UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 2019
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-37488

NII HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



Delaware		91-1671412
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
12110 Sunset Hills Road, Suite 600 Reston, Virginia (Address of principal executive offices)		20190 (Zip Code)

(703) 390-5100

(Registrant's telephone number, including area code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	NIHD	Nasdaq Global Select Market

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 every Interactive Data File required to be submitted 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 such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

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

~~Securities registered pursuant to Section 12(b) of the Act:~~



~~Title of Each Class~~	~~Trading Symbol(s)~~	~~Name of Each Exchange on Which Registered~~
~~Common Stock, par value $0.001 per share~~	~~NIHD~~	~~Nasdaq Global Select Market~~

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.



	Number of Shares Outstanding
Title of Class	on ~~May 6,~~October 30, 2019
Common Stock, $0.001 par value per share	~~101,580,702~~102,835,848

NII HOLDINGS, INC. AND SUBSIDIARES

INDEX



		Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)		3
	Condensed Consolidated Balance Sheets — As of ~~March 31,~~September 30, 2019 and December 31, 2018	3
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss — For the Three and Nine Months Ended ~~March 31,~~September 30, 2019 and 2018	4
	Condensed Consolidated Statements of Changes in Stockholders' Deficit — For the Three and Nine Months Ended ~~March 31,~~September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows — For the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2019 and 2018	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		2317
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3727
Item 4. Controls and Procedures		3828

Part II. Other Information		3929
Item 1. Legal Proceedings		3929
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3929
Item 6. Exhibits		4030

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

NII HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par values) Unaudited	NII HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par values) Unaudited						NII HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par values) Unaudited

	March 31, 2019			December 31, 2018			September 30, 2019			December 31, 2018

ASSETS
Current assets
Cash and cash equivalents	$	94,610		$	142,486		$	29,331		$	93,881
Short-term investments	25,271			32,329
Accounts receivable, net of allowance for doubtful accounts of $24,217 and $19,637	104,585			99,885
Handset and accessory inventory	1,461			1,949
Cash in escrow							103,435			106,089
Prepaid expenses and other	249,628			245,916			3,258			1,435
Assets held for sale							281,950			321,160
Total current assets	475,555			522,565			417,974			522,565
Property, plant and equipment, net	147,377			143,930
Intangible assets, net	158,894			162,156
Operating lease right-of-use assets	359,677			—
Other assets	240,765			231,179			2,136			1,244
Assets held for sale							833,199			536,021
Total assets	$	1,382,268		$	1,059,830		$	1,253,309		$	1,059,830

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable	$	34,506		$	39,147
Accrued expenses and other	288,289			298,990
Operating lease liabilities	48,159			—
Current portion of long-term debt	22,941			21,350
Accounts payable, accrued expenses and other							$	21,083		$	12,772
Liabilities held for sale							348,878			346,715
Total current liabilities	393,895			359,487			369,961			359,487
Long-term debt	622,764			632,857			77,301			72,264
Long-term operating lease liabilities	373,550			—
Other long-term liabilities	192,799			249,055			400			33,977
Liabilities held for sale							1,032,801			775,671
Total liabilities	1,583,008			1,241,399			1,480,463			1,241,399
Commitments and contingencies (Note 9)
Commitments and contingencies (Note 1)
Stockholders’ deficit
Undesignated preferred stock, par value $0.001, 10,000 shares authorized, no shares issued or outstanding	—			—			—			—
Common stock, par value $0.001, 140,000 shares authorized, 101,581 shares issued and outstanding — 2019, 101,323 shares issued and outstanding — 2018	102			101
Common stock, par value $0.001, 140,000 shares authorized, 102,836 shares issued and outstanding — 2019, 101,323 shares issued and outstanding — 2018							103			101
Paid-in capital	2,143,479			2,143,240			2,129,087			2,143,240
Accumulated deficit	(2,245,937		)	(2,236,883		)	(2,287,782		)	(2,236,883		)
Accumulated other comprehensive loss	(7,615		)	(8,435		)
Accumulated other comprehensive income (loss)							4,955			(8,435		)
Total NII Holdings stockholders’ deficit	(109,971		)	(101,977		)	(153,637		)	(101,977		)
Noncontrolling interest	(90,769		)	(79,592		)	(73,517		)	(79,592		)
Total deficit	(200,740		)	(181,569		)	(227,154		)	(181,569		)
Total liabilities and stockholders’ deficit	$	1,382,268		$	1,059,830		$	1,253,309		$	1,059,830

The accompanying notes are an integral part of these condensed consolidated financial statements.

NII HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
Unaudited
Three Months Ended
March 31,
2019 2018
Operating revenues
Service and other revenues $ 146,015
$ 176,200
Handset and accessory revenues 800
5,041
146,815
181,241
Operating expenses

Cost of service (exclusive of depreciation and amortization included below) 61,377
84,507
Cost of handsets and accessories 5,081
9,065
Selling, general and administrative 65,329
90,886
Impairment, restructuring and other charges, net 5,791
2,351
Depreciation 5,043
4,134
Amortization 3,313
3,591
145,934
194,534
Operating income (loss) 881
(13,293 )
Other (expense) income

Interest expense, net (29,322 ) (26,606 )
Interest income 3,769
5,386
Foreign currency transaction losses, net (1,618 ) (1,188 )
Other income (expense), net 28,129
(6,330 )
958
(28,738 )
Income (loss) from continuing operations before income taxes 1,839
(42,031 )
Income taxes —
—
Net income (loss) from continuing operations 1,839
(42,031 )
Loss from discontinued operations, net of income taxes (2,697 ) (121 )
Net loss (858 ) (42,152 )
Net loss attributable to noncontrolling interest (5,763 ) (11,256 )
Net income (loss) attributable to NII Holdings $ 4,905
$ (30,896 )

Net income (loss) from continuing operations per common share, basic and diluted $ 0.02
$ (0.42 )
Net loss from discontinued operations per common share, basic and diluted (0.03 ) —
Net loss per common share, basic and diluted $ (0.01 ) $ (0.42 )

Weighted average number of common shares outstanding, basic 101,390
100,385

Weighted average number of common shares outstanding, diluted 103,235
100,385

Comprehensive income (loss), net of income taxes
  Foreign currency translation adjustment $ 820
$ 1,549
  Other comprehensive income 820
1,549
  Net income (loss) attributable to NII Holdings 4,905
(30,896 )
    Total comprehensive income (loss) $ 5,725
$ (29,347 )

NII HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands, except per share amounts) Unaudited

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Operating expenses
Selling, general and administrative	$	3,834		$	4,080		$	12,785		$	12,230
Restructuring charges, net	139			—			139			352
	3,973			4,080			12,924			12,582
Operating loss	(3,973		)	(4,080		)	(12,924		)	(12,582		)
Other (expense) income
Interest expense	(3,018		)	(1,341		)	(8,744		)	(1,341		)
Other income (expense), net	199			(13,217		)	34,630			(13,041		)
	(2,819		)	(14,558		)	25,886			(14,382		)
(Loss) income from continuing operations before income taxes	(6,792		)	(18,638		)	12,962			(26,964		)
Income taxes	—			—			—			—
Net (loss) income from continuing operations	(6,792		)	(18,638		)	12,962			(26,964		)
Loss from discontinued operations, net of income taxes	(27,693		)	(31,246		)	(65,423		)	(164,360		)
Net loss	(34,485		)	(49,884		)	(52,461		)	(191,324		)
Net loss attributable to noncontrolling interest	(4,581		)	(8,866		)	(13,952		)	(47,965		)
Net loss attributable to NII Holdings	$	(29,904	)	$	(41,018	)	$	(38,509	)	$	(143,359	)

Net (loss) income from continuing operations per common share, basic	$	(0.07	)	$	(0.19	)	$	0.12		$	(0.28	)
Net loss from discontinued operations per common share, basic	(0.27		)	(0.31		)	(0.64		)	(1.63		)
Net loss per common share, basic	$	(0.34	)	$	(0.50	)	$	(0.52	)	$	(1.91	)

Net (loss) income from continuing operations per common share, diluted	$	(0.07	)	$	(0.19	)	$	0.12		$	(0.28	)
Net loss from discontinued operations per common share, diluted	(0.27		)	(0.31		)	(0.64		)	(1.63		)
Net loss per common share, diluted	$	(0.34	)	$	(0.50	)	$	(0.52	)	$	(1.91	)

Weighted average number of common shares outstanding, basic	102,043			100,592			101,689			100,458

Weighted average number of common shares outstanding, diluted	102,043			100,592			102,712			100,458

Comprehensive loss, net of income taxes
Foreign currency translation adjustment	$	15,939		$	7,386		$	13,340		$	45,453
Other comprehensive income	15,939			7,386			13,340			45,453
Net loss attributable to NII Holdings	(29,904		)	(41,018		)	(38,509		)	(143,359		)
Total comprehensive loss	$	(13,965	)	$	(33,632	)	$	(25,169	)	$	(97,906	)

The accompanying notes are an integral part of these condensed consolidated financial statements.


NII HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (in thousands) Unaudited	NII HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (in thousands) Unaudited																									NII HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (in thousands) Unaudited
	Common Stock			Paid-in Capital			Accumulated Deficit				Accumulated Other Comprehensive Loss				Total NII Holdings Stockholders’ Deficit				Noncontrolling Interest				Total Deficit			Common Stock					Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive (Loss) Income				Total NII Holdings Stockholders’ Deficit				Noncontrolling Interest				Total Deficit
	Shares	Amount								Shares					Total NII Holdings Stockholders’ Deficit			Amount													Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive (Loss) Income				Total NII Holdings Stockholders’ Deficit				Noncontrolling Interest				Total Deficit
Balance, December 31, 2018	101,323	$	101	Paid-in Capital		$	Accumulated Deficit	2,143,240			Accumulated Other Comprehensive Loss	$	(2,236,883	)		$	(8,435	)	Noncontrolling Interest			$	Total Deficit			(101,977	)	$	(79,592	)	$	(181,569	)	101,323			$	101			$	2,143,240			$	(2,236,883	)		$	(8,435	)		$	(101,977	)	$	(79,592	)	$	(181,569	)
Implementation of lease accounting standard	—	—		—			(13,959		)		—				(13,959		)		(5,946		)		(19,905		)	—		—			—				(12,390		)		—				(12,390		)		(5,273		)		(17,663		)
Net income (loss)	—	—		—			4,905				—				4,905				(5,763		)		(858		)	—		—			—				4,905				—				4,905				(5,763		)		(858		)
Other comprehensive income	—	—		—			—				820				820				443				1,263			—		—			—				—				820				820				443				1,263
Share-based compensation activity	258	1		239			—				—				240				89				329			258		1			239				—				—				240				89				329
Balance, March 31, 2019	101,581	$	102	$	2,143,479		$	(2,245,937	)		$	(7,615	)		$	(109,971	)		$	(90,769	)		$	(200,740	)	101,581		102			2,143,479				(2,244,368		)		(7,615		)		(108,402		)		(90,096		)		(198,498		)
Noncontrolling interest investment																										—		—			—				—				—				—				2,700				2,700
Loss on dilution of noncontrolling interest																										—		—			(5,096		)		—				381				(4,715		)		4,715				—
Net loss																										—		—			—				(13,510		)		—				(13,510		)		(3,608		)		(17,118		)
Other comprehensive loss																										—		—			—				—				(3,419		)		(3,419		)		(1,319		)		(4,738		)
Share-based compensation activity																										94		—			474				—				—				474				(13		)		461
Balance, June 30, 2019																										101,675		102			2,138,857				(2,257,878		)		(10,653		)		(129,572		)		(87,621		)		(217,193		)
Loss on dilution of noncontrolling interest																										—		—			(11,581		)		—				(331		)		(11,912		)		11,912				—
Net loss																										—		—			—				(29,904		)		—				(29,904		)		(4,581		)		(34,485		)
Other comprehensive income																										—		—			—				—				15,939				15,939				6,619				22,558
Share-based compensation activity																										1,161		1			1,811				—				—				1,812				154				1,966
Balance, September 30, 2019																										102,836		$	103		$	2,129,087			$	(2,287,782	)		$	4,955			$	(153,637	)		$	(73,517	)		$	(227,154	)

Common Stock Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total NII Holdings Stockholders’ Deficit Noncontrolling Interest Total Deficit
Shares Amount
Balance, December 31, 2017 100,384
$ 100
$ 2,139,299
$ (2,127,903 ) $ (47,239 ) $ (35,743 ) $ (75,445 ) $ (111,188 )
Implementation of revenue recognition accounting standard —
—
—
34,100
—
34,100
14,603
48,703
Net loss —
—
—
(30,896 ) —
(30,896 ) (11,256 ) (42,152 )
Other comprehensive income —
—
—
—
1,549
1,549
676
2,225
Share-based compensation activity 1
—
586
—
—
586
109
695
Balance, March 31, 2018 100,385
$ 100
$ 2,139,885
$ (2,124,699 ) $ (45,690 ) $ (30,404 ) $ (71,313 ) $ (101,717 )



	Common Stock			Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total NII Holdings Stockholders’ Deficit			Noncontrolling Interest			Total Deficit
	Shares	Amount		Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total NII Holdings Stockholders’ Deficit			Noncontrolling Interest			Total Deficit
Balance, December 31, 2017	100,384	$	100	$	2,139,299	$	(2,127,903	)	$	(47,239	)	$	(35,743	)	$	(75,445	)	$	(111,188	)
Implementation of revenue recognition accounting standard	—	—		—		34,100			—			34,100			14,603			48,703
Net loss	—	—		—		(30,896		)	—			(30,896		)	(11,256		)	(42,152		)
Other comprehensive income	—	—		—		—			1,549			1,549			676			2,225
Share-based compensation activity	1	—		586		—			—			586			109			695
Balance, March 31, 2018	100,385	100		2,139,885		(2,124,699		)	(45,690		)	(30,404		)	(71,313		)	(101,717		)
Net loss	—	—		—		(71,445		)	—			(71,445		)	(27,843		)	(99,288		)
Other comprehensive income	—	—		—		—			34,569			34,569			14,814			49,383
Share-based compensation activity	71	—		856		—			—			856			101			957
Balance, June 30, 2018	100,456	100		2,140,741		(2,196,144		)	(11,121		)	(66,424		)	(84,241		)	(150,665		)
Net loss	—	—		—		(41,018		)	—			(41,018		)	(8,866		)	(49,884		)
Other comprehensive income	—	—		—		—			9,335			9,335			3,788			13,123
Share-based compensation activity	288	1		338		—			—			339			76			415
Balance, September 30, 2018	100,744	$	101	$	2,141,079	$	(2,237,162	)	$	(1,786	)	$	(97,768	)	$	(89,243	)	$	(187,011	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

NII HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
Three Months Ended March 31,
2019 2018

Cash flows from operating activities:
Net loss $ (858 ) $ (42,152 )
Adjustments to reconcile net loss to net cash used in operating activities:
Loss from discontinued operations 2,697
121
Amortization of debt discounts and financing costs 2,258
109
Depreciation and amortization 8,356
7,725
Provision for losses on accounts receivable 14,122
12,917
Foreign currency transaction losses, net 1,618
1,188
Impairment charges and (gains) losses on disposals of fixed assets (5,103 ) 759
Share-based payment expense 492
611
Gain on derivative instrument (31,467 ) —
Other, net 378
(919 )
Change in assets and liabilities:
Accounts receivable (19,782 ) (16,023 )
Prepaid value-added taxes (6,398 ) (4,153 )
Handset and accessory inventory 476
(1,917 )
Prepaid expenses and other (1,111 ) (12,692 )
Other long-term assets (7,695 ) (3,150 )
Accrued value-added taxes (308 ) 6,067
Other long-term liabilities 8,327
1,779
Accounts payable, accrued expenses, deferred revenues and other (3,445 ) 5,065
Net cash used in operating activities (37,443 ) (44,665 )
Cash flows from investing activities:
Capital expenditures (15,017 ) (11,115 )
Purchases of investments (124,189 ) (197,533 )
Proceeds from sales of investments 131,404
162,624
Change in deposits, net 425
41,309
Other, net (621 ) (1,518 )
Total investing cash used in continuing operations (7,998 ) (6,233 )
Total investing cash provided by discontinued operations —
14
Net cash used in investing activities (7,998 ) (6,219 )
Cash flows from financing activities:
Repayments under equipment financing facility and local bank loans (484 ) (478 )
Repayments under finance leases and other (1,479 ) (2,082 )
Payments of debt financing costs —
(4,130 )
Other (287 ) —
Net cash used in financing activities (2,250 ) (6,690 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash 47
716
Net decrease in cash, cash equivalents and restricted cash (47,644 ) (56,858 )
Cash, cash equivalents and restricted cash, beginning of period 250,739
305,778
Cash, cash equivalents and restricted cash, end of period $ 203,095
$ 248,920

NII HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Unaudited

	Nine Months Ended September 30,
	2019			2018

Cash flows from operating activities:
Net loss	$	(52,461	)	$	(191,324	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss from discontinued operations	65,423			164,360
Amortization of debt discounts and financing costs	5,037			758
Share-based payment expense	1,373			1,826
(Gain) loss on derivatives	(33,577		)	11,739
Change in assets and liabilities:
Prepaid expenses and other long-term assets	(1,237		)	(160		)
Accounts payable, accrued expenses and other	(539		)	901
Total operating cash used in continuing operations	(15,981		)	(11,900		)
Total operating cash used in discontinued operations	(32,480		)	(84,985		)
Net cash used in operating activities	(48,461		)	(96,885		)
Cash flows from investing activities:
Purchase of foreign currency call option	(1,885		)	—
Total investing cash used in continuing operations	(1,885		)	—
Total investing cash used in discontinued operations	(50,033		)	(46,420		)
Net cash used in investing activities	(51,918		)	(46,420		)
Cash flows from financing activities:
Gross proceeds from issuance of convertible notes	—			115,000
Payments of debt financing costs	—			(5,170		)
Other	(244		)	361
Total financing cash (used in) provided by continuing operations	(244		)	110,191
Total financing cash used in discontinued operations	(12,203		)	(10,324		)
Net cash (used in) provided by financing activities	(12,447		)	99,867
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(286		)	(1,536		)
Net decrease in cash, cash equivalents and restricted cash	(113,112		)	(44,974		)
Cash, cash equivalents and restricted cash, beginning of period	250,739			305,778
Cash, cash equivalents and restricted cash, end of period	$	137,627		$	260,804

The accompanying notes are an integral part of these condensed consolidated financial statements.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


Note 1.	Basis of Presentation

Overview. Unless the context requires otherwise, "NII Holdings, Inc.," "NII Holdings," "NII," "we," "our," "us" and "the Company" refer to the combined businesses of NII Holdings, Inc. and its consolidated subsidiaries. Our unaudited condensed consolidated financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission, or the SEC. While these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements, they reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of the results for interim periods. In addition, the year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. We ~~refer to~~conduct substantially all of our business through our majority-owned Brazilian operating company, Nextel Telecomunicações Ltda., which we refer to as Nextel Brazil.

