UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
or
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
(State or other jurisdiction of
incorporation or organization)
1875 Explorer Street, Suite 800
Reston, Virginia
(Address of principal executive offices)
91-1671412
(I.R.S. Employer Identification No.)
20190
(Zip Code)
Registrant’s telephone number, including area code: (703) 390-5100
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price
at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2015: N/A
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes
No
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Title of Class
Common Stock, $0.001 par value per share
Number of Shares Outstanding
on February 29, 2016
100,911,009
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Item
1.
Business
1A. Risk Factors
1B. Unresolved Staff Comments
2.
Properties
3.
Legal Proceedings
4. Mine Safety Disclosures
NII HOLDINGS, INC.
TABLE OF CONTENTS
Description
PART I
PART II
Selected Financial Data
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
6.
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk
8.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9.
9A. Controls and Procedures
9B. Other Information
PART III
10. Directors, Executive Officers of the Registrant and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accountant Fees and Services
15. Exhibits, Financial Statement Schedules
PART IV
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Item 1.
Business
Corporate History
PART I
Overview. We were originally organized in 1995 as a holding company for the operations of Nextel Communications, Inc.
in selected international markets. The corporation that is currently known as NII Holdings, Inc. was incorporated in Delaware in
2000 as Nextel International, Inc. In December 2001, we changed our name from Nextel International, Inc. to NII Holdings, Inc.
Our principal executive office is located at 1875 Explorer Street, Suite 800, Reston, Virginia 20190. Our telephone number at that
location is (703) 390-5100. Unless the context requires otherwise, “NII Holdings, Inc.,” “NII Holdings,” “we,” “our,” “us” and
“the Company” refer to the combined businesses of NII Holdings, Inc. and its consolidated subsidiaries. We refer to our wholly-
owned Brazilian operating company, Nextel Telecomunicações Ltda., as Nextel Brazil. Nextel Brazil's operations are headquartered
in São Paulo, with branch offices in Rio de Janeiro and various other cities.
Except as otherwise indicated, all amounts are expressed in United States, or U.S., dollars and references to “dollars” and
“$” are to U.S. dollars. All historical financial statements contained in this report are prepared in accordance with accounting
principles generally accepted in the U.S.
Emergence from Chapter 11 Proceedings. On September 15, 2014, we and eight of our U.S. and Luxembourg-domiciled
subsidiaries, including NII Capital Corp. and NII International Telecom, S.C.A., or NIIT, filed voluntary petitions seeking relief
under Chapter 11 of Title 11 of the United States Bankruptcy Code, which we refer to as Chapter 11, in the United States Bankruptcy
Court for the Southern District of New York, which we refer to as the Bankruptcy Court. In addition, subsequent to September
15, 2014, five additional subsidiaries of NII Holdings filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy
Court. We refer to the companies that filed voluntary petitions seeking relief under Chapter 11 collectively as the Debtors. Nextel
Brazil and our previous other operating subsidiaries in Latin America were not Debtors in these Chapter 11 cases.
As described in more detail in Note 2 to our consolidated financial statements, on June 19, 2015, the Bankruptcy Court
entered an order approving and confirming the Plan of Reorganization. On June 26, 2015, the conditions of the Bankruptcy Court's
order and the Plan of Reorganization were satisfied, the Plan of Reorganization became effective, and we and the other Debtors
emerged from the Chapter 11 proceedings.
In accordance with the requirements of reorganization accounting, NII Holdings adopted the provisions of fresh start
accounting as of June 30, 2015 and became a new entity for financial reporting purposes. References to the "Successor Company"
relate to NII Holdings on or subsequent to June 30, 2015. References to the "Predecessor Company" relate to NII Holdings prior
to June 30, 2015. For purposes of comparison to the year ended December 31, 2014, we combined the results of operations for
the six months ended December 31, 2015 with the results of operations for the six months ended June 30, 2015. However, as a
result of the application of fresh start accounting and other events related to our reorganization under Chapter 11, the Successor
Company's financial results for the six months ended December 31, 2015 are prepared under a new basis of accounting and are
not directly comparable to the Predecessor Company's financial results for the six months ended June 30, 2015. For the same
reasons, our results of operations for the combined twelve-month period ended December 31, 2015 are not fully comparable to
our results of operations for the year ended December 31, 2014.
Divestitures and Organizational Changes
Sales of Nextel Mexico and Nextel Argentina. On April 30, 2015, we completed the sale of our operations in Mexico to New
Cingular Wireless, an indirect subsidiary of AT&T. The transaction was structured as a sale of all the outstanding stock of Nextel
Mexico for a purchase price of approximately $1.875 billion, including $187.5 million deposited in escrow to satisfy potential
indemnification claims. The net proceeds of the sale were $1.448 billion, after deducting Nextel Mexico's outstanding indebtedness
net of cash and applying other specified purchase price adjustments. We used a portion of the net proceeds to repay all outstanding
principal and interest under a debtor-in-possession loan agreement we entered into prior to our emergence from Chapter 11 and
to fund distributions to specified creditors pursuant to the Plan of Reorganization.
On September 11, 2015, two of our indirect subsidiaries entered into a binding agreement with Grupo Clarin relating to the
sale of all of the outstanding equity interests of Nextel Argentina. This agreement provided for aggregate cash consideration of
$178.0 million, of which $159.0 million was paid at signing in connection with the transfer of a 49% equity interest in Nextel
Argentina and the grant of a call option that allowed Grupo Clarin or any of its affiliates to acquire the remaining 51% equity
interest in Nextel Argentina upon receipt of required approvals from the regulatory authorities in Argentina. The remaining cash
consideration was received in October 2015, including $6.0 million deposited in escrow to satisfy potential indemnification claims.
On January 27, 2016, the agreement was amended to permit Grupo Clarin or any of its affiliates to exercise the right to acquire
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the remaining 51% equity interest prior to receiving regulatory approval, and Grupo Clarin and its affiliate immediately acquired
the remaining 51% of Nextel Argentina for no additional proceeds.
We plan to use the net proceeds received from the sales of Nextel Mexico and Nextel Argentina to provide additional liquidity
to support our operations in Brazil. In connection with these transactions, we have presented the results of Nextel Mexico and
Nextel Argentina for all periods as discontinued operations in this annual report on Form 10-K.
Changes at Corporate Headquarters. Following the sales of our operations in Mexico and Argentina, we now operate only
in Brazil. As a result, we are taking steps to further streamline the expenses incurred at our corporate headquarters by shifting
costs and associated responsibilities to Nextel Brazil. We implemented workforce reductions at our corporate headquarters in the
fourth quarter of 2015 in connection with this effort.
Nextel Brazil Business Overview
We provide wireless communication services under the NextelTM brand in Brazil with our principal operations located in
major urban and suburban centers with high population densities and related transportation corridors of that country where we
believe there is a concentration of Brazil’s business users and economic activity, including primarily Rio de Janeiro and São Paulo.
In the second half of 2013, Nextel Brazil commercially launched services on its wideband code division multiple access, or
WCDMA, network in São Paulo, Rio de Janeiro and surrounding areas and extended those services to other areas in Brazil by
expanding the coverage of its network and utilizing roaming services and network sharing arrangements pursuant to agreements
that it reached with another network operator in Brazil. Nextel Brazil currently offers services supported by its WCDMA network
in approximately 260 cities in Brazil. Our WCDMA network enables us to offer a wide range of products and services supported
by that technology, including data services provided at substantially higher speeds than can be delivered on our legacy integrated
digital enhanced network, or iDEN.
Prior to the deployment of our WCDMA network, our services were primarily targeted to meet the needs of business
customers. With the deployment of our WCDMA network in Brazil, our target market has shifted to 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 target market is attracted to the services and pricing plans we offer, as well as
the quality of and data speeds provided by our WCDMA network.
We also offer long-term evolution, or LTE, services in Rio de Janeiro and continue to provide services on our legacy iDEN
network throughout various regions in Brazil. Our transition to standards-based technologies such as WCDMA also gives us more
flexibility to offer customers the option of purchasing services by acquiring the subscriber identity module, or SIM, cards from
us separately, and by providing the customer with the option to use the SIM cards in one or more devices that they acquire from
us or from other sources.
The services we currently offer include:
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mobile telephone voice service;
wireless data services, including text messaging services, mobile internet services and email services;
push-to-talk services, including Direct Connect®, Prip and International Direct Connect® services, which allow
subscribers to talk to each other instantly;
other value-added services, including location-based services, which include the use of Global Positioning System,
or GPS, technologies; digital media services; and a wide ranging set of applications available via our content
management system, as well as the AndroidTM open application market;
business solutions, such as security, work force management, logistics support and other applications that help our
business subscribers improve their productivity; and
voice and data roaming services outside of our coverage areas.
As of December 31, 2015, Nextel Brazil had about 4.342 million total subscriber units in commercial service, which we
estimate to be about 2% of the total mobile handsets and other devices in commercial service in Brazil. We refer to these subscriber
units in commercial service collectively as our subscriber base.
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Operating Strategy
Our goal is to generate higher revenues and increase our subscriber base by providing differentiated wireless communications
services that are valued by our existing and potential customers, while managing our capital and operating expenditures in the
near-term and improving our profitability and cash flow over the long term. Our strategy for achieving this goal is based on several
core principles, including:
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aligning our costs with our current business through continuous evaluation and streamlining of all capital and operating
expenditures;
focusing on higher value customer segments that generate higher average revenue per user, or ARPU, and lower
customer turnover rates;
utilizing the most profitable sales channels;
offering a superior customer experience, including a reliable and high quality wireless network; and
building on the strength of the unique positioning of the Nextel brand.
To transition to a more consumer oriented business model and position our company to compete effectively, we have, among
other things:
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realigned our distribution channels to make our services more widely accessible to a broader range of customers;
refreshed and tailored our marketing approach to attract a broader set of customers, especially consumers, to make
them aware of our new services and capabilities, our broader range of available handsets and devices, and the quality
and performance of our networks;
worked with device suppliers to obtain new handset models and features supported by our WCDMA networks, including
devices and smartphones from suppliers like Samsung, LG, Sony, Alcatel, Huawei, Motorola Mobility and Apple;
launched commercial campaigns offering handsets at a lower cost and offering service plans with prices and terms that
are simple and attractive;
implemented customer retention programs that are focused on our high value customers that better fit our customers'
needs and/or provide them with new handsets or other devices at reduced prices in exchange for their commitment to
extend the term of their service contracts; and
developed and launched a high performance push-to-talk service, which we refer to as Prip, which operates on a wide
range of standard smartphones on our WCDMA network.
To support our business plan, we have made significant capital and other investments as we deployed our WCDMA network
and LTE upgrade. These investments have increased our costs and negatively impacted our profitability and are expected to
continue to have that impact as we incur the fixed costs associated with our network while building the subscriber base it serves.
However, we believe that our investments have enhanced, and will continue to enhance, the competitiveness of our service offerings
while continuing to support the differentiated services and superior customer service that have historically been significant factors
supporting our business.
As further described below, the current economic and competitive environments in Brazil are having a significant effect on
the wireless telecommunications industry and impacting our financial results. While our subscriber base remained relatively
unchanged during 2015, our consolidated operating revenues declined by 34% from 2014 to the combined period ended December
31, 2015 due to an 8% decline in Nextel Brazil's local currency ARPU, as well as a 42% decline in the Brazilian real compared
to the U.S. dollar over the same period. While we were able to reduce our operating expenses by 36% during the combined period
ended December 31, 2015, we still generated an operating loss for the period. We expect the current economic conditions in Brazil
will continue to impact our results of operations for the foreseeable future. As a result, we have taken and continue to take actions
to address pressure on our operating revenue and to reduce costs in our business in order to protect our existing cash resources.
Economic Environment
During 2015, the Brazilian economy contracted as domestic demand decreased due to a combination of high inflation, high
interest rates, growing unemployment, tighter credit conditions, a decline in business investments and political issues. According
to reports issued by the International Monetary Fund, or the IMF, it is estimated that Brazil's gross domestic product, or GDP, fell
about 3.7% in 2015 compared to the end of 2014, and most economic forecasts for 2016 currently project continued economic
contraction. The unemployment rate in Brazil was almost 7% at the end of 2015 and is expected to reach 9% in 2016. Real wages
in Brazil have been falling since March 2015 and are expected to continue to fall. The foreign currency exchange rate in Brazil
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declined 42% relative to the U.S. dollar from 2014 to 2015. These economic conditions are affecting the wireless
telecommunications industry in Brazil, leading to lower customer credit and pressure on customer demand, pricing and customer
turnover.
Competitive Environment
We believe that the wireless communications industry in Brazil has been and will continue to be characterized by intense
competition on the basis of price; the types of services offered; variety, features and pricing of handsets; speed of data access; and
quality of service. In recent years, the prices we have been able to charge for services in Brazil have declined as a result of intensified
price competition, including the introduction by our competitors of aggressive pricing promotions, such as plans that allow shared
minutes between groups of callers. During the second half of 2015, our competitors in Brazil began introducing even more
aggressive pricing plans that provided more services for lower rates than some of the plans we offer, which together with the
impact of deteriorating economic conditions, reduced the number of new subscribers we added to our network in the fourth quarter
of 2015. This increased competition may continue to affect our ability to attract and retain subscribers in the future.
We compete with large, well-capitalized competitors in Brazil that have substantial financial and other resources. Nextel
Brazil's largest competitors are Vivo, which is owned by Spain's Telefonica and has the largest market share in the São Paulo
metropolitan area and Rio de Janeiro; Claro, which is controlled by Mexico's America Movil; Telecom Italia Mobile, or TIM, a
subsidiary of Italy's Telecom Italia; and TNL PCS S.A., a subsidiary of Telemar Norte Leste, Brazil's largest wireline incumbent,
that offers its services under the brand name "Oi."
Many of our competitors have a larger spectrum position than ours, including more spectrum that can be used to support a
wide range of wireless technologies, and have greater coverage areas and/or name recognition than we do, making it easier for
them to expand into new markets and offer new products and services. Our competitors typically have more extensive distribution
channels than ours or are able to use their scale advantages to acquire subscribers at a lower cost than we can, and most of them
have implemented network technology upgrades, including both WCDMA and LTE, that support high speed data services. Some
of these competitors also have the ability to offer bundled telecommunications services that include local, long distance, subscription
television and data services, and can offer a larger variety of handsets and other devices with a wide range of prices, brands and
features. In addition, the financial strength and operating scale of some of these competitors allows them to offer aggressive pricing
plans, including those targeted at attracting our existing subscribers.
In recent years, our largest competitors have increasingly focused their marketing efforts on attracting postpaid subscribers
within our target segments by, among other things, enhancing their network quality and their customer care functions, which may
minimize the value of our network quality and speed (for our WCDMA network) and the quality of our customer service as points
of differentiation. In addition, as we have pursued our plans to extend our target market to include more high-value consumers,
we are increasingly competing more directly for subscribers that are also targeted by our largest competitors.
We compete with other communications service providers based primarily on our simple and attractive pricing plans, high
quality customer experience and differentiated wireless service offerings. We are continuing to pursue our target market with an
expanded message that focuses on our transition to a full service wireless operator capable of providing high quality and high
speed data services supported by our WCDMA network. Since our legacy iDEN network does not support high speed data
applications, we are experiencing higher levels of migrations to lower price rate plans both within our iDEN network and from
our iDEN network to our WCDMA network.
We believe that the users who primarily make up our targeted subscriber base are likely to base their purchase decisions on
network quality and quality of customer support, as well as on the availability of differentiated features and services that make it
easier for them to communicate quickly, efficiently and economically. However, because pricing is one of a number of important
factors in potential customers' purchasing decisions, and in light of the economic conditions discussed above, increased price
competition in the customer segments we target could require us to decrease prices or increase service and product offerings,
which would lower our revenues, increase our costs or both.
In response to recent trends in Brazil's competitive environment, as well as the current economic climate, we are taking the
following actions:
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increasing our focus on high value customer segments in order to generate higher levels of ARPU;
implementing various cost reduction strategies in order to lower cash costs per user and improve overall profitability;
implementing workforce reductions to further reduce operational costs;
eliminating certain distribution channels;
reviewing commission and subsidy strategies;
eliminating non-critical capital expenditures;
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further utilizing sales strategies that incentivize subscribers to use their existing handsets when purchasing our services
to keep subscriber acquisition costs at manageable levels;
increasing credit filters to reduce or eliminate collection and bad debt issues;
harvesting the profitability of our legacy iDEN network; and
pursuing initiatives to maintain and enhance our existing liquidity.
Our Networks and Wireless Technologies
We currently offer services supported by a network that utilizes WCDMA technology. WCDMA is a standards-based
technology being deployed by wireless carriers throughout the world that provides service capabilities such as high speed internet
access, increased network capacity and reduced costs for voice and data services when compared to previous technologies.
In late 2010, Nextel Brazil participated in a series of spectrum auctions and was the successful bidder for 20 megahertz, or
MHz, of spectrum in the 1.9/2.1 gigahertz, or GHz, spectrum bands in 11 of the 13 auction lots covering approximately 98% of
the Brazlian population for $714.4 million based on foreign currency exchange rates at the time. Nextel Brazil also successfully
bid on 20 MHz of spectrum in the 1.8 GHz band in Rio de Janeiro, Minas Gerais and some states in the north and northeast regions
of Brazil for a total bid price of approximately $121.7 million. Nextel Brazil is utilizing this 1.9/2.1 GHz spectrum to support its
WCDMA network and is utilizing the 1.8 GHz spectrum to support the deployment of the LTE-based network in Rio de Janeiro.
The licenses relating to the spectrum won by Nextel Brazil in the auction were granted in June 2011 and have a term of 15 years.
These licenses are renewable once for an additional 15-year period and require Nextel Brazil to meet specified network coverage
construction requirements within specified timeframes. In December 2015, Nextel Brazil participated in a spectrum auction and
was the successful bidder for 30MHz of spectrum in the 1.8 GHz band for 455.0 million Brazilian reais, or approximately $116.7
million based on foreign currency exchange rates at the time.
As we continue to transition from our legacy iDEN network to our WCDMA network, we will evaluate ways in which we
can use our 800 MHz spectrum to support existing or new services. Our current 800 MHz spectrum holdings are largely contiguous,
making it possible to use that spectrum to support future technologies, including LTE-based technologies, if certain technical,
operational and regulatory requirements are met, including, for example, the availability of compatible network and subscriber
equipment. The availability of that equipment will likely depend upon a number of factors, including the technology decisions
made by other wireless carriers and the willingness of infrastructure and device manufacturers to produce the required equipment.
We also continue to offer services supported by our network that utilizes the legacy iDEN technology developed and designed
by Motorola. The iDEN technology is a digital technology that is able to operate on non-contiguous spectrum frequencies, was
previously usable only for two-way radio calls and is a proprietary technology that relies solely on the efforts of Motorola and
any future licensees of this technology for product development and innovation. The iDEN technology is also based on an earlier
technology platform that is not capable of transmitting the volume of data at speeds that are supported by current technologies
like WCDMA. In addition, the more limited worldwide deployment of the iDEN technology makes services offered on the iDEN
network less attractive to subscribers who travel internationally because most of the iDEN handsets that we offer are currently
designed to roam only on iDEN wireless networks.
Motorola Solutions supplies a significant portion of our iDEN network equipment, and Motorola Mobility supplies a
significant portion of our iDEN handsets. The significant reduction in demand for iDEN network equipment and handsets worldwide
may affect Motorola Solutions' and Motorola Mobility's ability or willingness to continue to provide support for our iDEN network.
Sales and Distribution
Our target customers include consumer market segments that value our attractive pricing plans, high quality network and
our superior level of customer service, as well as the small, medium and large business markets that value our differentiated
wireless communications, including our push-to-talk services. We use a variety of distribution channels to reach our target
customers, including direct sales representatives, indirect sales agents, retail stores and kiosks, and other subscriber-convenient
sales channels such as online purchasing. Nextel Brazil is continuously optimizing the mix of sales channels to take into
consideration the methods that best meet local subscriber preferences, most cost effectively sell and provide support to our different
segments and facilitate our overall strategy of attracting and retaining subscribers in our targeted segments.
We employ sales representatives who market our services directly to potential and existing customers. The focus of our
direct sales force is primarily on customers that value our industry expertise and differentiated services, as well as our ability to
develop tailored custom communications capabilities that meet the specific needs of these customers. We also utilize indirect sales
agents, which mainly consist of local and national non-affiliated dealers that solicit customers for our service and are generally
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paid through commissions. These dealers participate with Nextel Brazil's direct sales force in varying degrees in pursuing each
of our targeted customer groups.
Our sales channels also include distribution through subscriber-convenient channels, including telesales and sales through
our Nextel retail stores, shopping center kiosks and other locations. With the expansion of services on our WCDMA network, we
have realigned these sales channels and locations and have also expanded our marketing through regional and national retailers
with store kiosks and handset and prepaid card distribution offers. We also utilize our website as a marketing tool that allows
subscribers to compare our various rate plans and research our suite of products and services, including handsets, accessories and
special promotions, and we also use online purchases as an additional sales channel to allow subscribers to purchase our services
directly.
Marketing
We are a full service provider of wireless services, offering our customers packages of services and features that combine
multiple communications services in one handset, including voice and data services and our differentiated push-to-talk services.
Since 2002, we have offered services under the Nextel brand under a trademark license agreement with Nextel Communications,
Inc. In 2011, we launched a new brand identity, which we believe enhanced the recognition of our brand and unified our brand
identity. As a result of our efforts, the Nextel brand is recognized in Brazil as standing for both quality of service and the differentiated
services and customer support we provide. More recently, with the launch of services supported by our WCDMA network, our
marketing strategy has focused on the availability of the broader range of services and features that appeal to a wider range of
consumers. This positioning of our brand continues to focus on customers who are attracted to our differentiated services and our
reputation for providing a high quality customer experience.
Regulation of SMR and PCS Operations
In Brazil, the wireless communications regulations are based on a concept called calling party pays, which requires the
mobile carrier of the subscriber initiating a call to pay the mobile carrier of the party receiving the call when mobile calls occur
between subscribers of different carriers. These calling party pays charges are based on rates that we refer to as mobile termination
rates. In 2012, ANATEL, Brazil's telecommunications regulatory agency, approved regulations to implement a transition to a
cost-based model for determining mobile termination rates. Under the current regulations, the mobile termination rates are being
gradually reduced over a transition period ending in 2019, when cost-based rates will take effect. The transition rules also provide
for a partial "bill and keep" settlement process that applies to the settlement of mobile termination charges between smaller operators
like Nextel Brazil and its larger competitors (who are considered to hold significant market power under the Brazilian regulations),
which further reduces mobile termination charges for smaller operators. The lower costs resulting from this partial bill and keep
settlement process, which is similar to the settlement process that has historically applied to termination charges relating to Nextel
Brazil’s iDEN services, decline as mobile termination rates are reduced during the transition period, with the bill and keep settlement
process terminating when cost-based rates are implemented.
Under the rules adopted by ANATEL relating to interconnection charges, Nextel Brazil has negotiated agreements with all
significant fixed line and wireless operators in Brazil to reflect the payments between carriers as a result of the calling party pays
charges. Because Nextel Brazil's subscriber base is smaller than those of its competitors and its subscribers tend to make a higher
number of calls terminating on other carriers' networks, these higher mobile termination rates result in substantial charges relating
to the "off-net" termination of calls by our subscribers. To partially address this issue, ANATEL implemented the partial bill and
keep settlement process described above. Since the adoption of this process, Nextel Brazil has recognized significant cost savings
when terminating calls originated on its networks. In the past, these cost savings enabled Nextel Brazil to develop and offer
attractive pricing plans that reduced or eliminated the significant differentiation in the cost of on-net and off-net calls that are
common in Brazil due to the historically high mobile termination rates there, providing opportunities for Nextel Brazil to offer
unique service plans. In connection with ANATEL’s transition plan, Nextel Brazil’s benefits under these partial bill and keep rules
has declined, and recently, some of Nextel Brazil’s competitors have launched pricing plans with the same rates for on-net and
off-net calls. In addition, in December 2015, two of Nextel Brazil’s competitors filed a lawsuit against ANATEL challenging the
bill and keep rules.
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Foreign Currency Controls, Dividends and Tax Regulation
The purchase and sale of foreign currency in Brazil continues to be subject to regulation by the Central Bank of Brazil
despite regulatory changes enacted in 2005 that were designed to reduce the level of government regulation of foreign currency
transactions. Exchange rates are freely negotiated by the parties, but purchase of currency for repatriation of capital invested in
Brazil and for payment of dividends to foreign stockholders of Brazilian companies may only be made if the original investment
of foreign capital and capital increases were registered with the Brazilian Central Bank. There are no significant restrictions on
the repatriation of registered share capital and remittance of dividends. Nextel Brazil has registered substantially all of its
investments with the Brazilian Central Bank.
Brazilian law provides that the Brazilian government may, for a limited period of time, impose restrictions on the remittance
by Brazilian companies to foreign investors of the proceeds of investments in Brazil. These restrictions may be imposed whenever
there is a material imbalance or a serious risk of a material imbalance in Brazil’s balance of payments. The Brazilian government
may also impose restrictions on the conversion of Brazilian currency into foreign currency. These restrictions may hinder or prevent
us from purchasing equipment required to be paid for in any currency other than Brazilian reais. Under current Brazilian law, a
company may pay dividends from current or accumulated earnings. Dividend payments from current earnings are not subject to
withholding tax. Interest on foreign loans is generally subject to a 15% withholding tax. The entry of funds into Brazil as a foreign
loan is subject to a 6% foreign exchange transaction, or IOF, tax, except if the average repayment term of the loan is more than
180 days, in which case the IOF tax will be fully exempted. The first possible date of exercise for put or call provisions established
on the foreign loan will be considered the date of effective repayment of the loan. Interest and payments of principal on foreign
loans are currently exempted from the IOF tax.
Employees
As of December 31, 2015, we had 2,875 employees, of which 2,833 were employees of Nextel Brazil. Nextel Brazil is a
party to a legally mandated collective bargaining agreement that covers most of its employees and expires on August 31, 2016.
NII Holdings is not a party to any collective bargaining agreement. We believe that the relationship between us and our employees,
and between Nextel Brazil and its employees, is good.
Access to Public Filings and Board Committee Charters
We maintain an internet website at www.nii.com. Information contained on our website is not part of this annual report on
Form 10-K. Stockholders of the Company and the public may access our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to these reports filed with or furnished to the SEC under the Securities
Exchange Act of 1934, as amended, through the “investor relations” section of our website. This information is provided by a
third party link to the SEC’s online EDGAR database, is free of charge and may be reviewed, downloaded and printed from our
website at any time.
We also provide public access to our code of ethics, entitled the NII Holdings, Inc. Code of Conduct and Business Ethics,
and the charters of the following committees of our Board of Directors: the Audit Committee, the Compensation Committee and
the Corporate Governance and Nominating Committee. The committee charters may be viewed free of charge on the Investor
Relations link of our website at the following address: www.nii.com. You may obtain copies of the committee charters and the
Code of Conduct and Business Ethics free of charge by writing to: NII Holdings Investor Relations, 1875 Explorer Street, Suite 800,
Reston, Virginia 20190. If a provision of our Code of Conduct and Business Ethics required under the Nasdaq Global Select Market
corporate governance standards is materially modified, or if a waiver of our Code of Conduct and Business Ethics is granted to a
director or executive officer, we will post a notice of such action on the Investor Relations link of our website at the following
address: www.nii.com. Only the Board of Directors or the Audit Committee may consider a waiver of the Code of Business Conduct
and Ethics for an executive officer or director.
9
Item 1A.
Risk Factors
Investors should be aware that we and our business are subject to various risks, including the risks described below. Our
business, financial condition or results of operations could be materially adversely affected by any of these risks. The trading price
of our common stock could decline due to any of these risks, and investors may lose all or part of any investment. Our actual
results could differ materially from those anticipated in any forward-looking statements that we make as a result of a variety of
factors, including the risks described below. Please note that additional risks not presently known to us or that we currently deem
immaterial may also impair our business and operations.
Risks Relating to Our Business and Results
1. Our recent results of operations make it unlikely that we will satisfy the applicable financial covenant included in some
of our existing debt obligations, which creates uncertainty regarding our ability to continue as a going concern.
Over the course of the last several years, our results of operations, including our operating revenues and operating cash
flows, have been negatively affected by a number of factors, including significant deterioration in economic conditions in Brazil,
increased competitive pressure, the overall depreciation of the value of the Brazilian real relative to the U.S. dollar and the impact
of previous delays in the deployment and launch of services on our WCDMA network in Brazil. These and other factors resulted
in a reduction in our subscriber growth and revenues at a time when our costs reflected the operation of both of our networks and
had a significant negative impact on our results and our ability to grow our revenue base to a level sufficient to reach the scale
required to generate positive operating income.
We believe that the wireless communications industry in Brazil has been and will continue to be characterized by intense
competition on the basis of price; the types of services offered; variety, features and pricing of handsets; speed of data access; and
quality of service. In recent years, the prices we have been able to charge for services in Brazil have declined as a result of intensified
price competition, including the introduction by our competitors of aggressive pricing promotions, such as plans that allow shared
minutes between groups of callers. During the second half of 2015, our competitors in Brazil began introducing even more
aggressive pricing plans that provided more services for lower rates than some of the plans we offer, which together with the
impact of deteriorating economic conditions, reduced the number of new subscribers we added to our network in the fourth quarter
of 2015. This increased competition may continue to affect our ability to attract and retain subscribers in the future.
We have an obligation to meet a net debt financial covenant in Nextel Brazil's local bank loans that will apply semiannually
beginning on June 30, 2016. We have made a number of changes within our senior management team and modified our business
plan to reflect our available cash resources and the impact of the current and expected economic and competitive conditions in
Brazil on both our subscriber growth and revenues, and to align our costs with this revised outlook, but based on our current
business plan, we believe that it is unlikely that we will satisfy the applicable financial covenant included in both of Nextel Brazil's
local bank loan agreements at the June 30, 2016 measurement date. If we are unable to develop or implement changes to our
business that allow us to meet this covenant, we will need to refinance or negotiate amendments to these financing arrangements
or secure waivers from the lenders in order to avoid a potential default under the loan agreements. If a default occurs, the lenders
could require us to repay the amounts outstanding under these arrangements, and if they were to do so, the lender of Nextel Brazil's
equipment financing facility could accelerate the amount outstanding under that obligation as well. See Note 7 to our consolidated
financial statements for more information.
2. Our independent registered public accounting firm has indicated that our financial condition raises substantial doubt
about our ability to continue as a going concern.
Because it is unlikely that we will satisfy the applicable financial covenant included in both of Nextel Brazil's local bank
loans and because of the cross-default provisions included in Nextel Brazil's equipment financing facility, our independent registered
public accounting firm has included a statement with respect to our ability to continue as a going concern in its report on our
consolidated financial statements for the year ended December 31, 2015. See "1. Our recent results of operations make it unlikely
that we will be able to satisfy the applicable financial covenant included in some of our existing debt obligations, which creates
uncertainty regarding our ability to continue as a going concern." However, our financial statements have been prepared assuming
we will continue to operate as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the
normal course of business. The reaction of investors and others to the inclusion of a going concern statement by our auditors, our
results of operations and questions regarding our potential inability to continue as a going concern may cause others to choose
not to conduct business with us due to concerns about our ability to meet our contractual obligations and may materially adversely
affect our share price and our ability to continue to execute our business plans, raise new capital and/or make our scheduled debt
payments on a timely basis or at all.
10
3. Because our free cash flow was negative, and is expected to continue to be negative, we will likely need to meet our
obligations and fund our working capital with cash on hand and through the recovery of amounts held in escrow and
used to secure performance bonds.
Our free cash flow was negative in 2015, and based on our current plans, we expect our free cash flow to remain negative
through at least 2016. Our current plans are based on a number of key assumptions relating to, among other things, our ability to
manage our capital and operating expenses and to attract and retain customers. If any of our assumptions are not borne out or are
otherwise not correct, our free cash flow could continue to be negative for an extended period of time. There can be no assurance
that we will succeed in executing on our plans or that we will generate positive free cash flow in the future.
Our current sources of funding are our cash and investments on hand; the ultimate amount recovered from cash currently
held in escrow to secure our indemnification obligations in connection with the sales of Nextel Argentina, Nextel Mexico and
Nextel Peru; the return of cash pledged as collateral to secure certain performance bonds relating to our obligations to deploy our
spectrum in Brazil; and funds generated from our operations. As of December 31, 2015, assuming the availability of these funding
sources, and if we are successful in making the necessary changes to our business that are factored into our revised business plan,
we expect to have sufficient liquidity to continue to fund our business for about two years.
If we do not meet the results in our revised business plan, or if anticipated funding sources are not available to us, including
the release of cash held in escrow, it is likely that we would need to obtain additional funding in the next twelve to eighteen months
or sooner. We believe that the uncertainties relating to our business, together with the restrictions in our current financing
arrangements and general conditions in the financial and credit markets, may make it challenging for us to obtain additional
funding. In addition, the cost of any additional funding that we may require, if available, could be both significant and higher than
the cost of our existing financing arrangements. Our inability to obtain suitable financing if and when it is required for these or
other reasons could, among other things, have a material adverse impact on our results of operations and liquidity.
4.
If we are not able to compete effectively in the highly competitive wireless communications industry, our future growth
and operating results will suffer.
Our business involves selling wireless communications services to subscribers, and as a result, our economic success is
based on our ability to attract new subscribers and retain current subscribers. Our success will depend on Nextel Brazil's ability
to compete effectively with other telecommunications services providers, including other wireless telecommunications companies,
internet and cable service providers and providers of fixed wireline services, in Brazil. Our ability to compete successfully will
depend on our ability to anticipate and respond to various competitive factors affecting the telecommunications industry in Brazil,
including the availability of new services, features and technologies; changes in consumer preferences, demographic trends and
economic conditions; our ability to fund our operations; and our competitors' pricing strategies.
a.
The wireless industry in Brazil is highly competitive, making it difficult for us to attract and retain customers. If we are
unable to attract and retain customers, our financial performance will be impaired.
Competition among telecommunications service providers in Brazil is intense as multiple carriers seek to attract and retain
customers. Some of the factors contributing to this competitive environment include the current economic environment in Brazil;
a higher relative penetration of wireless services compared to historic levels, which drives more aggressive competition as
competitors seek to attract and retain customers that support the growth of their businesses in a more saturated market; the
development and availability of new products and services, including services supported by new technologies; and the entry of
new competitors. We also expect the current trend of alliances, cost-sharing arrangements and consolidation in the wireless and
communications industries to continue as companies respond to the need for cost reduction and additional spectrum. This trend
may result in the creation of larger and more efficient competitors with greater financial, technical, promotional and other resources
to compete with our businesses. In addition, as we continue to pursue our plans to expand our marketing and sales focus on
consumers, we will be increasingly seeking to attract customers in segments that have historically been predominantly served by
our competitors, many of which are larger companies with more extensive networks, financial resources and benefits of scale that
allow them to spend more money on marketing and advertising than us and to exploit scale advantages that allow them to offer
products and services at a lower cost.
In order to obtain a competitive advantage, our competitors have, among other things:
• provided discounted or free airtime or other services;
• provided increased handset subsidies;
11
• offered higher commissions to distributors;
• offered a broader range of handsets and, in some cases, offered those handsets through exclusivity periods;
• expanded their networks to provide more extensive network coverage;
• developed and deployed networks that use new technologies and support new or improved services;
• offered incentives to larger customers to switch service providers, including reimbursement of cancellation fees; and
• offered bundled telecommunications services that include local, long distance and data services.
In addition, number portability requirements, which enable customers to switch wireless providers without changing their
wireless numbers, have been implemented in Brazil, making it easier for wireless providers to effectively target and attract their
competitors' customers.
The increasingly competitive environment in Brazil and competitive strategies of our competitors, including recent price
competition, will put pressure on the prices we can charge for our services and for handsets and other devices that we sell in
connection with our service offerings. These developments and actions by our competitors could continue to negatively impact
our ARPU, our operating results and our ability to attract and retain customers. If we are unable to respond to competition and
compensate for declining prices by adding new customers, increasing usage and offering new services, our revenues and profitability
could continue to decline.
b. Competition and technological changes in the market for wireless services, including competition driven by our competitors'
deployment of long-term evolution or other advanced technologies, could negatively affect our average revenue per
subscriber, customer turnover, operating costs and our ability to attract new subscribers, resulting in adverse effects on our
revenues, future cash flows, growth and profitability. If we do not keep pace with rapid technological changes or if we fail
to offer new services in a manner that delivers a quality customer experience, we may not be able to attract and retain
customers.
