs | 1,467 |
| | | (80,685 | ) | | (71,601 | ) |
| Total reorganization items | $ | 1,467 |
| | | $ | 1,956,874 |
| | $ | (71,601 | ) |
3. Summary of Significant Accounting Policies
Reorganization Accounting.In accordance with the requirements of reorganization accounting, NII Holdings adopted the following are condensed combinedprovisions of fresh start accounting as of June 30, 2015 and became a new entity for financial statementsreporting purposes. References to the "Successor Company" relate to NII Holdings on or subsequent to June 30, 2015. References to the "Predecessor Company" relate to NII Holdings prior to June 30, 2015. See Note 2 for more information regarding the implementation of the debtor entities:
NII HOLDINGS, INC. AND CERTAIN SUBSIDIARIES (DEBTORS-IN-POSSESSION) (1) CONDENSED COMBINED BALANCE SHEET (in thousands)
|
| | | |
| | December 31,
2014 |
| | |
| ASSETS |
| Current assets | |
| Cash and cash equivalents | $ | 321,690 |
|
| Short-term intercompany receivables | 127,215 |
|
| Accounts receivable, prepaid expenses and other | 16,584 |
|
| Total current assets | 465,489 |
|
| Property, plant and equipment, net | 48,167 |
|
| Intangible assets, net | 18,000 |
|
| Investments in and advances to non-debtor subsidiaries | 423,163 |
|
| Long-term intercompany receivables | 1,712,199 |
|
| Other assets | 1,339 |
|
| Total assets | $ | 2,668,357 |
|
| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
| Liabilities not subject to compromise | |
| Current liabilities | |
|
| Accounts payable | $ | 1,996 |
|
| Accrued expenses and other | 20,257 |
|
| Total current liabilities | 22,253 |
|
| Other long-term liabilities | 4,805 |
|
| Total liabilities not subject to compromise | 27,058 |
|
| Liabilities subject to compromise | 4,593,493 |
|
| Intercompany liabilities subject to compromise | 12,570 |
|
| Total liabilities | 4,633,121 |
|
| Total stockholders’ deficit | (1,964,764 | ) |
| Total liabilities and stockholders’ deficit | $ | 2,668,357 |
|
| |
(1) | The condensed combined balance sheet above includes those subsidiaries of NII Holdings, Inc. that had filed voluntary petitions seeking protection under Chapter 11 of the U.S. Bankruptcy Code as of December 31, 2014. These debtor subsidiaries consisted of: Nextel International Services, Ltd.; NII Capital Corp.; NII Aviation, Inc.; NII Funding Corp.; NII Global Holdings, Inc.; NII International Telecom S.C.A.; NII International Holdings S.à r.l.; NII International Services S.à r.l.; Airfone Holdings, LLC; Nextel International (Uruguay), LLC; McCaw International (Brazil), LLC; and NII Mercosur, LLC. |
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NII HOLDINGS, INC. AND CERTAIN SUBSIDIARIES (DEBTORS-IN-POSSESSION) (1) CONDENSED COMBINED STATEMENT OF COMPREHENSIVE LOSS (in thousands)
|
| | | |
| | Year Ended December 31, |
| | 2014 |
| | |
| Operating revenues | $ | 351 |
|
| Operating expenses | |
|
| Selling, general and administrative | 148,538 |
|
| Impairment and restructuring charges | 63,393 |
|
| Management fee and other | (49,010 | ) |
| Depreciation and amortization | 19,309 |
|
| | 182,230 |
|
| Operating loss | (181,879 | ) |
| Other expense | |
|
| Interest expense, net | (287,630 | ) |
| Intercompany interest expense | (50 | ) |
| Interest income | 900 |
|
| Intercompany interest income | 34,507 |
|
| Equity in losses of non-debtor subsidiaries | (1,460,247 | ) |
| Other income, net | 8,302 |
|
| | (1,704,218 | ) |
| Loss before reorganization items and income tax provision | (1,886,097 | ) |
| Reorganization items | (71,601 | ) |
| Income tax provision | — |
|
| Net loss | $ | (1,957,698 | ) |
| | |
| Comprehensive loss, net of income taxes | |
| Foreign currency translation adjustment | $ | (340,847 | ) |
| Reclassification adjustment for sale of Nextel Chile | (33,885 | ) |
| Other | (544 | ) |
| Other comprehensive loss | (375,276 | ) |
| Net loss | (1,957,698 | ) |
| Total comprehensive loss | $ | (2,332,974 | ) |
| |
(1) | The condensed combined statement of comprehensive loss above includes those subsidiaries of NII Holdings, Inc. that had filed voluntary petitions seeking protection under Chapter 11 of the U.S. Bankruptcy Code as of December 31, 2014. These debtor subsidiaries consisted of: Nextel International Services, Ltd.; NII Capital Corp.; NII Aviation, Inc.; NII Funding Corp.; NII Global Holdings, Inc.; NII International Telecom S.C.A.; NII International Holdings S.à r.l.; NII International Services S.à r.l.; Airfone Holdings, LLC; Nextel International (Uruguay), LLC; McCaw International (Brazil), LLC; and NII Mercosur, LLC. |
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NII HOLDINGS, INC. AND CERTAIN SUBSIDIARIES (DEBTORS-IN-POSSESSION) (1) CONDENSED COMBINED STATEMENT OF CASH FLOWS (in thousands)
|
| | | |
| | Year Ended December 31, |
| | 2014 |
| | |
| Cash flows from operating activities: | |
|
| Net loss | $ | (1,957,698 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities | 1,606,769 |
|
| Net cash used in operating activities | (350,929 | ) |
| Cash flows from investing activities: | |
|
| Capital expenditures | (7,012 | ) |
| Proceeds from sales of fixed assets | 32,390 |
|
| Proceeds from sales of investments | 198,007 |
|
| Intercompany long-term loans | (542,000 | ) |
| Investments in and advances to non-debtor subsidiaries | (124,532 | ) |
| Changes in restricted cash | 25,300 |
|
| Net cash used in investing activities | (417,847 | ) |
| Cash flows from financing activities: | |
|
| Repayments under capital lease and other | (42,414 | ) |
| Other, net | (396 | ) |
| Net cash used in financing activities | (42,810 | ) |
| Net decrease in cash and cash equivalents | (811,586 | ) |
| Cash and cash equivalents, beginning of year | 1,133,276 |
|
| Cash and cash equivalents, end of year | $ | 321,690 |
|
| |
(1) | The condensed combined statement of cash flows above includes those subsidiaries of NII Holdings, Inc. that had filed voluntary petitions seeking protection under Chapter 11 of the U.S. Bankruptcy Code as of December 31, 2014. These debtor subsidiaries consisted of: Nextel International Services, Ltd.; NII Capital Corp.; NII Aviation, Inc.; NII Funding Corp.; NII Global Holdings, Inc.; NII International Telecom S.C.A.; NII International Holdings S.à r.l.; NII International Services S.à r.l.; Airfone Holdings, LLC; Nextel International (Uruguay), LLC; McCaw International (Brazil), LLC; and NII Mercosur, LLC. |
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Summary of Significant Accounting Policiesfresh start accounting.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States, or the U.S., requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results to be reported in future periods could differ from our estimates.
Principles of Consolidation. The consolidated financial statements include the accounts of NII Holdings and our subsidiaries. Our decision to consolidate an entity is based on our control of the entity through direct and indirect majority interest in the entity. We eliminate all significant intercompany transactions, including intercompany profits and losses, in consolidation.
We refer to our subsidiaries by the countries in which they operate, such as Nextel Brazil, Nextel Mexico and Nextel Argentina.
Concentrations of Risk. AllSubstantially all of our revenues are generated from our operations located in Brazil, Mexico and Argentina.Brazil. Regulatory entities in each countryBrazil regulate the licensing, construction, acquisition, ownership and operation of our networks, and certain other aspects of our business, including some of the rates we charge our subscribers. Changes in the current telecommunications statutes or regulations in any of these countriesBrazil could adversely affect our business. In addition, as of December 31, 2014 and 2013, $4.7 billion and $6.4 billion, respectively,2015, 73% of our total assets were owned by Nextel Brazil and Nextel Mexico.Brazil. Political, financial and economic developments in Brazil and Mexico could impact the recoverability of our assets.
Motorola Solutions is the primary supplier for iDEN network equipment, and Motorola Mobility is the primary supplier of iDEN handsets. We expect to continue to rely on Motorola Solutions and Motorola Mobility for iDEN network equipment and handsets. The recent significant reduction in demand for iDEN network equipment and handsets may make it uneconomical for Motorola Solutions to continue to provide the same level of ongoing support for our iDEN networks and could also affect Motorola Mobility's ability or willingness to provide iDEN handsets. As a result, we may not be able to adequately service our existing iDEN subscribers or attract new iDEN subscribers. The impact of this transition is particularly significant in Argentina where we do not currently hold spectrum that supports the deployment of a WCDMA or LTE network.
Financial instruments that potentially subject us to significant amounts of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. Our cash and cash equivalents are deposited with high-quality financial institutions. At times, we maintain cash balances in excess of Federal Deposit Insurance Corporation (or the foreign country equivalent institution) limits. Our short-term investments are composed of investments in U.S. treasury securities, investments in corporate bonds and certain investments made by Nextel Brazil and Nextel Argentina.Brazil. See Note 108 for further information. Our accounts receivable are generally unsecured. In some cases, for certain higher risk subscribers, we require a subscriber deposit. We routinely assess the credit worthiness of our subscribers and maintain allowances for probable losses, where necessary.
Foreign Currency. We translate theNextel Brazil's results of operations for our non-U.S. subsidiaries and affiliates from the designated functional currencyBrazilian reais to the U.S. dollardollars using average exchange rates during the relevant period, while we translate assets and liabilities at the exchange rate in effect at the reporting date. We translate equity balances at historical rates. We report the resulting gains or losses from translating foreign currency financial statements as other comprehensive income or loss.
In general, monetary assets and liabilities held by our operating subsidiariesNextel Brazil that are denominated in U.S. dollars give rise to realized and unrealized foreign currency transaction gains and losses, which we record in theour consolidated statement of comprehensive loss(loss) income as foreign currency transaction losses, net. We report the effects of changes in exchange rates associated with certain U.S. dollar-denominated intercompany loans and advances to our foreign subsidiaries that are of a long-term investment nature as other comprehensive income or loss in our consolidated financial statements. We have determined that certain U.S. dollar-denominated intercompany loans and advances to Nextel Brazil are of a long-term investment nature.
The authorities in some of our markets have, from time to time, used formal and informal restrictions to limit the convertibility of currency and our ability to repatriate capital from our market operations to their parent companies. For example, the Argentine government continues to impose formal and informal limitations on our ability to repatriate funds and repay intercompany contractual obligations.F-15
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents. We consider all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents.equivalents, except for certain certificates of deposit in Brazil that are redeemable on demand. We classify these certificates of deposit as short-term investments. Cash equivalents primarily consist of money market funds and other similarly structured funds. As of December 31, 2014 and 2013, we had $200.3 million and $738.9 million, respectively, in time deposits.
Short-Term Investments. We classify investments in debt securities as available-for-sale as of the balance sheet date and report them at fair value. We record unrealized gains and losses, net of income tax, as other comprehensive income or loss. We
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
report realized gains or losses, as determined on a specific identification basis, and other-than-temporary declines in value, if any, in net other expense in our consolidated statement of comprehensive loss.(loss) income. We assess declines in the value of individual investments to determine whether the decline is other-than-temporary and thus the investment is impaired. We make these assessments by considering available evidence, including changes in general market conditions, specific industry and individual company data, the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the individual company and our intent and ability to hold the investment. As of December 31, 2015 and 2014, we had $9.3 million and $28.6 million, respectively, in time deposits. See Note 108 for additional information.
Handset and Accessory Inventory. We record handsets and accessories at the lower of cost or market.their net realizable value. We determine cost by the weighted average costing method. We expense handset costs at the time of sale and classify such costs in cost of handsets and accessories. Inventory cost includes amounts associated with non-income based taxes.
We analyze the net realizable value and replacement cost of handset and accessory inventory on a periodic basis. This analysis includes an assessment of the obsolescence of individual devices, our sales forecasts and other factors. For the yearssix months ended December 31, 2014, 2013 and 2012,2015, we recorded losses related to inventory obsolescence of $40.8$2.2 million. In addition, for the years ended December 31, 2014 and 2013, we recorded losses related to inventory obsolescence of $29.3 million, $70.2 and $43.0 million, and $1.5 million, respectively, which includedincludes $14.1 million in 2013 related to expected losses on firm purchase commitments. We did not record any losses related to inventory obsolescence during the six months ended June 30, 2015.
Property, Plant and Equipment. We record property, plant and equipment, including improvements that extend useful lives or enhance functionality, at cost, while we charge maintenance and repairs to operations as incurred.
We capitalize internal and external costs incurred to develop internal-use software, which consist primarily of costs related to configuration, interfaces, installation and testing. We also capitalize internal and external costs incurred to develop specified upgrades and enhancements if they result in significant additional functionalities for our existing software. We expense all costs related to evaluation of software needs, data conversion, training, maintenance and other post-implementation operating activities.
We calculate depreciation using the straight-line method based on estimated useful lives ranging from 3 to 30 years for network equipment, communication towers and network software and 3 to 10 years for software, office equipment, furniture and fixtures, and other, which includes non-network internal use software. We include depreciation expense on our capital leases in accumulated depreciation. We amortize leasehold improvements over the shorter of the lease terms or the useful lives of the improvements.
Construction in progress includes internal and external labor, materials, transmission and related equipment, engineering, site development, interest and other costs relating to the construction and development of our digital wireless networks.network. We do not depreciate assets under construction until they are ready for their intended use. We capitalize interest and other costs, including labor and software upgrades, which are applicable to the construction of, and significant improvements that enhance functionality to, our network equipment.
As of June 30, 2015, in connection with the implementation of fresh start accounting, we adjusted our property, plant and equipment to its estimated fair value and revised the depreciable lives. We will continue to periodically review the depreciation method, useful lives and estimated salvage value of our property, plant and equipment and revise those estimates if current estimates are significantly different from previous estimates.
During the fourth quarter of 2013, we reviewed the useful lives of our communication towers and determined that the useful lives of some of these towers should be increased to 30 years compared to the 10- or 15-year useful lives over which we were previously depreciating these sites. As a result of this change in useful lives, our depreciation expense decreased by approximately $80.0$44.4 million in 2014.
Asset Retirement Obligations. We record an asset retirement obligation, or ARO, and an associated asset retirement cost, or ARC, when we have a legal obligation in connection with the retirement of tangible long-lived assets. Our obligations arise from certain of our leases and relate primarily to the cost of removing our communication towers and network equipment from
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
leased sites. We recognize an asset retirement obligation,ARO, and the associated asset retirement cost,ARC, in the period in which it is incurred at fair value computed using discounted cash flow techniques. The liability is then accreted over time until the obligation is settled and the asset retirement costARC is depreciated over the useful life of the related assets.
We make adjustments for changes to either the timing or amount of the estimated future settlement obligation in the period incurred. We recognize increases in the present value of the asset retirement obligationsAROs as an additional liability and add this amount to the carrying amount of the associated asset retirement cost.ARC. We record decreases as a reduction in both the recorded liability and the carrying amount of the associated asset retirement cost.ARC. To the extent that the decrease in the recorded liability exceeds the carrying amount of the associated asset retirement cost,ARC, we record the excess as a component of operating income. For
As of June 30, 2015, in connection with the year ended December 31, 2013,implementation of fresh start accounting, we recorded a $75.9 million reductionadjusted our AROs to our asset retirement obligations as the result of a change in the timing and amount oftheir estimated future settlements, of which $48.3 million represented the amount of the liability that was in excess of the carrying amount of the associated asset retirement cost.fair value.
As of December 31, 20142015 and 20132014, our asset retirement obligations were as follows (in thousands):
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | 2014 | | 2013 | |
| Balance, January 1 | $ | 49,879 |
| | $ | 102,465 |
| |
Balance, January 1, 2014 — Predecessor Company | | | $ | 22,643 |
|
| New asset retirement obligations | 8,718 |
| | 18,292 |
| | 4,052 |
|
| Change in assumptions | (2,096 | ) | | (75,900 | ) | | (941 | ) |
| Accretion | 6,531 |
| | 17,171 |
| | 3,521 |
|
| Settlement of asset retirement obligations | (9,844 | ) | | 323 |
| | (6,895 | ) |
| Foreign currency translation and other | (9,650 | ) | | (12,472 | ) | | (3,203 | ) |
| Balance, December 31 | $ | 43,538 |
| | $ | 49,879 |
| |
Balance, December 31, 2014 — Predecessor Company | | | 19,177 |
|
| New asset retirement obligations | | | 350 |
|
| Accretion | | | 1,321 |
|
| Settlement of asset retirement obligations | | | (168 | ) |
| Foreign currency translation and other | | | (2,011 | ) |
Balance, June 30, 2015 — Predecessor Company | | | 18,669 |
|
| Fresh start adjustments | | | 5,024 |
|
Balance, July 1, 2015 — Successor Company | | | 23,693 |
|
| New asset retirement obligations | | | 547 |
|
| Accretion | | | 1,688 |
|
| Settlement of asset retirement obligations | | | (1,337 | ) |
| Foreign currency translation and other | | | (4,949 | ) |
Balance, December 31, 2015 — Successor Company | | | $ | 19,642 |
|
Derivative Financial Instruments. We occasionally enter into derivative transactions for hedging or risk management purposes only.purposes. We have not and will not enter into any derivative transactions for speculative or profit generating purposes. As ofDuring the six months ended December 31, 2015, the six months ended June 30, 2015 and the years ended December 31, 2014 and 2013, the values of ourNextel Brazil entered into derivative instruments were not material.transactions to manage foreign currency risk on certain forecasted transactions. See Note 8 for additional information.
Valuation of Long-Lived Assets. We review long-lived assets such as property, plant and equipment and identifiable intangible assets with definite useful lives, which include our telecommunications licenses, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected undiscounted future cash flows of the asset or asset group is less than the carrying amount of the asset, we recognize a loss, if any, for the difference between the fair value and carrying value of the asset.
Intangible Assets. Substantially allPrior to our emergence from Chapter 11, intangible assets primarily consisted of our intangible assets are wireless telecommunications licenses. We amortize our intangible assets using the straight-line method over the estimated period benefited. We amortize licenses acquired afterbenefit period. As a result of the implementation of fresh start accounting in connection with our emergence from reorganizationChapter 11, we recorded our intangible assets, which consisted of our telecommunications licenses, our exclusive right to use the Nextel tradename in 2002 overBrazil and our customer relationships, at their estimated fair values. We calculate amortization on our licenses and our tradename using the straight-line
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
method based on an estimated useful liveslife of 3 to 2026 years. We calculate amortization on our customer relationships using the straight-line method based on an estimated useful life of 4 years.
In the countries in which we operate,Brazil, licenses are customarily issued conditionally for specified periods of time ranging from 10 to 40 years, including renewals. The licenses are generally renewable provided the licensee has complied with applicable rules and policies. We believe we have complied with these standards in all material respects. However, the political and regulatory environments in the markets we serve are continuously changing and, in many cases, the renewal fees could be significant. Therefore, we do not view the renewal of our licenses to be perfunctory. In addition, the wireless telecommunications industry is experiencing significant technological change, and the commercial life of any particular technology is difficult to predict. Our licenses in Mexico give us the right to use 800 MHz spectrum that is non-contiguous, and the iDEN technology is the only commercially available technology that operates on non-contiguous spectrum. As a result, our ability to deploy new technologies using 800 MHz spectrum in Mexico may be limited. In light of these uncertainties, we classify our licenses as definite lived intangible assets. In connection with the implementation of fresh start accounting, we revised the remaining estimated useful lives of our licenses to include renewal periods in cases where it is probable that a renewal will occur.
Revenue Recognition. Operating revenues primarily consist of wireless service revenues and revenues generated from the sale of handsets and accessories. We present our operating revenues net of value-added taxes, but we include certain revenue-based taxes that are our primary obligation.
Service revenues primarily consist of fixed monthly access charges. Other components of service revenue include revenues from calling party pays programs, where applicable, variable charges for airtime usage in excess of plan minutes, long-distance charges, international roaming revenues derived from calls placed by our subscribers on other carriers’ networks and revenues generated from broadband data services we provide on our WCDMA networks,network, net of credits and adjustments for service discounts and value-added taxes. We recognize excess usage, local, long distance and calling party pays revenue at contractual rates per minute as minutes are used. We record cash received in excess of revenues earned as deferred revenues. We recognize service revenue as service is provided. We recognize handset revenue when title and risk of loss passes to the customer.
We bill excess usage to certain of our subscribers in arrears. In order to recognize the revenues originating from excess usage subsequent to subscriber invoicing, we estimate the unbilled portion based on the usage that the handset had during the part of the month already billed, and we use this actual usage to estimate the unbilled usage for the rest of the month taking into consideration working days and seasonality. Our estimates are based on our experience in each market. We periodically evaluate our estimates by comparing them to actual excess usage revenue billed the following month. While our estimates have been consistent with our actual results, actual usage in future periods could differ from our estimates.
Other revenues primarily include amounts generated from our handset maintenance programs, roaming revenues generated from other companies’ subscribers that roam on our networks and co-location rental revenues from third party tenants that rent space on our towers. We recognize revenue generated from our handset maintenance programs on a monthly basis at fixed amounts over the service period. We recognize roaming revenues at contractual rates per minute as minutes are used. We recognize co-location revenues from third party tenants on a monthly basis based on the terms set by the underlying agreements.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue-Based Taxes. We record revenue-based taxes and other excise taxes on a gross basis as a component of both service and other revenues and selling, general and administrative expenses in our consolidated financial statements. For the yearssix months ended December 31, 2014, 20132015 and 2012,the six months ended June 30, 2015, we hadrecognized $120.6 million, $166.030.9 million and $211.5$39.0 million, respectively, in revenue-based taxes and other excise taxes.taxes, respectively. During the years ended December 31, 2014 and 2013, we recognized $101.0 million and $127.3 million in revenue-based taxes and other excise taxes, respectively.
Accounts Receivable. Accounts receivable represents amounts due from subscribers, net of an allowance for doubtful accounts, and includes amounts that have been billed to customers and amounts that have not yet been billed. Trade accounts receivable consists of fixed monthly charges, as well as charges for excess and roaming minutes used in arrears.
Allowance for Doubtful Accounts. We establish an allowance for doubtful accounts receivable sufficient to cover probable and reasonably estimated losses. We estimate this allowance based on historical experience, aging of accounts receivable and individual subscriber payment history.recent collections trends. While we believe that the estimates we use are reasonable, actual results could differ from those estimates.
Subscriber Related Direct Costs. We recognize all costs of handset sales when title and risk of loss passes upon delivery of the handset to the subscriber.
Advertising Costs. We expense costs related to advertising and other promotional expenditures as incurred. Advertising costs totaled $21.6 million and $28.7 million for the six months ended December 31, 2015 and the six months ended June 30, 2015, respectively. We recognized $146.9 million, $142.588.7 million and $159.854.4 million in advertising costs during the years ended December 31, 2014, and 2013 and 2012, respectively.
Stock-BasedShare-Based Compensation. We measure and recognize compensation expense for all stock-basedshare-based compensation awards based on estimated fair values. We account for share-based awards exchanged for employee services in accordance with the authoritative guidance for stock compensation. Under thethat guidance, stockshare-based compensation expense is measured at the grant date, based on the estimated fair value of the award when settled in shares, and is recognized, net of estimated forfeitures, over the employee's requisite service period. Compensation expense is amortized on a straight-line basis over the requisite service period for the entire award, which is generally the maximum vesting period of the award. Our stock options and restricted shares generally vest thirty-three percent per year over a three-year period. See Note 1412 for more information.
Net Loss(Loss) Income Per Common Share, Basic and Diluted. Basic net loss(loss) income per common share is computed by dividing adjusted net loss(loss) income attributable to common shares by the weighted average number of common shares outstanding for the period. Diluted net loss(loss) income per common share reflects the potential dilution of securities that could participate in our
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
earnings, but not securities that are antidilutive, including stock options with an exercise price greater than the average market price of our common stock.
Our unvested restricted stock awards, or RSAs, contain non-forfeitable rights to dividends, whether paid or unpaid. As a result, our RSAs are considered participating securities because their holders have the right to participate in earnings with common stockholders. We use the two-class method to allocate net income between common shares and other participating securities.
As presented for the yearssix months ended December 31, 2014, 20132015 and 2012,the six months ended June 30, 2015, we did not include 2.2 million and 4.8 million stock options, respectively, in our calculation of diluted net loss(loss) income from continuing operations per common share is based onbecause their effect would have been antidilutive. In addition, for the weighted average number of common shares outstanding during the period and doessix months ended December 31, 2015, we did not include other potential common shares, including shares issuable upon the potential exercisean immaterial amount of stock options under our stock-based employee compensation plans or restricted common shares issued under those plans. In addition,in our calculation of diluted net (loss) income from continuing operations per common share because their effect would have been antidilutive. As presented for the years ended December 31, 2014 2013 and 2012,2013, we did not include 5.4 million 10.8 million or 16.810.8 million stock options, respectively, and 0.9 million 2.8 million or 2.02.8 million in restricted stock,common shares, respectively, in our calculation of diluted net loss from continuing operations per common share because their effect would have been antidilutive to our net loss from continuing operations per common share for those periods.
Income Taxes. We account for income taxes using the asset and liability method, under which we recognize deferred income taxes for the tax consequences attributable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, as well as for tax loss carryforwards and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled. We recognize the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. We providerecognize a valuation allowance againston deferred tax assets if, based upon the weight of available evidence, we do not believeunless it is determined that it is “more-likely-than-not” that some or all of the deferred tax assetsasset will be realized.
Reclassifications. We have reclassified some prior period amounts in our consolidated financial statements to conform to our current year presentation.
New Accounting Pronouncements. OnIn May 28, 2014, the Financial Accounting Standards Board, or the FASB, issued new authoritative guidance surrounding revenue recognition,Accounting Standards Update, or ASU, No. 2014-09, "Revenue from Contracts with Customers," which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new authoritative guidance will replace
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
most existing revenue recognition guidance when it becomes effective. The new standard is effective on January 1, 2017,2018, and early application is not permitted.permitted on January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that the new revenue recognition guidance will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
On April 10, 2014,In November 2015, the FASB issued new authoritative guidance surrounding discontinued operationsASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes," requiring all deferred tax assets and disclosures of components of an entity, which updatesliabilities, and any related valuation allowance, to be classified as noncurrent on the definition of discontinued operations. Going forward only those disposals of components of an entity that represent a strategic shift that hasbalance sheet. The classification change for all deferred taxes as non-current simplifies entities’ processes as it eliminates the need to separately identify the net current and net noncurrent deferred tax asset or will have a major effect on an entity's operationsliability in each jurisdiction and financial results will be reported as discontinued operations in a company's financial statements. The new standard is effective for disposals of components of an entity that occur within annual periods beginning on or after December 15, 2014, andallocate valuation allowances. We early adoption is permitted. We intend to adoptadopted this standard in the firstfourth quarter of 2015 and applied the requirements retroactively to all periods presented. The adoption of this standard resulted in the reclassification of $39.1 million from current deferred tax assets and $0.2 million from noncurrent deferred tax assets to a $39.3 million reduction in noncurrent deferred tax liabilities in our consolidated balance sheet as of December 31, 2014.