You should read these condensed consolidated financial statements in conjunction with the consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, ~~2018.~~2018 and the condensed consolidated financial statements and notes contained in our quarterly reports on Form 10-Q for the periods ended March 31, 2019 and June 30, 2019. You should not expect results of operations for interim periods to be an indication of the results for a full year.

On June 27, 2019, NII Holdings' stockholders approved the sale of Nextel Brazil. See discussion below for more information regarding this pending sale. As a result of this stockholder approval, we have reported Nextel Brazil as a discontinued operation in this quarterly report on Form 10-Q. Accordingly, we have reclassified Nextel Brazil's results of operations for all periods presented to reflect Nextel Brazil as a discontinued operation. Unless otherwise noted, amounts included in this quarterly report on Form 10-Q exclude amounts attributable to the discontinued operations of Nextel Brazil. Our consolidated results from continuing operations in this quarterly report on Form 10-Q solely include the results of operations of ~~Nextel Brazil and~~ our corporate headquarters.

~~Proposed~~Pending Sale of Nextel Brazil. On March 18, 2019, NII Holdings and NII International Holdings S.à r.l., or NIIH, a wholly-owned subsidiary of NII Holdings, entered into a purchase agreement with América Móvil, S.A.B. de C.V., or AMX, and AI Brazil Holdings B.V., or AI Brazil Holdings, pursuant to which NII Holdings and AI Brazil Holdings will sell their jointly-owned wireless operations in Brazil. Specifically, NIIH will sell all of the issued and outstanding shares of NII Brazil Holdings S.à r.l., or NIIBH, to AMX. We refer to this transaction as the Nextel Brazil transaction. Also pursuant to the purchase agreement, concurrent to, and as a condition of, the consummation of the Nextel Brazil transaction, AI Brazil Holdings will sell all of its interests in Nextel Holdings S.à r.l., or Nextel Holdings, to NIIBH. We refer to this transaction as the AI Brazil Holdings transaction. At the closing of the Nextel Brazil transaction and the AI Brazil Holdings transaction, AMX will indirectly own all of the issued and outstanding shares of Nextel Brazil.

Under the terms of the purchase agreement, AMX will acquire all of the issued and outstanding shares of NIIBH for an aggregate purchase price of $905.0 million, less net debt and subject to certain adjustments at closing, including reimbursement for capital expenditures up to a budgeted amount from March 1, 2019 to closing, a working capital adjustment (subject, in the case of an increase in net working capital, to a cap based on budgeted changes in working capital through the earlier of closing or December 31, 2019), and a deduction for the amount, if any, by which certain budgeted selling and marketing costs exceed actual spending on such costs from March 1, 2019 to closing. NII Holdings will receive its pro rata share of the net purchase price after deducting a preferred return due to AI Brazil Holdings and deducting certain transaction expenses and increases in accrued tax contingencies, if any. AMX will place $30.0 million of NII Holdings' portion of the net proceeds into an 18-month escrow account to secure NII Holdings’ indemnification obligations under the purchase agreement.

In addition, in connection with the Nextel Brazil transaction, NII Holdings and AI Brazil Holdings have entered into an agreement relating to the Nextel Brazil transaction that includes the resolution of a dispute regarding the investment of funds into Nextel Holdings from an escrow related to NII Holdings' sale of its operations in Mexico, or the Mexico escrow. Under this agreement, the parties have agreed that AI Brazil Holdings will receive, after the closing of the Nextel Brazil transaction, the first $10.0 million recovered from the Mexico escrow followed by 6% of the value of additional funds recovered from the Mexico escrow, in both cases, if and when funds are released. NII Holdings has also agreed to indemnify AI Brazil Holdings for damages that may arise from certain tax contingencies, transaction expenses, transaction-related litigation and other matters in connection with its participation in the Nextel Brazil transaction.

The closing of the transactions contemplated by the purchase agreement are subject to the satisfaction of customary conditions, including approval of the stockholders of NII Holdings, receipt of required regulatory and antitrust approvals, and either an amendment eliminating certain successor obligations contemplated under, or an escrow agreement providing for a deposit in accordance with, NII’s indenture with respect to our 4.25% convertible senior notes due 2023.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The closing of the transactions contemplated by the purchase agreement are subject to the satisfaction of customary conditions, including approval by NII Holdings' stockholders, the receipt of required regulatory and antitrust approvals without the imposition of a burdensome condition (as defined in the purchase agreement) and either an amendment eliminating certain successor obligations contemplated under, or an escrow agreement providing for a deposit in accordance with, NII Holdings’ indenture with respect to our 4.25% convertible senior notes due 2023.

The purchase agreement includes certain termination rights for each party and provides that, in specified circumstances, NII Holdings is required to pay a termination fee of $25.0 million. In the event that the purchase agreement is terminated because NII Holdings' stockholders fail to approve the Nextel Brazil transaction, NII Holdings is obligated to reimburse AMX for its documented out-of-pocket expenses incurred in connection with the purchase agreement and the transactions contemplated thereby, up to $2.0 million.

The purchase agreement contains customary representations, warranties and covenants made by NII Holdings, NIIH, AMX and AI Brazil Holdings. Among other things, NIIH has agreed to conduct NIIBH’s and each of its subsidiaries’ business in the ordinary course, use reasonable best efforts to operate its business in accordance with its budget for the year 2019 and the year 2020, if applicable, and use commercially reasonable efforts to maintain and preserve its business organization and preserve certain business relations.

In connection with the ~~proposed~~pending sale of Nextel Brazil, NII Holdings' Board of Directors ~~has~~ approved a plan to dissolve and wind up its operations following the completion of this transaction. ~~This dissolution~~On June 27, 2019, NII Holdings' stockholders approved the sale of Nextel Brazil and the plan of dissolution. On September 30, 2019, we also received the required approval of the sale from the National Telecommunications Agency, or ANATEL, which is ~~also~~Brazil's telecommunications regulatory agency. On September 9, 2019, we received the required clearance of the sale from the General Superintendent of the Administrative Council for Economic Defense, or CADE, which is Brazil's national competition regulator, subject to a 15-day appeal period that started on October 8, 2019. On October 22, 2019, TIM, S.A., or TIM, a wireless telecommunications provider in Brazil, filed an appeal with CADE challenging the General Superintendent's clearance decision on the sale. On October 31, 2019, CADE agreed to hear TIM's appeal. CADE is required to rule on the merits of TIM's appeal by January 26, 2020, which in limited circumstances could be extended one time for up to 90 days. The parties to the purchase agreement believe that TIM's appeal is without merit and are working to contest TIM's appeal and receive a final approval from CADE as quickly as possible. To the extent that CADE imposes conditions on the transaction in resolving the appeal, it could have the effect of delaying or preventing completion of the transaction. If the sale transaction has not closed by December 31, 2019, AMX, AI Brazil Holdings and NII ~~Holdings' stockholders.~~Holdings must agree on a 2020 operating budget for Nextel Brazil to extend the purchase agreement to March 31, 2020.

Minority Investment. On June 5, 2017, NII Holdings and AINMT Holdings AB, or ice group, an international telecommunications company operating primarily in Norway under the "ice.net" brand, along with certain affiliates of the Company and ice group, entered into an investment agreement and a shareholders agreement to partner in the ownership of Nextel Brazil. On July 20, 2017, ice group completed its initial investment of $50.0 million in Nextel Holdings, a subsidiary of NII Holdings that indirectly owns Nextel Brazil, in exchange for 30% ownership in Nextel Holdings. In connection with the initial investment, ice group received 50.0 million shares of cumulative preferred voting stock in Nextel Holdings, and we received 116.6 million shares of common stock in this entity. The investment agreement also provided ice group with an option, exercisable on or before November 15, 2017, to invest an additional $150.0 million in Nextel Holdings for an additional 30% ownership. ice group did not exercise its option, and on February 27, 2018, we terminated the investment agreement.

In September 2018, ice group completed a sale of its 30% ownership interest in Nextel Holdings by selling the shares of its intermediary holding company, AI Brazil Holdings, to AI Media Holdings (NMT) LLC (90%) and Bridford Music B.V. (10%). During 2018, AI Brazil Holdings made an additional $15.9 million investment in Nextel Holdings to maintain its ~~current~~30% ownership level. ~~Since~~During the second quarter of 2019, NII Holdings contributed $15.3 million to Nextel Holdings, and AI Brazil Holdings contributed $2.7 million to Nextel Holdings, which increased NII Holdings' ownership to 70.70% and reduced AI Brazil Holdings' ownership from 30% to 29.30%. As a result of this change in ownership, we ~~continue~~reclassified $4.7 million of losses from noncontrolling interest to ~~have~~total NII Holdings' stockholders' deficit in the second quarter of 2019. In addition, during the third quarter of 2019, NII Holdings contributed $24.3 million to Nextel Holdings, which increased NII Holdings' ownership to 72.43% and further reduced AI Brazil Holdings' ownership to 27.57%. As a ~~controlling~~result of this further change in ownership, we reclassified $11.9 million of losses from noncontrolling interest to total NII Holdings' stockholders' deficit in ~~Nextel Brazil, we have consolidated this entity and its subsidiaries.~~the third quarter of 2019.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The investment agreement provided for, after ice group’s initial investment, the Company's contribution of proceeds arising from the release of funds deposited in escrow in connection with the sale of our Mexican operations through a 115 account, which is a contribution without the issuance of additional equity. See Note 63 for more information regarding escrowed funds. We do not believe that this requirement survives the termination of the investment agreement and intend for all future contributions by NII Holdings to Nextel Holdings to be made through capital contributions with additional equity being issued to us. ice group and AI Brazil Holdings notified the Company that they believe future escrow proceeds received by NII Holdings from the escrow account must be contributed to Nextel Holdings through the 115 account without the issuance of equity, which would result in ~~30%~~a portion of the disputed escrow being subject to AI Brazil Holdings' non-controlling interest. Although our aforementioned agreement with AI Brazil Holdings resolves this dispute, to the extent the Nextel Brazil transaction is not completed and the related settlement between us and AI Brazil Holdings is not consummated, AI Brazil Holdings’ non-controlling interest in future escrow proceeds received by NII Holdings would remain in dispute.

~~Sources of Funding.~~Going Concern. As of ~~March 31,~~September 30, 2019, our consolidated sources of funding included ~~$119.9~~$29.3 million in cash and ~~short-term investments and $106.1~~cash equivalents, $103.4 million in cash held in escrow to secure our indemnification obligations in connection with the sale of Nextel ~~Mexico. In addition, AI Brazil Holdings may fund up to 30%~~Mexico and $51.5 million in cash and short-term investments held for sale.

As long as the closing of the ~~cash needs that arise at Nextel Holdings and its subsidiaries in order to maintain its current ownership in Nextel Holdings.~~

On April 1, 2019, Nextel Brazil was notified that it was awarded credits for its past PIS and COFINS tax overpayments, plus interest, totaling approximately 783 million Brazilian reais, or $200.9 million based on foreign currency exchange rates in effect at the time. Under the terms of the purchase agreement with AMX, Nextel Brazil may not use these PIS and COFINS tax credits, except for specific purposes at the request of AMX. Should the proposed sale of Nextel Brazil occurs by the end of the first quarter of 2020, we believe we have sufficient sources of liquidity to fund our business. However, if the pending sale of Nextel Brazil is ultimately not be completed ~~these tax credits~~or if the closing of the sale is delayed beyond the end of the first quarter of 2020, we would ~~become available~~need to alter our business plan to significantly reduce spending or obtain additional funding. To the extent the sale of Nextel Brazil does not close or if we do not recover sufficient cash from escrow prior to the end of the first quarter of 2020, substantial doubt exists about our ability to continue as a going concern.

Diluted Net (Loss) Income from Continuing Operations Per Common Share. As presented for ~~Nextel Brazil's use, pending authorization~~the three and nine months ended September 30, 2019 and 2018, our calculation of diluted net (loss) income from continuing operations per common share is based on the weighted average number of common shares outstanding during those periods and includes other potential common shares, including common shares resulting from the ~~Brazilian~~potential conversion of our convertible senior notes, common shares issuable upon the potential exercise of stock options under our stock-based employee compensation plans or restricted common shares issued under those plans when those shares are dilutive.

For the nine months ended September 30, 2019, we did not include 18.5 million common shares related to the potential conversion of our convertible senior notes, 1.7 million stock options and 1.9 million restricted common shares in our calculation of diluted net income from continuing operations per common share because their effect would have been antidilutive. For the three months ended September 30, 2019, we did not include 18.5 million common shares related to the potential conversion of our convertible senior notes, 2.6 million stock options and 1.6 million restricted common shares in our calculation of diluted net loss from continuing operations per common share because their effect would have been antidilutive. In addition, for the three and nine months ended September 30, 2018, we did not include 18.5 million common shares related to the potential conversion of our convertible senior notes because their effect would have been antidilutive. For the same periods, we did not include 3.5 million and 3.4 million stock options, respectively, as well as 1.4 million and 0.7 million restricted common shares, respectively, in our calculation of diluted net loss from continuing operations per common share because their effect would have been antidilutive.

Cash, Cash Equivalents and Restricted Cash. Our restricted cash represents cash held in escrow in connection with the sale of Nextel Mexico. Cash held by discontinued operations relates to cash held by Nextel Brazil and certain judicial deposits of cash in Brazil related to litigation involving tax ~~authorities. See Note 9 for more information regarding these tax credits.~~and other matters. A reconciliation from cash and cash equivalents as presented in our condensed consolidated balance sheets to cash, cash equivalents and restricted cash as reported in our condensed consolidated statements of cash flows is as follows:



	September 30,				December 31,
	2019		2018		2018		2017
	(in thousands)
Cash and cash equivalents	$	29,331	$	131,479	$	93,881	$	34,553
Cash in escrow	103,435		106,071		106,089		110,024
Cash and cash equivalents included in current assets held for sale	2,684		21,233		48,605		159,335
Restricted cash included in non-current assets held for sale	2,177		2,021		2,164		1,866
Cash, cash equivalents and restricted cash	$	137,627	$	260,804	$	250,739	$	305,778

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

If the proposed sale of Nextel Brazil is not ultimately completed, and if we are able to recover a significant amount of the remaining cash held in the Mexico escrow in 2019, we believe our current sources of funding described above will provide us with sufficient liquidity to fund our current business plan for the next few years. However, our business plan is based on a number of assumptions, including assumptions regarding the recovery of the Mexico escrow, our ability to maintain subscriber turnover levels similar to those we experienced in 2018 and to date in 2019, and continued investments from AI Brazil Holdings. If the proposed sale of Nextel Brazil is not completed and if the ultimate amount recovered from our cash held in the Mexico escrow does not meet our current forecasted amount or we do not recover substantially all of our previously requested escrowed funds in 2019, we would likely need to alter our business plan or obtain additional funding. In addition, if our actual results of operations differ from our business plan or AI Brazil Holdings decides not to provide additional capital, our business may be negatively affected, which would require us to alter our business plan or obtain additional funding.

In connection with the completion of the proposed sale of Nextel Brazil, we will receive approximately 70% of the final net proceeds, subject to certain adjustments at closing, including reimbursement for capital expenditures and working capital investments made from March 1, 2019 to closing, after deducting a $2.0 million preferred share return due to AI Brazil Holdings and deducting certain transaction expenses and increases in accrued tax contingencies, if any. In addition, $30.0 million of our portion of the net proceeds will be placed into an 18-month escrow account to secure NII Holdings' indemnification obligations under the purchase agreement. We expect we will incur significant cash expenditures related to the completion of the sale and the dissolution of our remaining business subsequent to the transaction.

~~Revision of Prior Period Financial Statements.~~ In connection with the preparation of our condensed consolidated financial statements for the three months ended September 30, 2018, we determined that certain errors existed in our previously filed financial statements. Specifically, for the three months ended March 31, 2018, service and other revenues were understated by $0.2 million, cost of service was overstated by $4.4 million, impairment, restructuring and other charges, net was understated by $4.2 million and depreciation was overstated by $0.7 million. In addition, other comprehensive income was understated by an immaterial amount. These errors were the result of improperly recording expenses for certain non-income based tax credits and restructuring charges for certain transmitter and receiver sites. We evaluated these errors in accordance with the SEC's authoritative guidance on materiality and the quantification of the effect of prior period misstatements on financial statements, and we determined that the impact of these errors on our prior period financial statements is immaterial. However, since the correction of these errors in the third quarter of 2018 could have been considered material to our results of operations for the three months ended September 30, 2018, we revised our prior period financial statements to correct these errors.

For the three months ended March 31, 2018, the correction of these errors resulted in a $1.2 million decrease in operating loss, loss from continuing operations and net loss, a $0.4 million decrease in net loss attributable to noncontrolling interest and a $0.8 million decrease in net loss attributable to NII Holdings. In addition, for the three months ended March 31, 2018, the correction of these errors resulted in a $0.01 decrease in both net loss from continuing operations per basic and diluted common share and net loss attributable to NII Holdings per basic and diluted common share.

Recently Adopted Accounting Standards. In February 2016, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No. 2016-02, "Leases," which we refer to as ASC 842. ASC 842 replaced existing leasing rules with a comprehensive lease measurement and recognition standard and expanded disclosure requirements. We implemented ASC 842 on January 1, 2019 using the modified retrospective method. We did not retroactively adjust prior periods. In utilizing the modified retrospective method, we recognized the cumulative effect of applying the standard at the date of initial application. ~~We will disclose our results under both the new and old standards for the first year after adoption.~~ See Note 2 for more information regarding the adoption of ASC 842.

Recently Issued Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,” which amends the scope and transition requirements of ASU 2016-13. The standard requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectibility of the reported amount. This standard will become effective beginning January 1, 2020 and will require a modified retrospective approach, which will result in a cumulative effect adjustment to accumulated deficit as of the beginning of the first reporting period in which the guidance is effective. We are currently evaluating the impact this guidance will have on our condensed consolidated financial statements.