The wireless telecommunications industry is experiencing significant technological change. Spending by our competitors
on new wireless services and network improvements could enable them to obtain a competitive advantage with new technologies
or enhancements that we do not offer. Rapid change in technology may lead to the development of wireless communications
technologies that support products or services that consumers prefer over the products or services that we offer. If we are unable
to keep pace with future advances in competing technologies on a timely basis, or at an acceptable cost, we may not be able to
compete effectively and could lose subscribers to our competitors.
While we have deployed and are offering services on our WCDMA network in Brazil and are continuing to expand and
supplement that network, including by offering services utilizing LTE technologies in Rio de Janeiro, those services have yet to
achieve wide acceptance, and our competitors in Brazil have launched new or upgraded networks that use WCDMA and/or LTE
technology and offer services that use high speed data transmission capabilities, including internet access and video telephony.
These and other future technological advancements may enable competitors to offer features or services we cannot provide or
exceed the quality of services we offer, thereby making our services less competitive. In addition, we may not be able to accurately
predict technological trends or the success of new services in the market. If our services fail to gain acceptance in the marketplace
in the near term, or if costs associated with implementation and completion of the introduction of these services materially increase,
our ability to retain and attract customers could continue to be adversely affected. In particular, our push-to-talk services on our
WCDMA network may not meet the continually changing demands of our customers and may no longer serve to differentiate our
services in the future.
In Brazil, our current 800 MHz spectrum holdings are largely contiguous, making it possible to use that spectrum to support
future technologies, if certain technical, operational and regulatory requirements are met, including, for example, the availability
of compatible network and subscriber equipment. Although our spectrum holdings in Brazil are contiguous, they are not located
in the same portion of the 800 MHz spectrum band that is currently being used to support LTE network deployments elsewhere
in the world including in the United States. Accordingly, it may be necessary to seek regulatory changes and to reconfigure the
spectrum band and our spectrum holdings for them to be used to efficiently support LTE technologies.
12
c. Most of our competitors are financially stronger than we are, which limits our ability to compete based on price.
Because of their size, scale and resources, our competitors may be able to offer services to subscribers at prices that are
below the prices that we can offer for comparable services. Many of our competitors are well-established companies that have:
• substantially greater financial and marketing resources;
•
larger customer bases;
•
larger spectrum positions;
• higher profitability and positive free cash flow;
• more access to funding, lower leverage and lower cost of financing; and
•
larger service coverage areas than those of our operating companies.
If we cannot compete effectively based on the price of our service offerings and related cost structure, our results of operations
may be adversely affected.
d. Our coverage is not as extensive as those of other wireless service providers, which may limit our ability to attract and retain
subscribers.
We have deployed and will continue to expand and enhance our WCDMA network in Brazil, but our current network there
does not offer nationwide coverage nor does it provide the coverage available on some of our competitors' networks. We have
entered into a roaming agreement relating to our WCDMA services in Brazil that allows our customers to use roaming services
in a broader area in Brazil. In addition, we have roaming agreements supporting our WCDMA services outside of Brazil. We are
not able to supplement our iDEN network coverage using roaming arrangements because the uniqueness of our iDEN technology
limits our potential roaming partners for subscribers solely on iDEN networks.
The implementation of the roaming services that support our WCDMA services are subject to risks. There is no guarantee
we will be able to effectively implement or maintain these agreements to provide roaming service in areas where we do not have
network coverage or that the terms of those agreements will allow us to utilize roaming services to economically extend our
coverage areas. Utilization of these roaming arrangements requires our customers to rely on networks that are owned and operated
by third parties and, in the case of in-market roaming, by one of our competitors. We are unable to ensure the availability of services
or data speeds on these networks, and in most cases, push-to-talk service, which historically has been one of our key differentiators,
will not be available or will not have the same level of performance when our subscribers are roaming, which could negatively
affect the service experience of our customers and ultimately make it more difficult to retain these subscribers.
We will not be able to utilize roaming arrangements to extend the coverage of our iDEN network and may not be able to
economically extend the coverage of our WCDMA network using our existing or future roaming arrangements, making it difficult
for us to provide geographic coverage for our services that is sufficient to attract and retain certain subscribers and compete
effectively with competitors that operate mobile networks with more extensive service areas.
e. We are dependent on our competitors for support services that are critical to our operations.
We rely on our competitors for certain support services that are critical to our operations. For example, the services that we
provide on our WCDMA network require significantly greater data capacity than our iDEN network, and this higher capacity
demand has made it necessary for us to obtain wireline or other connecting circuits between elements of our network such as
switches and transmitter and receiver sites that are capable of transporting a significantly higher volume of data traffic. In some
instances, the availability of those higher capacity circuits is limited, and in many cases, our access to those circuits is controlled
by entities that are affiliated with our competitors. Similarly, we have entered into roaming arrangements with one of our competitors
that allow us to expand the coverage of our WCDMA network in Brazil by allowing our subscribers to roam on that competitor's
network in areas outside our coverage area. As a result, we are dependent on entities that are or are affiliated with our competitors
to provide us with the data transport services needed to support our networks and services and roaming services that enhance our
coverage area. Our ability to offer services and our results of operations could be adversely affected if those entities were to allocate
limited transport or network capacity to other customers including their wireless affiliates or otherwise make it more difficult for
us to obtain the necessary transport and roaming capacity to support our networks and services.
13
f.
If there is a substantial increase in our customer turnover rate, our business could be negatively affected.
In recent years, we have experienced higher customer turnover rates compared to earlier periods, which resulted primarily
from the combined impact of weaker economic conditions and a more competitive sales environment in Brazil. In particular, there
has recently been a significant increase in our customer turnover rate for subscribers to services on our iDEN network as customers
increasingly prefer services that are supported by high speed data capabilities including services on smartphones.
In addition, we have broadened our target market to include customers that have typically demonstrated a willingness to
change service providers more frequently and have increased our usage of post and prepaid hybrid payment terms as part of our
service plans in order to attract more price sensitive customers, both of which had an adverse impact on our consolidated customer
turnover rate. These and other changes in our marketing strategies and the types of customers we target have recently had a negative
impact on our consolidated customer turnover rate and could continue to have that impact in the future. Subscriber losses adversely
affect our business and results of operations because these losses result in lost revenues and cash flow, drive higher bad debt
expenses and require us to attract replacement customers and incur the related sales commissions and other costs. Although
attracting new subscribers and retaining existing subscribers are both important to the financial viability of our business, there is
an added focus on retaining existing subscribers because the average cost of acquiring a new subscriber is much higher. Accordingly,
increased levels of subscriber deactivations have had and could continue to have a negative impact on our results, even if we are
able to attract new subscribers at a rate sufficient to offset those deactivations. If we experience further increases in our customer
turnover rate, or if the higher customer turnover rates we are currently experiencing do not decline, our results of operations could
be adversely affected.
g.
If our networks do not perform in a manner that meets subscriber expectations, we will be unable to attract and retain
customers.
Customer acceptance of the services we offer on our networks is and will continue to be affected by technology-based
differences and by the operational performance and reliability of these networks. We may have difficulty attracting and retaining
customers if: we are unable to satisfactorily address and resolve performance or other transmission quality issues as they arise;
these issues limit our ability to deploy or expand our network capacity as currently planned; or these issues place us at a competitive
disadvantage to other wireless providers.
h. Customer concerns about our financial condition, ability to continue as a going concern and ability to implement our business
plan, including our network development and deployment efforts, may have an additional adverse effect on our ability to
attract and retain customers.
We believe that our customers may take our medium- to long-term operating and financial outlook, particularly to the extent
that it is perceived to impact our network deployment and development, into account when deciding whether to continue or begin
service with us. Recently, our results of operations, including our operating revenues and operating cash flows, have been negatively
affected by a number of factors including competitive pressure in Brazil, the overall depreciation of the Brazilian real relative to
the U.S. dollar, the impact of previous delays in the deployment and launch of services on our WCDMA network and significant
deterioration in economic conditions in Brazil. If customers or potential customers who are aware of our recent results of operations,
or of current and future adjustments to our business in response to those results, become concerned that we will be unable to
continue to provide service to them at a quality level that meets their needs, customer deactivations could increase and new
subscribers could decrease. We assume that customers will find our services attractive and that we will be able to increase our
subscriber base. However, given the factors that have negatively affected our business and the difficulties associated with predicting
our ability to overcome these factors, there can be no assurance that these assumptions will prove to be correct. Increases in
customer deactivations and decreases in new subscribers would adversely affect our revenues and our ability to generate the cash
needed to fund our business and meet our other obligations.
5. We operate exclusively in Brazil, and our assets, subscribers and cash flows are concentrated in Brazil, which presents
risks to our operating plans.
As a holding company with operations solely in Brazil, our growth and operating results are dependent on the strength and
stability of the economic, political and regulatory environments in that country. Changes in the economic, political and regulatory
environment or foreign currency exchange rates in Brazil will have a more significant impact on our operating results than has
been the case historically when we held operations in multiple Latin American markets. As a result, our business and operations
will be subject to a higher degree of risk and volatility due to the impact of the risks described below.
14
a.
A decline in the foreign exchange rate of the Brazilian real may adversely affect our growth and our operating results.
Historically, the value of the Brazilian real relative to the U.S. dollar has been volatile. Recent weakness in the economy in
Brazil has led to increased volatility in the real compared to the U.S. dollar. Nearly all of our revenues are earned in Brazilian
reais, but we report our results in U.S. dollars. As a result, fluctuations in foreign currency exchange rates have had and can have
a significant impact on our reported results that may not reflect the operating trends in our business. In addition, all of our outstanding
debt is owed by Nextel Brazil, and 52% of our total debt outstanding is denominated in U.S. dollars. A decline in the value of the
Brazilian real makes it more costly for us to service our U.S. dollar-denominated debt obligations and affects our operating results
because we generate nearly all of our revenues in Brazilian reais, but we pay for some of our operating expenses and capital
expenditures in U.S. dollars. Further, because we report our results of operations in U.S. dollars, a decline in the value of the
Brazilian real relative to the U.S. dollar result in reductions in our reported revenues, as well as a reduction in the carrying value
of our assets, including the value of cash investments held in Brazilian reais. Depreciation of the Brazilian real also results in
increased costs to us for imported equipment. Historically, we have entered into some limited hedging arrangements to mitigate
short-term volatility in foreign exchange rates, but have not hedged against long-term movements in foreign exchange rates because
the alternatives currently available for hedging against those movements are limited and costly. As a result, if the value of the
Brazilian real continues to depreciate relative to the U.S. dollar, we would expect our reported operating results in future periods,
and the value of our assets held in Brazilian reais, to be adversely affected.
b. We face economic and political risks operating in Brazil, which may limit our ability to implement our strategy and could
negatively impact our financial flexibility, including our ability to repatriate and redeploy profits, and may disrupt our
operations or hurt our performance.
Our operations depend on the economy in Brazil, which is considered to be an emerging market and has historically been
subject to volatile economic cycles. More recently, the economy in Brazil has experienced significant and rapid fluctuation in
terms of commodity prices, local consumer prices, employment levels, gross domestic product, interest rates and inflation rates.
These economic conditions are affecting the wireless telecommunications industry in Brazil, leading to lower customer credit and
pressure on customer demand, pricing and customer turnover, and are negatively impacting our ability to attract and retain
subscribers. During 2015, the Brazilian economy contracted as domestic demand decreased due to a combination of high inflation,
high interest rates, growing unemployment, tighter credit conditions, a decline in business investments and political issues. It is
estimated that Brazil's gross domestic product, or GDP, fell about 3.7% in 2015 compared to the end of 2014, and most economic
forecasts for 2016 currently project continued economic contraction. The unemployment rate in Brazil was almost 7% at the end
of 2015 and is expected to reach 9% in 2016. Real wages in Brazil have been falling since March 2015 and are expected to continue
to fall. The foreign currency exchange rate in Brazil declined 42% relative to the U.S. dollar from 2014 to 2015. If the current
economic conditions continue or worsen, the economic environment in Brazil may negatively impact our ability to meet our
business plan.
In addition, in some instances, the economy in Brazil has also been negatively affected by other factors, including volatile
political conditions. We are unable to predict the impact that local or national elections and the associated transfer of power from
incumbent officials or political parties to newly elected officials or parties may have on the local economy or the growth and
development of the local telecommunications industry. Changes in leadership or in the ruling party in Brazil may affect the
economic programs developed under the prior administration, which in turn, may adversely affect the economy there. Other risks
associated with political instability could include the risk of expropriation or nationalization of our assets by the government. We
expect political, economic and social conditions in Brazil to affect our business, including our access to capital markets to obtain
funding needed for our business or to refinance our existing indebtedness.
c. Our operating company is subject to local laws and government regulations, and we are subject to U.S. laws and regulations,
which could limit our growth and strategic plans and negatively impact our financial results.
Our operations are subject to local laws and regulations in Brazil, which may differ substantially from those in the U.S., and
we could become subject to penalties if we do not comply with those local laws and regulations. In addition, we are subject to
U.S. laws and regulations, such as the Foreign Corrupt Practices Act, or the FCPA. The FCPA prohibits us from providing anything
of value to foreign officials for the purpose of influencing official decisions or obtaining or retaining business. Our employees
and agents interact with government officials on our behalf, including interactions necessary to obtain licenses and other regulatory
approvals necessary to operate our business and through contracts to provide wireless service to government entities, creating a
risk that actions may occur that could violate the FCPA. Although we have implemented policies and procedures designed to
ensure compliance with local laws and regulations as well as U.S. laws and regulations, including the FCPA, there can be no
assurance that all of our employees, consultants, contractors and agents will abide by our policies. The penalties for violating the
FCPA can be severe. Any violations of law, even if prohibited by our policies, could have a material adverse effect on our business.
15
In addition, in Brazil, government regulatory agencies regulate the licensing, construction, acquisition, ownership and
operation of our wireless communications systems, as well as the granting, maintenance and renewal of licenses to use spectrum
and radio frequencies. Adoption of new regulations, changes in the current telecommunications laws or regulations or changes in
the manner in which they are interpreted or applied could adversely affect our operations by increasing our costs, reducing our
revenues or making it more difficult for us to compete. Our business may be negatively impacted if changes are implemented that:
• affect the terms of interconnection arrangements that allow our subscribers to complete calls to our competitors’
subscribers, including the charges imposed for the completion of those calls;
• establish restrictions that limit or otherwise affect the deployment of transmitter and receiver sites needed to support the
coverage and capacity of our networks;
• establish minimum network construction, coverage or quality of service obligations that can result in increased capital
investments or require other changes to our business;
• establish prices Nextel Brazil is required to charge for its services or impose other terms of service that can affect our
revenues or costs; or
•
impose foreign ownership limitations on telecommunications providers that may affect our ability to own and operate
our business.
Recently, there has also been an increased focus on service and quality standards in Brazil as the local government monitors
telecommunications providers' voice quality, customer complaints, call failure rates, capacity to handle call traffic levels in peak
calling periods and failed interconnection of calls, which could potentially increase our operating costs and affect rates charged
to subscribers. In addition, regulations in Brazil permit third parties, including our competitors, to challenge our actions or decisions
of the regulators that potentially benefit us, such as decisions regarding the allocation and licensing of spectrum. If our competitors
are successful in pursuing claims such as these, or if the regulators in Brazil take actions against us in response to actions initiated
by our competitors, our ability to grow our business and improve our results of operations could be adversely affected.
Finally, rules and regulations affecting placement and construction of our transmitter and receiver sites affect our ability to
deploy and operate our networks, and therefore impact our business strategies. In some instances, local governments have adopted
very stringent rules and regulations related to the placement and construction of wireless towers, which can significantly impede
the planned expansion of our service coverage area or require us to remove or modify existing towers, which can result in unplanned
costs, negatively impact network performance and impose new and onerous taxes and fees. Compliance with such laws, rules and
regulations could increase the time and costs associated with our planned network deployments. The propagation characteristics
of the spectrum bands being used to support our WCDMA network in Brazil and the coverage requirements associated with the
spectrum licenses being utilized in Brazil, require substantially more transmitter and receiver sites to meet the minimum coverage
requirements of those licenses and to provide coverage to the areas needed to provide competitive services. In addition, our licenses
in Brazil require us to build our networks within prescribed time periods, and failure to meet the requirements may result in
enforcement of performance bonds related to the licenses, forfeiture of the channels and revocation of licenses. Rules and regulations
affecting tower placement and construction could make it difficult to meet our build requirements in a timely manner or at all,
which could lead us to incur unplanned costs or result in fines or, in some instances, the loss of spectrum licenses. We believe that
Nextel Brazil is currently in compliance with the applicable operational requirements of its licenses in all material respects.
d. We pay significant import duties on our network equipment and handsets, and any increases could impact our financial
results.
Our operations are highly dependent upon the successful and cost-efficient importation of network equipment and handsets
and other devices from locations outside Brazil. Network equipment and handsets may be subject to significant import duties and
other taxes. Any significant increase in import duties in the future could significantly increase our costs. To the extent we cannot
pass these costs on to our customers, our financial results will be negatively impacted.
e. We are subject to taxes, which may reduce the revenues of our operating subsidiary in Brazil, reduce the amounts we receive
from Nextel Brazil or may increase our tax costs.
The government in Brazil, including the local municipalities, has increasingly turned to new taxes, as well as aggressive
interpretations of current tax law, as a method of increasing revenue. For example, Nextel Brazil is required to pay two types of
income taxes, which include a corporate income tax and a social contribution tax, and is subject to various types of non-income
related taxes, including value-added tax, excise tax, service tax, importation tax and property tax. In addition, the reduction in tax
revenues resulting from the economic downturn that has occurred in the last several years has led to proposals and new laws that
increase the taxes imposed on sales of handsets and on telecommunications services. The provisions of new tax laws may attempt
16
to prohibit us from passing these taxes on to our customers or our ability to do so may be limited by competitive conditions. These
taxes may reduce the amount of earnings that we can generate from our services or in some cases may result in operating losses.
Distributions of earnings and other payments, including interest, received from Nextel Brazil may be subject to withholding
taxes imposed by Brazil. Any of these taxes will reduce the amount of after-tax cash we can receive from our operations.
In general, a U.S. corporation may claim a foreign tax credit against its federal income tax expense for foreign withholding
taxes and, under certain circumstances, for its share of foreign income taxes paid directly by foreign corporate entities in which
the company owns 10% or more of the voting stock. Our ability to claim foreign tax credits is, however, subject to numerous
limitations, and we may incur incremental tax costs as a result of these limitations or because we do not have U.S. Federal taxable
income.
We may also be required to include in our income for U.S. Federal income tax purposes our proportionate share of specified
earnings of our foreign corporate subsidiaries that are classified as controlled foreign corporations, without regard to whether
distributions have been actually received from these subsidiaries.
f. We have entered into a number of agreements that are subject to enforcement in foreign countries, which may limit efficient
dispute resolution.
A number of the agreements that we and our subsidiaries enter into with third parties are governed by the laws of, and are
subject to dispute resolution in the courts of or through arbitration proceedings in, the countries or regions in which the operations
are located. We cannot accurately predict whether these forums will provide effective and efficient means of resolving disputes
that may arise. Even if we are able to obtain a satisfactory decision through arbitration or a court proceeding, we could have
difficulty enforcing any award or judgment on a timely basis. Our ability to obtain or enforce relief in the U.S. is also uncertain.
6.
The costs we incur to connect our networks with those of other carriers are subject to local laws and may increase, which
could adversely impact our financial results.
Nextel Brazil must connect its telecommunication networks with those of other carriers in order to provide the services we
offer. We incur costs relating to these interconnection arrangements and for local, long distance and data transport services relating
to the connection of our transmitter sites and other network equipment. These costs include interconnection charges and fees,
charges for terminating calls on the other carriers’ networks and transport costs, most of which are measured based on the level
of our use of the related services. We are able to recover a portion of these costs through revenues earned from charges we are
entitled to bill other carriers for terminating calls on our network, but because users of mobile telecommunications services who
purchase those services under contract generally, and business customers like ours in particular, tend to make more calls that
terminate on other carriers’ networks and because we have a smaller number of customers than most other carriers, we incur more
charges than we are entitled to receive under these arrangements. The terms of the interconnection and transport arrangements,
including the rates that we pay, are subject to varying degrees of local regulation, and often require us to negotiate agreements
with the other carriers, most of which are our competitors, in order to provide our services. Our costs relating to these interconnection
and transport arrangements are subject to fluctuation both as a result of changes in regulations and the negotiations with the other
carriers. Changes in our customers’ calling patterns that result in more of our customers’ calls terminating on our competitors’
networks and changes in the interconnection arrangements either as a result of regulatory changes or negotiated terms that are less
favorable to us could result in increased costs for the related services that we may not be able to recover through increased revenues,
which could adversely impact our financial results.
7. Our failure to maintain effective internal controls over financial reporting may adversely affect the accuracy and timeliness
of our financial reporting.
As described in "Part II, Item 9A. Controls and Procedures" included in this annual report on Form 10-K, we disclosed a
material weakness in internal control over financial reporting related to certain deficiencies in Nextel Brazil's control environment
and risk assessment process. The material weakness was initially disclosed during the quarter ended September 30, 2014. Nextel
Brazil did not establish an effective control environment and monitoring activities, including an organizational structure with
sufficiently trained resources where supervisory roles, responsibilities and monitoring activities were aligned with financial
reporting objectives. Subsequently, significant turnover disrupted staffing throughout the organization, particularly within the
accounting function, and management had difficulty attracting and retaining employees technically qualified to comply with U.S.
GAAP reporting requirements. Management has taken numerous actions since then to improve the control environment, including
implementing a new organizational structure and hiring additional accounting professionals. We continue to monitor the maturity
of Nextel Brazil’s newly implemented organizational structure and resources.
17
Our inability to maintain effective internal control over financial reporting, as described above, combined with issues or
delays in implementing the improvements described herein, could result in a material misstatement to our financial statements or
other disclosures, which could have an adverse effect on our business, financial condition or results of operations.
8. Our business could be negatively impacted by our reliance on indirect distribution channels for a significant portion of
our sales.
Our business depends heavily upon third party distribution channels for securing a substantial portion of the new customers
to our services, and with the expansion of our target market, we expect to rely more heavily on retailers and other sales channels
for a growing portion of our sales. In many instances, we rely on these third party dealers and retailers to serve as the primary
contact between us and the customer and to interact with other third parties on our behalf. As a result, there may be risks associated
with the actions taken by our distributors or the operators of our other retail channels, including potential risks associated with
the failure of our distributors or other retail channels to follow regulatory requirements. The volume of our new customer additions,
our ability to retain customers and our profitability could also be adversely affected if these third party dealers or retailers terminate
their relationship with us, if there are adverse changes in our relationships with them, if we alter our compensation arrangements
with these dealers or retailers or if the financial condition of these dealers or retailers deteriorates.
9.
If our licenses to provide mobile services are not renewed, or are modified or revoked, our business may be restricted.
Wireless communications licenses and spectrum allocations are subject to ongoing review and, in some cases, to modification
or early termination for failure to comply with applicable regulations. If Nextel Brazil fails to comply with the terms of its licenses
and other regulatory requirements, including installation deadlines and minimum loading or service availability requirements,
they could be fined or their licenses could be revoked. This is particularly true with respect to the grants of licenses for spectrum
we use to support our WCDMA network in Brazil, which impose strict deadlines for the construction of network infrastructure
and supporting systems as a condition of the license. Further, compliance with these requirements is a condition for eligibility for
license renewal. Most of our wireless communications licenses have fixed terms and are not renewed automatically. Because
governmental authorities have discretion to grant or renew licenses, our licenses may not be renewed or, if renewed, renewal may
not be on acceptable economic terms. In addition, regulations in Brazil permit third parties, including our competitors, to challenge
the award and use of our licenses. If our competitors are successful in pursuing claims such as these, or if regulators in Brazil take
actions modifying or revoking our licenses in response to these claims, our ability to grow our business and improve our results
of operations could be materially adversely affected.
10. If we are not able to manage our future growth, our operating results will suffer.
Our ability to achieve our long-range business goals and to grow profitably is dependent on our ability to manage changes
to our business model and cost structure that are necessary to allow us to pursue our plans to expand both our service offerings
and our targeted customer segments, including by implementing new and more efficient supporting business systems and processes.
Our inability to complete these efforts in a timely fashion, or to manage the related costs, could have an adverse impact on our
business.
a. We may be limited in our ability to grow unless we successfully expand network capacity and launch competitive services.
To continue to successfully retain our existing customers, increase our customer base and grow our business, we must
economically:
• expand the capacity and coverage of our network in Brazil;
• secure sufficient transmitter and receiver sites at appropriate locations to meet planned system coverage and capacity
targets;
• obtain adequate quantities of base radios and other system infrastructure equipment; and
• obtain an adequate volume and mix of handsets to meet customer demand.
In particular, the deployment and expansion of the coverage and capacity of our WCDMA network and the deployment of
LTE technology in Brazil has required us to deploy new transmitter and receiver sites in order to meet the expanded coverage and
capacity requirements for those networks resulting from differences in our commercial strategies, differences in the propagation
characteristics of the spectrum bands being used to support our network in Brazil and the coverage requirements associated with
the spectrum licenses being utilized to support our services. In some areas that we serve, individuals and governments are opposing
18
new tower construction and supporting laws restricting the construction of towers and other transmitter and receiver sites.
Compliance with such laws could increase the time and costs associated with our planned network deployments. The effort required
to locate and build a significant number of additional transmitter sites to support our services in coming years will be substantial,
and our failure to meet this demand could adversely affect our business.
In addition, as we launch a broader array of services on our network in Brazil, we must develop, test and deploy new
supporting technologies, software applications and systems intended to enhance our competitiveness both by supporting existing
and new services and features, and by reducing the costs associated with providing those services. Successful deployment and
implementation of new services and technology depend, in part, on the willingness and ability of third parties to develop new
handsets and applications that are attractive to our customers and that are available in a timely manner. We may not be able to
successfully expand our new network in Brazil as needed or complete the development and deployment of competitive services.
Failure to successfully expand our network coverage and capacity and the services we offer could also be expected to result in
subscriber dissatisfaction that could affect our ability to retain subscribers and could have an adverse effect on our results of
operations and growth prospects. If this occurs, we may be unable to recover the substantial investment we have made in our new
networks and the related costs we have incurred and will continue to incur to offer these new services.
b.
Failure to successfully implement core information technology and operating systems may adversely affect our business
operations.
Our business strategy envisions growing our business by successfully building and expanding our new network in Brazil,
expanding our product and service offerings and expanding our target customer base. Even if we do expand our business, if we
fail to manage our growth effectively, our financial results could be adversely affected. Separately, growth may place a strain on
our management systems and resources. We must continue to refine and expand our business development and sales capabilities;
our network operations and information technology infrastructure; and the hardware, software, systems, processes and people to
effectively support current and future sales, customer service and information requirements of our business in an efficient and
cost-effective manner. In addition, failure to prioritize technology initiatives and effectively allocate resources in order to achieve
our strategic goals could result in a failure to realize those goals, including the expected benefits of our growth, and could negatively
affect our financial results.
Changes to our networks and business strategies require us to implement new operating and supporting systems to improve
our ability to address the needs of our customers, as well as to create additional efficiencies and strengthen our internal controls
over financial reporting. We may not be able to successfully implement these new systems in an effective or timely manner or we
could fail to complete all necessary data reconciliation or other conversion controls when implementing the new systems. In
addition, we may incur significant increases in costs and encounter extensive delays in the implementation and rollout of these
new systems. Failure to effectively implement our new operating systems may adversely affect our results of operations, customer
perceptions and internal controls over financial reporting.
As our business evolves, we must continue to hire, train, supervise and manage new employees. We cannot assure you that
we will be able to allocate our human resources optimally or identify and hire qualified employees or retain valued employees. If
we are unable to manage our operations, our results of operations could be adversely affected.
c. Costs, regulatory requirements and other problems we encounter as we continue to deploy our new networks could adversely
affect our operations.
The rights to use the spectrum that supports our new network in Brazil comes with significant regulatory requirements
governing the coverage of the network, the timing of deployment and the loading of customers on the network. If we fail to meet
these regulatory requirements, we could face fines and, in some instances, actions to revoke our spectrum rights. Our deployment
and the expansion of the coverage and capacity of our new network in Brazil will require significant capital expenditures and will
result in incremental operating expenses prior to fully launching services. Costs could increase beyond expected levels as a result
of unforeseen delays, cost overruns, unanticipated expenses, regulatory changes, engineering design changes, problems with
network or systems compatibility, equipment unavailability and technological or other complications.
19
11. Any modification or termination of our trademark license with Nextel Communications could increase our costs.
Nextel Communications has licensed to us the right to use “Nextel” and other of its trademarks on a perpetual basis in Latin
America. However, Nextel Communications may terminate the license on 60 days’ notice if we commit one of several specified
defaults (namely, unauthorized use, failure to maintain agreed quality controls or a change in control of NII Holdings). If there is
a change in control of one of our subsidiaries, upon 90 days’ notice, Nextel Communications may terminate the sublicense granted
by us to the subsidiary with respect to the licensed marks. The loss of the use of the “Nextel” name and trademark could require
us to incur significant costs to establish a new brand, which could have a material adverse effect on our operations.
12. Our business could be negatively impacted by security threats and other material disruptions of our wireless networks.
Major equipment failures and the disruption of our wireless networks as a result of natural disasters, severe weather, terrorist
attacks, acts of war, cyber attacks or other breaches of network or information technology security, even for a limited period of
time, may result in significant expenses, result in a loss of subscribers or impair our ability to attract new subscribers, which in
turn could have a material adverse effect on our business, results of operations and financial condition. In the past, more stringent
network performance standards and reporting obligations have been adopted by the governments in some of our markets in order
to ensure quality of service during unforeseen disturbances. We could be required to make significant investments in our existing
networks in order to comply with these types of network performance standards. In addition, while we maintain information
security policies and procedures designed to comply with relevant privacy and security laws and restrictions, if we suffer a security
breach of customer or employee confidential data, we may be subject to significant legal and financial exposure, damage to our
reputation, and loss of confidence in the security of our products and services.
Risks Relating to Our Common Stock
13. There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests
of other stockholders.
Funds associated with Capital World Investors and entities managed by Aurelius Capital Management, LP currently own
approximately 33.5% and 13.5%, respectively, of our outstanding common stock. Circumstances may arise in which these
stockholders may have an interest in pursuing or preventing acquisitions, divestitures or other transactions, including the issuance
of additional shares or debt, that, in their judgment, could enhance their investment in us or another company in which they invest.
Such transactions might adversely affect us or other holders of our common stock. In addition, our significant concentration of
share ownership may adversely affect the trading price of our common shares because investors may perceive disadvantages in
owning shares in companies with significant stockholders.
14. The price of our common stock may be volatile.
The price of our common stock may fluctuate due to a variety of factors, including:
• concentration of our business operations in Brazil;
•
low trading volumes for our common stock and the inability to sustain an active trading marketing for our common stock;
• actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry;
•
industry cycles and trends;
• mergers and strategic alliances in the telecommunications industry;
• changes in government regulation;
• potential or actual military conflicts or acts of terrorism;
•
•
the failure of securities analysts to publish research about us, or shortfalls in our operating results from levels forecast
by securities analysts;
future sales of our common stock by our stockholders, including in particular, those stockholders whose shares were
included in our Registration Statement on Form S-1;
20
• announcements concerning us or our competitors; and
•
the general state of the securities market.
As a result of these factors, investors in our common stock may not be able to resell their stock at or above the price they
paid or at all. These broad market and industry factors may materially reduce the market price of our common stock, regardless
of our operating performance.
15. Certain provisions of our certificate of incorporation and our bylaws may make it difficult for stockholders to change the
composition of our Board and may discourage, delay or prevent a merger or acquisition that some stockholders may
consider beneficial.
Certain provisions of our Amended and Restated Certificate of Incorporation (the “Charter”) and our Fifth Amended and
Restated Bylaws (the “Bylaws”) may have the effect of delaying or preventing changes in control if our Board determines that
such changes in control are not in the best interests of the Company and our stockholders. The provisions in our Charter and
Bylaws include, among other things, those that:
• provide for a classified board of directors until the 2017 annual meeting;
• authorize our Board to issue preferred stock and to determine the price and other terms, including preferences and voting
rights, of those shares without stockholder approval;
• establish advance notice procedures for nominating directors or presenting matters at stockholder meetings; and
•
limit the persons who may call special meetings of stockholders.
While these provisions have the effect of encouraging persons seeking to acquire control of our Company to negotiate with
our Board, they could enable the Board to hinder or frustrate a transaction that some, or a majority, of the stockholders may believe
to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. These
provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it
more difficult for stockholders to replace members of our Board, which is responsible for appointing the members of our
management.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our principal executive and administrative offices are located in Reston, Virginia, where we lease about 26,000 square feet
of office space under a lease expiring in January 2020. In addition, Nextel Brazil leases office space in São Paulo. Nextel Brazil
also leases transmitter and receiver sites for the transmission of radio service under various individual site leases. As of December 31,
2015, Nextel Brazil had 9,875 constructed sites at leased and owned locations, including those constructed for its networks. In
addition, Nextel Brazil also had 469 indoor sites and 433 global system for mobile, or GSM, sites as of December 31, 2015.
Item 3.
Legal Proceedings
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. See Note 9 to our consolidated financial statements at the end of this annual report on Form 10-K for more information.
Item 4.
Mine Safety Disclosures
Not applicable.
21
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
1. Market for Common Stock
In connection with our Chapter 11 proceedings, all shares of our common stock that were outstanding prior to our emergence
from Chapter 11 were canceled on June 26, 2015. On July 6, 2015, our new common stock was listed on the Nasdaq Global Select
Market (NASDAQ) under the symbol “NIHD.” The following table sets forth on a per share basis the reported high and low sale
prices for our common stock, as reported on the market at the time, since July 6, 2015.
2015
Third Quarter
Fourth Quarter
2. Number of Stockholders of Record
Price Range of
Common Stock
High
Low
$16.88
7.81
$6.21
4.43
As of February 29, 2016, there were approximately 130 holders of record of our common stock, including the Depository
Trust Corporation, which acts as a clearinghouse for multiple brokerage and custodial accounts.
3. Dividends
We have not paid any dividends on our common stock and do not plan to pay dividends on our common stock for the
foreseeable future. We anticipate that for the foreseeable future any cash flow generated from our operations will be used to develop
and expand our business and operations and make contractual payments under our debt facilities in accordance with our business
plan.
4.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the fourth quarter of 2015.
22
Performance Graph
The following graph presents the cumulative total stockholder return on our common stock as listed on the Nasdaq Global
Select Market from July 6, 2015 through December 31, 2015. This graph also compares our common stock to the cumulative total
stockholder return on the Nasdaq 100 Index, the common stock of OI S.A. and Telefônica Brasil S.A. The graph assumes an initial
investment of $100 in our common stock as of July 6, 2015 and in each of the comparative indices or peer issuers, and that all
dividends were reinvested.
Index
NII Holdings
Nasdaq 100
OI S.A.
Telefônica Brasil S.A.
7/6/2015
7/31/2015
8/31/2015
9/30/2015
10/31/2015
11/30/2015
12/31/2015
$
$
$
$
100.00
100.00
100.00
100.00
$
$
$
$
84.72
103.95
79.65
92.41
$
$
$
$
50.89
96.85
43.60
79.29
$
$
$
$
38.57
94.73
39.53
65.39
$
$
$
$
41.59
105.47
34.30
74.28
$
$
$
$
40.94
106.11
26.74
67.42
$
$
$
$
29.92
104.42
26.74
65.22
23
Item 6.
Selected Financial Data
On September 15, 2014, we and eight of our U.S. and Luxembourg-domiciled subsidiaries, including NII Capital Corp. and
NIIT filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code, which we refer
to as Chapter 11, in the United States Bankruptcy Court for the Southern District of New York, which we refer to as the Bankruptcy
Court. In addition, subsequent to September 15, 2014, five additional subsidiaries of NII Holdings, Inc. filed voluntary petitions
seeking relief under Chapter 11 in the Bankruptcy Court. We refer to the companies that filed voluntary petitions seeking relief
under Chapter 11 collectively as the Debtors. Nextel Brazil and our previous other operating subsidiaries in Latin America were
not Debtors in these Chapter 11 cases.