In May 2015, the FASB issued ASU No. 2015-07, "Fair Value Measurement: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." This guidance eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value per share practical expedient in the FASB’s fair value measurement guidance. We reviewed this authoritative guidance and have elected to early adopt as of the fourth quarter of 2015. We do not expecthave applied the requirements of this guidance retroactively to all periods presented. The adoption of this standard todid not have a material impact on our financial statements.
On August 27, 2014,
In July 2015, the FASB issued new authoritativeASU No. 2015-11, "Simplifying the Measurement of Inventory." This guidance surroundingreplaces the evaluationlower of cost or market test with a lower of cost and disclosuresnet realizable value test, which is intended to simplify the measurement of uncertainties about an entity's ability to continue as a going concern. The new guidance requires management to perform an assessment of going concern and, under certain circumstances, disclose information regarding this assessment in the footnotes to the financial statements. The newinventories. This standard is effective for periods beginning after December 15, 2016. We intend to adoptearly adopted this standard inas of the firstfourth quarter of 2017.2015 and plan to apply the requirements of this guidance prospectively. We do not expect the adoption of this standard to have a material impact on our financial statements.
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Impairment, Restructuring and RestructuringOther Charges
Total impairment, restructuring and other charges for the six months ended December 31, 2015 and the six months ended June 30, 2015, as well as for the years ended December 31, 2014 and 2013 were as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2015 | | | 2015 | | 2014 | | 2013 |
| Brazil | $ | 23,968 |
| | | $ | 28,072 |
| | $ | 42,271 |
| | $ | 24,515 |
|
| Corporate | 8,340 |
| | | 8,720 |
| | 63,393 |
| | 97,063 |
|
| Total impairment, restructuring and other charges | $ | 32,308 |
| | | $ | 36,792 |
| | $ | 105,664 |
| | $ | 121,578 |
|
Asset Impairments.
In accordance withDuring the FASB's authoritative guidance on thefourth quarter of 2015, we reviewed our Nextel Brazil segment for potential impairment and disposalusing a probability-weighted cash flow analysis. Our estimation of long-lived assets, we review our long-lived assets for impairment whenever events and circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. The recoverability of an asset or asset group held and used is measured by a comparison of the carrying amount of the asset or asset group to the estimated and undiscounted future cash flows expectedwas partially based on assumptions that we will be able to fund our business plan and that it is not probable that our Nextel Brazil segment will be generated by the asset or asset group.
Although we plan to continue to supportdisposed of. Based on our operations in Argentina, we are also exploring various strategic options for this market, such as partnerships, service arrangements and asset sales, to maximize the value of Nextel Argentina and generate additional liquidity. As a result of the review of our long-lived assets and our exploration of strategic options for Nextel Argentina in 2014,current estimated undiscounted future cash flows, we determined that the carrying value of our Nextel Argentina's asset group, which includes all ofBrazil segment is recoverable.
During the operating assetssix months ended December 31, 2015 and liabilities held by our Argentine segment, was not recoverable. Accordingly,the six months ended June 30, 2015, we recorded arecognized $12.6 million and $31.1 million in non-cash asset impairment chargecharges, the majority of $84.7 millionwhich related to reduce the carrying amountshutdown or abandonment of transmitter and receiver sites that are no longer required, retail store closures related to the asset group to its estimated fair value. We estimatedrealignment of distribution channels and the fair valuediscontinuation of Nextel Argentina's asset group using assumed proceeds from a potential disposition, which is a Level 3 input within the fair value hierarchy under the FASB's authoritative guidance on fair value measurements. During 2014, we also tested the long-lived assetscertain information technology projects in our Nextel Brazil and Nextel Mexico segments for recoverability and, based on our estimates of undiscounted cash flows, determinedat the carrying values to be recoverable. Our estimates of undiscounted cash flows for each asset group exceeded the carrying value of the respective asset groups.corporate level.
In 2014, we evaluated strategic options for the next generation of our push-to-talk services and determined that, for one of these options, further development was no longer probable. As a result, we recognized a $47.9$42.8 million asset impairment charge $5.1 million of which was recognized by Nextel Mexico and the remainder of which was recognized at the corporate level.
We also recognized a $6.4 million asset impairment charge at the corporate level related to the sale of our corporate aircraft in 2014.
During 2014, we alsoNextel Brazil recognized $25.5$21.9 million in asset impairment charges, the majority of which related to the shutdown or abandonment of approximately 300 transmitter and receiver sites in Brazil and Mexico and about 50 retail store closures in Brazil related to the realignment of ourits distribution channels.
In 2013, we discontinued the use of software previously developed to support our customer relationship management systems. As a result of this evaluation, in the first quarter of 2013, we recognized an asset impairment charge of $85.3 million related to the discontinuation of this software, of which $76.3 million was recognized at the corporate level and $9.0 million was recognized by Nextel Mexico.
level.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We also recognized a $5.9 million asset impairment at the corporate level in 2013 related to the discontinuation of the development of certain network features.
Restructuring and Other Charges.
During 2012,the six months ended December 31, 2015, Nextel Brazil recognized $8.4 million in restructuring charges related to future lease costs for certain transmitter and receiver sites that are no longer necessary in our business plan. In addition, during the six months ended December 31, 2015, we recognized $22.8$9.9 million in asset impairment charges,severance and other related costs in Brazil and at the majoritycorporate level as a result of whichthe separation of employees. These actions included the termination of:
approximately 45 employees at the corporate level, all of whom were notified in the fourth quarter of 2015 of their severance date; and
approximately 700 employees in Brazil, all of whom were severed in the second half of 2015.
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We also recognized $5.4 million in severance and other related costs at the corporate level during the six months ended June 30, 2015 related to the write-offseparation of certain information technology projects at the corporate level.
Restructuring Charges.
approximately 30 employees.
During 2014, we recognized $48.4$27.7 million in severance and related costs as a result of the termination of employees at the corporate level and in our markets.Brazil. These actions included the separation of:
approximately 85 employees at the corporate level, all of whom were severed in the second quarter of 2014; and
approximately 800 employees in Brazil, all of whom were severed in the third quarter of 2014;
approximately 1,170 employees in Mexico, 800 of whom were severed in the second quarter of 2014 and the remainder of whom were severed in the third quarter of 2014; and
about 20 employees in Argentina, all of whom were severed in the second half of 2014.
We terminated these employees in an effort to streamline our organizational structure and reduce general and administrative expenses.
In 2009, we outsourced our network operations to a third party. During 2013, we restructured and amended this agreement, reduced the scope of the services provided, added terms to facilitate the transition of those services to us and established the terms on which further transitions of services and the termination of the arrangements could be implemented in each of our markets. Under the outsourcing agreements in effect prior to this restructuring, we classified a portion of the base contractual fees as a prepayment and were recognizing this prepayment over the life of the previous agreement. As a result of this restructuring, we recognized a non-cash charge of $38.2$23.8 million relating to the write-off of the remainder of the prepayment during 2013. In 2014, we settled certain refund claims related to this outsourcing agreement, which resulted in a restructuring benefit of $3.2 million.
During 2014, we recognized a $4.5 million charge related to the cessation of our utilization of certain network services in Brazil.
In 2013, we recognized $30.1$8.0 million in restructuring charges, the majority of which was related to the separation of approximately 80050 employees at the corporate level, and in Mexico, in connection with an organizational realignment plan that we designed to simplify the roles and responsibilities of both our headquarters and market organizations and to reduce general and administrative expenses.
During 2013, we recognized $6.8 million in contract termination costs incurred in connection with the sublease of certain excess space located in one of our corporate office buildings.
During 2012, we recognized $7.6 million in restructuring charges at the corporate level, primarily related to the separation of approximately 50 employees in conjunction with certain actions taken to realign resources and roles between our corporate headquarters and operating segments.
Total impairment and restructuring charges for the years ended December 31, 2014, 2013 and 2012 were as follows (in thousands):
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| | December 31, |
| | 2014 | | 2013 | | 2012 |
| Brazil | $ | 41,492 |
| | $ | 24,515 |
| | $ | 2,437 |
|
| Mexico | 26,256 |
| | 39,057 |
| | 439 |
|
| Argentina | 89,601 |
| | 7,908 |
| | 73 |
|
| Corporate | 63,393 |
| | 97,063 |
| | 27,452 |
|
| Total impairment and restructuring charges | $ | 220,742 |
| | $ | 168,543 |
| | $ | 30,401 |
|
As of December 31, 2014,2015, we had $3.2 million in unrecognized restructuring costs related to future service by employees that have been notified of their severance dates. In addition, as of December 31, 2015, the total of our accrued restructuring charges that we expect to pay in 2015 were2016 and 2017 was as follows (in thousands):
|
| | | |
| Balance, January 1, 2014 | $ | 15,410 |
|
| Restructuring charges | 56,260 |
|
| Cash payments | (63,420 | ) |
| Balance, December 31, 2014 | $ | 8,250 |
|
|
| | | |
Balance, January 1, 2015 — Predecessor Company | $ | 7,572 |
|
| Restructuring and other charges | 5,719 |
|
| Cash payments | (8,457 | ) |
Balance, June 30, 2015 — Predecessor Company | $ | 4,834 |
|
| Restructuring and other charges | 19,679 |
|
| Cash payments | (7,654 | ) |
Balance, December 31, 2015 — Successor Company | $ | 16,859 |
|
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Discontinued Operations
ImpairmentSale of Nextel Argentina. On September 11, 2015, NII Mercosur Telecom, S.L.U. and NII Mercosur Moviles, S.L.U., both of which are indirect subsidiaries of NII Holdings, entered into a binding agreement with Grupo Clarin relating to the sale of all of the outstanding equity interests of Nextel Communications Argentina, S.R.L., or Nextel Argentina. This agreement provided for aggregate cash consideration of $178.0 million, of which $159.0 million was paid at signing in connection with the transfer of a 49% equity interest in Nextel Argentina and the grant of a call option that allowed Grupo Clarin or any of its affiliates to acquire the remaining 51% equity interest in Nextel Argentina upon receipt of required approvals from the regulatory authorities in Argentina. We received the remaining cash consideration in October 2015, including $6.0 million deposited in escrow to satisfy potential indemnification claims. On January 27, 2016, the agreement was amended to permit Grupo Clarin or any of its affiliates to exercise the right to acquire the remaining 51% equity interest prior to receiving regulatory approval, and Grupo Clarin and its affiliate immediately acquired the remaining 51% of Nextel Argentina for no additional proceeds.
Sale of Nextel Mexico. On April 30, 2015, we, together with our wholly-owned subsidiary NIU Holdings LLC, completed the sale of our Mexican operations to New Cingular Wireless, an indirect subsidiary of AT&T. The transaction was structured as a sale of all of the outstanding stock of the parent company of Comunicaciones Nextel de Mexico, S.A. de C.V., or Nextel Mexico, for a purchase price of $1.875 billion, including $187.5 million deposited in escrow to satisfy potential indemnification claims. The net proceeds from this sale were $1.448 billion after deducting Nextel Mexico's outstanding indebtedness and applying other specified purchase price adjustments. The amount held in escrow is available for the indemnification of defined claims through April 2017. As of December 31, 2015, we had received notification for one indemnification claim in the amount of $6.5 million, and we intend to vigorously contest this claim.
Sale of Nextel Chile. In the second quarter of 2014, we determined that the carrying value of Nextel Chile's assets was not recoverable. As a result, we recognized a non-cash impairment charge of $127.5 million to impair the carrying amount of Nextel Chile's assets. We estimated the fair value of Nextel Chile's assets using short-term projections of cash flows, as well as assumed proceeds from a potential disposition of some or all of the assets. The impairment charge we recognized in the second quarter of 2014 reduced the carrying value of Nextel Chile's net assets to a nominal amount and is included as a component of operating expenses for the year ended December 31, 2014 in the table below.
In August 2014, our wholly-owned subsidiaries NII Mercosur Telecom, S.L., NII Mercosur Moviles, S.L. and NII International Telecom S.C.A. completed the sale of all of the outstanding equity interests of our wholly-owned subsidiary, Nextel Chile S.A., or Nextel Chile, to Fucata, S.A., a venture comprised of Grupo Veintitres and Optimum Advisors, for a de minimus amount. During the third quarter of 2014, we recognized a $32.7 million gain on the disposal of Nextel Chile, which included the reclassification of accumulated other comprehensive income related to Nextel Chile's cumulative translation adjustment to loss from discontinued operations in connection with this sale.
Sale of Nextel Peru. In August 2013, we, together with our wholly-owned subsidiaries NII Mercosur Telecom, S.L. and NII Mercosur Moviles, S.L., completed the sale of all of the outstanding equity interests of our wholly-owned subsidiary, Nextel del Peru, S.A., or Nextel Peru, to Empresa Nacional de Telecomunicaciones S.A. and one of its subsidiaries, Entel Inversiones, S.A., which we refer to collectively as Entel. Entel has provided notice of potential claims for $405.5 million in cash, which includes $50.0amounts greater than the $34.4 million that was depositedremained in escrow on our behalfas of December 31, 2015 to satisfy potential indemnificationthese claims. In 2013, we recognized a $2.8 million loss onWe believe that the disposal of Nextel Peru in connection with this sale. In April 2014, we released $7.5 million of the amounts held in escrow to Entel as a result of the settlementrequirements for payment of certain indemnification claims have not been met at this time, and in Februarywe intend to vigorously contest those claims. As of December 31, 2015, we releasedaccrued an additional $2.0 million as a result ofimmaterial amount related to the potential settlement of certain tax indemnification claims. The remaining fundstime period for additional claims against the amount held in escrow continue to be available to satisfy potential future indemnification claims.lapsed in February 2015.
In connection with the salesales of Nextel Argentina, Nextel Mexico, Nextel Chile and Nextel Peru, we have reported the results of these operating companies as discontinued operations in our consolidated financial statements. Accordingly, we reclassified Nextel Argentina's, Nextel Mexico's, Nextel Chile's and Nextel Peru's results of operations for all periods presented to reflect Nextel Chile and Nextel Peruthese former operating companies as discontinued operations. Unless otherwise noted, amounts included in these notes to our consolidated financial statements exclude amounts attributable to discontinued operations. The major components of lossincome (loss) from discontinued operations related to Nextel Argentina, Nextel Mexico, Nextel Chile and Nextel Peru were as follows (in thousands):
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 |
| Operating revenues | $ | 38,596 |
| | $ | 265,979 |
| | $ | 393,227 |
|
| Operating expenses | (228,578 | ) | | (443,166 | ) | | (1,010,229 | ) |
| Other expense, net | (19,989 | ) | | (34,576 | ) | | (2,443 | ) |
| Loss before income tax provision | (209,971 | ) | | (211,763 | ) | | (619,445 | ) |
| Income tax provision | — |
| | (900 | ) | | (63,965 | ) |
| | (209,971 | ) | | (212,663 | ) | | (683,410 | ) |
| Gain (loss) on disposal of Nextel Chile and Nextel Peru | 29,585 |
| | (2,848 | ) | | — |
|
| Loss from discontinued operations, net of income taxes | $ | (180,386 | ) | | $ | (215,511 | ) | | $ | (683,410 | ) |
|
| | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2015 | | | 2015 | | 2014 | | 2013 |
| Operating revenues | $ | 75,450 |
| | | $ | 599,038 |
| | $ | 1,878,362 |
| | $ | 2,774,505 |
|
| Operating expenses | (60,863 | ) | | | (675,245 | ) | | (2,423,218 | ) | | (2,950,596 | ) |
| Other income (expense), net | 1,159 |
| | | (49,974 | ) | | (148,641 | ) | | (114,299 | ) |
| Income (loss) before income tax provision | 15,746 |
| | | (126,181 | ) | | (693,497 | ) | | (290,390 | ) |
| Income tax provision | (4,770 | ) | | | (8,065 | ) | | (69,115 | ) | | (155,936 | ) |
| | 10,976 |
| | | (134,246 | ) | | (762,612 | ) | | (446,326 | ) |
| Income (loss) on disposal of Nextel Argentina, Nextel Mexico, Nextel Chile and Nextel Peru | 632 |
| | | 355,360 |
| | 29,585 |
| | (2,848 | ) |
| Income (loss) from discontinued operations, net of income taxes | $ | 11,608 |
| | | $ | 221,114 |
| | $ | (733,027 | ) | | $ | (449,174 | ) |
The components of assets and liabilities related to discontinued operations as of December 31, 2013,2014, all of which related to Nextel Chile,Argentina and Nextel Mexico, consisted of the following (in thousands):
| | | | December 31, 2013 | | | |
ASSETS | | Current assets | | |
| Cash and cash equivalents | $ | 3,448 |
| $ | 239,407 |
|
| Accounts receivable, net of allowance for doubtful accounts of $6,762 | 11,157 |
| |
| Short-term investments | | 43,548 |
|
| Accounts receivable, less allowance for doubtful accounts of $24,266 | | 142,545 |
|
| Handset and accessory inventory | 5,965 |
| 141,748 |
|
| Prepaid expenses and other | 38,526 |
| |
| Prepaid expenses and other, net | | 130,731 |
|
| Total current assets | | 697,979 |
|
| Property, plant and equipment, net | 50,515 |
| 1,080,228 |
|
| Intangible assets, net | 13,300 |
| 133,971 |
|
| Other assets | 46,020 |
| |
| Other assets, net | | 83,344 |
|
| Total assets | $ | 168,931 |
| $ | 1,995,522 |
|
LIABILITIES | | Accounts payable | $ | 22,928 |
| $ | 147,162 |
|
| Accrued expenses and other | 13,841 |
| 219,369 |
|
| Other long-term liabilities | 5,326 |
| |
| Deferred revenues | | 60,176 |
|
| Current portion of long-term debt | | 60,143 |
|
| Long-term debt | | 526,980 |
|
| Deferred income taxes and other long-term liabilities | | 97,928 |
|
| Total liabilities | $ | 42,095 |
| $ | 1,111,758 |
|
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Supplemental Financial Statement Information
Prepaid Expenses and Other.
The components of our prepaid expenses and other are as follows:
|
| | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | December 31, |
| | 2015 | | | 2014 |
| | (in thousands) |
| Cash collateral related to performance bonds | $ | 47,450 |
| | | $ | — |
|
| Value-added taxes | 33,467 |
| | | 101,283 |
|
| Other prepaid assets | 11,934 |
| | | 52,323 |
|
| Other current assets | 39,683 |
| | | 44,860 |
|
| | $ | 132,534 |
| | | $ | 198,466 |
|
Property, Plant and Equipment, Net.
The components of our property, plant and equipment, net are as follows:
| | | | | | | | Successor Company | | | Predecessor Company |
| | December 31, | December 31, |
| | 2014 | | 2013 | 2015 | | | 2014 |
| | (in thousands) | (in thousands) |
| Land | $ | 6,777 |
| | $ | 7,663 |
| $ | 2,655 |
| | | $ | 3,903 |
|
| Building and leasehold improvements | 137,235 |
| | 190,258 |
| 11,765 |
| | | 50,174 |
|
| Network equipment, communication towers and network software | 4,074,786 |
| | 4,735,361 |
| 492,814 |
| | | 2,170,033 |
|
| Software, office equipment, furniture and fixtures and other | 678,300 |
| | 753,665 |
| 65,747 |
| | | 378,256 |
|
| Corporate aircraft | — |
| | 42,747 |
| |
| Less: Accumulated depreciation and amortization | (2,669,566 | ) | | (2,907,939 | ) | (59,987 | ) | | | (1,392,528 | ) |
| | 2,227,532 |
| | 2,821,755 |
| 512,994 |
| | | 1,209,838 |
|
| Construction in progress | 205,401 |
| | 515,790 |
| 42,029 |
| | | 142,867 |
|
| | $ | 2,432,933 |
| | $ | 3,337,545 |
| $ | 555,023 |
| | | $ | 1,352,705 |
|
7. See Note 2 for more information regarding the valuation of our property, plant and equipment in connection with the implementation of fresh start accounting.
Intangible Assets, Net.
Our intangible assets, net include the following:
| | | | | | | | | | | | | | | | | Successor Company | | | Predecessor Company |
| | December 31, 2014 | | December 31, 2013 | | December 31, 2015 | | | December 31, 2014 |
| | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | Average Useful Life (Years) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| | | | | | (in thousands) | | | | | | | | | | | | (in thousands) | | | | | | | |
| Amortizable intangible assets: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | |
| | |
| | |
|
| Licenses | $ | 1,091,405 |
| | $ | (287,281 | ) | | $ | 804,124 |
| | $ | 1,205,450 |
| | $ | (243,081 | ) | | $ | 962,369 |
| 26 | | $ | 850,818 |
| | $ | (16,314 | ) | | $ | 834,504 |
| | | $ | 783,783 |
| | $ | (113,630 | ) | | $ | 670,153 |
|
| Total amortizable intangible assets | $ | 1,091,405 |
| | $ | (287,281 | ) | | $ | 804,124 |
| | $ | 1,205,450 |
| | $ | (243,081 | ) | | $ | 962,369 |
| |
| Tradename | | 26 | | 38,700 |
| | (744 | ) | | 37,956 |
| | | — |
| | — |
| | — |
|
| Customer relationships | | 4 | | 23,042 |
| | (2,880 | ) | | 20,162 |
| | | — |
| | — |
| | — |
|
| | | | $ | 912,560 |
| | $ | (19,938 | ) | | $ | 892,622 |
| | | $ | 783,783 |
| | $ | (113,630 | ) | | $ | 670,153 |
|
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014, the balance of our indefinite lived intangible assets was $18.0 million. See Note 2 for more information regarding the valuation of our intangible assets in connection with the implementation of fresh start accounting. In addition, the weighted average useful lives of the intangible assets we acquired during the six months ended December 31, 2015 and June 30, 2015 were 26 and 15 years, respectively.
Based on the carrying amount of our intangible assets as of December 31, 20142015 and current exchange rates, we estimate amortization expense for each of the next five years to be as follows (in thousands):
| | | Years | Estimated Amortization Expense | Estimated Amortization Expense |
| 2015 | $ | 75,922 |
| |
| 2016 | 75,922 |
| $ | 39,950 |
|
| 2017 | 75,922 |
| 39,950 |
|
| 2018 | 75,922 |
| 39,950 |
|
| 2019 | 75,922 |
| 37,070 |
|
| 2020 | | 34,189 |
|
Actual amortization expense to be reported in future periods could differ from these estimates as a result of additional acquisitions of intangibles, as well as changes in foreign currency exchange rates and other relevant factors. As of both December 31, 2014
Accrued Expenses and December 31, 2013, the balanceOther.
The components of our indefinite lived intangible assets was $18.0 million. In addition, the weighted average useful life of the intangible assets we acquired during the year ended December 31, 2014 was 15 years.accrued expenses and other are as follows:
|
| | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | December 31, |
| | 2015 | | | 2014 |
| | (in thousands) |
| Non-income based taxes | $ | 33,097 |
| | | $ | 42,054 |
|
| Network system and information technology | 32,079 |
| | | 43,535 |
|
| Payroll related items and commissions | 31,734 |
| | | 38,829 |
|
| Capital expenditures | 25,182 |
| | | 64,459 |
|
| Other | 139,946 |
| | | 148,774 |
|
| | $ | 262,038 |
| | | $ | 337,651 |
|
Other Assets.
The components of our other long-term assets are as follows:
|
| | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | December 31, |
| | 2015 | | | 2014 |
| | (in thousands) |
| Restricted cash | $ | 275,235 |
| | | $ | 88,404 |
|
| Equity interest in Nextel Argentina | 108,148 |
| | | — |
|
| Cash collateral related to performance bonds | 94,236 |
| | | 119,682 |
|
| Other | 76,622 |
| | | 164,826 |
|
| | $ | 554,241 |
| | | $ | 372,912 |
|
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Supplemental Balance Sheet and Cash Flow Information
Prepaid Expenses and Other.
The components are as follows:
|
| | | | | | | |
| | December 31, |
| | 2014 | | 2013 |
| | (in thousands) |
| Value-added taxes | $ | 137,699 |
| | $ | 207,951 |
|
| Income taxes | 19,632 |
| | 59,054 |
|
| Other prepaid assets | 97,573 |
| | 90,108 |
|
| Other current assets | 74,293 |
| | 40,461 |
|
| | $ | 329,197 |
| | $ | 397,574 |
|
Restricted Cash.
AsThe components of December 31, 2014, we had $107.8 million inour restricted cash, the majority of which was included inwere classified as other long-term assets and was comprisedin our consolidated balance sheets as of cash held in escrow in connection with the sale of Nextel Peru, judicial deposits in Nextel Brazil and a debt service reserve account related to Nextel Mexico's equipment financing facility.
As of December 31, 2013, we had $120.5 million in restricted cash, the majority of which was included in other long-term assets2015 and was comprised of cash held in escrow in connection with the sale of Nextel Peru, a debt service reserve account related to Nextel Mexico's equipment financing facility, judicial deposits in Nextel Brazil, purchase commitments for handsets and cash collateral supporting the lease of our corporate headquarters.
Accrued Expenses and Other.
