<PAGE> 1
- --------------------------------------------------------------------------------
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-26649
------------------------
NEXTEL INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
WASHINGTON 91-167-1412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1191 SECOND AVENUE, SUITE 1600, SEATTLE, WA 98101
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (206) 749-8000
------------------------
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 [ ]
Indicate the number of shares outstanding of each of issuer's classes of
common stock as of the latest practicable date:
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING
TITLE OF CLASS ON NOVEMBER 1, 1998
-------------- -------------------
<S> <C>
Common Stock, no par value 36,508,622
</TABLE>
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<PAGE> 2
NEXTEL INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION.
Item 1. Financial Statements--Unaudited................... 3
Condensed Consolidated Balance Sheets--As of September
30, 1998 and December 31, 1997........................ 3
Condensed Consolidated Statements of Operations--For
the Three Months Ended September 30, 1998 and 1997.... 4
Condensed Consolidated Statements of Operations--For
the Nine Months Ended September 30, 1998 and 1997..... 5
Condensed Consolidated Statement of Stockholders'
Equity--For the Nine Months Ended September 30,
1998.................................................. 6
Condensed Consolidated Statements of Cash Flows--For
the Nine Months Ended September 30, 1998 and 1997..... 7
Notes to Condensed Consolidated Interim Financial
Statements............................................ 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 16
PART II OTHER INFORMATION.
Item 1. Legal Proceedings................................. 28
Item 4. Submissions of Matters to a Vote of Security
Holders................................................ 28
Item 6. Exhibits and Reports on Form 8-K.................. 29
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS -- UNAUDITED.
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (of which $28,260 is
restricted as of September 30, 1998).................. $ 173,818 $ 159,790
Marketable securities.................................. 49,093 128,560
Accounts receivable, less allowance for doubtful
accounts of $4,238 and $1,003......................... 15,292 3,838
Subscriber equipment inventory......................... 29,479 1,749
Prepaid and other...................................... 24,220 15,884
---------- ----------
Total current assets.............................. 291,902 309,821
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $13,294 and $1,992........................ 467,994 136,210
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES, at cost less
equity in net losses of $9,048 and $7,526................. 118,728 106,489
INTANGIBLE ASSETS, net of accumulated amortization of
$35,775 and $14,664....................................... 567,795 526,000
INVESTMENTS AND OTHER ASSETS................................ 154,942 44,518
---------- ----------
$1,601,361 $1,123,038
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other........... $ 106,055 $ 76,048
Due to parent.......................................... -- 8,254
Notes payable and current portion of long-term debt.... 2,715 2,211
---------- ----------
Total current liabilities......................... 108,770 86,513
LONG-TERM DEBT.............................................. 1,178,376 597,809
DEFERRED INCOME TAXES....................................... 93,651 120,777
---------- ----------
Total liabilities...................................... 1,380,797 805,099
---------- ----------
MINORITY INTEREST........................................... 27,345 21,910
STOCKHOLDERS' EQUITY:
Series A exchangeable redeemable preferred stock (1,250
shares authorized, $10.00 par value, 988.86 and 0
shares issued and outstanding)........................ 98,886 --
Series B redeemable preferred stock (2,500 shares
authorized, $10.00 par value, no shares issued and
outstanding).......................................... -- --
Common stock (73,000,000 shares authorized, no par
value, 36,502,624 and 36,500,000 shares issued and
outstanding).......................................... 395,455 395,428
Accumulated deficit.................................... (246,932) (102,689)
Unrealized gain (loss) on investments.................. (37,781) 3,290
Cumulative translation adjustment...................... (16,409) --
---------- ----------
Total stockholders' equity........................ 193,219 296,029
---------- ----------
$1,601,361 $1,123,038
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES
Radio service revenue.................................. $ 7,016 $ 2,819
Equipment sales and maintenance........................ 1,834 266
----------- -----------
8,850 3,085
----------- -----------
OPERATING EXPENSES
Cost of radio service revenue.......................... 3,752 624
Cost of equipment sales and maintenance................ 2,211 129
Selling, general and administrative.................... 49,599 7,350
Depreciation and amortization.......................... 13,742 4,656
----------- -----------
69,304 12,759
----------- -----------
OPERATING LOSS.............................................. (60,454) (9,674)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income........................................ 4,772 6,079
Interest expense....................................... (30,163) (16,761)
Loss from equity method investments.................... (4,208) (2,448)
Other, net............................................. 5,464 (13)
Minority interest...................................... 4,722 900
----------- -----------
(19,413) (12,243)
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT.............................. (79,867) (21,917)
INCOME TAX BENEFIT.......................................... 10,003 1,296
----------- -----------
NET LOSS.................................................... $ (69,864) $ (20,621)
----------- -----------
NET LOSS PER COMMON SHARE, BASIC AND DILUTED................ $ (1.91) $ (0.57)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING........ 36,501,654 36,500,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES
Radio service revenue.................................. $ 20,392 $ 5,972
Equipment sales and maintenance........................ 6,205 1,077
----------- -----------
26,597 7,049
----------- -----------
OPERATING EXPENSES
Cost of radio service revenue.......................... 8,519 1,637
Cost of equipment sales and maintenance................ 4,440 594
Selling, general and administrative.................... 89,578 17,646
Depreciation and amortization.......................... 33,657 11,347
----------- -----------
136,194 31,224
----------- -----------
OPERATING LOSS.............................................. (109,597) (24,175)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income........................................ 14,177 15,045
Interest expense....................................... (74,548) (39,114)
Loss from equity method investments.................... (6,404) (6,330)
Other, net............................................. 3,303 140
Minority interest...................................... 8,271 2,247
----------- -----------
(55,201) (28,012)
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT.............................. (164,798) (52,187)
INCOME TAX BENEFIT.......................................... 20,555 3,417
----------- -----------
NET LOSS.................................................... $ (144,243) $ (48,770)
----------- -----------
NET LOSS PER COMMON SHARE, BASIC AND DILUTED................ $ (3.95) $ (1.34)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING........ 36,500,557 36,500,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------- --------------- --------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT
------ -------- ------ ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998..... -- -- -- -- 36,500,000 $395,428 $(102,689)
Issuance of Series A
preferred stock....... 988.86 $98,886
Issuance of common stock
upon exercise of stock
options............... 2,624 27
Unrealized loss on
investments...........
Cumulative translation
adjustment............
Net loss................ (144,243)
------ ------- -- -- ---------- -------- ---------
BALANCE, September 30,
1998....................... 988.86 $98,886 -- -- 36,502,624 $395,455 $(246,932)
====== ======= == == ========== ======== =========
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
----------------------------
UNREALIZED CUMULATIVE
GAIN (LOSS) ON TRANSLATION
INVESTMENTS ADJUSTMENT TOTAL
-------------- ----------- ---------
<S> <C> <C> <C>
BALANCE, January 1, 1998..... $ 3,290 -- $ 296,029
Issuance of Series A
preferred stock....... 98,886
Issuance of common stock
upon exercise of stock
options............... 27
Unrealized loss on
investments........... (41,071) (41,071)
Cumulative translation
adjustment............ $(16,409) (16,409)
Net loss................ (144,243)
-------- -------- ---------
BALANCE, September 30,
1998....................... $(37,781) $(16,409) $ 193,219
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE> 7
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(144,243) $(48,770)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization..................... 33,657 11,347
Interest accretion on long-term debt, net of
capitalized accreted interest of $12,892 and
$399............................................ 68,737 38,199
Loss from equity method investments............... 6,404 6,330
Deferred income taxes............................. (31,385) (2,555)
Minority interest................................. (8,271) (2,247)
Change in current assets and liabilities:
Accounts receivable.......................... (9,977) 1,514
Subscriber equipment inventory............... (24,646) 747
Prepaid and other............................ (6,828) (4,996)
Accounts payable, accrued expenses and
other...................................... 35,528 846
Prepaid value added taxes and other............... (41,027) 1,765
--------- --------
Net cash (used in) provided by operating activities.... (122,051) 2,180
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................... (291,480) (59,236)
Purchase of marketable securities...................... (93,997) (142,539)
Proceeds from sale of marketable securities............ 172,132 58,728
Business acquisitions, net of cash acquired............ (67,251) --
Investments in unconsolidated subsidiaries............. (80,214) (76,510)
Other.................................................. -- (6,410)
--------- --------
Net cash used in investing activities.................. (360,810) (225,967)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to parent, net.............................. (8,254) (23,556)
Capital contributions from parent...................... -- 6,366
Capital contributions from minority stockholders....... 10,132 --
Proceeds from issuance of Series A preferred stock to
parent................................................ 8,254 --
Proceeds from issuance of warrants..................... -- 14,800
Proceeds from exercise of stock options................ 27 --
Net proceeds from issuance of long-term debt........... 489,123 467,578
Repayment of long-term debt............................ (2,393) --
--------- --------
Net cash provided by financing activities.............. 496,889 465,188
--------- --------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 14,028 241,401
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 159,790 53,029
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 173,818 $294,430
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized of
$5,175 and $122....................................... $ -- $ 192
========= ========
Cash paid for income taxes............................. $ 1,685 $ --
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE> 8
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 -- BASIS OF PRESENTATION
The condensed consolidated interim financial statements of Nextel
International, Inc. and subsidiaries ("Nextel International" or the "Company"),
an indirect, substantially wholly owned subsidiary of Nextel Communications,
Inc. ("Nextel Communications"), included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "Commission") and reflect all adjustments that are,
in the opinion of management, necessary for a fair statement of the results for
the interim periods. All adjustments made were normal recurring accruals.