On June 19, 2015, the Bankruptcy Court entered an order approving and confirming the First Amended Joint Plan of
Reorganization Proposed by the Plan Debtors and the Official Committee of Unsecured Creditors, dated April 20, 2015. We refer
to this plan, as amended, as the Plan of Reorganization. On June 26, 2015, the conditions of the Bankruptcy Court's order and the
Plan of Reorganization were satisfied, the Plan of Reorganization became effective, and we and the other Debtors emerged from
the Chapter 11 proceedings. We refer to June 26, 2015 as the Emergence Date.
In connection with our emergence from Chapter 11, we were required to apply the provisions of fresh start accounting to
our financial statements. Because our results of operations during the period from June 26, 2015 to June 30, 2015 were not material,
we applied fresh start accounting to our consolidated financial statements as of the close of business on June 30, 2015. As a result
of the application of fresh start accounting and other events related to our reorganization under Chapter 11, the Successor Company's
financial results for the six months ended December 31, 2015 are prepared under a new basis of accounting and are not directly
comparable to the Predecessor Company's financial results for the six months ended June 30, 2015.
The tables below set forth selected consolidated financial data for the periods or as of the dates indicated and should be read
in conjunction with the consolidated financial statements and notes thereto in Item 8 of this report and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in Item 7 of this report. The selected consolidated financial data
presented below includes the results of Nextel Brazil and our corporate headquarters. In connection with the sales of Nextel
Argentina and Nextel Mexico, we have presented the results of these companies for all periods as discontinued operations in the
tables below. For more information regarding material uncertainties in our business, see Note 1 and Note 9 to our consolidated
financial statements.
Successor
Company
Six Months
Ended
December
31,
Six Months
Ended June
30,
Predecessor Company
Year Ended December 31,
2015
2015
2014
2013
2012
2011
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Operating revenues
Impairment, restructuring and other charges
Foreign currency transaction losses, net
Net (loss) income from continuing operations
Net (loss) income from continuing operations
per common share, basic
Net (loss) income from continuing operations
per common share, diluted
$
$
$
$
$
$
529,434
32,308
(99,737)
$
$
$
683,711
$ 1,848,954
$ 2,203,040
$ 2,898,461
$ 3,455,341
36,792
$
105,664
$
121,578
$
29,889
$
—
(63,948) $
(51,149) $
(92,456) $
(25,946) $
(56,301)
(285,611)
$ 1,519,401
$ (1,224,671) $ (1,200,425) $
(362,939) $
(265,551)
(2.86)
(2.86)
$
$
8.73
8.71
$
$
(7.11) $
(6.98) $
(2.12) $
(1.56)
(7.11) $
(6.98) $
(2.12) $
(1.56)
Consolidated Balance Sheet Data:
Total assets
Long-term debt, including current portion
Liabilities subject to compromise
Successor
Company
December 31,
Predecessor Company
December 31,
2015
2014
2013
2012
2011
(in thousands)
$ 2,729,908
$ 5,374,034
$ 8,679,954
$ 9,223,078
$ 9,822,136
$
$
665,067
$
925,271
$ 5,298,412
$ 4,066,487
$ 4,194,719
— $ 4,593,493
$
— $
— $
—
24
Impairment, Restructuring and Other Charges. During the six months ended December 31, 2015 and the six months ended
June 30, 2015, we recognized $32.3 million and $36.8 million, respectively, in impairment, restructuring and other charges primarily
related to the shutdown or abandonment of certain transmitter and receiver sites in Brazil, retail store closures related to the
realignment of distribution channels and restructuring charges incurred in connection with the realignment of our organization
and staffing structure. During 2014, we recognized $105.7 million in impairment, restructuring and other charges primarily related
to the discontinuation of certain projects related to the next generation of our push-to-talk services, restructuring charges incurred
in connection with the realignment of our organization and staffing structure, and other asset impairment charges related to store
closures and the shutdown or abandonment of transmitter and receiver sites in Brazil. During 2013, we recognized $121.6 million
in impairment, restructuring and other charges primarily related to the discontinuation of our use of software relating to customer
relationship management, the restructuring of certain outsourcing agreements to manage our network infrastructure and
restructuring charges incurred in connection with the realignment of our organization and staffing structure, including costs
associated with staff reductions that occurred primarily at our corporate headquarters.
Foreign Currency Transaction Losses, Net. Consolidated foreign currency transaction losses for each of the periods
presented primarily relate to the impact of the depreciation in the value of the Brazilian real relative to the U.S. dollar on Nextel
Brazil's assets and liabilities. See “Critical Accounting Policies and Estimates — Foreign Currency.” for more information.
Net (Loss) Income From Continuing Operations. For the six months ended June 30, 2015, net income from continuing
operations included $1,956.9 million in reorganization items, which represented a $1,775.8 million gain we recognized in
connection with the settlement of our liabilities subject to compromise upon our emergence from Chapter 11 and a $261.8 million
gain we recognized as a result of the implementation of fresh start accounting, partially offset by professional fees and other costs
incurred in connection with our Chapter 11 filing.
25
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
INDEX TO MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking and Cautionary Statements
Introduction
A. Executive Overview
B. Results of Operations
1. Combined Period Ended December 31, 2015 vs. Year Ended December 31, 2014
a. Consolidated
b. Nextel Brazil
c. Corporate
2. Year Ended December 31, 2014 vs. Year Ended December 31, 2013
a. Consolidated
b. Nextel Brazil
c. Corporate
C. Liquidity and Capital Resources
D. Future Capital Needs and Resources
E. Effect of Inflation and Foreign Currency Exchange
F. Effect of New Accounting Standards
27
28
28
32
34
34
36
40
41
41
43
44
44
46
49
50
26
Forward-Looking and Cautionary Statements
This annual report on Form 10-K 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 annual report on Form 10-K, 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 customers;
our ability to satisfy the requirements of our debt obligations;
our ability to access sufficient debt or equity capital to meet any future operating and financial needs;
our ability to meet established operating goals and generate cash flow;
the availability of other funding sources, including proceeds from the sales of Nextel Argentina, Nextel Mexico and
Nextel Peru held in escrow and proceeds derived from other asset sales;
general economic conditions in Brazil and in the market segments that we are targeting for our services;
the political and social conditions in Brazil, including political instability, which may affect Brazil's economy and the
regulatory scheme 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, including technology deployed in connection with the introduction of digital two-way
mobile data or internet connectivity services in our markets;
the availability of adequate quantities of system infrastructure and subscriber equipment and components at reasonable
pricing to meet our service deployment and marketing plans and customer demand;
risks related to the operation and expansion of our WCDMA network in Brazil, including the potential need for additional
funding to support enhanced coverage and capacity, and the risk that new services supported by the WCDMA network
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 network business;
the quality and price of similar or comparable wireless communications services offered or to be offered by our
competitors, including providers of cellular services and personal communications services;
market acceptance of our new service offerings;
27
•
•
•
our ability to successfully manage and support our legacy iDEN network in Brazil;
equipment failure, natural disasters, terrorist acts or other breaches of network or information technology security; and
other risks and uncertainties described in Part I, Item 1A. "Risk Factors," in this annual report on Form 10-K and, from
time to time, in our other reports filed with the SEC.
Introduction
The following is a discussion and analysis of:
•
our consolidated financial condition as of December 31, 2015 and 2014 and our consolidated results of operations for
the six-month periods ended December 31, 2015 and June 30, 2015, the combined twelve-month period ended December
31, 2015 and for the years ended December 31, 2014 and 2013; and
•
significant factors which we believe could affect our prospective financial condition and results of operations.
Historical results may not indicate future performance. See “Item 1A. — Risk Factors” for risks and uncertainties that may
impact our future performance.
We refer to our wholly-owned Brazilian operating company, Nextel Telecomunicações Ltda., as Nextel Brazil.
A.
Executive Overview
Business Update
Emergence from Chapter 11 Proceedings. On September 15, 2014, we and eight of our U.S. and Luxembourg-domiciled
subsidiaries, including NII Capital Corp. and NII International Telecom, S.C.A., or NIIT, filed voluntary petitions seeking relief
under Chapter 11 of Title 11 of the United States Bankruptcy Code, which we refer to as Chapter 11, in the United States Bankruptcy
Court for the Southern District of New York, which we refer to as the Bankruptcy Court. In addition, subsequent to September
15, 2014, five additional subsidiaries of NII Holdings, Inc. filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy
Court. We refer to the companies that filed voluntary petitions seeking relief under Chapter 11 collectively as the Debtors. Nextel
Brazil and our previous other operating subsidiaries in Latin America were not Debtors in these Chapter 11 cases.
As described in more detail in Note 2 to our consolidated financial statements, on June 19, 2015, the Bankruptcy Court
entered an order approving and confirming the Plan of Reorganization. On June 26, 2015, the conditions of the Bankruptcy Court's
order and the Plan of Reorganization were satisfied, the Plan of Reorganization became effective, and we and the other Debtors
emerged from the Chapter 11 proceedings.
In accordance with the requirements of reorganization accounting, NII Holdings adopted the provisions of fresh start
accounting as of June 30, 2015 and became a new entity for financial reporting purposes. References to the "Successor Company"
relate to NII Holdings on or subsequent to June 30, 2015. References to the "Predecessor Company" relate to NII Holdings prior
to June 30, 2015.
Sale of Nextel Mexico. On April 30, 2015, we completed the sale of our operations in Mexico to New Cingular Wireless,
an indirect subsidiary of AT&T. The transaction was structured as a sale of all the outstanding stock of Nextel Mexico for a purchase
price of approximately $1.875 billion, including $187.5 million deposited in escrow to satisfy potential indemnification claims.
The net proceeds of the sale were $1.448 billion, after deducting Nextel Mexico's outstanding indebtedness net of cash and applying
other specified purchase price adjustments. We used a portion of the net proceeds to repay all outstanding principal and interest
under a debtor-in-possession loan agreement we entered into prior to our emergence from Chapter 11 and to fund distributions to
specified creditors pursuant to the Plan of Reorganization.
Sale of Nextel Argentina. On September 11, 2015, two of our indirect subsidiaries entered into a binding agreement with
Grupo Clarin relating to the sale of all of the outstanding equity interests of Nextel Argentina. This agreement provided for aggregate
cash consideration of $178.0 million, of which $159.0 million was paid at signing in connection with the transfer of a 49% equity
interest in Nextel Argentina and the grant of a call option that allowed Grupo Clarin or any of its affiliates to acquire the remaining
51% equity interest in Nextel Argentina upon receipt of required approvals from the regulatory authorities in Argentina. The
remaining cash consideration was received in October 2015, including $6.0 million deposited in escrow to satisfy potential
indemnification claims. On January 27, 2016, the agreement was amended to permit Grupo Clarin or any of its affiliates to exercise
the right to acquire the remaining 51% equity interest prior to receiving regulatory approval, and Grupo Clarin and its affiliate
immediately acquired the remaining 51% of Nextel Argentina for no additional proceeds.
28
We plan to use the net proceeds received from the sales of Nextel Mexico and Nextel Argentina to provide additional liquidity
to support our operations in Brazil. In connection with this transaction, we have presented the results of Nextel Mexico and Nextel
Argentina for all periods as discontinued operations in this annual report on Form 10-K.
Changes at Corporate Headquarters. Following the sales of our operations in Mexico and Argentina, we now operate only
in Brazil. As a result, we are taking steps to further streamline the expenses incurred at our corporate headquarters by shifting
costs and associated responsibilities to Nextel Brazil. We implemented workforce reductions at our corporate headquarters in the
fourth quarter of 2015 in connection with this effort.
Nextel Brazil Business Overview
We provide wireless communication services under the NextelTM brand in Brazil with our principal operations located in
major urban and suburban centers with high population densities and related transportation corridors of that country where we
believe there is a concentration of Brazil's business users and economic activity, including primarily Rio de Janeiro and São Paulo.
In the second half of 2013, Nextel Brazil commercially launched services on its wideband code division multiple access, or
WCDMA, network in São Paulo, Rio de Janeiro and surrounding areas and extended those services to other areas in Brazil by
expanding the coverage of its network and utilizing roaming services and network sharing arrangements pursuant to agreements
that it reached with another network operator in Brazil. Nextel Brazil currently offers services supported by its WCDMA network
in approximately 260 cities in Brazil. Our WCDMA network enables us to offer a wide range of products and services supported
by that technology, including data services provided at substantially higher speeds than can be delivered on our legacy integrated
digital enhanced network, or iDEN.
Prior to the deployment of our WCDMA network, our services were primarily targeted to meet the needs of business
customers. With the deployment of our WCDMA network in Brazil, our target market has shifted to 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 target market is attracted to the services and pricing plans we offer, as well as
the quality of and data speeds provided by our WCDMA network.
We also offer long-term evolution, or LTE, services in Rio de Janeiro and continue to provide services on our legacy iDEN
network throughout various regions in Brazil. Our transition to standards-based technologies such as WCDMA also gives us more
flexibility to offer customers the option of purchasing services by acquiring the subscriber identity module, or SIM, cards from
us separately, and by providing the customer with the option to use the SIM cards in one or more devices that they acquire from
us or from other sources.
The services we currently offer include:
•
•
•
•
•
•
mobile telephone voice service;
wireless data services, including text messaging services, mobile internet services and email services;
push-to-talk services, including Direct Connect®, Prip and International Direct Connect® services, which allow
subscribers to talk to each other instantly;
other value-added services, including location-based services, which include the use of Global Positioning System,
or GPS, technologies; digital media services; and a wide ranging set of applications available via our content
management system, as well as the AndroidTM open application market;
business solutions, such as security, work force management, logistics support and other applications that help our
business subscribers improve their productivity; and
voice and data roaming services outside of our coverage areas.
Our goal is to generate higher revenues and increase our subscriber base by providing differentiated wireless communications
services that are valued by our existing and potential customers, while managing our capital and operating expenditures in the
near term and improving our profitability and cash flow over the long term. Our strategy for achieving this goal is based on several
core principles, including:
•
•
•
•
aligning our costs with our current business through continuous evaluation and streamlining of all capital and operating
expenditures;
focusing on higher value customer segments that generate higher average revenue per user, or ARPU, and lower
customer turnover;
utilizing the most profitable sales channels;
offering a superior customer experience, including a reliable and high quality wireless network; and
29
•
building on the strength of the unique positioning of the Nextel brand.
To support our business plan, we have made significant capital and other investments as we deployed our WCDMA network
and LTE upgrade. These investments have increased our costs and negatively impacted our profitability and are expected to
continue to have that impact as we incur the fixed costs associated with our network while building the subscriber base it serves.
However, we believe our investments have enhanced, and will continue to enhance, the competitiveness of our service offerings
while continuing to support the differentiated services and superior customer service that have historically been significant factors
supporting our business.
We have implemented and will continue to implement changes in our business to better align our organization and costs
with our operational and financial results and goals, as well as with the trends in our business. These changes have included changes
to our leadership team in Brazil, significant reductions in our headquarters staff through the reorganization of the roles and
responsibilities of both our Brazil and corporate teams, and headcount reductions in Brazil, all of which are designed to reduce
costs while maintaining the support necessary to meet our customers' needs.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the
U.S. requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying
notes. We consider the accounting policies and estimates addressed below to be the most important to our financial position and
results of operations, either because of the significance of the financial statement item or because they require the exercise of
significant judgment and/or use of significant estimates. Although we believe that the estimates we use are reasonable, due to the
inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.
Revenue Recognition. While our revenue recognition policy does not require the exercise of significant judgment or the
use of significant estimates, we believe that our policy is significant as revenue is a key component of our results of operations.
Operating revenues primarily consist of wireless service revenues and revenues generated from the sale of handsets and
accessories. We present our operating revenues net of value-added taxes, but we include certain revenue-based taxes that are our
primary obligation.
Service revenues primarily consist of fixed monthly access charges. Other components of service revenue include revenues
from calling party pays programs, variable charges for usage in excess of plan minutes or data in excess of plan limits, long-
distance charges, international roaming revenues derived from calls placed by our subscribers on other carriers’ networks and
revenues generated from broadband data services we provide on our WCDMA network. We recognize service revenue as service
is provided, net of credits and adjustments for service discounts and value-added taxes. We recognize excess usage, local, long
distance and calling party pays revenue at contractual rates per minute as minutes are used. We record cash received in excess of
revenues earned as deferred revenues. We recognize handset revenue when title and risk of loss passes to the customer.
Other revenues primarily include amounts generated from our handset maintenance programs, roaming revenues generated
from other companies’ subscribers that roam on our networks and co-location rental revenues from third party tenants that rent
space on our transmitter and receiver sites, which we also refer to as communication towers or towers, although in some instances
these towers are located on rooftops and other structures. We recognize revenue generated from our handset maintenance programs
on a monthly basis at fixed amounts over the service period. We recognize roaming revenues at contractual rates per minute as
minutes are used. We recognize co-location revenues from third party tenants on a monthly basis based on the terms set by the
underlying agreements.
Allowance for Doubtful Accounts. We establish an allowance for doubtful accounts receivable sufficient to cover probable
and reasonably estimable losses. We estimate this allowance based on historical experience, aging of accounts receivable and
collections trends. Actual write-offs in the future could be impacted by general economic and business conditions, as well as
fluctuations in subscriber deactivations, that are difficult to predict and therefore may differ from our estimates. A 10% increase
in our consolidated allowance for doubtful accounts as of December 31, 2015 would have resulted in $4.0 million of additional
bad debt expense for the combined period ended December 31, 2015.
Depreciation of Property, Plant and Equipment. We record our network assets and other improvements that extend the
useful lives of the underlying assets at cost and depreciate those assets over their estimated useful lives with the exception of
property, plant and equipment owned as of the date of our implementation of fresh start accounting. As of June 30, 2015, as a
result of the application of fresh start accounting in connection with our emergence from Chapter 11, we adjusted all existing
property, plant and equipment to its estimated fair value and revised the associated depreciable lives. See Note 2 to our consolidated
financial statements for more information. We calculate depreciation using the straight-line method based on estimated useful
lives ranging from 3 to 30 years for network equipment, communication towers and network software and 3 to 10 years for software,
office equipment, furniture and fixtures, and other, which includes non-network internal use software. We amortize leasehold
30
improvements over the shorter of the lease terms or the useful lives of the improvements. Our networks are highly complex and,
due to constant innovation and enhancements, certain components of those networks may lose their utility sooner than anticipated.
We periodically reassess the economic life of these components and make adjustments to their useful lives after considering
historical experience and capacity requirements, consulting with the vendor and assessing new product and market demands and
other factors. When our assessment indicates that the economic life of a network component is shorter than originally anticipated,
we depreciate its remaining book value over its revised useful life. Further, the deployment of any new technologies could adversely
affect the estimated remaining useful lives of our network assets, which could significantly impact future results of operations.
During the fourth quarter of 2013, we reviewed the useful lives of our communication towers and determined that the useful lives
of some of these towers should be increased to 30 years compared to the 10- or 15-year useful lives over which we were previously
depreciating these sites.
Amortization of Intangible Assets. Prior to the implementation of fresh start accounting in connection with our emergence
from Chapter 11, our intangible assets primarily consisted of our telecommunications licenses. As a result of the implementation
of fresh start accounting in connection with our emergence from Chapter 11, we recorded our intangible assets, which consisted
of our telecommunications licenses, our exclusive right to use the Nextel tradename in Brazil and our customer relationships, at
their estimated fair values. We calculate amortization on our licenses and our tradename using the straight-line method based on
an estimated useful life of 26 years. We calculate amortization on our customer relationships using the straight-line method based
on an estimated useful life of 4 years. While the terms of our licenses, including renewals, range from 10 to 40 years, the political
and regulatory environment in Brazil is continuously changing and, as a result, the cost of renewing our licenses beyond that range
could be significant. In addition, the wireless telecommunications industry is experiencing significant technological change, and
the commercial life of any particular technology is difficult to predict. In light of these uncertainties, we classify our licenses as
definite lived intangible assets. Many of our licenses are subject to renewal after the initial term, provided that we have complied
with applicable rules and policies in each of our markets. We intend to comply, and believe we have complied, with these rules
and policies in all material respects as they relate to licenses that are material to our business. However, because governmental
authorities have discretion as to the renewal of licenses, our licenses may not be renewed or we may be required to pay significant
renewal fees, either of which could have a significant impact on the estimated useful lives of our licenses, which could significantly
impact future results of operations. As a result of the implementation of fresh start accounting, we revised the remaining estimated
useful lives of our licenses to include renewal periods in cases where it is probable that a renewal will occur.
Valuation of Long-Lived Assets. We review long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If the total of the expected undiscounted future cash flows is less than
the carrying value of our assets, we recognize a loss for the difference between the estimated fair value and the carrying value of
the assets.
During the fourth quarter of 2015, we reviewed our Nextel Brazil segment for potential impairment using a probability-
weighted cash flow analysis. Our estimation of undiscounted future cash flows was partially based on assumptions that we will
be able to fund our business plan and that it is not probable that our Nextel Brazil segment will be disposed of. Based on our
current estimated undiscounted future cash flows, we determined that the carrying value of our Nextel Brazil segment is
recoverable. If our assumptions with respect to the future funding and ownership of our Nextel Brazil segment were to change, it
is possible that we could recognize a material impairment charge.
Foreign Currency. We translate Nextel Brazil's results of operations from the Brazilian real to the U.S. dollar using average
exchange rates for the relevant period. We translate assets and liabilities using the exchange rate in effect at the relevant reporting
date. We report the resulting gains or losses from translating foreign currency financial statements as other comprehensive income
or loss. Because we translate Nextel Brazil's operations using average exchange rates, its operating trends may be impacted by
the translation.
We report the effect of changes in exchange rates on U.S. dollar-denominated assets and liabilities held by Nextel Brazil as
foreign currency transaction gains or losses. We report the effect of changes in exchange rates on intercompany transactions of a
long-term investment nature as part of the cumulative foreign currency translation adjustment in our consolidated financial
statements. The intercompany transactions that, in our view, are of a long-term investment nature include certain intercompany
loans and advances from our U.S. and Luxembourg subsidiaries to Nextel Brazil. In contrast, we report the effect of exchange
rates on U.S. dollar-denominated intercompany loans and advances to our foreign subsidiaries that are due, or for which repayment
is anticipated in the foreseeable future, as foreign currency transaction gains or losses in our consolidated statements of
comprehensive loss. As a result, our determination of whether intercompany loans and advances are of a long-term investment
nature can have a significant impact on how we report foreign currency transaction gains and losses in our consolidated financial
statements.
Loss Contingencies. We account for and disclose loss contingencies such as pending litigation and actual or possible claims
and assessments in accordance with the FASB’s authoritative guidance on accounting for contingencies. We accrue for loss
contingencies if it is probable that a loss will occur and if the loss can be reasonably estimated. We disclose, but do not accrue for,
31
material loss contingencies if it is reasonably possible that a loss will occur or if the loss cannot be reasonably estimated. We do
not accrue for or disclose loss contingencies if there is only a remote possibility that the loss will occur. The FASB’s authoritative
guidance requires us to make judgments regarding future events, including an assessment relating to the likelihood that a loss may
occur and an estimate of the amount of such loss. In assessing loss contingencies, we often seek the assistance of our legal counsel
and in some instances, of third party legal counsel. As a result of the significant judgment required in assessing and estimating
loss contingencies, actual losses realized in future periods could differ significantly from our estimates.
Income Taxes. We account for income taxes using the asset and liability method, under which we recognize deferred income
taxes for differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, as well
as for tax loss carryforwards and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable or settled.
We recognize the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. We
provide a valuation allowance against deferred tax assets if, based upon the weight of available evidence, we do not believe it is
“more-likely-than-not” that some or all of the deferred tax assets will be realized.
The realization of deferred tax assets is dependent on the generation of future taxable income sufficient to realize our tax
loss carryforwards and other tax deductions. As of December 31, 2015, we recorded full valuation allowances on the deferred tax
assets of Nextel Brazil, our U.S. parent company and subsidiaries and our foreign holding companies due to substantial negative
evidence, including the recent history of cumulative losses and the projected losses for 2016 and subsequent years. As a result,
the valuation allowance on our deferred tax assets increased by $1.1 billion during 2015. We do not anticipate that we will recognize
significant tax benefits with respect to our deferred tax assets.
We are subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which we operate. Certain of our entities
are under examination by the relevant taxing authorities for various tax years. We regularly assess the potential outcome of current
and future examinations in each of the taxing jurisdictions when determining the adequacy of the provision for income taxes. We
have only recorded financial statement benefits for tax positions that we believe reflect the “more-likely-than-not” criteria of the
FASB’s authoritative guidance on accounting for uncertainty in income taxes, and we have established income tax reserves in
accordance with this guidance where necessary. Once a financial statement benefit for a tax position is recorded or a tax reserve
is established, we adjust it only when there is more information available or when an event occurs necessitating a change. While
we believe that the amount of the recorded financial statement benefits and tax reserves reflect the more-likely-than-not criteria,
it is possible that the ultimate outcome of current or future examinations may result in a reduction to the tax benefits previously
recorded on our consolidated financial statements or may exceed the current income tax reserves in amounts that could be material.
B.
Results of Operations
For purposes of comparison to the year ended December 31, 2014, we combined the results of operations for the six months
ended December 31, 2015 with the results of operations for the six months ended June 30, 2015. However, as a result of the
application of fresh start accounting and other events related to our reorganization under Chapter 11, the Successor Company's
financial results for the six months ended December 31, 2015 are prepared under a new basis of accounting and are not directly
comparable to the Predecessor Company's financial results for the six months ended June 30, 2015. For the same reasons, our
results of operations for the combined twelve-month period ended December 31, 2015 are not fully comparable to our results of
operations for the year ended December 31, 2014.
In accordance with accounting principles generally accepted in the U.S., we translated the results of operations of our
Brazilian operating segment using the average exchange rates for the combined period ended December 31, 2015 and for the
years ended December 31, 2014 and 2013. The following table presents the average exchange rates we used to translate Nextel
Brazil's results of operations, as well as changes from the average exchange rates utilized in prior periods.
Successor
Company
Six Months
Ended
December
31, 2015
Predecessor
Company
Combined
Predecessor Company
Six Months
Ended June
30, 2015
Year Ended
December
31, 2015
Year Ended
December
31, 2014
Year Ended
December
31, 2013
2014 to 2015
Percent
Change
2013 to 2014
Percent
Change
Brazilian real
3.70
2.97
3.33
2.35
2.16
(41.7)%
(8.8)%
During 2014 and 2015, foreign currency exchange rates in Brazil generally depreciated in value relative to the U.S. dollar.
The following table presents the currency exchange rates in effect at the end of 2013, as well as the end of each of the quarters
in 2014 and 2015. If the values of these exchange rates remain at levels similar to the end of 2015 or depreciate further relative
to the U.S. dollar, our future operating results and the values of our assets held in local currencies will be adversely affected.
32
2013
2014
2015
Predecessor Company
Successor Company
December
March
June
September
December
March
June
September
December
Brazilian real
2.34
2.26
2.20
2.45
2.66
3.21
3.10
3.97
3.90
To provide better insight into Nextel Brazil's results, 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 year ended December
31, 2014 to amounts that would have resulted if the average foreign currency exchange rates for the year ended December 31,
2014 were the same as the average foreign currency exchange rates that were in effect for the combined period ended December
31, 2015; and (ii) by comparing the constant currency financial measures for the year ended December 31, 2014 to the actual
financial measures for the combined period ended December 31, 2015. This constant currency comparison applies consistent
exchange rates to the operating revenues earned in foreign currencies and to the other components of segment earnings for the
year ended December 31, 2014, with the exception of handsets and accessories, which are purchased in U.S. dollars and therefore
were not adjusted. The constant currency information reflected in the tables below is not a measurement under accounting principles
generally accepted in the U.S. and should be considered in addition to, but not as a substitute for, the information contained in
our results of operations.
33
1. Combined Period Ended December 31, 2015 vs. Year Ended December 31, 2014
a.
Consolidated
Successor
Company
Predecessor
Company
Combined
Predecessor
Company
Six Months
Ended
December 31,
2015
Six Months
Ended June
30, 2015
Year Ended
December 31,
2015
Year Ended
December 31,
2014
Actual Change from
Previous Year
Constant
Currency
Change from
Previous Year
Dollars
Percent
Percent
Brazil segment losses
(9,045)
(75,234)
(84,279)
(133,691)
49,412
(37)%
(dollars in thousands)
(61)%
(48)%
(30)%
(26)%
(15)%
(22)%
(59)%
19 %
NM
(65)%
(22)%
NM
(161)%
(135)%
(187)%
Corporate segment losses and
eliminations
Consolidated segment losses
Impairment, restructuring and
other charges
Depreciation and amortization
Operating loss
Interest expense, net
Interest income
Foreign currency transaction
losses, net
Other expense, net
Loss from continuing operations
before reorganization items and
income tax benefit (provision)
Reorganization items
Income tax benefit (provision)
Net (loss) income from
continuing operations
Income (loss) from discontinued
operations, net of income taxes
(26,100)
(35,145)
(32,308)
(85,364)
(152,817)
(55,563)
17,200
(99,737)
(1,176)
(37,982)
(64,082)
(113,216)
(148,361)
(36,792)
(153,878)
(303,886)
(82,820)
15,327
(69,100)
(239,242)
(456,703)
(138,383)
32,527
(123,141)
(256,832)
(105,664)
(394,061)
(756,557)
(372,904)
38,345
59,059
108,471
36,564
154,819
299,854
234,521
(5,818)
(48)%
(42)%
(35)%
(39)%
(40)%
(63)%
(15)%
(63,948)
(163,685)
(51,149)
(112,536)
220 %
(137)
(1,313)
(5,829)
4,516
(77)%
(292,093)
(435,464)
(727,557)
(1,148,094)
420,537
(37)%
1,467
5,015
1,956,874
1,958,341
(71,601)
2,029,942
NM
(2,009)
3,006
(4,976)
7,982
(160)%
(285,611)
1,519,401
1,233,790
(1,224,671)
2,458,461
(201)%
(222)%
11,608
221,114
232,722
(733,027)
965,749
(132)%
Net (loss) income
$
(274,003)
$ 1,740,515
$ 1,466,512
$ (1,957,698) $ 3,424,210
(175)%
_______________________________________
NM-Not Meaningful
We define segment losses as operating loss before depreciation, amortization and impairment, restructuring and other charges.
Consolidated segment losses decreased $108.5 million, or 42%, for the combined period ended December 31, 2015 compared to
2014 and include the results of operations of our Brazil segment and our corporate operations, which are discussed individually
below.
1.
Impairment, restructuring and other charges
Consolidated impairment, restructuring and other charges recognized for the combined period ended December 31, 2015
primarily consisted of the following:
• $43.7 million in non-cash asset impairment charges, the majority of which related to the shutdown or abandonment of
transmitter and receiver sites and the discontinuation of certain information technology projects in Brazil;
• $14.4 million in severance and other related costs incurred in Brazil and at the corporate level resulting from the separation
of employees in an effort to streamline our organizational structure and reduce general and administrative expenses; and
• $8.4 million in restructuring charges in Brazil related to future lease costs for certain transmitter and receiver sites that
are no longer necessary in our business plan.
Consolidated impairment, restructuring and other charges recognized in 2014 primarily related to the following:
34
• a $42.8 million non-cash asset impairment charge related to our decision to cease further development on one of the
strategic options for the next generation of our push-to-talk services;
• $27.7 million in severance and related costs incurred at the corporate level and in Brazil from the separation of employees
in an effort to streamline our organizational structure and reduce general and administrative expenses; and
• $21.9 million in other non-cash asset impairment charges, the majority of which related to the shutdown or abandonment
of certain transmitter and receiver sites in Brazil and certain retail store closures in Brazil related to the realignment of
our distribution channels.
2. Depreciation and amortization
The $154.8 million, or 39%, decrease in consolidated depreciation and amortization on a reported basis, and the 15% decrease
on a constant currency basis, for the combined period ended December 31, 2015 compared to 2014 was principally the result of
a decrease in the value of Nextel Brazil's property, plant and equipment resulting from the implementation of fresh start accounting.
See Note 2 to our consolidated financial statements for more information.
3.
Interest expense, net
Consolidated net interest expense decreased $234.5 million, or 63%, on a reported basis, and 59% on a constant currency
basis, for the combined period ended December 31, 2015 compared to 2014 primarily as a result of the suspension of interest on
all series of our senior notes in connection with our Chapter 11 filing and subsequent cancellation of these notes in connection
with our emergence from Chapter 11. See Note 2 to our consolidated financial statements for more information.
4. Reorganization items
Reorganization items of $1,958.3 million in 2015 were primarily related to the $1,775.8 million gain we recognized in
connection with the settlement of our liabilities subject to compromise upon our emergence from Chapter 11 and a $261.8 million
gain as a result of the implementation of fresh start accounting, partially offset by professional fees and other costs incurred in
connection with our Chapter 11 filing.
Reorganization items of $71.6 million in 2014 were related to the write-off of discounts, premiums and unamortized financing
costs associated with our NII Capital Corp. and NIIT senior notes, as well as professional fees and other costs incurred in connection
with our Chapter 11 filing.
5.
Income tax benefit (provision)
The $8.0 million, or 160%, change in the consolidated income tax provision from 2014 to the combined period ended
December 31, 2015 is primarily due to the reversal of a liability for uncertain tax positions due to the expiration of certain statutes
of limitations in Brazil and the reduction of the valuation allowance.
35
b.
Nextel Brazil
Successor
Company
Predecessor
Company
Combined
Predecessor Company
Six
Months
Ended
December
30, 2015
Six Months
Ended June
30, 2015
Year Ended
December
31, 2015
% of
Nextel
Brazil’s
Operating
Revenues
Year Ended
December
31, 2014
% of
Nextel
Brazil’s
Operating
Revenues
(dollars in thousands)
Constant
Currency
Change
from
Previous
Year
Actual Change from
Previous Year
Dollars
Percent
Percent
$ 501,028
$ 643,804
$1,144,832
94 % $ 1,694,181
92 % $ (549,349)
(32)%
(4)%
28,304
39,807
68,111
6 %
154,737
8 %
(86,626)
(56)%
(38)%
(46,904)
(121,143)
(168,047)
(14)%
(415,082)
(22)%
247,035
(60)%
(60)%
(18,600)
(81,336)
(99,936)
(8)%
(260,345)
(14)%
160,409
(62)%
(67)%
(212,866)
(256,153)
(469,019)
(39)%
(693,004)
(38)%
223,985
(32)%
(4)%
(71,557)
(105,357)
(176,914)
(14)%
(267,574)
(14)%
90,660
(34)%
(6)%
(207,050)
(9,045)
$
(276,192)
(483,242)
$ (75,234) $ (84,279)
(40)%
(606,949)
(7)% $ (133,691)
(33)%
(7)% $
123,707
49,412
(20)%
(37)%
13 %
(61)%
Service and other
revenues
Handset and
accessory revenues
Cost of handsets and
accessories
Handset and
accessory net
subsidy
Cost of service
(exclusive
of depreciation and
amortization)
Selling and marketing
expenses
General and
administrative
expenses
Segment losses
We use the term "subscriber unit," which we also refer to as a subscriber, to represent an active subscriber identity module,
or SIM, card, which is the level at which we track subscribers. The table below provides an overview of Nextel Brazil's subscriber
units in commercial service on both its iDEN and WCDMA networks, as well as Nextel Brazil's customer turnover rates for each
of the quarters in 2014 and 2015. We calculate customer turnover by dividing subscriber deactivations for the period by the average
number of subscriber units during that period.