The components2014, are as follows:
|
| | | | | | | |
| | December 31, |
| | 2014 | | 2013 |
| | (in thousands) |
| Capital expenditures | $ | 106,295 |
| | $ | 290,036 |
|
| Non-income based taxes | 87,127 |
| | 114,360 |
|
| Payroll related items and commissions | 66,598 |
| | 89,435 |
|
| Network system and information technology | 62,229 |
| | 92,109 |
|
| Accrued interest | 10,574 |
| | 128,509 |
|
| Other | 230,165 |
| | 244,610 |
|
| | $ | 562,988 |
| | $ | 959,059 |
|
|
| | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | December 31, |
| | 2015 | | | 2014 |
| | (in thousands) |
Cash in escrow — Nextel Mexico sale | $ | 186,593 |
| | | $ | — |
|
| Brazil judicial deposits | 54,289 |
| | | 46,215 |
|
| Cash in escrow — Nextel Peru sale | 34,353 |
| | | 41,782 |
|
| Short-term cash in escrow — Nextel Argentina sale | 6,000 |
| | | — |
|
| Other | — |
| | | 407 |
|
| | $ | 281,235 |
| | | $ | 88,404 |
|
Accumulated Other Comprehensive Loss. As of December 31, 20142015 and 2013,2014, the tax impact on our accumulated other comprehensive loss was not material. The components of our accumulated other comprehensive loss, net of taxes, are as follows:
| | | | Successor Company | | | Predecessor Company |
| | | | | | | | December 31, |
| | December 31, 2014 | | December 31, 2013 | 2015 | | | 2014 |
| | (in thousands) | (in thousands) |
| Cumulative foreign currency translation adjustment | $ | (1,326,003 | ) | | $ | (951,271 | ) | $ | (245,779 | ) | | | $ | (1,326,003 | ) |
| Other | (5,350 | ) | | (4,806 | ) | — |
| | | (5,350 | ) |
| | $ | (1,331,353 | ) | | $ | (956,077 | ) | $ | (245,779 | ) | | | $ | (1,331,353 | ) |
As of December 31, 2014, our consolidated cumulative foreign currency translation adjustment included $672.4 million in Brazil, $400.3 million in Mexico and $262.8 million in Argentina. During the third quarter of 2014, we reclassified $33.9 million of accumulated other comprehensive income to loss from discontinued operations in connection with the sale of Nextel Chile. See Note 5 for more information.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Cash Flow Information.
| | | | | | | | | | Successor Company | | | Predecessor Company |
| | Year Ended December 31, | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 | 2015 | | | 2015 | | 2014 | | 2013 |
| | (in thousands) | | | | (in thousands) |
| Capital expenditures | |
| | |
| | |
| | | | |
| | |
| | |
|
| Cash paid for capital expenditures, including capitalized interest | $ | 612,161 |
| | $ | 620,895 |
| | $ | 953,882 |
| $ | 76,630 |
| | | $ | 88,485 |
| | $ | 326,246 |
| | $ | 387,286 |
|
Change in capital expenditures accrued and unpaid or financed, including accreted interest capitalized | (183,741 | ) | | 251,199 |
| | 351,814 |
| (4,018 | ) | | | (19,282 | ) | | (92,884 | ) | | 88,103 |
|
| | $ | 428,420 |
| | $ | 872,094 |
| | $ | 1,305,696 |
| $ | 72,612 |
| | | $ | 69,203 |
| | $ | 233,362 |
| | $ | 475,389 |
|
| Interest costs | |
| | |
| | |
| |
| | | |
| | |
| | |
|
| Interest expense, net | $ | 449,345 |
| | $ | 526,530 |
| | $ | 359,795 |
| $ | 55,563 |
| | | $ | 82,820 |
| | $ | 372,904 |
| | $ | 455,539 |
|
| Interest capitalized | 32,541 |
| | 78,254 |
| | 127,189 |
| 2,142 |
| | | 2,556 |
| | 27,712 |
| | 70,891 |
|
| | $ | 481,886 |
| | $ | 604,784 |
| | $ | 486,984 |
| $ | 57,705 |
| | | $ | 85,376 |
| | $ | 400,616 |
| | $ | 526,430 |
|
| Acquisitions of assets and business combinations | |
| | |
| | |
| |
| | | |
| | | |
| | |
| | |
|
| Fair value of licenses and other assets acquired | $ | 31,861 |
| | $ | 53,066 |
| | $ | 100,185 |
| $ | 4,018 |
| | | $ | 5,391 |
| | $ | 31,861 |
| | $ | 52,601 |
|
| Less: liabilities assumed and deferred tax liabilities incurred | — |
| | — |
| | — |
| |
| Less: cash acquired | — |
| | — |
| | — |
| |
| | $ | 31,861 |
| | $ | 53,066 |
| | $ | 100,185 |
| |
| Cash paid for interest, net of amounts capitalized | $ | 310,230 |
| | $ | 389,064 |
| | $ | 290,131 |
| $ | 59,914 |
| | | $ | 65,598 |
| | $ | 261,161 |
| | $ | 348,509 |
|
| Cash paid for income taxes | $ | 24,544 |
| | $ | 39,292 |
| | $ | 269,597 |
| $ | — |
| | | $ | — |
| | $ | — |
| | $ | 20,954 |
|
For the yearsix months ended December 31, 2015, we had $25.0 million in non-cash investing activities, representing U.S. treasury notes that we received and cash placed in escrow to secure our indemnification obligations in connection with the sale of Nextel Argentina. For the six months ended June 30, 2015, we had the following non-cash investing and financing activities:
$2,067.7 million in Successor Company common stock that we issued in partial satisfaction of certain claims that were settled in connection with our emergence from Chapter 11 (see Note 2 for more information); and
$187.5 million in restricted cash that we received, which represents cash placed in escrow to secure our indemnification obligations in connection with the sale of Nextel Mexico.
For the years ended December 31, 2014, and 2013, we had $319.6 million in non-cash financing, primarily related to capital lease obligations recognized in Brazil and Mexico in connection with the leaseback of communication towers and borrowings under our equipment financing facility in Mexico. For the year ended December 31, 2013 and 2012, we had $213.5170.9 million and $194.5$34.8 million, respectively, in non-cash financing activities, primarily related to borrowings under our equipment financing facilities in Mexico, the short-term financing of imported handsets and infrastructure in Brazil and co-location capital lease obligations on our communication towers in Brazil and Mexico.Brazil.
9. Debt
Chapter 11 Filing. On September 15, 2014, NII Holdings, Inc. and eight of its U.S. and Luxembourg-domiciled subsidiaries, including NII Capital Corp. and NIIT, filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy Court. Since September 15, 2014, five additional subsidiaries of NII Holdings, Inc. have filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy Court, with four subsidiaries filing on October 8, 2014 and one subsidiary filing on January 25, 2015. These Chapter 11 filings constituted an event of default under the NII Capital Corp. and NIIT senior notes; however, the holders of these senior notes are currently precluded from taking any action with respect to such events of default under the Bankruptcy Code. As a result of the commencement of the Chapter 11 cases, the obligations evidenced by the NII Capital Corp. and NIIT senior notes are included in liabilities subject to compromise on our consolidated balance sheet as of December 31, 2014. See Note 2 for more information. The financings included in the table below are considered not subject to compromise.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Debt
As a result of the implementation of fresh start accounting in connection with our emergence from Chapter 11, we remeasured the components of our debt to their fair values as of June 30, 2015. As a result, the carrying values of our bank loans do not represent the outstanding principal balances. See Note 2 for more information. The components of our debt are as follows:
|
| | | | | | | |
| | December 31, |
| | 2014 | | 2013 |
| | (in thousands) |
| NII Capital Corp. senior notes, net | $ | — |
| | $ | 2,729,321 |
|
| NII International Telecom, S.C.A. senior notes, net | — |
| | 1,609,962 |
|
| Bank loans | 343,915 |
| | 444,268 |
|
| Brazil equipment financing | 366,937 |
| | 352,725 |
|
| Mexico equipment financing | 322,993 |
| | 300,832 |
|
| Mexico capital lease and tower financing obligations | 264,130 |
| | 194,227 |
|
| Brazil capital lease and tower financing obligations | 213,163 |
| | 122,499 |
|
| Corporate aircraft capital lease | — |
| | 35,736 |
|
| Other | 1,254 |
| | 3,901 |
|
| Total debt | 1,512,392 |
| | 5,793,471 |
|
| Less: current portion | (777,569 | ) | | (96,839 | ) |
| | $ | 734,823 |
| | $ | 5,696,632 |
|
|
| | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | December 31, |
| | 2015 | | | 2014 |
| | (in thousands) |
| Brazil equipment financing | $ | 339,850 |
| | | $ | 366,937 |
|
| Brazil bank loans | 240,396 |
| | | 343,915 |
|
| Brazil capital lease and tower financing obligations | 84,295 |
| | | 213,163 |
|
| Other | 526 |
| | | 1,256 |
|
| Total debt | 665,067 |
| | | 925,271 |
|
| Less: current portion | (582,420 | ) | | | (717,427 | ) |
| | $ | 82,647 |
| | | $ | 207,844 |
|
Brazil Bank Loans.
In December 2011, Nextel Brazil borrowed fundsthe equivalent of $341.2 million from twoa Brazilian banksbank and utilized the proceeds of those borrowingsthis borrowing to repay a portion of the remaining unpaid purchase price relating to the spectrum it acquired in June 2011. Both of the loans from the Brazilian banks were denominated in Brazilian reais. In the first of the two local bank financings, we borrowed the equivalent of $351.8 million that was required to be repaid semi-annually over a five-year period with principal payable beginning in May 2014. In the second quarter of 2013, we repaid all amounts outstanding under this local bank financing utilizing a portion of the proceeds from the issuance of our 7.875% senior notes. In the second transaction, we borrowed the equivalent of $341.2 million that is required to be repaid quarterly over a seven-year period beginning March 2014. The loan accrues interest at a floating interest rate of 115% of the Brazilian local borrowing rate (13.40% and 11.39% as of December 31, 2014 and 2013, respectively). Because this loan is denominated in Brazilian reais, the payments for principal and interest will fluctuate in U.S. dollars based on changes in the exchange rate of the Brazilian real relative to the U.S. dollar.
In October 2012, Nextel Brazil entered into aan additional Brazilian real-denominated bank loan agreement, under which Nextel Brazil borrowed the equivalent of approximately $196.9 million. This loan agreement has a floating interest rate equal to 113.9%
As of the local Brazilian borrowing rate (13.27% and 11.28% as of December 31, 2014 and 2013, respectively). Borrowings under this loan agreement have a three-year borrowing period, a two-year repayment term beginning in 2015 and a final maturity of October 2017.
As of December 31, 2014,measurement date, we were not in compliance with the net debt financial covenantscovenant included in each of Nextel Brazil's outstanding local bank loans. Because of our noncompliance at the December 31 measurement date,As a result, we classified the principal amounts outstanding under these local bank loans as current liabilities in our consolidated balance sheet as of December 31, 2014. In February 2015, Nextel Brazil and the lenders providing the local bank loans entered into standstill agreements under which the lenders agreed that they would not seek remedies under the provisions of the agreements related to Nextel Brazil's failure to satisfy the financial covenants in the loan agreements in the period before September 15, 2015 and that further principal repayment obligations due between the signing date and September 15, 2015 would be suspended. In addition, the standstill agreements formally commitcommitted the lenders to sign amendments, which we refer to as the second amendments, once certain conditions are met that implement permanentfurther amendments to the terms of the local bank loans, including with respect toloans. Among other things, the amendments revised the financial covenants and principal repayment schedule for the loans, granted the lenders a security interest over amounts held in certain collection accounts maintained with each lender and increased the interest margin on the loans from approximately 115% of the local Brazilian borrowing rate to approximately 140% of this local rate. Certain of these loans. Among others, these conditions include:
amendments were implemented in connection with the standstill agreements and the remainder became effective in connection with our emergence from the Chapter 11 proceedingsproceedings. Subsequent to the amendments, both of these loan agreements have floating interest rates equal to 139.54% of the local Brazilian borrowing rate (19.74% as of December 31, 2015), have monthly repayment terms beginning in June 2016 and a final maturity of October 2019.
The amendments provided for a "covenant holiday" through December 31, 2015, during which time we were not required to comply with the financial covenants outlined in Nextel Brazil's local bank loan agreements. Going forward, Nextel Brazil must maintain a net debt to earnings before interest, taxes, depreciation and amortization, or EBITDA, ratio over the trailing 12 months of no greater than 4.0 as of June 30, 2016, 3.5 as of December 31, 2016 and 2.5 as of June 30, 2017 and on each six-month anniversary thereafter.
In connection with our emergence from Chapter 11, we made a number of changes within our senior management team and modified our business plan to reflect our available cash resources and the impact of the current and expected economic and competitive conditions in Brazil on both our subscriber growth and revenues, and to align our costs with this revised outlook. Based on our current business plan, we believe that it is unlikely that we will satisfy the applicable financial covenant included in both of Nextel Brazil's local bank loan agreements at the June 30, 2016 measurement date.
If we are unable to develop or priorimplement changes to September 15, 2015;
our business that allow us to meet this covenant, we will need to refinance or negotiate amendments to these financing arrangements or secure waivers from the absence of an insolvency event involving Nextel Brazil;
the absence of events of default other than those waived or suspendedlenders in the standstill agreements; and
the execution of subordination agreements subordinating any amounts due under intercompany loans between NIIT and Nextel Brazil.order to avoid a potential
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Indefault under the event ofloan agreements. If a breach of one or more of the conditions listed above,default occurs, the lenders providingcould require us to repay the amounts outstanding under these arrangements. As a result of this uncertainty, we have continued to classify the amounts outstanding under Nextel Brazil's local bank loans have the right to terminate the standstill agreement and exercise all remediesas current liabilities in our consolidated balance sheet as of December 31, 2015. As of December 31, 2015, we had $233.8 million principal amount outstanding under the agreements in place, including but not limited to declaring an event of default for noncompliance with the financial covenants and/or nonpayment of amounts due under the repayment schedule. Following the declaration of an event of default, the lenders will have the right to accelerate the loans and proceed with claims against the collateral.
Concurrent with the execution of the standstill agreements, Nextel Brazil and the lenders entered into amendments to the agreements relating to theBrazil's local bank loans, which we refer to as the first amendments, under which Nextel Brazil granted the lenders a security interest over amounts held at any given time in certain collection accounts maintained with each lender. These first amendments also adjust the interest rates on the loans.
Brazil Equipment Financing Facilities.
Facility. In April 2012, Nextel Brazil entered into a U.S. dollar-denominated loan agreement with the China Development Bank, under which Nextel Brazil iswas able to borrow up to $500.0 million to finance infrastructure equipment and certain other costs related to the deployment of its WCDMA network. ThisA portion of this financing has a floating interest rate based on LIBOR plus 2.90% (3.16%(3.75% and 3.15%3.16% as of December 31, 2015 and 2014, respectively), and 2013,the remainder of this financing has a floating interest rate based on LIBOR plus 1.80% (2.65% and 2.06% as of December 31, 2015 and 2014, respectively). This financing is guaranteed by NII Holdings and may limit our ability to pay dividends and other upstream payments. Loans under this agreement have a three-year borrowing period, a seven-year repayment term beginningthat began in August 2015 and a final maturity of June 2022. Assets purchased using the amounts borrowed under Nextel Brazil's equipment financing facility are pledged as collateral.
In July 2011, Nextel Mexico entered into a U.S. dollar-denominated loan agreement with the China Development Bank, under which Nextel Mexico is entitled to borrow up to $375.0 million to finance infrastructure equipment and certain other costs related to the deployment of its WCDMA network in Mexico. This vendor financing has a floating interest rate based on LIBOR plus 2.80% (3.06% and 3.05% as of December 31, 2014 and 2013, respectively) and may limit our ability to pay dividends and other upstream payments. Loans under this agreement have a final maturity of ten years, with a three-year borrowing period and a seven-year repayment term commencing in 2014. Assets purchased using the amounts borrowed under Nextel Mexico's equipment financing facility are pledged as collateral.
As of the June 30, 2014 measurement date, we were not in compliance with certain financial covenants in our equipment financing facilities in Brazil and Mexico. In December 2014, Nextel Brazil and Nextel Mexico and the lender under the equipment financing facilitiesfacility agreed to amendmentsamend this facility to those facilities that removedremove all financial covenants beginning with the December 31, 2014 measurement date and continuing through the June 30, 2017 measurement date.date so that the first measurement date under the amended facility will be December 31, 2017. In exchange for that covenant relief, Nextel Brazil granted the lender of its equipment financing facility preferential rights to the amounts held in certain bank accounts,accounts. Because of the uncertainty regarding our ability to meet the financial covenant contained in Nextel Brazil's local bank loans discussed above and certain cross-default provisions that are included in the loan agreement under Nextel Mexico's parent company, Nextel International Uruguay, LLC, granted the lender of itsBrazil's equipment financing facility, a pledge onwe have continued to classify the shares it holds in Nextel Mexico. In addition, Nextel Brazil and Nextel Mexico have the option to defer principal amortization payments in exchange for an upfront payment of 17% of the amounts outstanding under the equipment financing facilities on August 31, 2014. As a result of the amendment of our equipment financing facility in Mexico, we classified the principal amount outstanding under this facility as long-term debt in our consolidated balance sheet as of December 31, 2014. Because of certain cross-default provisions included in our equipment financing facility in Brazil, we classified the principal amount outstanding under this facility as a current liability in our consolidated balance sheet as of December 31, 2014.2015. As of December 31, 2015, we had $342.5 million in principal amount outstanding under Nextel Brazil's equipment financing facility. We do not have the ability to borrow additional amounts under thesethis equipment financing facilities.facility.
Capital Leases and Tower Financing Obligations.
2013 Tower Transactions. In November 2013, Nextel Mexico sold 1,483 communication towers to American Tower for proceeds based on foreign currency exchange rates at the time of $374.3 million, subject to purchase price adjustments. During the adjustment period, Nextel Mexico accounted for this transaction under the deposit method and recorded the proceeds as a deposit liability. During the third quarter of 2014, the price adjustments were finalized, and we began accounting for the transaction as a sale-leaseback. As result, we recognized $75.4 million of the gain on the sale of the towers as a component of operating income in the third quarter of 2014 and deferred the remaining $179.6 million of the gain, which we will recognize into income over the term of the leaseback of the towers. Nextel Mexico also recognized a capital lease liability of $112.4 million related to the leaseback of a portion of each of these towers.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2013, Nextel Brazil sold 1,940 communication towers to American Tower for proceeds based on foreign currency exchange rates at the time of $348.0 million, subject to purchase price adjustments.adjustments and guaranteed by NIIT, which is a wholly-owned subsidiary of NII Holdings. Nextel Brazil also sold 103 towers for proceeds of $18.6 million in June 2014, subject to purchase price adjustments.adjustments and guaranteed by NIIT. In October 2014, upon the finalization of the purchase price adjustments, Nextel Brazil completed the sale of all of these towers and began accounting for this transaction as a sale-leaseback. As a result, Nextel Brazil recognized an immaterial loss on the sale of the towers as a component of operating income in the fourth quarter of 2014 and deferred a gain of $155.5 million, which we will recognize into income over the term of the leaseback of the towers. Nextel Brazil also recognized a capital lease liability of $186.5 million related to the leaseback of a portion of each of these towers.2014.
Site-Related Capital Lease Obligations. We have entered into various agreements under which we are entitled to lease space on towers or other structures owned by third parties and to install our transmitter and receiver equipment in that space.
Tower Financing Obligations. From 2002 to 2008, we sold and subsequently leased back space on certain transmitter and receiver sites in Brazil and Mexico.Brazil. Due to our continuing involvement with these properties, we account for these transactions as financing arrangements. As a result, we did not recognize any gains from the sales of these towers under these arrangements, and we maintain the tower assets on our consolidated balance sheets. In addition, we recognized the proceeds received as financing obligations. 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 the owner of the site as other operating revenues because of our continuing involvement with the tower assets. During the six months ended December 31, 2015 and the six months ended June 30, 2015, we recognized $3.6 million and $7.8 million in other operating revenues, respectively, related to these co-location lease arrangements. In addition, during the years ended December 31, 2014, 2013 and 2012,2013, we recognized $38.5 million, $39.4$19.8 million and $56.8$19.7 million, , respectively, in other operating revenues related to these co-location lease arrangements.
Corporate Aircraft Lease. In 2009, we entered into an agreement to lease a corporate aircraft, which we accounted for as a capital lease. In June 2014, we entered into an agreement to sell this corporate aircraft for $32.5 million. In addition, in conjunction with the sale, we exercised our pre-existing option to purchase this aircraft from the lessor and immediately terminated the lease. In connection with the sale of the corporate aircraft and the termination of the associated lease, we recognized a $6.4 million asset impairment charge in the second quarter of 2014.
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Maturities.
Because it is unlikely that we were unablewill be able to meetsatisfy the applicable financial covenantscovenant in both of our local bank loans in Brazil as of the next compliance date on December 31, 2014June 30, 2016 and because of the associated cross-default provisions included in Nextel Brazil's equipment financing facility, we classified the principal amounts outstanding under these facilities as due in 20152016 for purposes of the table below. For the years subsequent to December 31, 2014,2015, scheduled annual maturities of all debt outstanding excluding the obligations evidenced by the NII Capital Corp. and NIIT senior notes, which are included in liabilities subject to compromise on our consolidated balance sheet as of December 31, 2014, are as follows (in thousands):
| | | Year | Principal Repayments | Principal Repayments |
| 2015 | $ | 777,569 |
| |
| 2016 | 71,376 |
| $ | 576,723 |
|
| 2017 | 77,014 |
| 3,651 |
|
| 2018 | 67,416 |
| 3,637 |
|
| 2019 | 62,337 |
| 991 |
|
| 2020 | | 1,661 |
|
| Thereafter | 456,680 |
| 74,426 |
|
| Total | $ | 1,512,392 |
| $ | 661,089 |
|
10.8. Fair Value Measurements
Nextel Argentina.
On September 11, 2015, two of our indirect subsidiaries entered into a binding agreement with Grupo Clarin relating to the sale of all of the outstanding equity interests of Nextel Argentina. In connection with the initial agreement, we issued a non-recourse promissory note in the amount of $85.0 million and pledged the remaining 51% of the equity interests in Nextel Argentina to Grupo Clarin. We estimaterecorded our retained 51% interest in Nextel Argentina as an equity method investment under the fair value option, which is included as a component of other assets in our consolidated balance sheet. As of December 31, 2015, we estimated the fair value of this investment to be $108.1 million. In addition, as of December 31, 2015, we recorded the non-recourse promissory note as a component of other long-term liabilities in our long-term debt instruments, our available-for-sale securities, our held-to-maturity investments and other financial instruments as described below.
The FASB’s authoritative guidance onconsolidated balance sheet at its estimated fair value measurements definesof $108.1 million. This fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. Valuation techniques discussed under the FASB’s authoritative guidance for fair value measurements include
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the market approach (comparable market prices), the income approach (present value of future income or cash flow based on current market expectations) and the cost approach (cost to replace the service capacity of an asset or replacement cost). As a basis for considering these assumptions, the guidance utilizes a three-tier fair value hierarchy, which prioritizes the inputs to the valuation techniques used to measure fair value. The following is a brief description of the three levels in the fair value hierarchy:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls is determinedestimate was based on the lowest level input that is significant$178.0 million purchase price paid by Grupo Clarin, as adjusted for changes in excess cash from September 11, 2015 through December 31, 2015. On January 27, 2016, the agreement was amended to permit Grupo Clarin or any of its affiliates to exercise the fair value measurement inright to acquire the remaining 51% equity interest prior to receiving regulatory approval, and Grupo Clarin and its entirety.
For assets and liabilities measured at fair value on a non-recurring basis, fair value is determined by using various valuation approaches. The same hierarchy as described above, which maximizesaffiliate immediately acquired the useremaining 51% of observable inputs and minimizes the use of unobservable inputs, by generally requiring that the observable inputs be used when available, is used in measuring fair valueNextel Argentina for these items. Fair value may be derived using pricing models. Pricing models take into account the contract terms (including maturity) as well as multiple inputs, including, where applicable, interest rate yield curves, credit curves, correlation, credit-worthiness of the counterparty, option volatility and currency rates.no additional proceeds. In accordanceconnection with the FASB’s authoritative guidance for fair value measurements,completion of this transaction, the impact of our own credit spreads is also considered when measuring the fair value of liabilities. Where appropriate, valuation adjustments are made to account for various factors such as credit quality and model uncertainty. These adjustments are subject to judgment, are appliedpromissory note was canceled on a consistent basis and are based upon observable inputs where available. We generally subject all valuations and models to a review process initially and on a periodic basis thereafter. As fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure, even when market assumptions are not readily available, our own assumptions are set to reflect those that we believe market participants would use when pricing the asset or liability at the measurement date.
Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and valuation techniques may have a material effect on the estimated fair value amounts. The following is a description of the major categories of assets and liabilities measured at fair value on a recurring basis and the valuation techniques applied to them.January 27, 2016.
Available-for-Sale Securities.
As of December 31, 20142015 and 2013,2014, available-for-sale securities held by Nextel Brazil included $110.1$56.2 million and $418.6$81.4 million, respectively, in short-term investments made by Nextel Brazil in twoinvestment funds and $9.3 million and $28.6 million, respectively, in certificates of deposit with a Brazilian bank. These funds invest primarily in Brazilian government bonds, long-term, low-risk bank certificates of deposit and Brazilian corporate debentures. As ofDuring the six months ended December 31, 2015 and the six months ended June 30, 2015, as well as during the years ended December 31, 2014 available-for-sale securities also included $43.5 million in short-term investments made by Nextel Argentina in local money market funds. All of these securities are either government or corporate rated bonds with underlying performance linked to the U.S. dollar. During the years ended December 31, 2014, 2013and 2012,2013, we did not have any material unrealized gains or losses associated with these investments.
As a result of favorable market conditions during 2013, we sold $150.0 million certificates of deposit for an immaterial gain. Prior to the third quarter of 2013, we classified these investments as held-to-maturity and recorded them at amortized cost. As a result of this sale, we transferred the remaining $167.2 million in short-term investments and $31.4 million in long-term investments held at one of our Spanish subsidiaries from held-to-maturity to available-for-sale and recognized an immaterial unrealized gain, which we recorded as other comprehensive income in 2013.
We account for our available-for-sale securities at fair value in accordance with the FASB’s authoritative guidance surrounding the accounting for investments in debt and equity securities.value. The fair value of theour Brazilian and Argentine securitiescertificates of deposit is based on their current redemption amount and we classify these certificates of deposit within Level 2 of the fair value hierarchy. The fair value of Nextel Brazil's investment funds is measured based on the funds' net asset value of the funds. In our judgment, these types of securities trade with sufficient daily observable market activity to supportas a Level 1 classification withinpractical expedient, which is excluded from the fair value hierarchy.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Held-to-Maturity Investments.
We periodically invest some of our cash holdings in certain securities that we intend to hold to maturity. As of December 31, 2015, held-to-maturity investments included $18.1 million in short-term investments at NIIT in U.S. treasury notes. We account for held-to-maturity securities at amortized cost, which approximates the fair value observed in the market. These securities matured in February 2016. As of December 31, 2015, the fair value of our held-to-maturity investments was $18.0 million.
Debt Instruments.
The carrying amounts and estimated fair values of our debt instruments are as follows:
| | | | | | | | | | | | Successor Company | | | Predecessor Company |
| | December 31, | December 31, |
| | 2014 | | 2013 | 2015 | | | 2014 |
| | Carrying Amount | | Estimated Fair Value | | Carrying Amount | | Estimated Fair Value | Principal Amount Outstanding | | Carrying Amount | | Estimated Fair Value | | | Principal Amount Outstanding | | Carrying Amount | | Estimated Fair Value |
| | (in thousands) | (in thousands) |
| NII Capital Corp. senior notes, net (1) | $ | 2,750,000 |
| | $ | 648,500 |
| | $ | 2,729,321 |
| | $ | 1,227,950 |
| $ | — |
| | $ | — |
| | $ | — |
| | | $ | 2,750,000 |
| | $ | 2,750,000 |
| | $ | 648,500 |
|
| NII International Telecom, S.C.A. senior notes, net (1) | 1,600,000 |
| | 1,166,500 |
| | 1,609,962 |
| | 1,271,370 |
| — |
| | — |
| | — |
| | | 1,600,000 |
| | 1,600,000 |
| | 1,166,500 |
|
| Equipment financing | 689,930 |
| | 620,125 |
| | 653,557 |
| | 620,173 |
| |
| Brazil equipment financing | | 342,475 |
| | 339,850 |
| | 340,189 |
| | | 366,937 |
| | 366,937 |
| | 337,295 |
|
| Bank loans and other | 345,169 |
| | 275,653 |
| | 448,169 |
| | 373,796 |
| 234,320 |
| | 240,922 |
| | 229,366 |
| | | 345,171 |
| | 345,171 |
| | 275,655 |
|
| | $ | 5,385,099 |
| | $ | 2,710,778 |
| | $ | 5,441,009 |
| | $ | 3,493,289 |
| $ | 576,795 |
| | $ | 580,772 |
| | $ | 569,555 |
| | | $ | 5,062,108 |
| | $ | 5,062,108 |
| | $ | 2,427,950 |
|
__________________________
(1) As of December 31, 2014, both our senior notes held by NII Capital Corp. and our senior notes held by NII International Telecom S.C.A. arewere classified as liabilities subject to compromise in our consolidated balance sheet.
We estimated the fair values of our senior notes using quoted market prices. Because our fair value measurement is based on market prices in an active market, we consider this Level 1 in the fair value hierarchy.
Bank loans and other consists primarily of loans with certain local banks in Brazil and Mexico.Brazil. We estimated the fair value of these bank loans, as well as the fair value of our equipment financing facilities,facility in Brazil, utilizing inputs such as U.S. Treasury security yield curves, prices of comparable bonds, LIBOR, and zero-coupon yield curves, U.S. Treasury bond rates and credit spreads on comparable publicly traded bonds. As of December 31, 2015, we no longer had publicly traded bonds whose yield in prior periods was a significant input into our fair value measurement. As a result, we now consider our bank loans and consider these measurementsother to be Level 23 in the fair value hierarchy rather than Level 2, which was what we considered these bank loans and other in prior periods.
Derivative Instruments.