The interim financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
Operating results for the interim periods are not necessarily indicative of
results for an entire year.
The accounts of the Company's consolidated foreign subsidiaries and foreign
subsidiaries accounted for under the equity method are presented utilizing
accounts as of a date one month earlier than the accounts of the Company and its
U.S. subsidiaries to ensure timely reporting of consolidated results.
Certain prior period amounts have been reclassified to conform with the
current presentation.
SUPPLEMENTAL CASH FLOW INFORMATION: In March 1998, a wholly owned
subsidiary of Nextel Communications transferred to the Company 6,777,778 Class D
Shares of Clearnet Communications Inc. ("Clearnet") with a fair value of $90.6
million at the date of transfer in exchange for 906.32 shares of the Company's
Series A Exchangeable Redeemable Preferred Stock, $10 par value per share (the
"Series A Preferred Stock"). See Note 3.
RESTRICTED CASH AND CASH EQUIVALENTS: As of September 30, 1998,
approximately $28.3 million of cash and cash equivalents was restricted for
investment in the equity of subsidiaries under certain of the Company's
financing agreements and equipment purchases under certain infrastructure
purchase contracts.
COMPREHENSIVE INCOME: Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), that establishes new rules for the reporting and display
of comprehensive income and its components. Adoption of SFAS 130 requires
unrealized gains or losses on the Company's available-for-sale securities and
foreign currency translation adjustments to be included in other comprehensive
income. The components of comprehensive income, net of related tax, are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1998 1997 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net loss.................................. $ (69,864) $(20,621) $(144,243) $(48,770)
Other comprehensive income:
Unrealized gain (loss) on investments,
net of tax........................... (26,168) 5,317 (41,071) 6,484
Foreign currency translation
adjustment........................... (7,497) -- (16,409) --
--------- -------- --------- --------
Comprehensive income (loss)............... $(103,529) $(15,304) $(201,723) $(42,286)
========= ======== ========= ========
</TABLE>
ESMR NETWORK EQUIPMENT SALES AND RELATED COSTS: The loss generated from the
sale of subscriber units used in the Company's digital enhanced specialized
mobile radio ("ESMR") network primarily results from the Company's subsidy of
digital subscriber units and represents a marketing cost. Equipment sales
revenue and related cost of sales of digital subscriber units and related
accessories, including current period
8
<PAGE> 9
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- BASIS OF PRESENTATION -- (CONTINUED)
order fulfillment and installation related expenses, are classified within
selling, general and administrative expenses as follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE
MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1998
------------- -------------
<S> <C> <C>
Equipment sales.......................................... $11,291 $12,787
Cost of equipment sales.................................. 16,813 18,678
------- -------
$(5,522) $(5,891)
======= =======
</TABLE>
A substantial portion of the Company's digital subscriber units issued to
customers are sold or leased with terms requiring up to 24 monthly payments. The
Company has recorded such transactions as equipment sales at the time of
delivery and recorded an allowance for estimated sales returns. As of September
30, 1998, accounts receivable and investments and other assets includes $5.3
million and $6.0 million, respectively, related to such sales, which are
expected to be billed and collected over the next 24 months.