36
Predecessor Company
Three Months Ended
Successor Company
Three Months Ended
March 31,
2014
June 30,
2014
September
30, 2014
December
31, 2014
March 31,
2015
June 30,
2015
September
30, 2015
December
31, 2015
(subscribers in thousands)
3,137.7
1,050.6
2,942.5
1,333.8
2,669.2
1,672.3
2,420.7
1,971.9
2,177.4
2,258.0
1,857.8
2,605.0
iDEN subscriber units
3,620.3
3,455.6
337.9
673.8
WCDMA subscriber units
Total subscriber units in
commercial service —
beginning of period
3,958.2
4,129.4
4,188.3
4,276.3
4,341.5
4,392.6
4,435.4
4,462.8
iDEN net subscriber losses
(88.3)
(175.1)
(97.3)
(176.3)
(190.2)
(184.0)
(203.5)
(197.6)
WCDMA net subscriber
additions
Total net subscriber
additions (losses)
Migrations from iDEN to
WCDMA
iDEN subscriber units
WCDMA subscriber units
Total subscriber units in
commercial service — end
of period
Total customer turnover
iDEN customer turnover
WCDMA customer
turnover
259.5
234.0
185.3
241.5
241.3
226.8
230.8
76.8
171.2
58.9
88.0
65.2
51.1
42.8
27.3
(120.8)
76.4
142.8
97.9
97.0
58.3
59.3
116.2 (1)
78.5
3,455.6
673.8
3,137.7
1,050.6
2,942.5
1,333.8
2,669.2
1,672.3
2,420.7
1,971.9
2,177.4
2,258.0
1,857.8
2,605.0
1,581.7
2,760.3
4,129.4
4,188.3
4,276.3
4,341.5
4,392.6
4,435.4
4,462.8
4,342.0
2.39%
2.53%
2.81%
3.05%
2.28%
2.32%
2.71%
3.00%
3.10%
3.19%
3.28%
3.46%
3.47%
3.83%
3.55%
4.16%
1.44%
1.86%
2.16%
2.21%
2.97%
3.09%
3.16%
3.16%
(1) For the three months ended September 30, 2015, migrations from iDEN to WCDMA included approximately 31,000
migrations which were not properly reported in prior quarters. This change in migrations did not impact total subscriber units at
the end of any period presented.
The following table represents Nextel Brazil's average monthly revenue per subscriber, or ARPU, for subscribers on both
its iDEN and WCDMA networks for each of the quarters in 2014 and 2015, in both U.S. dollars (US$) and in Brazilian reais (BR).
We calculate ARPU by dividing service revenues per period by the weighted average number of subscriber units in commercial
service during that period.
Predecessor Company
Three Months Ended
Successor Company
Three Months Ended
March 31,
2014
June 30,
2014
September
30, 2014
December
31, 2014
March 31,
2015
June 30,
2015
September
30, 2015
December
31, 2015
31
20
33
73
47
77
30
27
31
67
59
69
30
30
30
69
69
69
27
29
26
68
74
66
23
25
22
66
70
62
20
21
19
62
66
58
18
19
17
62
66
58
16
17
15
61
64
57
Total ARPU (US$)
WCDMA ARPU (US$)
iDEN ARPU (US$)
Total ARPU (BR)
WCDMA ARPU (BR)
iDEN ARPU (BR)
The average value of the Brazilian real depreciated relative to the U.S. dollar during the combined period ended December
31, 2015 by 42% compared to the average value that prevailed during 2014. As a result, the components of Nextel Brazil's results
of operations for the combined period ended December 31, 2015, after translation into U.S. dollars, reflect lower revenues and
expenses in U.S. dollars than would have occurred if the Brazilian real had not depreciated relative to the U.S. dollar. If the value
37
of the Brazilian real remains at current levels or depreciates further relative to the U.S. dollar, Nextel Brazil's future reported results
of operations will be adversely affected.
The economic environment in Brazil continues to reflect a significant downturn from prior years with low consumer
confidence, negative real wage growth, a net loss of jobs and higher unemployment. Consumers in Brazil are also being impacted
by rising costs of food and other essentials, with the inflation of food costs significantly exceeding both inflation levels experienced
in 2014 and the consumer price index. These conditions and trends have resulted in a decline in the amount of consumer disposable
income that is available to purchase telecommunications services and have had an adverse impact on our ability to attract and
retain subscribers and on our collection rates. We expect that the current economic conditions and weak foreign currency exchange
rates will continue to have a negative impact on Nextel Brazil's reported results of operations through at least the end of 2016.
Nextel Brazil began offering a full range of voice and data services on its WCDMA network in late 2013, and since that
time, has experienced substantial subscriber growth on its WCDMA network and a steady increase in its WCDMA ARPU in
Brazilian reais through the end of 2014. Nextel Brazil's WCDMA subscriber units increased from 337.9 thousand subscribers as
of January 1, 2014 to 2.8 million subscribers as of December 31, 2015. However, Nextel Brazil's WCDMA ARPU in Brazilian
reais decreased over the course of the first half of 2015 as a result of more intense competition in the wireless market and the
economic factors discussed above. In addition, the competitive environment in the Brazilian wireless industry was characterized
by aggressive pricing and service offerings throughout 2015. In the second quarter of 2015, Nextel Brazil implemented several
new rate plans and promotions to improve the attractiveness of its service offerings, expand targeted customer segments and
provide economic incentives to attract customers. Specifically, in June 2015, Nextel Brazil began offering new simplified rate
plans that further incentivize subscribers to utilize their existing handsets when purchasing Nextel Brazil's services, which generally
result in similar or higher ARPU levels.
Nextel Brazil continues to offer services on its iDEN network, which does not support data services that are competitive
with the higher speed data services offered by its competitors or available on its WCDMA network. As a result, Nextel Brazil has
had to offer iDEN service plans with lower average revenues per subscriber to retain and attract high value subscribers on its iDEN
network and offer incentives to transition those subscribers to services on its WCDMA network. Despite these efforts, Nextel
Brazil has experienced net subscriber losses and declines in its average revenue per subscriber on its iDEN network, and we expect
that these trends will continue.
As a result of these factors, Nextel Brazil's average revenue per subscriber during the combined period ended December 31,
2015 was lower than its average revenue per subscriber during 2014, which, in combination with the impact of weaker foreign
currency exchange rates, caused the $549.3 million, or 32%, decline in Nextel Brazil's service and other revenues over the same
period. On a constant currency basis, Nextel Brazil's service and other revenues decreased 4%, and its average revenue per subscriber
decreased 8% in the combined period ended December 31, 2015 compared to 2014.
During the combined period ended December 31, 2015, Nextel Brazil continued to invest in the development of its WCDMA
network and in its LTE upgrade in Rio de Janeiro both to meet its regulatory obligations and to improve the capacity of its network.
Nextel Brazil's capital expenditures were $140.5 million for the combined period ended December 31, 2015, which represents a
36% decline from 2014.
Despite implementing cost reductions in overall operating expenses, Nextel Brazil had a segment loss margin of 7% for
both the combined period ended December 31, 2015 and 2014. Nextel Brazil recognized segment losses of $84.3 million during
the combined period ended December 31, 2015 compared to segment losses of $133.7 million during 2014 as a result of the
following:
1. Service and other revenues
The $549.3 million, or 32%, decrease in service and other revenues on a reported basis in the combined period ended
December 31, 2015 compared to 2014 is primarily the result of the impact of weaker foreign currency exchange rates on our
reported results and the decline in ARPU discussed above. On a constant currency basis, Nextel Brazil's service and other revenues
decreased 4% in the combined period ended December 31, 2015 compared to 2014.
Nextel Brazil's WCDMA subscriber base grew from 1.7 million subscribers as of the end of 2014 to 2.8 million subscribers
as of the end of 2015. During 2015, Nextel Brazil strategically facilitated the migration of iDEN subscribers to its WCDMA
network, which resulted in 312 thousand migrations during the combined period ended December 31, 2015. As a result of these
migrations and the overall growth in its WCDMA subscriber base, Nextel Brazil's WCDMA-based service and other revenues
increased $245.4 million, or 71%, from 2014 to the combined period ended December 31, 2015. This increase was offset by a
$794.8 million, or 59%, decrease in Nextel Brazil's iDEN-based service and other revenues from 2014 to the combined period
ended December 31, 2015 driven by a decrease in Nextel Brazil's iDEN subscriber base from 2.7 million subscribers as of the end
38
of 2014 to 1.6 million subscribers as of the end of 2015 and a decline in its iDEN-based average revenue per subscriber from $30
for 2014 to $17 for the combined period ended December 31, 2015. On a constant currency basis, Nextel Brazil's WCDMA-based
service and other revenues increased 142% from 2014 to the combined period ended December 31, 2015 and its iDEN-based
service and other revenues decreased 42% over the same period.
2. Handset and accessory net subsidy
The $160.4 million, or 62%, decrease in handset and accessory net subsidy on a reported basis from 2014 to the combined
period ended December 31, 2015 is largely related to an increased emphasis on new service plans under which services are provided
to new subscribers using their existing handsets, as well as lower subsidies per handset. As a result of the new service plans, 70%
of Nextel Brazil's new WCDMA subscribers during the combined period ended December 31, 2015 represented customers who
utilized their existing handsets compared to 34% of new WCDMA subscribers utilizing their existing handsets during 2014. This
decrease in handset and accessory net subsidy was partially offset by a $25.3 million charge recognized in the second quarter of
2015 related to certain tax credits that we do not believe are probable of being recovered. On a constant currency basis, Nextel
Brazil's handset and accessory net subsidy decreased 67% for the combined period ended December 31, 2015 compared to 2014.
3. Cost of service
The $224.0 million, or 32%, decrease in cost of service on a reported basis for the combined period ended December 31,
2015 compared to 2014 is primarily caused by the impact of weaker foreign currency exchange rates described above. On a constant
currency basis, Nextel Brazil's cost of service decreased 4% from 2014 to the combined period ended December 31, 2015 primarily
as the result of a decrease in interconnect costs related to the changes in the regulated interconnect cost structure described below. In
addition, on a constant currency basis, Nextel Brazil recognized significant cost savings in the combined period ended December
31, 2015 compared to 2014 as a result of insourcing certain engineering functions that were previously performed by third party
service providers. Also, with the continuing decline in the number of iDEN subscribers in Nextel Brazil's subscriber base, Nextel
Brazil's service and repair costs related to its iDEN handset maintenance program continued to decrease. These decreases were
partially offset by an increase in costs related to our nationwide roaming arrangement, as well as an increase in direct switch and
transmitter and receiver site costs on a local currency basis resulting from an 8% increase in the number of sites in service from
December 31, 2014 to December 31, 2015.
In 2012, Brazil's telecommunications regulatory agency approved regulations to implement a transition to a cost-based model
for determining mobile termination rates. Under the current regulations, the mobile termination rates are being gradually reduced
over a transition period ending in 2019, when cost-based rates will take effect. The transition rules also provide for a partial "bill
and keep" settlement process that applies to the settlement of mobile termination charges between smaller operators like Nextel
Brazil and its larger competitors (who are considered to hold significant market power under the Brazilian regulations), which
further reduces mobile termination charges for smaller operators. The lower costs resulting from this partial bill and keep settlement
process, which is similar to the settlement process that has historically applied to termination charges relating to our iDEN services,
decline as mobile termination rates are reduced during the transition period, with the bill and keep settlement process terminating
when cost-based rates are implemented.
4. Selling and marketing expenses
The $90.7 million, or 34%, decrease in selling and marketing expenses on a reported basis during the combined period ended
December 31, 2015 compared to 2014 is largely due to the impact of weaker foreign currency exchange rates described above.
On a constant currency basis, Nextel Brazil's selling and marketing expenses decreased 6% in the combined period ended December
31, 2015 compared to 2014 as a result of a reduction in sales and marketing personnel and reduced advertising and media expenses.
5. General and administrative expenses
The $123.7 million, or 20%, decrease in general and administrative expenses on a reported basis for the combined period
ended December 31, 2015 compared to 2014 is primarily due to the impact of weaker foreign currency exchange rates described
above. On a constant currency basis, Nextel Brazil's general and administrative expenses increased 13% over the same period
primarily as a result of an increase in bad debt expense caused by a significant decrease in collections related to deteriorating
economic conditions in Brazil and higher costs related to civil contingencies initiated by customers. These increases were partially
offset by a decrease in payroll and related expenses on a local currency basis resulting from workforce reductions, as well as lower
customer care expenses on a local currency basis resulting from the outsourcing of Nextel Brazil's customer care function and a
reduction in the volume of customer care calls received.
39
c.
Corporate
Successor
Company
Six Months
Ended
December 31,
2015
Predecessor
Company
Combined
Predecessor
Company
Six Months
Ended June 30,
2015
Year Ended
December 31,
2015
Year Ended
December 31,
2014
Actual Change from
Previous Year
Dollars
Percent
Service and other revenues
Selling and marketing expenses
General and administrative expenses
Segment losses
$
$
116
$
168
$
284
$
351
$
(67)
(141)
(26,075)
(107)
(38,964)
(248)
(65,039)
(5,544)
(123,060)
(26,100)
$
(38,903) $
(65,003) $
(128,253)
5,296
58,021
63,250
(19)%
(96)%
(47)%
(49)%
Segment losses decreased $63.3 million, or 49%, in the combined period ended December 31, 2015 compared to 2014
primarily due to reduced payroll costs resulting from fewer general and administrative personnel following reductions in force
that we implemented in 2014 and 2015, lower consulting expenses, lower information technology costs and $22.6 million in
professional fees incurred in 2014 in connection with the preparation of our Chapter 11 filing.
40
2.
Year Ended December 31, 2014 vs. Year Ended December 31, 2013
a.
Consolidated
Predecessor Company
Year Ended
December 31,
2014
Year Ended
December 31,
2013
Actual Change from
Previous Year
Constant
Currency
Change from
Previous Year
Dollars
Percent
Percent
(dollars in thousands)
Brazil segment (losses) earnings
Corporate segment losses and eliminations
Consolidated segment (losses) earnings
Impairment, restructuring and other charges
Depreciation and amortization
Operating loss
Interest expense, net
Interest income
Foreign currency transaction losses, net
Other expense, net
Loss from continuing operations before reorganization items
and income tax provision
Reorganization items
Income tax provision
(133,691)
(123,141)
(256,832)
(105,664)
(394,061)
(756,557)
(372,904)
38,345
(51,149)
(5,829)
311,129
(176,642)
134,487
(121,578)
(382,610)
(369,701)
(455,539)
20,105
(92,456)
(11,818)
(1,148,094)
(909,409)
(71,601)
(4,976)
—
(444,820)
(143)%
53,501
(30)%
(391,319)
(291)%
15,914
(13)%
(11,451)
3 %
(386,856)
105 %
82,635
18,240
41,307
5,989
(238,685)
(71,601)
(18)%
91 %
(45)%
(51)%
26 %
NM
(291,016)
286,040
(98)%
Net loss from continuing operations
(1,224,671)
(1,200,425)
Loss from discontinued operations, net of income taxes
(733,027)
(449,174)
(24,246)
(283,853)
Net loss
$
(1,957,698) $
(1,649,599) $
(308,099)
2 %
63 %
19 %
_______________________________________
NM-Not Meaningful
1.
Impairment, restructuring and other charges
(151)%
(30)%
NM
(12)%
12 %
115 %
(16)%
106 %
(40)%
(46)%
31 %
NM
(98)%
7 %
73 %
25 %
Consolidated impairment, restructuring and other charges recognized in 2014 primarily related to the following:
• a $42.8 million non-cash asset impairment charge related to our decision to cease further development on one of the
strategic options for the next generation of our push-to-talk services;
• $27.7 million in severance and related costs resulting from the separation of employees in Brazil and at the corporate
level in an effort to streamline our organizational structure and reduce general and administrative expenses; and
• $21.9 million in other non-cash asset impairment charges, the majority of which related to the shutdown or abandonment
of certain transmitter and receiver sites and certain retail store closures in Brazil related to the realignment of our
distribution channels.
Consolidated impairment, restructuring and other charges recognized in 2013 primarily related to the following.
• a non-cash asset impairment charge of $76.3 million related to the discontinuation of software previously developed to
support our customer relationship management systems, which was recognized at the corporate level;
• a $23.8 million non-cash charge in connection with the restructuring of our network outsourcing agreements reflecting
the write-off of a portion of the base contractual fees that we had classified as a prepayment and that were being recognized
over the life of the agreements prior to their restructuring;
• $8.0 million in restructuring charges, the majority of which was at the corporate level, related to the separation of employees
and other restructuring activities in conjunction with actions taken to realign staffing and other resources;
41
• $6.8 million in contract termination costs incurred in connection with the sublease of certain excess space located in one
of our corporate office buildings; and
• $5.9 million in asset impairment charges incurred at the corporate level related to the discontinuation of the development
of certain network features.
2.
Interest expense, net
In accordance with the U.S. Bankruptcy Code, subsequent to September 15, 2014, we did not accrue interest on any series
of our senior notes as we did not believe it was probable of being treated as an allowed claim in the Chapter 11 cases. As a result,
consolidated net interest expense decreased $82.6 million, or 18%, on a reported basis, and 16% on a constant currency basis,
from 2013 to 2014.
3. Reorganization items
Reorganization items of $71.6 million in 2014 were related to the write off of discounts, premiums and unamortized financing
costs associated with our NII Capital Corp. and NIIT senior notes, as well as professional fees and other costs incurred in connection
with our Chapter 11 filing.
4.
Income tax provision
The $286.0 million, or 98%, decrease in the consolidated income tax provision from 2013 to 2014 is primarily due to the
valuation allowances that were recorded in 2013 in Brazil. During 2013, the $291.0 million income tax provision was primarily
the result of establishing $382.9 million in valuation allowances with respect to certain of our Brazilian subsidiaries.
42
b.
Nextel Brazil
Predecessor Company
Year Ended
December 31,
2014
% of
Nextel Brazil’s
Operating
Revenues
Year Ended
December 31,
2013
% of
Nextel Brazil’s
Operating
Revenues
(dollars in thousands)
Constant
Currency
Change
from
Previous
Year
Change from
Previous Year
Dollars
Percent
Percent
Service and other revenues
$ 1,694,181
92 % $ 2,109,363
96 % $ (415,182)
(20)%
(12)%
Handset and accessory revenues
154,737
8 %
98,671
4 %
56,066
57 %
71 %
Cost of handsets and
accessories
Handset and accessory net subsidy
Cost of service (exclusive of
depreciation and amortization)
Selling and marketing expenses
General and administrative
expenses
(415,082)
(260,345)
(693,004)
(267,574)
(22)%
(14)%
(38)%
(14)%
(250,749)
(152,078)
(767,908)
(207,646)
(606,949)
(33)%
(670,602)
Segment (losses) earnings
$
(133,691)
(7)% $
311,129
(11)%
(7)%
(35)%
(9)%
(31)%
14 %
(164,333)
(108,267)
74,904
(59,928)
66 %
71 %
(10)%
29 %
66 %
62 %
(2)%
41 %
63,653
(9)%
(1)%
(444,820)
(143)%
(151)%
Nextel Brazil’s segment earnings decreased $444.8 million, or 143%, on a reported basis, and 151% on a constant currency
basis, in 2014 compared to 2013, as a result of the following:
1. Operating revenues
The $415.2 million, or 20%, decrease in service and other revenues on a reported basis in 2014 compared to 2013 is primarily
the result of the decline in average revenue per subscriber and weaker foreign currency exchange rates. On a constant currency
basis, Nextel Brazil's service and other revenues decreased 12% in 2014 compared to 2013.
The $56.1 million, or 57%, increase in handset and accessory revenues on a reported basis in 2014 compared to 2013 is
primarily the result of a 24% increase in gross subscriber additions, the majority of which related to WCDMA handset sales, as
well as a change in the mix of handsets toward higher cost smartphones and other high-tier handsets. On a constant currency basis,
Nextel Brazil's handset and accessory revenues increased 71% in 2014 compared to 2013.
2. Cost of revenues
In 2012, Brazil's telecommunications regulatory agency approved regulations to implement a transition to a cost-based model
for determining mobile termination rates. Under the current regulations, the mobile termination rates are being gradually reduced
over a transition period ending in 2019, when cost-based rates will take effect. The transition rules also provide for a partial "bill
and keep" settlement process that applies to the settlement of mobile termination charges between smaller operators like Nextel
Brazil and its larger competitors (who are considered to hold significant market power under the Brazilian regulations), which
further reduces mobile termination charges for smaller operators. The lower costs resulting from this partial bill and keep settlement
process, which is similar to the settlement process that has historically applied to termination charges relating to our iDEN services,
decline as mobile termination rates are reduced during the transition period, with the bill and keep settlement process terminating
when cost-based rates are implemented.
The $74.9 million, or 10%, decrease in cost of service on a reported basis from 2013 to 2014 is largely due to a $112.3
million, or 31%, decrease in interconnect costs related to the changes in the regulated interconnect cost structure described above
and a $23.0 million, or 36%, decrease in service and repair costs. These decreases were partially offset by a $62.4 million, or 23%,
increase in site and switch expenses, primarily due to an increase in direct switch and transmitter and receiver site costs resulting
from a 9% increase in the number of sites in service from December 31, 2013 to December 31, 2014 in connection with the
deployment and expansion of Nextel Brazil's WCDMA network and LTE upgrade.
The $164.3 million, or 66%, increase in the cost of handsets and accessories on a reported basis from 2013 to 2014 is largely
related to the increase in gross subscriber additions on Nextel Brazil's WCDMA network discussed above, as well as a change in
the mix of handsets toward higher cost smartphones and other high-tier handsets.
43
3. Selling and marketing expenses
The $59.9 million, or 29%, increase in selling and marketing expenses on a reported basis, and 41% on a constant currency
basis, in 2014 compared to 2013 was largely due to higher advertising costs resulting from new marketing campaigns in connection
with our efforts to increase awareness of Nextel Brazil as a next generation service provider, as well as an increase in commissions
resulting from higher gross subscriber additions and an increase in average commission per gross subscriber addition related to a
change in the mix of commissions toward more costly indirect sales channels.
4. General and administrative expenses
The $63.7 million, or 9%, decrease in general and administrative expenses on a reported basis, and 1% on a constant currency
basis, in 2014 compared to 2013 is principally due to lower payroll costs related to fewer general and administrative personnel
resulting from a reduction in force, a decrease in revenue-based taxes associated with the decline in operating revenues described
above and a reduction in bad debt expense from 2013 to 2014 related to the delays in processing billing cycles that Nextel Brazil
experienced in 2013 that resulted in higher bad debt expense during that year.
c.
Corporate
Predecessor Company
Year Ended
December 31,
2014
Year Ended
December 31,
2013
Change from
Previous Year
Dollars
Percent
Service and other revenues
Selling and marketing expenses
General and administrative expenses
Segment losses
$
$
_______________________________________
NM-Not Meaningful
(dollars in thousands)
351
$
42
$
309
6,287
(11,831)
(152,875)
29,815
(5,544)
(123,060)
(128,253) $
(164,664) $
36,411
NM
(53)%
(20)%
(22)%
Segment losses decreased $36.4 million, or 22%, in 2014 compared to 2013 primarily due to a $29.8 million, or 20%,
decrease in general and administrative expenses largely resulting from reduced payroll expenses related to fewer general and
administrative personnel following a reduction in personnel and lower information technology costs. General and administrative
expenses for 2014 also included $22.6 million in consulting costs and other professional fees incurred in connection with our
exploration of strategic and restructuring options and in preparation for our Chapter 11 filing.
C. Liquidity and Capital Resources
As of December 31, 2015, we had a working capital deficit of $170.6 million compared to a working capital deficit of $40.7
million as of December 31, 2014. As of December 31, 2015, our working capital included $342.2 million in cash and cash
equivalents, of which $3.7 million was held by Nextel Brazil in Brazilian reais, and $84.3 million in short-term investments, the
majority of which was held in Brazilian reais. In addition, as of December 31, 2015, we had $141.7 million of cash collateral
securing certain performance bonds relating to our obligations to deploy spectrum in Brazil, of which we recorded $94.2 million
as a component of other assets and the remaining $47.5 million of which we recorded as a component of prepaid expenses and
other in our consolidated balance sheet. As of December 31, 2015, we also had $226.9 million in cash held in escrow in connection
with the sales of Nextel Argentina, Nextel Mexico and Nextel Peru and $54.3 million in judicial deposits in Brazil, all of which
we classified as restricted cash.
A substantial portion of our U.S. dollar-denominated cash, cash equivalents and short-term investments is held in bank
deposits and U.S. treasury securities, and our cash, cash equivalents and short-term investments held in Brazilian reais are typically
maintained in a combination of money market funds, highly liquid overnight securities and fixed income investments. The values
of our cash, cash equivalents and short-term investments that are held in 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. Our current sources of funding include our cash, cash
equivalent and short-term investment balances.
44
Cash Flows
Successor
Company
Predecessor Company
Six Months
Ended
December 31,
Six Months
Ended June
30,
Combined
Year Ended
December 31,
Year Ended December 31,
2015
2015
2015
2014
2013
(in thousands)
Cash and cash equivalents, beginning of
period
Net cash used in operating activities
Net cash (used in) provided by investing
activities
Net cash (used in) provided by financing
activities
Effect of exchange rate changes on cash
and cash equivalents
Change in cash and cash equivalents
related to discontinued operations
Cash and cash equivalents, end of period
423,135
(78,485)
334,194
(254,757)
334,194
(333,242)
1,147,682
(628,716)
1,070,301
(192,465)
(976)
1,027,821
1,026,845
(347,538)
(177,612)
(25,068)
(778,231)
(803,299)
(128,272)
776,605
916
(9,152)
(8,236)
(55,657)
(56,236)
22,662
$ 342,184
103,260
$ 423,135
125,922
$ 342,184
346,695
$ 334,194
(272,911)
$ 1,147,682
The following is a discussion of the primary sources and uses of cash in our operating, investing and financing activities.
We used $78.5 million and $254.8 million of cash in our operating activities during the six months ended December 31,
2015 and June 30, 2015, respectively, primarily to fund operating losses. We used $176.3 million less cash during the six months
ended December 31, 2015 compared to the six months ended June 30, 2015 primarily as a result of lower operating losses in Brazil
and cash conservation efforts both in Brazil and at the corporate level. We used $628.7 million of cash in our operating activities
during 2014, a $436.3 million increase from 2013, primarily due to increased operating losses and the prepayment of certain costs
associated with our roaming arrangement in Brazil.
We used $1.0 million of cash in our investing activities during the six months ended December 31, 2015, primarily due to
$76.6 million in cash capital expenditures and $50.5 million in deposits to secure certain performance bonds relating to our
obligations to deploy spectrum in Brazil, offset by net cash proceeds of $153.8 million that we received in connection with the
sale of Nextel Argentina (excluding $18.1 million of U.S. treasury notes received as part of the proceeds). Our investing activities
provided us with $1,027.8 million in cash during the six months ended June 30, 2015, primarily due to the sale of Nextel Mexico
for which we received net proceeds of $1.448 billion, including $187.5 million in cash deposited in escrow. The net proceeds from
the sale of Nextel Mexico were partially offset by $88.5 million in cash capital expenditures and $20.0 million in deposits to secure
certain performance bonds relating to our obligations to deploy spectrum in Brazil.
We used $347.5 million of cash in our investing activities during 2014, primarily due to $372.7 million in cash used by our
discontinued operations, $326.2 million in cash capital expenditures and $119.7 million in deposits to secure certain performance
bonds relating to our obligation to deploy spectrum in Brazil, partially offset by $499.2 million in net proceeds received from
maturities of our short-term investments in Brazil and at the corporate level.
We used $177.6 million of cash in our investing activities during 2013, primarily due to $387.3 million in cash capital
expenditures, $417.6 million in net purchases of investments, $52.4 million in fees related to placing new transmitter and receiver
sites into service in Brazil and $26.3 million related to changes in restricted cash, partially offset by $346.0 million in proceeds
from the sale of towers in Brazil and $355.5 million in proceeds from the sale of Nextel Peru.
We used $25.1 million of cash in our financing activities during the six months ended December 31, 2015, largely due to a
principal repayment under Nextel Brazil's equipment financing facility. We used $778.2 million of cash in our financing activities
during the six months ended June 30, 2015, largely due to $745.2 million of cash distributions paid in settlement of certain claims
in connection with our emergence from Chapter 11.
We used $128.3 million of cash in our financing activities during 2014, largely due to $107.1 million in repayments of bank
loans, capital leases and other borrowings, partially offset by $14.6 million in borrowings under Nextel Brazil's equipment financing
facility and other borrowings.
Our financing activities provided us with $776.6 million of cash during 2013, primarily due to $900.0 million in gross
proceeds we received from the issuance of our 11.375% senior notes in February 2013 and April 2013 and $700.0 million in gross
45
proceeds we received from the issuance of our 7.875% senior notes in May 2013, partially offset by $362.7 million used to repay
one of our bank loans in Brazil and $37.4 million to repay our import financing loans in Brazil.
D. Future Capital Needs and Resources
Over the course of the last several years, our results of operations, including our operating revenues and operating cash
flows, have been negatively affected by a number of factors, including significant deterioration in economic conditions in Brazil,
increased competitive pressure, the overall depreciation of the value of the Brazilian real relative to the U.S. dollar and the impact
of previous delays in the deployment and launch of services on our WCDMA network in Brazil. These and other factors resulted
in a reduction in our subscriber growth and revenues at a time when our costs reflected the operation of both of our networks and
had a significant negative impact on our results and our ability to grow our revenue base to a level sufficient to reach the scale
required to generate positive operating income.
As a result, in 2014, we concluded that we were not able to maintain sufficient liquidity to support our business plan and
repay our debts when they come due, including $4.35 billion of senior notes issued by NIIT and NII Capital Corp. On September
15, 2014, we and eight of our U.S. and Luxembourg-domiciled subsidiaries, filed voluntary petitions seeking relief under Chapter
11 in the Bankruptcy Court. Subsequent to September 15, 2014, five additional subsidiaries filed voluntary petitions seeking relief
under Chapter 11 in the Bankruptcy Court.
On June 19, 2015, the Bankruptcy Court entered an order approving and confirming the First Amended Joint Plan of
Reorganization Proposed by the Plan Debtors and the Official Committee of Unsecured Creditors, dated April 20, 2015. We refer
to this plan, as amended, as the Plan of Reorganization. On June 26, 2015, the conditions of the Bankruptcy Court's order and the
Plan of Reorganization were satisfied, the Plan of Reorganization became effective, and we and the other Debtors emerged from
the Chapter 11 proceedings. Nextel Brazil and our previous other operating subsidiaries in Latin America were not Debtors in the
Chapter 11 cases. See Note 2 to our consolidated financial statements for more information regarding the impact of the
implementation of the Plan of Reorganization.
On April 30, 2015, we completed the sale of our operations in Mexico to an indirect subsidiary of AT&T. The transaction
was structured as a sale of all the outstanding stock of Nextel Mexico for a purchase price of $1.875 billion, including $187.5
million deposited in escrow to satisfy potential indemnification claims. The net proceeds of the sale were $1.448 billion, after
deducting Nextel Mexico's outstanding indebtedness net of cash and applying other specified purchase price adjustments. We also
used a portion of the net proceeds from the sale of Nextel Mexico to repay all outstanding principal and interest under a debtor-
in-possession loan agreement we entered into during our Chapter 11 proceedings and to fund distributions to specified creditors
pursuant to our Plan of Reorganization.
On September 11, 2015, two of our indirect subsidiaries entered into a binding agreement with Grupo Clarin relating to the
sale of all of the outstanding equity interests of Nextel Argentina. This agreement provided for aggregate cash consideration of
$178.0 million, of which $159.0 million was paid at signing in connection with the transfer of a 49% equity interest in Nextel
Argentina and the grant of a call option that allowed Grupo Clarin or any of its affiliates to acquire the remaining 51% equity
interest in Nextel Argentina upon receipt of required approvals from the regulatory authorities in Argentina. The remaining cash
consideration was received in October 2015, including $6.0 million deposited in escrow to satisfy potential indemnification claims.
On January 27, 2016, the agreement was amended to permit Grupo Clarin or any of its affiliates to exercise the right to acquire
the remaining 51% equity interest prior to receiving regulatory approval, and Grupo Clarin and its affiliate immediately acquired
the remaining 51% of Nextel Argentina for no additional proceeds.
We plan to use the proceeds received from the sale of Nextel Argentina, as well as the remaining net proceeds from the sale
of Nextel Mexico, to fund our operations in Brazil.
Capital Resources. Our ongoing capital resources depend on a variety of factors, including our existing cash, cash equivalents
and investment balances, cash flows generated by our operating activities, cash that we recover from the amounts held in escrow
to secure our indemnification obligations in connection with the sales of Nextel Argentina, Nextel Mexico and Nextel Peru, the
return of cash pledged as collateral to secure certain performance bonds relating to our obligations to deploy our spectrum in
Brazil, external financial sources, other financing arrangements and the availability of cash proceeds from the sale of assets.
Our ability to generate sufficient net cash from our operating activities in the future is dependent upon, among other things:
•
the amount of revenue we are able to generate and collect from our subscribers, including our ability to increase the size
of our subscriber base;
•
the amount of operating expenses required to provide our services;
46
•
the cost of acquiring and retaining customers, including the subsidies we incur to provide handsets to both our new and
existing subscribers; and
• changes in foreign currency exchange rates.
Due to the impact of our recent and projected results of operations and other factors, we expect our access to the capital
markets in the near term may be limited. See "— Future Outlook and Liquidity Plans" for more information.
Capital Needs and Contractual Obligations. We currently anticipate that our future capital needs will principally consist
of funds required for:
• operating expenses and capital expenditures relating to our existing network and the planned deployment of LTE in other
commercial areas in Brazil;
• payments in connection with spectrum purchases, including ongoing spectrum license fees;
• debt service requirements;
• obligations relating to our tower financing arrangements and capital lease obligations;
• cash taxes; and
• other general corporate expenditures.
The following table sets forth the amounts and timing of contractual payments for our most significant contractual obligations
determined as of December 31, 2015. The information included in the table below reflects future unconditional payments and is
based upon, among other things, the current terms of the relevant agreements and certain assumptions, such as future interest rates.
Most of the amounts included in the table below will be settled in Brazilian reais. Future events could cause actual payments to
differ significantly from these amounts. The table below does not include approximately $116.7 million that Nextel Brazil is
committed to pay for spectrum for which it was the successful bidder in December 2015. Nextel Brazil is committed to pay 10%
of the total acquisition price on the date the license agreement is signed. See “Forward-Looking and Cautionary Statements.”
Contractual Obligations
Less than
1 Year
Payments due by Period
More than
1-3 Years
3-5 Years
5 Years
Total
(in thousands)
Operating leases (1)
$
86,931
$
153,661
$
132,461
$
491,101
$
864,154
Capital leases and tower financing obligations (2)
Purchase obligations (3)
Equipment financing (4)
Bank loans (5)
Other long-term obligations (6)
Total contractual commitments
_______________________________________
45,410
334,018
353,248
275,536
3,987
$ 1,099,130
$
85,504
146,716
20,723
42,087
6,689
455,380
68,829
56,046
14,296
3,481
554,348
—
5,755
—
754,091
536,780
394,022
321,104
3,486
278,599
303,740
$ 1,354,944
317,902
$ 3,188,053
$
(1) These amounts principally include future lease costs related to our transmitter and receiver sites and switches, as well as
our office facilities.
(2) These amounts represent principal and interest payments due under our co-location agreements, our tower financing
arrangements and our sale of towers in Brazil in 2013, which are guaranteed by NIIT.
(3) These amounts include maximum contractual purchase obligations under various agreements with our vendors.
(4) These amounts include a loan agreement with the China Development Bank in Brazil to finance infrastructure equipment,
which is guaranteed by NII Holdings. These amounts also include future interest payments to which we are contractually
obligated in the periods in which they are due. Because of certain cross-default provisions included in this loan agreement,
we classified the principal amount outstanding under this facility as due in less than one year.
(5) These amounts represent principal and interest payments associated with our local bank loans in Brazil and include future
interest payments to which we are contractually obligated in the periods in which they are due. Because it is unlikely that
we will be able to satisfy the applicable financial covenant in both of Nextel Brazil's local bank loan agreements as of
the June 30, 2016 measurement date, we classified the principal amounts outstanding under these local bank loans as due
in less than one year.
(6) These amounts include our current estimates of asset retirement obligations based on our expectations as to future
retirement costs, inflation rates and timing of retirements, as well as amounts related to our uncertain income tax positions.
47
Capital Expenditures. Our capital expenditures, including capitalized interest, were $72.6 million for the six months ended
December 31, 2015, $69.2 million for the six months ended June 30, 2015 and $233.4 million for the year ended December 31,
2014. We have reduced our investments in capital expenditures, including making substantial reductions to our investments in
network development and deployment. We expect these efforts to conserve our cash resources to continue.