Securities Litigation. On July 8, 2019, a purported stockholder class action was filed against the Company and the Company's directors in the Court of Chancery of the State of Delaware by Matis Nayman. The lawsuit is captioned Matis Nayman v. Kevin L. Beebe, James V. Continenza, Howard S. Hoffmann, Ricardo Knoepfelmacher, Christopher T. Rogers, Robert A. Schriesheim, Steven M. Shindler, and NII Holdings, Inc., C.A. No. 2019-0525-JTL. The complaint alleges, among other things, that the Company and its directors breached their fiduciary duties by failing to take steps to maximize the Company's value to its public stockholders and failing to disclose certain information in the proxy statement issued in connection with the Company's purchase agreement with AMX and AI Brazil Holdings and the Company's planned liquidation and dissolution. The relief the plaintiff seeks includes enjoining the sale of Nextel Brazil and the dissolution of NII Holdings, and the recovery of unspecified damages. On September 16, 2019, the defendants filed a motion to dismiss, and on October 16, 2019, the plaintiff filed an amended complaint. The Company and the named individuals intend to vigorously defend themselves in this matter.

Reclassifications. We have reclassified some prior period amounts in our condensed consolidated financial statements to conform to our current presentation.

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


Note 2.	Leases

~~Overview.~~ On January 1, 2019, we implemented ASC 842 using the modified retrospective method. We selected this adoption date as our date of initial application. As a result, we have not updated financial information related to, nor have we provided the disclosures required under ASC 842 for, periods prior to January 1, 2019. The primary changes to our policies relate to recognizing most leases on our condensed consolidated balance sheet as liabilities with corresponding right-of-use, or ROU, assets, as well as the derecognition of certain accrued liabilities related to lease exit costs.

We have entered into various agreements under which we lease ground or rooftop space on which to locate our transmitter and receiver sites, as well as space on transmitter and receiver sites owned by third parties. In addition, in the past, we have sold and subsequently leased back space on certain transmitter and receiver sites that we historically accounted for as financing arrangements as a result of our continuing involvement with these properties. We continue to account for these transactions as financing arrangements since the leasebacks are classified as finance leases. Most of our leases provide for annual increases in our rent payments based on changes in locally-based consumer price indices. Leases related to our transmitter and receiver sites are generally renewable for additional terms.

We determine if an arrangement is a lease at inception. We record operating leases as operating lease ROU assets and current and long-term operating lease liabilities on our condensed consolidated balance sheet. We record finance leases as a component of property, plant and equipment, net, current portion of long-term debt and long-term debt on our condensed consolidated balance sheet. We recognize ROU assets and liabilities related to operating leases based on the present value of the future lease payments over the term of the lease at the lease's inception date, except in situations where the right-of-use had already been abandoned at the date of initial application. In these cases, we do not record an ROU asset as the assets are already deemed to have been impaired in full. For those leases that do not provide an implicit rate, we use our incremental borrowing rate based on information available at the later of the date of initial application or lease commencement date when determining the present value of future payments. ROU assets related to operating leases include any lease payments made to date and initial direct costs incurred, if any, net of any lease incentives received. Our lease terms may include options to extend or not terminate the lease when it is reasonably certain that this option will be exercised. We recognize lease expense related to operating leases on a straight line basis over the term of the lease, except in situations where the ROU asset is impaired. In these cases, we recognize operating lease expense related to lease liability accretion utilizing the effective interest rate method.

~~Practical Expedients.~~ The modified retrospective approach included a package of optional practical expedients that we elected to apply. Among other things, these expedients permitted us not to reassess prior conclusions regarding lease identification, lease classification and initial direct costs under ASC 842. We also elected the allowable practical expedient that permitted us to use hindsight while performing evaluations of our leases. ASC 842 also provided practical expedients for certain ongoing accounting situations. We elected the short-term lease recognition and measurement exemption, which allowed us not to recognize ROU assets or lease liabilities for all leases with a term of 12 months or less, including existing short-term leases of those assets in transition. We also elected the non-separation practical expedient that allowed us not to separate lease and non-lease components for substantially all of our leases.

~~For the three months ended March 31, 2019, the components of lease expense were as follows (in thousands):~~

Operating leases (included in cost of service, selling, general and administrative and impairment, restructuring and other charges, net) $ 27,208

Finance leases:
Amortization of ROU assets (included in depreciation) 291
Interest on lease liabilities (included in interest expense, net) 6,664

Total lease expense $ 34,163

During the first quarter of 2019, the new ROU assets we recognized for both finance and operating leases in exchange for lease obligations were immaterial. In addition, amortization related to ROU assets and changes in lease liabilities are included as components of the other long-term liabilities and accounts payable, accrued expenses, deferred revenues and other line items in our condensed consolidated statement of cash flows.

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~As of and for the three months ended March 31, 2019, supplemental cash flow and other information related to leases was as follows (dollars in thousands):~~

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases $ 30,258
Operating cash flows used for finance leases $ 6,664
Financing cash flows used for finance leases $ 1,479

Weighted average remaining lease term:
Operating leases 9.7 years
Finance leases 6.6 years

Weighted average discount rate:
Operating leases 16.3 %
Finance leases 45.3 %

~~Components of Transition Adjustment.~~ As of January 1, 2019, the cumulative impact of the implementation of ASC 842 included the recognition of lease liabilities and corresponding ROU assets for operating leases, as well as the derecognition of certain accrued liabilities related to lease exit costs and the remeasurement of finance leases due to the application of the hindsight practical expedient. These effects resulted in the following adoption impacts (in thousands):

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 31, 2018 Impact of ASC 842 Adoption January 1, 2019
Current assets $ 522,565
$ —
$ 522,565
Property, plant and equipment, net 143,930
2,402
146,332
Operating lease right-of-use assets —
370,979
370,979
Other non-current assets 393,335
—
393,335
Total assets $ 1,059,830
$ 373,381
$ 1,433,211

Operating lease liabilities $ —
$ 48,004
$ 48,004
Other current liabilities 338,137
(4,598 ) 333,539
Current portion of long-term debt 21,350
1,378
22,728
Total current liabilities 359,487
44,784
404,271

Long-term debt 632,857
(3,255 ) 629,602
Long-term operating lease liabilities —
387,861
387,861
Other long-term liabilities 249,055
(36,104 ) 212,951
Total liabilities 1,241,399
393,286
1,634,685

Total deficit (181,569 ) (19,905 ) (201,474 )
Total liabilities and stockholders' deficit $ 1,059,830
$ 373,381
$ 1,433,211



	December 31, 2018			Impact of ASC 842 Adoption			January 1, 2019
Current assets held for sale	$	321,160		$	—		$	321,160
Other current assets	201,405			—			201,405
Non-current assets held for sale	536,021			375,917			911,938
Other non-current assets	1,244			—			1,244
Total assets	$	1,059,830		$	375,917		$	1,435,747

Current liabilities held for sale	$	346,715		$	44,784		$	391,499
Other current liabilities	12,772			—			12,772
Long-term liabilities held for sale	775,671			348,796			1,124,467
Other long-term liabilities	106,241			—			106,241
Total liabilities	1,241,399			393,580			1,634,979

Total stockholders' deficit	(181,569		)	(17,663		)	(199,232		)
Total liabilities and stockholders' deficit	$	1,059,830		$	375,917		$	1,435,747

~~Maturities.~~ For the rolling 12-month periods subsequent to March 31, 2019, future payments for all finance 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. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Finance
Leases

Operating
Leases
Total
Year 1 $ 27,562
$ 110,474
$ 138,036
Year 2 27,965
104,447
132,412
Year 3 27,573
98,463
126,036
Year 4 26,554
88,415
114,969
Year 5 26,195
75,641
101,836
Thereafter 44,375
392,943
437,318
Total lease payments 180,224
870,383
1,050,607
Less: unrecognized interest (119,695 ) (448,674 ) (568,369 )
Total $ 60,529
$ 421,709
$ 482,238

~~The amounts included in the table above are presented net of taxes of approximately 10% for all periods.~~

As previously calculated under ASC 840, "Leases," or ASC 840, and as disclosed in our annual report on Form 10-K for the year ended December 31, 2018, total future minimum payments for all capital and operating lease obligations as of December 31, 2018 were $1.7 billion. The amounts presented in the table above as calculated under ASC 842 do not include payments related to assumed renewal periods for certain leases, which represented a significant decrease from the amounts calculated under ASC 840.


~~Note 3.~~	~~Revenues and Contract Costs~~

~~A description of the principal activities from which Nextel Brazil generates its revenue is as follows:~~

~~Service and Other Revenues.~~ Nextel Brazil's wireless service revenues primarily consist of access charges for providing customers with voice, data or messaging services over the contract period. The typical length of our service contracts is 12 months for individual customers and 24 months for corporate customers. We record all revenue net of taxes collected from customers, which are subsequently remitted to governmental authorities.

~~Handset and Accessory Revenues.~~We recognize handset and accessory revenue when a subscriber takes possession of a device. The transaction price of the handset sold, if any, is billed at the time of sale. Although more than 90% of our subscribers typically purchase services only and acquire a handset separately, the remainder of our subscriber base purchases a handset offered at a discounted price bundled with services.

~~Significant Judgments and Estimates.~~ Nextel Brazil's subscribers generally enter into service contracts with a commitment period in exchange for discounts on handsets and/or service fees. The penalty applied upon early termination of a contract declines over time in proportion to the remaining commitment period. We concluded that the commitment period should be identical to the contract period since, at any point, the early termination penalty is significant relative to the remaining monthly service fees under the contract.

In cases where a contract includes both a handset and accessories, for which we recognize handset and accessory revenue at a point in time, and services, for which we recognize revenue ratably over time, judgment is required to determine the SSP for each distinct performance obligation in order to allocate consideration properly. We use a range of amounts to estimate SSP when we sell each of the products and services separately.

~~Remaining Performance Obligations.~~ As of March 31, 2019, we have $320.4 million of remaining performance obligations under open service contracts. For these service contracts, we expect to recognize $313.2 million in operating revenues in the period from April 1, 2019 through March 31, 2020 and $7.2 million thereafter.

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Contract Assets and Liabilities.~~ Contract assets primarily relate to the remaining portion of future service billings allocated to handsets and recognized into revenue upon handset delivery at the inception of the contract. As of March 31, 2019 and December 31, 2018, Nextel Brazil had $1.5 million and $2.5 million in total contract assets, respectively, $1.2 million and $2.0 million of which we classified as a component of prepaid expenses and other in our condensed consolidated balance sheet. We transfer contract assets to receivables when Nextel Brazil's right to bill becomes unconditional.

Contract liabilities primarily relate to upfront fees for wireless services for which the services have not yet been provided. As of March 31, 2019 and December 31, 2018, Nextel Brazil had $1.7 million and $2.0 million in total contract liabilities, respectively, substantially all of which we classified as a component of accrued expenses and other in our condensed consolidated balance sheet. The changes to both the contract asset and contract liability balances during the period, which include opening balances amortized into revenue, were not significant.

~~Cost to Obtain Contracts with Customers.~~ We recognize an asset for the incremental costs of obtaining a contract with a customer. These costs include commissions and related costs for sales employees of Nextel Brazil, and commissions payable to our third party distribution channel partners. Under the previous accounting standard, we expensed commissions as incurred. As of March 31, 2019 and December 31, 2018, Nextel Brazil had $37.1 million and $37.5 million of deferred commissions, respectively, related to expenses required to obtain a contract. Of these total deferred commissions, as of March 31, 2019 and December 31, 2018, we recorded $21.2 million and $21.5 million, respectively, as a component of prepaid expenses and other and the remaining $15.9 million and $16.0 million, respectively, as a component of other assets in our condensed consolidated balance sheet. In addition, Nextel Brazil recorded $5.9 million and $4.1 million in total commissions expense, respectively, during the three months ended March 31, 2019 and 2018 as a component of selling, general and administrative expenses in our condensed consolidated statement of comprehensive loss.


~~Note 4.~~	~~Impairment, Restructuring and Other Charges, Net~~

~~Total impairment, restructuring and other charges, net for the first quarters of 2019 and 2018 were as follows (in thousands):~~

Three Months Ended March 31,
2019 2018
Brazil:
Transmitter and receiver site lease restructuring costs (1) $ 2,817
$ 15,012
Reversal of previously accrued restructuring charges - site swaps (2) —
(13,698 )
Severance —
590
Other restructuring costs 2,313
(607 )
Asset impairments 661
733
5,791
2,030
Corporate:

Severance —
321
—
321
Total impairment, restructuring and other charges, net $ 5,791
$ 2,351


~~(1)~~	These amounts primarily represent future lease costs for certain transmitter and receiver sites that were no longer required in Nextel Brazil's business. These amounts also include accretion expense related to the associated liabilities.

~~(2)~~

In an effort to further reduce costs, in the first quarter of 2018, Nextel Brazil entered into arrangements with certain of its tower lessors for the right to exchange approximately 600 unused transmitter and receiver sites for other sites. During the first quarter of 2018, Nextel Brazil identified approximately 250 transmitter and receiver sites that it planned to exchange pursuant to these arrangements. As a result, in the first quarter of 2018, Nextel Brazil reversed $13.7 million of previously accrued restructuring charges related to these site exchanges.

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~As of March 31, 2019, total accrued restructuring charges were as follows (in thousands):~~

Balance, December 31, 2018 $ 74,632
  Restructuring charges, net 1,504
  Cash payments and other (4,851 )
  Implementation of lease accounting standard (39,704 )
  Foreign currency translation adjustment (73 )
Balance, March 31, 2019 $ 31,508


~~Note 5.~~	~~Supplemental Financial Statement Information~~

~~Restricted Cash.~~

Our restricted cash relates to cash held in escrow in connection with the sale of Nextel Mexico and certain judicial deposits of cash in Brazil related to litigation involving tax and other matters. A reconciliation from cash and cash equivalents as presented in our condensed consolidated balance sheets to cash, cash equivalents and restricted cash as reported in our condensed consolidated statements of cash flows is as follows:

March 31, December 31,
2019 2018 2018 2017
(in thousands)
Cash and cash equivalents $ 94,610
$ 136,297
$ 142,486
$ 193,888
Cash in escrow (included in prepaid expenses and other) 106,102
110,038
106,089
110,024
Other (included in other assets) 2,383
2,585
2,164
1,866
Cash, cash equivalents and restricted cash $ 203,095
$ 248,920
$ 250,739
$ 305,778

~~Prepaid Expenses and Other.~~

~~The components of our prepaid expenses and other current assets are as follows:~~

March 31,
2019 December 31,
2018
(in thousands)
Cash in escrow $ 106,102
$ 106,089
Judicial deposits 57,471
57,175
Value-added taxes 50,131
43,803
Deferred commissions 21,200
21,460
Other prepaid expenses 10,684
9,381
Other current assets 4,040
8,008
$ 249,628
$ 245,916

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Property, Plant and Equipment, Net.~~

~~During the three months ended March 31, 2019 and 2018, we capitalized immaterial amounts of interest. The components of our property, plant and equipment, net are as follows:~~

March 31,
2019 December 31,
2018
(in thousands)
Land $ 415
$ 417
Building and leasehold improvements 652
650
Network equipment, communication towers and network software 119,593
108,876
Software, office equipment, furniture and fixtures and other 36,614
31,482
Less: Accumulated depreciation and amortization (32,765 ) (26,858 )
124,509
114,567
Construction in progress 22,868
29,363
$ 147,377
$ 143,930

~~Intangible Assets, Net.~~

~~Our intangible assets include the following:~~

March 31, 2019 December 31, 2018
Average Useful Life (Years)
Gross Carrying
Value

Accumulated
Amortization

Net Carrying
Value

Gross Carrying
Value

Accumulated
Amortization

Net Carrying
Value
(in thousands)
Amortizable intangible assets:

Licenses 26 $ 170,535
$ (13,084 ) $ 157,451
$ 170,640
$ (11,387 ) $ 159,253
Customer relationships 4 12,988
(11,545 ) 1,443
13,062
(10,159 ) 2,903
$ 183,523
$ (24,629 ) $ 158,894
$ 183,702
$ (21,546 ) $ 162,156

Based on the carrying amount of our intangible assets as of March 31, 2019 and current exchange rates, we estimate amortization expense for each of the next five years ending December 31 to be as follows (in thousands):

Years Estimated Amortization Expense
2019 $ 9,938
2020 6,909
2021 6,909
2022 6,909
2023 6,909

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.

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Other Assets.~~

~~The components of our other long-term assets are as follows:~~

March 31,
2019 December 31,
2018
(in thousands)
Judicial deposits $ 121,575
$ 116,220
Cash collateral related to contingencies 48,710
47,899
Other 70,480
67,060
$ 240,765
$ 231,179

~~Accrued Expenses and Other.~~

~~The components of our accrued expenses and other are as follows:~~

March 31,
2019 December 31,
2018
(in thousands)
Contingencies $ 76,683
$ 74,111
Network system and information technology 50,443
52,207
Non-income based taxes 37,325
37,817
Payroll related items and commissions 26,409
27,100
License fees 14,138
20,706
Other 83,291
87,049
$ 288,289
$ 298,990

~~Other Long-Term Liabilities.~~

~~The components of our other long-term liabilities are as follows:~~

March 31,
2019 December 31,
2018
(in thousands)
Withholding taxes $ 81,929
$ 78,440
Accrued lease terminations and other restructuring charges 32,436
67,125
Conversion option for convertible senior notes 2,110
33,577
Accrued interest on Brazil spectrum financing 38,378
30,864
Other 37,946
39,049
$ 192,799
$ 249,055

~~Accumulated Other Comprehensive Loss.~~ As of March 31, 2019 and December 31, 2018, the tax impact on our accumulated other comprehensive loss was not material. In addition, as of March 31, 2019 and December 31, 2018, all of our accumulated other comprehensive loss represented cumulative foreign currency translation adjustment.

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Supplemental Cash Flow Information.~~

Three Months Ended March 31,
2019 2018
(in thousands)
Capital expenditures
Cash paid for capital expenditures, including capitalized interest on property, plant and equipment $ 15,017
$ 11,115
Change in capital expenditures accrued and unpaid or financed, including interest capitalized (8,166 ) (2,824 )
$ 6,851
$ 8,291

~~We did not have any significant non-cash investing or financing activities during the three months ended March 31, 2019 and 2018.~~

~~Diluted Net Income (Loss) From Continuing Operations Per Common Share.~~ As presented for the three months ended March 31, 2019 and 2018, our calculation of diluted net income (loss) from continuing operations per common share is based on the weighted average number of common shares outstanding during those periods and includes other potential common shares, including common shares resulting from the potential conversion of our convertible senior notes, common shares issuable upon the potential exercise of stock options under our stock-based employee compensation plans or restricted common shares issued under those plans when those shares are dilutive.