NEW ACCOUNTING PRONOUNCEMENTS: In March 1998, the American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement will be effective in 1999 and establishes
accounting standards for costs incurred in the development or implementation of
computer software. These new standards will require the capitalization of
certain software implementation costs relating to software developed and
implemented for the Company's use. This statement is not expected to have a
significant effect on the Company's financial position or results of operations.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." This statement will be effective in 1999 and
will require costs of start-up activities and organization costs to be expensed
as incurred. This statement is not expected to have a significant effect on the
Company's financial position or results of operations.
NOTE 2 -- SIGNIFICANT TRANSACTIONS; PRO FORMA INFORMATION
NEXTEL BRAZIL: On January 30, 1997, Nextel Communications purchased 81% of
the issued and outstanding capital stock of Wireless Ventures of Brazil, Inc.
("WVB") from Telcom Ventures, Inc. and affiliates (collectively "Telcom
Ventures") in exchange for $186.3 million in Nextel Communications Class A
Common Stock. Nextel Communications' investment in WVB was simultaneously
contributed to the Company, and WVB changed its name to McCaw International
(Brazil), Ltd. ("Nextel Brazil").
MCS: On September 26, 1997, Nextel S.A., a subsidiary of Nextel Brazil
that is the indirect holder of substantially all of Nextel Brazil's specialized
mobile radio channels and related operating assets in Brazil, acquired 49% of
the capital stock of MCS Radio Telefonia, Ltda. ("MCS"), an indirect wholly
owned subsidiary of Motorola, Inc. ("Motorola"), an option to purchase the
remaining 51% of the capital stock of MCS upon receipt of the approval of the
applicable Brazilian regulatory authorities and certain assets of MCS. Upon the
approval of the Brazilian regulatory authorities, the option for the remaining
51% will be exercisable for approximately $3.2 million. In exchange, Motorola,
through a wholly owned subsidiary, acquired 5% of the outstanding capital stock
of Nextel S.A. Immediately subsequent to the acquisition, the Company, through
its 81% equity interest in Nextel Brazil and Nextel Brazil's 95% equity interest
in Nextel S.A., held a 77% equity interest in Nextel S.A.
9
<PAGE> 10
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SIGNIFICANT TRANSACTIONS; PRO FORMA INFORMATION -- (CONTINUED)
NEXTEL MEXICO: During the year ended December 31, 1997, through a series
of transactions, the Company increased its equity interest in Comunicaciones
Nextel de Mexico S.A., de C.V. ("Nextel Mexico") from 30.1% to 100% for
consideration equal to approximately $132.2 million.
NEXTEL ARGENTINA: On May 6, 1997, the Company contributed its 100%
ownership interest in Nextel Argentina S.R.L. ("Nextel Argentina") into Nextel
International (Argentina), Ltd. (the "Argentina Joint Venture"), a joint venture
between the Company and Wireless Ventures of Argentina, L.L.C. ("WVA"). WVA's
contribution included all of the outstanding common stock of a paging company
and two companies that own SMR licenses in Argentina (collectively the "WVA
Entities"). During 1997, Nextel Argentina and the WVA Entities were merged, with
Nextel Argentina being the surviving entity (the merged entities are herein
collectively referred to as "Nextel Argentina" subsequent to the formation of
the Argentina Joint Venture). The Company had a 50% voting interest, shared
equally in the profits and losses of the Argentina Joint Venture, and accounted
for its investment in the Argentina Joint Venture under the equity method of
accounting.
On January 30, 1998, the Company acquired the remaining 50% interest in the
Argentina Joint Venture from WVA for a purchase price of $46 million in cash. As
a result of the purchase, the Company increased its effective ownership interest
in Nextel Argentina from 50% to 100%. The acquisition is accounted for as a
purchase and, accordingly, the Company consolidated the accounts of Nextel
Argentina commencing February 1, 1998. The carrying value of the Company's
investment in Nextel Argentina as of January 30, 1998 was approximately $63.0
million and was allocated to the net assets acquired based on their preliminary
estimated fair values, including licenses and goodwill, which are being
amortized over their estimated useful lives of 20 years.
