<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number: 000-22939
NEXTLINK Communications, Inc.
NEXTLINK Capital, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1738221
Washington 91-1716062
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 108th Avenue NE, Suite 2200, Bellevue, WA 98004
--------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(425) 519-8900
----------------------------------------------------
(Registrant's telephone number, including area code)
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 X No .
----- -----
As of August 1, 1998, the number of shares of Class A and Class B common
stock of NEXTLINK Communications, Inc. issued and outstanding was 20,280,822
and 33,483,502, respectively, and there were 1,000 shares of common stock of
NEXTLINK Capital, Inc., all of which 1,000 shares were held by NEXTLINK
Communications, Inc.
NEXTLINK Capital, Inc. meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1(a). FINANCIAL STATEMENTS
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(AMOUNTS AS OF JUNE 30, 1998 ARE UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 300,430 $ 389,074
Marketable securities . . . . . . . . . . . . . 998,216 353,283
Accounts receivable, net. . . . . . . . . . . . 27,208 22,955
Other . . . . . . . . . . . . . . . . . . . . . 8,622 4,530
Pledged securities. . . . . . . . . . . . . . . 42,350 41,425
---------- ----------
Total current assets . . . . . . . . . . . . 1,376,826 811,267
Pledged securities . . . . . . . . . . . . . . . . -- 21,185
Property and equipment, net. . . . . . . . . . . . 372,687 253,653
Goodwill, net. . . . . . . . . . . . . . . . . . . 56,559 52,278
Other assets, net. . . . . . . . . . . . . . . . . 249,860 78,770
---------- ----------
Total assets . . . . . . . . . . . . . . . . $ 2,055,932 $ 1,217,153
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . $ 17,327 $ 26,776
Accrued expenses. . . . . . . . . . . . . . . . 26,873 13,082
Accrued interest payable. . . . . . . . . . . . 28,552 18,880
Notes payable and current portion of capital
lease obligations . . . . . . . . . . . . . . 3,763 10,844
---------- ----------
Total current liabilities. . . . . . . . . . 76,515 69,582
Long-term debt . . . . . . . . . . . . . . . . . . 1,493,901 750,000
Capital lease obligations and other
long-term liabilities. . . . . . . . . . . . . . 11,281 10,842
---------- ----------
Total liabilities. . . . . . . . . . . . . . 1,581,697 830,424
Commitments and contingencies
Redeemable preferred stock, par value $0.01 per
share, 25,000,000 shares authorized; 14%
Preferred, aggregate liquidation preference
$346,518; 6,772,317 and 6,322,031 shares
issued and outstanding in 1998 and 1997,
respectively; 6-1/2% Convertible Preferred,
4,000,000 and 0 shares issued and outstanding
in 1998 and 1997, respectively. . . . . . . . . 530,772 313,319
Common stock subject to redemption, par value
$0.02 per share, 519,950 Class B shares
issued and outstanding in 1997. . . . . . . . . -- 4,950
Shareholders' equity (deficit):
Common Stock, par value $0.02 per share,
stated at amounts paid in; Class A,
110,334,000 shares authorized, 20,071,914
and 19,167,899 shares issued and outstanding
in 1998 and 1997, respectively; Class B,
44,133,600 shares authorized, 33,672,814 and
33,746,573 shares issued and outstanding in
1998 and 1997, respectively . . . . . . . . . 345,064 330,561
Deferred compensation . . . . . . . . . . . . . (9,332) (9,596)
Accumulated deficit . . . . . . . . . . . . . . (392,269) (252,505)
---------- ----------
Total shareholders' equity (deficit) . . . . (56,537) 68,460
---------- ----------
Total liabilities and shareholders'
equity (deficit) . . . . . . . . . . . . . $ 2,055,932 $ 1,217,153
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1998 1997 1998 1997
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . . . . $ 32,030 $ 11,601 $ 58,575 $ 21,668
Costs and expenses:
Operating . . . . . . . . . . . . . . . . . . . 28,070 12,037 52,620 21,941
Selling, general and administrative . . . . . . 36,077 15,829 68,034 29,103
Deferred compensation . . . . . . . . . . . . . 760 223 1,384 1,115
Depreciation. . . . . . . . . . . . . . . . . . 8,415 3,206 14,909 6,054
Amortization. . . . . . . . . . . . . . . . . . 3,765 1,319 7,454 2,877
----------- ----------- ----------- -----------
Total costs and expenses . . . . . . . . . . 77,087 32,614 144,401 61,090
----------- ----------- ----------- -----------
Loss from operations . . . . . . . . . . . . . . . (45,057) (21,013) (85,826) (39,422)
Interest income. . . . . . . . . . . . . . . . . . 22,822 5,567 34,557 10,692
Interest expense . . . . . . . . . . . . . . . . . (38,338) (10,902) (61,616) (22,041)
----------- ----------- ----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . $ (60,573) $ (26,348) $ (112,885) $ (50,771)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Preferred stock dividends and accretion of
preferred stock redemption obligation,
including issue costs . . . . . . . . . . . . . (15,328) (10,550) (26,879) (17,353)
----------- ----------- ----------- -----------
Net loss applicable to common shares . . . . . . . $ (75,901) $ (36,898) $ (139,764) $ (68,124)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share . . . . . . . . . . . . . . . . $ (1.42) $ (0.94) $ (2.61) $ (1.73)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in computation of net loss per
share . . . . . . . . . . . . . . . . . . . . . 53,609,120 39,312,482 53,545,671 39,312,482
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . $ (112,885) $ (50,771)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred compensation expense . . . . . . . . . 1,384 1,115
Equity in loss of affiliates. . . . . . . . . . 1,643 1,015
Depreciation and amortization . . . . . . . . . 22,363 8,931
Accretion of interest on senior notes . . . . . 9,578 --
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable . . . . . . . . . . . . . . (4,253) (2,764)
Other assets. . . . . . . . . . . . . . . . . . (5,692) 464
Accounts payable. . . . . . . . . . . . . . . . (13,539) (5,333)
Accrued expenses and other liabilities. . . . . 12,676 1,911
Accrued interest payable. . . . . . . . . . . . 9,672 (365)
----------- ---------
Net cash used in operating activities. . . . . . . (79,053) (45,797)
INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . (126,652) (55,181)
Net assets acquired in business and asset
acquisitions (net of cash acquired) . . . . . . -- (41,239)
Cash withdrawn from escrow to be used in
business acquisition. . . . . . . . . . . . . . -- 6,000
Assets acquired in network lease agreement . . . . (92,000) --
Contribution to NEXTBAND for purchase of
spectrum licenses . . . . . . . . . . . . . . . (67,354) --
Investments in unconsolidated affiliates . . . . . -- (4,275)
Maturity of pledged securities . . . . . . . . . . 19,636 18,049
Purchase of marketable securities. . . . . . . . . (2,505,500) (28,812)
Sale of marketable securities. . . . . . . . . . . 1,860,567 --
----------- ---------
Net cash used in investing activities. . . . . . . (911,303) (105,458)
</TABLE>
-- Continued --
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- ---------
<S> <C> <C>
FINANCING ACTIVITIES:
Net proceeds from issuance of redeemable
preferred stock . . . . . . . . . . . . . . . . $ 193,824 $ 274,000
Repayment of note payable and capital
lease obligations . . . . . . . . . . . . . . . (8,734) (789)
Proceeds from issuance of common stock upon
exercise of stock options . . . . . . . . . . . 555 --
Dividends paid on convertible preferred stock. . . (3,250) --