We occasionally enter into derivative transactions for risk management purposes. We have not and will not enter into any derivative transactions for speculative or profit generating purposes. We record all derivative instruments as either assets or liabilities on our consolidated balance sheet at their fair value. As of December 31, 2015 and 2014, Nextel Brazil had an immaterial amount of derivative instruments that we classified as short-term investments in our consolidated balance sheets. We consider this measurement to be Level 3 in the fair value hierarchy. Nextel Brazil entered into foreign currency option agreements to manage the foreign currency exposures associated with the forecasted purchase of handsets and other U.S. dollar-denominated payments. We do not apply hedge accounting to these derivative instruments. As a result, we have included all changes in the fair value of these instruments as a component of other expense, net in our consolidated statement of comprehensive (loss) income. For the six months ended December 31, 2015 and June 30, 2015, Nextel Brazil recognized $5.2 million and $6.3 million in net realized gains, respectively, resulting from the changes in the estimated fair value of these derivative instruments. The gains and losses we recognized in the years ended December 31, 2014 and 2013 were not material. In addition, for the six months ended December 31, 2015 and June 30, 2015, Nextel Brazil recorded an immaterial amount of unrealized losses resulting from the changes in the estimated fair value of these derivative instruments.
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Financial Instruments.
The carrying values of cash and cash equivalents, accounts receivable and accounts payable contained in our consolidated balance sheets approximate their fair values due to the short-term nature of these instruments. The fair values of our derivative instruments are not material.
11.
9. Commitments and Contingencies
Capital and Operating Lease Commitments.
We have co-location capital lease obligations on some of our transmitter and receiver sites in Mexico and Brazil. See Note 97 for further information regarding these agreements.
We lease various cell sites, office facilities and other assets under operating leases. Some of these leases provide for annual increases in our rent payments based on changes in locally-based consumer price indices. The remaining terms of our cell site leases range from less than one to fifteen years and are generally renewable for additional terms. The remaining terms of our office leases range from less than one to ten years. During the six months ended December 31, 2015 and the six months ended June 30, 2015, total rent expense under operating leases was $76.4 million and $93.4 million, respectively. In addition, during the years ended December 31, 2014, 20132014 and 20122013, total rent expense under operating leases was $302.4 million, $300.9229.7 million and $270.6193.3 million, respectively.
For years subsequent to December 31, 20142015, future minimum payments for all capital and operating lease obligations that have initial or remaining noncancelable lease terms exceeding one year, net of rental income, are as follows (in thousands):
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | Capital Leases | | Operating Leases | | Total | Capital Leases | | Operating Leases | | Total |
| 2015 | $ | 166,655 |
| | $ | 219,767 |
| | $ | 386,422 |
| |
| 2016 | 168,602 |
| | 225,041 |
| | 393,643 |
| $ | 45,410 |
| | $ | 86,931 |
| | $ | 132,341 |
|
| 2017 | 170,590 |
| | 189,730 |
| | 360,320 |
| 46,005 |
| | 80,562 |
| | 126,567 |
|
| 2018 | 139,081 |
| | 163,151 |
| | 302,232 |
| 39,500 |
| | 73,099 |
| | 112,599 |
|
| 2019 | 119,774 |
| | 141,833 |
| | 261,607 |
| 34,381 |
| | 68,444 |
| | 102,825 |
|
| 2020 | | 34,448 |
| | 64,017 |
| | 98,465 |
|
| Thereafter | 1,581,487 |
| | 1,025,445 |
| | 2,606,932 |
| 554,347 |
| | 491,101 |
| | 1,045,448 |
|
| Total minimum lease payments | 2,346,189 |
| | 1,964,967 |
| | 4,311,156 |
| 754,091 |
| | 864,154 |
| | 1,618,245 |
|
| Less: imputed interest | (1,868,897 | ) | | — |
| | (1,868,897 | ) | (669,796 | ) | | — |
| | (669,796 | ) |
| Total | $ | 477,292 |
| | $ | 1,964,967 |
| | $ | 2,442,259 |
| $ | 84,295 |
| | $ | 864,154 |
| | $ | 948,449 |
|
Handset, Equipment and Other Commitments.
We are a party to purchase agreements with various suppliers, under which we have committed to purchase handsets, equipment and network services that will be used or sold in the ordinary course of business. As of December 31, 2014,2015, we are committed to purchase $2.5 billion$536.8 million in total under these arrangements, $1.6 billion of which we expect to pay in 2015, $622.0$334.0 million of which we expectare committed to pay in 2016, and 2017, and the remaining $268.5$146.7 million of which we expectare committed to pay in 2018.2017 and 2018, and the remaining $56.1 million of which we are committed to pay in 2019 and 2020. These amounts do not represent our entire anticipated purchases in the future, but represent only those items that are the subject of contractual obligations. Our commitments are generally determined based on noncancelable quantities or termination amounts. As of December 31, 2014, we were required to pay a total of $1.8 billion in spectrum fees in Mexico, $130.1 million of which we expect to pay in 2015, $257.3 million of which we expect to pay in 2016 and 2017, $257.3 million of which we expect to pay in 2018 and 2019 and the remaining $1.2 billion of which we expect to pay in years subsequent to 2019. These fees are subject to increases in the Mexican Consumer Pricing Index. We also purchase products and services as needed with no firm commitment. Amounts actually paid under some of these agreements will likely be higher due to variable components of these agreements. The more significant variable components that determine the ultimate obligation owed include such items as hours contracted, subscribers and other factors. In addition, we are a party to various arrangements that are conditional in nature and obligate us to make payments only upon the occurrence of certain events, such as the delivery of functioning software or a product.
Specifically, as of December 31, 2015, we are committed to purchase $156.4 million under a handset purchase agreement with one of our handset suppliers by the end of 2016. We do not expect that we will purchase all of the committed devices, but we have not recorded a liability for this contract because we do not believe it is probable that we will incur a loss under this handset purchase agreement.
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brazil Spectrum Commitment.
In December 2015, Nextel Brazil participated in a spectrum auction and was the successful bidder for 30MHz of spectrum in the 1.8 GHz band for 455.0 million Brazilian reais, or approximately $116.7 million based on foreign currency exchange rates at the time. Nextel Brazil received the license agreement on February 16, 2016 and is committed to pay 10% of the total acquisition price when this license agreement is signed.
Contingencies.
Nextel Brazil has received various assessment notices from state and federal Brazilian authorities asserting deficiencies in payments related primarily to value-added taxes, excise taxes on imported equipment and other non-income based taxes. Nextel Brazil has filed various administrative and legal petitions disputing these assessments. In some cases, Nextel Brazil has received favorable decisions, which are currently being appealed by the respective governmental authority. In other cases, Nextel Brazil's petitions have been denied, and Nextel Brazil is currently appealing those decisions. Nextel Brazil also had contingencies related to certain regulatory, civil and labor-related matters as of December 31, 20142015 and 2013.2014.
As of December 31, 20142015 and 20132014, Nextel Brazil had accrued liabilities of $69.757.7 million and $70.969.7 million, respectively, related to contingencies, all of which were classified in accrued contingencies reported as a component of other long-term liabilities, of which $8.05.4 million and $11.28.0 million related to unasserted claims, respectively. We currently estimateestimated the reasonably possible losses related to matters for which Nextel Brazil has not accrued liabilities, as they are not deemed probable, to be approximately $430.0300.0 million as of December 31, 20142015. We are continuing to evaluate the likelihood of probable and reasonably possible losses, if any, related to all known contingencies. As a result, future increases or decreases to our accrued liabilities may be necessary and will be recorded in the period when such amounts are determined to be probable and reasonably estimable.
In addition, as of December 31, 2015, we estimated the reasonably possible losses related to potential indemnification claims in connection with the sales of Nextel Mexico and Nextel Peru for which we have not accrued liabilities, as they are not deemed probable, to be approximately $41.0 million.
Legal Proceedings.
Securities Litigation. On March 4, 2014, a purported class action lawsuit was filed against the Company, NII Capital Corp. and certain of the Company’s current and former directors and executive officers in the United States District Court for the Eastern District of Virginia on behalf of a putative class of persons who purchased or otherwise acquired the securities of the Company or NII Capital Corp. between February 25, 2010 and February 27, 2014. The lawsuit is captioned In re NII Holdings, Inc. Securities Litigation, Case Number 14-CV-227. On July 18, 2014, the parties that have been designated as the lead plaintiffs in the lawsuit filed a second amended complaint against only NII Holdings and three current and former officers, whichgenerally alleges that
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the defendants made false or misleading statements or concealed material adverse information about the Company’s financial condition and operations in violation of Section 10(b), Rule 10b-5 and Section 20(a) of the Securities Exchange Act of 1934. The complaint seeks class certification and unspecified damages, fees and injunctive relief. On September 22, 2014, the judge issued an order staying all proceedings against the Company following the Company's filing of its petition for relief under Chapter 11. On October 6, 2014, the Company's and the individual defendants' motion to dismiss was denied, and the case is currently continuing as to the remaining individual defendants. On November 3, 2014, at the request of the parties, the court ordered that the case against the three individual defendants be stayed indefinitely, and on January 7, 2015, the court extended the stay until the earlier of May 22, 2015 or the effective date of a plan of reorganization. The Company and the named individuals will continue to vigorously defend themselves in this matter.
Chapter 11 Proceedings. On September 15, 2014, NII Holdings, Inc. and eight of its U.S. and Luxembourg-domiciled subsidiaries filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy Court (Case No. 14-12611). On October 8, 2014, four additional subsidiaries of NII Holdings filed voluntary petitions seeking relief under Chapter 11, and a fifth additional subsidiary filed a voluntary petition seeking relief under Chapter 11 on January 25, 2015. The entities that have filed petitions seeking relief under Chapter 11, which we refer to collectively as the debtors, include Nextel International (Services), Ltd.; NII Capital Corp.; NII Aviation, Inc.; NII Funding Corp.; NII Global Holdings, Inc.; NII International Telecom S.C.A.; NII International Holdings S.à r.l.; NII International Services S.à r.l.; Airfone Holdings, LLC; Nextel International (Uruguay), LLC; McCaw International (Brazil), LLC; NII Mercosur, LLC; and NIU Holdings LLC. The debtors continue to operate as "debtors-in-possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Company’s other subsidiaries, including its operating subsidiaries in Brazil, Mexico and Argentina, are not debtors in the Chapter 11 case. As a result of the bankruptcy proceedings, the pending litigation against the debtors is stayed. Subject to certain exceptions and approval by the Bankruptcy Court, during the Chapter 11 proceedings, no party can take further actions to recover pre-petition claims against the Company.
In addition, weWe are subject to other 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.
12.10. Capital Stock
We currently have 600,000,000 shares of authorized common stock, par value $0.001 per share, and 10,000,000 shares of authorized undesignated preferred stock, par value $0.001 per share.
During the years ended December 31, 2014, 2013 and 2012, we issued shares of common stock in connection with the exercise of stock options by employees and the vesting of employee restricted share awards.
Common Stock. Holders of our common stock are entitled to one vote per share on all matters submitted for action by the stockholders and share equally, share for share, if dividends are declared on the common stock. If our Company is partially or completely liquidated, dissolved or wound up, whether voluntarily or involuntarily, the holders of the common stock are entitled to share ratably in the net assets remaining after payment of all liquidation preferences, if any, applicable to any outstanding preferred stock. There are no redemption or sinking fund provisions applicable to the common stock.
Undesignated Preferred Stock. Our boardBoard of directorsDirectors has the authority to issue undesignated preferred stock of one or more series and in connection with the creation of such series, to fix by resolution the designation, voting powers, preferences and relative, participating, optional and other special rights of such series, and the qualifications, limitations and restrictions thereof. As of December 31, 20142015, we had not issued any shares of undesignated preferred stock.
Common Stock Reserved for Issuance. In connection with our emergence from Chapter 11, our Board of Directors adopted an incentive compensation plan, which contemplates grants of up to 5,263,158 shares of our new common stock to directors and employees of the reorganized company, including potential grants of restricted stock, restricted stock units and options to purchase shares of our new common stock. Under our 2012the 2015 Incentive Compensation Plan, we had 23,824,039194,807 shares of our common stock reserved for future issuance as of December 31, 2014, assuming our2015, which assumes that the restricted stock units outstanding as of December 31, 20142015 are settled in cash. As of December 31, 2014,2015, common stock reserved for future issuance does not include 2,386,67338,093 restricted stock units that were issued to employees of Nextel Argentina in 20142015 that, if settled in shares of common stock, would reduce the shares available under our 20122015 Incentive Compensation Plan by 3,580,00957,140 shares. We had 22,089,643 shares of our common stock reserved for future issuance as ofSubsequent to December 31, 2013, assuming our2015, the Board of Directors agreed to settle the restricted stock units outstanding as of December 31, 2013 were settled in cash. As of December 31, 2013, common stock reserved for future issuance did not include 3,341,132 restricted stock units that were issued in 2013 that, if settled in shares of common stock, would have reduced the shares available under our 2012 Incentive Compensation Plan by 5,011,698 shares.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13.11. Income Taxes
The components of (loss) income from continuing operations before income taxes and the related income tax provisionbenefit (provision) are as follows (in thousands):
| | | | | | | | | | Successor Company | | | Predecessor Company |
| | Year Ended December 31, | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 | 2015 | | | 2015 | | 2014 | | 2013 |
| U.S. | $ | (368,667 | ) | | $ | (377,502 | ) | | $ | (311,575 | ) | $ | (1,820 | ) | | | $ | 1,745,628 |
| | $ | (340,545 | ) | | $ | (353,522 | ) |
| Non-U.S. | (1,334,554 | ) | | (610,534 | ) | | 387,880 |
| (288,806 | ) | | | (224,218 | ) | | (879,150 | ) | | (555,887 | ) |
| Total | $ | (1,703,221 | ) | | $ | (988,036 | ) | | $ | 76,305 |
| $ | (290,626 | ) | | | $ | 1,521,410 |
| | $ | (1,219,695 | ) | | $ | (909,409 | ) |
| | | | | | | | | | Successor Company | | | Predecessor Company |
| | Year Ended December 31, | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 | 2015 | | | 2015 | | 2014 | | 2013 |
| Current: | |
| | |
| | |
| | | | |
| | |
| | |
|
| Federal | $ | — |
| | $ | — |
| | $ | 727 |
| $ | — |
| | | $ | — |
| | $ | — |
| | $ | — |
|
| State, net of Federal tax benefit | — |
| | — |
| | — |
| — |
| | | — |
| | — |
| | — |
|
| Foreign | (25,638 | ) | | (63,982 | ) | | (176,748 | ) | 2,502 |
| | | (1,104 | ) | | (2,924 | ) | | (22,206 | ) |
| Total current income tax provision | (25,638 | ) | | (63,982 | ) | | (176,021 | ) | |
| Total current income tax benefit (provision) | | 2,502 |
| | | (1,104 | ) | | (2,924 | ) | | (22,206 | ) |
| Deferred: | |
| | |
| | |
| | | | |
| | |
| | |
|
| Federal | (1,846 | ) | | (1,310 | ) | | 895 |
| (403 | ) | | | (814 | ) | | (1,846 | ) | | (1,309 | ) |
| State, net of Federal tax benefit | (205 | ) | | (146 | ) | | 100 |
| (45 | ) | | | (91 | ) | | (206 | ) | | (146 | ) |
| Foreign | (46,402 | ) | | (380,614 | ) | | 16,882 |
| 2,961 |
| | | — |
| | — |
| | (267,355 | ) |
| Total deferred income tax (provision) benefit | (48,453 | ) | | (382,070 | ) | | 17,877 |
| |
| Total income tax provision | $ | (74,091 | ) | | $ | (446,052 | ) | | $ | (158,144 | ) | |
| Total deferred income tax benefit (provision) | | 2,513 |
| | | (905 | ) | | (2,052 | ) | | (268,810 | ) |
| Total income tax benefit (provision) | | $ | 5,015 |
| | | $ | (2,009 | ) | | $ | (4,976 | ) | | $ | (291,016 | ) |
A reconciliation of the U.S. statutory Federal income tax rate to our effective tax rate as a percentage of (loss) income from continuing operations before reorganization items and income tax provisionbenefit (provision) is as follows:
|
| | | | | |
| | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 |
| Statutory Federal tax rate | 35% | | 35% | | 35% |
| Effect of foreign operations | (3) | | (3) | | 7 |
| Change in deferred tax asset valuation allowance | (36) | | (81) | | 160 |
| Intercompany transactions | (1) | | (3) | | 9 |
| Tax on subpart F income | — | | — | | 11 |
| Withholding tax | — | | (2) | | 42 |
| Deductible dividends | — | | 3 | | (42) |
| Inflation adjustments | 1 | | 1 | | (17) |
| Income tax credits | — | | — | | (3) |
| Local statutory investment loss | — | | 6 | | — |
| Other nondeductible expenses | (1) | | — | | 6 |
| Other | 1 | | (1) | | (1) |
| Effective tax rate | (4)% | | (45)% | | 207% |
|
| | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2015 | | | 2015 | | 2014 | | 2013 |
| Statutory Federal tax rate | 35% | | | 35% | | 35% | | 35% |
| Reorganization items | — | | | (46) | | — | | — |
| Effect of foreign operations | (12) | | | — | | (2) | | (3) |
| Change in deferred tax asset valuation allowance | (20) | | | 9 | | (35) | | (66) |
| Other, net | (1) | | | 2 | | 2 | | 2 |
| Effective tax rate | 2% | | | — | | — | | (32)% |
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of our deferred tax assets and liabilities consist of the following:
| | | | | | | | Successor Company | | | Predecessor Company |
| | December 31, | December 31, |
| | 2014 | | 2013 | 2015 | | | 2014 |
| | (in thousands) | (in thousands) |
| Deferred tax assets: | |
| | |
| |
| | | |
|
| Net operating losses and capital loss carryforwards | $ | 4,354,474 |
| | $ | 3,922,944 |
| $ | 5,094,306 |
| | | $ | 4,107,058 |
|
| Allowance for doubtful accounts | 41,724 |
| | 34,587 |
| 13,644 |
| | | 16,246 |
|
| Accrued expenses | 193,251 |
| | 151,131 |
| 54,823 |
| | | 70,419 |
|
| Accrual for contingent liabilities | 21,944 |
| | 22,117 |
| 18,413 |
| | | 21,944 |
|
| Property, plant and equipment | 153,036 |
| | 36,784 |
| 147,774 |
| | | 98,254 |
|
| Capital lease obligations | 175,498 |
| | 300,141 |
| |
| Deferred revenue | 37,730 |
| | 35,179 |
| |
| Leasing related activity | | 3,543 |
| | | 51,150 |
|
| Equity compensation | 69,172 |
| | 71,171 |
| 701 |
| | | 48,224 |
|
| Long term debt | | 290,733 |
| | | 37,017 |
|
| Inventory reserve | 25,642 |
| | 22,548 |
| 1,982 |
| | | 12,511 |
|
| Debt discount | 16,511 |
| | — |
| — |
| | | 16,511 |
|
| Other | 52,016 |
| | 41,116 |
| 34,033 |
| | | 22,185 |
|
| | 5,140,998 |
| | 4,637,718 |
| 5,659,952 |
| | | 4,501,519 |
|
| Valuation allowance | (4,868,504 | ) | | (4,335,913 | ) | (5,513,387 | ) | | | (4,447,133 | ) |
| Total deferred tax asset | 272,494 |
| | 301,805 |
| 146,565 |
| | | 54,386 |
|
| Deferred tax liabilities: | |
| | |
| |
| | | |
|
| Intangible assets | 42,036 |
| | 48,162 |
| 149,749 |
| | | 1,634 |
|
| Unremitted foreign earnings | 54,386 |
| | 54,386 |
| — |
| | | 54,386 |
|
| Deferred revenue | 39,492 |
| | 44,126 |
| |
| Property, plant and equipment | 33,915 |
| | 96,613 |
| |
| Capital lease obligation | 107,491 |
| | — |
| |
| Other | 2,773 |
| | 15,123 |
| |
| Total deferred tax liability | 280,093 |
| | 258,410 |
| 149,749 |
| | | 56,020 |
|
| Net deferred tax (liability) asset | $ | (7,599 | ) | | $ | 43,395 |
| |
| Net deferred tax liability | | $ | (3,184 | ) | | | $ | (1,634 | ) |
We have not recorded a deferred tax liability on Nextel Brazil’s unrealized foreign currency gain on the intercompany loan from NII Holdings as it is our intention to not subject that unrealized gain to Brazilian tax. If this gain is subject to tax, it could result in an additional income tax liability. As of December 31, 2014 and 2013, the cumulative amount of additional tax liability would have been approximately $35.8 million and $41.4 million, respectively.
As of December 31, 2014,2015, we included $54.4 million indid not include any deferred tax liabilities for U.S. federal, state and foreign taxestax purposes with respect to future remittances of certain undistributed earnings (other than income that has been previously taxed in the U.S. under the subpart F rules) of certain of our foreign subsidiaries. Except for the earnings associated with this accrual and income that has been previously taxed in the U.S. under the subpart F rules and can be remitted to the U.S. without incurring additional income taxes,as we currently have no intention to remit any additional undistributed earnings of our foreign subsidiaries in a taxable manner. Should additional amounts ofIf our foreign subsidiaries’ undistributed earnings beare remitted to the U.S. as taxable dividends in the future, we maycould be subject to additional U.S. income taxes (net of allowable foreign tax credits) and foreign withholding taxes. It is not practicable to estimate the amount of any additional taxes that may be payable on the remaining undistributed earnings.
As of December 31, 2014,2015, we had $1.3$1.4 billion of net operating loss carryforwards for U.S. Federal and state income tax purposes, which expire in various amounts beginning in 20192027 through 2034. The2035. Due to our emergence from bankruptcy on June 26, 2015, the timing and manner in which we will utilize the net operating loss carryforwards in any year or in total, maywill be limited in the future under the provisions of Internal Revenue Code Section 382 relating to changes in our ownership. We excluded $210.3The annual limitation is $40.2 million, and some of U.S.our net operating loss carryforwards from the calculation of the deferred tax asset presented above because it represents excess stock option deductions that did not reduce
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
taxes payable in the U.S. The tax effect of these unrealized excess stock option deductions, if realizedwill expire before use in the future will result in an increasedue to paid-in capital.this limitation.
As of December 31, 2014, we had $764.0 million of net operating loss carryforwards in2015, our Mexican subsidiaries. These carryforwards expire in various amounts and at various periods from 2015 to 2024. Our Brazilian subsidiaries had $816.4$947.5 million of net operating loss carryforwards that can be carried forward indefinitely, but the amount that we can utilize annually is limited to 30% of Brazilian taxable income before the net operating loss deduction. Our foreign subsidiaries' ability to utilize the foreign tax net operating losses in any single year ultimately depends upon their ability to generate sufficient taxable income.
As of December 31, 2014,2015, we had $10.8$14.4 billion of net operating loss carryforwards in our holding companies in Luxembourg that can be carried forward indefinitely. Our holding companies in Spain had $844.0856.9 million of net operating loss carryforwards that can be carried forward 18 years, and our holding company in the Netherlands had $0.3 millionan immaterial amount of net operating loss carryforwards that can be carried forward nine years. Given the nature of activities that are considered taxable in these jurisdictions and the activities engaged in by the holding companies, these net operating loss carryforwards will never be utilized by our holding companies and add no value to the company.
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The deferred tax asset valuation allowances that our subsidiaries and holding companies had as of December 31, 20142015 and 20132014 are as follows:
| | | | 2014 | | 2013 | Successor Company | | | Predecessor Company |
| | (in millions) | 2015 | | | 2014 |
| Argentina | $ | 49.1 |
| | $ | — |
| |
| | | (in millions) |
| Brazil | 584.1 |
| | 419.1 |
| $ | 723.4 |
| | | $ | 584.1 |
|
| U.S. | 480.3 |
| | 363.8 |
| 359.8 |
| | | 457.5 |
|
| Luxembourg | 3,169.2 |
| | 3,131.4 |
| 4,216.0 |
| | | 3,169.2 |
|
| Mexico | 318.2 |
| | 190.7 |
| |
| Spain | 267.6 |
| | 230.9 |
| 214.2 |
| | | 236.3 |
|
| Total | $ | 4,868.5 |
| | $ | 4,335.9 |
| $ | 5,513.4 |
| | | $ | 4,447.1 |
|
Of the $4.9 billion valuation allowance as of December 31, 2014, $281.5 million was classified as current and $4.6 billion was classified as non-current in our consolidated financial statements.
The realization of deferred tax assets is dependent on the generation of future taxable income sufficient to realize our tax loss carryforwards and other tax deductions. Valuation allowances are required to be recognized on deferred tax assets unless it is determined that it is “more-likely-than-not” that the asset will be realized. As of December 31, 20142015, we recordedcontinued to record full valuation allowances on the deferred tax assets of our foreign operating companies, our U.S. parent company and subsidiaries and our foreign holding companies due to substantial negative evidence, including the recent history of cumulative losses and the projected losses for 20152016 and subsequent years. As a result, the valuation allowance on our deferred tax assets increased by $532.6 million during 2014. We do not anticipate that we will recognize significant tax benefits with respect to our deferred tax assets.
We are subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which we operate. Certain of our entities are under examination by the relevant taxing authorities for various tax years. The earliest years that remain subject to examination by jurisdiction are: U.S. - 1999; ArgentinaBrazil - 2010, and Mexico - 2006; Brazil, Luxembourg, Netherlands and Spain - 2009. We regularly assess the potential outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of our provision for income taxes. We have only recorded financial statement benefits for tax positions which we believe reflect the “more-likely-than-not” criteria incorporated in the FASB’s authoritative guidance on accounting for uncertainty in income taxes, and we have established income tax reservesaccruals in accordance with this authoritative guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserveaccrual is established, we adjust it only when there is more information available or when an event occurs necessitating a change. While we believe that the amounts of the recorded financial statement benefits and tax reservesaccruals reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may result in a reduction to the tax benefits previously recorded on the financial statements or may exceed the current income tax reserves in amounts that could be material.
Unrecognized tax benefits are classified as non-current liabilities. The following table shows a reconciliation of our beginning and ending unrecognized tax benefits for 2015, 2014 2013 and 20122013 (in thousands):
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 |
| Unrecognized tax benefits at January 1 | $ | 8,686 |
| | $ | 35,639 |
| | $ | 35,572 |
|
| Additions for current year tax positions | — |
| | — |
| | 3,118 |
|
| Reductions for current year tax positions | — |
| | — |
| | (551 | ) |
| Reductions for prior year tax positions | — |
| | (26,519 | ) | | (2,197 | ) |
| Foreign currency translation adjustment | (350 | ) | | (434 | ) | | (303 | ) |
| Unrecognized tax benefits at December 31 | $ | 8,336 |
| | $ | 8,686 |
| | $ | 35,639 |
|
|
| | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2015 | | | 2015 | | 2014 | | 2013 |
| Unrecognized tax benefits beginning of period | $ | 7,961 |
| | | $ | 8,336 |
| | $ | 8,686 |
| | $ | 35,639 |
|
| Reductions for prior year tax positions | (1,777 | ) | | | — |
| | — |
| | (26,519 | ) |
| Foreign currency translation adjustment | (460 | ) | | | (375 | ) | | (350 | ) | | (434 | ) |
| Unrecognized tax benefits end of period | $ | 5,724 |
| | | $ | 7,961 |
| | $ | 8,336 |
| | $ | 8,686 |
|
As of December 31, 2015, we did not have any unrecognized tax benefits that could potentially affect our future effective tax rate. As of December 31, 2014 2013 and 2012,2013, the unrecognized tax benefits that could potentially reduce our future effective tax rate, if recognized, were $1.8 million ,and $2.1 million, and $4.8 million, respectively. In addition, unrecognized tax benefits will decrease by approximately $4.8 million over the next twelve months due to the expiration of certain statutes of limitations.