For the three months ended March 31, 2019, we did not include 18.5 million common shares related to the potential conversion of our convertible senior notes, 1.4 million stock options and 1.8 million restricted common shares in our calculation of diluted net income from continuing operations per common share because their effect would have been antidilutive. In addition, for the three months ended March 31, 2018, we did not include 3.3 million stock options and 0.1 million restricted common shares in our calculation of diluted net loss from continuing operations per common share because their effect would have been antidilutive.


Note 6.3.	Discontinued Operations

Pending Sale of Nextel Brazil. On March 18, 2019, NII Holdings and NIIH, a wholly-owned subsidiary of NII Holdings, entered into a purchase agreement with AMX and AI Brazil Holdings, pursuant to which NII Holdings and AI Brazil Holdings will sell their jointly-owned wireless operations in Brazil. Specifically, NIIH will sell all of the issued and outstanding shares of NIIBH to AMX. Also pursuant to the purchase agreement, concurrent to, and as a condition of, the consummation of the Nextel Brazil transaction, AI Brazil Holdings will sell all of its interests in Nextel Holdings to NIIBH. At the closing of the Nextel Brazil transaction and the AI Brazil Holdings transaction, AMX will indirectly own all of the issued and outstanding shares of Nextel Brazil. On June 27, 2019, NII Holdings' stockholders approved both the sale of Nextel Brazil and the plan to dissolve and wind up NII Holdings' operations following the completion of the Nextel Brazil transaction. As a result of this stockholder approval, we have reported Nextel Brazil as a discontinued operation in this quarterly report on Form 10-Q. Accordingly, we have reclassified Nextel Brazil's results of operations for all periods presented to reflect Nextel Brazil as discontinued operations. Unless otherwise noted, amounts included in this quarterly report on Form 10-Q exclude amounts attributable to the discontinued operations of Nextel Brazil. Historically, Nextel Brazil was our only reportable operating segment. We evaluated performance and provided resources to Nextel Brazil based on operating income before depreciation, amortization and impairment, restructuring and other charges, net, which we refer to as segment earnings.

The major components of loss from discontinued operations, net of income taxes were as follows (in thousands):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Operating revenues	$	145,884		$	141,736		$	437,531		$	478,963
Cost of revenues and selling, general and administrative	(105,758		)	(129,509		)	(366,374		)	(463,049		)
Segment earnings	40,126			12,227			71,157			15,914
Impairment, restructuring and other charges, net	(7,613		)	3			(16,432		)	(13,717		)
Depreciation and amortization	722			(6,805		)	(14,827		)	(21,855		)
Operating income (loss)	33,235			5,425			39,898			(19,658		)
Interest expense and other, net	(48,957		)	(36,508		)	(91,311		)	(141,756		)
Loss before income taxes	(15,722		)	(31,083		)	(51,413		)	(161,414		)
Income taxes	—			—			—			—
Loss from Nextel Brazil discontinued operations, net of income taxes	(15,722		)	(31,083		)	(51,413		)	(161,414		)
Loss on disposal of Nextel Mexico	(11,971		)	(163		)	(14,010		)	(2,946		)
Loss from discontinued operations, net of income taxes	$	(27,693	)	$	(31,246	)	$	(65,423	)	$	(164,360	)

Loss from discontinued operations attributable to noncontrolling interest	$	(4,581	)	$	(8,866	)	$	(13,952	)	$	(47,965	)
Loss from discontinued operations attributable to NII Holdings	(23,112		)	(22,380		)	(51,471		)	(116,395		)
Loss from discontinued operations, net of income taxes	$	(27,693	)	$	(31,246	)	$	(65,423	)	$	(164,360	)

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The components of assets and liabilities held for sale as of September 30, 2019 and December 31, 2018, all of which are related to Nextel Brazil, are as follows (in thousands):



	September 30, 2019		December 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	2,684	$	48,605
Short-term investments	48,780		32,329
Accounts receivable, net of allowance for doubtful accounts of $27,116 and $19,637	98,138		99,867
Prepaid expenses and other	132,348		140,359
Total current assets	281,950		321,160
Property, plant and equipment, net	154,535		143,930
Intangible assets, net	146,286		162,156
Operating lease right-of-use assets	329,117		—
Other assets	203,261		229,935
Total assets	$	1,115,149	$	857,181

LIABILITIES
Current liabilities
Accounts payable, accrued expenses, operating lease liabilities and other	$	322,058	$	325,365
Current portion of long-term debt	26,820		21,350
Total current liabilities	348,878		346,715
Long-term debt	512,934		560,593
Long-term operating lease liabilities	325,485		—
Other long-term liabilities	194,382		215,078
Total liabilities	$	1,381,679	$	1,122,386

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Sale of Nextel Mexico. On April 30, 2015, NII Holdings, 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. In 2016, we paid $4.0 million, plus interest, out of escrow to settle an indemnification claim, and in July 2018, we utilized $4.0 million of cash held in escrow to settle tax audits for the years 2010 and 2011 discussed below. Additionally, in June 2019, we utilized $2.7 million of cash held in escrow to settle a tax audit for the year 2012 discussed below. As of ~~March 31,~~September 30, 2019, $73.5 million of the cash held in escrow has been released to us and ~~$106.1~~$103.4 million, which includes interest, remains deposited in escrow related to certain potential tax indemnity claims made by New Cingular Wireless. While we are required to continue to indemnify New Cingular Wireless for any valid claims that arise in the future, New Cingular Wireless is not permitted to make any additional claims against the escrow account.

The potential tax indemnity claims submitted by New Cingular Wireless against the escrow account purport to relate to various ongoing tax audits by the Mexican tax authorities for Nextel Mexico and several of its ~~entities~~subsidiaries for the years 2010 through 2014. Of the total potential tax claims asserted against the escrow account, $12.2 million relates to actual tax assessments that Nextel Mexico has received. Although we appealed these tax assessments, in April 2019, our appeals were denied. We ~~intend to initiate~~initiated a judicial process to protect our interests against these tax assessments. The remaining amounts relate to unassessed matters. New Cingular Wireless' claims include $35.5 million related to the tax audit of Nextel Mexico’s income tax return for 2010 and $36.9 million related to the tax audit of Nextel Mexico's income tax return for 2011. The remaining $37.6 million of potential tax claims asserted against the escrow account, including the $12.2 million in tax assessments, relates primarily to non-income tax-based audits for the years 2011 through 2014. ~~As of March 31, 2019, we had accrued $7.7 million for probable losses associated with these audits.~~

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~During~~In July 2018, the tax audits related to Nextel Mexico's main operating company's income tax returns for the years 2010 and 2011 were finalized, and we filed amended tax returns. We settled the tax liabilities associated with these tax audits utilizing existing tax credits, with the exception of $4.0 million that we paid utilizing cash held in escrow. In March 2019, the tax audit related to Nextel Mexico's main operating company's income tax return for the year 2013 was finalized, and we filed an amended tax return. There was no cash outlay related to the finalization of the tax audit for the year 2013. The tax audit for the year 2013 represented $1.1 million of the total claims outstanding. In June 2019, the tax audit related to Nextel Mexico's main operating company's income tax return for the year 2012 was finalized, and we filed an amended tax return. We settled the tax liabilities associated with this tax audit utilizing $2.7 million of cash held in escrow. As a result, of the $72.4 million in combined claims relating to the tax audits of the years 2010, 2011 and ~~2011,~~2012 for Nextel Mexico's main operating company, we have requested that New Cingular Wireless agree to the release of ~~$68.3~~$65.8 million from ~~escrow.~~ escrow, and we expect to request the release of $1.1 million in the near future.

New Cingular Wireless has disagreed with our interpretation of the escrow and purchase agreements related to the timing of release requirements for escrowed funds. On February 11, 2019, our subsidiary NIU Holdings initiated review of this matter by the United States Bankruptcy Court for the Southern District of New York, which we refer to as the Bankruptcy Court, that approved the transaction with New Cingular Wireless in connection with our emergence from Chapter 11 bankruptcy, and on March 25, 2019, we filed a claim against New Cingular Wireless to recoup the $68.3 million (now revised to $65.8 million) from ~~escrow.~~escrow in a lawsuit captioned NIU Holdings LLC v. AT&T Mobility Holdings, B.V.; New Cingular Wireless Services, Inc.; Nextel International (Uruguay) LLC; and Comunicaciones Nextel de Mexico S.A. de C.V., Case No. 15-10155, Adv. Pro. No. 19-01099 (SCC). On July 22, 2019, we filed a motion supporting our request for summary judgment, and on the same day, New Cingular Wireless filed a motion supporting its request for a judgment on the pleadings. A hearing on these matters was held on September 5, 2019, and we are awaiting the Bankruptcy Court's decision. This difference of interpretation of the relevant agreements has delayed and will continue to delay the release of the remaining amount of cash in escrow.

~~During March~~In October 2019, ~~the tax audit related~~we agreed to Nextel Mexico's main operating company's income tax return for the year 2013 was finalized, and we filed an amended tax return. The tax audit for the year 2013 represented $1.1 million of the total claims outstanding. We are continuing to worksettlement terms with the Mexican tax authorities related to ~~settle~~five additional tax audits for certain of Nextel Mexico's subsidiaries. New Cingular Wireless' claims against the ~~open non-income tax-based~~escrow account include $24.4 million related to these tax audits. Based on the terms to which we agreed with the tax authorities, we expect to pay $15.1 million to close these tax audits and ~~accelerate~~have therefore accrued this amount as of September 30, 2019 as a probable loss. The finalization of these tax audits requires that we file amended tax returns, which we expect to complete during the ~~release~~fourth quarter of 2019 for four of the ~~remaining~~tax audits and in the first quarter of 2020 for the fifth tax audit. Once these amended tax returns are accepted by the Mexican tax authorities, we expect to request New Cingular Wireless to release an additional $9.3 million from escrow. While we do not expect changes to the settlement terms for these tax audits, the settlement is not legally binding until the amended tax returns have been filed and accepted.

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In addition, on May 7, 2019, we received a letter from New Cingular Wireless formally notifying us of pending tax audits for pre-closing periods that were not included in the tax indemnity claims notices previously submitted by New Cingular Wireless against the Mexico escrow account. We were already aware of the tax audits referenced in the letter and had assumed their ~~defense,~~defense. The majority of the matters included in this letter are expected to be resolved when the amended returns related to the five tax audits mentioned above are accepted, and we will continue to work with the Mexican tax authorities to resolve ~~them~~any remaining matters as expeditiously as possible. While we are required to indemnify New Cingular Wireless for any actual cash payments made to resolve any tax claims that may be asserted by the Mexican tax authorities from these audits, our position remains that New Cingular Wireless may not make a claim against the Mexico escrow account for any tax claims that may arise from these audits. In addition, New Cingular Wireless has indicated that it may continue to make additional claims for indemnification related to open audits in the future.

After the finalization of the five tax audits mentioned above, we will have three open tax audits remaining to resolve, including two tax audits that are currently in Mexican tax court related to the $12.2 million of tax assessments mentioned above, for which we have not accrued any liabilities as the chance of loss is not probable. The third tax audit is related to Nextel Mexico's main operating company's tax return for the year 2014, for which we are not currently aware of any losses that are reasonably possible of occurring.

There can be no assurance as to the outcome of the foregoing tax audits or indemnity ~~claims.~~claims or as to the ultimate timing of the release of the remaining escrow.


Note 7.4.	Debt, Derivatives and Fair Value Measurements

~~The components of our debt are as follows:~~

March 31, 2019 December 31, 2018
(in thousands)
Brazil equipment financing $ 238,335
$ 238,380
Brazil bank loans 168,917
169,946
Brazil spectrum financing 104,058
104,344
Convertible senior notes 73,866
72,264
Brazil finance lease and tower financing obligations 60,529
69,273
Total debt 645,705
654,207
Less: current portion (22,941 ) (21,350 )
$ 622,764
$ 632,857

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Convertible Senior Notes. In August 2018, we privately placed $100.0 million aggregate principal amount of 4.25% convertible senior notes due 2023, which we refer to as the convertible senior notes. We also granted the initial purchaser an option to purchase up to an additional $15.0 million principal amount of convertible senior notes, which was exercised in full. As a result, we issued a total of $115.0 million principal amount of convertible senior notes at par for total gross proceeds of $115.0 million. The convertible senior notes bear interest at a rate of 4.25% per year on the principal amount of the notes, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2019. The convertible senior notes mature on August 15, 2023, unless earlier converted or repurchased, when the entire principal balance of $115.0 million will be due. In addition, and subject to specified exceptions, upon the occurrence of a fundamental change, the noteholders have the right to require us to repurchase the notes for cash at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date. The convertible senior notes are convertible into shares of our common stock at an initial conversion rate of 160.9658 shares per $1,000 principal amount of notes, or 18,511,067 aggregate common shares, representing an initial conversion price of $6.21 per share, subject to adjustment in certain situations. The convertible senior notes are convertible, subject to adjustment, prior to the close of business on the business day immediately preceding February 15, 2023 only under certain circumstances. On or after February 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, noteholders may convert their notes at any time, regardless of the aforementioned circumstances. For the fiscal quarter ended ~~March 31,~~September 30, 2019, the closing sale price of our common stock did not exceed 130% of the conversion price of $6.21 per share for at least 20 trading days in the 30 consecutive trading days ending on ~~March 31,~~September 30, 2019. As a result, the conversion contingency was not met as of ~~March 31,~~September 30, 2019. We have the option to satisfy the conversion of the convertible senior notes in shares of our common stock, in cash or a combination of both. As of September 30, 2019 and December 31, 2018, we had $77.3 million and $72.3 million in long-term debt related to our convertible senior notes.

The conversion feature embedded in the convertible senior notes meets the criteria of an embedded derivative in accordance with the FASB's authoritative guidance for derivatives. As a result, we separated the value of the conversion feature from the notes and recorded the derivative liability at its fair value on our condensed consolidated balance sheet. As of ~~March 31,~~September 30, 2019, ~~and~~the fair value of the derivative liability was zero. As of December 31, 2018, we recorded the ~~$2.1 million and~~ $33.6 million fair ~~values~~value of the derivative liability ~~respectively,~~ as a component of other long-term liabilities in our condensed consolidated balance sheet. ~~See Note 8 for more information on this conversion feature.~~

Absent an amendment to the indenture to the convertible senior notes, at the closing of the ~~proposed~~ sale of Nextel Brazil, AMX will place a portion of the net proceeds payable to us in an escrow account in an amount equal to the outstanding principal and unpaid interest due through maturity.


~~Note 8.~~	~~Fair Value Measurements~~

~~Financial Instruments.~~

~~Short-Term Investments.~~

As of March 31, 2019 and December 31, 2018, short-term investments held by Nextel Brazil included $25.3 million and $32.3 million, respectively, in funds that invest primarily in Brazilian government bonds and long-term bank certificates of deposit. During the three months ended March 31, 2019 and 2018, we did not have any material unrealized gains or losses associated with these investments.

We account for our short-term investments at fair value. The fair value of Nextel Brazil's investment funds is measured based on the funds' net asset value as a practical expedient, which is excluded from the fair value hierarchy.

1915

NII HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Debt Instruments.~~

~~The carrying amounts~~Fair Value of Convertible Senior Notes. As of September 30, 2019 and ~~estimated~~December 31, 2018, the fair ~~values~~value of our ~~debt instruments are as follows:~~

March 31, 2019 December 31, 2018

Carrying
Amount

Estimated
Fair Value

Carrying
Amount

Estimated
Fair Value
(in thousands)
Brazil equipment financing $ 238,335
$ 235,275
$ 238,380
$ 233,581
Brazil bank loans $ 168,917
$ 126,308
$ 169,946
$ 119,218
Brazil spectrum financing $ 104,058
$ 144,010
$ 104,344
$ 123,531
Convertible senior notes $ 73,866
$ 110,877
$ 72,264
$ 80,704

convertible senior notes was $119.6 million and $80.7 million, respectively. We estimated the fair value of our convertible senior notes ~~as well as Nextel Brazil's bank loans, equipment financing and spectrum financing~~ utilizing inputs such as U.S. Treasury security yield curves, prices of comparable bonds, ~~LIBOR,~~ U.S. Treasury bond rates and credit spreads on comparable publicly traded bonds. We consider ~~these~~this fair value ~~measurements~~measurement to be Level 3 in the fair value hierarchy.

Fair Value of Conversion ~~Option for Convertible Senior Notes.~~

Option. We estimate the fair value of the conversion option embedded in the convertible senior notes using a binomial lattice model with daily nodes from the valuation date to the maturity date of the convertible senior notes. This model considers stock price, risk-free rates, credit spreads, dividend yields and expected volatility. We record gains or losses related to changes in the fair value of the conversion option derivative liability during the period. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, we recorded a ~~$31.5~~$33.6 million gain as a component of other income (expense), net in our condensed consolidated statement of comprehensive ~~income (loss)~~loss related to the change in the fair value of the conversion option. We consider this fair value measurement to be Level 3 in the fair value hierarchy.

~~Other Financial Instruments.~~

~~The carrying values~~Foreign Currency Call Option. In the third quarter of ~~cash and cash equivalents, accounts receivable and accounts payable contained~~2019, we purchased a foreign currency call option that expires on December 20, 2019 to protect against the appreciation of the Brazilian real compared to the U.S. dollar, which would reduce net proceeds from the pending sale of Nextel Brazil. We paid a premium of $1.9 million for this foreign currency call option. As of September 30, 2019, the fair value of this call option was $1.5 million. We consider this fair value measurement to be Level 3 in the fair value hierarchy. We recorded the $0.4 million loss on the fair value of the foreign currency call option as a component of loss from discontinued operations, net of income taxes in our condensed consolidated ~~balance sheets approximate their fair values due to~~statement of comprehensive loss during the ~~short-term nature of these instruments.~~three months ended September 30, 2019.