Repayment of loans to related parties. . . . . . . 2,151 --
Proceeds from issuance of senior notes
(net of discount) . . . . . . . . . . . . . . . 734,323 --
Costs incurred in connection with financing. . . . (17,157) --
---------- ----------
Net cash provided by financing activities. . . . . 901,712 273,211
---------- ----------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . (88,644) 121,956
Cash and cash equivalents, beginning of period . . 389,074 76,807
---------- ----------
Cash and cash equivalents, end of period . . . . . $ 300,430 $ 198,763
---------- ----------
---------- ----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Noncash financing and investing activities:
Redeemable preferred stock dividends, paid in
redeemable preferred shares. . . . . . . . . . $ 22,515 $ 10,086
---------- ----------
---------- ----------
Accrued redeemable preferred stock dividends,
payable in redeemable preferred shares,
and accretion of preferred stock redemption
obligation and issue costs . . . . . . . . . . $ 1,114 $ 6,885
---------- ----------
---------- ----------
Issuance of Class B common stock for purchase
of minority interests. . . . . . . . . . . . . $ 5,727 $ --
---------- ----------
---------- ----------
Capital lease obligations assumed . . . . . . . $ 2,505 $ --
---------- ----------
---------- ----------
Class A common stock issued under lease
arrangement . . . . . . . . . . . . . . . . . $ -- $ 1,400
---------- ----------
---------- ----------
Cash paid for interest . . . . . . . . . . . . . . $ 42,121 $ 22,406
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</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NEXTLINK
Communications, Inc., a Delaware corporation, and its majority-owned
subsidiaries (collectively referred to as the Company). The Company, through
predecessor entities, was formed on September 16, 1994 and, through its
subsidiaries, provides competitive local telecommunications services in selected
markets in the United States. The Company is a majority-owned subsidiary of
Eagle River Investments, L.L.C. (Eagle River).
The Company's financial statements include 100% of the assets, liabilities
and results of operations of subsidiaries in which the Company has a controlling
interest of greater than 50%. The Company's investment in Telecommunications of
Nevada, L.L.C. (Nevada L.L.C.), a limited liability company in which the Company
has a 40% interest and which operates a network that is managed by the Company
in Las Vegas, Nevada, is accounted for on the equity method. All operational
statistics of the Company included in this Report include 100% of the
operational statistics of Nevada L.L.C. Investments in entities in which the
Company has voting interests of not more than 20% are accounted for on the cost
method. All significant intercompany accounts and transactions have been
eliminated.
The interim financial statements are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
condensed consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's Form 10-KSB as filed with the Securities and Exchange Commission on
March 25, 1998.
The financial information included herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary to a fair presentation of the results for interim periods.
The results of operations for the three and six-month periods ended June 30,
1998 are not necessarily indicative of the results to be expected for the full
year.
2. FINANCINGS
DEBT
On March 3, 1998, the Company completed the sale of $335.0 million in
aggregate principal amount of 9% Senior Notes due March 15, 2008 (9% Senior
Notes). Proceeds from the sale net of discounts, underwriting commissions,
advisory fees and expenses totaled approximately $326.5 million. Interest
payments on the 9% Senior Notes are due semi-annually. The 9% Senior Notes are
redeemable at the option of the Company, in whole or in part, beginning March
15, 2003.
On April 1, 1998, the Company completed the sale of 9.45% Senior Discount
Notes (9.45% Notes), due April 15, 2008. The 9.45% Notes were issued at a
discount from their principal amount to generate aggregate gross proceeds to the
Company of approximately $400.0 million. Proceeds net of underwriting
commissions, advisory fees and expenses totaled $390.9 million. The 9.45% Notes
accrete at a rate of 9.45% compounded semi-annually, to an aggregate principal
amount of approximately $637.0 million by April 15, 2003. No cash interest will
accrue on the 9.45% Notes until April 15, 2003. Interest will become payable in
cash semi-annually beginning on October 15, 2003. The 9.45% Notes are redeemable
at the option of the Company, in whole or in part, at any time after April 15,
2003.
The indentures pursuant to which the 9% Senior Notes and the 9.45% Notes (the
Notes) are issued contain certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur additional indebtedness,
issue stock in subsidiaries, pay dividends or make other distributions,
repurchase equity interests or
<PAGE>
subordinated indebtedness, engage in sale and leaseback transactions, create
certain liens, enter into certain transactions with affiliates, sell assets
of the Company and its subsidiaries, and enter into certain mergers and
consolidations.
In the event of a change in control or asset disposition of the Company as
defined in the indentures, holders of the Notes will have the right to
require the Company to purchase their Notes, in whole or in part, at a price
equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of purchase. The Notes are senior
unsecured obligations of the Company, and are subordinated to all current and
future indebtedness of the Company's subsidiaries, including trade payables.
REDEEMABLE PREFERRED STOCK
On March 31, 1998, the Company completed the sale of 4,000,000 shares of
6-1/2% cumulative convertible preferred stock (6-1/2% Preferred Stock) with a
liquidation preference of $50 per share. The sale generated gross proceeds to
the Company of $200.0 million, and proceeds net of underwriting discounts,
advisory fees and expenses of $193.8 million. Each share of 6-1/2% Preferred
Stock is convertible, at the option of the holder, into 1.145 shares of the
Company's Class A common stock (subject to adjustments in certain
circumstances). The Company may cause such conversion rights to expire if the
closing price of the Class A common stock exceeds 120% of an implied
conversion price (as defined) for 20 days in a 30 consecutive day trading
period after April 15, 2001 and through April 15, 2006. Dividends on the
6-1/2% Preferred Stock accrue from March 31, 1998 and are payable in cash
quarterly, beginning on June 30, 1998, at an annual rate of 6-1/2% of the
liquidation preference thereof. The Company is required to redeem all of the
6-1/2% Preferred Stock outstanding on March 31, 2010 at a redemption price
equal to 100% of the liquidation preference thereof, plus accumulated and
unpaid dividends to the date of redemption.
3. NETWORK LEASE
In February 1998, the Company entered into a 20-year capital lease for
exclusive rights to multiple fibers and innerducts throughout New York, New
Jersey, Connecticut, Pennsylvania, Delaware, Maryland and Washington D.C. The
Company paid $92.0 million in the transaction, of which $80.3 million was
placed into escrow pending completion and delivery of segments of the network
route to the Company. The payment was recorded as a long-term asset, and will
be reclassified as property and equipment as portions of the network are
completed. The Company has the option to renew the lease for two additional
10-year terms.