Our capital spending and related expenses are expected to be driven by several factors, including:
•
•
•
the amount we spend to enhance our WCDMA network in Brazil and deploy our planned LTE upgrade;
the extent to which we expand the coverage of our network in new or existing market areas;
the number of additional transmitter and receiver sites we build in order to increase system capacity, maintain system
quality and meet our regulatory requirements, as well as the costs associated with the installation of network
infrastructure and switching equipment; and
•
the costs we incur in connection with non-network related information technology projects.
Our future capital expenditures may also be affected by future technology improvements, technology choices and our
available capital.
Maintenance Covenants Under Financing Agreements. As of the December 31, 2014 measurement date, we were not in
compliance with the net debt financial covenant included in each of Nextel Brazil's outstanding local bank loans. As a result, we
classified these bank loans as current liabilities in our consolidated balance sheet as of December 31, 2014. As of December 31,
2015, we had $233.8 million principal amount outstanding under Nextel Brazil's local bank loans. As discussed in more detail in
Note 1 and Note 7 to our consolidated financial statements, we are required to meet a net debt financial covenant included in the
local bank loan agreements that will apply semiannually beginning on June 30, 2016. Based on our current business plan, we
believe that it is unlikely that we will satisfy the applicable financial covenant at the June 30, 2016 measurement date. If we are
unable to develop or implement changes to our business that allow us to meet this covenant, we will need to refinance or negotiate
amendments to these financing arrangements or secure waivers from the lenders in order to avoid a potential default under the
loan agreements. If a default occurs, the lenders could require us to repay the amounts outstanding under these arrangements. As
a result of this uncertainty, we have continued to classify the amounts outstanding under Nextel Brazil's local bank loans as current
liabilities in our consolidated balance sheet as of December 31, 2015.
In December 2014, Nextel Brazil and the lender under the equipment financing facility agreed to amend this facility to
remove all financial covenants beginning with the December 31, 2014 measurement date through the June 30, 2017 measurement
date so that the first measurement date under the amended facility will be December 31, 2017. In exchange for that covenant relief,
Nextel Brazil granted the lender preferential rights to the amounts held in certain bank accounts. As of December 31, 2015, we
had $342.5 million in principal amount outstanding under Nextel Brazil's equipment financing facility. Because of the uncertainty
regarding our ability to meet the financial covenant contained in Nextel Brazil's local bank loans discussed above and certain
cross-default provisions that are included in the loan agreement under Nextel Brazil's equipment financing facility, we have
continued to classify the amount outstanding under this facility as a current liability in our consolidated balance sheet as of
December 31, 2015.
Future Outlook and Liquidity Plans. In connection with our emergence from Chapter 11, we made a number of changes
within our senior management team and modified our business plan to reflect our available cash resources and the impact of the
current and expected economic and competitive conditions in Brazil on both our subscriber growth and revenues, and to align our
costs with this revised outlook. Our current sources of funding are our cash and investments on hand; the ultimate amount recovered
from cash currently held in escrow to secure our indemnification obligations in connection with the sales of Nextel Argentina,
Nextel Mexico and Nextel Peru; the return of cash pledged as collateral to secure certain performance bonds relating to our
obligations to deploy our spectrum in Brazil; and funds generated from our operations. As of December 31, 2015, assuming the
availability of these funding sources, and if we are successful in making the necessary changes to our business that are factored
into our revised business plan, we expect to have sufficient liquidity to continue to fund our business for about two years.
If we do not meet the results in our revised business plan, or if anticipated funding sources are not available to us, including
the release of cash held in escrow, it is likely that we would need to obtain additional funding in the next twelve to eighteen months.
We believe that the uncertainties relating to our business, together with the restrictions in our current financing arrangements and
general conditions in the financial and credit markets, may make it challenging for us to obtain additional funding. In addition,
the cost of any additional funding that we may require, if available, could be both significant and higher than the cost of our
existing financing arrangements. Our inability to obtain suitable financing if and when it is required for these or other reasons
could, among other things, negatively impact our results of operations and liquidity.
In making the assessment of our funding needs and the adequacy of our current sources of funding, we have considered:
48
•
•
•
•
•
•
•
•
•
•
cash and cash equivalents on hand and short-term investments available to fund our operations;
restricted cash currently held in escrow to secure our indemnification obligations in connection with the transactions
involving Nextel Argentina, Nextel Mexico and Nextel Peru;
the future return of cash pledged as collateral to secure certain performance bonds relating to our obligations to deploy
our spectrum in Brazil;
cash proceeds from sales of assets, including the potential sale of additional transmitter and receiver sites in Brazil;
expected cash flows from our operation in Brazil;
the cost of purchasing spectrum, the financing available to fund such purchases, and timing of spectrum payments,
including ongoing fees for spectrum use;
the anticipated level of capital expenditures required to meet both minimum build-out requirements and our planned
deployment of the WCDMA network in Brazil, as well as our planned deployment of LTE in other commercial areas
in Brazil;
our scheduled debt service obligations;
our other contractual obligations; 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 we decide to expand into new markets or expand our geographic coverage or network capacity in our existing markets
beyond our current plans, as a result of the construction of additional portions of our network or the acquisition of
competitors or others;
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;
if competitive practices in the mobile wireless telecommunications industry in Brazil changes materially from those
currently prevailing or from those now anticipated; or
if other presently unexpected circumstances arise that have a material effect on the cash flow or profitability of our
business.
E. Effect of Inflation and Foreign Currency Exchange
Our net assets are subject to foreign currency exchange risks since they are primarily maintained in Brazilian reais.
Additionally, some of Nextel Brazil's debt is denominated entirely in U.S. dollars, which exposes us to foreign currency exchange
risks. We conduct business solely in Brazil where the rate of inflation has historically been significantly higher than that of the
U.S. We seek to protect our earnings from inflation and possible currency depreciation by periodically adjusting the local currency
prices charged by Nextel Brazil for sales of handsets and services to its subscribers. We routinely monitor our foreign currency
exposure and the cost effectiveness of hedging instruments.
Inflation is not currently a material factor affecting our business, although rates of inflation in Brazil have been historically
volatile. General operating expenses such as salaries, employee benefits and lease costs are, however, subject to normal inflationary
pressures. From time to time, we may experience price changes in connection with the purchase of system infrastructure equipment
and handsets, but we do not currently believe that any of these price changes will be material to our business.
49
F. Effect of New Accounting Standards
In May 2014, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No.
2014-09, "Revenue from Contracts with Customers," which requires an entity to recognize the amount of revenue to which it
expects to be entitled for the transfer of promised goods or services to customers. This new authoritative guidance will replace
most existing revenue recognition guidance when it becomes effective. The new standard is effective on January 1, 2018, and
early application is permitted on January 1, 2017. The standard permits the use of either the retrospective or cumulative effect
transition method. We are evaluating the effect that the new revenue recognition guidance will have on our consolidated financial
statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard
on our ongoing financial reporting.
In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes," requiring all
deferred tax assets and liabilities, and any related valuation allowance, to be classified as noncurrent on the balance sheet. The
classification change for all deferred taxes as non-current simplifies entities’ processes as it eliminates the need to separately
identify the net current and net noncurrent deferred tax asset or liability in each jurisdiction and allocate valuation allowances.
We early adopted this standard in the fourth quarter of 2015 and applied the requirements retroactively to all periods presented.
The adoption of this standard resulted in the reclassification of $39.1 million from current deferred tax assets and $0.2 million
from noncurrent deferred tax assets to a $39.3 million reduction in noncurrent deferred tax liabilities in our consolidated balance
sheet as of December 31, 2014.
In May 2015, the FASB issued ASU No. 2015-07, "Fair Value Measurement: Disclosures for Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent)." This guidance eliminates the requirement to categorize investments
within the fair value hierarchy if their fair value is measured using the net asset value per share practical expedient in the FASB’s
fair value measurement guidance. We reviewed this authoritative guidance and have elected to early adopt as of the fourth quarter
of 2015. We applied the requirements of this guidance retroactively to all periods presented. The adoption of this standard did not
have a material impact on our financial statements.
In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory." This guidance replaces the
lower of cost or market test with a lower of cost and net realizable value test, which is intended to simplify the measurement of
inventories. This standard is effective for periods beginning after December 15, 2016. We early adopted this standard as of the
fourth quarter of 2015 and plan to apply the requirements of this guidance prospectively. We do not expect the adoption of this
standard to have a material impact on our financial statements.
50
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Our revenues are primarily denominated in Brazilian reais, while a portion of our operations are financed in U.S. dollars.
As a result, fluctuations in the Brazilian real relative to the U.S. dollar expose us to foreign currency exchange risks. These risks
include the impact of translating our local currency reported earnings into U.S. dollars when the U.S. dollar strengthens against
the Brazilian real. In addition, Nextel Brazil pays the purchase price for some of its capital assets and a portion of its handsets in
U.S. dollars, but generates revenue from its operations in local currency.
We occasionally enter into derivative transactions for hedging or risk management purposes. We have not and will not enter
into any derivative transactions for speculative or profit generating purposes. During the six months ended December 31, 2015,
the six months ended June 30, 2015 and the years ended December 31, 2014 and 2013, Nextel Brazil entered into hedge agreements
to manage foreign currency risk on certain forecasted transactions. The fair values of these instruments are not material.
Interest rate changes expose our fixed rate long-term borrowings to changes in fair value and expose our variable rate long-
term borrowings to changes in future cash flows. As of December 31, 2015, approximately 13% of our consolidated principal
amount of debt was fixed rate debt, and the remaining 87% of our total consolidated debt was variable rate debt.
The table below presents projected principal amounts, related interest rates by year of maturity and aggregate amounts as
of December 31, 2015 for both our fixed and variable rate debt obligations, all of which have been determined at their fair values.
See Note 2 to our consolidated financial statements for more information. Because it is unlikely that we will meet the applicable
financial covenant included in both of Brazil's local bank loans as of the June 30, 2016 measurement date, and because of the
associated cross-default provisions included in Brazil's equipment financing facility, we classified the principal amounts
outstanding under these facilities as current liabilities in our consolidated balance sheet as of December 31, 2015. The changes in
the fair values of our debt obligations compared to their fair values as of December 31, 2014 reflect changes in applicable market
conditions and changes in other company-specific conditions during 2015, including changes resulting from the implementation
of fresh start accounting in connection with our emergence from Chapter 11. In addition, the interest rates presented below reflect
the impact of the implementation of fresh start accounting on our tower financing obligations. All of the information in the table
is presented in U.S. dollar equivalents, which is our reporting currency. The actual cash flows associated with our debt obligations
are denominated in U.S. dollars (US$) and Brazilian reais (BR).
Successor Company
Predecessor Company
Year of Maturity
2015
2014
1 Year
2 Years
3 Years
4 Years
5 Years
Thereafter
Total
Fair Value
Total
Fair Value
(dollars in thousands)
Fixed Rate (BR)
$
689
$ 3,651
$ 3,637
$
991
$ 1,661
$
74,426
$
85,055
Average Interest Rate
82.6%
96.6%
99.2%
110.6%
91.4%
71.3%
74.5%
Variable Rate (US$)
$342,475
Average Interest Rate
3.0%
Variable Rate (BR)
$233,559
$
$
— $
— $
— $
— $
— $
342,475
—
—
—
—
—
3.0%
— $
— $
— $
— $
— $
233,559
Average Interest Rate
19.7%
—
—
—
—
—
19.7%
$
$
$
85,055
340,189
228,606
$
$
$
$
$
$
214,984
18.3%
366,937
3.2%
343,348
13.3%
214,984
337,295
273,832
Item 8.
Financial Statements and Supplementary Data
We have listed the consolidated financial statements required under this Item in Part IV, Item 15(a)(1) of this annual report
on Form 10-K. We have also listed the financial statement schedules required under Regulation S-X in Part IV, Item 15(a)(2) of
this annual report on Form 10-K. The financial statements and schedules appear following the signature page of this annual report
on Form 10-K.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
51
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us
in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized
and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information
is accumulated and communicated to the Company's management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required disclosure.
As of December 31, 2015, an evaluation of the effectiveness of the design and operation of our disclosure controls and
procedures was carried out under the supervision and with the participation of our management teams in the United States and
Brazil, including our chief executive officer and chief financial officer. Based on and as of the date of such evaluation, our chief
executive officer and chief financial officer concluded that the design and operation of our disclosure controls and procedures
were not effective due to a material weakness in the Company's internal control over financial reporting in Brazil, as described
below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, that
creates a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be
prevented or detected on a timely basis.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934, as amended). Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree
of compliance with the policies or procedures may deteriorate.
In order to evaluate the effectiveness of internal control over financial reporting, management conducted an assessment using
the criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations
of the Treadway Commission, or COSO. Based on this assessment, management identified a material weakness in the Company’s
internal controls. As a result, management has concluded that as of December 31, 2015, our internal control over financial reporting
was not effective.
The material weakness relates to certain deficiencies in Nextel Brazil’s control environment and risk assessment processes.
The material weakness was initially disclosed during the quarter ended September 30, 2014. Nextel Brazil did not establish an
effective control environment and monitoring activities, including an organizational structure with sufficiently trained resources
where supervisory roles, responsibilities and monitoring activities were aligned with financial reporting objectives. Subsequently,
significant turnover disrupted staffing throughout the organization, particularly within the accounting function, and management
had difficulty attracting and retaining employees technically qualified to comply with U.S. GAAP reporting requirements. As
described below, management has taken numerous actions since then to improve the control environment, including implementing
a new organizational structure and hiring additional accounting professionals. We continue to monitor the maturity of Nextel
Brazil’s newly implemented organizational structure and resources.
The material weakness has resulted in multiple deficiencies and significant deficiencies in process level control activities
primarily related to accounting for revenue, accounts receivable, bad debt expense and leases. The deficiencies resulted in immaterial
misstatements and were primarily the result of the inappropriate application of U.S. GAAP, the failure to consistently perform
account reconciliations and a lack of controls over the completeness and accuracy of data used in accounting calculations.
These control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements
will not be prevented or detected on a timely basis. We performed additional procedures to mitigate the impact of these deficiencies
on our consolidated financial statements, including reviews and validations performed by staff at our headquarters office who
were not part of the financial close process in Brazil.
52
Plan for Remediation of Nextel Brazil's Material Weakness
In order to remediate Nextel Brazil's material weakness, the Company, led by our chief financial officer and the chief financial
officer of Nextel Brazil, are implementing and monitoring the following actions in Brazil:
• periodic evaluations of the newly implemented organizational structure and resources to ensure we maintain personnel
with skills and expertise properly suited to our financial reporting objectives;
• enhancing U.S. GAAP training initiatives;
• performing a detailed financial reporting risk assessment to identify areas that require improvement and developing and
implementing plans to address these areas;
•
improving account reconciliation and review procedures; and
• maintaining an increased level of involvement and oversight from our headquarters office until the control environment
and risk assessment processes in Nextel Brazil have matured.
In addition, as a result of the sale of our other operating segments during 2015, Nextel Brazil now comprises a much larger
portion of our Company, increasing the level of precision required to ensure our financial results are stated properly in all material
respects.
Changes in Internal Control over Financial Reporting
Other than those discussed above, there have been no changes in the Company's internal control over financial reporting
during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Item 9B.
Other Information
None.
53
PART III
Item 10.
Directors, Executive Officers of the Registrant and Corporate Governance
The information required by this item will be provided by being incorporated herein by reference to the Company’s definitive
proxy statement for the 2016 Annual Meeting of Stockholders, which will be held on May 25, 2016. Stockholder proposals intended
for consideration for inclusion in the Company’s definitive proxy statement for the 2016 Annual Meeting of Stockholders must
be forwarded in writing and received at the Company’s principal executive offices at 1875 Explorer Street, Suite 800, Reston,
Virginia 20190 no later than April 1, 2016, directed to the attention of the Company’s General Counsel.
Item 11.
Executive Compensation
The information required by this item will be provided by being incorporated herein by reference to the Company’s definitive
proxy statement for the 2016 Annual Meeting of Stockholders.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be provided by being incorporated herein by reference to the Company’s definitive
proxy statement for the 2016 Annual Meeting of Stockholders.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be provided by being incorporated herein by reference to the Company’s definitive
proxy statement for the 2016 Annual Meeting of Stockholders.
Item 14.
Principal Accountant Fees and Services
The information required by this item will be provided by being incorporated herein by reference to the Company’s definitive
proxy statement for the 2016 Annual Meeting of Stockholders.
54
Item 15.
Exhibits, Financial Statement Schedules.
PART IV
(a)(1) Financial Statements. Consolidated financial statements and reports of independent registered public accounting
firms filed as part of this report are listed below:
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets — As of December 31, 2015 (Successor Company) and December 31, 2014 (Predecessor
Company)
Consolidated Statements of Comprehensive (Loss) Income — For the Six Months Ended December 31, 2015
(Successor Company), For the Six Months Ended June 30, 2015 (Predecessor Company) and For the Years Ended
December 31, 2014 and 2013 (Predecessor Company)
Consolidated Statement of Changes in Stockholders' Equity (Deficit) — For the Six Months Ended December 31, 2015
(Successor Company), For the Six Months Ended June 30, 2015 (Predecessor Company) and for the Years Ended
December 31, 2014 and 2013 (Predecessor Company)
Consolidated Statements of Cash Flows — For the Six Months Ended December 31, 2015 (Successor Company), For
the Six Months Ended June 30, 2015 (Predecessor Company) and For the Years Ended December 31, 2014 and 2013
(Predecessor Company)
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
(2) Financial Statement Schedules. The following financial statement schedules are filed as part of this report.
Schedules other than the schedules listed below are omitted because they are either not required or not applicable.
Schedule I — Condensed Financial Information of Registrant
Schedule II — Valuation and Qualifying Accounts
Page
F-42
F-46
(3) List of Exhibits. The exhibits filed as part of this report are listed in the Exhibit Index, which is incorporated in this
item by reference.
55
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
NII HOLDINGS, INC.
By:
/s/ TIMOTHY M. MULIERI
Timothy M. Mulieri
Vice President, Corporate Controller
(on behalf of the registrant and as
Principal Accounting Officer)
March 3, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on March 3, 2016.
Signature
Title
/s/ Steven M. Shindler
Steven M. Shindler
/s/ Daniel E. Freiman
Daniel E. Freiman
/s/ Kevin L. Beebe
Kevin L. Beebe
/s/ James V. Continenza
James V. Continenza
/s/ Howard S. Hoffmann
Howard S. Hoffmann
/s/ Ricardo Knoepfelmacher
Ricardo Knoepfelmacher
/s/ Christopher T. Rogers
Christopher T. Rogers
/s/ Robert A. Schriesheim
Robert A. Schriesheim
Chief Executive Officer
Chief Financial Officer (Principal Financial Officer)
Chairman of the Board of Directors
Director
Director
Director
Director
Director
56
NII HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets — As of December 31, 2015 (Successor Company) and December 31, 2014
(Predecessor Company)
Consolidated Statements of Comprehensive (Loss) Income — For the Six Months Ended December 31, 2015
(Successor Company), For the Six Months ended June 30, 2015 (Predecessor Company) and For the Years Ended
December 31, 2014 and 2013 (Predecessor Company)
Consolidated Statements of Stockholders' Equity (Deficit) — For the Six Months Ended December 31, 2015
(Successor Company), For the Six Months Ended June 30, 2015 (Predecessor Company) and For the Years Ended
December 31, 2014 and 2013 (Predecessor Company)
Consolidated Statements of Cash Flows — For the Six Months Ended December 31, 2015 (Successor Company),
For the Six Months Ended June 30, 2015 (Predecessor Company) and For the Years Ended December 31, 2014
and 2013 (Predecessor Company)
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
Schedule I — Condensed Financial Information of Registrant
Schedule II — Valuation and Qualifying Accounts
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-42
F-46
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
NII Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of NII Holdings, Inc. and subsidiaries (the Company) as of
December 31, 2015 (Successor) and December 31, 2014 (Predecessor), and the related consolidated statements of comprehensive
(loss) income, changes in stockholders’ equity (deficit), and cash flows for the six month periods ended December 31, 2015
(Successor) and June 30, 2015 (Predecessor) and for the year ended December 31, 2014 (Predecessor). In connection with our
audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of NII Holdings, Inc. and subsidiaries as of December 31, 2015 (Successor) and December 31, 2014 (Predecessor), and the results
of their operations and their cash flows for the six month periods ended December 31, 2015 (Successor) and June 30, 2015
(Predecessor) and for the year ended December 31, 2014 (Predecessor), in conformity with U.S. generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements and financial statement schedules have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company is
unlikely to satisfy a financial covenant included in Nextel Brazil’s local bank loans and the existence of cross default provisions
included in Nextel Brazil’s equipment financing facility raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements and
financial statement schedules do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 2 to the consolidated financial statements, on June 26, 2015 the Company satisfied the conditions to emerge
from Chapter 11 bankruptcy proceedings. Accordingly, the accompanying consolidated financial statements as of and for the six
month period ended December 31, 2015 (Successor) have been prepared in accordance with the Accounting Standards Codification
Topic 852, Reorganizations. The Company applied fresh start reporting as of June 30, 2015 and recognized net assets at fair value,
resulting in a lack of comparability with the consolidated financial statements of the Predecessor.
/s/ KPMG LLP
McLean, Virginia
March 3, 2016
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of NII Holdings, Inc.:
In our opinion, the consolidated statements of comprehensive (loss) income, of changes in stockholders’ equity (deficit) and of
cash flows for the year ended December 31, 2013 present fairly, in all material respects, the results of operations and cash flows
of NII Holdings, Inc. (Predecessor Company) for the year ended December 31, 2013, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules for the year ended
December 31, 2013 present fairly, in all material respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement
schedules based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. As more fully discussed in Note 1 to the consolidated financial statements appearing under Item 15 of the Company's
2013 annual report on Form 10-K (not presented herein), the Company projected that it was likely that it would not be able to
comply with certain debt covenants throughout 2014. This condition and its impact on the Company’s liquidity raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also described
in Note 1 to the consolidated financial statements appearing under Item 15 of the Company's 2013 annual report on Form 10-K
(not presented herein). The consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
February 28, 2014, except for the effects of discontinued operations discussed in Note 5 to the consolidated financial statements,
as to which the date is March 3, 2016
F-3
NII HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $39,033 — Successor
Company and $30,749 — Predecessor Company
Handset and accessory inventory
Prepaid expenses and other
Assets related to discontinued operations
Total current assets
Property, plant and equipment, net
Intangible assets, net
Other assets
Assets related to discontinued operations
Total assets
$
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
$
Liabilities not subject to compromise
Current liabilities
Accounts payable
Accrued expenses and other
Deferred revenues
Current portion of long-term debt
Liabilities related to discontinued operations
Total current liabilities
Long-term debt
Other long-term liabilities
Liabilities related to discontinued operations
Total liabilities not subject to compromise
Liabilities subject to compromise (Note 2)
Commitments and contingencies (Note 9)
Stockholders’ equity (deficit)
Undesignated preferred stock, par value $0.001, 10,000 shares authorized, no shares issued
or outstanding — Successor Company
Undesignated preferred stock, par value $0.001, 10,000 shares authorized, no shares issued
or outstanding — Predecessor Company
Common stock, par value $0.001, 140,000 shares authorized, 100,001 shares issued and
outstanding — Successor Company
Common stock, par value $0.001, 600,000 shares authorized, 172,363 shares issued and
outstanding — Predecessor Company
Paid-in capital — Successor Company
Paid-in capital — Predecessor Company
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity (deficit)
Total liabilities and stockholders’ equity (deficit)
Successor
Company
December 31,
2015
Predecessor
Company
December 31,
2014
$
342,184
84,317
$
334,194
110,064
144,629
24,358
132,534
—
728,022
555,023
892,622
554,241
—
2,729,908
43,765
262,038
10,386
582,420
—
898,609
82,647
197,837
—
1,179,093
—
—
—
100
$
$
256,133
65,885
198,466
697,979
1,662,721
1,352,705
688,153
372,912
1,297,543
5,374,034
132,642
337,651
28,843
717,427
486,850
1,703,413
207,844
209,140
624,908
2,745,305
4,593,493
—
—
—
—
2,070,497
—
(274,003)
(245,779)
1,550,815
2,729,908
172
—
1,517,081
(2,150,664)
(1,331,353)
(1,964,764)
5,374,034
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
NII HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share amounts)
Operating revenues
Service and other revenues
Handset and accessory revenues
Operating expenses
Cost of service (exclusive of depreciation and amortization
included below)
Cost of handsets and accessories
Selling, general and administrative
Impairment, restructuring and other charges
Depreciation
Amortization
Operating loss
Other (expense) income
Interest expense, net
Interest income
Foreign currency transaction losses, net
Other expense, net
Loss from continuing operations before reorganization items and
income tax benefit (provision)
Reorganization items (Note 2)
Income tax benefit (provision) (Note 11)
Net (loss) income from continuing operations
Income (loss) from discontinued operations, net of income taxes
(Note 5)
Net (loss) income
Net (loss) income from continuing operations per common share,
basic
Net income (loss) from discontinued operations per common
share, basic
Net (loss) income per common share, basic
Net (loss) income from continuing operations per common share,
diluted
Net income (loss) from discontinued operations per common
share, diluted
Net (loss) income per common share, diluted
$
$
$
$
$
$
Successor
Company
Six Months
Ended
December 31,
2015
Predecessor Company
Six Months
Ended June 30,
Year Ended December 31,
2015
2014
2013
$
$
501,130
28,304
529,434
$
643,904
39,807
683,711
$
1,691,849
157,105
1,848,954
2,108,881
94,159
2,203,040
212,852
46,904
304,823
32,308
64,108
21,256
682,251
(152,817)
(55,563)
17,200
(99,737)
(1,176)
(139,276)
(292,093)
1,467
5,015
(285,611)
11,608
(274,003)
(2.86)
0.12
(2.74)
(2.86)
0.12
(2.74)
$
$
$
$
$
$
256,085
121,143
419,699
36,792
126,789
27,089
987,597
(303,886)
(82,820)
15,327
(63,948)
(137)
(131,578)
(435,464)
1,956,874
(2,009)
1,519,401
221,114
1,740,515
8.73
1.27
10.00
8.71
1.27
9.98
692,601
415,450
997,735
105,664
340,159
53,902
2,605,511
(756,557)
(372,904)
38,345
(51,149)
(5,829)
(391,537)
(1,148,094)
(71,601)
(4,976)
(1,224,671)
767,383
263,407
1,037,763
121,578
347,466
35,144
2,572,741
(369,701)
(455,539)
20,105
(92,456)
(11,818)
(539,708)
(909,409)
—
(291,016)
(1,200,425)
(733,027)
(1,957,698) $
(449,174)
(1,649,599)
(7.11) $
(4.25)
(11.36) $
(7.11) $
(4.25) $
(11.36) $
(6.98)
(2.62)
(9.60)
(6.98)
(2.62)
(9.60)
$
$
$
$
$
$
Weighted average number of common shares outstanding, basic
100,000
172,363
172,283
171,912
Weighted average number of common shares outstanding,
diluted
Comprehensive (loss) income, net of income taxes
Foreign currency translation adjustment
Reclassification adjustment for sale of Nextel Argentina, Nextel
Mexico and Nextel Chile (Note 5)
Other
Other comprehensive (loss) income
Net (loss) income
Total comprehensive (loss) income
100,000
172,691
172,283
171,912
$
(248,841)
$
(205,899) $
(340,847) $
(334,893)
(1,672)
4,734
(245,779)
(274,003)
(519,782)
$
421,953
2,956
219,010
1,740,515
1,959,525
$
(33,885)
(544)
(375,276)
(1,957,698)
(2,332,974) $
—
2,257
(332,636)
(1,649,599)
(1,982,235)
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
NII HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands)
Balance, January 1, 2013 — Predecessor
Company
Net loss
Other comprehensive loss
Share-based compensation activity
Balance, December 31, 2013 — Predecessor
Company
Net loss
Other comprehensive loss
Share-based compensation activity
Balance, December 31, 2014 — Predecessor
Company
Net income
Other comprehensive income
Share-based compensation activity
Balance, June 30, 2015 — Predecessor
Company
Issuance of Successor Company's common stock
Balance, July 1, 2015 — Successor Company
Net loss
Other comprehensive loss
Share-based compensation activity
Balance, December 31, 2015 — Successor
Company
Common Stock
Shares
Amount
Paid-in Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
171,653
$
171
$ 1,483,086
$ 1,456,633
$
(623,441) $
2,316,449
—
—
452
—
—
1
—
—
21,172
(1,649,599)
—
(1,649,599)
—
—
(332,636)
—
(332,636)
21,173
172,105
172
1,504,258
(192,966)
(956,077)
355,387
—
—
258
—
—
—
—
—
12,823
(1,957,698)
—
(1,957,698)
—
—
(375,276)
—
(375,276)
12,823
172,363
172
1,517,081
(2,150,664)
(1,331,353)
(1,964,764)
—
—
—
—
—
—
—
—
5,239
1,740,515
—
1,740,515
—
—
219,010
—
219,010
5,239
100,000
100,000
—
—
1
100
100
—
—
—
2,067,565
2,067,565
—
—
2,932
—
—
(274,003)
—
—
—
—
—
(245,779)
—
100,001
$
100
$ 2,070,497
$
(274,003) $
(245,779) $
1,550,815
—
—
2,067,665
2,067,665
(274,003)
(245,779)
2,932
Elimination of Predecessor Company's equity
(172,363)
(172)
(1,522,320)
410,149
1,112,343
172,363
172
1,522,320
(410,149)
(1,112,343)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
NII HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Successor
Company
Six Months
Ended
December 31,
2015
Predecessor Company
Six Months
Ended June 30,
Year Ended
December 31,
Year Ended
December 31,
2015
2014
2013
$
(274,003)
$
1,740,515
$
(1,957,698) $
(1,649,599)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
(Income) loss from discontinued operations
Amortization of debt discounts and financing costs
Depreciation and amortization
Provision for losses on accounts receivable
Provision for inventory obsolescence
Foreign currency transaction losses, net
Impairment charges, restructuring charges and losses on disposal of fixed
assets
Deferred income tax (benefit) provision
Share-based compensation expense
Reorganization items in connection with emergence from Chapter 11
Fresh start adjustments, net
Other, net
Changes in assets and liabilities:
Accounts receivable
Prepaid value-added taxes
Handset and accessory inventory
Prepaid expenses and other
Other long-term assets
Accrued value-added taxes
Accounts payable, accrued expenses and other
Total operating cash used in continuing operations
Total operating cash provided by (used in) discontinued operations
Net cash used in operating activities
Cash flows from investing activities:
Capital expenditures
Purchases of investments
Proceeds from sales of investments
(Costs) proceeds related to 2013 sale of towers, net
Change in restricted cash, escrow accounts and other deposits
Proceeds from sale of corporate aircraft
Other, net
Total investing cash (used in) provided by continuing operations
Total investing cash provided by (used in) discontinued operations
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Claims paid to senior noteholders
Net proceeds from debtor-in-possession loan
Repayment of debtor-in-possession loan
Borrowings under equipment financing facilities and other
Proceeds from issuance of senior notes
Repayments under capital leases, equipment financing and other
Other, net
Total financing cash (used in) provided by continuing operations
Total financing cash used in discontinued operations
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents related to discontinued operations
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
(11,608)
181
85,364
32,279
2,156
99,737
13,354
(2,513)
2,932
—
—
(3,838)
(38,756)
9,311
13,940
(21,027)
20,981
(285)
(29,678)
(101,473)
22,988
(78,485)
(76,630)
(558,883)
575,838
—
(51,235)
—
679
(110,231)
109,255
(976)
—
—
—
—
—
(25,068)
—
(25,068)
—
(25,068)
916
22,662
(80,951)
423,135
342,184
$
(221,114)
18,753
153,878
65,396
—
63,948
31,471
905
5,239
(1,775,787)
(248,709)
(11,083)
(35,013)
50,564
7,513
(26,688)
47,253
(7,941)
(14,254)
(155,154)
(99,603)
(254,757)
(88,485)
(757,714)
756,546
—
(57,074)
—
(1,890)
(148,617)
1,176,438
1,027,821
(745,221)
340,375
(340,375)
—
—
(2,008)
(4,291)
(751,520)
(26,711)
(778,231)
(9,152)
103,260
88,941
334,194
423,135
733,027
14,889
394,061
57,418
29,308
51,149
79,929
2,052
10,041
54,851
—
(9,560)
(73,430)
(72,657)
(32,963)
(18,426)
(136,056)
(1,772)
281,385
(594,452)
(34,264)
(628,716)
(326,246)
(1,593,250)
2,092,459
(15,517)
(132,080)
32,390
(32,643)
25,113
(372,651)
(347,538)
—
—
—
14,590
—
(107,099)
(396)
(92,905)
(35,367)
(128,272)
(55,657)
346,695
(813,488)
1,147,682
334,194
$
$
449,174
26,704
382,610
77,528
28,869
92,456
119,543
268,810
19,293
—
—
7,319
(15,884)
(37,128)
(31,660)
(66,124)
(21,683)
(22,256)
94,528
(277,500)
85,035
(192,465)
(387,286)
(2,360,529)
1,942,886
346,018
(26,267)
—
(52,440)
(537,618)
360,006
(177,612)
—
—
—
145,122
1,600,000
(451,984)
(26,794)
1,266,344
(489,739)
776,605
(56,236)
(272,911)
77,381
1,070,301
1,147,682
The accompanying notes are an integral part of these consolidated financial statements.
F-7
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Operations
Unless the context requires otherwise, “NII Holdings, Inc.,” “NII Holdings,” “we,” “our,” “us” and “the Company” refer to
the combined businesses of NII Holdings, Inc. and its consolidated subsidiaries. We refer to our wholly-owned Brazilian operating
company, Nextel Telecomunicações Ltda., as Nextel Brazil. We provide wireless communication services under the NextelTM
brand in Brazil with our principal operations located in major urban and suburban centers with high population densities and related
transportation corridors of that country where we believe there is a concentration of Brazil's business users and economic activity,
including primarily Rio de Janeiro and São Paulo.
In the second half of 2013, Nextel Brazil commercially launched services on its wideband code division multiple access, or
WCDMA, network in São Paulo, Rio de Janeiro and surrounding areas and extended those services to other areas in Brazil by
expanding the coverage of its network and utilizing roaming services and network sharing arrangements pursuant to agreements
that it reached with another network operator in Brazil. Nextel Brazil currently offers services supported by its WCDMA network
in approximately 260 cities in Brazil. Our WCDMA network enables us to offer a wide range of products and services supported
by that technology, including data services provided at substantially higher speeds than can be delivered on our legacy integrated
digital enhanced network or iDEN.
Prior to the deployment of our WCDMA network, our services were primarily targeted to meet the needs of business customers.
With the deployment of our WCDMA network in Brazil, our target market has shifted to 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 target market is attracted to the services and pricing plans we offer, as well as the quality of and
data speeds provided by our WCDMA network.
We also offer long-term evolution, or LTE, services in Rio de Janeiro and continue to provide services on our legacy iDEN
network throughout various regions in Brazil. Our transition to standards-based technologies such as WCDMA also gives us more
flexibility to offer customers the option of purchasing services by acquiring the subscriber identity module, or SIM, cards from
us separately, and by providing the customer with the option to use the SIM cards in one or more devices that they acquire from
us or from other sources.
The services we currently offer include:
•
•
•
•
•
•
mobile telephone voice service;
wireless data services, including text messaging services, mobile internet services and email services;
push-to-talk services, including Direct Connect®, Prip and International Direct Connect® services, which allow
subscribers to talk to each other instantly;
other value-added services, including location-based services, which include the use of Global Positioning System,
or GPS, technologies; digital media services; and a wide ranging set of applications available via our content
management system, as well as the AndroidTM open application market;
business solutions, such as security, work force management, logistics support and other applications that help our
business subscribers improve their productivity; and
voice and data roaming services outside of our coverage areas.
Sales of Nextel Argentina and Nextel Mexico. On April 30, 2015, we completed the sale of our operations in Mexico to
New Cingular Wireless, Inc., or New Cingular Wireless, an indirect subsidiary of AT&T, Inc., or AT&T. In addition, on September
11, 2015, two of our indirect subsidiaries entered into a binding agreement with Grupo Clarin S.A., or Grupo Clarin, relating to
the sale of all of the outstanding equity interests of Nextel Argentina, which was completed on January 27, 2016. See Note 5 for
more information on these sales. In connection with these transactions, we have presented Nextel Argentina's and Nextel Mexico's
results for all periods presented as discontinued operations in this annual report on Form 10-K.