We record interest and penalties associated with uncertain tax positions as a component of our income tax provision.benefit (provision). During the six months ended December 31, 2015 and June 30, 2015, as well as for the years ended December 31, 2014 2013 and 2012,2013, we recognized $0.2 million, $0.2 million and $0.3 million, respectively,an immaterial amount of interest and penalties inas a component of our current income tax provision. Unrecognizedbenefit (provision).
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We reduced our unrecognized tax benefits (including penalties and interest) wereby $1.8 million during the six months ended December 31, 2015 due to the expiration of the statute of limitations in Brazil. In addition, we reduced our unrecognized tax benefits by $26.5 million in 2013 due to the effective resolution of a tax position within the Internal Revenue Service and $2.7 million in 2012 due to a change in estimates. As of December 31, 2014 and 2013, we had accrued $2.4 million and $2.3 million, respectively for the payment of interest and penalties.
Effective January 1, 2014, the Mexican government passed legislation to keep the corporate income tax rate fixed at 30%, which repealed the scheduled tax rate reduction previously approved in December 2012.U.S.
14.12. Employee Stock and Benefit Plans
In May 2012,connection with our stockholdersemergence from Chapter 11, NII Holdings canceled all shares of its common stock, preferred stock and other equity interests that existed prior to June 26, 2015. Our Board of Directors subsequently adopted an incentive compensation plan, which we refer to as the 20122015 Incentive Compensation Plan, which replaced our prior incentive compensation plans.Plan. The 20122015 Incentive Compensation Plan provides us with the ability to award stock options, restricted stock, restricted stock units, and cash-based incentives to our employees, directors and consultants.officers. The 20122015 Incentive Compensation Plan incorporated the outstanding equitycontemplates grants and remaining shares available for grant under our prior plans. Our stockholders previously authorized the Company to grant equity and equity-related incentivesof up to a maximum of 64,933,3325,263,158 shares of our new common stock subject to adjustments. At the time of adoptiondirectors and employees of the 2012 Incentive Compensation Plan, there were 9,731,179reorganized company, including potential grants of restricted stock, restricted stock units and options to purchase shares authorized, unissued and available for grant under the 2012 Incentive Compensation Plan.of our new common stock. All grants or awards made under the 20122015 Incentive Compensation Plan are governed by written agreements between us and the participants and have a maximum term of ten years.
Historically,On the date of our Boardemergence from Chapter 11, we made grants of Directors has granted equity-related incentives consisting564,311 shares of stock options, restricted stock, awards and41,721 restricted stock units and 1,580,208 options to employees onpurchase shares of common stock. Subsequent to this date, we made grants of an annual basis near the endadditional 468,069 shares of April. On April 30, 2014, our Board of Directors granted 1,752,921 stock options, 2,271,555 restricted stock awards and 358,373 restricted stock units2,268,177 options to certainpurchase shares of our employees and directors in connection with this annual grant of equity-related incentives.common stock. Stock options, restricted stock awards and restricted stock units are also granted to certain new employees on the later of theirthe date of hire or the date that the grant is approved. In addition, under the provisions outlined in the 20122015 Incentive Compensation Plan, our chief executive officer may grant, under authority delegated to him by the Compensation Committee of our Board of Directors, a limited number of stock options (not to exceed 1,000,00040,000 shares in the aggregate for the plan year) and restricted stock/restricted stock unit awards (not to exceed 500,00020,000 shares in the aggregate for the plan year) to employees who are not executive officers.
Prior to April 2014, upon the exercise of a stock option award or vesting of a restricted stock award or restricted stock units, we issued shares of our common stock from an available pool of shares that were authorized but not yet issued. Beginning in April 2014, our practice is to settle awards in cash upon vesting. As a result of this change, we changed the classification of outstanding awards from equity-classified to liability-classified and recorded an immaterial liability in our consolidated balance sheet as of December 31, 2014. There was no incremental compensation cost that resulted from this change in practice.
For the years ended December 31, 2014, 2013 and 2012, we recognized $4.0 million, $9.0 million and $20.3 million, respectively, in share-based compensation expense related to stock options. For the years ended December 31, 2014, 2013 and 2012, we recognized $10.4 million, $20.0 million and $22.2 million, respectively, in share-based compensation expense related to restricted stock and restricted stock units. Amounts recognized in the income statement for tax benefits related to share-based
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
payment arrangements in 2014, 2013 and 2012 were not material. We include substantially all share-based compensation expense, including restricted stock expense, as a component of selling, general and administrative expenses based on classification of the compensation expense for the applicable grantee. We classify tax benefits resulting from tax deductions in excess of the compensation cost recognized for share-based awards as financing cash flows. As of December 31, 2014, there was approximately $5.2 million in unrecognized compensation cost related to non-vested employee stock option awards. We expect this cost to be recognized over a weighted average period of 1.27 years. Cash paid for exercises under all share-based payment arrangements was $0.1 million for 2014, $1.0 million for 2013 and $2.0 million for 2012.
Stock Option Awards
For the six months ended December 31, 2015 and June 30, 2015, as well as for the years ended December 31, 2014 and 2013, we recognized $1.0 million, $1.5 million, $4.0 million and $9.0 million, respectively, in share-based compensation expense related to stock options. The amounts recognized in our consolidated statement of comprehensive (loss) income for tax benefits related to share-based payment arrangements in 2015, 2014 and 2013 were not material. We include substantially all share-based compensation expense as a component of selling, general and administrative expenses. As of December 31, 2015, there was $6.4 million in unrecognized compensation cost related to non-vested employee stock option awards, which includes the impact of assumed forfeitures. We expect this cost to be recognized over a weighted average period of 2.6 years. The amount of cash paid for exercises under all share-based payment arrangements was immaterial for the six months ended December 31, 2015 and June 30, 2015, as well as for the years ended December 31, 2014 and 2013.
As a result of the Company's emergence from Chapter 11 proceedings, all prior stock option awards granted under the 2012 Incentive Compensation Plan were canceled. Our stock options generally vest thirty-three percent per year over a three-year period. The following table summarizes stock option activity forunder the year ended December 31, 2014:2015 Incentive Compensation Plan, beginning on June 26, 2015:
| | | | Number of Options | | Weighted Average Exercise Price per Option | | Weighted Average Remaining Life | | Aggregate Intrinsic Value | Number of Options | | Weighted Average Exercise Price per Option | | Weighted Average Remaining Life | | Aggregate Intrinsic Value |
| Outstanding, December 31, 2013 | 11,259,868 |
| | $ | 36.20 |
| | |
| | |
| |
| Granted | 1,752,921 |
| | 0.86 |
| | |
| | |
| 3,848,385 |
| | $ | 12.00 |
| | |
| Exercised | — |
| | — |
| | |
| | |
| — |
| | — |
| | |
| Forfeited | (6,978,638 | ) | | 35.63 |
| | |
| | |
| (220,896 | ) | | $ | 19.70 |
| | |
| Outstanding, December 31, 2014 | 6,034,151 |
| | 26.57 |
| | 5.71 |
| | $ | — |
| |
| Exercisable, December 31, 2014 | 3,996,673 |
| | 38.55 |
| | 4.04 |
| | — |
| |
| Outstanding, December 31, 2015 | | 3,627,489 |
| | $ | 11.53 |
| | 8.94 | | — |
|
| Exercisable, December 31, 2015 | | 120 |
| | $ | 20.68 |
| | 0.25 | | — |
|
There were no options exercised during the year endedperiod from June 26, 2015 to December 31, 2014. The total fair2015. As of December 31, 2015, our vested stock options had an intrinsic value of vested options was $16.4 million, $39.1 million and $54.3 million for the years ended December 31, 2014, 2013 and 2012, respectively.zero. Generally, our stock options are non-transferable, except by will or laws of descent or distribution, and the actual value of the stock options that a recipient may realize, if any, will depend on the excess of the market price on the date of exercise over the exercise price. AsIf a resultparticipant's employment is terminated without cause prior to the date options are available to be exercised, the participant shall receive stock options on a pro-rata basis based on the fraction of our Chapter 11 filing and the proposals for reorganization, which do not contemplate any recoveries with respect to equity interests, the holders of these stock option awards will not realize any value or receive any recoveryperformance period that has elapsed from the long-term incentives granted during 2014 or in prior years.beginning of the performance period until the participant's termination. If the participant does not exercise the pro-rata shares within 90 days of the employee's termination, the options are considered forfeited and are available for reissuance under the terms of the 2015 Incentive Compensation Plan.
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average fair value of the stock option awards on their grant dates using the Black-Scholes-Merton option-pricing model was less than $0.01$2.98 for each option granted during the year endedperiod from June 26, 2015 to December 31, 20142015,$4.64 for each option granted during the year ended December 31, 2013 and $7.31 for each option granted during the year ended December 31, 2012 based on the following assumptions:
|
| | | | | |
| | 2014 | | 2013 | | 2012 |
| Risk free interest rate | 1.60% - 1.63% | | 0.63% - 1.49% | | 0.62% - 0.95% |
| Expected stock price volatility | 69.53% - 96.99% | | 56.56% - 69.53% | | 50.00% - 56.56% |
| Expected term in years | 4.78 - 4.81 | | 4.78 - 4.81 | | 4.65 - 4.78 |
| Expected dividend yield | — | | — | | — |
|
| |
| Successor Company |
| Period from June 26, 2015 |
| to December 31, 2015 |
| Risk free interest rate | 1.71% - 2.05% |
| Expected stock price volatility | 31.73% - 41.92% |
| Expected term in years | 5.16 - 6.00 |
| Expected dividend yield | — |
The expected term of stock option awards granted represents the period that we expect our stock option awards will be outstanding and was determined based on (1) historical dataa Monte Carlo model of stock prices and option disposition intensity. The intensity is based on employeemodels of stock price path, time dependent suboptimal voluntary exercise and post-vesting employment termination behavior, (2) the contractual terms of the stock option awards, (3) vesting schedules and (4) expectations of future employee behavior.post-vest termination. The risk-freerisk free interest rate for periodsthe grant date of options granted is consistent with the contractual life of the stock option award is based on the yield curve ofzero-coupon U.S. Treasury strip securities in effect at the time of the grant.rate curve. Expected volatility takes into consideration a blended historical volatility and the implied volatility from traded options on our stock.of comparable companies' option contracts.
Restricted Stock and Restricted Stock Unit Awards
RestrictedFor the six months ended December 31, 2015 and June 30, 2015, as well as for the years ended December 31, 2014 and 2013, we recognized $1.9 million, $2.3 million, $10.4 million and $20.0 million, respectively, in share-based compensation expense related to restricted stock includesand restricted stock units. The amounts recognized in our consolidated statement of comprehensive (loss) income for tax benefits related to share-based payment arrangements for the six months ended December 31, 2015 and June 30, 2015, as well as for the years ended December 31, 2014 and 2013 were not material. We include substantially all share-based compensation expense as a component of selling, general and administrative expenses.
As a result of the Company's emergence from Chapter 11 proceedings, all prior restricted stock awards and restricted stock units granted under the 2012 Incentive Compensation Plan were canceled. As of December 31, 2015, restricted stock represented both non-vested restricted stock awards and restricted stock units. Following isOur restricted stock awards generally vest thirty-three percent per year over a summary of ourthree-year period. The following table summarizes restricted stock:stock activity under the 2015 Incentive Compensation Plan, beginning on June 26, 2015:
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | Number of Shares | | Weighted Average Grant Date Fair Value Per Share | Number of Shares | | Weighted Average Grant Date Fair Value Per Share |
| Restricted stock awards as of December 31, 2013 | 3,919,485 |
| | $12.99 | |
| Granted | 3,605,538 |
| | 0.85 | 1,074,101 |
| | $11.99 |
| Vested | (1,140,667 | ) | | 16.80 | (1,224 | ) | | $13.88 |
| Forfeited | (2,294,608 | ) | | 7.69 | (75,433 | ) | | $15.72 |
| Restricted stock awards as of December 31, 2014 | 4,089,748 |
| | 3.75 | |
| Restricted stock awards as of December 31, 2015 | | 997,444 |
| | $11.71 |
If a participant terminatesparticipant's employment is terminated without cause prior to the vesting dates, the participant shall receive restricted stock on a pro-rata basis based on the fraction of the performance period that has elapsed from the beginning of the performance period until the participant's termination. Any unvested shares are forfeited and available for reissuance under the terms of the 20122015 Incentive Compensation Plan. The fair value of our restricted stock is determined based on the quoted price of our common stock at the grant date. As of December 31, 2014,2015, there was approximately $7.8$6.0 million in unrecognized compensation cost related to restricted stock.stock, which includes the impact of assumed forfeitures. We expect this cost to be recognized over a weighted average period of 1.522.5 years. The total fairFor the six months ended December 31, 2015, the value of our vested restricted stock awards vested was $1.2 million during 2014 and $7.7 million during 2013. During 2014, we paid an immaterial amount to settle vested restricted stock awards. The weighted average grant date fair value of restricted stock awards granted during 2014 was $0.85 per unit compared to $8.69 per unit for 2013 and $16.97 per unit for 2012. As a result of our Chapter 11 filing and the proposals for reorganization, which do not contemplate any recoveries with respect to equity interests, the holders of these restricted stock awards will not realize any value or receive any recovery from the long-term incentives granted during 2014 or in prior years.immaterial.
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Segment Information
We have determined our reportable segmentssegment based on our method of internal reporting, which disaggregates our business by geographic location. We evaluate performance of these segments and provide resources to themit based on operating income before depreciation, amortization and impairment, restructuring and restructuringother charges, which we refer to as segment earnings. OurNextel Brazil is our only reportable segments are: (1) Brazil, (2) Mexico and (3) Argentina.segment.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | Brazil | | Mexico | | Argentina | | Corporate and Eliminations | | Consolidated | Brazil | | Corporate and Eliminations | | Consolidated |
| | (in thousands) | (in thousands) |
| Year Ended December 31, 2014 | |
| | |
| | |
| | |
| | |
| |
| Six Months Ended December 31, 2015 - Successor Company | | |
| | |
| | |
|
| Operating revenues | $ | 1,848,918 |
| | $ | 1,417,163 |
| | $ | 424,972 |
| | $ | (2,333 | ) | | $ | 3,688,720 |
| $ | 529,332 |
| | $ | 102 |
| | $ | 529,434 |
|
| Segment (losses) earnings | $ | (133,691 | ) | | $ | (90,481 | ) | | $ | 76,241 |
| | $ | (144,733 | ) | | $ | (292,664 | ) | |
| Segment losses | | $ | (9,045 | ) | | $ | (26,100 | ) | | $ | (35,145 | ) |
| Less: | |
| | |
| | |
| | |
| | |
| | | | | |
|
| Impairment and restructuring charges | | | | | | | | | (220,742 | ) | |
| Gain on sale of towers | | | | | | | | | 74,631 |
| |
| Impairment, restructuring and other charges | | | | | | (32,308 | ) |
| Depreciation and amortization | |
| | |
| | |
| | |
| | (672,705 | ) | | | | | (85,364 | ) |
| Foreign currency transaction losses, net | |
| | |
| | |
| | |
| | (130,499 | ) | | | | | (99,737 | ) |
| Interest expense and other, net | |
| | |
| | |
| | |
| | (389,641 | ) | | | | | (39,539 | ) |
| Loss from continuing operations before reorganization items and income tax provision | |
| | |
| | |
| | |
| | $ | (1,631,620 | ) | | | | | $ | (292,093 | ) |
| Capital expenditures | $ | 218,855 |
| | $ | 168,750 |
| | $ | 26,308 |
| | $ | 14,507 |
| | $ | 428,420 |
| $ | 72,112 |
| | $ | 500 |
| | $ | 72,612 |
|
| Year Ended December 31, 2013 | |
| | |
| | |
| | |
| | |
| |
| Six Months Ended June 30, 2015 - Predecessor Company | | |
| | |
| | |
|
| Operating revenues | | $ | 683,611 |
| | $ | 100 |
| | $ | 683,711 |
|
| Segment losses | | $ | (75,234 | ) | | $ | (37,982 | ) | | $ | (113,216 | ) |
| Less: | | | | | | |
|
| Impairment, restructuring and other charges | | | | | | (36,792 | ) |
| Depreciation and amortization | | | | | | (153,878 | ) |
| Foreign currency transaction losses, net | | | | | | (63,948 | ) |
| Interest expense and other, net | | | | | | (67,630 | ) |
| Loss from continuing operations before reorganization items and income tax provision | | | | | | $ | (435,464 | ) |
| Capital expenditures | | $ | 68,385 |
| | $ | 818 |
| | $ | 69,203 |
|
| Year Ended December 31, 2014 - Predecessor Company | | | | | | |
|
| Operating revenues | | $ | 1,848,918 |
| | $ | 36 |
| | $ | 1,848,954 |
|
| Segment losses | | $ | (133,691 | ) | | $ | (123,141 | ) | | $ | (256,832 | ) |
| Less: | | | | | | |
|
| Impairment, restructuring and other charges | | | | | | (105,664 | ) |
| Depreciation and amortization | | | | | | (394,061 | ) |
| Foreign currency transaction losses, net | | | | | | (51,149 | ) |
| Interest expense and other, net | | | | | | (340,388 | ) |
| Loss from continuing operations before reorganization items and income tax provision | | | | | | $ | (1,148,094 | ) |
| Capital expenditures | | $ | 218,855 |
| | $ | 14,507 |
| | $ | 233,362 |
|
| Year Ended December 31, 2013 - Predecessor Company | | | | | | |
|
| Operating revenues | $ | 2,208,034 |
| | $ | 1,872,697 |
| | $ | 636,448 |
| | $ | (5,612 | ) | | $ | 4,711,567 |
| $ | 2,208,034 |
| | $ | (4,994 | ) | | $ | 2,203,040 |
|
| Segment earnings (losses) | $ | 311,129 |
| | $ | 179,896 |
| | $ | 179,418 |
| | $ | (177,578 | ) | | $ | 492,865 |
| $ | 311,129 |
| | $ | (176,642 | ) | | $ | 134,487 |
|
| Less: | |
| | |
| | |
| | |
| | |
| | | | | |
|
| Impairment and restructuring charges | | | | | | | | | (168,543 | ) | |
| Impairment, restructuring and other charges | | | | | | (121,578 | ) |
| Depreciation and amortization | |
| | |
| | |
| | |
| | (692,927 | ) | | | | | (382,610 | ) |
| Foreign currency transaction losses, net | |
| | |
| | |
| | |
| | (123,369 | ) | | | | | (92,456 | ) |
| Interest expense and other, net | |
| | |
| | |
| | |
| | (496,062 | ) | | | | | (447,252 | ) |
| Loss from continuing operations before income tax provision | |
| | |
| | |
| | |
| | $ | (988,036 | ) | | | | | $ | (909,409 | ) |
| Capital expenditures | $ | 461,458 |
| | $ | 375,522 |
| | $ | 21,183 |
| | $ | 13,931 |
| | $ | 872,094 |
| $ | 461,458 |
| | $ | 13,931 |
| | $ | 475,389 |
|
| Year Ended December 31, 2012 | |
| | |
| | |
| | |
| | |
| |
| Operating revenues | $ | 2,902,350 |
| | $ | 2,109,573 |
| | $ | 685,201 |
| | $ | (3,889 | ) | | $ | 5,693,235 |
| |
| Segment earnings (losses) | $ | 674,632 |
| | $ | 561,059 |
| | $ | 180,956 |
| | $ | (287,343 | ) | | $ | 1,129,304 |
| |
| Less: | |
| | |
| | |
| | |
| | |
| |
| Impairment and restructuring charges | | | | | | | | | (30,401 | ) | |
| Depreciation and amortization | |
| | |
| | |
| | |
| | (605,161 | ) | |
| Foreign currency transaction losses, net | |
| | |
| | |
| | |
| | (63,330 | ) | |
| Interest expense and other, net | |
| | |
| | |
| | |
| | (354,107 | ) | |
| Income from continuing operations before income tax provision | |
| | |
| | |
| | |
| | $ | 76,305 |
| |
| Capital expenditures | $ | 632,796 |
| | $ | 523,555 |
| | $ | 56,825 |
| | $ | 92,520 |
| | $ | 1,305,696 |
| |
| December 31, 2014 | |
| | |
| | |
| | |
| | |
| |
| December 31, 2015 - Successor Company | | | | | | |
|
| Identifiable assets | $ | 2,991,959 |
| | $ | 1,721,710 |
| | $ | 279,714 |
| | $ | 437,208 |
| | $ | 5,430,591 |
| $ | 1,989,753 |
| | $ | 740,155 |
| | $ | 2,729,908 |
|
| December 31, 2013 | |
| | |
| | |
| | |
| | |
| |
| December 31, 2014 - Predecessor Company | | | | | | |
|
| Identifiable assets | $ | 3,705,642 |
| | $ | 2,695,091 |
| | $ | 451,041 |
| | $ | 1,828,180 |
| (1) | $ | 8,679,954 |
| $ | 2,953,525 |
| | $ | 2,420,509 |
| (1) | $ | 5,374,034 |
|
__________________________
(1) As of December 31, 2013,2014, identifiable assets in the "Corporate and Eliminations" column include $168.9$1,995.5 million of total assets related to discontinued operations as a result of the salesales of Nextel Chile.Argentina and Nextel Mexico. See Note 5 for more information.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16.14. Quarterly Financial Data (Unaudited)
|
| | | | | | | | | | | | | | | |
| | First | | Second | | Third | | Fourth |
| | (in thousands, except per share amounts) |
| 2014 | |
| | |
| | |
| | |
|
| Operating revenues | $ | 955,781 |
| | $ | 951,981 |
| | $ | 926,727 |
| | $ | 854,231 |
|
| Operating loss | (212,290 | ) | | (350,553 | ) | | (212,900 | ) | | (335,737 | ) |
| Net loss from continuing operations | (338,270 | ) | | (474,983 | ) | | (456,753 | ) | | (507,306 | ) |
| Net (loss) income from discontinued operations | (37,808 | ) | | (148,329 | ) | | 13,306 |
| | (7,555 | ) |
| Net loss from continuing operations, per common share, basic and diluted | $ | (1.97 | ) | | $ | (2.76 | ) | | $ | (2.65 | ) | | $ | (2.95 | ) |
| Net (loss) income from discontinued operations, per common share, basic and diluted | $ | (0.22 | ) | | $ | (0.86 | ) | | $ | 0.08 |
| | $ | (0.04 | ) |
|
| | | | | | | | | | | | | | | | |
| | Predecessor Company | | | Successor Company |
| | First | | Second | | | Third | | Fourth |
| | (in thousands, except per share amounts) |
| 2015 | |
| | |
| | | |
| | |
|
| Operating revenues | $ | 363,409 |
| | $ | 320,302 |
| | | $ | 284,652 |
| | $ | 244,782 |
|
| Operating loss | (105,811 | ) | | (198,075 | ) | | | (77,652 | ) | | (75,165 | ) |
| Net (loss) income from continuing operations | (218,407 | ) | | 1,737,808 |
| | | (201,949 | ) | | (83,662 | ) |
| Net (loss) income from discontinued operations | (91,111 | ) | | 312,225 |
| | | 12,528 |
| | (920 | ) |
| Net (loss) income from continuing operations, per common share, basic | $ | (1.27 | ) | | $ | 10.04 |
| | | $ | (2.02 | ) | | $ | (0.84 | ) |
| Net (loss) income from discontinued operations, per common share, basic | $ | (0.53 | ) | | $ | 1.80 |
| | | $ | 0.12 |
| | $ | (0.01 | ) |
| Net (loss) income from continuing operations, per common share, diluted | $ | (1.27 | ) | | $ | 10.03 |
| | | $ | (2.02 | ) | | $ | (0.84 | ) |
| Net (loss) income from discontinued operations, per common share, diluted | $ | (0.53 | ) | | $ | 1.80 |
| | | $ | 0.12 |
| | $ | (0.01 | ) |
| | | | First | | Second | | Third | | Fourth | Predecessor Company |
| | (in thousands, except per share amounts) | First | | Second | | Third | | Fourth |
| 2013 | |
| | |
| | |
| | |
| |
| | | (in thousands, except per share amounts) |
| 2014 | | |
| | |
| | |
| | |
|
| Operating revenues | $ | 1,316,716 |
| | $ | 1,245,451 |
| | $ | 1,085,633 |
| | $ | 1,063,767 |
| $ | 461,881 |
| | $ | 478,804 |
| | $ | 476,264 |
| | $ | 432,005 |
|
| Operating loss | (44,397 | ) | | (40,653 | ) | | (127,889 | ) | | (155,666 | ) | (151,876 | ) | | (232,411 | ) | | (212,596 | ) | | (159,674 | ) |
| Net loss from continuing operations | (153,103 | ) | | (316,018 | ) | | (259,507 | ) | | (705,460 | ) | (256,323 | ) | | (320,268 | ) | | (416,189 | ) | | (231,891 | ) |
| Net loss from discontinued operations | (54,400 | ) | | (80,334 | ) | | (40,434 | ) | | (40,343 | ) | (119,755 | ) | | (303,044 | ) | | (27,258 | ) | | (282,970 | ) |
| Net loss from continuing operations, per common share, basic and diluted | $ | (0.89 | ) | | $ | (1.83 | ) | | $ | (1.51 | ) | | $ | (4.10 | ) | $ | (1.49 | ) | | $ | (1.86 | ) | | $ | (2.41 | ) | | $ | (1.35 | ) |
| Net loss from discontinued operations, per common share, basic and diluted | $ | (0.32 | ) | | $ | (0.47 | ) | | $ | (0.23 | ) | | $ | (0.23 | ) | $ | (0.70 | ) | | $ | (1.76 | ) | | $ | (0.16 | ) | | $ | (1.64 | ) |
The sum of the per share amounts do not equal the annual amounts due to changes in the number of weighted average common shares outstanding during the year.
In September 2015, two of our indirect subsidiaries entered into a binding agreement with Grupo Clarin relating to the sale of all of the outstanding equity interests of Nextel Argentina. In April 2015, we completed the sale of our Mexican operations to New Cingular Wireless, Inc., an indirect subsidiary of AT&T, Inc. In August 2014, we completed the sale of all of the outstanding equity interests of our wholly-owned subsidiary, Nextel Chile, to Fucata. As a result of the salesales of Nextel Argentina, Nextel Mexico and Nextel Chile, the quarterly amounts included above differ from the amounts originally included in our quarterly reports on Form 10-Q for each of the quarterly periods in 2013, as well as in the quarterly reports on Form 10-Q for the three months ended March 31, 2014 and June 30, 2014.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Condensed Consolidating Financial Statements
In 2011, we issued $1.45 billion in aggregate principal amount of our 7.625% senior notes due in 2021. In addition, during 2009, we issued senior notes totaling $1.3 billion in aggregate principal amount comprised of our 10.0% senior notes due 2016 and our 8.875% senior notes due 2019. We refer to the senior notes issued in 2011 and 2009 collectively as the "notes." All of these notes are senior unsecured obligations of NII Capital Corp., our wholly-owned domestic subsidiary, and are guaranteed on a senior unsecured basis by NII Holdings and all of its current and future first tier and domestic restricted subsidiaries, other than NII Capital Corp. No foreign subsidiaries will guarantee the notes unless they are first tier subsidiaries of NII Holdings. These guarantees are full and unconditional, as well as joint and several.