4. JOINT VENTURE
In January 1998, the Company and Nextel Communications, Inc. (Nextel), a
nationwide provider of wireless telephone services, formed a joint venture
called NEXTBAND Communications, L.L.C. (NEXTBAND), which is owned 50% each by
the Company and Nextel. NEXTBAND was the successful bidder in 42 markets
covering approximately 105 million POPs, or persons located within the licensed
areas owned, in the FCC's local multipoint distribution service (LMDS) auctions,
which concluded in March 1998. The Company has contributed $67.4 million to
NEXTBAND, representing its pro rata share of NEXTBAND's total bid in the LMDS
auctions. The Company is evaluating means to use its access to NEXTBAND's LMDS
spectrum to enhance its ability to connect customers to its fiber rings, and to
deploy wireless local loop technologies using LMDS frequencies where it
determines it cost effective to do so.
5. RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts in order to
conform to the current presentation.
6. SUBSEQUENT EVENT
In July 1998, the Company announced the formation of INTERNEXT L.L.C.,
which is beneficially owned 50% each by the Company and Eagle River.
INTERNEXT entered into an agreement whereby INTERNEXT agreed to buy a
nationwide, multiconduit fiber optic network that is expected to cover more
than 16,000 route miles and connect 50 cities in the United States and
Canada. Pursuant to this agreement, INTERNEXT will
<PAGE>
receive an exclusive interest in 24 fibers in a shared conduit, one entire
empty conduit and the right to 25% of the fibers pulled through any conduits
in the network in excess of five. INTERNEXT will pay $700.0 million in
exchange for these rights, the majority of which will be payable as segments
of the network are completed and accepted by INTERNEXT, which is expected to
occur during 2000 and 2001. The Company has guaranteed the obligations of
INTERNEXT under this agreement, up to 50% of such obligations. The Company
anticipates that Nextel will acquire a one-third ownership interest in
INTERNEXT, which would reduce the Company's beneficial interest in and
obligations with respect to INTERNEXT to one-third.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1(b). FINANCIAL STATEMENTS
NEXTLINK CAPITAL, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1998 1997
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<S> <C> <C>
ASSETS
Cash in bank . . . . . . . . . . . . . . . . . . . . . $ 100 $ 100
------ ------
------ ------
SHAREHOLDER'S EQUITY
Common stock, no par value,
1,000 shares authorized, issued and outstanding . . $ 100 $ 100
------ ------
------ ------
</TABLE>
NOTES TO BALANCE SHEETS
1. DESCRIPTION
NEXTLINK Capital, Inc. (NEXTLINK Capital) is a Washington corporation and a
wholly owned subsidiary of NEXTLINK Communications, Inc. (NEXTLINK). NEXTLINK
Capital was formed for the sole purpose of obtaining financing from external
sources and is a joint obligor on the 12-1/2% Senior Notes due April 15, 2006
of NEXTLINK. NEXTLINK Capital was initially funded with a $100 contribution
from NEXTLINK and has had no operations to date.
2. BASIS OF PRESENTATION
The interim financial statements have been prepared without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-KSB as filed with the Securities and Exchange Commission on March 25,
1998.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in 1994, the Company has executed a strategy of
constructing and acquiring fiber optic networks and acquiring related
telecommunications businesses. Over this period, the Company has pursued this
strategy by constructing, acquiring, leasing fibers or capacity on, and entering
into agreements to acquire local telecommunications networks.
The Company develops and operates high capacity, local fiber optic networks
with broad market coverage in a growing number of markets across the United
States. In its switched local service markets, the Company offers its customers
a bundled package of local and long distance services and also offers dedicated
transmission and competitive access services to long distance carriers and end
users. The Company plans to acquire, build or develop networks in new areas,
expand its current networks, and also explore the acquisition or licensing of
additional enhanced communications services and other telecommunications service
providers. These efforts should allow the Company to increase its presence in
the marketplace, and facilitate providing a single source solution for the
telecommunications needs of its customers.
The Company currently operates 18 facilities-based networks providing
switched local and long distance services in 32 markets in nine states. The
Company serves larger markets including Los Angeles, Chicago, Atlanta and the
San Francisco Bay Area, medium-sized markets such as Las Vegas and Nashville,
and clusters of smaller markets in Orange County, California and central
Pennsylvania. The Company anticipates developing additional new markets
throughout a majority of the nation's top 30 markets which, together with its
existing markets, are expected to have a total of approximately 27 million
addressable business lines by the end of 2000. The Company plans to launch
service in New York and New Jersey in the third quarter of 1998; Dallas, Denver
and Miami in the fourth quarter of 1998; San Diego and Washington, D.C. in the
first quarter of 1999; and Seattle in the second quarter of 1999. The Company
is also developing a national network strategy to enable it to offer its
customers complete, end-to-end voice and data communications services over
NEXTLINK-owned facilities.
The table below provides selected key financial and operating data (dollars
are in thousands):
<TABLE>
<CAPTION>
AS OF AND
FOR THE THREE MONTHS
ENDED JUNE 30,
1998 1997
---------- ----------
<S> <C> <C>
FINANCIAL DATA:
Gross property and equipment. . . . . . . . . . . $ 424,007 $ 175,630
EBITDA (1). . . . . . . . . . . . . . . . . . . . $ (32,117) $ (16,265)
OPERATING DATA (2):
Route miles (3).. . . . . . . . . . . . . . . . . 2,099 1,595
Fiber miles (4) . . . . . . . . . . . . . . . . . 152,225 117,464
On-net buildings connected (5). . . . . . . . . . 658 459
Off-net buildings connected (6) . . . . . . . . . 8,448 825
Switches installed. . . . . . . . . . . . . . . . 17 12
Access lines in service (7) . . . . . . . . . . . 102,887 17,409
Employees . . . . . . . . . . . . . . . . . . . . 1,765 845
</TABLE>
(1) EBITDA represents net loss before interest expense, interest income,
depreciation, amortization and deferred compensation expense. EBITDA is
commonly used to analyze companies on the basis of operating performance,
leverage and liquidity. While EBITDA should not be construed as a
substitute for operating income or a better measure of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of the Company to meet
future debt service, capital expenditure and working capital requirements.
<PAGE>
(2) The operating data includes 100% of the statistics of the Las Vegas
network, which the Company manages and in which the Company has a 40%
membership interest.
(3) Route miles refers to the number of miles of the telecommunications path in
which the Company-owned or leased fiber optic cables are installed.
(4) Fiber miles refers to the number of route miles installed along a
telecommunications path, multiplied by the Company's estimate of the number
of fibers along that path.
(5) Represents buildings physically connected to the Company's networks,
excluding those connected by unbundled incumbent local exchange carrier
(ILEC) facilities.
(6) Represents buildings connected to the Company's networks through leased or
unbundled ILEC facilities.
(7) Represents the number of access lines in service, including those lines
that are provided through resale of Centrex services, for which the Company
is billing services. The Company serviced 3,550 resold access lines as
of June 30, 1998, and does not sell such services to new customers. The
Company defines an access line as a telephone connection between a
customer purchasing local telephone services and NEXTLINK. This
connection does not include the concept of access line equivalents
(ALEs), and is a one-for-one relationship with no multipliers used for
trunk or station ratios. For instance, customers using direct inward dial
(DID) extensions are not included in the access lines reported.