Going Concern. The accompanying consolidated financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial
statements do not include any adjustments that might result from the occurrence of the uncertainties described below.
We have an obligation to meet a net debt financial covenant in Nextel Brazil's local bank loans that will apply semiannually
beginning on June 30, 2016. We have made a number of changes within our senior management team and modified our business
F-8
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
plan to reflect our available cash resources and the impact of the current and expected economic and competitive conditions in
Brazil on both our subscriber growth and revenues, and to align our costs with this revised outlook, but based on our current
business plan, we believe that it is unlikely that we will satisfy the applicable financial covenant included in both of Nextel Brazil's
local bank loan agreements at the June 30, 2016 measurement date. If we are unable to develop or implement changes to our
business that allow us to meet this covenant, we will need to refinance or negotiate amendments to these financing arrangements
or secure waivers from the lenders in order to avoid a potential default under the loan agreements. If a default occurs, the lenders
could require us to repay the amounts outstanding under these arrangements, and if they were to do so, the lender of Nextel Brazil's
equipment financing facility could accelerate the amount outstanding under that obligation as well. As of December 31, 2015, we
had $233.8 million principal amount outstanding under Nextel Brazil's local bank loans and $342.5 million principal amount
outstanding under Nextel Brazil’s equipment financing facility. See Note 7 for more information.
Because it is unlikely that we will satisfy the applicable financial covenant included in both of Nextel Brazil's local bank
loans and because of the cross-default provisions included in Nextel Brazil's equipment financing facility as described above, we
concluded that the circumstances described above raise substantial doubt about our ability to continue as a going concern.
2.
Emergence from Chapter 11 Proceedings and Fresh Start Accounting
On September 15, 2014, we and eight of our U.S. and Luxembourg-domiciled subsidiaries, including NII Capital Corp. and
NII International Telecom, S.C.A., or NIIT, filed voluntary petitions seeking relief under Chapter 11 of Title 11 of the United
States Bankruptcy Code, which we refer to as Chapter 11, in the United States Bankruptcy Court for the Southern District of New
York, which we refer to as the Bankruptcy Court. In addition, subsequent to September 15, 2014, five additional subsidiaries of
NII Holdings, Inc. filed voluntary petitions seeking relief under Chapter 11 in the Bankruptcy Court. We refer to the companies
that filed voluntary petitions seeking relief under Chapter 11 collectively as the Debtors. Nextel Brazil and our previous other
operating subsidiaries in Latin America were not Debtors in these Chapter 11 cases.
On June 19, 2015, the Bankruptcy Court entered an order approving and confirming the First Amended Joint Plan of
Reorganization Proposed by the Plan Debtors and the Official Committee of Unsecured Creditors, dated April 20, 2015. We refer
to this plan, as amended, as the Plan of Reorganization. On June 26, 2015, the conditions of the Bankruptcy Court's order and the
Plan of Reorganization were satisfied, the Plan of Reorganization became effective, and we and the other Debtors emerged from
the Chapter 11 proceedings. We refer to June 26, 2015 as the Emergence Date.
The significant transactions that occurred on the Emergence Date in connection with the effectiveness of our Plan of
Reorganization included the following:
• NII Holdings canceled all shares of its common stock, preferred stock and other equity interests that existed prior to June
26, 2015;
• NII Holdings amended and restated its Bylaws and filed an Amended and Restated Certificate of Incorporation authorizing
the Company to issue up to 140,000,000 shares of common stock, par value $0.001 per share, and up to 10,000,000 shares
of undesignated preferred stock, par value $0.001 per share;
• NII Holdings issued 99,999,992 shares of new common stock, with a per share value of $20.68, and distributed cash of
$776.3 million to the holders of claims and service providers in comprehensive settlement of numerous integrated claims
and disputes approved by the Bankruptcy Court in connection with the confirmation of the Plan of Reorganization;
•
In accordance with the Plan of Reorganization, all of the obligations of the Debtors with respect to the following
indebtedness were canceled:
• $700.0 million aggregate principal amount of 7.875% senior notes due 2019 issued by NIIT pursuant to an indenture,
dated as of May 23, 2013, among NIIT (as issuer), the Company (as guarantor), and Wilmington Trust National
Association (as trustee) and all amendments, supplements or modifications thereto and extensions thereof;
• $900.0 million aggregate principal amount of 11.375% senior notes due 2019 issued by NIIT pursuant to an indenture,
dated as of February 19, 2013, among NIIT (as issuer), the Company (as guarantor), and Wilmington Trust National
Association (as trustee) and all amendments, supplements or modifications thereto and extensions thereof;
F-9
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• $1.45 billion aggregate principal amount of 7.625% senior notes due 2021 issued by NII Capital Corp. pursuant to
an indenture, dated as of March 29, 2011, among NII Capital Corp. (as issuer), each of the guarantors party thereto
and Wilmington Savings Fund Society, FSB (as successor trustee) and all amendments, supplements or modifications
thereto and extensions thereof;
• $500.0 million aggregate principal amount of 8.875% senior notes due 2019 issued by NII Capital Corp. pursuant to
an indenture, dated as of December 15, 2009, among NII Capital Corp. (as issuer), each of the guarantors party thereto
and U.S. Bank National Association (as successor trustee) and all amendments, supplements or modifications thereto
and extensions thereof; and
• $800.0 million aggregate principal amount of 10.0% senior notes due 2016 issued by NII Capital Corp. pursuant to
an indenture, dated as of August 18, 2009, among NII Capital Corp. (as issuer), each of the guarantors party thereto
and Wilmington Savings Fund Society, FSB (as successor trustee) and all amendments, supplements or modifications
thereto and extensions thereof.
Pursuant to our Plan of Reorganization, we entered into a registration rights agreement to provide registration rights to parties
that, together with their affiliates, received upon emergence 10% or more of the issued and outstanding common stock of NII
Holdings in connection with the Plan of Reorganization. In satisfaction of this registration rights agreement, on July 14, 2015, we
filed a Registration Statement on Form S-1 under the Securities Act of 1933 to register our common stock that may be offered for
sale from time to time by certain selling stockholders. On July 21, 2015, this Form S-1 was declared effective. We are not selling
any common stock under the related prospectus and will not receive any proceeds from the sale of common stock by the selling
stockholders.
In connection with our emergence from Chapter 11, we were required to apply the provisions of fresh start accounting to
our financial statements because: (i) the holders of existing voting shares of NII Holdings prior to its emergence from the Chapter
11 proceedings received less than 50% of the voting shares of NII Holdings outstanding following its emergence from the Chapter
11 proceedings; and (ii) the reorganization value of our assets immediately prior to confirmation of the Plan of Reorganization
was less than the post-petition liabilities and allowed claims. Because our results of operations during the period from June 26,
2015 to June 30, 2015 were not material, we applied fresh start accounting to our consolidated financial statements as of the close
of business on June 30, 2015. Under the principles of fresh start accounting, a new reporting entity is considered to be created,
and as a result, we allocated the reorganization value of NII Holdings as of June 30, 2015 to our individual assets based on their
estimated fair values at the date we applied fresh start accounting.
The total value of the cash and shares of common stock distributed under the Plan of Reorganization was $2.813 billion. We
refer to this value as the Plan Distributable Value. The Plan Distributable Value was comprised of $745.2 million of cash paid to
the holders of our NIIT and NII Capital Corp. senior notes and $2,067.7 million of new common stock. We also distributed an
additional $2.8 million to other creditors. We determined the equity value of the Successor Company to be approximately $2,067.7
million, which represents the $2.813 billion Plan Distributable Value less $745.2 million in cash distributions.
The following condensed consolidated balance sheet reconciles the balance sheet of the Predecessor Company immediately
prior to our emergence from Chapter 11 to the balance sheet of the Successor Company immediately subsequent to our emergence
from Chapter 11. The adjustments set forth in the condensed consolidated balance sheet presented below reflect the consummation
of the Plan of Reorganization, which are reflected in the "Reorganization Adjustments" column, and the fair value adjustments
required by the implementation of fresh start accounting, which are reflected in the "Fresh Start Adjustments" column. The
information presented below reflects changes in the estimated fair values of certain assets and liabilities that occurred in the second
half of 2015 as we finalized fresh start accounting. This condensed consolidated balance sheet should be read in conjunction with
the explanatory notes following the table.
The following is a reconciliation of the Successor Company's equity value to its reorganization value as of June 30, 2015
(in thousands):
F-10
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value of Successor Company's common stock
Fair value of debt
Fair value of other liabilities
Reorganization value of Successor Company's assets
$ 2,067,665
774,616
638,916
$ 3,481,197
Reorganization
Adjustments
Fresh Start
Adjustments
(in thousands)
Successor
Company
July 1, 2015
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Handset and accessory inventory
Prepaid expenses and other
Assets related to discontinued operations
Total current assets
Property, plant and equipment, net
Intangible assets, net
Other assets
Assets related to discontinued operations
Total assets
Predecessor
Company
June 30, 2015
ASSETS
$
$
1,199,441
97,395
174,649
49,835
159,346
242,487
1,923,153
1,079,947
571,076
516,235
32,246
4,122,657
$
$
(776,306) (a) $
—
—
—
—
—
(776,306)
—
—
—
—
(776,306)
$
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
$
$
$
—
—
—
—
(19,494) (d)
—
(19,494)
(376,519) (e)
562,702 (f)
(18,739) (g)
(13,104) (h)
134,846
—
(2,677) (i)
(1,805) (j)
2,616 (k)
(1,727) (h)
(3,593)
(72,355) (k)
(56,541) (l)
6,405 (h)
(126,084)
—
423,135
97,395
174,649
49,835
139,852
242,487
1,127,353
703,428
1,133,778
497,496
19,142
3,481,197
102,317
320,803
16,103
670,233
94,434
1,203,890
104,383
93,091
12,168
1,413,532
—
$
$
102,317
323,480
17,908
667,617
96,161
1,207,483
176,738
149,632
5,763
1,539,616
4,591,452
$
—
—
—
—
—
—
—
—
—
—
(4,591,452) (b)
—
—
—
—
—
—
172
—
1,522,320
(2,418,560)
(1,112,343)
(2,008,411)
—
100 (b)
(172) (c)
2,067,565 (b)
(1,522,320) (c)
3,269,973 (c)
—
3,815,146
—
—
—
—
—
(851,413) (m)
1,112,343 (m)
260,930
—
100
—
2,067,565
—
—
—
2,067,665
$
4,122,657
$
(776,306)
$
134,846
$
3,481,197
F-11
Liabilities not subject to compromise
Current liabilities
Accounts payable
Accrued expenses and other
Deferred revenues
Current portion of long-term debt
Liabilities related to discontinued operations
Total current liabilities
Long-term debt
Other long-term liabilities
Liabilities related to discontinued operations
Total liabilities not subject to compromise
Liabilities subject to compromise
Stockholders’ (deficit) equity
Undesignated preferred stock - Successor Company
Undesignated preferred stock - Predecessor
Company
Common stock - Successor Company
Common stock - Predecessor Company
Paid-in capital - Successor Company
Paid-in capital - Predecessor Company
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ (deficit) equity
Total liabilities and stockholders’ (deficit)
equity
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our condensed consolidated balance sheet as of July 1, 2015 presented above reflects the effect of the following adjustments:
(a) Reflects cash payments made in connection with the implementation of the Plan of Reorganization (in thousands):
Claims paid to senior noteholders
Payments to other creditors
Total claims paid
Reorganization-related professional fees
Total cash payments
$
745,221
2,779
748,000
28,306
776,306
$
(b) Represents the cancellation of debt and related transactions in connection with the implementation of the Plan of
Reorganization on the Emergence Date. In accordance with the Plan of Reorganization, we distributed cash and shares
of new common stock to holders of claims. The following table reflects the calculation of the total gain on the settlement
of our liabilities subject to compromise (in thousands):
Total Predecessor Company liabilities subject to compromise
Less: Common stock, Successor (at par)
Paid-in-capital, Successor
Total claims paid
Gain on settlement of liabilities subject to compromise
$ 4,591,452
(100)
(2,067,565)
(748,000)
$ 1,775,787
(c) Reflects the cumulative impact of the reorganization adjustments discussed above. Additionally, these adjustments reflect
the cancellation of the Predecessor Company's common stock and paid-in capital to accumulated deficit (in thousands):
Gain on settlement of liabilities subject to compromise
Reorganization-related professional fees
Net gain on reorganization adjustments
Cancellation of Predecessor Company equity
Net impact to accumulated deficit
$ 1,775,787
(28,306)
1,747,481
1,522,492
$ 3,269,973
(d) Represents the write-off of unamortized debt issuance costs primarily related to Nextel Brazil's equipment financing
facility and local bank loans.
(e) Reflects the impact of fresh start adjustments on property, plant and equipment in Nextel Brazil and our corporate
segment. We measured the fair value of property, plant and equipment using the cost approach as the primary method.
The cost approach is based on the premise that a prudent investor would pay no more for an asset than its replacement
or reproduction cost. The cost to replace the asset would include the cost of constructing a similar asset of equivalent
utility at prices applicable at the time of the valuation analysis. The replacement or reproduction cost estimates were
adjusted by losses in value attributable to physical deterioration, as well as functional and economic obsolescence. The
following reflects the impact of fresh start adjustments (in thousands):
F-12
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Land
Leasehold improvements
Network equipment, communication towers and network software
Software, office equipment, furniture and fixtures and other
Less: Accumulated depreciation and amortization
Construction in progress
Predecessor
Company
Consolidated
Fresh Start
Adjustments
Successor
Company
$
3,341
$
— $
35,515
1,819,759
342,210
(1,207,834)
992,991
86,956
$ 1,079,947
$
(20,188)
(1,291,712)
(261,342)
1,207,834
(365,408)
(11,111)
(376,519) $
3,341
15,327
528,047
80,868
—
627,583
75,845
703,428
(f) Reflects the impact of fresh start adjustments on our intangible assets (in thousands):
Licenses
Customer relationships
Predecessor
Company
Nextel Brazil
Fresh Start
Adjustments
Successor
Company
$
553,076
$
513,002
$ 1,066,078
—
29,000
29,000
In Brazil, our spectrum holdings include 20 megahertz, or MHz, of 1.9 gigahertz, or GHz,/2.1 GHz spectrum and 20
MHz of 1.8 GHz spectrum that support our WCDMA network and, in Rio de Janeiro, our LTE network. We also have
spectrum holdings in the 800 MHz specialized mobile radio, or SMR, spectrum band that currently can only be used to
support our iDEN network. We valued Nextel Brazil's spectrum licenses using both the income approach and the market
approach. The resulting value of these licenses was similar to the prices observed for comparable licenses in Brazil in
recent guideline transactions. Our income approach used the Greenfield method specifically, whereby we estimated the
discounted future cash flows of a hypothetical start-up business, based on certain assumptions, including: (i) forecasted
revenues, profit margins, capital expenditures and cash flows attributable to the spectrum for the period from July 1,
2015 to June 1, 2041. This date represents the end of the current term of our spectrum licenses, including renewals solely
at our option; and (ii) a discount rate of 16.5%, which is based on an after-tax weighted average cost of capital.
We valued our customer relationships using the excess earnings method, which is a form of the income approach, by
estimating the discounted future cash flows attributable to existing subscribers. This estimation was based on certain
assumptions, including: (i) forecasted revenues and cash flows attributable to the current subscriber base beginning on
July 1, 2015; (ii) a churn rate ranging from 1.9% to 2.6%; and (iii) a discount rate of 16.5%, based on an after-tax
weighted average cost of capital.
Trade name
Corporate
Predecessor
Company
Fresh Start
Adjustments
Successor
Company
18,000
20,700
38,700
Our trade name represents the right to use the Nextel name exclusively in our markets. We valued our trade name using
the relief from royalty method, a form of the income approach that estimates the amount a market participant would pay
to utilize that trade name, based on certain assumptions, including (i) forecasted revenues attributable to the trade name
from July 1, 2015 to June 1, 2041; (ii) a royalty rate of 0.25% of expected revenues determined with regard to comparable
market transactions; and (iii) a discount rate of 16.5%, which was based on an after-tax weighted average cost of capital.
(g) Represents a $13.5 million decrease in non-income based tax assets to reduce their values to their estimated fair values
based on discounted cash flows to reflect the timing of their anticipated realization and a $5.2 million write-off of prepaid
rent.
F-13
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(h) Represents the net change in assets and liabilities related to Nextel Argentina as a result of remeasurement to their
respective fair values.
(i) Represents the write-off of unamortized deferred gains related to the 2013 tower transactions.
(j) Represents the revaluation of deferred revenues to the fair value of related future performance obligations.
(k) Adjustments to Nextel Brazil's debt balances related to the remeasurement of its equipment financing facility, local bank
loans, tower financings and capital lease obligations to their fair values were as follows (in thousands):
Brazil equipment financing
Brazil bank loans
Brazil capital lease and tower financing obligations
Other
Total debt
Less: current portion
Predecessor
Company
Nextel Brazil
Fresh Start
Adjustments
Successor
Company
$
366,937
$
294,322
182,108
988
844,355
(667,617)
176,738
$
$
(2,989) $
9,987
(76,737)
—
(69,739)
(2,616)
(72,355) $
363,948
304,309
105,371
988
774,616
(670,233)
104,383
(l) Primarily represents the $61.3 million write-off of unamortized deferred gains related to the 2013 tower transactions
and a $5.4 million increase related to the remeasurement of asset retirement obligations to their fair values.
(m) Reflects the cumulative impact of all fresh start adjustments and the elimination of the Predecessor Company’s
accumulated other comprehensive loss as follows (in thousands):
Intangible asset fair value adjustment
Property, plant and equipment fair value adjustment
Debt fair value adjustment
Write-off of unamortized deferred gains on 2013 tower transactions
Other
Net gain on fresh start fair value adjustments
Tax impact of fresh start adjustments
Elimination of Predecessor Company's accumulated other
comprehensive loss
Net impact on accumulated deficit
$
562,702
(376,519)
69,739
63,940
(58,090)
261,772
(842)
(1,112,343)
(851,413)
$
F-14
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reorganization Items.
The components of our reorganization items for the six months ended December 31, 2015, the six months ended June 30,
2015 and the year ended December 31, 2014 are as follows (in thousands):
Successor
Company
Predecessor Company
Six Months Ended
Six Months Ended
Year Ended
December 31, 2015
June 30, 2015
December 31, 2014
Gain on settlement of liabilities subject to
compromise
Net gain on fresh start fair value adjustments
Reorganization-related professional fees and other
costs
Total reorganization items
$
$
— $
1,775,787
$
—
261,772
—
—
1,467
1,467
$
(80,685)
1,956,874
$
(71,601)
(71,601)
3.
Summary of Significant Accounting Policies
Reorganization Accounting. In accordance with the requirements of reorganization accounting, NII Holdings adopted the
provisions of fresh start accounting as of June 30, 2015 and became a new entity for financial reporting purposes. References to
the "Successor Company" relate to NII Holdings on or subsequent to June 30, 2015. References to the "Predecessor Company"
relate to NII Holdings prior to June 30, 2015. See Note 2 for more information regarding the implementation of fresh start accounting.
Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in
the United States, or the U.S., requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results to be reported
in future periods could differ from our estimates.
Principles of Consolidation. The consolidated financial statements include the accounts of NII Holdings and our
subsidiaries. Our decision to consolidate an entity is based on our control of the entity through direct and indirect majority interest
in the entity. We eliminate all significant intercompany transactions, including intercompany profits and losses, in consolidation.
Concentrations of Risk. Substantially all of our revenues are generated from our operations located in Brazil. Regulatory
entities in Brazil regulate the licensing, construction, acquisition, ownership and operation of our networks, and certain other
aspects of our business, including some of the rates we charge our subscribers. Changes in the current telecommunications statutes
or regulations in Brazil could adversely affect our business. In addition, as of December 31, 2015, 73% of our total assets were
owned by Nextel Brazil. Political, financial and economic developments in Brazil could impact the recoverability of our assets.
Financial instruments that potentially subject us to significant amounts of credit risk consist of cash, cash equivalents, short-
term investments and accounts receivable. Our cash and cash equivalents are deposited with high-quality financial institutions. At
times, we maintain cash balances in excess of Federal Deposit Insurance Corporation (or the foreign country equivalent institution)
limits. Our short-term investments are composed of investments in U.S. treasury securities, investments in corporate bonds and
certain investments made by Nextel Brazil. See Note 8 for further information. Our accounts receivable are generally unsecured.
We routinely assess the credit worthiness of our subscribers and maintain allowances for probable losses, where necessary.
Foreign Currency. We translate Nextel Brazil's results of operations from Brazilian reais to U.S. dollars using average
exchange rates during the relevant period, while we translate assets and liabilities at the exchange rate in effect at the reporting
date. We translate equity balances at historical rates. We report the resulting gains or losses from translating foreign currency
financial statements as other comprehensive income or loss.
In general, monetary assets and liabilities held by Nextel Brazil that are denominated in U.S. dollars give rise to realized
and unrealized foreign currency transaction gains and losses, which we record in our consolidated statement of comprehensive
(loss) income as foreign currency transaction losses, net. We report the effects of changes in exchange rates associated with certain
U.S. dollar-denominated intercompany loans and advances to our foreign subsidiaries that are of a long-term investment nature
as other comprehensive income or loss in our consolidated financial statements. We have determined that certain U.S. dollar-
denominated intercompany loans and advances to Nextel Brazil are of a long-term investment nature.
F-15
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents. We consider all highly liquid investments with an original maturity of three months or less
at the time of purchase to be cash equivalents, except for certain certificates of deposit in Brazil that are redeemable on demand.
We classify these certificates of deposit as short-term investments. Cash equivalents primarily consist of money market funds and
other similarly structured funds.
Short-Term Investments. We classify investments in debt securities as available-for-sale as of the balance sheet date and
report them at fair value. We record unrealized gains and losses, net of income tax, as other comprehensive income or loss. We
report realized gains or losses, as determined on a specific identification basis, and other-than-temporary declines in value, if any,
in net other expense in our consolidated statement of comprehensive (loss) income. We assess declines in the value of individual
investments to determine whether the decline is other-than-temporary and thus the investment is impaired. We make these
assessments by considering available evidence, including changes in general market conditions, specific industry and individual
company data, the length of time and the extent to which the market value has been less than cost, the financial condition and near-
term prospects of the individual company and our intent and ability to hold the investment. As of December 31, 2015 and 2014,
we had $9.3 million and $28.6 million, respectively, in time deposits. See Note 8 for additional information.
Handset and Accessory Inventory. We record handsets and accessories at the lower of cost or their net realizable value.
We determine cost by the weighted average costing method. We expense handset costs at the time of sale and classify such costs
in cost of handsets and accessories. Inventory cost includes amounts associated with non-income based taxes.
We analyze the net realizable value of handset and accessory inventory on a periodic basis. This analysis includes an
assessment of the obsolescence of individual devices, our sales forecasts and other factors. For the six months ended December
31, 2015, we recorded losses related to inventory obsolescence of $2.2 million. In addition, for the years ended December 31,
2014 and 2013, we recorded losses related to inventory obsolescence of $29.3 million and $43.0 million, respectively, which
includes $14.1 million in 2013 related to expected losses on firm purchase commitments. We did not record any losses related to
inventory obsolescence during the six months ended June 30, 2015.
Property, Plant and Equipment. We record property, plant and equipment, including improvements that extend useful
lives or enhance functionality, at cost, while we charge maintenance and repairs to operations as incurred.
We capitalize internal and external costs incurred to develop internal-use software, which consist primarily of costs related
to configuration, interfaces, installation and testing. We also capitalize internal and external costs incurred to develop specified
upgrades and enhancements if they result in significant additional functionalities for our existing software. We expense all costs
related to evaluation of software needs, data conversion, training, maintenance and other post-implementation operating activities.
We calculate depreciation using the straight-line method based on estimated useful lives ranging from 3 to 30 years for
network equipment, communication towers and network software and 3 to 10 years for software, office equipment, furniture and
fixtures, and other, which includes non-network internal use software. We include depreciation expense on our capital leases in
accumulated depreciation. We amortize leasehold improvements over the shorter of the lease terms or the useful lives of the
improvements.
Construction in progress includes internal and external labor, materials, transmission and related equipment, engineering,
site development, interest and other costs relating to the construction and development of our wireless network. We do not depreciate
assets under construction until they are ready for their intended use. We capitalize interest and other costs, including labor and
software upgrades, which are applicable to the construction of, and significant improvements that enhance functionality to, our
network equipment.
As of June 30, 2015, in connection with the implementation of fresh start accounting, we adjusted our property, plant and
equipment to its estimated fair value and revised the depreciable lives. We will continue to periodically review the depreciation
method, useful lives and estimated salvage value of our property, plant and equipment and revise those estimates if current estimates
are significantly different from previous estimates.
During the fourth quarter of 2013, we reviewed the useful lives of our communication towers and determined that the useful
lives of some of these towers should be increased to 30 years compared to the 10- or 15-year useful lives over which we were
previously depreciating these sites. As a result of this change in useful lives, our depreciation expense decreased by $44.4 million
in 2014.
Asset Retirement Obligations. We record an asset retirement obligation, or ARO, and an associated asset retirement cost,
or ARC, when we have a legal obligation in connection with the retirement of tangible long-lived assets. Our obligations arise
from certain of our leases and relate primarily to the cost of removing our communication towers and network equipment from
F-16
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
leased sites. We recognize an ARO, and the associated ARC, in the period in which it is incurred at fair value computed using
discounted cash flow techniques. The liability is then accreted over time until the obligation is settled and the ARC is depreciated
over the useful life of the related assets.
We make adjustments for changes to either the timing or amount of the estimated future settlement obligation in the period
incurred. We recognize increases in the present value of the AROs as an additional liability and add this amount to the carrying
amount of the associated ARC. We record decreases as a reduction in both the recorded liability and the carrying amount of the
associated ARC. To the extent that the decrease in the recorded liability exceeds the carrying amount of the associated ARC, we
record the excess as a component of operating income.
As of June 30, 2015, in connection with the implementation of fresh start accounting, we adjusted our AROs to their estimated
fair value.
As of December 31, 2015 and 2014, our asset retirement obligations were as follows (in thousands):
Balance, January 1, 2014 — Predecessor Company
$
22,643
New asset retirement obligations
Change in assumptions
Accretion
Settlement of asset retirement obligations
Foreign currency translation and other
Balance, December 31, 2014 — Predecessor Company
New asset retirement obligations
Accretion
Settlement of asset retirement obligations
Foreign currency translation and other
Balance, June 30, 2015 — Predecessor Company
Fresh start adjustments
Balance, July 1, 2015 — Successor Company
New asset retirement obligations
Accretion
Settlement of asset retirement obligations
Foreign currency translation and other
Balance, December 31, 2015 — Successor Company
$
4,052
(941)
3,521
(6,895)
(3,203)
19,177
350
1,321
(168)
(2,011)
18,669
5,024
23,693
547
1,688
(1,337)
(4,949)
19,642
Derivative Financial Instruments. We occasionally enter into derivative transactions for hedging or risk management
purposes. We have not and will not enter into any derivative transactions for speculative or profit generating purposes. During the
six months ended December 31, 2015, the six months ended June 30, 2015 and the years ended December 31, 2014 and 2013,
Nextel Brazil entered into derivative transactions to manage foreign currency risk on certain forecasted transactions. See Note 8
for additional information.
Valuation of Long-Lived Assets. We review long-lived assets such as property, plant and equipment and identifiable
intangible assets with definite useful lives, which include our telecommunications licenses, for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected undiscounted future
cash flows of the asset or asset group is less than the carrying amount of the asset, we recognize a loss, if any, for the difference
between the fair value and carrying value of the asset.
Intangible Assets. Prior to our emergence from Chapter 11, intangible assets primarily consisted of our telecommunications
licenses. We amortize our intangible assets using the straight-line method over the estimated benefit period. As a result of the
implementation of fresh start accounting in connection with our emergence from Chapter 11, we recorded our intangible assets,
which consisted of our telecommunications licenses, our exclusive right to use the Nextel tradename in Brazil and our customer
relationships, at their estimated fair values. We calculate amortization on our licenses and our tradename using the straight-line
F-17
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
method based on an estimated useful life of 26 years. We calculate amortization on our customer relationships using the straight-
line method based on an estimated useful life of 4 years.
In Brazil, licenses are customarily issued conditionally for specified periods of time ranging from 10 to 40 years, including
renewals. In addition, the wireless telecommunications industry is experiencing significant technological change, and the
commercial life of any particular technology is difficult to predict. In light of these uncertainties, we classify our licenses as definite
lived intangible assets. In connection with the implementation of fresh start accounting, we revised the remaining estimated useful
lives of our licenses to include renewal periods in cases where it is probable that a renewal will occur.
Revenue Recognition. Operating revenues primarily consist of wireless service revenues and revenues generated from the
sale of handsets and accessories. We present our operating revenues net of value-added taxes, but we include certain revenue-
based taxes that are our primary obligation.
Service revenues primarily consist of fixed monthly access charges. Other components of service revenue include revenues
from calling party pays programs, where applicable, variable charges for airtime usage in excess of plan minutes, long-distance
charges, international roaming revenues derived from calls placed by our subscribers on other carriers’ networks and revenues
generated from broadband data services we provide on our WCDMA network, net of credits and adjustments for service discounts
and value-added taxes. We recognize excess usage, local, long distance and calling party pays revenue at contractual rates per
minute as minutes are used. We record cash received in excess of revenues earned as deferred revenues. We recognize service
revenue as service is provided. We recognize handset revenue when title and risk of loss passes to the customer.
Other revenues primarily include amounts generated from our handset maintenance programs, roaming revenues generated
from other companies’ subscribers that roam on our networks and co-location rental revenues from third party tenants that rent
space on our towers. We recognize revenue generated from our handset maintenance programs on a monthly basis at fixed amounts
over the service period. We recognize roaming revenues at contractual rates per minute as minutes are used. We recognize co-
location revenues from third party tenants on a monthly basis based on the terms set by the underlying agreements.
Revenue-Based Taxes. We record revenue-based taxes and other excise taxes on a gross basis as a component of both
service and other revenues and selling, general and administrative expenses in our consolidated financial statements. For the six
months ended December 31, 2015 and the six months ended June 30, 2015, we recognized $30.9 million and $39.0 million in
revenue-based taxes and other excise taxes, respectively. During the years ended December 31, 2014 and 2013, we recognized
$101.0 million and $127.3 million in revenue-based taxes and other excise taxes, respectively.
Accounts Receivable. Accounts receivable represents amounts due from subscribers, net of an allowance for doubtful
accounts, and includes amounts that have been billed to customers and amounts that have not yet been billed. Trade accounts
receivable consists of fixed monthly charges, as well as charges for excess and roaming minutes used in arrears.
Allowance for Doubtful Accounts. We establish an allowance for doubtful accounts receivable sufficient to cover probable
and reasonably estimated losses. We estimate this allowance based on historical experience, aging of accounts receivable and
recent collections trends. While we believe that the estimates we use are reasonable, actual results could differ from those estimates.
Subscriber Related Direct Costs. We recognize all costs of handset sales when title and risk of loss passes upon delivery
of the handset to the subscriber.
Advertising Costs. We expense costs related to advertising and other promotional expenditures as incurred. Advertising
costs totaled $21.6 million and $28.7 million for the six months ended December 31, 2015 and the six months ended June 30,
2015, respectively. We recognized $88.7 million and $54.4 million in advertising costs during the years ended December 31, 2014
and 2013, respectively.
Share-Based Compensation. We measure and recognize compensation expense for all share-based compensation awards
based on estimated fair values. We account for share-based awards exchanged for employee services in accordance with the
authoritative guidance for stock compensation. Under that guidance, share-based compensation expense is measured at the grant
date, based on the estimated fair value of the award when settled in shares, and is recognized, net of estimated forfeitures, over
the employee's requisite service period. Compensation expense is amortized on a straight-line basis over the requisite service
period for the entire award, which is generally the maximum vesting period of the award. See Note 12 for more information.
Net (Loss) Income Per Common Share, Basic and Diluted. Basic net (loss) income per common share is computed by
dividing adjusted net (loss) income attributable to common shares by the weighted average number of common shares outstanding
for the period. Diluted net (loss) income per common share reflects the potential dilution of securities that could participate in our
F-18
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
earnings, but not securities that are antidilutive, including stock options with an exercise price greater than the average market
price of our common stock.
Our unvested restricted stock awards, or RSAs, contain non-forfeitable rights to dividends, whether paid or unpaid. As a
result, our RSAs are considered participating securities because their holders have the right to participate in earnings with common
stockholders. We use the two-class method to allocate net income between common shares and other participating securities.
As presented for the six months ended December 31, 2015 and the six months ended June 30, 2015, we did not include 2.2
million and 4.8 million stock options, respectively, in our calculation of diluted net (loss) income from continuing operations per
common share because their effect would have been antidilutive. In addition, for the six months ended December 31, 2015, we
did not include an immaterial amount of restricted common shares in our calculation of diluted net (loss) income from continuing
operations per common share because their effect would have been antidilutive. As presented for the years ended December 31,
2014 and 2013, we did not include 5.4 million or 10.8 million stock options, respectively, and 0.9 million or 2.8 million in restricted
common shares, respectively, in our calculation of diluted net loss from continuing operations per common share because their
effect would have been antidilutive to our net loss from continuing operations per common share for those periods.
Income Taxes. We account for income taxes using the asset and liability method, under which we recognize deferred income
taxes for the tax consequences attributable to differences between the financial statement carrying amounts and the tax bases of
existing assets and liabilities, as well as for tax loss carryforwards and tax credit carryforwards. We measure deferred tax assets
and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recoverable or settled. We recognize the effect on deferred taxes of a change in tax rates in income in the period
that includes the enactment date. We recognize a valuation allowance on deferred tax assets unless it is determined that it is “more-
likely-than-not” that the asset will be realized.
Reclassifications. We have reclassified some prior period amounts in our consolidated financial statements to conform to
our current presentation.
New Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board, or the FASB, issued
Accounting Standards Update, or ASU, No. 2014-09, "Revenue from Contracts with Customers," which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.
This new authoritative guidance will replace most existing revenue recognition guidance when it becomes effective. The new
standard is effective on January 1, 2018, and early application is permitted on January 1, 2017. The standard permits the use of
either the retrospective or cumulative effect transition method. We are evaluating the effect that the new revenue recognition
guidance will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method
nor have we determined the effect of the standard on our ongoing financial reporting.
In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes," requiring all
deferred tax assets and liabilities, and any related valuation allowance, to be classified as noncurrent on the balance sheet. The
classification change for all deferred taxes as non-current simplifies entities’ processes as it eliminates the need to separately
identify the net current and net noncurrent deferred tax asset or liability in each jurisdiction and allocate valuation allowances. We
early adopted this standard in the fourth quarter of 2015 and applied the requirements retroactively to all periods presented. The
adoption of this standard resulted in the reclassification of $39.1 million from current deferred tax assets and $0.2 million from
noncurrent deferred tax assets to a $39.3 million reduction in noncurrent deferred tax liabilities in our consolidated balance sheet
as of December 31, 2014.
In May 2015, the FASB issued ASU No. 2015-07, "Fair Value Measurement: Disclosures for Investments in Certain Entities
That Calculate Net Asset Value per Share (or Its Equivalent)." This guidance eliminates the requirement to categorize investments
within the fair value hierarchy if their fair value is measured using the net asset value per share practical expedient in the FASB’s
fair value measurement guidance. We reviewed this authoritative guidance and have elected to early adopt as of the fourth quarter
of 2015. We have applied the requirements of this guidance retroactively to all periods presented. The adoption of this standard
did not have a material impact on our financial statements.
In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory." This guidance replaces the
lower of cost or market test with a lower of cost and net realizable value test, which is intended to simplify the measurement of
inventories. This standard is effective for periods beginning after December 15, 2016. We early adopted this standard as of the
fourth quarter of 2015 and plan to apply the requirements of this guidance prospectively. We do not expect the adoption of this
standard to have a material impact on our financial statements.
F-19
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.
Impairment, Restructuring and Other Charges
Total impairment, restructuring and other charges for the six months ended December 31, 2015 and the six months ended
June 30, 2015, as well as for the years ended December 31, 2014 and 2013 were as follows (in thousands):
Successor
Company
Six Months
Ended
December 31,
Six Months
Ended June 30,
Predecessor Company
Brazil
Corporate
Total impairment, restructuring and other charges
Asset Impairments.