In connection with the issuance of the notes and the guarantees thereof, we are required to provide certain condensed consolidating financial information. Included in the tables below are condensed consolidating balance sheets as of December 31, 2014 and 2013, as well as condensed consolidating statements of comprehensive (loss) income for the years ended December 31, 2014, 2013 and 2012 and condensed consolidating statements of cash flows for the years ended December 31, 2014, 2013 and 2012, of: (a) the parent company, NII Holdings, Inc.; (b) the subsidiary issuer, NII Capital Corp.; (c) the guarantor subsidiaries on a combined basis; (d) the non-guarantor subsidiaries on a combined basis; (e) consolidating adjustments; and (f) NII Holdings, Inc. and subsidiaries on a consolidated basis.2015.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2014
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NII Holdings, Inc. (Parent and Guarantor) | | NII Capital Corp. (Issuer)(1) | | Guarantor Subsidiaries(2) | | Non- Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
| | (in thousands) |
| ASSETS |
| Current assets | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 106,747 |
| | $ | 25,170 |
| | $ | 14,505 |
| | $ | 427,178 |
| | $ | — |
| | $ | 573,600 |
|
| Short-term investments | — |
| | — |
| | — |
| | 153,612 |
| | — |
| | 153,612 |
|
| Accounts receivable, net | — |
| | — |
| | 290 |
| | 398,388 |
| | — |
| | 398,678 |
|
| Short-term intercompany receivables | 27,803 |
| | 65,130 |
| | 99,459 |
| | 7,030 |
| | (199,422 | ) | | — |
|
| Handset and accessory inventory | — |
| | — |
| | — |
| | 207,633 |
| | — |
| | 207,633 |
|
| Deferred income taxes, net | — |
| | — |
| | 857 |
| | 49,835 |
| | — |
| | 50,692 |
|
| Prepaid expenses and other | 7,942 |
| | — |
| | 8,352 |
| | 312,903 |
| | — |
| | 329,197 |
|
| Total current assets | 142,492 |
| | 90,300 |
| | 123,463 |
| | 1,556,579 |
| | (199,422 | ) | | 1,713,412 |
|
Property, plant and equipment, net | — |
| | — |
| | 48,168 |
| | 2,384,765 |
| | — |
| | 2,432,933 |
|
| Intangible assets, net | 18,000 |
| | — |
| | — |
| | 804,124 |
| | — |
| | 822,124 |
|
| Deferred income taxes, net | — |
| | 13,561 |
| | — |
| | 5,772 |
| | (13,566 | ) | | 5,767 |
|
| Long-term intercompany receivables | 1,393,109 |
| | 3,488,284 |
| | 342,883 |
| | 1,354 |
| | (5,225,630 | ) | | — |
|
| Other assets | 947 |
| | — |
| | 392 |
| | 455,016 |
| | — |
| | 456,355 |
|
| Total assets | $ | 1,554,548 |
| | $ | 3,592,145 |
| | $ | 514,906 |
| | $ | 5,207,610 |
| | $ | (5,438,618 | ) | | $ | 5,430,591 |
|
| | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY |
| Liabilities not subject to compromise | | | | | | | | | | | |
| Current liabilities | |
| | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | — |
| | $ | — |
| | $ | 1,995 |
| | $ | 277,809 |
| | $ | — |
| | $ | 279,804 |
|
| Short-term intercompany payables | — |
| | 9,764 |
| | 4,958 |
| | 182,239 |
| | (196,961 | ) | | — |
|
| Accrued expenses and other | — |
| | — |
| | 18,993 |
| | 544,528 |
| | (533 | ) | | 562,988 |
|
| Deferred revenues | — |
| | — |
| | — |
| | 89,019 |
| | — |
| | 89,019 |
|
| Current portion of long-term debt | — |
| | — |
| | — |
| | 777,569 |
| | — |
| | 777,569 |
|
| Total current liabilities | — |
| | 9,764 |
| | 25,946 |
| | 1,871,164 |
| | (197,494 | ) | | 1,709,380 |
|
| Long-term debt | — |
| | — |
| | — |
| | 734,823 |
| | — |
| | 734,823 |
|
| Deferred income tax liabilities | 1,529 |
| | — |
| | 14,524 |
| | 55,601 |
| | (13,566 | ) | | 58,088 |
|
| Long-term intercompany payables | — |
| | — |
| | — |
| | 139,206 |
| | (139,206 | ) | | — |
|
| Other long-term liabilities | 100 |
| | — |
| | 2,217 |
| | 297,254 |
| | — |
| | 299,571 |
|
Total liabilities not subject to compromise | 1,629 |
| | 9,764 |
| | 42,687 |
| | 3,098,048 |
| | (350,266 | ) | | 2,801,862 |
|
| Liabilities subject to compromise | 30,584 |
| | 2,858,128 |
| | 9,899 |
| | 1,694,882 |
| | — |
| | 4,593,493 |
|
| Intercompany liabilities subject to compromise | 3,487,099 |
| | 115,458 |
| | 1,492,946 |
| | 709,392 |
| | (5,804,895 | ) | | — |
|
| Total liabilities subject to compromise | 3,517,683 |
| | 2,973,586 |
| | 1,502,845 |
| | 2,404,274 |
| | (5,804,895 | ) | | 4,593,493 |
|
| Total stockholders’ (deficit) equity | (1,964,764 | ) | | 608,795 |
| | (1,030,626 | ) | | (294,712 | ) | | 716,543 |
| | (1,964,764 | ) |
| Total liabilities and stockholders’ (deficit) equity | $ | 1,554,548 |
| | $ | 3,592,145 |
| | $ | 514,906 |
| | $ | 5,207,610 |
| | $ | (5,438,618 | ) | | $ | 5,430,591 |
|
| |
(1) | NII Capital Corp. is the issuer of our 7.625% senior notes due 2021, our 10.0% senior notes due 2016 and our 8.875% senior notes due 2019.
|
| |
(2) | Represents our subsidiaries that have provided guarantees of the obligations of NII Capital Corp. under our 7.625% senior notes due 2021, our 10.0% senior notes due 2016 and our 8.875% notes due 2019.
|
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2013
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NII Holdings, Inc. (Parent and Guarantor) | | NII Capital Corp. (Issuer) | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
| | |
| ASSETS |
| Current assets | |
| | |
| | |
| | |
| | |
| | |
|
| Cash and cash equivalents | $ | 356,314 |
| | $ | — |
| | $ | 5,586 |
| | $ | 1,368,435 |
| | $ | — |
| | $ | 1,730,335 |
|
| Short-term investments | — |
| | — |
| | — |
| | 585,760 |
| | — |
| | 585,760 |
|
| Accounts receivable, net | — |
| | — |
| | 627 |
| | 510,779 |
| | — |
| | 511,406 |
|
| Short-term intercompany receivables | 31,803 |
| | 129,810 |
| | 72,595 |
| | 4,779 |
| | (238,987 | ) | | — |
|
| Handset and accessory inventory | — |
| | — |
| | — |
| | 336,620 |
| | — |
| | 336,620 |
|
| Deferred income taxes, net | — |
| | — |
| | 1,145 |
| | 126,250 |
| | — |
| | 127,395 |
|
| Prepaid expenses and other | 6,832 |
| | — |
| | 7,914 |
| | 382,828 |
| | — |
| | 397,574 |
|
| Assets related to discontinued operations | — |
| | — |
| | — |
| | 59,096 |
| | — |
| | 59,096 |
|
| Total current assets | 394,949 |
| | 129,810 |
| | 87,867 |
| | 3,374,547 |
| | (238,987 | ) | | 3,748,186 |
|
| Property, plant and equipment, net | — |
| | — |
| | 130,729 |
| | 3,207,103 |
| | (287 | ) | | 3,337,545 |
|
| Investments in and advances to affiliates | 1,867,753 |
| | 1,503,202 |
| | 1,562,080 |
| | — |
| | (4,933,035 | ) | | — |
|
| Intangible assets, net | 18,000 |
| | — |
| | — |
| | 962,369 |
| | — |
| | 980,369 |
|
| Deferred income taxes, net | 16,025 |
| | — |
| | — |
| | 26,716 |
| | (16,028 | ) | | 26,713 |
|
| Long-term intercompany receivables | 1,474,658 |
| | 3,714,760 |
| | 701,680 |
| | 1,354 |
| | (5,892,452 | ) | | — |
|
| Other assets | 29,381 |
| | 32,556 |
| | 15,383 |
| | 399,986 |
| | — |
| | 477,306 |
|
| Assets related to discontinued operations | — |
| | — |
| | — |
| | 109,835 |
| | — |
| | 109,835 |
|
| Total assets | $ | 3,800,766 |
| | $ | 5,380,328 |
| | $ | 2,497,739 |
| | $ | 8,081,910 |
| | $ | (11,080,789 | ) | | $ | 8,679,954 |
|
| | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities | |
| | |
| | |
| | |
| | |
| | |
|
| Accounts payable | $ | — |
| | $ | — |
| | $ | 727 |
| | $ | 345,401 |
| | $ | — |
| | $ | 346,128 |
|
| Short-term intercompany payables | 464,798 |
| | 132,007 |
| | 1,485,835 |
| | 159,322 |
| | (2,241,962 | ) | | — |
|
| Accrued expenses and other | — |
| | 59,490 |
| | 26,089 |
| | 873,702 |
| | (222 | ) | | 959,059 |
|
| Deferred revenues | — |
| | — |
| | — |
| | 127,782 |
| | — |
| | 127,782 |
|
| Current portion of long-term debt | — |
| | — |
| | 1,871 |
| | 94,968 |
| | — |
| | 96,839 |
|
| Deposits related to 2013 sale of towers | — |
| | — |
| | — |
| | 720,013 |
| | — |
| | 720,013 |
|
| Liabilities related to discontinued operations | — |
| | — |
| | — |
| | 36,769 |
| | — |
| | 36,769 |
|
| Total current liabilities | 464,798 |
| | 191,497 |
| | 1,514,522 |
| | 2,357,957 |
| | (2,242,184 | ) | | 2,286,590 |
|
| Long-term debt | 23 |
| | 2,729,321 |
| | 33,864 |
| | 2,933,424 |
| | — |
| | 5,696,632 |
|
| Deferred income tax liabilities | 3 |
| | 2,950 |
| | 15,384 |
| | 106,682 |
| | (16,028 | ) | | 108,991 |
|
| Long-term intercompany payables | 2,950,226 |
| | — |
| | 10,390 |
| | 929,990 |
| | (3,890,606 | ) | | — |
|
| Other long-term liabilities | 30,329 |
| | — |
| | 10,248 |
| | 186,451 |
| | — |
| | 227,028 |
|
| Liabilities related to discontinued operations | — |
| | — |
| | — |
| | 5,326 |
| | — |
| | 5,326 |
|
| Total liabilities | 3,445,379 |
| | 2,923,768 |
| | 1,584,408 |
| | 6,519,830 |
| | (6,148,818 | ) | | 8,324,567 |
|
| Total stockholders’ equity | 355,387 |
| | 2,456,560 |
| | 913,331 |
| | 1,562,080 |
| | (4,931,971 | ) | | 355,387 |
|
| Total liabilities and stockholders’ equity | $ | 3,800,766 |
| | $ | 5,380,328 |
| | $ | 2,497,739 |
| | $ | 8,081,910 |
| | $ | (11,080,789 | ) | | $ | 8,679,954 |
|
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS
For the Year Ended December 31, 2014
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NII Holdings,
Inc. (Parent and Guarantor) | | NII Capital Corp. (Issuer) | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
| | (in thousands) |
| Operating revenues | $ | — |
| | $ | — |
| | $ | 2,143 |
| | $ | 3,688,369 |
| | $ | (1,792 | ) | | $ | 3,688,720 |
|
| Operating expenses | |
| | |
| | |
| | |
| | |
| | |
|
Cost of revenues (exclusive of depreciation and amortization included below) | — |
| | — |
| | — |
| | 2,282,326 |
| | — |
| | 2,282,326 |
|
| Selling, general and administrative | 2,145 |
| | 2,567 |
| | 140,119 |
| | 1,561,410 |
| | (7,183 | ) | | 1,699,058 |
|
Impairment and restructuring charges | — |
| | — |
| | 63,393 |
| | 157,349 |
| | — |
| | 220,742 |
|
| Gain on sale of towers | — |
| | — |
| | — |
| | (74,631 | ) | | — |
| | (74,631 | ) |
| Management fee and other | — |
| | — |
| | (48,852 | ) | | 51,672 |
| | (2,820 | ) | | — |
|
| Depreciation and amortization | — |
| | — |
| | 19,309 |
| | 653,396 |
| | — |
| | 672,705 |
|
| | 2,145 |
| | 2,567 |
| | 173,969 |
| | 4,631,522 |
| | (10,003 | ) | | 4,800,200 |
|
| Operating loss | (2,145 | ) | | (2,567 | ) | | (171,826 | ) | | (943,153 | ) | | 8,211 |
| | (1,111,480 | ) |
| Other (expense) income | |
| | |
| | |
| | |
| | |
| | |
|
| Interest expense, net | (570 | ) | | (171,646 | ) | | (543 | ) | | (478,784 | ) | | 202,198 |
| | (449,345 | ) |
| Intercompany interest expense | (165,324 | ) | | — |
| | (50 | ) | | 165,374 |
| | — |
| | — |
|
| Interest income | 280 |
| | 1 |
| | 9 |
| | 66,135 |
| | — |
| | 66,425 |
|
| Intercompany interest income | 411 |
| | 200,467 |
| | 1,317 |
| | 3 |
| | (202,198 | ) | | — |
|
Foreign currency transaction losses, net | — |
| | — |
| | — |
| | (130,499 | ) | | — |
| | (130,499 | ) |
| Equity in loss of affiliates | (1,805,438 | ) | | (1,593,607 | ) | | (1,589,367 | ) | | — |
| | 4,988,412 |
| | — |
|
| Other income (expense), net | 8,212 |
| | — |
| | (2 | ) | | (7,706 | ) | | (7,225 | ) | | (6,721 | ) |
| | (1,962,429 | ) | | (1,564,785 | ) | | (1,588,636 | ) | | (385,477 | ) | | 4,981,187 |
| | (520,140 | ) |
| Loss from continuing operations before reorganization items and income tax benefit (provision) | (1,964,574 | ) | | (1,567,352 | ) | | (1,760,462 | ) | | (1,328,630 | ) | | 4,989,398 |
| | (1,631,620 | ) |
| Reorganization items | (291 | ) | | (45,652 | ) | | (13,932 | ) | | (11,726 | ) | | — |
| | (71,601 | ) |
| Income tax benefit (provision) | 7,167 |
| | 6,747 |
| | (18,678 | ) | | (69,327 | ) | | — |
| | (74,091 | ) |
| Net loss from continuing operations | (1,957,698 | ) | | (1,606,257 | ) | | (1,793,072 | ) | | (1,409,683 | ) | | 4,989,398 |
| | (1,777,312 | ) |
| Loss from discontinued operations, net of income taxes | — |
| | — |
| | — |
| | (179,686 | ) | | (700 | ) | | (180,386 | ) |
| Net loss | $ | (1,957,698 | ) | | $ | (1,606,257 | ) | | $ | (1,793,072 | ) | | $ | (1,589,369 | ) | | $ | 4,988,698 |
| | $ | (1,957,698 | ) |
| | | | | | | | | | | | |
| Comprehensive loss, net of income taxes | | | | | | | | | | | |
| Foreign currency translation adjustment | $ | (340,847 | ) | | $ | (342,432 | ) | | $ | (342,432 | ) | | $ | (342,432 | ) | | $ | 1,027,296 |
| | $ | (340,847 | ) |
Reclassification adjustment for sale of Nextel Chile | (33,885 | ) | | (33,885 | ) | | (33,885 | ) | | (33,885 | ) | | 101,655 |
| | (33,885 | ) |
| Other | (544 | ) | | (544 | ) | | (544 | ) | | (544 | ) | | 1,632 |
| | (544 | ) |
| Other comprehensive loss | (375,276 | ) | | (376,861 | ) | | (376,861 | ) | | (376,861 | ) | | 1,130,583 |
| | (375,276 | ) |
| Net loss | (1,957,698 | ) | | (1,606,257 | ) | | (1,793,072 | ) | | (1,589,369 | ) | | 4,988,698 |
| | (1,957,698 | ) |
| Total comprehensive loss | $ | (2,332,974 | ) | | $ | (1,983,118 | ) | | $ | (2,169,933 | ) | | $ | (1,966,230 | ) | | $ | 6,119,281 |
| | $ | (2,332,974 | ) |
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS
For the Year Ended December 31, 2013
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NII Holdings,
Inc. (Parent and Guarantor) | | NII Capital Corp. (Issuer) | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
| | (in thousands) |
| Operating revenues | $ | — |
| | $ | — |
| | $ | 3,114 |
| | $ | 4,711,525 |
| | $ | (3,072 | ) | | $ | 4,711,567 |
|
| Operating expenses | |
| | |
| | |
| | |
| | |
| | |
|
Cost of revenues (exclusive of depreciation and amortization included below) | — |
| | — |
| | — |
| | 2,276,929 |
| | — |
| | 2,276,929 |
|
| Selling, general and administrative | 3,136 |
| | — |
| | 167,180 |
| | 1,779,719 |
| | (8,262 | ) | | 1,941,773 |
|
Impairments and restructuring charges | — |
| | — |
| | 97,063 |
| | 71,480 |
| | — |
| | 168,543 |
|
| Management fee and other | — |
| | — |
| | (75,116 | ) | | 106,264 |
| | (31,148 | ) | | — |
|
| Depreciation and amortization | — |
| | — |
| | 28,055 |
| | 664,872 |
| | — |
| | 692,927 |
|
| | 3,136 |
| | — |
| | 217,182 |
| | 4,899,264 |
| | (39,410 | ) | | 5,080,172 |
|
| Operating loss | (3,136 | ) | | — |
| | (214,068 | ) | | (187,739 | ) | | 36,338 |
| | (368,605 | ) |
| Other (expense) income | |
| | |
| | |
| | |
| | |
| | |
|
| Interest expense, net | (562 | ) | | (240,132 | ) | | (1,379 | ) | | (284,457 | ) | | — |
| | (526,530 | ) |
| Intercompany interest expense | (234,799 | ) | | — |
| | (59 | ) | | (51,740 | ) | | 286,598 |
| | — |
|
| Interest income | 913 |
| | — |
| | 9 |
| | 42,405 |
| | — |
| | 43,327 |
|
| Intercompany interest income | 1,340 |
| | 284,709 |
| | 549 |
| | — |
| | (286,598 | ) | | — |
|
Foreign currency transaction losses, net | — |
| | — |
| | — |
| | (123,369 | ) | | — |
| | (123,369 | ) |
| Equity in loss of affiliates | (1,473,856 | ) | | (1,274,274 | ) | | (1,269,438 | ) | | — |
| | 4,017,568 |
| | — |
|
| Other income (expense), net | 36,017 |
| | — |
| | 612 |
| | (13,150 | ) | | (36,338 | ) | | (12,859 | ) |
| | (1,670,947 | ) | | (1,229,697 | ) | | (1,269,706 | ) | | (430,311 | ) | | 3,981,230 |
| | (619,431 | ) |
| Loss from continuing operations before income tax benefit (provision) | (1,674,083 | ) | | (1,229,697 | ) | | (1,483,774 | ) | | (618,050 | ) | | 4,017,568 |
| | (988,036 | ) |
| Income tax benefit (provision) | 24,484 |
| | (16,548 | ) | | (18,111 | ) | | (435,877 | ) | | — |
| | (446,052 | ) |
| Net loss from continuing operations | (1,649,599 | ) | | (1,246,245 | ) | | (1,501,885 | ) | | (1,053,927 | ) | | 4,017,568 |
| | (1,434,088 | ) |
| Loss from discontinued operations, net of income taxes | — |
| | — |
| | — |
| | (215,511 | ) | | — |
| | (215,511 | ) |
| Net loss | $ | (1,649,599 | ) | | $ | (1,246,245 | ) | | $ | (1,501,885 | ) | | $ | (1,269,438 | ) | | $ | 4,017,568 |
| | $ | (1,649,599 | ) |
| | | | | | | | | | | | |
| Comprehensive loss, net of income taxes | | | | | | | | | | | |
Foreign currency translation adjustment | $ | (334,893 | ) | | $ | (335,183 | ) | | $ | (335,183 | ) | | $ | (335,183 | ) | | $ | 1,005,549 |
| | $ | (334,893 | ) |
| Other | 2,257 |
| | 2,257 |
| | 2,257 |
| | 2,257 |
| | (6,771 | ) | | 2,257 |
|
| Other comprehensive loss | (332,636 | ) | | (332,926 | ) | | (332,926 | ) | | (332,926 | ) | | 998,778 |
| | (332,636 | ) |
| Net loss | (1,649,599 | ) | | (1,246,245 | ) | | (1,501,885 | ) | | (1,269,438 | ) | | 4,017,568 |
| | (1,649,599 | ) |
| Total comprehensive loss | $ | (1,982,235 | ) | | $ | (1,579,171 | ) | | $ | (1,834,811 | ) | | $ | (1,602,364 | ) | | $ | 5,016,346 |
| | $ | (1,982,235 | ) |
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME
For the Year Ended December 31, 2012
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NII Holdings,
Inc. (Parent and Guarantor) | | NII Capital Corp. (Issuer) | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
| | (in thousands) |
| Operating revenues | $ | — |
| | $ | — |
| | $ | 3,071 |
| | $ | 5,694,718 |
| | $ | (4,554 | ) | | $ | 5,693,235 |
|
| Operating expenses | |
| | |
| | |
| | |
| | |
| | |
|
| Cost of revenues (exclusive of depreciation and amortization included below) | — |
| | — |
| | 73 |
| | 2,303,419 |
| | (1,483 | ) | | 2,302,009 |
|
| Selling, general and administrative | 3,180 |
| | 2 |
| | 309,680 |
| | 1,962,033 |
| | (12,973 | ) | | 2,261,922 |
|
| Impairment and restructuring charges | — |
| | — |
| | — |
| | 30,401 |
| | — |
| | 30,401 |
|
| Management fee and other | — |
| | — |
| | (126,971 | ) | | 225,202 |
| | (98,231 | ) | | — |
|
| Depreciation and amortization | — |
| | — |
| | 36,079 |
| | 569,082 |
| | — |
| | 605,161 |
|
| | 3,180 |
| | 2 |
| | 218,861 |
| | 5,090,137 |
| | (112,687 | ) | | 5,199,493 |
|
| Operating (loss) income | (3,180 | ) | | (2 | ) | | (215,790 | ) | | 604,581 |
| | 108,133 |
| | 493,742 |
|
| Other (expense) income | |
| | |
| | |
| | |
| | |
| | |
|
| Interest expense, net | (23,646 | ) | | (229,652 | ) | | (2,072 | ) | | (104,425 | ) | | — |
| | (359,795 | ) |
| Intercompany interest expense | (215,501 | ) | | — |
| | — |
| | (84,202 | ) | | 299,703 |
| | — |
|
| Interest income | 15,292 |
| | 24,181 |
| | 801 |
| | (6,489 | ) | | — |
| | 33,785 |
|
| Intercompany interest income | 1 |
| | 261,352 |
| | 186 |
| | 38,164 |
| | (299,703 | ) | | — |
|
| Foreign currency transaction losses | — |
| | — |
| | — |
| | (63,330 | ) | | — |
| | (63,330 | ) |
| Equity in loss of affiliates | (639,902 | ) | | (443,294 | ) | | (434,443 | ) | | — |
| | 1,517,639 |
| | — |
|
| Other income (expense), net | 86,324 |
| | — |
| | 101 |
| | (6,389 | ) | | (108,133 | ) | | (28,097 | ) |
| | (777,432 | ) | | (387,413 | ) | | (435,427 | ) | | (226,671 | ) | | 1,409,506 |
| | (417,437 | ) |
| (Loss) income before income tax benefit (provision) | (780,612 | ) | | (387,415 | ) | | (651,217 | ) | | 377,910 |
| | 1,517,639 |
| | 76,305 |
|
| Income tax benefit (provision) | 15,363 |
| | (19,731 | ) | | (24,833 | ) | | (128,943 | ) | | — |
| | (158,144 | ) |
| Net (loss) income from continuing operations | (765,249 | ) | | (407,146 | ) | | (676,050 | ) | | 248,967 |
| | 1,517,639 |
| | (81,839 | ) |
| Loss from discontinued operations, net of income taxes | — |
| | — |
| | — |
| | (683,410 | ) | | — |
| | (683,410 | ) |
| Net loss | $ | (765,249 | ) | | $ | (407,146 | ) | | $ | (676,050 | ) | | $ | (434,443 | ) | | $ | 1,517,639 |
| | $ | (765,249 | ) |
| | | | | | | | | | | | |
| Comprehensive loss, net of income taxes | | | | | | | | | | | |
Foreign currency translation adjustment | $ | (97,589 | ) | | $ | (96,593 | ) | | $ | (96,593 | ) | | $ | (96,593 | ) | | $ | 289,779 |
| | $ | (97,589 | ) |
| Other | (1,802 | ) | | (1,802 | ) | | (1,802 | ) | | (1,802 | ) | | 5,406 |
| | (1,802 | ) |
| Other comprehensive loss | (99,391 | ) | | (98,395 | ) | | (98,395 | ) | | (98,395 | ) | | 295,185 |
| | (99,391 | ) |
| Net loss | (765,249 | ) | | (407,146 | ) | | (676,050 | ) | | (434,443 | ) | | 1,517,639 |
| | (765,249 | ) |
| Total comprehensive loss | $ | (864,640 | ) | | $ | (505,541 | ) | | $ | (774,445 | ) | | $ | (532,838 | ) | | $ | 1,812,824 |
| | $ | (864,640 | ) |
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2014 |
| | | | | | | | | | | | | | | | | | | | | | | |
| | NII Holdings,
Inc. (Parent and Guarantor) | | NII Capital Corp. (Issuer) | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
| | (in thousands) |
| Cash flows from operating activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Net loss | $ | (1,957,698 | ) | | $ | (1,606,257 | ) | | $ | (1,793,072 | ) | | $ | (1,589,369 | ) | | $ | 4,988,698 |
| | $ | (1,957,698 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities | 1,861,773 |
| | 1,631,873 |
| | 1,640,357 |
| | 1,246,260 |
| | (4,988,698 | ) | | 1,391,565 |
|
| Total operating cash (used in) provided by continuing operations | (95,925 | ) | | 25,616 |
| | (152,715 | ) | | (343,109 | ) | | — |
| | (566,133 | ) |
| Total operating cash used in discontinued operations | — |
| | — |
| | — |
| | (62,583 | ) | | — |
| | (62,583 | ) |
| Net cash (used in) provided by operating activities | (95,925 | ) | | 25,616 |
| | (152,715 | ) | | (405,692 | ) | | — |
| | (628,716 | ) |
| Cash flows from investing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Capital expenditures | — |
| | — |
| | (7,012 | ) | | (605,149 | ) | | — |
| | (612,161 | ) |
| Purchases of investments | — |
| | — |
| | — |
| | (1,637,913 | ) | | — |
| | (1,637,913 | ) |
| Proceeds from sales of investments | — |
| | — |
| | — |
| | 2,092,459 |
| | — |
| | 2,092,459 |
|
| Changes in restricted cash and escrow accounts | 25,300 |
| | — |
| | — |
| | (163,127 | ) | | — |
| | (137,827 | ) |
| Investment in subsidiaries | (180,712 | ) | | (446 | ) | | — |
| | — |
| | 181,158 |
| | — |
|
| Other, net | 1,856 |
| | — |
| | 32,390 |
| | (70,488 | ) | | (1,856 | ) | | (38,098 | ) |
| Total investing cash (used in) provided by continuing operations | (153,556 | ) | | (446 | ) | | 25,378 |
| | (384,218 | ) | | 179,302 |
| | (333,540 | ) |
| Total investing cash used in discontinued operations | — |
| | — |
| | — |
| | (13,998 | ) | | — |
| | (13,998 | ) |
| Net cash (used in) provided by investing activities | (153,556 | ) | | (446 | ) | | 25,378 |
| | (398,216 | ) | | 179,302 |
| | (347,538 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Borrowings under equipment financing and other | — |
| | — |
| | — |
| | 14,590 |
| | — |
| | 14,590 |
|
| Repayments under capital leases | — |
| | — |
| | (42,414 | ) | | (6,506 | ) | | — |
| | (48,920 | ) |
| Repayments under equipment financing and other borrowings | — |
| | — |
| | — |
| | (39,243 | ) | | — |
| | (39,243 | ) |
| Payment of line of credit | — |
| | — |
| | — |
| | (54,067 | ) | | — |
| | (54,067 | ) |
| Capital contributions | — |
| | 20 |
| | 180,525 |
| | 613 |
| | (181,158 | ) | | — |
|
| Other, net | (86 | ) | | (20 | ) | | (1,855 | ) | | (527 | ) | | 1,856 |
| | (632 | ) |
| Net cash (used in) provided by financing activities | (86 | ) | | — |
| | 136,256 |
| | (85,140 | ) | | (179,302 | ) | | (128,272 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | (55,657 | ) | | — |
| | (55,657 | ) |
| Change in cash and cash equivalents related to discontinued operations | — |
| | — |
| | — |
| | 3,448 |
| | — |
| | 3,448 |
|
| Net (decrease) increase in cash and cash equivalents | (249,567 | ) | | 25,170 |
| | 8,919 |
| | (941,257 | ) | | — |