Additionally, access services, such as a digital trunk connection to an
IXC, are not counted as access lines. For a trunk over which a primary
rate interface (PRI) service is provided, the Company counts 23 access
lines.
The Company builds its networks to encompass the significant business
concentrations in each area it serves, focusing on direct connections to end-
user locations and ILEC central offices. The Company employs a uniform
technology platform for each of its local exchange networks that is based on the
Nortel DMS 500 digital local and long distance combination switching platform
and associated distribution technology. As of June 30, 1998, the Company had 15
operational Nortel DMS 500 switches, including one switch in its NEXTLAB
facility, and currently plans to install four additional switches by the end of
1998. NEXTLAB is a fully functional model of one of the Company's networks,
which serves as a testing facility for switch software and the Company's
products and services and will serve as the Company's network operations control
center.
The development of the Company's businesses and the construction, acquisition
and expansion of its networks require significant expenditures, substantial
portions of which are incurred before the realization of revenues. These
expenditures, together with the associated early operating expenses, result in
negative cash flow until an adequate customer base is established. However, as
the customer base grows, the Company expects that incremental revenues can be
generated with decreasing incremental operating expenses, which may provide
positive contributions to cash flow. The Company has made the strategic decision
to build high capacity networks with broad market coverage, which initially
increases its level of capital expenditures and operating losses. The Company
believes that over the long term this will enhance the Company's financial
performance by increasing the traffic flow over the Company's networks. The
Company has recently entered into leased dark fiber and fiber capacity
arrangements which allow the Company, by installing one or more switches and
related electronics, to enter a market prior to completing construction of its
own fiber optic network.
RESULTS OF OPERATIONS
Revenue increased 176% to $32.0 million during the second quarter of 1998,
from $11.6 million in the same period in 1997. Year to date revenue of $58.6
million represented a 170% increase from the $21.7 million reported for the
comparable period in 1997. The increase was driven by 284% growth in revenues
from bundled local and long distance services and dedicated services, as well as
by the acquisitions of Start Technologies Corporation (Start) and Chadwick
Telecommunications Corporation (Chadwick) in the fourth quarter of 1997.
Revenues reported in the second quarter of 1998 included $26.8 million derived
from local and long distance, competitive access, dedicated line services and
shared tenant services and $5.2 million derived from enhanced communications
services, primarily interactive voice response (IVR) services. The Company's IVR
revenue comprised 15% and 30% of the Company's total revenues during the second
quarter of 1998 and 1997, respectively.
The Company increased the number of customer access lines added during the
quarter from 22,703 in the first quarter of 1998 to 30,053 during the second
quarter of 1998. As of June 30, 1998, the Company had 102,887 access lines in
service, compared to 50,131 as of December 31, 1997 and 17,409 as of June 30,
1997. Revenues from the provision of such services are expected to continue to
increase as a component of total revenues over future periods.
<PAGE>
Access lines in service includes those lines which are provided through
resale of Centrex services, the number of which is decreasing over time as
the Company converts those customers to its own network.
Operating expenses consist of costs directly related to providing facilities-
based network and enhanced communications services and also include salaries and
benefits and related costs of operations and engineering personnel. Operating
expenses increased 133% in the second quarter of 1998 to $28.1 million, an
increase of $16.0 million over the second quarter of 1997. For the six months
ended June 30, 1998, operating expenses rose $30.7 million, or 140%, over the
same period in 1997. These increases were attributed to increased network costs
related to provisioning higher volumes of local, long distance and enhanced
communications services, an increase in employees and an increase in other
related costs primarily to expand the Company's switched local and long distance
service businesses in its existing and planned markets. To a lesser extent, the
acquisitions of Start and Chadwick in the fourth quarter of 1997 also
contributed to the increase in operating costs over those in the second quarter
of 1997.
Selling, general and administrative (SG&A) expenses include salaries and
related personnel costs, facilities expenses, sales and marketing, systems
development costs, consulting and legal fees and equity in loss of affiliates.
SG&A expenses increased 128% and 134% in the three and six-month periods ended
June 30, 1998 as compared to the corresponding periods in 1997. The increases
were due to the Company's increase in employees, as well as other costs
associated with the expansion of the Company's switched local and long distance
service businesses in its existing and planned markets.
Deferred compensation expense was recorded in connection with the Company's
Equity Option Plan until April 1997, and in connection with the Company's Stock
Option Plan, which replaced the Equity Option Plan, subsequent to April 1997.
The stock options granted under the Equity Option Plan were considered
compensatory and were accounted for on a basis similar to that for stock
appreciation rights. All options outstanding under the Equity Option Plan were
regranted under the new Plan with terms and conditions substantially the same as
under the Equity Option Plan. As such, the Company continues to record deferred
compensation expense for those compensatory stock options issued, as well as for
compensatory stock options issued subsequent to the Plan conversion date.
Compensation expense is recognized over the vesting periods based on the excess
of the fair value of the stock options at the date of grant over the exercise
price.
Depreciation expense increased primarily due to placement in service of
additional telecommunications network assets, including switches, fiber optic
cable, network electronics and related equipment. Amortization of intangible
assets increased primarily as a result of the Start and Chadwick acquisitions in
the fourth quarter of 1997.
Interest expense increased 252% in the second quarter of 1998 over the
comparable period in the prior year due to an increase in the Company's average
outstanding indebtedness over the respective periods. See "--Liquidity and
Capital Resources." Pursuant to Statement of Financial Accounting Standards No.
34, the Company capitalizes a portion of its interest costs as part of the
construction cost of its communications networks. Capitalized interest during
the first six months of 1998 totaled $1.4 million. Interest income results from
investment of excess cash and certain securities that have been pledged as
collateral for interest payments on the 12-1/2% Senior Notes. The increase in
interest income for the three and six-month periods in 1998 over the same
periods in 1997 corresponded to the increase in the Company's average
outstanding cash balances.
LIQUIDITY AND CAPITAL RESOURCES
The competitive local telecommunications service business is a capital-
intensive business. The Company's existing operations have required and will
continue to require substantial capital investment for the acquisition and
installation of fiber, electronics and related equipment in order to provide
switched services in the Company's networks and the funding of operating losses
during the start-up phase of each market. In addition, the Company's strategic
plan calls for expansion into additional market areas. Such expansion will
require significant additional capital for: potential acquisitions of businesses
or assets; design, development and construction of new networks; and the funding
of operating losses during the start-up phase of each market. During the first
six months of 1998,
<PAGE>
the Company used $79.1 million in cash for operating activities, compared to
$45.8 million for the same period in the prior year. The increase was
primarily due to a substantial increase in the Company's activities
associated with the continued development and expansion of switched local and
long distance service operations. During the first six months of 1998, the
Company invested an additional $218.7 million in property and equipment and
acquisitions of telecommunications assets. During the same period in 1997,
the Company invested $94.7 million in property and equipment, acquisitions of
telecommunications assets and businesses and equity investments in
telecommunications businesses.