NEXTEL PERU: On January 29, 1998, the Company acquired a 70.1% interest in
Comunicaciones Nextel del Peru S.A. ("Nextel Peru," formerly known as Valorcom
S.A.), a Peruvian wireless telecommunications company, for $27.9 million, which
was paid in the form of capital contributions from January 29, 1998 to July 30,
1998. Nextel Peru, through its subsidiaries, holds licenses to operate 138 SMR
channels in the greater Lima area. As of the closing date of the Company's
investment in Nextel Peru, Motorola, through Motorola International (as defined
below) held a 19.9% interest in Nextel Peru. The acquisition is accounted for as
a purchase and, accordingly, the Company consolidated the accounts of Nextel
Peru commencing February 1, 1998. The purchase price was allocated to the net
assets acquired based on their preliminary estimated fair values, including
licenses and goodwill, which are being amortized over their estimated useful
lives of 20 years. Nextel Peru's historical operations are insignificant
relative to the results of the Company.
In August 1998, the Company gave notice to Motorola International
Development Corporation ("Motorola International"), an indirect wholly owned
subsidiary of Motorola and the holder of a minority equity interest in Nextel
Peru, of the Company's exercise of its option to sell a portion of the Company's
shares of Nextel Peru to Motorola International (the "Nextel Peru Put
Transaction"). Pursuant to the agreement between the Company and Motorola
International, the Company had the right to sell to Motorola International
shares representing approximately 10% of the outstanding shares of Nextel Peru
for a purchase price of approximately $6.0 million. The Nextel Peru Put
Transaction was consummated on October 30, 1998. Additionally, as a result of
the decision of the other minority shareholder of Nextel Peru not to contribute
his pro rata share of capital contributions to Nextel Peru during the third
quarter of 1998, such shareholder's equity interest in Nextel Peru has been
diluted and the Company's and Motorola International's equity interest in Nextel
Peru have increased. Immediately following the closing of the Nextel Peru Put
Transaction, and giving effect to the dilution of the equity interest of the
other minority shareholder during the third quarter of 1998, the Company and
Motorola International held approximately 62.1% and 30.9%, respectively, of the
outstanding shares of Nextel Peru.
10
<PAGE> 11
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SIGNIFICANT TRANSACTIONS; PRO FORMA INFORMATION -- (CONTINUED)
NEXTEL PHILIPPINES: In February 1998, the Company reached an agreement in
principle with the three groups of local shareholders of Infocom Communications
Network, Inc. ("Nextel Philippines"), including the Gotesco group (the "Gotesco
Group" and together with the other local shareholders, the "Philippines
Shareholders"), and finalized such agreements in April 1998 (the "Philippines
Partner Agreements"). Pursuant to the Philippines Partner Agreements (i) the
Philippines Shareholders agreed to vote for the election of new, professional
senior management of Nextel Philippines; (ii) the Company purchased existing
shareholder loans of the Philippines Shareholders totaling approximately $19.6
million, which loans bear interest at 18% per annum and are convertible into
equity of Nextel Philippines; (iii) the Company may, at its option, fund Nextel
Philippines' future capital needs, estimated to be $50 million for fiscal year
1998, pursuant to loans that, at the option of the Company, may be converted
into equity of Nextel Philippines; (iv) the Gotesco Group obtained the right to
put its 20% interest to the Company for approximately $9.4 million, beginning in
January 1999 (the "Gotesco Put"); and (v) the Company had the right to call the
Gotesco Group's 20% interest for approximately $11.6 million, if the Gotesco
Group did not exercise the Gotesco Put. The ability of the Company to convert
shareholders loans into equity, satisfy the Gotesco Put or call the Gotesco
Group's 20% interest is subject to applicable Philippines foreign ownership
rules.
On June 26, 1998, the Company and the Gotesco Group entered into an
Agreement to Accelerate Put Rights (the "Gotesco Put Acceleration Agreement")
pursuant to which the exercise date of the Gotesco Put was accelerated from
January 1999 to August 21, 1998. Pursuant to the Gotesco Put Acceleration
Agreement, the Company agreed to pay the Gotesco Group $9,000,000 for the shares
covered by the Gotesco Put in three installments: (i) $500,000 upon the delivery
of irrevocable proxies covering the voting rights on the shares of Nextel
Philippines owned by the Gotesco Group; (ii) $500,000 to the Gotesco Group upon
the conclusion of the Nextel Philippines annual shareholder meeting, provided
that the Gotesco Group's shares of Nextel Philippines were voted in favor of the
corporate governance provisions of the Philippines Partner Agreements at such
annual meeting; and (iii) $8,000,000 upon the transfer of the shares covered by
the Gotesco Put to a qualified third-party purchaser in accordance with
Philippines law. The first two installments were paid on June 26, 1998 and July
13, 1998, respectively. On August 21, 1998, Gamboa Holdings, Inc. ("Gamboa
Holdings"), which is 60% owned by ACCRA Investments Corporation, a corporation
organized under the laws of the Philippines and owned by Philippine nationals
("ACCRAIN"), and 40% owned by an indirect subsidiary of the Company, delivered
the final installment of $8,000,000 to the Gotesco Group and the Gotesco Group
delivered the shares covered by the Gotesco Put to Gamboa Holdings.