Note 9.	~~Commitments and Contingencies~~

~~PIS and COFINS Tax Credits.~~

Over the course of the last several years, we and many other Brazilian companies have filed lawsuits against the Brazilian government disputing whether state value-added taxes, referred to as ICMS, should be included in gross revenue for the purposes of calculating certain federal taxes levied on gross revenues, referred to as PIS and COFINS taxes. In March 2017, the Brazilian Supreme Court issued a decision on another company's case that established that ICMS should be excluded from the calculation of PIS and COFINS prospectively. Based on this ruling, Nextel Brazil immediately began excluding ICMS from its PIS and COFINS tax calculations. However, the Brazilian Supreme Court decision was not specific to Nextel Brazil's case, and therefore, Nextel Brazil was not yet entitled to credits for past overpayments.

~~On April 1, 2019, Nextel Brazil was notified by court order that it was awarded credits for its past PIS and COFINS tax overpayments, plus interest, totaling approximately~~ ~~783 million~~ ~~Brazilian reais, or~~ ~~$200.9 million~~ based on foreign currency exchange rates in effect at the time. As a result, in the first quarter of 2019, Nextel Brazil recognized an asset and corresponding benefit for PIS and COFINS credits of 59 million Brazilian reais, net of a success fee, or $11.2 million based on foreign currency exchange rates in effect at the time, which represented the portion of PIS and COFINS taxes that were paid subsequent to our emergence from Chapter 11 bankruptcy, which was when we applied fresh start accounting. Nextel Brazil will recognize the remaining balance of these credits as a benefit when the credits are utilized. Nextel Brazil has five years to utilize these credits. We currently expect that Nextel Brazil will generate sufficient tax liabilities in the ordinary course of business to fully utilize these tax credits prior to their expiration. However, under the terms of the purchase agreement with AMX, Nextel Brazil may not use these PIS and COFINS tax credits prior to closing the transaction, except for specific purposes at the request of AMX. In addition,

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~prior to utilizing these credits, Nextel Brazil is required to obtain authorization from the Brazilian tax authorities, which has not yet been completed.~~

~~Brazil Roaming and RAN Sharing Commitments.~~

In May 2016, Nextel Brazil entered into an amendment to a nationwide roaming voice and data services agreement with Telefonica Brazil, S.A., or Telefonica, to reduce the usage rates for its roaming traffic. Concurrently, Nextel Brazil entered into a 10-year radio access network, or RAN, sharing agreement with Telefonica, under which Telefonica will permit Nextel Brazil to use some of its tower and equipment infrastructure to transmit telecommunications signals on Nextel Brazil's spectrum. These agreements require Nextel Brazil to meet certain commitments over a five-year period totaling 800 million Brazilian reais, or approximately $246.2 million based on foreign currency exchange rates at the time, which replaced the remaining commitments under the original roaming agreement. As of March 31, 2019, Nextel Brazil had 180 million Brazilian reais, or $46.1 million based on current foreign currency exchange rates, in remaining commitments related to its roaming agreement and 223 million Brazilian reais, or $57.2 million based on current foreign currency exchange rates, in remaining commitments related to its RAN sharing agreement.

~~Contingencies.~~

Nextel Brazil has received various assessment notices from municipal, state and federal Brazilian authorities asserting deficiencies in payments related primarily to value-added taxes 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. In connection with these petitions, Nextel Brazil is regularly required to make a judicial guarantee through a deposit of cash to cover the amount in dispute in order to file and/or appeal claims. As of March 31, 2019 and December 31, 2018, Nextel Brazil also had contingencies related to certain consumer, contract and labor-related matters, some of which are secured by judicial guarantees. Even in cases where there is no probable loss, Nextel Brazil may in the future be subject to litigation involving tax and other matters requiring material judicial deposits of cash that will not be released until the pending matter is resolved.

~~As of both~~ ~~March 31, 2019~~ ~~and December 31,~~ ~~2018~~, Nextel Brazil had accrued liabilities of $76.3 million related to contingencies, of which $6.6 million and $6.7 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 $900.0 million as of ~~March 31, 2019~~. We continue 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.

~~Legal Proceedings.~~

We are subject to claims and legal actions that may arise in the ordinary course of business. We do not believe that any of these pending claims or legal actions will have a material effect on our business, financial condition, results of operations or cash flows.


~~Note 10.~~5.	Income Taxes

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. ~~In 2017 and 2018, w~~We ~~maintained~~maintain 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 such as the recent history of cumulative losses and the projected losses for the remainder of 2019 and subsequent years. We ~~maintained this same valuation allowance position through the first quarter of 2019~~.

~~NII HOLDINGS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


~~Note 11.~~	~~Segment Reporting~~

We have determined our reportable segment based on our method of internal reporting, which disaggregates our business by geographic location. We evaluate performance and provide resources to it based on operating income before depreciation, amortization and impairment, restructuring and other charges, net, which we refer to as segment earnings. Nextel Brazil is our only reportable operating segment.

Nextel Brazil Corporate Consolidated
(in thousands)
Three Months Ended March 31, 2019

Operating revenues $ 146,815
$ —
$ 146,815
Segment earnings (losses) $ 23,109
$ (8,081 ) $ 15,028
Less:

Impairment, restructuring and other charges, net (5,791 )
Depreciation and amortization

(8,356 )
Foreign currency transaction losses, net

(1,618 )
Interest expense and other, net

2,576
Income from continuing operations before income tax benefit

$ 1,839
Capital expenditures $ 6,851
$ —
$ 6,851

Three Months Ended March 31, 2018

Operating revenues $ 181,220
$ 21
$ 181,241
Segment earnings (losses) $ 1,045
$ (4,262 ) $ (3,217 )
Less:

Impairment, restructuring and other charges, net (2,351 )
Depreciation and amortization

(7,725 )
Foreign currency transaction losses, net

(1,188 )
Interest expense and other, net

(27,550 )
Loss from continuing operations before income tax benefit

$ (42,031 )
Capital expenditures $ 8,291
$ —
$ 8,291

March 31, 2019

Identifiable assets $ 1,187,252
$ 195,016
$ 1,382,268
December 31, 2018

Identifiable assets $ 857,385
$ 202,445
$ 1,059,830

2216


Item 2.	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

Introduction	2418
Executive Overview	2418
Critical Accounting Policies and Estimates	2620
Results of Operations	27
~~a. Consolidated~~	28
~~b. Nextel Brazil~~	29
~~c. Corporate~~	3221
Liquidity and Capital Resources	3223
Future Capital Needs and Resources	3425
Effect of New and Recently Adopted Accounting Standards	3626
Forward-Looking and Cautionary Statements	3626

2317

Introduction

The following is a discussion and analysis of:

our consolidated financial condition as of ~~March 31,~~September 30, 2019 and December 31, 2018 and our consolidated results of operations for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018; and

significant factors that we believe could affect our prospective financial condition and results of operations.

You should read this discussion in conjunction with our 2018 annual report on Form 10-K and our quarterly reports on Form 10-Q for the periods ended March 31, 2019 and June 30, 2019, including, but not limited to, the discussion regarding our critical accounting policies and estimates, as described below. Historical results may not indicate future performance. See "Forward-Looking and Cautionary Statements" and "Item 1A. — Risk Factors" in our 2018 annual report on Form 10-K for risks and uncertainties that may impact our future performance. We refer to our majority-owned Brazilian operating company, Nextel Telecomunicações Ltda., as Nextel Brazil. On June 27, 2019, NII Holdings' stockholders approved the sale of Nextel Brazil. See discussion below for more information regarding this pending sale. As a result of this stockholder approval, we have reported Nextel Brazil as a discontinued operation in this quarterly report on Form 10-Q. Accordingly, we have reclassified Nextel Brazil's results of operations for all periods presented to reflect Nextel Brazil as discontinued operations. Unless otherwise noted, amounts included herein exclude amounts attributable to the discontinued operations of Nextel Brazil. Our consolidated results from continuing operations in this quarterly report on Form 10-Q solely include the results of operations of our corporate headquarters.

Executive Overview

Under the terms of the purchase agreement, AMX will acquire all of the issued and outstanding shares of NIIBH for an aggregate purchase price of $905.0 million, less net debt and subject to certain adjustments at closing, including reimbursement for capital expenditures up to a budgeted amount from March 1, 2019 to closing, a working capital adjustment (subject, in the case of an increase in net working capital, to a cap based on budgeted changes in working capital through the earlier of closing or December 31, 2019), and a deduction for the amount, if any, by which certain budgeted selling and marketing costs exceed actual spending on such costs from March 1, 2019 to closing. NII Holdings will receive its pro rata share of the net purchase price after deducting a preferred return due to AI Brazil Holdings and deducting certain transaction expenses and increases in accrued tax contingencies, if any. AMX will place $30.0 million of NII Holdings' portion of the net proceeds into an 18-month escrow account to secure NII Holdings' indemnification obligations under the purchase agreement.

The closing of the transactions contemplated by the purchase agreement are subject to the satisfaction of customary conditions, including approval ofby NII Holdings' stockholders, the ~~stockholders of NII Holdings,~~ receipt of required regulatory and antitrust approvals without the imposition of a burdensome condition (as defined in the purchase agreement) and either an amendment eliminating certain successor obligations contemplated under, or an escrow agreement providing for a deposit in accordance with, NII Holdings' indenture with respect to our 4.25% convertible senior notes due 2023. Among other things, NIIH has agreed to conduct NIIBH’s and each of its subsidiaries’ business in the ordinary course, use reasonable best efforts to operate its business in accordance with its budget for the year 2019 and the year 2020, if applicable, and use commercially reasonable efforts to maintain and preserve its business organization and preserve certain business relations.

Holdings must agree on a 2020 operating budget for Nextel Brazil to extend the purchase agreement to March 31, 2020.

The foregoing description of the purchase agreement and transactions is a summary. For more information, please see the purchase agreement filed as Exhibit 10.3 to ~~this~~our quarterly report on Form 10-Q for the three months ended March 31, 2019 and our definitive proxy statement filed on May 6, 2019. Investors and security holders are urged to read the proxy statement and any other relevant documents that have been or will be filed with the Securities and Exchange Commission, or the SEC, carefully and in their entirety because they contain important information about the transactions.

In September 2018, ice group completed a sale of its 30% ownership interest in Nextel Holdings by selling the shares of its intermediary holding company, AI Brazil Holdings, to AI Media Holdings (NMT) LLC (90%) and Bridford Music B.V. (10%). During 2018, AI Brazil Holdings made an additional $15.9 million investment in Nextel Holdings to maintain its ~~current~~30% ownership level. ~~Since we continue~~During the second quarter of 2019, NII Holdings contributed $15.3 million to ~~have a controlling interest in~~ Nextel Holdings, and AI Brazil ~~we have consolidated this entity~~Holdings contributed $2.7 million to Nextel Holdings, which increased NII Holdings' ownership to 70.70% and ~~its subsidiaries.~~reduced AI Brazil Holdings' ownership from 30% to 29.30%. In addition, during the third quarter of 2019, NII Holdings contributed $24.3 million to Nextel Holdings, which increased NII Holdings' ownership to 72.43% and further reduced AI Brazil Holdings' ownership to 27.57%.

Nextel Brazil Business Overview. ~~We provide~~Nextel Brazil provides wireless communication services under the Nextel^TM brand in Brazil with ~~our~~its principal operations located in major urban and suburban centers with high population densities and related transportation corridors where there is a concentration of Brazil’s population and economic activity, including primarily Rio de Janeiro and São Paulo. Nextel Brazil operates a wideband code division multiple access, or WCDMA, network, which has been upgraded to offer long-term evolution, or LTE, services in certain areas. We are also a party to a roaming agreement that allows us to offer our subscribers nationwide voice and data services outside of our network's footprint. Our target market is individual consumers who use our services to meet both professional and personal needs. Our target subscribers generally exhibit above average usage, revenue and loyalty characteristics. We believe our subscribers are attracted to the services and pricing plans we offer, the quality of and data speeds provided by our network and our dedicated customer service.

~~The services we currently offer include:~~

~~mobile telephone voice and wireless data services;~~

~~international voice and data roaming services; and~~

~~value-added services, including sports, music and entertainment streaming capabilities; online education; and access to national and international WiFi hotspot networks.~~

Our original network utilized integrated digital enhanced network, or iDEN, technology to provide mobile services on our 800 megahertz, or MHz, spectrum holdings. During the last several years, Nextel Brazil experienced iDEN subscriber losses and overall declines in its iDEN service revenue. In response to continued subscriber losses on its iDEN network, in late 2017, Nextel Brazil decided to wind down its iDEN operations. After migrating some subscribers to its WCDMA network, Nextel Brazil disconnected all of its remaining iDEN subscribers at the end of the second quarter of 2018.

The majority of our subscribers purchase services from us by acquiring subscriber identity module, or SIM, cards from us and using these SIM cards in handsets that they acquire separately from other sources. As of ~~March 31,~~September 30, 2019, Nextel Brazil had about ~~3.438~~3.528 million total subscriber units in commercial service, which we estimate to be about 4% of total postpaid mobile handsets and other devices in commercial service in Brazil. ~~We refer to these subscriber units in commercial service collectively as our subscriber base.~~

Pending the completion of the sale of Nextel Brazil, we expect to continue to operate our business in the ordinary course. Our goal is to grow our subscriber base and revenues by providing differentiated wireless communications services that are valued by our existing and potential subscribers. We have also been taking actions to reduce costs in our business to lower our spending and preserve our liquidity ~~in the near term~~ while improving our profitability and cash ~~flow over the long term. Our strategy for achieving these goals is based on several core principles, including:~~

~~offering a unique and superior customer-centric experience, including a reliable and high quality wireless network and rate plan flexibility;~~

continuing to implement cost reduction strategies and reconfiguring our network architecture in order to lower cash costs per user, gain scale advantages, create an agile organization and improve overall profitability;flow.

2519

~~offering simple and valuable service plans that generate higher average revenue per user, or ARPU, and result in lower subscriber turnover; and~~

~~building on the strength of the unique positioning of the Nextel brand.~~

Recently, Brazil experienced one of the worst economic recessions in its history, characterized by years of negative wage growth, a net loss of jobs, higher unemployment and lower consumer confidence. These economic conditions and trends resulted in a decline in the amount of consumer disposable income that is available to purchase telecommunications services and negatively impacted Nextel Brazil's results of operations for recent prior years. Although recent data indicates that Brazil's economy is beginning to recover, the growth is slow with gradual improvements.

In recent years, we have implemented changes in our business to better align our organization and costs with our operational and financial results and improve our customers' experience. These changes have included a transition to lower cost subscriber acquisition channels, initiatives to reduce operating costs, including headcount reductions, and projects designed to gain operational and capital expenditure efficiencies in Brazil, all of which were intended to reduce costs while maintaining the support necessary to meet our subscribers' needs. We expect that, if we can continue to maintain subscriber turnover levels similar to those experienced in 2018 and to date and grow our WCDMA subscriber base, we will be able to generate higher revenues in the future. See “~~Liquidity and Capital Resources” and “Future Capital Needs and Resources” for more information.~~

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in our condensed consolidated financial statements and accompanying notes. Although we believe that our estimates and judgments are reasonable, they are based on presently available information. Due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.

~~As described in more detail in our 2018 annual report on Form 10-K under “Management's Discussion and Analysis of Financial Condition and Results of Operations,” we~~We consider the following accounting policies to be the most important to our financial position and results of operations or policies that require us to exercise significant judgment and/or estimates:

~~revenue recognition;~~

~~allowance for doubtful accounts;~~

~~depreciation of property, plant and equipment;~~

~~amortization of intangible assets;~~

~~valuation of long-lived assets;~~

foreign currency;

~~loss contingencies;~~ and

income taxes.

~~Addition~~The aforementioned critical accounting policies are described in more detail in our 2018 annual report on Form 10-K under “Management's Discussion and Analysis of ~~Lease Accounting Policy.~~ AsFinancial Condition and Results of Operations.” Certain accounting policies that were determined to be critical in our 2018 annual report on Form 10-K are no longer deemed critical as a result of the ~~implementation~~classification of Accounting Standards Update, or ASU, No. 2016-02, "Leases," which we refer to as ASC 842, beginning January 1, 2019, we recognized most of our leases on our condensed consolidated balance sheet as liabilities with corresponding right-of-use, or ROU, assets and derecognized certain accrued liabilities related to lease exit costs.

In those situations where we have agreements under which we lease ground or rooftop space on which to locate our transmitter and receiver sites owned by third parties, as well as in situations where we have sold and subsequently leased back space on certain transmitter and receiver sites, we continue to account for these transactions as financing arrangements since the leasebacks are classified as finance leases.

available at the later of the date of initial application or lease commencement date when determining the present value of future payments. ROU assets related to operating leases include any lease payments made to date and initial direct costs incurred, if any, net of any lease incentives received. Our lease terms may include options to extend or not terminate the lease when it is reasonably certain that this option will be exercised. We recognize lease expense related to operating leases on a straight line basis over the term of the lease, except in situations where the ROU asset is impaired. In these cases, we recognize operating lease expense related to lease liability accretion utilizing the effective interest rate method.

Other than the addition of lease accounting as a critical accounting policy, there have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2019.

~~Results of Operations~~

In accordance with accounting principles generally accepted in the U.S., we translated the results of operations of our Brazilian operating segment into U.S. dollars using the average foreign currency exchange rates for the applicable period. The following table presents the average foreign currency exchange rates we used to translate Nextel Brazil's results of operations, as well as changes from the average foreign currency exchange rates utilized in the prior period.

Three Months Ended March 31, Actual Percent Change From Prior Year
2019 2018
Brazilian real 3.77
3.24
(16 )%

~~The following table presents the foreign currency exchange rates in effect at the end of each of the quarters in 2018, as well as at the end of the first quarter of 2019.~~

2018 2019
March June September December March
Brazilian real 3.32
3.86
4.00
3.87
3.90

The percentage amounts presented in the “Actual Change from Previous Year” and the “Constant Currency Change from Previous Year” columns in the tables below reflect the positive (better, or B,) or negative (worse, or W,) growth rates for each of the line items. In addition, to provide better transparency into Nextel Brazil's results of operations, we present the year-over-year percentage change in each of the line items presented on a consolidated basis and for Nextel Brazil 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 three months ended March 31, 2018 to amounts that would have resulted if the average foreign currency exchange rate for the three months ended March 31, 2018 was the same as the average foreign currency exchange rate that was in effect for the three months ended March 31, 2019; and (ii) by comparing the constant currency financial measures for the three months ended March 31, 2018 to the actual financial measures for the three months ended March 31, 2019. This constant currency comparison applies consistent exchange rates to the operating revenues earned in Brazilian reais and to the other components of segment earnings for the three months ended March 31, 2018. 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.