In July 1998, the Company announced the formation of INTERNEXT L.L.C.,
which is beneficially owned 50% each by the Company and Eagle River
Investments, L.L.C (Eagle River). INTERNEXT entered into an agreement with
Level 3 Communications L.L.C. whereby INTERNEXT agreed to buy a nationwide,
multiconduit fiber optic network that is expected to cover more than 16,000
route miles and connect 50 cities in the United States and Canada. Pursuant
to this agreement, INTERNEXT will receive an exclusive interest in 24 fibers
in a shared conduit, one entire empty conduit and the right to 25% of the
fibers pulled through any conduits in the network in excess of five.
INTERNEXT will pay $700.0 million in exchange for these rights, the majority
of which will be payable as segments of the network are completed and
accepted by INTERNEXT, which is expected to occur during 2000 and 2001. The
Company has guaranteed the obligations of INTERNEXT under this agreement, up
to 50% of such obligations. The Company anticipates that Nextel
Communications, Inc. (Nextel) will acquire a one-third ownership interest in
INTERNEXT, which would reduce the Company's beneficial ownership interest in
and obligations with respect to INTERNEXT to one-third. The Company is in the
process of defining its plans for implementation of a national network
strategy, which is anticipated to require additional capital expenditures.
In February 1998, the Company signed a definitive agreement with Metromedia
Fiber Network for exclusive rights to multiple fibers and innerducts for 20
years, with two 10-year renewals. The route covered by the agreement extends
from Manhattan to White Plains (NY), to Stamford (CT), to Newark (NJ) and south
from Manhattan through Philadelphia, Wilmington (DE), Baltimore, and to
Washington (DC). The route will offer frequent splice points within metropolitan
areas and on routes between metropolitan areas, as well as provide access to
ILEC central and tandem switching offices. The Company paid $92.0 million in
cash for this transaction, $80.3 million of which was placed into escrow, to be
released as segments of the route are constructed and delivered to the Company.
In January 1998, the Company and Nextel formed NEXTBAND, a joint venture
that is owned 50% each by the Company and Nextel. NEXTBAND was the successful
bidder in 42 markets in the FCC's local multipoint distribution service
(LMDS) auctions. The Company's pro rata share of NEXTBAND's total bid in the
LMDS auctions was $67.4 million, which was paid in full in June 1998. The
Company is in process of defining its operational and financial plans for
implementation of an LMDS strategy, which likely will involve additional
capital expenditures.
On March 3, 1998, the Company completed the sale of $335.0 million in
aggregate principal amount of 9% Senior Notes due March 15, 2008. Proceeds from
the sale net of discounts, underwriting commissions, advisory fees and expenses
totaled approximately $326.5 million. Interest payments on the 9% Senior Notes
are due semi-annually, beginning September 1998.
On March 31, 1998, the Company completed the sale of 4,000,000 shares of
6-1/2% cumulative convertible preferred stock (6-1/2% Preferred Stock) with a
liquidation preference of $50 per share. The sale generated gross proceeds to
the Company of $200.0 million, and proceeds net of underwriting discounts,
advisory fees and expenses of $193.8 million. Each share of 6-1/2% Preferred
Stock is convertible, at the option of the holder, into 1.145 shares of the
Company's Class A common stock (subject to adjustments in certain
circumstances). Dividends on the 6-1/2% Preferred Stock accrue from March 31,
1998 and are payable quarterly in cash, beginning on June 30, 1998.
On April 1, 1998, the Company completed the sale of 9.45% Senior Discount
Notes (9.45% Notes), due April 15, 2008. The 9.45% Notes were issued at a
discount from their principal amount to generate aggregate gross proceeds to the
Company of approximately $400.0 million. Proceeds net of underwriting
commissions, advisory fees and expenses totaled $390.9 million. The 9.45% Notes
accrete at a rate of 9.45% compounded semi-annually,
<PAGE>
to an aggregate principal amount of approximately $637.0 million by April 15,
2003. No cash interest will accrue on the Notes until April 15, 2003.
Interest will become payable in cash semi-annually beginning on October 15,
2003.
The Company will use the net proceeds from the sale of the 9% Senior Notes,
the 6-1/2% Preferred Stock and the 9.45% Notes and existing unrestricted cash
balances for expenditures relating to the development, construction, acquisition
and operation of telecommunications networks and service providers and the
offering of telecommunications services in those areas where the Company
currently operates or intends to operate. Expenditures for the construction and
operation of networks include (i) the purchase and installation of switches and
related electronics in existing networks and in networks to be constructed or
acquired in new or adjacent markets, (ii) the purchase and installation of fiber
optic cable and electronics to expand existing networks and develop new
networks, including the connection of new buildings, (iii) the development of
its comprehensive information technology platform, (iv) the acquisition of LMDS
spectrum purchased in the FCC's auction and the construction and deployment of
associated facilities and (v) the funding of operating losses and working
capital. The Company may also acquire or invest in businesses that consist of
existing networks or companies engaged in businesses similar to those engaged in
by the Company and its subsidiaries or other complementary businesses.
As of June 30, 1998, the Company had unrestricted cash and investments of
$1,298.6 million. The Company's current plan contemplates an aggressive
expansion into a number of new markets. The Company may pursue various
alternatives for achieving its growth strategy, including: additional network
construction; additional leases of network capacity from third party
providers; acquisitions of existing networks; and use of spectrum that was
purchased during the LMDS auctions and construction and deployment of
associated facilities. The Company also anticipates that a substantial amount
of additional capital expenditures will be made in 1999 and beyond. The
funding of these capital expenditures is expected to be provided by existing
cash balances, future vendor and/or credit facilities, future public or
private sales of debt securities, future sales of public or private capital
stock and joint ventures. There can be no assurance, however, that the
Company will be successful in raising sufficient additional capital on terms
that it will consider acceptable or that the Company's operations will
produce positive consolidated cash flow in sufficient amounts to meet its
interest and dividend obligations on its outstanding securities. Failure to
raise and generate sufficient funds may require the Company to delay or
abandon some of its planned future expansion or expenditures, which could
have a material adverse effect on the Company's growth and its ability to
compete in the telecommunications services industry.