| | (1,156,735 | ) |
| Cash and cash equivalents, beginning of year | 356,314 |
| | — |
| | 5,586 |
| | 1,368,435 |
| | — |
| | 1,730,335 |
|
| Cash and cash equivalents, end of year | $ | 106,747 |
| | $ | 25,170 |
| | $ | 14,505 |
| | $ | 427,178 |
| | $ | — |
| | $ | 573,600 |
|
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2013
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NII Holdings,
Inc. (Parent and Guarantor) | | NII Capital Corp. (Issuer) | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
| | (in thousands) |
| Cash flows from operating activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Net loss | $ | (1,649,599 | ) | | $ | (1,246,245 | ) | | $ | (1,501,885 | ) | | $ | (1,269,438 | ) | | $ | 4,017,568 |
| | $ | (1,649,599 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities | 1,477,932 |
| | 1,298,129 |
| | 1,340,701 |
| | 1,571,997 |
| | (4,067,478 | ) | | 1,621,281 |
|
| Total operating cash (used in) provided by continuing operations | (171,667 | ) | | 51,884 |
| | (161,184 | ) | | 302,559 |
| | (49,910 | ) | | (28,318 | ) |
| Total operating cash provided by (used in) discontinued operations | — |
| | — |
| | 1,440 |
| | (165,573 | ) | | — |
| | (164,133 | ) |
| Net cash (used in) provided by operating activities | (171,667 | ) | | 51,884 |
| | (159,744 | ) | | 136,986 |
| | (49,910 | ) | | (192,451 | ) |
| Cash flows from investing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Capital expenditures | — |
| | — |
| | (14,232 | ) | | (606,663 | ) | | — |
| | (620,895 | ) |
| Purchases of licenses | — |
| | — |
| | — |
| | (53,066 | ) | | — |
| | (53,066 | ) |
| Purchases of investments | — |
| | — |
| | — |
| | (2,360,529 | ) | | — |
| | (2,360,529 | ) |
| Proceeds from sales of investments | — |
| | — |
| | — |
| | 1,942,886 |
| | — |
| | 1,942,886 |
|
| Proceeds from 2013 sale of towers, net | — |
| | — |
| | — |
| | 721,404 |
| | — |
| | 721,404 |
|
| Transfers to restricted cash | (15,050 | ) | | — |
| | — |
| | (26,659 | ) | | — |
| | (41,709 | ) |
| Transfers from restricted cash | — |
| | — |
| | — |
| | 2,273 |
| | — |
| | 2,273 |
|
| Investment in subsidiaries | (191,526 | ) | | (1,974 | ) | | (1,260 | ) | | — |
| | 194,760 |
| | — |
|
| Other, net | 545 |
| | — |
| | — |
| | 191 |
| | (529 | ) | | 207 |
|
| Total investing cash used in continuing operations | (206,031 | ) | | (1,974 | ) | | (15,492 | ) | | (380,163 | ) | | 194,231 |
| | (409,429 | ) |
| Total investing cash provided by discontinued operations | — |
| | — |
| | — |
| | 231,817 |
| | — |
| | 231,817 |
|
| Net cash used in investing activities | (206,031 | ) | | (1,974 | ) | | (15,492 | ) | | (148,346 | ) | | 194,231 |
| | (177,612 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Gross proceeds from issuance of senior notes | — |
| | — |
| | — |
| | 1,600,000 |
| | — |
| | 1,600,000 |
|
| Borrowings under equipment financing and other | — |
| | — |
| | — |
| | 145,077 |
| | — |
| | 145,077 |
|
| Repayments under syndicated loan facilities | — |
| | — |
| | — |
| | (323,919 | ) | | — |
| | (323,919 | ) |
| Repayments of import financing | — |
| | — |
| | — |
| | (37,422 | ) | | — |
| | (37,422 | ) |
| Repayments under tower financing and other borrowings | — |
| | — |
| | (16,608 | ) | | (46,887 | ) | | — |
| | (63,495 | ) |
| Payment of line of credit | — |
| | — |
| | — |
| | (362,735 | ) | | — |
| | (362,735 | ) |
| Intercompany dividends | — |
| | (49,910 | ) | | — |
| | — |
| | 49,910 |
| | — |
|
| Capital contributions | — |
| | 20 |
| | 191,506 |
| | 3,234 |
| | (194,760 | ) | | — |
|
| Other, net | (1,010 | ) | | (20 | ) | | (545 | ) | | (26,904 | ) | | 529 |
| | (27,950 | ) |
| Total financing cash (used in) provided by continuing operations | (1,010 | ) | | (49,910 | ) | | 174,353 |
| | 950,444 |
| | (144,321 | ) | | 929,556 |
|
| Total financing cash used in discontinued operations | — |
| | — |
| | — |
| | (152,965 | ) | | — |
| | (152,965 | ) |
| Net cash (used in) provided by financing activities | (1,010 | ) | | (49,910 | ) | | 174,353 |
| | 797,479 |
| | (144,321 | ) | | 776,591 |
|
Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | (56,236 | ) | | — |
| | (56,236 | ) |
| Change in cash and cash equivalents related to discontinued operations | — |
| | — |
| | — |
| | 15,090 |
| | — |
| | 15,090 |
|
| Net (decrease) increase in cash and cash equivalents | (378,708 | ) | | — |
| | (883 | ) | | 744,973 |
| | — |
| | 365,382 |
|
| Cash and cash equivalents, beginning of year | 735,022 |
| | — |
| | 6,469 |
| | 623,462 |
| | — |
| | 1,364,953 |
|
| Cash and cash equivalents, end of year | $ | 356,314 |
| | $ | — |
| | $ | 5,586 |
| | $ | 1,368,435 |
| | $ | — |
| | $ | 1,730,335 |
|
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2012
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | NII Holdings,
Inc. (Parent and Guarantor) | | NII Capital Corp. (Issuer) | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Consolidating Adjustments | | Consolidated |
| | (in thousands) |
| Cash flows from operating activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Net loss | $ | (765,249 | ) | | $ | (407,146 | ) | | $ | (676,050 | ) | | $ | (434,443 | ) | | $ | 1,517,639 |
| | $ | (765,249 | ) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities | 768,542 |
| | 567,599 |
| | 564,974 |
| | 1,296,998 |
| | (1,869,145 | ) | | 1,328,968 |
|
| Total operating cash provided by (used in) continuing operations | 3,293 |
| | 160,453 |
| | (111,076 | ) | | 862,555 |
| | (351,506 | ) | | 563,719 |
|
| Total operating cash provided by (used in) discontinued operations | — |
| | — |
| | 2,142 |
| | (212,678 | ) | | — |
| | (210,536 | ) |
| Net cash provided by (used in) operating activities | 3,293 |
| | 160,453 |
| | (108,934 | ) | | 649,877 |
| | (351,506 | ) | | 353,183 |
|
| Cash flows from investing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Capital expenditures | — |
| | — |
| | (92,574 | ) | | (861,308 | ) | | — |
| | (953,882 | ) |
| Purchases of licenses | — |
| | — |
| | — |
| | (100,185 | ) | | — |
| | (100,185 | ) |
| Purchases of investments | — |
| | — |
| | — |
| | (1,678,918 | ) | | — |
| | (1,678,918 | ) |
| Proceeds from sales of investments | 224,330 |
| | — |
| | — |
| | 1,589,453 |
| | — |
| | 1,813,783 |
|
| Transfers to restricted cash | — |
| | — |
| | — |
| | (11,969 | ) | | — |
| | (11,969 | ) |
| Transfers from restricted cash | — |
| | — |
| | — |
| | 7,882 |
| | — |
| | 7,882 |
|
| Intercompany borrowings | — |
| | — |
| | — |
| | (300 | ) | | 300 |
| | — |
|
| Investment in subsidiaries | (318,949 | ) | | (9,445 | ) | | — |
| | — |
| | 328,394 |
| | — |
|
| Other, net | — |
| | — |
| | — |
| | 1,018 |
| | — |
| | 1,018 |
|
| Total investing cash used in continuing operations | (94,619 | ) | | (9,445 | ) | | (92,574 | ) | | (1,054,327 | ) | | 328,694 |
| | (922,271 | ) |
| Total investing cash used in discontinued operations | — |
| | — |
| | — |
| | (132,889 | ) | | — |
| | (132,889 | ) |
| Net cash used in investing activities | (94,619 | ) | | (9,445 | ) | | (92,574 | ) | | (1,187,216 | ) | | 328,694 |
| | (1,055,160 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| | |
| | |
| | |
|
| Borrowings under line of credit | — |
| | — |
| | — |
| | 212,770 |
| | — |
| | 212,770 |
|
| Borrowings under equipment financing | — |
| | — |
| | — |
| | 233,776 |
| | — |
| | 233,776 |
|
| Repayments under syndicated loan facilities | — |
| | — |
| | — |
| | (97,403 | ) | | — |
| | (97,403 | ) |
| Repayments of import financing | — |
| | — |
| | — |
| | (175,923 | ) | | — |
| | (175,923 | ) |
| Capital contributions | — |
| | — |
| | 318,949 |
| | 9,445 |
| | (328,394 | ) | | — |
|
| Proceeds from intercompany long-term loan | — |
| | — |
| | 300 |
| | — |
| | (300 | ) | | — |
|
| Purchases of convertible notes | (212,782 | ) | | — |
| | — |
| | — |
| | — |
| | (212,782 | ) |
| Intercompany dividends | — |
| | (151,186 | ) | | (100,320 | ) | | (100,000 | ) | | 351,506 |
| | — |
|
| Other, net | (3,228 | ) | | (778 | ) | | (19,368 | ) | | (101,349 | ) | | — |
| | (124,723 | ) |
| Total financing cash (used in) provided by continuing operations | (216,010 | ) | | (151,964 | ) | | 199,561 |
| | (18,684 | ) | | 22,812 |
| | (164,285 | ) |
| Total financing cash used in discontinued operations | — |
| | — |
| | — |
| | (74,010 | ) | | — |
| | (74,010 | ) |
| Net cash (used in) provided by financing activities | (216,010 | ) | | (151,964 | ) | | 199,561 |
| | (92,694 | ) | | 22,812 |
| | (238,295 | ) |
| Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | 844 |
| | — |
| | 844 |
|
| Change in cash and cash equivalents related to discontinued operations | — |
| | — |
| | — |
| | 22,226 |
| | — |
| | 22,226 |
|
| Net decrease in cash and cash equivalents | (307,336 | ) | | (956 | ) | | (1,947 | ) | | (606,963 | ) | | — |
| | (917,202 | ) |
| Cash and cash equivalents, beginning of year | 1,042,358 |
| | 956 |
| | 8,416 |
| | 1,230,425 |
| | — |
| | 2,282,155 |
|
| Cash and cash equivalents, end of year | $ | 735,022 |
| | $ | — |
| | $ | 6,469 |
| | $ | 623,462 |
| | $ | — |
| | $ | 1,364,953 |
|
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Subsequent Event
On January 26, 2015, NII Holdings, Inc. and certain of its subsidiaries entered into a purchase and sale agreement with an indirect subsidiary of AT&T for the sale of Nextel Mexico. The purchase agreement provides for a purchase price of $1.875 billion in cash, less Nextel Mexico's outstanding debt, net of its cash balances, on the closing date and subject to other specified adjustments.
The purchase agreement provides that approximately $32.0 million of the purchase price will be deposited and held in escrow to secure specified obligations of AT&T under the purchase agreement. The purchase agreement also provides that $187.5 million of the purchase price will be held in escrow for two years in case of breaches by Nextel Mexico of representations, warranties and covenants.
The sale transaction is being implemented pursuant to Section 363 of the Bankruptcy Code and is subject to higher or better offers in accordance with bidding procedures approved by, and under the supervision of, the Bankruptcy Court. AT&T may terminate the purchase agreement if the hearing before the Bankruptcy Court with respect to the sale does not occur by March 23, 2015. The successful bidder in the auction process contemplated by the bidding procedures will be required to complete the transactions contemplated by the purchase agreement in accordance with its terms. In addition, if AT&T is not the successful bidder, NII Holdings will be required to pay AT&T a termination fee equal to approximately $32.0 million, reimburse up to $10.0 million of AT&T's expenses and return the deposit.
Completion of the sale is subject to several conditions, including: (i) the Bankruptcy Court having entered all appropriate orders; (ii) obtaining all required governmental approvals; (iii) the absence of a material adverse effect on Nextel Mexico; and (iv) certain other customary conditions. Assuming the successful sale of Nextel Mexico, we plan to focus our financial and other resources on our core operation in Brazil. We expect the sale transaction to be completed by mid-2015.
Pending completion of the transactions contemplated by the purchase agreement, Nextel Mexico has agreed to (i) conduct its business in the ordinary course consistent with past practice; and (ii) use commercially reasonable efforts to maintain and preserve intact its business organization and preserve intact certain business relationships and relationships with applicable regulatory authorities.
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NII HOLDINGS, INC. CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) (in thousands)
| NII HOLDINGS, INC. CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) (in thousands)
| NII HOLDINGS, INC. CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) (in thousands)
|
| | | | | | | Successor Company | | | Predecessor Company |
| | December 31,
2014 | | December 31,
2013 | December 31,
2015 | | | December 31,
2014 |
ASSETS | | Current assets | | | | | | | |
| Cash and cash equivalents | $ | 106,747 |
| | $ | 356,314 |
| $ | 56,011 |
| | | $ | 106,747 |
|
| Short-term intercompany receivables | 27,803 |
| | 31,803 |
| 1,202 |
| | | 27,803 |
|
| Prepaid expenses and other | 7,942 |
| | 6,832 |
| 61 |
| | | 8,798 |
|
| Total current assets | 142,492 |
| | 394,949 |
| 57,274 |
| | | 143,348 |
|
| Investments in and advances to affiliates | — |
| | 1,867,753 |
| |
| Intangible assets, net | 18,000 |
| | 18,000 |
| 37,956 |
| | | 18,000 |
|
| Deferred income taxes, net | — |
| | 16,025 |
| |
| Long-term intercompany receivables | 1,393,109 |
| | 1,474,658 |
| 281 |
| | | 1,453,150 |
|
| Investment in subsidiaries | | 4,759,573 |
| | | — |
|
| Other assets | 947 |
| | 29,381 |
| 1 |
| | | 946 |
|
| Total assets | $ | 1,554,548 |
| | $ | 3,800,766 |
| $ | 4,855,085 |
| | | $ | 1,615,444 |
|
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
| | | | | | | | |
| Liabilities not subject to compromise | | | | | | | |
| Current liabilities | | | | | | | |
| Short-term intercompany payables | $ | — |
| | $ | 464,798 |
| $ | 4,570 |
| | | $ | — |
|
| Total current liabilities | — |
| | 464,798 |
| 4,570 |
| | | — |
|
| Long-term intercompany payables | — |
| | 2,950,226 |
| 3,296,117 |
| | | 59,939 |
|
| Other long-term liabilities | 1,629 |
| | 30,355 |
| 3,583 |
| | | 2,587 |
|
| Total liabilities not subject to compromise | 1,629 |
| | 3,445,379 |
| 3,304,270 |
| | | 62,526 |
|
| Liabilities subject to compromise | 30,584 |
| | — |
| — |
| | | 30,584 |
|
| Intercompany liabilities subject to compromise | 3,487,099 |
| | — |
| — |
| | | 3,487,098 |
|
| Total liabilities subject to compromise | 3,517,683 |
| | — |
| — |
| | | 3,517,682 |
|
| Total stockholders’ (deficit) equity | (1,964,764 | ) | | 355,387 |
| |
| Total liabilities and stockholders’ (deficit) equity | $ | 1,554,548 |
| | $ | 3,800,766 |
| |
| Total stockholders’ equity (deficit) | | 1,550,815 |
| | | (1,964,764 | ) |
| Total liabilities and stockholders’ equity (deficit) | | $ | 4,855,085 |
| | | $ | 1,615,444 |
|
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NII HOLDINGS, INC. CONDENSED STATEMENTS OF COMPREHENSIVE LOSS (PARENT COMPANY ONLY) (in thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 |
| Operating revenues | $ | — |
| | $ | — |
| | $ | — |
|
| Operating expenses | | | | | |
| Selling, general and administrative | 2,145 |
| | 3,136 |
| | 3,180 |
|
| | 2,145 |
| | 3,136 |
| | 3,180 |
|
| Operating loss | (2,145 | ) | | (3,136 | ) | | (3,180 | ) |
| Other (expense) income | |
| | |
| | |
|
| Interest expense, net | (570 | ) | | (562 | ) | | (23,646 | ) |
| Intercompany interest expense | (165,324 | ) | | (234,799 | ) | | (215,501 | ) |
| Interest income | 280 |
| | 913 |
| | 15,292 |
|
| Intercompany interest income | 411 |
| | 1,340 |
| | 1 |
|
| Equity in loss of affiliates | (1,805,438 | ) | | (1,473,856 | ) | | (639,902 | ) |
| Other income, net | 8,212 |
| | 36,017 |
| | 86,324 |
|
| | (1,962,429 | ) | | (1,670,947 | ) | | (777,432 | ) |
| Loss before reorganization items and income tax benefit | (1,964,574 | ) | | (1,674,083 | ) | | (780,612 | ) |
| Reorganization items | (291 | ) | | — |
| | — |
|
| Income tax benefit | 7,167 |
| | 24,484 |
| | 15,363 |
|
| Net loss | $ | (1,957,698 | ) | | $ | (1,649,599 | ) | | $ | (765,249 | ) |
| | | | | | |
| Comprehensive loss, net of income taxes | | | | | |
| Foreign currency translation adjustment | $ | (340,847 | ) | | $ | (334,893 | ) | | $ | (97,589 | ) |
| Reclassification adjustment for sale of Nextel Chile | (33,885 | ) | | — |
| | — |
|
| Other | (544 | ) | | 2,257 |
| | (1,802 | ) |
| Other comprehensive loss | (375,276 | ) | | (332,636 | ) | | (99,391 | ) |
| Net loss | (1,957,698 | ) | | (1,649,599 | ) | | (765,249 | ) |
| Total comprehensive loss | $ | (2,332,974 | ) | | $ | (1,982,235 | ) | | $ | (864,640 | ) |
NII HOLDINGS, INC. CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (PARENT COMPANY ONLY) (in thousands)
|
| | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2015 | | | 2015 | | 2014 | | 2013 |
| Operating revenues | $ | — |
| | | $ | — |
| | $ | — |
| | $ | — |
|
| Operating expenses | | | | | | | | |
| Selling, general and administrative | — |
| | | 429 |
| | 2,145 |
| | 3,136 |
|
| Depreciation and amortization | 744 |
| | | — |
| | — |
| | — |
|
| | 744 |
| | | 429 |
| | 2,145 |
| | 3,136 |
|
| Operating loss | (744 | ) | | | (429 | ) | | (2,145 | ) | | (3,136 | ) |
| Other (expense) income | |
| | | |
| | |
| | |
|
| Interest expense, net | — |
| | | (119 | ) | | (570 | ) | | (562 | ) |
| Intercompany interest expense | (118,365 | ) | | | (159,117 | ) | | (165,324 | ) | | (234,799 | ) |
| Interest income | — |
| | | 37 |
| | 691 |
| | 913 |
|
| Intercompany interest income | 97 |
| | | 125 |
| | — |
| | 1,340 |
|
| Equity in (loss) income of affiliates | (160,444 | ) | | | 1,793,151 |
| | (1,805,438 | ) | | (1,473,856 | ) |
| Other (expense) income, net | (3 | ) | | | 995 |
| | 8,212 |
| | 36,017 |
|
| | (278,715 | ) | | | 1,635,072 |
| | (1,962,429 | ) | | (1,670,947 | ) |
(Loss) income before reorganization items and income tax benefit | (279,459 | ) | | | 1,634,643 |
| | (1,964,574 | ) | | (1,674,083 | ) |
| Reorganization items | (373 | ) | | | 68,355 |
| | (291 | ) | | — |
|
| Income tax (provision) benefit | (448 | ) | | | (1,002 | ) | | 7,167 |
| | 24,484 |
|
| Net (loss) income from continuing operations | $ | (280,280 | ) | | | $ | 1,701,996 |
| | $ | (1,957,698 | ) | | $ | (1,649,599 | ) |
Income from discontinued operations, net of income taxes | 6,277 |
| | | 38,519 |
| | — |
| | — |
|
| Net (loss) income | $ | (274,003 | ) | | | $ | 1,740,515 |
| | $ | (1,957,698 | ) | | $ | (1,649,599 | ) |
| |
|
| | | | | | | |
Comprehensive (loss) income, net of income taxes |
|
| | |
|
| |
|
| |
|
|
| Foreign currency translation adjustment | $ | (248,841 | ) | | | $ | (205,899 | ) | | $ | (340,847 | ) | | $ | (334,893 | ) |
| Reclassification adjustment for sale of Nextel Argentina, Nextel Chile and Nextel Mexico | (1,672 | ) | | | 421,953 |
| | (33,885 | ) | | — |
|
| Other | 4,734 |
| | | 2,956 |
| | (544 | ) | | 2,257 |
|
| Other comprehensive (loss) income | (245,779 | ) | | | 219,010 |
| | (375,276 | ) | | (332,636 | ) |
| Net (loss) income | (274,003 | ) | | | 1,740,515 |
| | (1,957,698 | ) | | (1,649,599 | ) |
| Total comprehensive (loss) income | $ | (519,782 | ) | | | $ | 1,959,525 |
| | $ | (2,332,974 | ) | | $ | (1,982,235 | ) |
| |
|
| | | | | | | |
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NII HOLDINGS, INC. CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) (in thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2014 | | 2013 | | 2012 |
| Cash flows from operating activities: | |
| | | | |
|
| Net loss | $ | (1,957,698 | ) | | $ | (1,649,599 | ) | | $ | (765,249 | ) |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities | 1,861,773 |
| | 1,477,932 |
| | 768,542 |
|
| Net cash (used in) provided by operating activities | (95,925 | ) | | (171,667 | ) | | 3,293 |
|
| Cash flows from investing activities: | |
| | |
| | |
|
| Proceeds from sales of long-term and short-term investments | — |
| | — |
| | 224,330 |
|
| Changes in restricted cash and escrow accounts | 25,300 |
| | (15,050 | ) | | — |
|
| Investments in subsidiaries | (180,712 | ) | | (191,526 | ) | | (318,949 | ) |
| Other, net | 1,856 |
| | 545 |
| | — |
|
| Net cash used in investing activities | (153,556 | ) | | (206,031 | ) | | (94,619 | ) |
| Cash flows from financing activities: | |
| | |
| | |
|
| Purchases of convertible notes | — |
| | — |
| | (212,782 | ) |
| Other, net | (86 | ) | | (1,010 | ) | | (3,228 | ) |
| Net cash used in financing activities | (86 | ) | | (1,010 | ) | | (216,010 | ) |
| Net decrease in cash and cash equivalents | (249,567 | ) | | (378,708 | ) | | (307,336 | ) |
| Cash and cash equivalents, beginning of year | 356,314 |
| | 735,022 |
| | 1,042,358 |
|
| Cash and cash equivalents, end of year | $ | 106,747 |
| | $ | 356,314 |
| | $ | 735,022 |
|
NII HOLDINGS, INC. CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) (in thousands)
|
| | | | | | | | | | | | | | | | |
| | Successor Company | | | Predecessor Company |
| | Six Months Ended December 31, | | | Six Months Ended June 30, | | Year Ended December 31, |
| | 2015 | | | 2015 | | 2014 | | 2013 |
| Cash flows from operating activities: | | | | |
| | | | |
|
| Net (loss) income | $ | (274,003 | ) | | | $ | 1,740,515 |
| | $ | (1,957,698 | ) | | $ | (1,649,599 | ) |
| Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities | 274,030 |
| | | (1,735,521 | ) | | 1,861,773 |
| | 1,477,932 |
|
Net cash provided by (used in) operating activities | 27 |
| | | 4,994 |
| | (95,925 | ) | | (171,667 | ) |
| Cash flows from investing activities: | | | | |
| | |
| | |
|
| Changes in restricted cash and escrow accounts | — |
| | | — |
| | 25,300 |
| | (15,050 | ) |
| Investments in subsidiaries | (29,690 | ) | | | (61,405 | ) | | (180,712 | ) | | (191,526 | ) |
| Return of investments in subsidiaries | 35,315 |
| | | 23 |
| | — |
| | — |
|
| Other, net | — |
| | | — |
| | 1,856 |
| | 545 |
|
Net cash provided by (used in) investing activities | 5,625 |
| | | (61,382 | ) | | (153,556 | ) | | (206,031 | ) |
| Cash flows from financing activities: | | | | |
| | |
| | |
|
| Other, net | — |
| | | — |
| | (86 | ) | | (1,010 | ) |
| Net cash used in financing activities | — |
| | | — |
| | (86 | ) | | (1,010 | ) |
| Net increase (decrease) in cash and cash equivalents | 5,652 |
| | | (56,388 | ) | | (249,567 | ) | | (378,708 | ) |
| Cash and cash equivalents, beginning of period | 50,359 |
| | | 106,747 |
| | 356,314 |
| | 735,022 |
|
| Cash and cash equivalents, end of period | $ | 56,011 |
| | | $ | 50,359 |
| | $ | 106,747 |
| | $ | 356,314 |
|
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
SCHEDULE I — NOTES TO CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
1. Basis of Presentation
NII Holdings, Inc., or NII Holdings, our parent company, is a holding company that conducts substantially all of its business operations through its operating subsidiaries.Nextel Brazil. See Note 1 to our consolidated financial statements for more information. As specified in the indenture surrounding our NIIT senior notes and in certain of our operating companies'Nextel Brazil's local financing agreements, there are restrictions on the parent company's ability to obtain funds from certain of its subsidiaries through dividends, loans or advances. Substantially all of the consolidated net assets of NII Holdings and its subsidiaries are restricted. See Note 9 to our consolidated financial statements for more information. These condensed financial statements have been presented on a "parent company only" basis. In accordance with this parent company only presentation, we have presented our parent company's investments in consolidated subsidiaries under the equity method. These condensed parent company only financial statements should be read in conjunction with our consolidated financial statements included elsewhere herein.