2720

~~a. Consolidated~~Results of Operations

Three Months Ended
March 31, 2019

Three Months Ended
March 31, 2018

Actual Change from
Previous Year
Constant Currency Change from Previous Year
Dollars B(W) Change B(W) Change
(dollars in thousands)
Brazil segment earnings 23,109
1,045
22,064
NM
NM
Corporate segment losses (8,081 ) (4,262 ) (3,819 ) (90 )% (90 )%
Consolidated segment earnings (losses) 15,028
(3,217 ) 18,245
NM
NM
Impairment, restructuring and other charges, net (5,791 ) (2,351 ) (3,440 ) (146 )% (180 )%
Depreciation and amortization (8,356 ) (7,725 ) (631 ) (8 )% (26 )%
Operating income (loss) 881
(13,293 ) 14,174
107 % 107 %
Interest expense, net (29,322 ) (26,606 ) (2,716 ) (10 )% (28 )%
Interest income 3,769
5,386
(1,617 ) (30 )% (19 )%
Foreign currency transaction losses, net (1,618 ) (1,188 ) (430 ) (36 )% (58 )%
Other income (expense), net 28,129
(6,330 ) 34,459
NM
NM
Income (loss) from continuing operations before income tax benefit 1,839
(42,031 ) 43,870
104 % 105 %
Income taxes —
—
—
NM
NM
Net income (loss) from continuing operations 1,839
(42,031 ) 43,870
104 % 105 %
Loss from discontinued operations, net of income taxes (2,697 ) (121 ) (2,576 ) NM
NM
Net loss (858 ) (42,152 ) 41,294
98 % 98 %
Net loss attributable to noncontrolling interest (5,763 ) (11,256 ) 5,493
49 % 49 %
Net income (loss) attributable to NII Holdings $ 4,905
$ (30,896 ) $ 35,801
116 % 119 %



	September 30,						Actual Change from Previous Year
Three Months Ended	2019			2018			Dollars			B(W) Change
Operating expenses
Selling, general and administrative	$	(3,834	)	$	(4,080	)	$	246		6	%
Restructuring charges, net	(139		)	—			(139		)	NM
	(3,973		)	(4,080		)	107			3	%
Operating loss	(3,973		)	(4,080		)	107			3	%
Other (expense) income
Interest expense	(3,018		)	(1,341		)	(1,677		)	(125	)%
Other income (expense), net	199			(13,217		)	13,416			102	%
	(2,819		)	(14,558		)	11,739			81	%
Loss from continuing operations before income taxes	(6,792		)	(18,638		)	11,846			64	%
Income taxes	—			—			—			NM
Net loss from continuing operations	(6,792		)	(18,638		)	11,846			64	%
Loss from discontinued operations, net of income taxes	(27,693		)	(31,246		)	3,553			11	%
Net loss	(34,485		)	(49,884		)	15,399			31	%
Net loss attributable to noncontrolling interest	(4,581		)	(8,866		)	4,285			48	%
Net loss attributable to NII Holdings	$	(29,904	)	$	(41,018	)	$	11,114		27	%

Nine Months Ended
Operating expenses
Selling, general and administrative	$	(12,785	)	$	(12,230	)	$	(555	)	(5	)%
Restructuring charges, net	(139		)	(352		)	213			61	%
	(12,924		)	(12,582		)	(342		)	(3	)%
Operating loss	(12,924		)	(12,582		)	(342		)	(3	)%
Other (expense) income
Interest expense	(8,744		)	(1,341		)	(7,403		)	NM
Other income (expense), net	34,630			(13,041		)	47,671			NM
	25,886			(14,382		)	40,268			280	%
Income (loss) from continuing operations before income taxes	12,962			(26,964		)	39,926			148	%
Income taxes	—			—			—			NM
Net income (loss) from continuing operations	12,962			(26,964		)	39,926			148	%
Loss from discontinued operations, net of income taxes	(65,423		)	(164,360		)	98,937			60	%
Net loss	(52,461		)	(191,324		)	138,863			73	%
Net loss attributable to noncontrolling interest	(13,952		)	(47,965		)	34,013			71	%
Net loss attributable to NII Holdings	$	(38,509	)	$	(143,359	)	$	104,850		73	%

NM-Not Meaningful

We define segment earnings as operating loss before depreciation, amortization and impairment, restructuring and other charges, net. We recognized consolidated segment earnings of $15.0 million during the three months ended March 31, 2019 compared to consolidated segment losses of $3.2 million during the same period in 2018. Our consolidated results include the results of operations of our Brazil segment and our corporate operations in the sections that follow.


1.	~~Impairment, restructuring and other charges, net~~

~~Consolidated impairment, restructuring and other charges,~~1. Interest expense, net recognized in the first quarter of 2019 included $2.8 million in restructuring charges related to future lease costs for certain transmitter and receiver sites that were no longer required in Nextel Brazil's business, as well as accretion expense related to the associated liabilities.

~~Consolidated impairment, restructuring and other charges,~~Interest expense, net, ~~recognized~~ in ~~the first quarter of 2018 primarily consisted of the following:~~all periods presented relates to interest incurred under our convertible senior notes, which we issued in August 2018.

$15.0 million in restructuring costs related to future lease costs for approximately 150 iDEN-related transmitter and receiver sites and the separation of approximately 75 employees; partially offset by

the reversal of $13.7 million in previously accrued restructuring charges related to approximately 250 transmitter and receiver sites that Nextel Brazil has identified as sites that it plans to exchange with certain of its tower lessors.


2.	~~Other income (expense), net~~

2. Other income (expense), net

Other income, net, ~~of $28.1 million for~~in the ~~first quarter of~~nine months ended September 30, 2019 is primarily due to the ~~$31.5~~$33.6 million gain related to the change in the fair value of the conversion option included in our convertible senior notes.

3. Loss from discontinued operations, net of income taxes

b.Loss from discontinued operations, net of income taxes, decreased $3.6 million, or 11%, and $98.9 million, or 60%, from the three and nine months ended September 30, 2018 to the same periods in 2019 as Nextel Brazil

Three Months Ended
March 31, 2019

% of
Nextel Brazil’s
Operating Revenues

Three Months Ended
March 31, 2018

% of
Nextel Brazil’s
Operating Revenues

Actual Change from
Previous Year
Constant Currency Change from Previous Year
Dollars B(W) Change B(W) Change
(dollars in thousands)
Service and other revenues $ 146,015
99 % $ 176,179
97 % $ (30,164 ) (17 )% (4 )%
Handset and accessory revenues 800
1 % 5,041
3 % (4,241 ) (84 )% (82 )%
Cost of handsets and accessories (5,081 ) (4 )% (9,065 ) (5 )% 3,984
44 % 35 %
Handset and accessory net subsidy (4,281 ) (3 )% (4,024 ) (2 )% (257 ) (6 )% (24 )%
Cost of service (exclusive of
depreciation and amortization)
(61,377 ) (44 )% (84,507 ) (46 )% 23,130
27 % 16 %
Selling and marketing expenses (18,176 ) (12 )% (21,231 ) (12 )% 3,055
14 % —
General and administrative expenses (39,072 ) (27 )% (65,372 ) (36 )% 26,300
40 % 31 %
Segment earnings $ 23,109
16 % $ 1,045
1 % $ 22,064
NM
NM

~~NM-Not Meaningful~~

~~The average value of~~ reported $27.9 million and $55.2 million improvements in segment earnings, respectively, and incurred $7.5 million and $7.0 million less depreciation and amortization expense, respectively, as Nextel Brazil ceased depreciation and amortization in June 2019 when its assets were reclassified as held for sale. In addition, the ~~Brazilian real depreciated relative to~~decrease for the ~~U.S. dollar during the three~~nine months ended March 31, 2019 by 16% compared to the average value that prevailed during the three months ended March 31, 2018. As a result, the components of Nextel Brazil's results of operations for the three months ended March 31, 2019, 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. To the extent the value of the Brazilian real depreciates further relative to the U.S. dollar, Nextel Brazil's future reported results of operations will be adversely affected.

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 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 subscriber turnover rates for each of the quarters in 2018 and for the first quarter of 2019. We calculate subscriber turnover by dividing subscriber deactivations for the period by the average number of subscriber units during that period.

Three Months Ended
March 31, 2018 June 30, 2018 September 30, 2018 December 31, 2018 March 31, 2019
(subscribers in thousands)
WCDMA subscriber units 2,896.1
3,023.8
3,121.0
3,206.7
3,306.0
iDEN subscriber units 349.6
230.4
—
—
—
Total subscriber units in commercial service — beginning of period 3,245.7
3,254.2
3,121.0
3,206.7
3,306.0

WCDMA net subscriber additions 92.9
65.7
85.7
99.3
132.1
iDEN net subscriber losses (84.4 ) (198.9 ) —
—
—
Total net subscriber additions (losses) 8.5
(133.2 ) 85.7
99.3
132.1

Migrations from iDEN to WCDMA 34.8
31.5
—
—
—

WCDMA subscriber units 3,023.8
3,121.0
3,206.7
3,306.0
3,438.1
iDEN subscriber units 230.4
—
—
—
—
Total subscriber units in commercial service — end of period 3,254.2
3,121.0
3,206.7
3,306.0
3,438.1

WCDMA subscriber turnover 2.37 % 2.75 % 2.68 % 2.62 % 2.35 %
iDEN subscriber turnover 9.67 % NM
—
—
—
Total subscriber turnover 3.02 % 4.68 % 2.68 % 2.62 % 2.35 %

~~NM-Not Meaningful~~

Over the last several years, Nextel Brazil experienced high subscriber turnover on its iDEN network, and in late 2017, Nextel Brazil decided to wind down its iDEN operations. After migrating some subscribers to its WCDMA network, Nextel Brazil disconnected all of its remaining iDEN subscribers at the end of the second quarter of 2018. Although Nextel Brazil did not have any significant non-recurring cash expenditures associated with its iDEN network shutdown, Nextel Brazil will continue to incur rent costs related to certain iDEN transmitter and receiver sites subsequent to their shutdown until these leases end.

In August 2017, Nextel Brazil began offering unlimited voice rate plans on its WCDMA network in response to the increasingly competitive environment. As a result of its efforts to migrate existing customers to these types of unlimited rate plans, as well as other targeted efforts to promote customer loyalty and improve collections, Nextel Brazil's WCDMA subscriber turnover began to decline in the fourth quarter of 2017 before stabilizing at a slightly higher level later in 2018. Nextel Brazil's lower levels of WCDMA subscriber turnover in both the first quarters of 2018 and 2019 resulted from beginning-of-year seasonality.

The following table represents Nextel Brazil's service ARPU for subscribers on both its iDEN and WCDMA networks for each of the quarters in 2018, as well as for the first quarter of 2019, in both U.S. dollars (US$) and in Brazilian reais (BR). We calculate service ARPU by dividing service revenues per period by the weighted average number of subscriber units in commercial service during that period.

Three Months Ended
March 31, 2018
June 30,
2018

September 30,
2018
December 31, 2018 March 31, 2019
Total service ARPU (US$) 17
15
14
14
14
  WCDMA service ARPU (US$) 18
15
14
14
14
  iDEN service ARPU (US$) 12
8
—
—
—

Total service ARPU (BR) 56
54
56
53
53
  WCDMA service ARPU (BR) 58
55
56
53
53
  iDEN service ARPU (BR) 38
26
—
—
—

September 30,

Overall market pricing in Brazil has been declining over time. A higher proportion of new subscribers have selected entry level plans, resulting in a decrease in service ARPU throughout 2018. Nextel Brazil's service ARPU increased slightly in local currency in the third quarter of 2018 as a result of an annual inflationary-based price increase and dropped slightly in the fourth quarter of 2018. Nextel Brazil's service ARPU remained stable in the first quarter of 2019. Although Nextel Brazil is promoting the migration of certain of its customers to upgraded rate plans in an effort to stabilize its service ARPU, the competitive trends Nextel Brazil has recently experienced could negatively impact service ARPU in the future.

On April 1, 2019, Nextel Brazil was notified by court order that it was awarded credits for its past PIS and COFINS tax overpayments, plus interest, totaling approximately 783 million Brazilian reais, or $200.9 million based on foreign currency exchange rates in effect at the time. As a result, in the first quarter of 2019, Nextel Brazil recognized an asset and corresponding benefit for PIS and COFINS credits of 59 million Brazilian reais, net of a success fee, or $11.2 million based on foreign currency exchange rates in effect at the time, which represented the portion of PIS and COFINS taxes that were paid subsequent to our emergence from Chapter 11 bankruptcy, which was when we applied fresh start accounting. Nextel Brazil will recognize the remaining balance of these credits as a benefit when the credits are utilized. Nextel Brazil has five years to utilize these credits. We currently expect that Nextel Brazil will generate sufficient tax liabilities in the ordinary course of business to fully utilize these tax credits prior to their expiration. However, under the terms of the purchase agreement with AMX, Nextel Brazil may not use these PIS and COFINS tax credits, except for specific purposes at the request of AMX. In addition, prior to utilizing these credits, Nextel Brazil is required to obtain authorization from the Brazilian tax authorities, which has not yet been completed.

~~Results Overview~~

Nextel Brazil's WCDMA operating revenues were $146.8 million in the three months ended March 31, 2019 and $169.3 million in the three months ended March 31, 2018. Nextel Brazil's iDEN subscriber base declined steadily over time and culminated in the wind down of the iDEN network at the end of the second quarter of 2018. Nextel Brazil's iDEN operating revenues were $11.9 million in the three months ended March 31, 2018. Nextel Brazil's segment earnings improved $22.1 million during the three months ended March 31, 2019 compared to the same period in 2018 is largely the result of a $37.2 million decrease in foreign currency transaction losses. The decreases over both periods were partially offset by $11.2 million and $15.1 million in losses, respectively, for accruals related to certain tax audits in Mexico. Additionally, the decrease in the three months ended September 30, 2019 compared to the same period in 2018 was partially offset by a $14.5 million increase in foreign currency transaction losses.

Nextel Brazil's segment earnings improved from the three and nine months in 2018 to the same periods in 2019 primarily as a result of ~~the PIS and COFINS benefit discussed above and~~ significant cost reductions, which resulted in ~~a $56.5~~$20.7 million, or ~~31%~~16%, ~~decrease~~and $96.7 million, or 21%, decreases in operating expenses, ~~partially offset by lower operating revenues.~~respectively, related to the following:


1.	~~Service and other revenues~~

~~Service and other revenues decreased $30.2~~$16.0 million, or ~~17%~~40%, ~~on a reported basis, in the first quarter of 2019 compared to the first quarter of 2018,~~ and 4% on a constant currency basis, as a result of the decrease in local currency WCDMA service ARPU discussed above and the loss of iDEN revenues, partially offset by higher revenues generated from 14% growth in Nextel Brazil's WCDMA subscriber base from 3.0 million subscribers at the end of the first quarter of 2018 to 3.4 million subscribers at the end of the first quarter of 2019.


2.	~~Handset and accessory net subsidy~~

During the first quarter of 2019, approximately 97% of Nextel Brazil's new WCDMA subscribers represented subscribers who utilized their existing handsets rather than purchasing a new handset from Nextel Brazil compared to approximately 95% in the first quarter of 2018, which resulted in relatively low levels of handset and accessory net subsidy.


3.	~~Cost of service~~

~~Cost of service decreased $23.1~~$39.9 million, or ~~27%~~28%, ~~on a reported basis, and 16% on a constant currency basis, in the first quarter of 2019 compared to the first quarter of 2018 primarily due to an $17.6 million, or 31%, decrease~~decreases in transmitter and receiver site and switch costs, ~~the majority~~respectively, $8.9 million of which in both periods related to ~~lower rent, maintenance and energy costs, which was partially a result~~the cessation of ~~fewer transmitter and receiver sites in service in connection with~~amortization on right-of-use assets due to the ~~wind down~~classification of ~~Nextel Brazil's iDEN network. The overall decrease in cost of service was also partially attributable to~~ these assets as held-for-sale;

lower mobile termination ~~rates and~~ rates;

lower ~~interconnect costs~~customer contingencies related to fewer claims in 2019;

the ~~wind down~~reversal of $6.9 million related to a previously recorded accrual for certain long distance calls that were the result of fraudulent network usage not considered billable to Nextel Brazil as the loss was no longer probable; and

a $10.8 million increase in tax credits from the nine months ended September 30, 2018 to the same period in 2019; partially offset by

$4.6 million, or 64%, and $10.4 million, or 38%, increases in bad debt expense from the three and nine months ended September 30, 2018 to the same periods in 2019.

In addition, Nextel Brazil's ~~iDEN network at the end of the second quarter of 2018.~~


4.	~~Selling and marketing expenses~~

~~Selling and marketing expenses decreased $3.1~~WCDMA service revenues increased $6.8 million, or ~~14%~~5%, ~~on a reported basis in~~from the ~~first quarter of 2019 compared to the first~~third quarter of 2018 ~~due~~ to the ~~decrease~~third quarter of 2019. However, from the nine months ended September 30, 2018 to the same period in 2019, Nextel Brazil's WCDMA service revenues decreased $14.1 million, or 3%, resulting from an 8% depreciation in the average value of the Brazilian real relative to the U.S. dollar. ~~On a constant~~Nextel Brazil's WCMDA service ARPU in local currency ~~basis, selling and marketing expenses were relatively flat.~~


5.	~~General and administrative expenses~~

~~General and administrative expenses decreased $26.3 million, or 40%, on a reported basis, and 31% on a constant currency basis, in~~remained stable at 53 Brazilian reais during the first quarter of 2019 compared to the first quarter of 2018 as a result of the $11.2 million benefit Nextel Brazil recognized related to its past PIS and COFINS overpayments, partially offset by an increase in bad debt expense related to a non-recurring adjustment for certain renegotiated customer invoices in the first quarternine months of 2019.

~~c. Corporate~~

Three Months Ended
March 31, 2019

Three Months Ended
March 31, 2018

Change from
Previous Year
Dollars B(W) Change
(dollars in thousands)
Service and other revenues $ —
$ 21
$ (21 ) (100 )%
General and administrative expenses (8,081 ) (4,283 ) (3,798 ) (89 )%
Segment losses $ (8,081 ) $ (4,262 ) $ (3,819 ) (90 )%

Segment losses increased $3.8 million, or 90%, in the three months ended March 31, 2019 compared to the same period in 2018 due to $3.9 million in costs that we incurred related to the proposed sale of Nextel Brazil.