In addition, the Company's operating flexibility with respect to certain
business matters is, and will continue to be, limited by covenants associated
with the 12-1/2% Senior Notes, the 9-5/8% Senior Notes, the 9% Senior Notes and
the 9.45% Notes (collectively referred to as the Senior Notes). Among other
things, these covenants limit the ability of the Company and its subsidiaries to
incur additional indebtedness, create liens upon assets, apply the proceeds from
the disposal of assets, make dividend payments and other distributions on
capital stock and redeem capital stock. In addition, the terms of the 14% Senior
Exchangeable Redeemable Preferred Shares (14% Preferred Shares) contain certain
covenants that may limit the Company's operating flexibility with respect to the
incurrence of indebtedness and issuance of additional preferred shares. There
can be no assurance that such covenants will not adversely affect the Company's
ability to finance its future operations or capital needs or to engage in other
business activities that may be in the interest of the Company. The Company was
in compliance with all covenants associated with the Senior Notes and 14%
Preferred Shares as of June 30, 1998.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
The statements contained in this report and in associated prior filings by
the Company with the Securities and Exchange Commission which are not
historical facts are "forward-looking statements" (as such term is defined in
the Private Securities Litigation Reform Act of 1995), which can be
identified by the use of forward-looking terminology such as "believes",
"expects", "may", "will", "should", or "anticipates" or the negative thereof
or other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Such forward-looking
statements include, but are not limited to: the Company's plans to build,
acquire or develop networks and offer services in new areas, expand its
current networks and explore the acquisition or licensing of additional
enhanced communications services and other telecommunications service
providers; the Company's development of a national strategy for end-to-end
communications services; the Company's presence in the
<PAGE>
marketplace and its ability to provide a single source solution for the
telecommunications needs of its customers; the Company's anticipated
development of new markets; its expected number of addressable business lines
in markets where the Company operates and by the end of 2000; its plans to
launch service in various cities; its plans to install additional switches by
the end of 1998; its plans to implement use of LMDS spectrum; its expectation
regarding incremental revenues, incremental operating expenses and
contributions to cash flow; the Company's belief regarding its financial
performance and traffic flow over its networks; its expectations regarding
revenue from access lines as a percentage of total revenues; its requirements
for capital investment; its use of proceeds from various financings; its
anticipated capital expenditures; and other statements contained herein
regarding matters that are not historical facts. Management wishes to caution
the reader that these forward-looking statements are only predictions. These
statements are based on a number of assumptions that ultimately could prove
inaccurate and, therefore, no assurance can be given that the future results
will be achieved. Actual events or results may differ materially as a result
of a number of factors, including those identified in the Company's annual
report on Form 10-KSB (File No. 333-04603). Factors that could affect
performance include: the level of the Company's future negative cash flows
and operating losses incurred by the Company until it establishes an adequate
revenue base and generates substantial revenues from the provision of
switched local and long distance services; successfully generating or raising
on terms that the Company will consider acceptable sufficient capital to
accommodate planned future expansion and expenditures; continued attraction
and retention of qualified managerial, professional and technical personnel;
timely installation of the required switches, fiber optic cable and
associated electronics necessary to provide switched local service in a
manner that will permit the resolution of technical problems; successfully
negotiating new and, to the extent necessary, renegotiating existing
interconnection agreements; successfully developing effective systems
relating to ordering, provisioning and billing for telecommunications
services; successfully offering, marketing and selling switched local
services and other enhanced products and services in all of the Company's
networks as quickly as practicable; sufficient access to the ILEC's networks
and adequate cooperation therefrom to connect new customers to the Company's
network on a timely basis; identifying, financing and completing suitable
acquisitions; maintaining existing, and obtaining and maintaining new,
franchises, permits and rights-of-way and any required governmental
authorizations, franchises and permits on a timely basis; competition from
incumbent providers and new entrants; the nature of regulatory, legislative
and judicial developments; and rapid and significant changes in technology.
These are representative of factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and economic conditions including
interest rate fluctuations.
NEW ACCOUNTING STANDARD
In April 1998, the AICPA released Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5). The new standard requires that all
entities expense costs of start-up activities as those costs are incurred. SOP
98-5 defines "start-up costs" as those costs directly related to pre-operating,
pre-opening, and organization activities. This standard must be adopted in
fiscal years beginning after December 15, 1998. The Company does not capitalize
start-up costs as defined by SOP 98-5; as such, adoption of SOP 98-5 will not
have a material impact the Company's financial position.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings,
other than regulatory and other proceedings that are in the
normal course of its business.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In June 1998, the Company issued 189,312 shares of Class B common
stock to Questar Infocomm, Inc. (Questar) pursuant to an Exchange
Agreement dated as of May 26, 1998 between the Company and
Questar. Such shares of Class B common stock were issued in
consideration for the acquisition of Questar's 10% membership
interest in NEXTLINK Utah, L.L.C, a majority-owned subsidiary of
the Company. These shares of Class B common stock were issued in
reliance upon an exemption from registration contained in Rule
506 of Regulation D of the Securities Act of 1993, as amended,
based upon Questar's representation that it was an accredited
investor, as defined under such regulation.
The Company filed a registration statement on Form S-1 (File
No. 333-32001) which became effective on September 26, 1997,
whereby 15,200,000 shares of Class A common stock, $.02 par
value per share, were sold in an initial public offering (IPO)
at a price of $17 per share. Of the 15,200,000 shares of Class
A common stock sold, 12,000,000 were sold by the Company and
3,200,000 were sold by a selling shareholder. The Company did
not receive any of the proceeds from the sale of shares by the
selling shareholder. In addition, the underwriters of the IPO,
led by Salomon Brothers Inc, exercised an option to purchase
2,280,000 additional shares of Class A common stock at the
same price per share. Net proceeds to the Company from the
initial public offering totaled approximately $226.8 million,
after deducting underwriting discounts, advisory fees and
expenses aggregating approximately $16.0 million. The Company
intends to use substantially all of the net proceeds from the
initial public offering for expenditures relating to the
expansion of existing networks and services, the development
and acquisition of new networks and services and the funding
of operating losses and working capital. None of the proceeds
from this offering had been used as of June 30, 1998.
The Company filed a registration statement on Form S-1 (File
No. 333-32003) which became effective on September 26, 1997,
whereby the Company sold $400.0 million aggregate principal
amount of 9-5/8% Senior Notes. The offering was led by Salomon
Brothers Inc. Net proceeds from the sale of the 9-5/8% Senior
Notes totaled approximately $388.5 million, after deducting
issuance costs aggregating approximately $11.5 million,
relating to underwriting discounts, advisory fees and
expenses. The use of proceeds from the debt offering are
expected to be substantially the same as the Company's initial
public offering. Approximately $228.0 million of the proceeds
from this offering had been used as of June 30, 1998, $129.2
million of which was used for the purchase of property and
equipment, $20.5 million for the network lease agreement entered
into in February 1998, and the remainder was used to fund the
Company's operations and working capital requirements.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on May 20,
1998. The following matters were voted upon at the meeting:
Proposal 1: The following directors were elected:
<PAGE>
PART II. OTHER INFORMATION
<TABLE>
Caption
Votes
----------------------------
For Withheld
----------- --------
<S> <C> <C>
Steven W. Hooper. . . . . . . . . . . . . . . . 343,811,711 368,186
Wayne M. Perry. . . . . . . . . . . . . . . . . 344,020,607 159,290
James F. Voelker. . . . . . . . . . . . . . . . 344,020,607 159,290
Craig O. McCaw. . . . . . . . . . . . . . . . . 343,811,711 368,186
Dennis Weibling . . . . . . . . . . . . . . . . 343,810,961 368,936
Scot Jarvis . . . . . . . . . . . . . . . . . . 343,810,961 368,936
William A. Hoglund. . . . . . . . . . . . . . . 343,810,961 368,936
Sharon L. Nelson. . . . . . . . . . . . . . . . 344,020,607 159,290
Jeffrey S. Raikes . . . . . . . . . . . . . . . 344,020,607 159,290
</TABLE>
Proposal 2: The amendment of the Company's Stock Option Plan to
increase the number of available shares of Class A common stock
by 5,441,336 was approved, with 331,642,009 votes for, 9,030,604
votes against, 13,957 abstentions and 3,493,327 broker nonvotes.