2015
2015
$
$
23,968
8,340
32,308
$
$
28,072
8,720
36,792
$
$
Year Ended December 31,
2014
42,271
63,393
105,664
$
$
2013
24,515
97,063
121,578
During the fourth quarter of 2015, we reviewed our Nextel Brazil segment for potential impairment using a probability-
weighted cash flow analysis. Our estimation of undiscounted future cash flows was partially based on assumptions that we will
be able to fund our business plan and that it is not probable that our Nextel Brazil segment will be disposed of. Based on our current
estimated undiscounted future cash flows, we determined that the carrying value of our Nextel Brazil segment is recoverable.
During the six months ended December 31, 2015 and the six months ended June 30, 2015, we recognized $12.6 million and
$31.1 million in non-cash asset impairment charges, the majority of which related to the shutdown or abandonment of transmitter
and receiver sites that are no longer required, retail store closures related to the realignment of distribution channels and the
discontinuation of certain information technology projects in Brazil and at the corporate level.
In 2014, we evaluated strategic options for the next generation of our push-to-talk services and determined that, for one of
these options, further development was no longer probable. As a result, we recognized a $42.8 million asset impairment charge
which was recognized at the corporate level.
We also recognized a $6.4 million asset impairment charge at the corporate level related to the sale of our corporate aircraft
in 2014.
During 2014, Nextel Brazil recognized $21.9 million in asset impairment charges, the majority of which related to the
shutdown or abandonment of transmitter and receiver sites and retail store closures related to the realignment of its distribution
channels.
In 2013, we discontinued the use of software previously developed to support our customer relationship management systems.
As a result of this evaluation, we recognized an asset impairment charge of $76.3 million at the corporate level.
We also recognized a $5.9 million asset impairment at the corporate level in 2013 related to the discontinuation of the
development of certain network features.
Restructuring and Other Charges.
During the six months ended December 31, 2015, Nextel Brazil recognized $8.4 million in restructuring charges related to
future lease costs for certain transmitter and receiver sites that are no longer necessary in our business plan. In addition, during
the six months ended December 31, 2015, we recognized $9.9 million in severance and other related costs in Brazil and at the
corporate level as a result of the separation of employees. These actions included the termination of:
• approximately 45 employees at the corporate level, all of whom were notified in the fourth quarter of 2015 of their
severance date; and
• approximately 700 employees in Brazil, all of whom were severed in the second half of 2015.
F-20
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We also recognized $5.4 million in severance and other related costs at the corporate level during the six months ended June
30, 2015 related to the separation of approximately 30 employees.
During 2014, we recognized $27.7 million in severance and related costs as a result of the termination of employees at the
corporate level and in Brazil. These actions included the separation of:
• approximately 85 employees at the corporate level, all of whom were severed in the second quarter of 2014; and
• approximately 800 employees in Brazil, all of whom were severed in the third quarter of 2014.
We terminated these employees in an effort to streamline our organizational structure and reduce general and administrative
expenses.
In 2009, we outsourced our network operations to a third party. During 2013, we restructured and amended this agreement,
reduced the scope of the services provided, added terms to facilitate the transition of those services to us and established the terms
on which further transitions of services and the termination of the arrangements could be implemented in each of our markets.
Under the outsourcing agreements in effect prior to this restructuring, we classified a portion of the base contractual fees as a
prepayment and were recognizing this prepayment over the life of the previous agreement. As a result of this restructuring, we
recognized a non-cash charge of $23.8 million relating to the write-off of the remainder of the prepayment during 2013. In 2014,
we settled certain refund claims related to this outsourcing agreement, which resulted in a restructuring benefit of $3.2 million.
During 2014, we recognized a $4.5 million charge related to the cessation of our utilization of certain network services in
Brazil.
In 2013, we recognized $8.0 million in restructuring charges, the majority of which was related to the separation of
approximately 50 employees at the corporate level, in connection with an organizational realignment plan that we designed to
simplify the roles and responsibilities of both our headquarters and market organizations and to reduce general and administrative
expenses.
During 2013, we recognized $6.8 million in contract termination costs incurred in connection with the sublease of certain
excess space located in one of our corporate office buildings.
As of December 31, 2015, we had $3.2 million in unrecognized restructuring costs related to future service by employees
that have been notified of their severance dates. In addition, as of December 31, 2015, the total of our accrued restructuring charges
that we expect to pay in 2016 and 2017 was as follows (in thousands):
Balance, January 1, 2015 — Predecessor Company
$
7,572
Restructuring and other charges
Cash payments
Balance, June 30, 2015 — Predecessor Company
$
Restructuring and other charges
Cash payments
Balance, December 31, 2015 — Successor Company $
5,719
(8,457)
4,834
19,679
(7,654)
16,859
F-21
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5.
Discontinued Operations
Sale of Nextel Argentina. On September 11, 2015, NII Mercosur Telecom, S.L.U. and NII Mercosur Moviles, S.L.U., both
of which are indirect subsidiaries of NII Holdings, entered into a binding agreement with Grupo Clarin relating to the sale of all
of the outstanding equity interests of Nextel Communications Argentina, S.R.L., or Nextel Argentina. This agreement provided
for aggregate cash consideration of $178.0 million, of which $159.0 million was paid at signing in connection with the transfer of
a 49% equity interest in Nextel Argentina and the grant of a call option that allowed Grupo Clarin or any of its affiliates to acquire
the remaining 51% equity interest in Nextel Argentina upon receipt of required approvals from the regulatory authorities in
Argentina. We received the remaining cash consideration in October 2015, including $6.0 million deposited in escrow to satisfy
potential indemnification claims. On January 27, 2016, the agreement was amended to permit Grupo Clarin or any of its affiliates
to exercise the right to acquire the remaining 51% equity interest prior to receiving regulatory approval, and Grupo Clarin and its
affiliate immediately acquired the remaining 51% of Nextel Argentina for no additional proceeds.
Sale of Nextel Mexico. On April 30, 2015, we, together with our wholly-owned subsidiary NIU Holdings LLC, completed
the sale of our Mexican operations to New Cingular Wireless, an indirect subsidiary of AT&T. The transaction was structured as
a sale of all of the outstanding stock of the parent company of Comunicaciones Nextel de Mexico, S.A. de C.V., or Nextel Mexico,
for a purchase price of $1.875 billion, including $187.5 million deposited in escrow to satisfy potential indemnification claims.
The net proceeds from this sale were $1.448 billion after deducting Nextel Mexico's outstanding indebtedness and applying other
specified purchase price adjustments. The amount held in escrow is available for the indemnification of defined claims through
April 2017. As of December 31, 2015, we had received notification for one indemnification claim in the amount of $6.5 million,
and we intend to vigorously contest this claim.
Sale of Nextel Chile. In August 2014, our wholly-owned subsidiaries NII Mercosur Telecom, S.L., NII Mercosur Moviles,
S.L. and NII International Telecom S.C.A. completed the sale of all of the outstanding equity interests of our wholly-owned
subsidiary, Nextel Chile S.A., or Nextel Chile, to Fucata, S.A., a venture comprised of Grupo Veintitres and Optimum Advisors,
for a de minimus amount.
Sale of Nextel Peru. In August 2013, our wholly-owned subsidiaries NII Mercosur Telecom, S.L. and NII Mercosur Moviles,
S.L., completed the sale of all of the outstanding equity interests of our wholly-owned subsidiary, Nextel del Peru, S.A., or Nextel
Peru, to Empresa Nacional de Telecomunicaciones S.A. and one of its subsidiaries, Entel Inversiones, S.A., which we refer to
collectively as Entel. Entel has provided notice of potential claims for amounts greater than the $34.4 million that remained in
escrow as of December 31, 2015 to satisfy these claims. We believe that the requirements for payment of certain indemnification
claims have not been met at this time, and we intend to vigorously contest those claims. As of December 31, 2015, we accrued an
immaterial amount related to the potential settlement of certain claims. The time period for additional claims against the amount
held in escrow lapsed in February 2015.
In connection with the sales of Nextel Argentina, Nextel Mexico, Nextel Chile and Nextel Peru, we have reported the results
of these operating companies as discontinued operations in our consolidated financial statements. Accordingly, we reclassified
Nextel Argentina's, Nextel Mexico's, Nextel Chile's and Nextel Peru's results of operations for all periods presented to reflect these
former operating companies as discontinued operations. Unless otherwise noted, amounts included in these notes to our consolidated
financial statements exclude amounts attributable to discontinued operations. The major components of income (loss) from
discontinued operations related to Nextel Argentina, Nextel Mexico, Nextel Chile and Nextel Peru were as follows (in thousands):
F-22
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Successor
Company
Six Months
Ended
December 31,
2015
Predecessor Company
Six Months
Ended June 30,
Year Ended December 31,
$
$
2015
599,038
(675,245)
(49,974)
(126,181)
(8,065)
(134,246)
2014
1,878,362
(2,423,218)
(148,641)
(693,497)
(69,115)
(762,612)
2013
2,774,505
(2,950,596)
(114,299)
(290,390)
(155,936)
(446,326)
Operating revenues
Operating expenses
Other income (expense), net
Income (loss) before income tax provision
Income tax provision
$
$
75,450
(60,863)
1,159
15,746
(4,770)
10,976
Income (loss) on disposal of Nextel
Argentina, Nextel Mexico, Nextel Chile
and Nextel Peru
Income (loss) from discontinued
operations, net of income taxes
632
355,360
29,585
(2,848)
$
11,608
$
221,114
$
(733,027) $
(449,174)
The components of assets and liabilities related to discontinued operations as of December 31, 2014, all of which related
to Nextel Argentina and Nextel Mexico, consisted of the following (in thousands):
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable, less allowance for doubtful accounts of
$24,266
Handset and accessory inventory
Prepaid expenses and other, net
Total current assets
Property, plant and equipment, net
Intangible assets, net
Other assets, net
Total assets
LIABILITIES
Accounts payable
Accrued expenses and other
Deferred revenues
Current portion of long-term debt
Long-term debt
Deferred income taxes and other long-term liabilities
Total liabilities
$
$
$
239,407
43,548
142,545
141,748
130,731
697,979
1,080,228
133,971
83,344
1,995,522
147,162
219,369
60,176
60,143
526,980
97,928
$
1,111,758
F-23
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6.
Supplemental Financial Statement Information
Prepaid Expenses and Other.
The components of our prepaid expenses and other are as follows:
Cash collateral related to performance bonds
Value-added taxes
Other prepaid assets
Other current assets
Property, Plant and Equipment, Net.
The components of our property, plant and equipment, net are as follows:
Land
Building and leasehold improvements
Network equipment, communication towers and network software
Software, office equipment, furniture and fixtures and other
Less: Accumulated depreciation and amortization
Construction in progress
Successor
Company
Predecessor
Company
December 31,
2015
2014
(in thousands)
$
$
47,450
33,467
11,934
39,683
—
101,283
52,323
44,860
$
132,534
$
198,466
Successor
Company
Predecessor
Company
December 31,
2015
2014
(in thousands)
$
2,655
$
11,765
492,814
65,747
(59,987)
512,994
42,029
3,903
50,174
2,170,033
378,256
(1,392,528)
1,209,838
142,867
$
555,023
$
1,352,705
See Note 2 for more information regarding the valuation of our property, plant and equipment in connection with the
implementation of fresh start accounting.
Intangible Assets, Net.
Our intangible assets, net include the following:
Successor Company
December 31, 2015
Predecessor Company
December 31, 2014
Average
Useful Life
(Years)
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Value
(in thousands)
Gross
Carrying
Value
Accumulated
Amortization
Net Carrying
Value
Amortizable intangible assets:
Licenses
Tradename
Customer relationships
26
26
4
$ 850,818
38,700
23,042
$ 912,560
$ (16,314) $ 834,504
37,956
20,162
$ (19,938) $ 892,622
(744)
(2,880)
$ 783,783
—
—
$ 783,783
$ (113,630) $ 670,153
—
—
$ (113,630) $ 670,153
—
—
F-24
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014, the balance of our indefinite lived intangible assets was $18.0 million. See Note 2 for more
information regarding the valuation of our intangible assets in connection with the implementation of fresh start accounting. In
addition, the weighted average useful lives of the intangible assets we acquired during the six months ended December 31, 2015
and June 30, 2015 were 26 and 15 years, respectively.
Based on the carrying amount of our intangible assets as of December 31, 2015 and current exchange rates, we estimate
amortization expense for each of the next five years to be as follows (in thousands):
Years
2016
2017
2018
2019
2020
$
Estimated
Amortization
Expense
39,950
39,950
39,950
37,070
34,189
Actual amortization expense to be reported in future periods could differ from these estimates as a result of additional
acquisitions of intangibles, as well as changes in foreign currency exchange rates and other relevant factors.
Accrued Expenses and Other.
The components of our accrued expenses and other are as follows:
Non-income based taxes
Network system and information technology
Payroll related items and commissions
Capital expenditures
Other
Other Assets.
The components of our other long-term assets are as follows:
Restricted cash
Equity interest in Nextel Argentina
Cash collateral related to performance bonds
Other
F-25
Successor
Company
Predecessor
Company
December 31,
2015
2014
(in thousands)
$
$
33,097
32,079
31,734
25,182
42,054
43,535
38,829
64,459
139,946
148,774
$
262,038
$
337,651
Successor
Company
Predecessor
Company
December 31,
2015
2014
(in thousands)
$
275,235
$
88,404
108,148
94,236
76,622
—
119,682
164,826
$
554,241
$
372,912
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Cash.
The components of our restricted cash, the majority of which were classified as other long-term assets in our consolidated
balance sheets as of December 31, 2015 and 2014, are as follows:
Cash in escrow — Nextel Mexico sale
Brazil judicial deposits
Cash in escrow — Nextel Peru sale
Short-term cash in escrow — Nextel Argentina sale
Other
Successor
Company
Predecessor
Company
December 31,
2015
2014
(in thousands)
$
186,593
$
54,289
34,353
6,000
—
—
46,215
41,782
—
407
$
281,235
$
88,404
Accumulated Other Comprehensive Loss. As of December 31, 2015 and 2014, the tax impact on our accumulated other
comprehensive loss was not material. The components of our accumulated other comprehensive loss, net of taxes, are as follows:
Cumulative foreign currency translation adjustment
Other
Successor
Company
Predecessor
Company
December 31,
2015
2014
(in thousands)
$
$
(245,779)
—
(245,779)
$
$
(1,326,003)
(5,350)
(1,331,353)
F-26
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Cash Flow Information.
Capital expenditures
Cash paid for capital expenditures, including capitalized
interest
Change in capital expenditures accrued and unpaid or
financed, including accreted interest capitalized
Interest costs
Interest expense, net
Interest capitalized
Fair value of licenses and other assets acquired
Cash paid for interest, net of amounts capitalized
Cash paid for income taxes
Successor
Company
Six Months
Ended
December 31,
Predecessor Company
Six Months
Ended June 30,
Year Ended December 31,
2015
2015
2014
2013
(in thousands)
$
$
$
$
$
$
$
76,630
$
88,485
$
326,246
$
387,286
(4,018)
72,612
55,563
2,142
57,705
4,018
59,914
$
$
$
$
$
(19,282)
69,203
82,820
2,556
85,376
5,391
65,598
$
$
$
$
$
(92,884)
233,362
372,904
27,712
400,616
31,861
261,161
$
$
$
$
$
— $
— $
— $
88,103
475,389
455,539
70,891
526,430
52,601
348,509
20,954
For the six months ended December 31, 2015, we had $25.0 million in non-cash investing activities, representing U.S.
treasury notes that we received and cash placed in escrow to secure our indemnification obligations in connection with the sale
of Nextel Argentina. For the six months ended June 30, 2015, we had the following non-cash investing and financing activities:
• $2,067.7 million in Successor Company common stock that we issued in partial satisfaction of certain claims that were
settled in connection with our emergence from Chapter 11 (see Note 2 for more information); and
• $187.5 million in restricted cash that we received, which represents cash placed in escrow to secure our indemnification
obligations in connection with the sale of Nextel Mexico.
For the years ended December 31, 2014 and 2013, we had $170.9 million and $34.8 million, respectively, in non-cash
financing activities, primarily related to the short-term financing of imported handsets and infrastructure in Brazil and co-location
capital lease obligations on our communication towers in Brazil.
F-27
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.
Debt
As a result of the implementation of fresh start accounting in connection with our emergence from Chapter 11, we remeasured
the components of our debt to their fair values as of June 30, 2015. As a result, the carrying values of our bank loans do not represent
the outstanding principal balances. See Note 2 for more information. The components of our debt are as follows:
Brazil equipment financing
Brazil bank loans
Brazil capital lease and tower financing obligations
Other
Total debt
Less: current portion
Successor
Company
Predecessor
Company
December 31,
2015
2014
(in thousands)
$
339,850
$
240,396
84,295
526
665,067
(582,420)
82,647
$
$
366,937
343,915
213,163
1,256
925,271
(717,427)
207,844
Brazil Bank Loans. In December 2011, Nextel Brazil borrowed the equivalent of $341.2 million from a Brazilian bank and
utilized the proceeds of this borrowing to repay a portion of the unpaid purchase price relating to the spectrum it acquired in June
2011. Because this loan is denominated in Brazilian reais, the payments for principal and interest will fluctuate in U.S. dollars
based on changes in the exchange rate of the Brazilian real relative to the U.S. dollar. In October 2012, Nextel Brazil entered into
an additional Brazilian real-denominated bank loan agreement, under which Nextel Brazil borrowed the equivalent of approximately
$196.9 million.
As of the December 31, 2014 measurement date, we were not in compliance with the net debt financial covenant included
in each of Nextel Brazil's outstanding local bank loans. As a result, we classified these bank loans as current liabilities in our
consolidated balance sheet as of December 31, 2014. In February 2015, Nextel Brazil and the lenders providing the local bank
loans entered into standstill agreements under which the lenders agreed that they would not seek remedies under the provisions
of the agreements related to Nextel Brazil's failure to satisfy the financial covenants in the loan agreements in the period before
September 15, 2015 and that further principal repayment obligations due between the signing date and September 15, 2015 would
be suspended. In addition, the standstill agreements formally committed the lenders to sign further amendments to the terms of
the local bank loans. Among other things, the amendments revised the financial covenants and principal repayment schedule for
the loans, granted the lenders a security interest over amounts held in certain collection accounts maintained with each lender and
increased the interest margin on the loans from approximately 115% of the local Brazilian borrowing rate to approximately 140%
of this local rate. Certain of these amendments were implemented in connection with the standstill agreements and the remainder
became effective in connection with our emergence from Chapter 11 proceedings. Subsequent to the amendments, both of these
loan agreements have floating interest rates equal to 139.54% of the local Brazilian borrowing rate (19.74% as of December 31,
2015), have monthly repayment terms beginning in June 2016 and a final maturity of October 2019.
The amendments provided for a "covenant holiday" through December 31, 2015, during which time we were not required
to comply with the financial covenants outlined in Nextel Brazil's local bank loan agreements. Going forward, Nextel Brazil must
maintain a net debt to earnings before interest, taxes, depreciation and amortization, or EBITDA, ratio over the trailing 12 months
of no greater than 4.0 as of June 30, 2016, 3.5 as of December 31, 2016 and 2.5 as of June 30, 2017 and on each six-month
anniversary thereafter.
In connection with our emergence from Chapter 11, we made a number of changes within our senior management team and
modified our business plan to reflect our available cash resources and the impact of the current and expected economic and
competitive conditions in Brazil on both our subscriber growth and revenues, and to align our costs with this revised outlook.
Based on our current business plan, we believe that it is unlikely that we will satisfy the applicable financial covenant included in
both of Nextel Brazil's local bank loan agreements at the June 30, 2016 measurement date.
If we are unable to develop or implement changes to our business that allow us to meet this covenant, we will need to
refinance or negotiate amendments to these financing arrangements or secure waivers from the lenders in order to avoid a potential
F-28
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
default under the loan agreements. If a default occurs, the lenders could require us to repay the amounts outstanding under these
arrangements. As a result of this uncertainty, we have continued to classify the amounts outstanding under Nextel Brazil's local
bank loans as current liabilities in our consolidated balance sheet as of December 31, 2015. As of December 31, 2015, we had
$233.8 million principal amount outstanding under Nextel Brazil's local bank loans.
Brazil Equipment Financing Facility. In April 2012, Nextel Brazil entered into a U.S. dollar-denominated loan agreement
with the China Development Bank, under which Nextel Brazil was able to borrow up to $500.0 million to finance infrastructure
equipment and certain other costs related to the deployment of its WCDMA network. A portion of this financing has a floating
interest rate based on LIBOR plus 2.90% (3.75% and 3.16% as of December 31, 2015 and 2014, respectively), and the remainder
of this financing has a floating interest rate based on LIBOR plus 1.80% (2.65% and 2.06% as of December 31, 2015 and 2014,
respectively). This financing is guaranteed by NII Holdings and may limit our ability to pay dividends and other upstream payments.
Loans under this agreement have a three-year borrowing period, a seven-year repayment term that began in August 2015 and a
final maturity of June 2022. Assets purchased using the amounts borrowed under Nextel Brazil's equipment financing facility are
pledged as collateral.
In December 2014, Nextel Brazil and the lender under the equipment financing facility agreed to amend this facility to
remove all financial covenants beginning with the December 31, 2014 measurement date through the June 30, 2017 measurement
date so that the first measurement date under the amended facility will be December 31, 2017. In exchange for that covenant relief,
Nextel Brazil granted the lender preferential rights to the amounts held in certain bank accounts. Because of the uncertainty
regarding our ability to meet the financial covenant contained in Nextel Brazil's local bank loans discussed above and certain
cross-default provisions that are included in the loan agreement under Nextel Brazil's equipment financing facility, we have
continued to classify the amount outstanding under this facility as a current liability in our consolidated balance sheet as of December
31, 2015. As of December 31, 2015, we had $342.5 million in principal amount outstanding under Nextel Brazil's equipment
financing facility. We do not have the ability to borrow additional amounts under this equipment financing facility.
Capital Leases and Tower Financing Obligations.
2013 Tower Transactions. In December 2013, Nextel Brazil sold 1,940 communication towers to American Tower for
proceeds based on foreign currency exchange rates at the time of $348.0 million, subject to purchase price adjustments and
guaranteed by NIIT, which is a wholly-owned subsidiary of NII Holdings. Nextel Brazil also sold 103 towers for proceeds of $18.6
million in June 2014, subject to purchase price adjustments and guaranteed by NIIT. In October 2014, upon the finalization of the
purchase price adjustments, Nextel Brazil completed the sale of all of these towers and began accounting for this transaction as a
sale-leaseback. As a result, Nextel Brazil recognized an immaterial loss on the sale of the towers as a component of operating
income in the fourth quarter of 2014.
Site-Related Capital Lease Obligations. We have entered into various agreements under which we are entitled to lease space
on towers or other structures owned by third parties and to install our transmitter and receiver equipment in that space.
Tower Financing Obligations. From 2002 to 2008, we sold and subsequently leased back space on certain transmitter and
receiver sites in Brazil. Due to our continuing involvement with these properties, we account for these transactions as financing
arrangements. As a result, we did not recognize any gains from the sales of these towers under these arrangements, and we maintain
the tower assets on our consolidated balance sheets. In addition, we recognized the proceeds received as financing obligations.
We recognize ground rent payments as operating expenses in cost of service and tower base rent payments as interest expense and
a reduction in the financing obligation using the effective interest method. In addition, we recognize co-location rent payments
made by the third party lessees to the owner of the site as other operating revenues because of our continuing involvement with
the tower assets. During the six months ended December 31, 2015 and the six months ended June 30, 2015, we recognized $3.6
million and $7.8 million in other operating revenues, respectively, related to these co-location lease arrangements. In addition,
during the years ended December 31, 2014 and 2013, we recognized $19.8 million and $19.7 million, respectively, in other operating
revenues related to these co-location lease arrangements.
Corporate Aircraft Lease. In 2009, we entered into an agreement to lease a corporate aircraft, which we accounted for as
a capital lease. In June 2014, we entered into an agreement to sell this corporate aircraft for $32.5 million. In addition, in conjunction
with the sale, we exercised our pre-existing option to purchase this aircraft from the lessor and immediately terminated the lease.
In connection with the sale of the corporate aircraft and the termination of the associated lease, we recognized a $6.4 million asset
impairment charge in the second quarter of 2014.
F-29
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Debt Maturities.
Because it is unlikely that we will be able to satisfy the applicable financial covenant in both of our local bank loans in Brazil
as of the next compliance date on June 30, 2016 and because of the associated cross-default provisions included in Nextel Brazil's
equipment financing facility, we classified the principal amounts outstanding under these facilities as due in 2016 for purposes of
the table below. For the years subsequent to December 31, 2015, scheduled annual maturities of all debt outstanding are as follows
(in thousands):
Year
2016
2017
2018
2019
2020
Thereafter
Total
8.
Fair Value Measurements
Nextel Argentina.
Principal
Repayments
$
576,723
3,651
3,637
991
1,661
74,426
$
661,089
On September 11, 2015, two of our indirect subsidiaries entered into a binding agreement with Grupo Clarin relating to the
sale of all of the outstanding equity interests of Nextel Argentina. In connection with the initial agreement, we issued a non-
recourse promissory note in the amount of $85.0 million and pledged the remaining 51% of the equity interests in Nextel Argentina
to Grupo Clarin. We recorded our retained 51% interest in Nextel Argentina as an equity method investment under the fair value
option, which is included as a component of other assets in our consolidated balance sheet. As of December 31, 2015, we estimated
the fair value of this investment to be $108.1 million. In addition, as of December 31, 2015, we recorded the non-recourse promissory
note as a component of other long-term liabilities in our consolidated balance sheet at its estimated fair value of $108.1 million.
This fair value estimate was based on the $178.0 million purchase price paid by Grupo Clarin, as adjusted for changes in excess
cash from September 11, 2015 through December 31, 2015. On January 27, 2016, the agreement was amended to permit Grupo
Clarin or any of its affiliates to exercise the right to acquire the remaining 51% equity interest prior to receiving regulatory approval,
and Grupo Clarin and its affiliate immediately acquired the remaining 51% of Nextel Argentina for no additional proceeds. In
connection with the completion of this transaction, the promissory note was canceled on January 27, 2016.
Available-for-Sale Securities.
As of December 31, 2015 and 2014, available-for-sale securities held by Nextel Brazil included $56.2 million and $81.4
million, respectively, in investment funds and $9.3 million and $28.6 million, respectively, in certificates of deposit with a Brazilian
bank. These funds invest primarily in Brazilian government bonds, long-term, low-risk bank certificates of deposit and Brazilian
corporate debentures. During the six months ended December 31, 2015 and the six months ended June 30, 2015, as well as during
the years ended December 31, 2014 and 2013, we did not have any material unrealized gains or losses associated with these
investments.
We account for our available-for-sale securities at fair value. The fair value of our Brazilian certificates of deposit is based
on their current redemption amount and we classify these certificates of deposit within Level 2 of the fair value hierarchy. The
fair value of Nextel Brazil's investment funds is measured based on the funds' net asset value as a practical expedient, which is
excluded from the fair value hierarchy.
F-30
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Held-to-Maturity Investments.
We periodically invest some of our cash holdings in certain securities that we intend to hold to maturity. As of December
31, 2015, held-to-maturity investments included $18.1 million in short-term investments at NIIT in U.S. treasury notes. We account
for held-to-maturity securities at amortized cost, which approximates the fair value observed in the market. These securities matured
in February 2016. As of December 31, 2015, the fair value of our held-to-maturity investments was $18.0 million.
Debt Instruments.
The carrying amounts and estimated fair values of our debt instruments are as follows:
Successor Company
Predecessor Company
December 31,
2015
2014
Principal
Amount
Outstanding
Carrying
Amount
Estimated
Fair Value
Principal
Amount
Outstanding
Carrying
Amount
Estimated
Fair Value
(in thousands)
NII Capital Corp. senior notes, net (1) $
— $
— $
— $ 2,750,000
$ 2,750,000
$
648,500
NII International Telecom, S.C.A.
senior notes, net (1)
Brazil equipment financing
Bank loans and other
—
342,475
234,320
—
339,850
240,922
—
1,600,000
1,600,000
1,166,500
340,189
229,366
366,937
345,171
366,937
345,171
337,295
275,655
$
576,795
$
580,772
$
569,555
$ 5,062,108
$ 5,062,108
$ 2,427,950
__________________________
(1) As of December 31, 2014, both our senior notes held by NII Capital Corp. and our senior notes held by NII International Telecom S.C.A.
were classified as liabilities subject to compromise in our consolidated balance sheet.
We estimated the fair values of our senior notes using quoted market prices. Because our fair value measurement is based
on market prices in an active market, we consider this Level 1 in the fair value hierarchy.
Bank loans and other consists primarily of loans with certain local banks in Brazil. We estimated the fair value of these bank
loans, as well as the fair value of our equipment financing facility in Brazil, 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.
As of December 31, 2015, we no longer had publicly traded bonds whose yield in prior periods was a significant input into our
fair value measurement. As a result, we now consider our bank loans and other to be Level 3 in the fair value hierarchy rather than
Level 2, which was what we considered these bank loans and other in prior periods.
Derivative Instruments.
We occasionally enter into derivative transactions for risk management purposes. We have not and will not enter into any
derivative transactions for speculative or profit generating purposes. We record all derivative instruments as either assets or
liabilities on our consolidated balance sheet at their fair value. As of December 31, 2015 and 2014, Nextel Brazil had an immaterial
amount of derivative instruments that we classified as short-term investments in our consolidated balance sheets. We consider this
measurement to be Level 3 in the fair value hierarchy. Nextel Brazil entered into foreign currency option agreements to manage
the foreign currency exposures associated with the forecasted purchase of handsets and other U.S. dollar-denominated payments.
We do not apply hedge accounting to these derivative instruments. As a result, we have included all changes in the fair value of
these instruments as a component of other expense, net in our consolidated statement of comprehensive (loss) income. For the six
months ended December 31, 2015 and June 30, 2015, Nextel Brazil recognized $5.2 million and $6.3 million in net realized gains,
respectively, resulting from the changes in the estimated fair value of these derivative instruments. The gains and losses we
recognized in the years ended December 31, 2014 and 2013 were not material. In addition, for the six months ended December
31, 2015 and June 30, 2015, Nextel Brazil recorded an immaterial amount of unrealized losses resulting from the changes in the
estimated fair value of these derivative instruments.
F-31
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other Financial Instruments.
The carrying values of cash and cash equivalents, accounts receivable and accounts payable contained in our consolidated
balance sheets approximate their fair values due to the short-term nature of these instruments.
9.
Commitments and Contingencies
Capital and Operating Lease Commitments.
We have co-location capital lease obligations on some of our transmitter and receiver sites in Brazil. See Note 7 for further
information regarding these agreements.
We lease various cell sites, office facilities and other assets under operating leases. Some of these leases provide for annual
increases in our rent payments based on changes in locally-based consumer price indices. The remaining terms of our cell site
leases range from less than one to fifteen years and are generally renewable for additional terms. The remaining terms of our office
leases range from less than one to ten years. During the six months ended December 31, 2015 and the six months ended June 30,
2015, total rent expense under operating leases was $76.4 million and $93.4 million, respectively. In addition, during the years
ended December 31, 2014 and 2013, total rent expense under operating leases was $229.7 million and $193.3 million, respectively.
For years subsequent to December 31, 2015, future minimum payments for all capital and operating lease obligations that
have initial or remaining noncancelable lease terms exceeding one year, net of rental income, are as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Total minimum lease payments
Less: imputed interest
Total
Capital
Leases
Operating
Leases
$
45,410
$
86,931
$
46,005
39,500
34,381
34,448
554,347
754,091
(669,796)
84,295
$
80,562
73,099
68,444
64,017
491,101
864,154
—
$
864,154
$
Total
132,341
126,567
112,599
102,825
98,465
1,045,448
1,618,245
(669,796)
948,449
Handset, Equipment and Other Commitments.
We are a party to purchase agreements with various suppliers, under which we have committed to purchase handsets,
equipment and network services that will be used or sold in the ordinary course of business. As of December 31, 2015, we are
committed to purchase $536.8 million in total under these arrangements, $334.0 million of which we are committed to pay in
2016, $146.7 million of which we are committed to pay in 2017 and 2018, and the remaining $56.1 million of which we are
committed to pay in 2019 and 2020. These amounts do not represent our entire anticipated purchases in the future, but represent
only those items that are the subject of contractual obligations. Our commitments are generally determined based on noncancelable
quantities or termination amounts. We also purchase products and services as needed with no firm commitment. Amounts actually
paid under some of these agreements will likely be higher due to variable components of these agreements. The more significant
variable components that determine the ultimate obligation owed include such items as hours contracted, subscribers and other
factors. In addition, we are a party to various arrangements that are conditional in nature and obligate us to make payments only
upon the occurrence of certain events, such as the delivery of functioning software or a product.
Specifically, as of December 31, 2015, we are committed to purchase $156.4 million under a handset purchase agreement
with one of our handset suppliers by the end of 2016. We do not expect that we will purchase all of the committed devices, but
we have not recorded a liability for this contract because we do not believe it is probable that we will incur a loss under this handset
purchase agreement.
F-32
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brazil Spectrum Commitment.
In December 2015, Nextel Brazil participated in a spectrum auction and was the successful bidder for 30MHz of spectrum
in the 1.8 GHz band for 455.0 million Brazilian reais, or approximately $116.7 million based on foreign currency exchange rates
at the time. Nextel Brazil received the license agreement on February 16, 2016 and is committed to pay 10% of the total acquisition
price when this license agreement is signed.
Contingencies.
Nextel Brazil has received various assessment notices from state and federal Brazilian authorities asserting deficiencies in
payments related primarily to value-added taxes, excise taxes on imported equipment and other non-income based taxes. Nextel
Brazil has filed various administrative and legal petitions disputing these assessments. In some cases, Nextel Brazil has received
favorable decisions, which are currently being appealed by the respective governmental authority. In other cases, Nextel Brazil's
petitions have been denied, and Nextel Brazil is currently appealing those decisions. Nextel Brazil also had contingencies related
to certain regulatory, civil and labor-related matters as of December 31, 2015 and 2014.
As of December 31, 2015 and 2014, Nextel Brazil had accrued liabilities of $57.7 million and $69.7 million, respectively,
related to contingencies, all of which were classified in accrued contingencies reported as a component of other long-term liabilities,
of which $5.4 million and $8.0 million related to unasserted claims, respectively. We estimated the reasonably possible losses
related to matters for which Nextel Brazil has not accrued liabilities, as they are not deemed probable, to be approximately $300.0
million as of December 31, 2015. We are continuing to evaluate the likelihood of probable and reasonably possible losses, if any,
related to all known contingencies. As a result, future increases or decreases to our accrued liabilities may be necessary and will
be recorded in the period when such amounts are determined to be probable and reasonably estimable.
In addition, as of December 31, 2015, we estimated the reasonably possible losses related to potential indemnification claims
in connection with the sales of Nextel Mexico and Nextel Peru for which we have not accrued liabilities, as they are not deemed
probable, to be approximately $41.0 million.
Legal Proceedings.
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.
10.
Capital Stock
Common Stock. Holders of our common stock are entitled to one vote per share on all matters submitted for action by the
stockholders and share equally, share for share, if dividends are declared on the common stock. If our Company is partially or
completely liquidated, dissolved or wound up, whether voluntarily or involuntarily, the holders of the common stock are entitled
to share ratably in the net assets remaining after payment of all liquidation preferences, if any, applicable to any outstanding
preferred stock. There are no redemption or sinking fund provisions applicable to the common stock.
Undesignated Preferred Stock. Our Board of Directors has the authority to issue undesignated preferred stock of one or
more series and in connection with the creation of such series, to fix by resolution the designation, voting powers, preferences and
relative, participating, optional and other special rights of such series, and the qualifications, limitations and restrictions thereof.
As of December 31, 2015, we had not issued any shares of undesignated preferred stock.