Liquidity and Capital Resources

As of ~~March 31,~~September 30, 2019, excluding assets and liabilities held for sale, we had working capital of ~~$81.7~~$126.2 million, ~~an $81.4~~a $62.4 million decrease compared to working capital of ~~$163.1~~$188.6 million as of December 31, 2018, primarily due to the new operating lease liabilities we recognized in connection with the implementation of the new lease accounting standard on January 1, 2019, as well as cash used in our operations.2018. Our working capital included ~~$94.6~~$29.3 million in cash and cash ~~equivalents, of which $1.5 million was held by Nextel Brazil in Brazilian reais, and $25.3 million in short-term investments, which was also held in Brazilian reais.~~equivalents. As of ~~March 31,~~September 30, 2019, we also had ~~$106.1~~$103.4 million in cash held in escrow in connection with the sale of Nextel Mexico ~~which we classified as a component of prepaid expenses~~ and ~~other~~$51.5 million in ~~our condensed consolidated balance sheet.~~

cash and short-term investments held for sale. A substantial portion of our U.S. dollar-denominated cash and cash equivalents ~~and short-term investments~~ is held in bank deposits, and our cash, cash equivalents and short-term investments held in Brazilian reais are typically maintained in money market funds that have daily liquidity. The values of our cash, cash equivalents and short-term investments that are held in Brazilian reais will fluctuate in U.S. dollars based on changes in the exchange rate of the Brazilian real relative to the U.S. dollar.deposits.

~~During~~

In July 2018, the tax audits related to Nextel Mexico's main operating company's income tax returns for the years 2010 and 2011 were finalized, and we filed amended tax returns. We settled the tax liabilities associated with these tax audits utilizing existing tax credits, with the exception of $4.0 million that we paid utilizing cash held in escrow. In March 2019, the tax audit related to Nextel Mexico's main operating company's income tax return for the year 2013 was finalized, and we filed an amended tax return. There was no cash outlay related to the finalization of the tax audit for the year 2013. The tax audit for the year 2013 represented $1.1 million of the total claims outstanding. In June 2019, the tax audit related to Nextel Mexico's main operating company's income tax return for the year 2012 was finalized, and we filed an amended tax return. We settled the tax liabilities associated with this tax audit utilizing $2.7 million of cash held in escrow. As a result, of the $72.4 million in combined claims relating to the tax audits of the years 2010, 2011 and ~~2011,~~2012 for Nextel Mexico's main operating company, we have requested that New Cingular Wireless agree to the release of ~~$68.3~~$65.8 million from ~~escrow.~~ escrow, and we expect to request the release of $1.1 million in the near future.

In October 2019, we agreed to settlement terms with the Mexican tax authorities related to five additional tax audits for certain of Nextel Mexico's subsidiaries. New Cingular Wireless' claims against the escrow account include $24.4 million related to these tax audits. Based on the terms to which we agreed with the tax authorities, we expect to pay $15.1 million to close these tax audits. The finalization of these tax audits requires that we file amended tax returns, which we expect to complete during the fourth quarter of 2019 for four of the tax audits and in the first quarter of 2020 for the fifth tax audit. Once these amended tax returns are accepted by the Mexican tax authorities, we expect to request New Cingular Wireless to release an additional $9.3 million from escrow. While we do not expect changes to the settlement terms for these tax audits, the settlement is not legally binding until the amended tax returns have been filed and accepted.

OnIn addition, on May 7, 2019, we received a letter from New Cingular Wireless formally notifying us of pending tax audits for pre-closing periods that were not included in the tax indemnity claims notices previously submitted by New Cingular Wireless against the Mexico escrow account. We were already aware of the tax audits referenced in the letter and had assumed their ~~defense,~~defense. The majority of the matters included in this letter are expected to be resolved when the amended returns related to the five tax audits mentioned above are accepted, and we will continue to work with the Mexican tax authorities to resolve ~~them~~any remaining matters as expeditiously as possible. While we are required to indemnify New Cingular Wireless for any actual cash payments made to resolve any tax claims that may be asserted by the Mexican tax authorities from these audits, our position remains that New Cingular Wireless may not make a claim against the Mexico escrow account for any tax claims that may arise from these audits. In addition, New Cingular Wireless has indicated that it may continue to make additional claims for indemnification related to open audits in the future.

After the finalization of the five tax audits mentioned above, we will have three open tax audits remaining to resolve, including two tax audits that are currently in Mexican tax court related to the $12.2 million of tax assessments mentioned above. The third tax audit is related to Nextel Mexico's main operating company's tax return for the year 2014. See Note 3 to our condensed consolidated financial statements for additional information.

Cash Flows


							Nine Months Ended
	Three Months Ended						September 30,
	March 31, 2019			March 31, 2018			2019			2018

Cash, cash equivalents and restricted cash, beginning of period	$	250,739		$	305,778		$	250,739		$	305,778
Net cash used in operating activities	(37,443		)	(44,665		)	(48,461		)	(96,885		)
Net cash used in investing activities	(7,998		)	(6,219		)	(51,918		)	(46,420		)
Net cash used in financing activities	(2,250		)	(6,690		)
Net cash (used in) provided by financing activities							(12,447		)	99,867
Effect of exchange rate changes on cash, cash equivalents and restricted cash	47			716			(286		)	(1,536		)
Cash, cash equivalents and restricted cash, end of period	$	203,095		$	248,920		$	137,627		$	260,804

The following is a discussion of the primary sources and uses of cash in our operating, investing and financing activities.

We used ~~$37.4~~$48.5 million and ~~$44.7~~$96.9 million of cash in our operating activities during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018, of which $32.5 million and $85.0 million, respectively, was cash used by our discontinued operation primarily to fund ~~operating losses and~~ working capital and ~~to make~~pay interest ~~payments under~~on Nextel Brazil's ~~equipment financing and bank loans.~~debt.

We used ~~$8.0~~$51.9 million and $46.4 million of cash in our investing activities during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018 mainly due to cash used by our discontinued operation. The $50.0 million of investing cash used in our discontinued operation during the nine months ended September 30, 2019 was primarily due to ~~$15.0~~$44.6 million in cash capital expenditures and $12.8 million in net purchases of short-term investments, partially offset by ~~$7.2~~an $11.6 million in net ~~proceeds from sales~~return of ~~short-term investments in Brazil. We used $6.2~~deposits. The $46.4 million of investing cash used in our discontinued operation during the ~~three~~nine months ended ~~March 31,~~September 30, 2018 was primarily due to ~~$34.9~~$45.4 million in cash capital expenditures and $36.8 million in net purchases of short-term investments in Brazil, ~~and $11.1 million in cash capital expenditures,~~ partially offset by a ~~$41.3~~$43.3 million net return of deposits, which included the release of substantially all of the cash securing certain performance bonds relating to our obligations to deploy spectrum in Brazil.

We used ~~$2.3~~$12.4 million of cash in our financing activities during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 primarily as a result of cash used by our discontinued operation for an annual principal payment on Nextel Brazil's license financing, as well as smaller repayments of finance leases and other ~~borrowings. We~~borrowings, partially offset by a $2.7 million capital contribution from AI Brazil Holdings. Our financing activities provided us with $99.9 million of cash during the nine months ended September 30, 2018, primarily due to $115.0 million in gross proceeds that we received in connection with the issuance of our convertible senior notes in August, partially offset by $5.2 million in debt financing costs related to the issuance of our convertible senior notes. In addition, for the nine months ended September 30, 2018, we used ~~$6.7~~$10.3 million of cash in our ~~financing activities during the three months ended March 31, 2018~~discontinued operation primarily due to $4.4 million in principal payments under Nextel Brazil's equipment financing facility and bank loans, as well as $4.1 million ofin debt financing costs ~~incurred in connection with~~related to the amendments to Nextel Brazil's equipment financing facility and bank loans.

3324

Future Capital Needs and Resources

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 activities, cash~~ that we recover from the amounts held in escrow to secure our indemnification obligations in connection with the sale of Nextel Mexico, external financial sources, other financing arrangements and ~~the availability of~~anticipated cash proceeds from the pending sale of ~~assets. AI Brazil Holdings, our minority investor in~~ Nextel ~~Holdings, may fund up to 30% of the cash needs that arise at Nextel Holdings and its subsidiaries in order to maintain its current ownership in Nextel Holdings.~~Brazil.

~~Our~~Nextel Brazil's 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~~Nextel Brazil is able to generate and collect from ~~our~~its subscribers, including ~~our~~its ability to increase the size of ~~our~~its subscriber base;

the amount of operating expenses required to provide ~~our~~Nextel Brazil's services;

the cost of acquiring and retaining subscribers, including the subsidies ~~we incur~~Nextel Brazil incurs to provide handsets to both ~~our~~its new and existing subscribers; and

changes in foreign currency exchange rates.

Capital Needs and Contractual Obligations. We currently anticipate that our future capital needs will principally consist of ~~funds~~amounts required ~~for:~~

~~operating~~to fund Nextel Brazil prior to the closing of the sale, general corporate expenditures, wind down and dissolution costs, and expenses ~~and capital expenditures relating~~related to ~~our existing network and the continued deployment of LTE;~~

~~payments in connection with previous spectrum purchases and ongoing spectrum license fees;~~

debt service ~~requirements;~~

~~obligations relating to~~requirements under our ~~tower financing arrangements and other finance lease obligations;~~

~~cash taxes; and~~

~~other general corporate expenditures.~~

convertible senior notes. There were no material changes to our total contractual obligations during the three and nine months ended ~~March 31,~~September 30, 2019 as described in our annual report on Form 10-K for the year ended December 31, 2018.

~~Capital Expenditures.~~ Our capital expenditures, including capitalized interest, were $6.9 million and $8.3 million for the three months ended March 31, 2019 and 2018, respectively. We expect our capital expenditures for the remainder of 2019 to be slightly higher than the levels experienced in 2018. Our capital spending and related expenses are expected to be driven by several factors, including:

~~the amount we spend to enhance our network and deploy LTE;~~

~~the extent to which we expand the coverage of our network;~~

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.~~

Future Outlook. As of ~~March 31,~~September 30, 2019, our consolidated sources of funding included ~~$119.9~~$29.3 million in cash and ~~short-term investments and $106.1~~cash equivalents, $103.4 million in cash held in escrow to secure our indemnification obligations in connection with the sale of Nextel ~~Mexico. In addition, AI Brazil Holdings may fund up to 30%~~Mexico and $51.5 million in cash and short-term investments held for sale.

Upon closing of the ~~cash needs that arise at Nextel Holdings and its subsidiaries in order to maintain its current ownership in Nextel Holdings.~~

On April 1, 2019, Nextel Brazil was notified that it was awarded credits for its past PIS and COFINS tax overpayments, plus interest, totaling approximately 783 million Brazilian reais, or $200.9 million based on foreign currency exchange rates in effect at the time. Under the terms of the purchase agreement with AMX, Nextel Brazil may not use these PIS and COFINS tax credits, except for specific purposes at the request of AMX. Should the proposed sale of Nextel Brazil, ~~not be completed, these tax credits would become~~we will begin the dissolution process with the objective of distributing our available ~~for~~cash to stockholders as quickly as possible pursuant to the dissolution procedures under the Delaware General Corporation Law. As long as the closing of the sale of Nextel ~~Brazil's use,~~Brazil occurs by the end of the first quarter of 2020, we believe we have sufficient sources of liquidity to fund our business. However, if the pending ~~authorization from the Brazilian tax authorities. See Note 9 to our condensed consolidated financial statements for more information regarding these tax credits.~~

~~If the proposed~~ sale of Nextel Brazil is ultimately not ~~ultimately~~ completed ~~and~~or if ~~we are able to recover a significant amount~~the closing of the ~~remaining cash held in~~sale is delayed beyond the Mexico escrow in 2019, we believe our current sources of funding described above will provide us with sufficient liquidity to fund our current business plan for the next few years. However, our business plan is based on a number of assumptions, including assumptions regarding the recoveryend of the ~~Mexico escrow, our ability to maintain subscriber turnover levels similar to those~~first quarter of 2020, we experienced in 2018 and to date in 2019, and continued investments from AI Brazil Holdings. If the proposed sale of Nextel Brazil is not completed and if the ultimate amount recovered from our cash held in the Mexico escrow does not meet our current forecasted amount or we do not recover substantially all of our previously requested escrowed funds in 2019, we would ~~likely~~ need to alter our business plan to significantly reduce spending or obtain additional funding. ~~In addition,~~To the extent the sale of Nextel Brazil does not close or if we do not recover sufficient cash from escrow prior to the end of the first quarter of 2020, substantial doubt exists about our ~~actual results of operations differ from our business plan or AI Brazil Holdings decides not~~ability to ~~provide additional capital, our business may be negatively affected, which would require us to alter our business plan or obtain additional funding.~~continue as a going concern.

In connection with the completion of the ~~proposed~~ sale of Nextel Brazil, we will receive ~~approximately 70%~~our pro rata share of the final net proceeds, subject to certain adjustments at closing, including reimbursement for capital expenditures and working capital investments made from March 1, 2019 to closing ~~after~~and deducting a ~~$2.0~~selling and marketing spending shortfall compared to budget, if any, certain transaction expenses, if any, increases in accrued tax contingencies, if any, and a $2.2 million preferred share return due to AI Brazil ~~Holdings and deducting certain transaction expenses and increases in accrued tax contingencies, if any.~~Holdings. In addition, $30.0 million of our portion of the net proceeds will be placed into an 18-month escrow account to secure NII Holdings' indemnification obligations under the purchase ~~agreement.~~agreement, and pursuant to the indenture agreement that governs our convertible senior notes, $134.8 million of our portion of the net proceeds will be placed into an escrow account to secure NII Holdings' obligations under this indenture. We expect we will incur significant cash expenditures related to the ~~completion~~closing of the sale and the dissolution of our remaining business subsequent to the transaction.

In making the assessment of our funding needs and the adequacy of our current sources of funding, 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 sale of Nextel Mexico;

expected cash flows ~~from~~related to our ~~operations~~discontinued operation in Brazil and expected cash expenditures at our corporate headquarters;

~~the timing of spectrum payments, including ongoing fees for spectrum use;~~

~~our anticipated level of capital expenditures;~~

our scheduled debt service obligations; and

our other contractual ~~obligations;~~obligations.

~~potential incremental investments by AI Brazil Holdings; 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:

based on the continued development of our business plans and strategy;

if currency values in Brazil 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 Brazil do not improve or worsen;

if we are subject to litigation involving tax and other matters requiring material judicial deposits of cash that will not be released until the pending matter is resolved;

if competitive practices in the mobile wireless telecommunications industry in Brazil change materially from those currently prevailing or from those now anticipated; or

if other presently unexpected circumstances arise that have a material effect on the cash flow or profitability of our business, such as contingencies.

Effect of New and Recently Adopted Accounting Standards

See ~~Notes~~Note 1 ~~and 2~~ to our condensed consolidated financial statements for disclosures concerning ~~new~~recently issued and ~~recently~~ adopted accounting standards.

Forward-Looking and Cautionary Statements

This quarterly report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 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. These forward-looking statements are generally identified by such 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 quarterly report on Form 10-Q, including unforeseen events.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on our operations and results of our business include, but are not limited to:

our ability to attract and retain subscribers;

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 established operating goals and generate cash flow;

the availability of other funding sources, including the timely resolution of claims and receipt of proceeds from the sale of Nextel Mexico held in escrow;

risks associated with our partnership with AI Brazil Holdings;

general economic conditions in Brazil, including political instability, which may affect Brazil's economy and the regulatory environment there;

the impact of foreign currency exchange rate volatility in the local currency in Brazil when compared to the U.S. dollar and the impact of related currency depreciation in Brazil;

our having reasonable access to and the successful performance of the technology being deployed in our service areas, and improvements thereon;

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;

risks related to the operation and expansion of our network in Brazil, including the potential need for additional funding to support enhanced coverage and capacity, and the risk that we will not attract enough subscribers to support the related costs of deploying or operating the 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;

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 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;

potential cash outlays related to certain reasonably possible losses related to matters for which Nextel Brazil has not accrued liabilities, some of which would be covered by judicial deposits of cash;

a requirement to provide material judicial deposits of cash that will not be released until the pending matter is resolved in order for litigation involving tax and other matters to be heard by the courts in Brazil;

equipment failure, natural disasters, terrorist acts or other breaches of network or information technology security;

the possibility that our significant indebtedness, or the incurrence of additional indebtedness, could affect our financial condition; and

other risks and uncertainties described in Part I, Item 1A. "Risk Factors," in our annual report on Form 10-K for the year ended December 31, 2018 and, from time to time, in our other reports filed with the SEC.

These forward looking statements also include assumptions about the ~~proposed~~pending sale of Nextel Brazil and plan of dissolution, including the expected completion, timing and effects of that transaction and dissolution, as well as potential distributions to our stockholders upon our liquidation and dissolution. Risks and uncertainties related to the ~~potential~~pending sale of Nextel Brazil and plan of dissolution include, among other things:

the satisfaction of the conditions to consummate the sale of Nextel Brazil, including regulatory ~~approvals and approval by our stockholders;~~approvals;

the occurrence of any event, change or other circumstance that could give rise to the termination of the purchase agreement;

the amount of the costs, fees, expenses and charges related to the sale of Nextel Brazil may be higher than we expect;

the effect the pending sale of Nextel Brazil will have on our management team, customer relationships, operating results and business generally, including the ability to retain key employees;

the cost and outcome of any legal proceedings that may be initiated against us and others following the announcement of the pending sale of Nextel Brazil; and

the timing and amount of cash and other assets available for distribution to our stockholders upon our ultimate windup and dissolution.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

During the three and nine months ended ~~March 31,~~September 30, 2019, there were no material changes to our market risk policies or our market sensitive instruments and positions as described in our annual report on Form 10-K for the year ended December 31, 2018.

3727


Item 4.	Controls and Procedures

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 principal executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

As of ~~March 31,~~September 30, 2019, 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 Brazil, including our principal executive officer and chief financial officer. Based on such evaluation, our principal executive officer and chief financial officer concluded that the design and operation of our disclosure controls and procedures were not effective due to a material weakness in the Company's internal control over financial reporting. This material weakness is fully described in "Item 9A. Controls and Procedures" of our annual report on Form 10-K for the year ended December 31, 2018.