Proposal 3: The Company's Employee Stock Purchase Plan was
approved, with 340,470,956 votes for, 196,550 votes against,
19,124 abstentions and 3,493,267 broker nonvotes.
Proposal 4: The change in the Company's state of incorporation
from Washington to Delaware by a merger with and into a newly-
formed, wholly-owned Delaware subsidiary was approved, with
340,657,553 votes for, 19,175 votes against, 9,502 abstentions
and 3,493,667 broker nonvotes.
Proposal 5: The appointment of Arthur Andersen LLP as the
independent public accountants of the Company for 1998 was
approved, with 344,122,604 votes for, 50,264 votes against and
7,029 abstentions.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of NEXTLINK
Communications, Inc. (1)
3.2 By-laws of NEXTLINK Communications, Inc. (1)
3.3 Articles of Incorporation of NEXTLINK Capital, Inc. (2)
3.4 By-laws of NEXTLINK Capital, Inc. (2)
4.1 Form of Exchange Note Indenture, by and among NEXTLINK
Communications, Inc. and United States Trust Company of
New York, as Trustee, relating to the Exchange Notes,
including form of Exchange Notes. (3)
4.2 Certificate of Designations of the Powers, Preferences
and Relative, Participating, Optional and Other Special
Rights of 14% Senior Exchangeable
<PAGE>
PART II. OTHER INFORMATION
Redeemable Preferred Shares and Qualifications,
Limitations and Restrictions Thereof. (1)
4.3 Form of stock certificate of 14% Senior Exchangeable
Redeemable Preferred Shares. (3)
4.4 Indenture, dated as of April 25, 1996, by and among
NEXTLINK Communications, Inc., NEXTLINK Capital, Inc.
and United States Trust Company of New York, as
Trustee, relating to 12-1/2% Senior Notes due April 15,
2006, including form of global note. (2)
4.5 First Supplemental Indenture, dated as of January 31,
1997, by and among NEXTLINK Communications, Inc.,
NEXTLINK Communications, L.L.C., NEXTLINK Capital and
United States Trust Company of New York, as Trustee.
(3)
4.6 Form of Indenture between United States Trust Company,
as Trustee and NEXTLINK Communications, Inc., relating
to the 9-5/8% Senior Notes due 2007. (4)
4.7 Indenture, dated March 3, 1998, between United States
Trust Company, as Trustee and NEXTLINK Communications,
Inc., relating to the 9% Senior Notes due 2008. (5)
4.8 Certificate of Designations of the Powers, Preferences
and Relative, Participating, Optional and Other Special
Rights of 6-1/2% Cumulative Convertible Preferred Stock
and Qualifications, Limitations and Restrictions
Thereof. (1)
4.9 Indenture, dated April 1, 1998, between United States
Trust Company, as Trustee and NEXTLINK Communications,
Inc. relating to the 9.45% Senior Discount Notes due
2008. (6)
4.10 Second Supplemental Indenture, dated June 3, 1998,
amending Indenture dated April 25, 1996, by and among
NEXTLINK Communications, Inc., NEXTLINK Capital, Inc.
and United States Trust Company of New York, as
Trustee. (1)
4.11 First Supplemental Indenture, dated June 3, 1998,
amending Indenture dated September 25, 1997, by and
between NEXTLINK Communications, Inc. and United States
Trust Company of New York, as Trustee. (1)
4.12 First Supplemental Indenture, dated June 3, 1998,
amending Indenture dated March 3, 1998, by and between
NEXTLINK Communications, Inc. and United States Trust
Company of New York, as Trustee. (1)
4.13 First Supplemental Indenture, dated June 3, 1998,
amending Indenture dated April 1, 1998, by and between
NEXTLINK Communications, Inc. and United States Trust
Company of New York, as Trustee. (1)
10.1 Stock Option Plan of NEXTLINK Communications, Inc., as
amended. (1)
10.2 Employee Stock Purchase Plan of NEXTLINK
Communications, Inc. (1)
<PAGE>
PART II. OTHER INFORMATION
10.3 Registration Rights Agreement dated as of January 15,
1997, between the predecessor of NEXTLINK
Communications, Inc. and the signatories listed
therein. (3)
10.4 Preferred Exchange and Registration Rights Agreement,
dated as of January 31, 1997, by and among the
predecessor of NEXTLINK Communications, Inc. and the
Initial Purchasers. (3)
10.5 Fiber Lease and Innerduct Use Agreement, dated as of
February 23, 1998, by and between NEXTLINK
Communications, Inc. and Metromedia Fiber Network, Inc.
(5)
10.6 Amendment No. 1 to Fiber Lease and Innerduct Use
Agreement, dated as of March 4, 1998, by and between
NEXTLINK Communications, Inc. and Metromedia Fiber
Network, Inc. (5)
27 Financial Data Schedule
----------
(1) Incorporated herein by reference to the exhibit filed with
the Registration Statement on Form S-4 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Commission
File No. 333-53975).
(2) Incorporated herein by reference to the exhibit filed with
the Registration Statement on Form S-4 of NEXTLINK
Communications, L.L.C. (the predecessor of NEXTLINK
Communications, Inc.) and NEXTLINK Capital, Inc. (Commission
File No. 333-4603).
(3) Incorporated herein by reference to the exhibit filed with
the Annual Report on Form 10-KSB for the year ended December
31, 1996 of NEXTLINK Communications, Inc. and NEXTLINK
Capital, Inc. (Commission File Nos. 333-04603 and
333-04603-01).
(4) Incorporated herein by reference to the exhibit filed with
the Registration Statement on Form S-1 of NEXTLINK
Communications, Inc. (Commission File No. 333-32003).
(5) Incorporated herein by reference to the exhibit filed with
the Annual Report on Form 10-KSB for the year ended December
31, 1997 of NEXTLINK Communications, Inc. and NEXTLINK
Capital, Inc. (Commission File Nos. 333-04603 and
333-04603-01).
(6) Incorporated herein by reference to the exhibit filed with
the quarterly report on Form 10-Q for the quarterly period
ended March 31, 1998 of NEXTLINK Communications, Inc. and
NEXTLINK Capital, Inc. (Commission File No. 000-22939).
(b) Reports on Form 8-K
Current report on Form 8-K, filed April 14, 1998,
regarding the Company's sale of unregistered 6-1/2%
Cumulative Convertible Preferred Stock pursuant to
Regulation S and Rule 144A under the Securitites Act
and 9.45% Senior Discount Notes due 2008 pursuant to
Rule 144A.
Current report on Form 8-K, filed July 20, 1998,
regarding the announcement by James Voelker of his
resignation as President and a director of the Company
and the appointment of George Tronsrue as President of
the Company.
Current report on Form 8-K, filed July 22, 1998,
regarding INTERNEXT L.L.C., of which each of the
Company and Eagle River Investments
<PAGE>
PART II. OTHER INFORMATION
L.L.C beneficially owns a one-half interest, entering
into a Cost Sharing and IRU Agreement with Level 3
Communications, L.L.C.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
NEXTLINK Communications, Inc.