2. Dividends From Subsidiaries
NII Holdings' consolidated subsidiaries did not declare any dividends to the parent company during the six months ended December 31, 2015, the six months ended June 30, 2015 or the year ended December 31, 2014. For the yearsyear ended December 31, 2013, and 2012, NII Holdings' consolidated subsidiaries declared and paid $49.9 million and $151.2 million, respectively, in cash dividends to the parent company.
F-45
NII HOLDINGS, INC. (DEBTOR-IN-POSSESSION) AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
| | | | Balance at Beginning of Period | | Charged to Costs and Expenses | | Deductions and Other Adjustments (1) | | Balance at End of Period | Balance at Beginning of Period | | Charged to Costs and Expenses | | Deductions and Other Adjustments (1) | | Balance at End of Period |
| Year Ended December 31, 2014 | |
| | |
| | |
| | |
| |
Six Months Ended December 31, 2015 — Successor Company | | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts | $ | 54,531 |
| | $ | 114,784 |
| | $ | (114,300 | ) | | $ | 55,015 |
| $ | — |
| | $ | 32,279 |
| | $ | 6,754 |
| (2) | $ | 39,033 |
|
| Valuation allowance for deferred tax assets | $ | 4,335,913 |
| | $ | 610,467 |
| | $ | (77,876 | ) | | $ | 4,868,504 |
| $ | 4,388,792 |
| | $ | 1,233,012 |
| | $ | (108,417 | ) | | $ | 5,513,387 |
|
| Year Ended December 31, 2013 | |
| | |
| | |
| | |
| |
Six Months Ended June 30, 2015 — Predecessor Company | | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts | $ | 104,897 |
| | $ | 111,460 |
| | $ | (161,826 | ) | | $ | 54,531 |
| $ | 30,749 |
| | $ | 65,396 |
| | $ | (96,145 | ) | (3) | $ | — |
|
| Valuation allowance for deferred tax assets | $ | 330,739 |
| | $ | 4,052,410 |
| | $ | (47,236 | ) | | $ | 4,335,913 |
| $ | 4,447,133 |
| | $ | 22,828 |
| | $ | (81,169 | ) | | $ | 4,388,792 |
|
| Year Ended December 31, 2012 | |
| | |
| | |
| | |
| |
Year Ended December 31, 2014 — Predecessor Company | | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts | $ | 62,030 |
| | $ | 214,454 |
| | $ | (171,587 | ) | | $ | 104,897 |
| $ | 35,458 |
| | $ | 57,418 |
| | $ | (62,127 | ) | | $ | 30,749 |
|
| Valuation allowance for deferred tax assets | $ | 180,545 |
| | $ | 151,286 |
| | $ | (1,092 | ) | | $ | 330,739 |
| $ | 4,145,002 |
| | $ | 340,425 |
| | $ | (38,294 | ) | | $ | 4,447,133 |
|
Year Ended December 31, 2013 — Predecessor Company | | |
| | |
| | |
| | |
|
| Allowance for doubtful accounts | | $ | 88,854 |
| | $ | 77,528 |
| | $ | (130,924 | ) | | $ | 35,458 |
|
| Valuation allowance for deferred tax assets | | $ | 329,930 |
| | $ | 3,861,615 |
| | $ | (46,543 | ) | | $ | 4,145,002 |
|
| |
| (1) | Includes the impact of foreign currency translation adjustments. |
| |
| (2) | Includes the impact of cash collections subsequent to the implementation of fresh start accounting. |
| |
| (3) | Includes the impact of a $50.6 million reduction to allowance for doubtful accounts resulting from the application of fresh start accounting. |
EXHIBIT INDEX
For periods before December 21, 2001, references to NII Holdings refer to Nextel International, Inc. the former name of NII Holdings. All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by NII Holdings, file number 0-32421, unless otherwise indicated.
|
| | | | | | | | | | |
| Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Incorporated by
Reference Filing Date | | Filed Herewith |
| 3.1 | | Amended and Restated Certificate of Incorporation of NII Holdings | | 8-K | | 3.1 | | 05/23/13 | | |
| 3.2 | | Fourth Amended and Restated Bylaws of NII Holdings | | 8-K | | 3.2 | | 05/23/13 | | |
| 4.1 | | Indenture governing our 10% senior notes due 2016, dated as of August 18, 2009, by and between NII Holdings and Wilmington Trust Company, as Indenture Trustee | | 8-K | | 4.1 | | 08/18/09 | | |
| 4.2 | | Indenture governing our 8.875% senior notes due 2019, dated as of December 15, 2009, by and between NII Holdings and Wilmington Trust Company, as Indenture Trustee | | 8-K | | 4.1 | | 12/15/09 | | |
| 4.3 | | Indenture governing our 7.625% senior notes due 2021, dated as of March 29, 2011, by and between NII Holdings and Wilmington Trust Company, as Indenture Trustee | | 8-K | | 4.1 | | 03/29/11 | | |
| 4.4 | | First Supplemental Indenture to the Indenture governing our 7.625% senior notes due 2021, dated as of December 8, 2011, by and between NII Holdings and Wilmington Trust Company, as Indenture Trustee | | 8-K | | 4.2 | | 12/08/11 | | |
| 4.5 | | Indenture governing our 11.375% senior notes due 2019, dated as of February 19, 2013, by and between NII International Telecom S.C.A., NII Holdings, Inc. and Wilmington Trust National Association, as Indenture Trustee | | 8-K | | 4.1 | | 02/19/13 | | |
| 4.6 | | Registration Rights Agreement related to our 11.375% senior notes due 2019, dated as of February 19, 2013, among NII International Telecom S.C.A., NII Holdings, Inc. and the initial purchasers | | 8-K | | 4.2 | | 02/19/13 | | |
| 4.7 | | First Supplemental Indenture governing our 11.375% senior notes due 2019, dated April 15, 2013, among NII International Telecom, S.C.A., NII Holdings, Inc. and Wilmington Trust National Association, as Indenture Trustee | | 8-K | | 4.2 | | 04/15/13 | | |
| 4.8 | | Registration Rights Agreement related to our 11.375% senior notes due 2019, dated April 15, 2013, among NII International Telecom, S.C.A., NII Holdings, Inc. and J.P. Morgan Securities LLC | | 8-K | | 4.3 | | 04/15/13 | | |
| 4.9 | | Indenture governing our 7.875% senior notes due 2019, dated May 23, 2013, among NII International Telecom, S.C.A., NII Holdings, Inc. and Wilmington Trust National Association, as Indenture Trustee | | 8-K | | 4.1 | | 05/23/13 | | |
| 4.10 | | Registration Rights Agreement related to our 7.875% senior notes due 2019, dated May 23, 2013, among NII International Telecom S.C.A., NII Holdings, Inc. and the initial purchasers named therein | | 8-K | | 4.2 | | 05/23/13 | | |
| 10.1 | | Subscriber Unit Purchase Agreement, dated as of January 1, 2005, by and between NII Holdings and Motorola, Inc. (portions of this exhibit have been omitted pursuant to a request for confidential treatment) | | 10-K | | 10.1 | | 03/22/06 | | |
| 10.2 | | Amendment Number Three to the Subscriber Unit Purchase Agreement, dated September 28, 2006, by and between NII Holdings and Motorola, Inc. (portions of this exhibit have been omitted pursuant to a request for confidential treatment) | | 10-Q | | 10.1 | | 11/06/06 | | |
| 10.3 | | Form of iDEN Infrastructure Installation Services Agreement, effective June 30, 2000, by and between NII Holdings, Motorola, Inc. and each of Nextel, Telecomunicações Ltda., Nextel Argentina S.R.L., Nextel de Mexico, S.A. de C.V., Nextel del Peru, S.A. and Nextel Communications Philippines, Inc. | | 8-K | | 10.1 | | 12/22/00 | | |
|
| | | | | | | | | | |
| Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Incorporated by
Reference Filing Date | | Filed Herewith |
| 2.1 | | First Amended Joint Plan of Reorganization Proposed by the Debtors and Debtors in Possession and the Official Committee of Unsecured Creditors | | 8-K | | 2.1 | | 6/22/2015 | | |
| 3.1 | | Amended and Restated Certificate of Incorporation of NII Holdings. | | S-8 | | 3.1 | | 06/26/15 | | |
| 3.2 | | Fifth Amended and Restated Bylaws of NII Holdings. | | S-8 | | 3.2 | | 06/26/15 | | |
| 4.1 | | Registration Rights Agreement, dated June 26, 2015, by and among NII Holdings and the stockholders party thereto. | | 8-K | | 10.1 | | 06/30/15 | | |
| 10.1 | | Fourth Amended and Restated Trademark License Agreement, dated July 27, 2011, between Nextel Communications, Inc. and NII Holdings. | | 10-Q | | 10.1 | | 11/08/11 | | |
| 10.2 | | Amendment No. 3 to Fourth Amended and Restated Trademark License Agreement with Nextel Communications, Inc. and NII Holdings, dated June 1, 2015. | | | | | | | | * |
| 10.3 | | Stock Purchase Agreement by and among Entel Inversiones, S.A., Empresa Nacional de Telecomunicaciones S.A., NII Mercosur Telecom, S.L., NII Mercosur Moviles, S.L. and NII Holdings, dated April 4, 2013. | | 8-K | | 10.1 | | 04/04/13 | | |
| 10.4 | | Purchase and Sale Agreement, dated as of January 26, 2015, between New Cingular Wireless Services, Inc., NIHD Telecom Holdings, B.V., NIU Holdings LLC, Comunicaciones de Mexico S.A. de C.V., Nextel International (Uruguay) LLC, NII International Telecom S.C.A., NII International Holdings S.à r.l., NII Global Holdings, Inc., NII Capital Corp. and NII Holdings. | | 8-K | | 10.1 | | 01/26/15 | | |
| 10.5 | | Binding Offer #2015/075/NXT and Call Option delivered by Grupo Clarin S.A. to NII Mercosur Telecom, S.L.U. and NII Mercosur Moviles, S.L.U., including acceptances from NII Mercosur Telecom, S.L.U., NII Mercosur Moviles, S.L.U. and NII Holdings, dated September 11, 2015. | | 10-Q | | 10.1 | | 11/05/15 | | |
| 10.6 | | Offer letter dated October 9, 2015 delivered by NII Mercosur Telecom S.L.U. and NII Mercosur Móviles S.L.U. to Cablevisión S.A., Televisión Dirigida S.A., Grupo Clarín S.A. and NII Holdings, Inc. to amend the Binding Offer #2015/075/NXT, including acceptance letters from Cablevisión S.A., Televisión Dirigida S.A., Grupo Clarín S.A. and NII Holdings, Inc. | | | | | | | | * |
| 10.7 | | Offer letter dated January 27, 2016 delivered by NII Mercosur Telecom S.L.U. and NII Mercosur Móviles S.L.U. to Cablevisión S.A., Televisión Dirigida S.A., Grupo Clarín S.A. and NII Holdings, Inc. to amend the Binding Offer #2015/075/NXT, including acceptance letters from Cablevisión S.A., Televisión Dirigida S.A., Grupo Clarín S.A. and NII Holdings, Inc. | | | | | | | | * |
| 10.8 | | Credit Agreement, dated April 20, 2012, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Non-Sinosure). | | 10-K | | 99.3 | | 02/28/14 | | |
| 10.9 | | Credit Agreement, dated April 20, 2012, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Sinosure). | | 10-K | | 99.4 | | 02/28/14 | | |
| 10.10 | | Amendment No. 1 to the Credit Agreement, dated September 25, 2013, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Non-Sinosure). | | 10-K/A | | 99.9 | | 02/28/14 | | |
|
| | | | | | | | | | |
| 10.4 | | Form of iDEN Infrastructure Equipment Supply Agreement, effective June 30, 2000, by and between NII Holdings, Motorola, Inc. and each of Nextel Telecomunicações Ltda., Nextel Argentina S.R.L., Nextel de Mexico, S.A. de C.V., Nextel del Peru, S.A. and Nextel Communications Philippines, Inc. | | 8-K | | 10.2 | | 12/22/00 | | |
| 10.5 | | Amendment 003 to iDEN Infrastructure Equipment Supply Agreement, dated December 7, 2001, between NII Holdings, Motorola, Inc., Nextel Communications Argentina, S.A., Nextel Telecomunicações Ltda., Comunicaciones Nextel de Mexico, S.A. de C.V., Nextel del Peru S.A. and Nextel Communications Philippines, Inc. | | 10-K | | 10.48 | | 03/29/02 | | |
| 10.6 | | Form of Amendment 007A to the iDEN Infrastructure Equipment Supply Agreement, dated September 28, 2006, between NII Holdings, Motorola, Inc. and each of Nextel Communications Argentina, S.A., Nextel Telecomunicações Ltda., Centennial Cayman Corp. Chile, S.A., Comunicaciones Nextel de Mexico, S.A. de C.V. and Nextel del Peru, S.A. (portions of this exhibit have been omitted pursuant to a request for confidential treatment) | | 10-Q | | 10.2 | | 11/06/06 | | |
| 10.7 | | Fourth Amended and Restated Trademark License Agreement, dated July 27, 2011, between Nextel Communications, Inc. and NII Holdings | | 10-Q | | 10.1 | | 11/08/11 | | |
| 10.8 | | Spectrum Use and Build Out Agreement, dated as of November 12, 2002 | | 10-K | | 10.2 | | 03/27/03 | | |
| 10.9 | | Stock Purchase Agreement by and among Entel Inversiones, S.A., Empresa Nacional de Telecomunicaciones S.A., NII Mercosur Telecom, S.L., NII Mercosur Moviles, S.L. and NII Holdings, Inc., dated as of April 4, 2013 | | 8-K | | 10.1 | | 04/04/13 | | |
| 10.10(+) | | Form of NII Holdings Change of Control Severance Plan | | 10-K | | 10.9 | | 02/28/13 | | |
| 10.11(+) | | 2012 Incentive Compensation Plan | | Def 14A | | A | | 03/30/12 | | |
| 10.12(+) | | Form of Executive Officer Restricted Stock Award Agreement | | 10-K | | 10.11 | | 02/28/13 | | |
| 10.13(+) | | Form of Executive Officer Nonqualified Stock Option Agreement | | 10-K | | 10.12 | | 02/28/13 | | |
| 10.14(+) | | Form of Executive Officer Performance Share Unit Agreement | | 8-K | | 10.2 | | 05/02/13 | | |
| 10.15(+) | | Form of Non-Employee Director Restricted Stock Award Agreement | | 10-K | | 10.13 | | 02/28/13 | | |
| 10.16(+) | | Form of Non-Employee Director Nonqualified Stock Option Agreement | | 8-K | | 10.4 | | 05/02/06 | | |
| 10.17(+) | | Severance Plan | | 10-K | | 10.16 | | 02/28/13 | | |
| 10.18(+) | | Offer Letter for Steven M. Shindler, dated April 30, 2013 | | 8-K | | 10.1 | | 05/02/13 | | |
| 10.19(+) | | Offer Letter for Peter A. Foyo, dated December 16, 2013 | | 8-K | | 10.1 | | 12/19/13 | | |
| 10.20(+) | | International Assignment Agreement between NII Holdings, Inc. and Gokul Hemmady | | 8-K | | 10.1 | | 07/12/13 | | |
| 10.21 | | Form of Director and Executive Officer Indemnification Agreement | | 10-K | | 10.2 | | 02/28/14 | | |
| 10.22(+) | | Employment Agreement between Comunicaciones Nextel de Mexico, S.A. de C.V. and Salvador Alvarez Valdes, dated as of July 3, 2014. | | | | | | | | * |
| 10.23(+) | | Amendment No. 1 to the Employment Agreement, dated February 23, 2015, between Comunicaciones Nextel de Mexico, S.A. de C.V. and Salvador Alvarez Valdes. | | | | | | | | * |
| 10.24 | | Purchase and Sale Agreement, dated as of January 26, 2015, between New Cingular Wireless Services, Inc., NIHD Telecom Holdings, B.V., NIU Holdings LLC, Nextel International (Uruguay) LLC, NII International Telecom S.C.A., NII International Holdings S.à r.l., NII Global Holdings, Inc., NII Capital Corp. and NII Holdings, Inc. | | 8-K | | 2.1 | | 01/26/15 | | |
|
| | | | | | | | | | |
| 10.11 | | Amendment No. 1 to the Credit Agreement, dated September 25, 2013, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Sinosure). | | 10-K/A | | 99.10 | | 02/28/14 | | |
| 10.12 | | Amendment No. 2 to the Credit Agreement, dated December 5, 2014, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Non-Sinosure). | | 10-K | | 99.13 | | 03/10/15 | | |
| 10.13 | | Amendment No. 2 to the Credit Agreement, dated December 5, 2014, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Sinosure). | | 10-K | | 99.14 | | 03/10/15 | | |
| 10.14 | | Parent Guaranty, dated April 20, 2012, between NII Holdings, as Parent Guarantor, and China Development Bank Corporation, as Administrative Agent under the Sinosure Credit Agreement and Non-Sinosure Credit Agreement. | | | | | | | | * |
| 10.15 | | Amendment to Parent Guaranty, dated December 5, 2014, between NII Holdings, as Parent Guarantor, and China Development Bank Corporation, as Administrative Agent under the Sinosure Credit Agreement and Non-Sinosure Credit Agreement. | | 8-K | | 10.10 | | 06/30/15 | | |
| 10.16 | | Shareholder Undertaking Agreement, dated April 20, 2012, between NII Holdings, as Parent Guarantor, and China Development Bank Corporation (as Sinosure Administrative Agent and Non-Sinosure Administrative Agent). | | | | | | | | * |
| 10.17 | | Bank Credit Certificate, dated November 8, 2011, between Nextel Telecomunicações Ltda., and Caixa Econômica Federal. | | 10-K | | 99.5 | | 02/28/14 | | |
| 10.18 | | Amendment No. 1 to Bank Credit Certificate, dated February 13, 2015, between Nextel Telecomunicações Ltda. and Caixa Econômica Federal. | | 8-K | | 10.6 | | 06/30/15 | | |
| 10.19 | | Amendment No. 2 to Bank Credit Certificate, dated January 25, 2015, between Nextel Telecomunicações Ltda. and Caixa Economica Federal. | | 8-K | | 10.7 | | 06/30/15 | | |
| 10.20 | | Bank Credit Certificate, dated December 31, 2012, between Nextel Telecomunicações Ltda. and Banco do Brasil, S.A. | | 10-K | | 99.6 | | 02/28/14 | | |
| 10.21 | | Amendment No. 1 to Bank Credit Certificate, dated February 13, 2015, between Nextel Telecomunicações Ltda. and Banco do Brasil, S.A. | | 8-K | | 10.8 | | 06/30/15 | | |
| 10.22 | | Amendment No. 2 to Bank Credit Certificate, dated June 25, 2015, between Nextel Telecomunicações Ltda., and Banco do Brasil, S.A. | | 8-K | | 10.9 | | 06/30/15 | | |
| 10.23(+) | | NII Holdings Severance Plan. | | 10-K | | 10.16 | | 02/28/13 | | |
| 10.24(+) | | NII Holdings Change of Control Severance Plan. | | 8-K | | 10.2 | | 12/22/15 | | |
| 10.25(+) | | NII Holdings 2015 Incentive Compensation Plan. | | S-8 | | 4.1 | | 06/26/15 | | |
| 10.26(+) | | Form of Restricted Stock Award Agreement (Employees). | | 8-K | | 10.3 | | 06/30/15 | | |
| 10.27(+) | | Form of Nonqualified Stock Option Agreement (Employees). | | 8-K | | 10.4 | | 06/30/15 | | |
| 10.28(+) | | Form of Restricted Stock Award Agreement (Directors). | | 10-Q | | 10.4 | | 11/05/15 | | |
| 10.29(+) | | Form of Separation and Release Agreement for Certain Executives. | | 8-K | | 10.1 | | 12/22/15 | | |
| 10.30(+) | | Offer Letter for Steven M. Shindler, dated April 30, 2013. | | 8-K | | 10.1 | | 05/02/13 | | |
| 10.31(+) | | International Assignment Agreement between NII Holdings and Gokul Hemmady. | | 8-K | | 10.1 | | 07/12/13 | | |
| 10.32(+) | | Form of Director and Executive Officer Indemnification Agreement. | | | | | | | | * |
| 10.33(+) | | Separation and Release Agreement between NII Holdings and Juan Figuereo, dated June 30, 2015. | | 10-Q | | 10.12 | | 08/07/15 | | |
| 10.34(+) | | Separation and Release Agreement between NII Holdings and Gokul Hemmady, dated August 20, 2015. | | 10-Q | | 10.5 | | 11/05/15 | | |
| 10.35(+) | | Second Separation and Release Agreement between NII Holdings and Gokul Hemmady, dated August 20, 2015. | | 10-Q | | 10.6 | | 11/05/15 | | |
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| 10.25 | | Plan Support Agreement, dated March 5, 2015, by and among NII Holdings, Inc., NII Capital Corp., NII Funding Corp., NII Aviation, Inc., Nextel International (Services), Ltd., NII Global Holdings, Inc., NII International Holdings S.a.r.l., NII International Telecom S.C.A., NII Mercosur, LLC, McCaw International (Brazil), LLC, Airfone Holdings, LLC, and NIU Holdings LLC, entities managed by Aurelius Capital Management, LP, entities managed by Capital Research and Management Company, members of the Ad Hoc Committee of Luxco Holders, and the Official Committee of Unsecured Creditors of NII Holdings, Inc., et al. | | 8-K | | 10.1 | | 03/06/15 | | |
| 12.1 | | Computation of Ratio of Earnings to Fixed Charges | | | | | | | | * |
| 16.1 | | PricewaterhouseCoopers LLP Letter of Concurrence, dated March 4, 2014 | | 8-K | | 16.1 | | 03/05/14 | | |
| 21.1 | | Subsidiaries of NII Holdings | | | | | | | | * |
| 23.1 | | Consent of KPMG LLP | | | | | | | | * |
| 23.2 | | Consent of PricewaterhouseCoopers LLP | | | | | | | | * |
| 31.1 | | Statement of Chief Executive Officer Pursuant to Rule 13a-14(a) | | | | | | | | * |
| 31.2 | | Statement of Chief Financial Officer Pursuant to Rule 13a-14(a) | | | | | | | | * |
| 32.1 | | Statement of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 | | | | | | | | * |
| 32.2 | | Statement of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 | | | | | | | | * |
| 99.1 | | Credit Agreement, dated July 12, 2011, among Comunicaciones Nextel de Mexico, S.A. de C.V., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Non-Sinosure) | | 10-K | | 99.1 | | 02/28/14 | | |
| 99.2 | | Credit Agreement, dated July 12, 2011, among Comunicaciones Nextel de Mexico, S.A. de C.V., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Sinosure) | | 10-K | | 99.2 | | 02/28/14 | | |
| 99.3 | | Credit Agreement, dated April 20, 2012, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Non-Sinosure) | | 10-K | | 99.3 | | 02/28/14 | | |
| 99.4 | | Credit Agreement, dated April 20, 2012, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Sinosure) | | 10-K | | 99.4 | | 02/28/14 | | |
| 99.5 | | Bank Credit Certificate, dated November 8, 2011, between Nextel Telecomunicações Ltda., and Caixa Econômica Federal | | 10-K | | 99.5 | | 02/28/14 | | |
| 99.6 | | Bank Credit Certificate, dated October 31, 2012, between Nextel Telecomunicações Ltda., and Banco do Brasil, S.A. | | 10-K | | 99.6 | | 02/28/14 | | |
| 99.7 | | Amendment No. 1 to the Credit Agreement, dated September 25, 2013, among Comunicaciones Nextel de Mexico, S.A. de C.V., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Non-Sinosure) | | 10-K/A | | 99.7 | | 02/28/14 | | |
| 99.8 | | Amendment No. 1 to the Credit Agreement, dated September 25, 2013, among Comunicaciones Nextel de Mexico, S.A. de C.V., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Sinosure) | | 10-K/A | | 99.8 | | 02/28/14 | | |
| 99.9 | | Amendment No. 1 to the Credit Agreement, dated September 25, 2013, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Non-Sinosure) | | 10-K/A | | 99.9 | | 02/28/14 | | |
| 99.10 | | Amendment No. 1 to the Credit Agreement, dated September 25, 2013, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Sinosure) | | 10-K/A | | 99.10 | | 02/28/14 | | |
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99.11 | | Amendment No. 2 to the Credit Agreement, dated December 5, 2014, among Comunicaciones Nextel de Mexico, S.A. de C.V., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Non-Sinosure) | | | | | | | | * |
99.12 | | Amendment No. 2 to the Credit Agreement, dated December 5, 2014, among Comunicaciones Nextel de Mexico, S.A. de C.V., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Sinosure) | | | | | | | | * |
99.13 | | Amendment No. 2 to the Credit Agreement, dated December 5, 2014, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Non-Sinosure) | | | | | | | | * |
99.14 | | Amendment No. 2 to the Credit Agreement, dated December 5, 2014, among Nextel Telecomunicações Ltda., the Guarantors and China Development Bank Corporation, as Lender, Administrative Agent and Arranger (Sinosure) | | | | | | | | * |
99.15 | | Amendment No. 1 to Bank Credit Certificate, dated February 13, 2015, between Nextel Telecomunicações Ltda. and Caixa Econômica Federal | | | | | | | | * |
99.16 | | Amendment No. 1 to Bank Credit Certificate, dated February 13, 2015, between Nextel Telecomunicações Ltda. and Banco do Brasil, S.A. | | | | | | | | * |
99.17 | | Mutual Standstill Agreement, dated February 13, 2015, between Nextel Telecomunicações Ltda., Nextel Telecomunicações S.A., Caixa Econômica Federal and Banco do Brasil, S.A. | | | | | | | | * |
101 | | The following materials from the NII Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2014 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Loss, (iii) Consolidated Statements of Changes in Stockholders’ (Deficit) Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements | | | | | | | | * |
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| 10.36(+) | | Brazilian Legal Severance for Gokul Hemmady paid by Nextel Telecomunicações Ltda. | | | | | | | | * |
| 10.37(+) | | Employment Agreement between Nextel Telecomunicações Ltda. and Francisco Tosta Valim Filho, dated August 25, 2015. | | | | | | | | * |
| 16.1 | | PricewaterhouseCoopers LLP Letter of Concurrence, dated March 4, 2014. | | 8-K | | 16.1 | | 03/05/14 | | |
| 21.1 | | Subsidiaries of NII Holdings. | | | | | | | | * |
| 23.1 | | Consent of KPMG LLP. | | | | | | | | * |
| 23.2 | �� | Consent of PricewaterhouseCoopers LLP. | | | | | | | | * |
| 31.1 | | Statement of Chief Executive Officer Pursuant to Rule 13a-14(a). | | | | | | | | * |
| 31.2 | | Statement of Chief Financial Officer Pursuant to Rule 13a-14(a). | | | | | | | | * |
| 32.1 | | Statement of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. | | | | | | | | * |
| 32.2 | | Statement of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. | | | | | | | | * |
| 101 | | The following materials from the NII Holdings, Inc. Annual Report on Form 10-K for the year ended December 31, 2015 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive (Loss) Income, (iii) Consolidated Statements of Changes in Stockholders’ Equity (Deficit), (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements. | | | | | | | | * |
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| + | Indicates Management Compensatory Plan, Contract or Arrangement. |