Our remediation efforts related to this material weakness are ongoing. As a result of the announcement of the ~~proposed~~pending sale of Nextel Brazil, we ~~expect that hiring~~have not been able to hire the necessary qualified resources to effectively remediate Nextel Brazil's material ~~weakness will be difficult.~~weakness. In addition, we ~~could be impacted by~~have experienced employee turnover and are delaying certain investments in our remediation efforts, which will ~~likely~~ delay the remediation of Nextel Brazil's material weakness beyond 2019.

Changes in Internal Control over Financial Reporting

~~We have implemented and will continue to implement controls related to our adoption of ASC 842 on January 1, 2019. Other than this change and those described above, there~~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.

3828

PART II - OTHER INFORMATION


Item 1.	Legal Proceedings

WeSecurities Litigation. On July 8, 2019, a purported stockholder class action was filed against the Company and the Company's directors in the Court of Chancery of the State of Delaware by Matis Nayman. The lawsuit is captioned Matis Nayman v. Kevin L. Beebe, James V. Continenza, Howard S. Hoffmann, Ricardo Knoepfelmacher, Christopher T. Rogers, Robert A. Schriesheim, Steven M. Shindler, and NII Holdings, Inc., C.A. No. 2019-0525-JTL. The complaint alleges, among other things, that the Company and its directors breached their fiduciary duties by failing to take steps to maximize the Company's value to its public stockholders and failing to disclose certain information in the proxy statement issued in connection with the Company's purchase agreement with América Móvil, S.A.B. de C.V. and AI Brazil Holdings B.V. and the Company's planned liquidation and dissolution. The relief the plaintiff seeks includes enjoining the sale of Nextel Brazil and the dissolution of NII Holdings, and the recovery of unspecified damages. On September 16, 2019, the defendants filed a motion to dismiss, and on October 16, 2019, the plaintiff filed an amended complaint. The Company and the named individuals intend to vigorously defend themselves in this matter.

In addition, we 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. ~~For information on our various loss contingencies, see Note 9 to our condensed consolidated financial statements above.~~


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities. The following table presents information related to repurchases of our common stock during the three months ended ~~March 31,~~September 30, 2019:

Period Total Number of Shares Purchased Average Price Per Share Total Number of Shares Purchased as Part of Program Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
January 1, 2019 — January 31, 2019
—
⁽¹⁾
$ —
—

February 1, 2019 — February 28, 2019
—
⁽¹⁾
—
—

March 1, 2019 — March 31, 2019
97,266
⁽¹⁾
3.19
97,266

Total 97,266
⁽¹⁾
97,266
$ —



Period	Total Number of Shares Purchased		Average Price Per Share		Total Number of Shares Purchased as Part of Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
July 1, 2019 — July 31, 2019	—	⁽¹⁾	$	—	—
August 1, 2019 — August 31, 2019	73,687	⁽¹⁾	1.57		73,687
September 1, 2019 — September 30, 2019	—	⁽¹⁾	—		—
Total	73,687	⁽¹⁾			73,687	$	—

(1) Pursuant to a general authorization, which was not publicly announced, whereby we are authorized to repurchase shares of our common stock to satisfy employee withholding tax obligations related to stock-based compensation.

3929

Item 6. Exhibits

Exhibit Number Exhibit Description Form Exhibit Incorporated by Reference Filing Date Filed Herewith
10.1
Transaction Agreement between Nextel Telecomunicações Ltda. and Roberto Rittes, dated April 30, 2019.
*
10.2
Form of Retention and Severance Agreement between NII Holdings and Daniel Freiman and Shana Smith, dated April 1, 2019.
*
10.3
Purchase Agreement dated March 18, 2019, among NII Holdings, Inc., NII International Holdings S.à r.l., América Móvil, S.A.B. de C.V. and AI Brazil Holdings B.V.
8-K 10.1 03/18/19
10.4
Letter Agreement dated March 18, 2019 between NII Holdings, Inc., NII Brazil Holdings S.à r.l., NII International Holdings S.à r.l. and AI Brazil Holdings B.V.
8-K 10.2 03/18/19
31.1
Statement of Principal 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 Principal 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. Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Changes in Stockholders’ Deficit, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements. *



Exhibit Number	Exhibit Description	Form	Exhibit	Incorporated by Reference Filing Date	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of NII Holdings, Inc.				*
3.2	Sixth Amended and Restated Bylaws of NII Holdings, Inc.				*
10.1	Escrow Agreement, dated as of January 26, 2015, by and among New Cingular Wireless Services, Inc., NIU Holdings LLC and Citibank, N.A.				*
31.1	Statement of Principal 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 Principal 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. Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Comprehensive Loss, (iii) Condensed Consolidated Statements of Changes in Stockholders’ Deficit, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements.				*

4030

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



By:		/s/ TIMOTHY M. MULIERI

		Timothy M. Mulieri
		Vice President, Corporate Controller
		(on behalf of the registrant and as Principal Accounting Officer)

Date: ~~May 10,~~November 5, 2019

4131

NII HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in thousands, except per share amounts) Unaudited

	Three Months Ended
	March 31,
	2019			2018
Operating revenues
Service and other revenues	$	146,015		$	176,200
Handset and accessory revenues	800			5,041
	146,815			181,241
Operating expenses
Cost of service (exclusive of depreciation and amortization included below)	61,377			84,507
Cost of handsets and accessories	5,081			9,065
Selling, general and administrative	65,329			90,886
Impairment, restructuring and other charges, net	5,791			2,351
Depreciation	5,043			4,134
Amortization	3,313			3,591
	145,934			194,534
Operating income (loss)	881			(13,293		)
Other (expense) income
Interest expense, net	(29,322		)	(26,606		)
Interest income	3,769			5,386
Foreign currency transaction losses, net	(1,618		)	(1,188		)
Other income (expense), net	28,129			(6,330		)
	958			(28,738		)
Income (loss) from continuing operations before income taxes	1,839			(42,031		)
Income taxes	—			—
Net income (loss) from continuing operations	1,839			(42,031		)
Loss from discontinued operations, net of income taxes	(2,697		)	(121		)
Net loss	(858		)	(42,152		)
Net loss attributable to noncontrolling interest	(5,763		)	(11,256		)
Net income (loss) attributable to NII Holdings	$	4,905		$	(30,896	)

Net income (loss) from continuing operations per common share, basic and diluted	$	0.02		$	(0.42	)
Net loss from discontinued operations per common share, basic and diluted	(0.03		)	—
Net loss per common share, basic and diluted	$	(0.01	)	$	(0.42	)

Weighted average number of common shares outstanding, basic	101,390			100,385

Weighted average number of common shares outstanding, diluted	103,235			100,385

Comprehensive income (loss), net of income taxes
Foreign currency translation adjustment	$	820		$	1,549
Other comprehensive income	820			1,549
Net income (loss) attributable to NII Holdings	4,905			(30,896		)
Total comprehensive income (loss)	$	5,725		$	(29,347	)

NII HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Unaudited

	Three Months Ended March 31,
	2019			2018

Cash flows from operating activities:
Net loss	$	(858	)	$	(42,152	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss from discontinued operations	2,697			121
Amortization of debt discounts and financing costs	2,258			109
Depreciation and amortization	8,356			7,725
Provision for losses on accounts receivable	14,122			12,917
Foreign currency transaction losses, net	1,618			1,188
Impairment charges and (gains) losses on disposals of fixed assets	(5,103		)	759
Share-based payment expense	492			611
Gain on derivative instrument	(31,467		)	—
Other, net	378			(919		)
Change in assets and liabilities:
Accounts receivable	(19,782		)	(16,023		)
Prepaid value-added taxes	(6,398		)	(4,153		)
Handset and accessory inventory	476			(1,917		)
Prepaid expenses and other	(1,111		)	(12,692		)
Other long-term assets	(7,695		)	(3,150		)
Accrued value-added taxes	(308		)	6,067
Other long-term liabilities	8,327			1,779
Accounts payable, accrued expenses, deferred revenues and other	(3,445		)	5,065
Net cash used in operating activities	(37,443		)	(44,665		)
Cash flows from investing activities:
Capital expenditures	(15,017		)	(11,115		)
Purchases of investments	(124,189		)	(197,533		)
Proceeds from sales of investments	131,404			162,624
Change in deposits, net	425			41,309
Other, net	(621		)	(1,518		)
Total investing cash used in continuing operations	(7,998		)	(6,233		)
Total investing cash provided by discontinued operations	—			14
Net cash used in investing activities	(7,998		)	(6,219		)
Cash flows from financing activities:
Repayments under equipment financing facility and local bank loans	(484		)	(478		)
Repayments under finance leases and other	(1,479		)	(2,082		)
Payments of debt financing costs	—			(4,130		)
Other	(287		)	—
Net cash used in financing activities	(2,250		)	(6,690		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	47			716
Net decrease in cash, cash equivalents and restricted cash	(47,644		)	(56,858		)
Cash, cash equivalents and restricted cash, beginning of period	250,739			305,778
Cash, cash equivalents and restricted cash, end of period	$	203,095		$	248,920



Operating leases (included in cost of service, selling, general and administrative and impairment, restructuring and other charges, net)	$	27,208

Finance leases:
Amortization of ROU assets (included in depreciation)	291
Interest on lease liabilities (included in interest expense, net)	6,664

Total lease expense	$	34,163



Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$	30,258
Operating cash flows used for finance leases	$	6,664
Financing cash flows used for finance leases	$	1,479

Weighted average remaining lease term:
Operating leases	9.7 years
Finance leases	6.6 years

Weighted average discount rate:
Operating leases	16.3		%
Finance leases	45.3		%



	Finance Leases			Operating Leases			Total
Year 1	$	27,562		$	110,474		$	138,036
Year 2	27,965			104,447			132,412
Year 3	27,573			98,463			126,036
Year 4	26,554			88,415			114,969
Year 5	26,195			75,641			101,836
Thereafter	44,375			392,943			437,318
Total lease payments	180,224			870,383			1,050,607
Less: unrecognized interest	(119,695		)	(448,674		)	(568,369		)
Total	$	60,529		$	421,709		$	482,238



Balance, December 31, 2018	$	74,632
Restructuring charges, net	1,504
Cash payments and other	(4,851		)
Implementation of lease accounting standard	(39,704		)
Foreign currency translation adjustment	(73		)
Balance, March 31, 2019	$	31,508



	March 31, 2019		December 31, 2018
	(in thousands)
Cash in escrow	$	106,102	$	106,089
Judicial deposits	57,471		57,175
Value-added taxes	50,131		43,803
Deferred commissions	21,200		21,460
Other prepaid expenses	10,684		9,381
Other current assets	4,040		8,008
	$	249,628	$	245,916



		March 31, 2019							December 31, 2018
	Average Useful Life (Years)	Gross Carrying Value		Accumulated Amortization			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Net Carrying Value
		(in thousands)
Amortizable intangible assets:
Licenses	26	$	170,535	$	(13,084	)	$	157,451	$	170,640	$	(11,387	)	$	159,253
Customer relationships	4	12,988		(11,545		)	1,443		13,062		(10,159		)	2,903
		$	183,523	$	(24,629	)	$	158,894	$	183,702	$	(21,546	)	$	162,156



Years	Estimated Amortization Expense
2019	$	9,938
2020	6,909
2021	6,909
2022	6,909
2023	6,909



	March 31, 2019				December 31, 2018
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in thousands)
Brazil equipment financing	$	238,335	$	235,275	$	238,380	$	233,581
Brazil bank loans	$	168,917	$	126,308	$	169,946	$	119,218
Brazil spectrum financing	$	104,058	$	144,010	$	104,344	$	123,531
Convertible senior notes	$	73,866	$	110,877	$	72,264	$	80,704



	Nextel Brazil		Corporate			Consolidated
	(in thousands)
Three Months Ended March 31, 2019
Operating revenues	$	146,815	$	—		$	146,815
Segment earnings (losses)	$	23,109	$	(8,081	)	$	15,028
Less:
Impairment, restructuring and other charges, net						(5,791		)
Depreciation and amortization						(8,356		)
Foreign currency transaction losses, net						(1,618		)
Interest expense and other, net						2,576
Income from continuing operations before income tax benefit						$	1,839
Capital expenditures	$	6,851	$	—		$	6,851

Three Months Ended March 31, 2018
Operating revenues	$	181,220	$	21		$	181,241
Segment earnings (losses)	$	1,045	$	(4,262	)	$	(3,217	)
Less:
Impairment, restructuring and other charges, net						(2,351		)
Depreciation and amortization						(7,725		)
Foreign currency transaction losses, net						(1,188		)
Interest expense and other, net						(27,550		)
Loss from continuing operations before income tax benefit						$	(42,031	)
Capital expenditures	$	8,291	$	—		$	8,291

March 31, 2019
Identifiable assets	$	1,187,252	$	195,016		$	1,382,268
December 31, 2018
Identifiable assets	$	857,385	$	202,445		$	1,059,830



	Three Months Ended March 31,		Actual Percent Change From Prior Year
	2019	2018	Actual Percent Change From Prior Year
Brazilian real	3.77	3.24	(16	)%



	2018				2019
	March	June	September	December	March
Brazilian real	3.32	3.86	4.00	3.87	3.90



	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			Actual Change from Previous Year					Constant Currency Change from Previous Year
	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			Dollars			B(W) Change		B(W) Change
	(dollars in thousands)
Brazil segment earnings	23,109			1,045			22,064			NM		NM
Corporate segment losses	(8,081		)	(4,262		)	(3,819		)	(90	)%	(90	)%
Consolidated segment earnings (losses)	15,028			(3,217		)	18,245			NM		NM
Impairment, restructuring and other charges, net	(5,791		)	(2,351		)	(3,440		)	(146	)%	(180	)%
Depreciation and amortization	(8,356		)	(7,725		)	(631		)	(8	)%	(26	)%
Operating income (loss)	881			(13,293		)	14,174			107	%	107	%
Interest expense, net	(29,322		)	(26,606		)	(2,716		)	(10	)%	(28	)%
Interest income	3,769			5,386			(1,617		)	(30	)%	(19	)%
Foreign currency transaction losses, net	(1,618		)	(1,188		)	(430		)	(36	)%	(58	)%
Other income (expense), net	28,129			(6,330		)	34,459			NM		NM
Income (loss) from continuing operations before income tax benefit	1,839			(42,031		)	43,870			104	%	105	%
Income taxes	—			—			—			NM		NM
Net income (loss) from continuing operations	1,839			(42,031		)	43,870			104	%	105	%
Loss from discontinued operations, net of income taxes	(2,697		)	(121		)	(2,576		)	NM		NM
Net loss	(858		)	(42,152		)	41,294			98	%	98	%
Net loss attributable to noncontrolling interest	(5,763		)	(11,256		)	5,493			49	%	49	%
Net income (loss) attributable to NII Holdings	$	4,905		$	(30,896	)	$	35,801		116	%	119	%



	Three Months Ended March 31, 2019			% of Nextel Brazil’s Operating Revenues		Three Months Ended March 31, 2018			% of Nextel Brazil’s Operating Revenues		Actual Change from Previous Year					Constant Currency Change from Previous Year
	Three Months Ended March 31, 2019			% of Nextel Brazil’s Operating Revenues		Three Months Ended March 31, 2018			% of Nextel Brazil’s Operating Revenues		Dollars			B(W) Change		B(W) Change
	(dollars in thousands)
Service and other revenues	$	146,015		99	%	$	176,179		97	%	$	(30,164	)	(17	)%	(4	)%
Handset and accessory revenues	800			1	%	5,041			3	%	(4,241		)	(84	)%	(82	)%
Cost of handsets and accessories	(5,081		)	(4	)%	(9,065		)	(5	)%	3,984			44	%	35	%
Handset and accessory net subsidy	(4,281		)	(3	)%	(4,024		)	(2	)%	(257		)	(6	)%	(24	)%
Cost of service (exclusive of depreciation and amortization)	(61,377		)	(44	)%	(84,507		)	(46	)%	23,130			27	%	16	%
Selling and marketing expenses	(18,176		)	(12	)%	(21,231		)	(12	)%	3,055			14	%	—
General and administrative expenses	(39,072		)	(27	)%	(65,372		)	(36	)%	26,300			40	%	31	%
Segment earnings	$	23,109		16	%	$	1,045		1	%	$	22,064		NM		NM



	Three Months Ended
	March 31, 2018		June 30, 2018		September 30, 2018		December 31, 2018		March 31, 2019
	(subscribers in thousands)
WCDMA subscriber units	2,896.1		3,023.8		3,121.0		3,206.7		3,306.0
iDEN subscriber units	349.6		230.4		—		—		—
Total subscriber units in commercial service — beginning of period	3,245.7		3,254.2		3,121.0		3,206.7		3,306.0

WCDMA net subscriber additions	92.9		65.7		85.7		99.3		132.1
iDEN net subscriber losses	(84.4	)	(198.9	)	—		—		—
Total net subscriber additions (losses)	8.5		(133.2	)	85.7		99.3		132.1

Migrations from iDEN to WCDMA	34.8		31.5		—		—		—

WCDMA subscriber units	3,023.8		3,121.0		3,206.7		3,306.0		3,438.1
iDEN subscriber units	230.4		—		—		—		—
Total subscriber units in commercial service — end of period	3,254.2		3,121.0		3,206.7		3,306.0		3,438.1

WCDMA subscriber turnover	2.37	%	2.75	%	2.68	%	2.62	%	2.35	%
iDEN subscriber turnover	9.67	%	NM		—		—		—
Total subscriber turnover	3.02	%	4.68	%	2.68	%	2.62	%	2.35	%



	Three Months Ended
	March 31, 2018	June 30, 2018	September 30, 2018	December 31, 2018	March 31, 2019
Total service ARPU (US$)	17	15	14	14	14
WCDMA service ARPU (US$)	18	15	14	14	14
iDEN service ARPU (US$)	12	8	—	—	—

Total service ARPU (BR)	56	54	56	53	53
WCDMA service ARPU (BR)	58	55	56	53	53
iDEN service ARPU (BR)	38	26	—	—	—



	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			Change from Previous Year
	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			Dollars			B(W) Change
	(dollars in thousands)
Service and other revenues	$	—		$	21		$	(21	)	(100	)%
General and administrative expenses	(8,081		)	(4,283		)	(3,798		)	(89	)%
Segment losses	$	(8,081	)	$	(4,262	)	$	(3,819	)	(90	)%