Date: August 14, 1998 By: /s/ Kathleen H. Iskra
---------------------------------------
Kathleen H. Iskra
Vice President, Chief Financial Officer
and Treasurer
(Principal financial and accounting
officer)
NEXTLINK Capital, Inc.
Date: August 14, 1998 By: /s/ Kathleen H. Iskra
---------------------------------------
Kathleen H. Iskra
Vice President, Chief Financial Officer
and Treasurer
(Principal financial and accounting
officer)
<PAGE>
NEXTLINK COMMUNICATIONS, INC.
EXHIBIT INDEX
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Exhibit No. Description
- ----------- -----------
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3.1 Certificate of Incorporation of NEXTLINK Communications, Inc. (1)
3.2 By-laws of NEXTLINK Communications, Inc. (1)
3.3 Articles of Incorporation of NEXTLINK Capital, Inc. (2)
3.4 By-laws of NEXTLINK Capital, Inc. (2)
4.1 Form of Exchange Note Indenture, by and among NEXTLINK Communications,
Inc. and United States Trust Company of New York, as Trustee, relating
to the Exchange Notes, including form of Exchange Notes. (3)
4.2 Certificate of Designations of the Powers, Preferences and Relative,
Participating, Optional and Other Special Rights of 14% Senior
Exchangeable Redeemable Preferred Shares and Qualifications,
Limitations and Restrictions Thereof. (1)
4.3 Form of stock certificate of 14% Senior Exchangeable Redeemable
Preferred Shares. (3)
4.4 Indenture, dated as of April 25, 1996, by and among NEXTLINK
Communications, Inc., NEXTLINK Capital, Inc. and United States Trust
Company of New York, as Trustee, relating to 12-1/2% Senior Notes due
April 15, 2006, including form of global note. (2)
4.5 First Supplemental Indenture, dated as of January 31, 1997, by and
among NEXTLINK Communications, Inc., NEXTLINK Communications, L.L.C.,
NEXTLINK Capital and United States Trust Company of New York, as
Trustee. (3)
4.6 Form of Indenture between United States Trust Company, as Trustee and
NEXTLINK Communications, Inc., relating to the 9-5/8% Senior Notes due
2007. (4)
4.7 Indenture, dated March 3, 1998, between United States Trust Company, as
Trustee and NEXTLINK Communications, Inc., relating to the 9% Senior
Notes due 2008. (5)
4.8 Certificate of Designations of the Powers, Preferences and Relative,
Participating, Optional and Other Special Rights of 6-1/2% Cumulative
Convertible Preferred Stock and Qualifications, Limitations and
Restrictions Thereof. (1)
4.9 Indenture, dated April 1, 1998, between United States Trust Company, as
Trustee and NEXTLINK Communications, Inc. relating to the 9.45% Senior
Discount Notes due 2008. (6)
4.10 Second Supplemental Indenture, dated June 3, 1998, amending Indenture
dated April 25, 1996, by and among NEXTLINK Communications, Inc.,
NEXTLINK Capital, Inc. and United States Trust Company of New York, as
Trustee. (1)
4.11 First Supplemental Indenture, dated June 3, 1998, amending Indenture
dated September 25, 1997, by and between NEXTLINK Communications, Inc.
and United States Trust Company of New York, as Trustee. (1)
4.12 First Supplemental Indenture, dated June 3, 1998, amending Indenture
dated March 3, 1998, by and between NEXTLINK Communications, Inc. and
United States Trust Company of New York, as Trustee. (1)
4.13 First Supplemental Indenture, dated June 3, 1998, amending Indenture
dated April 1, 1998, by and between NEXTLINK Communications, Inc. and
United States Trust Company of New York, as Trustee. (1)
10.1 Stock Option Plan of NEXTLINK Communications, Inc., as amended. (1)
10.2 Employee Stock Purchase Plan of NEXTLINK Communications, Inc. (1)
10.3 Registration Rights Agreement dated as of January 15, 1997, between
the predecessor of NEXTLINK Communications, Inc. and the signatories
listed therein. (3)
10.4 Preferred Exchange and Registration Rights Agreement, dated as of
January 31, 1997, by and among the predecessor of NEXTLINK Communications,
Inc. and the Initial Purchasers. (3)
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Exhibit No. Description
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10.5 Fiber Lease and Innerduct Use Agreement, dated as of February 23,
1998, by and between NEXTLINK Communications, Inc. and Metromedia
Fiber Network, Inc. (5)
10.6 Amendment No. 1 to Fiber Lease and Innerduct Use Agreement, dated as
of March 4, 1998, by and between NEXTLINK Communications, Inc. and
Metromedia Fiber Network, Inc. (5)
27 Financial Data Schedule
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(1) Incorporated herein by reference to the exhibit filed with
the Registration Statement on Form S-4 of NEXTLINK
Communications, Inc. and NEXTLINK Capital, Inc. (Commission
File No. 333-53975).
(2) Incorporated herein by reference to the exhibit filed with the
Registration Statement on Form S-4 of NEXTLINK Communications,
L.L.C. (the predecessor of NEXTLINK Communications, Inc.) and
NEXTLINK Capital, Inc. (Commission File No. 333-4603).
(3) Incorporated herein by reference to the exhibit filed with
the Annual Report on Form 10-KSB for the year ended December
31, 1996 of NEXTLINK Communications, Inc. and NEXTLINK
Capital, Inc. (Commission File Nos. 333-04603 and
333-04603-01).
(4) Incorporated herein by reference to the exhibit filed with
the Registration Statement on Form S-1 of NEXTLINK
Communications, Inc. (Commission File No. 333-32003).
(5) Incorporated herein by reference to the exhibit filed with
the Annual Report on Form 10-KSB for the year ended December
31, 1997 of NEXTLINK Communications, Inc. and NEXTLINK
Capital, Inc. (Commission File Nos. 333-04603 and
333-04603-01).
(6) Incorporated herein by reference to the exhibit filed with the
quarterly report on Form 10-Q for the quarterly period ended
March 31, 1998 of NEXTLINK Communications, Inc. and NEXTLINK
Capital, Inc. (Commission File No. 000-22939).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 300,430
<SECURITIES> 998,216
<RECEIVABLES> 27,208
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,376,826
<PP&E> 424,007
<DEPRECIATION> 51,320
<TOTAL-ASSETS> 2,055,932
<CURRENT-LIABILITIES> 76,515
<BONDS> 1,493,901
530,772
0
<COMMON> 345,064
<OTHER-SE> (401,601)
<TOTAL-LIABILITY-AND-EQUITY> 2,055,932
<SALES> 0
<TOTAL-REVENUES> 58,575
<CGS> 0
<TOTAL-COSTS> 144,401
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,616
<INCOME-PRETAX> (112,885)
<INCOME-TAX> 0
<INCOME-CONTINUING> (112,885)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (112,885)
<EPS-PRIMARY> (2.61)
<EPS-DILUTED> (2.61)
</TABLE>