Common Stock Reserved for Issuance. In connection with our emergence from Chapter 11, our Board of Directors adopted
an incentive compensation plan, which contemplates grants of up to 5,263,158 shares of our new common stock to directors and
employees of the reorganized company, including potential grants of restricted stock, restricted stock units and options to purchase
shares of our new common stock. Under the 2015 Incentive Compensation Plan, we had 194,807 shares of our common stock
reserved for future issuance as of December 31, 2015, which assumes that the restricted stock units outstanding as of December
31, 2015 are settled in cash. As of December 31, 2015, common stock reserved for future issuance does not include 38,093 restricted
stock units that were issued to employees of Nextel Argentina in 2015 that, if settled in shares of common stock, would reduce
the shares available under our 2015 Incentive Compensation Plan by 57,140 shares. Subsequent to December 31, 2015, the Board
of Directors agreed to settle the restricted stock units in cash.
F-33
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11.
Income Taxes
The components of (loss) income from continuing operations before income taxes and the related income tax benefit
(provision) are as follows (in thousands):
U.S.
Non-U.S.
Total
Current:
Federal
State, net of Federal tax benefit
Foreign
Total current income tax benefit (provision)
Deferred:
Federal
State, net of Federal tax benefit
Foreign
Total deferred income tax benefit (provision)
Total income tax benefit (provision)
$
Successor Company
Predecessor Company
Six Months Ended
December 31,
Six Months Ended
June 30,
Year Ended December 31,
2015
2015
2014
2013
$
$
(1,820)
(288,806)
(290,626)
$
$
1,745,628
(224,218)
1,521,410
$
$
(340,545) $
(879,150)
(1,219,695) $
(353,522)
(555,887)
(909,409)
Successor
Company
Predecessor Company
Six Months Ended
December 31,
Six Months Ended
June 30,
2015
2015
Year Ended December 31,
2014
2013
$
— $
— $
— $
—
2,502
2,502
(403)
(45)
2,961
2,513
5,015
$
—
(1,104)
(1,104)
(814)
(91)
—
(905)
(2,009) $
—
(2,924)
(2,924)
(1,846)
(206)
—
(2,052)
(4,976) $
—
—
(22,206)
(22,206)
(1,309)
(146)
(267,355)
(268,810)
(291,016)
A reconciliation of the U.S. statutory Federal income tax rate to our effective tax rate as a percentage of (loss) income from
continuing operations before income tax benefit (provision) is as follows:
Successor
Company
Predecessor Company
Six Months Ended
December 31,
Six Months Ended
June 30,
Year Ended December 31,
Statutory Federal tax rate
Reorganization items
Effect of foreign operations
Change in deferred tax asset valuation allowance
Other, net
Effective tax rate
2015
35%
(46)
—
9
2
—
2014
35%
—
(2)
(35)
2
—
2013
35%
—
(3)
(66)
2
(32)%
2015
35%
—
(12)
(20)
(1)
2%
F-34
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of our deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Net operating losses and capital loss carryforwards
$
5,094,306
$
4,107,058
Successor
Company
Predecessor
Company
December 31,
2015
2014
(in thousands)
Allowance for doubtful accounts
Accrued expenses
Accrual for contingent liabilities
Property, plant and equipment
Leasing related activity
Equity compensation
Long term debt
Inventory reserve
Debt discount
Other
Valuation allowance
Total deferred tax asset
Deferred tax liabilities:
Intangible assets
Unremitted foreign earnings
Total deferred tax liability
Net deferred tax liability
13,644
54,823
18,413
147,774
3,543
701
290,733
1,982
—
34,033
16,246
70,419
21,944
98,254
51,150
48,224
37,017
12,511
16,511
22,185
5,659,952
(5,513,387)
146,565
4,501,519
(4,447,133)
54,386
149,749
—
149,749
(3,184)
$
$
1,634
54,386
56,020
(1,634)
As of December 31, 2015, we did not include any deferred tax liabilities for U.S. federal, state and foreign tax purposes with
respect to future remittances of certain undistributed earnings as we currently have no intention to remit any undistributed earnings
of our foreign subsidiaries in a taxable manner. If our foreign subsidiaries’ undistributed earnings are remitted to the U.S. as taxable
dividends in the future, we could be subject to additional U.S. income taxes (net of allowable foreign tax credits) and foreign
withholding taxes.
As of December 31, 2015, we had $1.4 billion of net operating loss carryforwards for U.S. Federal and state income tax
purposes, which expire in various amounts beginning in 2027 through 2035. Due to our emergence from bankruptcy on June 26,
2015, the timing and manner in which we will utilize the net operating loss carryforwards in any year will be limited relating to
changes in our ownership. The annual limitation is $40.2 million, and some of our net operating loss carryforwards will expire
before use in the future due to this limitation.
As of December 31, 2015, our Brazilian subsidiaries had $947.5 million of net operating loss carryforwards that can be
carried forward indefinitely, but the amount that we can utilize annually is limited to 30% of Brazilian taxable income before the
net operating loss deduction. Our foreign subsidiaries' ability to utilize the foreign tax net operating losses in any single year
ultimately depends upon their ability to generate sufficient taxable income.
As of December 31, 2015, we had $14.4 billion of net operating loss carryforwards in our holding companies in Luxembourg
that can be carried forward indefinitely. Our holding companies in Spain had $856.9 million of net operating loss carryforwards
that can be carried forward 18 years, and our holding company in the Netherlands had an immaterial amount of net operating loss
carryforwards that can be carried forward nine years. Given the nature of activities that are considered taxable in these jurisdictions
and the activities engaged in by the holding companies, these net operating loss carryforwards will never be utilized by our holding
companies and add no value to the company.
F-35
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The deferred tax asset valuation allowances that our subsidiaries and holding companies had as of December 31, 2015 and
2014 are as follows:
Brazil
U.S.
Luxembourg
Spain
Total
Successor
Company
2015
Predecessor
Company
2014
$
(in millions)
$
723.4
359.8
4,216.0
214.2
$
5,513.4
$
584.1
457.5
3,169.2
236.3
4,447.1
The realization of deferred tax assets is dependent on the generation of future taxable income sufficient to realize our tax
loss carryforwards and other tax deductions. Valuation allowances are required to be recognized on deferred tax assets unless it
is determined that it is “more-likely-than-not” that the asset will be realized. As of December 31, 2015, we continued to record
full valuation allowances on the deferred tax assets of our foreign operating companies, our U.S. parent company and subsidiaries
and our foreign holding companies due to substantial negative evidence, including the recent history of cumulative losses and the
projected losses for 2016 and subsequent years.
We are subject to income taxes in both the U.S. and the non-U.S. jurisdictions in which we operate. Certain of our entities
are under examination by the relevant taxing authorities for various tax years. The earliest years that remain subject to examination
by jurisdiction are: U.S. - 1999; Brazil - 2010, and Luxembourg, Netherlands and Spain - 2009. We regularly assess the potential
outcome of current and future examinations in each of the taxing jurisdictions when determining the adequacy of our provision
for income taxes. We have only recorded financial statement benefits for tax positions which we believe reflect the “more-likely-
than-not” criteria incorporated in the FASB’s authoritative guidance on accounting for uncertainty in income taxes, and we have
established income tax accruals in accordance with this authoritative guidance where necessary. Once a financial statement benefit
for a tax position is recorded or a tax accrual is established, we adjust it only when there is more information available or when
an event occurs necessitating a change. While we believe that the amounts of the recorded financial statement benefits and tax
accruals reflect the more-likely-than-not criteria, it is possible that the ultimate outcome of current or future examinations may
result in a reduction to the tax benefits previously recorded on the financial statements or may exceed the current income tax
reserves in amounts that could be material.
Unrecognized tax benefits are classified as non-current liabilities. The following table shows a reconciliation of our
beginning and ending unrecognized tax benefits for 2015, 2014 and 2013 (in thousands):
Successor Company
Predecessor Company
Six Months Ended
December 31,
Six Months
Ended June 30,
Year Ended December 31,
2015
2015
2014
2013
Unrecognized tax benefits beginning of period
Reductions for prior year tax positions
Foreign currency translation adjustment
Unrecognized tax benefits end of period
$
$
7,961
(1,777)
(460)
5,724
$
$
8,336
$
8,686
$
—
(375)
7,961
$
—
(350)
8,336
$
35,639
(26,519)
(434)
8,686
As of December 31, 2015, we did not have any unrecognized tax benefits that could potentially affect our future effective
tax rate. As of December 31, 2014 and 2013, the unrecognized tax benefits that could potentially reduce our future effective tax
rate, if recognized, were $1.8 million and $2.1 million, respectively.
We record interest and penalties associated with uncertain tax positions as a component of our income tax benefit (provision).
During the six months ended December 31, 2015 and June 30, 2015, as well as for the years ended December 31, 2014 and 2013,
we recognized an immaterial amount of interest and penalties as a component of our current income tax benefit (provision).
F-36
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We reduced our unrecognized tax benefits by $1.8 million during the six months ended December 31, 2015 due to the
expiration of the statute of limitations in Brazil. In addition, we reduced our unrecognized tax benefits by $26.5 million in 2013
due to the effective resolution of a tax position in the U.S.
12.
Employee Stock and Benefit Plans
In connection with our emergence from Chapter 11, NII Holdings canceled all shares of its common stock, preferred stock
and other equity interests that existed prior to June 26, 2015. Our Board of Directors subsequently adopted an incentive compensation
plan, which we refer to as the 2015 Incentive Compensation Plan. The 2015 Incentive Compensation Plan provides us with the
ability to award stock options, restricted stock, restricted stock units, and cash-based incentives to our employees, directors and
officers. The 2015 Incentive Compensation Plan contemplates grants of up to 5,263,158 shares of our new common stock to
directors and employees of the reorganized company, including potential grants of restricted stock, restricted stock units and options
to purchase shares of our new common stock. All grants or awards made under the 2015 Incentive Compensation Plan are governed
by written agreements between us and the participants and have a maximum term of ten years.
On the date of our emergence from Chapter 11, we made grants of 564,311 shares of restricted stock, 41,721 restricted stock
units and 1,580,208 options to purchase shares of common stock. Subsequent to this date, we made grants of an additional 468,069
shares of restricted stock and 2,268,177 options to purchase shares of common stock. Stock options, restricted stock awards and
restricted stock units are also granted to certain new employees on the later of the date of hire or the date that the grant is approved.
In addition, under the provisions outlined in the 2015 Incentive Compensation Plan, our chief executive officer may grant, under
authority delegated to him by the Compensation Committee of our Board of Directors, a limited number of stock options (not to
exceed 40,000 shares in the aggregate for the plan year) and restricted stock/restricted stock unit awards (not to exceed 20,000
shares in aggregate for the plan year) to employees who are not executive officers.
Stock Option Awards
For the six months ended December 31, 2015 and June 30, 2015, as well as for the years ended December 31, 2014 and
2013, we recognized $1.0 million, $1.5 million, $4.0 million and $9.0 million, respectively, in share-based compensation expense
related to stock options. The amounts recognized in our consolidated statement of comprehensive (loss) income for tax benefits
related to share-based payment arrangements in 2015, 2014 and 2013 were not material. We include substantially all share-based
compensation expense as a component of selling, general and administrative expenses. As of December 31, 2015, there was $6.4
million in unrecognized compensation cost related to non-vested employee stock option awards, which includes the impact of
assumed forfeitures. We expect this cost to be recognized over a weighted average period of 2.6 years. The amount of cash paid
for exercises under all share-based payment arrangements was immaterial for the six months ended December 31, 2015 and June
30, 2015, as well as for the years ended December 31, 2014 and 2013.
As a result of the Company's emergence from Chapter 11 proceedings, all prior stock option awards granted under the 2012
Incentive Compensation Plan were canceled. Our stock options generally vest thirty-three percent per year over a three-year period.
The following table summarizes stock option activity under the 2015 Incentive Compensation Plan, beginning on June 26, 2015:
Number of
Options
Weighted Average
Exercise Price
per Option
Weighted Average
Remaining Life
Aggregate
Intrinsic
Value
Granted
Exercised
Forfeited
Outstanding, December 31, 2015
Exercisable, December 31, 2015
3,848,385
$
—
(220,896) $
$
3,627,489
120
$
12.00
—
19.70
11.53
20.68
8.94
0.25
—
—
There were no options exercised during the period from June 26, 2015 to December 31, 2015. As of December 31, 2015,
our vested stock options had an intrinsic value of zero. Generally, our stock options are non-transferable, except by will or laws
of descent or distribution, and the actual value of the stock options that a recipient may realize, if any, will depend on the excess
of the market price on the date of exercise over the exercise price. If a participant's employment is terminated without cause prior
to the date options are available to be exercised, the participant shall receive stock options on a pro-rata basis based on the fraction
of the performance period that has elapsed from the beginning of the performance period until the participant's termination. If the
participant does not exercise the pro-rata shares within 90 days of the employee's termination, the options are considered forfeited
and are available for reissuance under the terms of the 2015 Incentive Compensation Plan.
F-37
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average fair value of the stock option awards on their grant dates using the Black-Scholes-Merton option-
pricing model was $2.98 for each option granted during the period from June 26, 2015 to December 31, 2015, based on the following
assumptions:
Risk free interest rate
Expected stock price volatility
Expected term in years
Expected dividend yield
Successor Company
Period from June 26, 2015
to December 31, 2015
1.71% - 2.05%
31.73% - 41.92%
5.16 - 6.00
—
The expected term of stock option awards granted represents the period that we expect our stock option awards will be
outstanding and was determined based on a Monte Carlo model of stock prices and option disposition intensity. The intensity is
based on models of stock price path, time dependent suboptimal voluntary exercise and post-vest termination. The risk free interest
rate for the grant date of options granted is consistent with the zero-coupon U.S. Treasury rate curve. Expected volatility takes
into consideration a blended historical and implied volatility of comparable companies' option contracts.
Restricted Stock and Restricted Stock Unit Awards
For the six months ended December 31, 2015 and June 30, 2015, as well as for the years ended December 31, 2014 and
2013, we recognized $1.9 million, $2.3 million, $10.4 million and $20.0 million, respectively, in share-based compensation expense
related to restricted stock and restricted stock units. The amounts recognized in our consolidated statement of comprehensive (loss)
income for tax benefits related to share-based payment arrangements for the six months ended December 31, 2015 and June 30,
2015, as well as for the years ended December 31, 2014 and 2013 were not material. We include substantially all share-based
compensation expense as a component of selling, general and administrative expenses.
As a result of the Company's emergence from Chapter 11 proceedings, all prior restricted stock awards and restricted stock
units granted under the 2012 Incentive Compensation Plan were canceled. As of December 31, 2015, restricted stock represented
both non-vested restricted stock awards and restricted stock units. Our restricted stock awards generally vest thirty-three percent
per year over a three-year period. The following table summarizes restricted stock activity under the 2015 Incentive Compensation
Plan, beginning on June 26, 2015:
Granted
Vested
Forfeited
Restricted stock awards as of December 31, 2015
Number of
Shares
1,074,101
(1,224)
(75,433)
997,444
Weighted Average
Grant Date
Fair Value
Per Share
$11.99
$13.88
$15.72
$11.71
If a participant's employment is terminated without cause prior to the vesting dates, the participant shall receive restricted
stock on a pro-rata basis based on the fraction of the performance period that has elapsed from the beginning of the performance
period until the participant's termination. Any unvested shares are forfeited and available for reissuance under the terms of the
2015 Incentive Compensation Plan. The fair value of our restricted stock is determined based on the quoted price of our common
stock at the grant date. As of December 31, 2015, there was $6.0 million in unrecognized compensation cost related to restricted
stock, which includes the impact of assumed forfeitures. We expect this cost to be recognized over a weighted average period of
2.5 years. For the six months ended December 31, 2015, the value of our vested restricted stock awards was immaterial.
F-38
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13.
Segment Information
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, which we refer to as segment earnings. Nextel Brazil is our only
reportable segment.
F-39
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brazil
Corporate and
Eliminations
(in thousands)
Consolidated
Six Months Ended December 31, 2015 - Successor Company
Operating revenues
Segment losses
Less:
Impairment, restructuring and other charges
Depreciation and amortization
Foreign currency transaction losses, net
Interest expense and other, net
Loss from continuing operations before reorganization items and income tax
provision
Capital expenditures
Six Months Ended June 30, 2015 - Predecessor Company
Operating revenues
Segment losses
Less:
Impairment, restructuring and other charges
Depreciation and amortization
Foreign currency transaction losses, net
Interest expense and other, net
Loss from continuing operations before reorganization items and income tax
provision
Capital expenditures
Year Ended December 31, 2014 - Predecessor Company
Operating revenues
Segment losses
Less:
Impairment, restructuring and other charges
Depreciation and amortization
Foreign currency transaction losses, net
Interest expense and other, net
Loss from continuing operations before reorganization items and income tax
provision
Capital expenditures
Year Ended December 31, 2013 - Predecessor Company
Operating revenues
Segment earnings (losses)
Less:
Impairment, restructuring and other charges
Depreciation and amortization
Foreign currency transaction losses, net
Interest expense and other, net
Loss from continuing operations before income tax provision
Capital expenditures
December 31, 2015 - Successor Company
Identifiable assets
December 31, 2014 - Predecessor Company
Identifiable assets
$
$
$
$
$
$
$
$
$
$
$
$
$
$
529,332
$
(9,045) $
102
(26,100)
72,112
683,611
$
$
500
100
(75,234) $
(37,982)
68,385
$
818
$
1,848,918
(133,691) $
36
(123,141)
218,855
2,208,034
311,129
461,458
1,989,753
2,953,525
$
$
$
$
$
$
14,507
(4,994)
(176,642)
13,931
740,155
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
529,434
(35,145)
(32,308)
(85,364)
(99,737)
(39,539)
(292,093)
72,612
683,711
(113,216)
(36,792)
(153,878)
(63,948)
(67,630)
(435,464)
69,203
1,848,954
(256,832)
(105,664)
(394,061)
(51,149)
(340,388)
(1,148,094)
233,362
2,203,040
134,487
(121,578)
(382,610)
(92,456)
(447,252)
(909,409)
475,389
2,729,908
(1) As of December 31, 2014, identifiable assets in the "Corporate and Eliminations" column include $1,995.5 million of total assets
related to discontinued operations as a result of the sales of Nextel Argentina and Nextel Mexico. See Note 5 for more information.
F-40
2,420,509 (1) $
5,374,034
NII HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14.
Quarterly Financial Data (Unaudited)
2015
Operating revenues
Operating loss
Net (loss) income from continuing operations
Net (loss) income from discontinued operations
Net (loss) income from continuing operations, per
common share, basic
Net (loss) income from discontinued operations, per
common share, basic
Net (loss) income from continuing operations, per
common share, diluted
Net (loss) income from discontinued operations, per
common share, diluted
2014
Operating revenues
Operating loss
Net loss from continuing operations
Net loss from discontinued operations
Net loss from continuing operations, per common share,
basic and diluted
Net loss from discontinued operations, per common
share, basic and diluted
Predecessor Company
Successor Company
First
Second
Third
Fourth
(in thousands, except per share amounts)
$
363,409
(105,811)
(218,407)
(91,111)
320,302
(198,075)
1,737,808
312,225
(1.27) $
10.04
(0.53) $
1.80
(1.27) $
10.03
(0.53) $
1.80
$
$
$
$
$
$
284,652
(77,652)
(201,949)
12,528
244,782
(75,165)
(83,662)
(920)
(2.02) $
(0.84)
0.12
$
(0.01)
(2.02) $
(0.84)
0.12
$
(0.01)
Predecessor Company
First
Second
Third
Fourth
(in thousands, except per share amounts)
$
461,881
(151,876)
(256,323)
(119,755)
$
478,804
(232,411)
(320,268)
(303,044)
$
476,264
(212,596)
(416,189)
(27,258)
432,005
(159,674)
(231,891)
(282,970)
(1.49) $
(1.86) $
(2.41) $
(1.35)
(0.70) $
(1.76) $
(0.16) $
(1.64)
$
$
$
$
$
$
$
$
The sum of the per share amounts do not equal the annual amounts due to changes in the number of weighted average
common shares outstanding during the year.
In September 2015, two of our indirect subsidiaries entered into a binding agreement with Grupo Clarin relating to the sale
of all of the outstanding equity interests of Nextel Argentina. In April 2015, we completed the sale of our Mexican operations to
New Cingular Wireless, Inc., an indirect subsidiary of AT&T, Inc. In August 2014, we completed the sale of all of the outstanding
equity interests of our wholly-owned subsidiary, Nextel Chile, to Fucata. As a result of the sales of Nextel Argentina, Nextel
Mexico and Nextel Chile, the quarterly amounts included above differ from the amounts originally included in our quarterly reports
on Form 10-Q for each of the quarterly periods in 2014 and 2015.
F-41
NII HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NII HOLDINGS, INC.
CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY)
(in thousands)
Successor Company
Predecessor Company
December 31,
2015
December 31,
2014
ASSETS
Current assets
Cash and cash equivalents
Short-term intercompany receivables
Prepaid expenses and other
Total current assets
Intangible assets, net
Long-term intercompany receivables
Investment in subsidiaries
Other assets
Total assets
$
$
56,011
$
1,202
61
57,274
37,956
281
4,759,573
1
4,855,085
$
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Liabilities not subject to compromise
Current liabilities
Short-term intercompany payables
Total current liabilities
Long-term intercompany payables
Other long-term liabilities
Total liabilities not subject to compromise
Liabilities subject to compromise
Intercompany liabilities subject to compromise
Total liabilities subject to compromise
Total stockholders’ equity (deficit)
Total liabilities and stockholders’ equity (deficit)
$
$
4,570
$
4,570
3,296,117
3,583
3,304,270
—
—
—
1,550,815
4,855,085
$
106,747
27,803
8,798
143,348
18,000
1,453,150
—
946
1,615,444
—
—
59,939
2,587
62,526
30,584
3,487,098
3,517,682
(1,964,764)
1,615,444
F-42
NII HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NII HOLDINGS, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (PARENT COMPANY ONLY)
(in thousands)
Operating revenues
Operating expenses
Selling, general and administrative
Depreciation and amortization
Operating loss
Other (expense) income
Interest expense, net
Intercompany interest expense
Interest income
Intercompany interest income
Equity in (loss) income of affiliates
Other (expense) income, net
(Loss) income before reorganization items
and income tax benefit
Reorganization items
Income tax (provision) benefit
Net (loss) income from continuing operations $
Income from discontinued operations, net of
income taxes
Net (loss) income
Comprehensive (loss) income, net of income
taxes
Foreign currency translation adjustment
Reclassification adjustment for sale of Nextel
Argentina, Nextel Chile and Nextel Mexico
Other
Other comprehensive (loss) income
Net (loss) income
Total comprehensive (loss) income
$
$
$
Successor
Company
Predecessor Company
Six Months Ended
December 31,
Six Months
Ended June 30,
Year Ended December 31,
2015
2015
2014
2013
$
— $
— $
— $
—
—
744
744
(744)
—
(118,365)
—
97
(160,444)
(3)
(278,715)
(279,459)
(373)
(448)
(280,280)
6,277
(274,003)
429
—
429
(429)
(119)
(159,117)
37
125
1,793,151
995
1,635,072
2,145
—
2,145
(2,145)
(570)
(165,324)
691
—
(1,805,438)
8,212
(1,962,429)
3,136
—
3,136
(3,136)
(562)
(234,799)
913
1,340
(1,473,856)
36,017
(1,670,947)
1,634,643
68,355
(1,002)
1,701,996
$
(1,964,574)
(291)
7,167
(1,957,698) $
(1,674,083)
—
24,484
(1,649,599)
38,519
—
1,740,515
$
(1,957,698) $
—
(1,649,599)
$
$
(248,841)
$
(205,899) $
(340,847) $
(334,893)
(1,672)
4,734
(245,779)
(274,003)
(519,782)
421,953
2,956
219,010
1,740,515
$
1,959,525
$
(33,885)
(544)
(375,276)
(1,957,698)
(2,332,974) $
—
2,257
(332,636)
(1,649,599)
(1,982,235)
F-43
NII HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NII HOLDINGS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
(in thousands)
Successor
Company
Predecessor Company
Six Months Ended
December 31,
Six Months Ended
June 30,
2015
2015
Year Ended December 31,
2014
2013
Cash flows from operating activities:
Net (loss) income
$
(274,003)
$
1,740,515
$
(1,957,698) $
(1,649,599)
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities
Net cash provided by (used in) operating
activities
Cash flows from investing activities:
Changes in restricted cash and escrow accounts
Investments in subsidiaries
Return of investments in subsidiaries
Other, net
Net cash provided by (used in) investing
activities
Cash flows from financing activities:
Other, net
Net cash used in financing activities
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
274,030
(1,735,521)
1,861,773
1,477,932
27
4,994
(95,925)
(171,667)
—
(29,690)
35,315
—
—
(61,405)
23
—
25,300
(180,712)
—
1,856
(15,050)
(191,526)
—
545
5,625
(61,382)
(153,556)
(206,031)
—
—
—
—
(86)
(86)
5,652
50,359
56,011
$
(56,388)
106,747
50,359
$
(249,567)
356,314
106,747
$
(1,010)
(1,010)
(378,708)
735,022
356,314
F-44
NII HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
1.
Basis of Presentation
NII Holdings, Inc., or NII Holdings, our parent company, is a holding company that conducts substantially all of its business
operations through Nextel Brazil. See Note 1 to our consolidated financial statements for more information. As specified in Nextel
Brazil's local financing agreements, there are restrictions on the parent company's ability to obtain funds from certain of its
subsidiaries through dividends, loans or advances. Substantially all of the consolidated net assets of NII Holdings and its subsidiaries
are restricted. These condensed financial statements have been presented on a "parent company only" basis. In accordance with
this parent company only presentation, we have presented our parent company's investments in consolidated subsidiaries under
the equity method. These condensed parent company only financial statements should be read in conjunction with our consolidated
financial statements included elsewhere herein.
2.
Dividends From Subsidiaries
NII Holdings' consolidated subsidiaries did not declare any dividends to the parent company during the six months ended
December 31, 2015, the six months ended June 30, 2015 or the year ended December 31, 2014. For the year ended December 31,
2013, NII Holdings' consolidated subsidiaries declared and paid $49.9 million in cash dividends to the parent company.
F-45
NII HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Six Months Ended December 31, 2015 —
Successor Company
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
Six Months Ended June 30, 2015 —
Predecessor Company
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
Year Ended December 31, 2014 —
Predecessor Company
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
Year Ended December 31, 2013 —
Predecessor Company
Allowance for doubtful accounts
Valuation allowance for deferred tax assets
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Deductions
and Other
Adjustments (1)
Balance at
End of
Period
$
$
$
$
$
$
$
$
— $
32,279
4,388,792
$
1,233,012
30,749
4,447,133
35,458
4,145,002
88,854
329,930
$
$
$
$
$
$
65,396
22,828
57,418
340,425
77,528
3,861,615
$
$
$
$
$
$
$
$
6,754 (2) $
$
(108,417)
39,033
5,513,387
(96,145) (3) $
(81,169)
$
—
4,388,792
(62,127)
(38,294)
(130,924)
(46,543)
$
$
$
$
30,749
4,447,133
35,458
4,145,002
_______________________________________
(1) Includes the impact of foreign currency translation adjustments.
(2) Includes the impact of cash collections subsequent to the implementation of fresh start accounting.
(3) Includes the impact of a $50.6 million reduction to allowance for doubtful accounts resulting from the application of fresh
start accounting.
F-46
EXHIBIT INDEX
Exhibit
Number
2.1
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
Exhibit Description
First Amended Joint Plan of Reorganization Proposed by the
Debtors and Debtors in Possession and the Official Committee of
Unsecured Creditors
Amended and Restated Certificate of Incorporation of NII
Holdings.
Fifth Amended and Restated Bylaws of NII Holdings.
Registration Rights Agreement, dated June 26, 2015, by and among
NII Holdings and the stockholders party thereto.
Fourth Amended and Restated Trademark License Agreement,
dated July 27, 2011, between Nextel Communications, Inc. and NII
Holdings.
Amendment No. 3 to Fourth Amended and Restated Trademark
License Agreement with Nextel Communications, Inc. and NII
Holdings, dated June 1, 2015.
Stock Purchase Agreement by and among Entel Inversiones, S.A.,
Empresa Nacional de Telecomunicaciones S.A., NII Mercosur
Telecom, S.L., NII Mercosur Moviles, S.L. and NII Holdings,
dated April 4, 2013.
Purchase and Sale Agreement, dated as of January 26, 2015,
between New Cingular Wireless Services, Inc., NIHD Telecom
Holdings, B.V., NIU Holdings LLC, Comunicaciones de Mexico
S.A. de C.V., Nextel International (Uruguay) LLC, NII
International Telecom S.C.A., NII International Holdings S.à r.l.,
NII Global Holdings, Inc., NII Capital Corp. and NII Holdings.
Binding Offer #2015/075/NXT and Call Option delivered by
Grupo Clarin S.A. to NII Mercosur Telecom, S.L.U. and NII
Mercosur Moviles, S.L.U., including acceptances from NII
Mercosur Telecom, S.L.U., NII Mercosur Moviles, S.L.U. and NII
Holdings, dated September 11, 2015.
Offer letter dated October 9, 2015 delivered by NII Mercosur
Telecom S.L.U. and NII Mercosur Móviles S.L.U. to Cablevisión
S.A., Televisión Dirigida S.A., Grupo Clarín S.A. and NII
Holdings, Inc. to amend the Binding Offer #2015/075/NXT,
including acceptance letters from Cablevisión S.A., Televisión
Dirigida S.A., Grupo Clarín S.A. and NII Holdings, Inc.
Offer letter dated January 27, 2016 delivered by NII Mercosur
Telecom S.L.U. and NII Mercosur Móviles S.L.U. to Cablevisión
S.A., Televisión Dirigida S.A., Grupo Clarín S.A. and NII
Holdings, Inc. to amend the Binding Offer #2015/075/NXT,
including acceptance letters from Cablevisión S.A., Televisión
Dirigida S.A., Grupo Clarín S.A. and NII Holdings, Inc.
Credit Agreement, dated April 20, 2012, among Nextel
Telecomunicações Ltda., the Guarantors and China Development
Bank Corporation, as Lender, Administrative Agent and Arranger
(Non-Sinosure).
Credit Agreement, dated April 20, 2012, among Nextel
Telecomunicações Ltda., the Guarantors and China Development
Bank Corporation, as Lender, Administrative Agent and Arranger
(Sinosure).
Amendment No. 1 to the Credit Agreement, dated September 25,
2013, among Nextel Telecomunicações Ltda., the Guarantors and
China Development Bank Corporation, as Lender, Administrative
Agent and Arranger (Non-Sinosure).
F-47
Form
8-K
Exhibit
2.1
Incorporated
by
Reference
Filing Date
6/22/2015
Filed
Herewith
*
*
*
S-8
S-8
8-K
3.1
06/26/15
3.2
10.1
06/26/15
06/30/15
10-Q
10.1
11/08/11
8-K
10.1
04/04/13
8-K
10.1
01/26/15
10-Q
10.1
11/05/15
10-K
99.3
02/28/14
10-K
99.4
02/28/14
10-K/A
99.9
02/28/14
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
Amendment No. 1 to the Credit Agreement, dated September 25,
2013, among Nextel Telecomunicações Ltda., the Guarantors and
China Development Bank Corporation, as Lender, Administrative
Agent and Arranger (Sinosure).
Amendment No. 2 to the Credit Agreement, dated December 5,
2014, among Nextel Telecomunicações Ltda., the Guarantors and
China Development Bank Corporation, as Lender, Administrative
Agent and Arranger (Non-Sinosure).
Amendment No. 2 to the Credit Agreement, dated December 5,
2014, among Nextel Telecomunicações Ltda., the Guarantors and
China Development Bank Corporation, as Lender, Administrative
Agent and Arranger (Sinosure).
Parent Guaranty, dated April 20, 2012, between NII Holdings, as
Parent Guarantor, and China Development Bank Corporation, as
Administrative Agent under the Sinosure Credit Agreement and
Non-Sinosure Credit Agreement.
Amendment to Parent Guaranty, dated December 5, 2014, between
NII Holdings, as Parent Guarantor, and China Development Bank
Corporation, as Administrative Agent under the Sinosure Credit
Agreement and Non-Sinosure Credit Agreement.
Shareholder Undertaking Agreement, dated April 20, 2012,
between NII Holdings, as Parent Guarantor, and China
Development Bank Corporation (as Sinosure Administrative Agent
and Non-Sinosure Administrative Agent).
Bank Credit Certificate, dated November 8, 2011, between Nextel
Telecomunicações Ltda., and Caixa Econômica Federal.
Amendment No. 1 to Bank Credit Certificate, dated February 13,
2015, between Nextel Telecomunicações Ltda. and Caixa
Econômica Federal.
Amendment No. 2 to Bank Credit Certificate, dated January 25,
2015, between Nextel Telecomunicações Ltda. and Caixa
Economica Federal.
Bank Credit Certificate, dated December 31, 2012, between Nextel
Telecomunicações Ltda. and Banco do Brasil, S.A.
Amendment No. 1 to Bank Credit Certificate, dated February 13,
2015, between Nextel Telecomunicações Ltda. and Banco do
Brasil, S.A.
10-K/A
99.10
02/28/14
10-K
99.13
03/10/15
10-K
99.14
03/10/15
8-K
10.10
06/30/15
10-K
99.5
02/28/14
8-K
10.6
06/30/15
8-K
10.7
06/30/15
10-K
99.6
02/28/14
8-K
10.8
06/30/15
Amendment No. 2 to Bank Credit Certificate, dated June 25, 2015,
between Nextel Telecomunicações Ltda., and Banco do Brasil, S.A.
8-K
10.9
06/30/15
10.23(+) NII Holdings Severance Plan.
10-K
10.16
10.24(+) NII Holdings Change of Control Severance Plan.
10.25(+) NII Holdings 2015 Incentive Compensation Plan.
10.26(+)
Form of Restricted Stock Award Agreement (Employees).
10.27(+)
Form of Nonqualified Stock Option Agreement (Employees).
10.28(+)
Form of Restricted Stock Award Agreement (Directors).
10.29(+)
Form of Separation and Release Agreement for Certain Executives.
10.30(+) Offer Letter for Steven M. Shindler, dated April 30, 2013.
International Assignment Agreement between NII Holdings and
Gokul Hemmady.
Form of Director and Executive Officer Indemnification
Agreement.
8-K
S-8
8-K
8-K
10-Q
8-K
8-K
8-K
10.2
4.1
10.3
10.4
10.4
10.1
10.1
10.1
02/28/13
12/22/15
06/26/15
06/30/15
06/30/15
11/05/15
12/22/15
05/02/13
07/12/13
Separation and Release Agreement between NII Holdings and Juan
Figuereo, dated June 30, 2015.
10-Q
10.12
08/07/15
Separation and Release Agreement between NII Holdings and
Gokul Hemmady, dated August 20, 2015.
Second Separation and Release Agreement between NII Holdings
and Gokul Hemmady, dated August 20, 2015.
10-Q
10.5
11/05/15
10-Q
10.6
11/05/15
F-48
10.31(+)
10.32(+)
10.33(+)
10.34(+)
10.35(+)
*
*
*
10.36(+) Brazilian Legal Severance for Gokul Hemmady paid by Nextel
Telecomunicações Ltda.
10.37(+)
Employment Agreement between Nextel Telecomunicações Ltda.
and Francisco Tosta Valim Filho, dated August 25, 2015.
16.1
21.1
23.1
23.2
31.1
31.2
32.1
32.2
101
PricewaterhouseCoopers LLP Letter of Concurrence, dated March
4, 2014.
8-K
16.1
03/05/14
Subsidiaries of NII Holdings.
Consent of KPMG LLP.
Consent of PricewaterhouseCoopers LLP.
Statement of Chief Executive Officer Pursuant to Rule 13a-14(a).
Statement of Chief Financial Officer Pursuant to Rule 13a-14(a).
Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
The following materials from the NII Holdings, Inc. Annual Report
on Form 10-K for the year ended December 31, 2015 formatted in
eXtensible Business Reporting Language (XBRL):
(i) Consolidated Balance Sheets, (ii) Consolidated Statements of
Comprehensive (Loss) Income, (iii) Consolidated Statements of
Changes in Stockholders’ Equity (Deficit), (iv) Consolidated
Statements of Cash Flows and (v) Notes to Consolidated Financial
Statements.
*
*
*
*
*
*
*
*
*
*
_______________________________________
+
Indicates Management Compensatory Plan, Contract or Arrangement.
F-49