Funds used by Gamboa Holdings to consummate the acquisition of the Gotesco
Group's shares of Nextel Philippines were derived from (a) equity contributions
by shareholders of Gamboa Holdings and (b) proceeds of loans made by a lending
institution to Gamboa Holdings and to ACCRAIN. The loans to Gamboa Holdings and
to ACCRAIN are secured by cash collateral deposits of the Company in the amount
of the loans and a pledge of Gamboa Holdings's shares of Nextel Philippines. As
a result of Gamboa Holdings's acquisition of the Gotesco Group's shares of
Nextel Philippines, the Company's aggregate equity interest in Nextel
Philippines, which includes its direct and indirect holdings, increased from 30%
to 38%.
ACCRAIN is a Philippine holding company with investments in a number of
Philippines companies. Pursuant to an agreement, dated as of August 21, 1998
between an indirect wholly owned subsidiary of the Company and ACCRAIN (the
"ACCRAIN Agreement"), ACCRAIN granted the Company a call right on ACCRAIN's
shares in Gamboa Holdings, exercisable at any time provided that the actual
purchaser of the shares is the Company or a qualified purchaser in accordance
with applicable Philippines foreign corporate ownership rules. Upon expiration
of the ACCRAIN Agreement, ACCRAIN may put to the Company or its qualified
designee ACCRAIN's shares in Gamboa Holdings (the "ACCRAIN Put"). The Company
believes, and has been advised by Philippine counsel, that the above-described
transactions with Gamboa Holdings
11
<PAGE> 12
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SIGNIFICANT TRANSACTIONS; PRO FORMA INFORMATION -- (CONTINUED)
comply with Philippines law, including applicable Philippines foreign corporate
ownership rules. However, there can be no assurance that the above-described
transactions will not be subject to legal challenge. In addition, the ability of
the Company to call ACCRAIN's interest in Gamboa Holdings or to satisfy the
ACCRAIN Put is subject to applicable Philippines foreign ownership rules. See
also Part II, Item 1, "Legal Proceedings."
J-COM: On March 17, 1998, the Company purchased a 21% equity interest in
J-Com Co., Ltd., an ESMR provider in Japan ("J-Com"), for a purchase price of
Y77.2 million (approximately $593,000 based on the exchange rate on the date of
purchase) (the "Japan Acquisition"). The Company also provided a shareholder
loan of Y4.1 billion (approximately $31.5 million based on the exchange rate on
the date of purchase) to J-Com. J-Com has a contractual right to provide ESMR
service in Japan under a sublicense covering more than 125 million people. DJSMR
Business Partnership, a Japanese partnership in which an affiliate of Motorola
is the majority partner, holds a 49% equity interest in J-Com. J-Com's
historical operations are insignificant relative to the results of the Company.
The Company's investment in J-Com is accounted for under the equity method.
SHANGHAI: Prior to September 1998, China United Telecommunications, Ltd.
("Unicom") had requested that Shanghai CCT-McCaw Telecommunications Systems Co.,
Ltd. ("Shanghai CCT McCaw) participate in financing the expansion of the
Shanghai GSM System ("Phase IV"). While the Company had previously advised its
partners in Shanghai CCT McCaw that it was not willing to provide funding for
Phase IV of the Shanghai GSM System, such partners advised the Company that each
intended to participate in the funding of Phase IV. Accordingly, the Company and
its partners in Shanghai CCT McCaw have engaged in discussions among themselves
and with Unicom with respect to Shanghai CCT McCaw's possible participation in
Phase IV.
In September 1998, Unicom advised the parties that pursuant to a new policy
of the Chinese government, Unicom was no longer permitted to enter into any new
contracts for its projects wherein financing was derived through investment
structures involving indirect investment by foreign investors, including the
structure utilized by Shanghai CCT McCaw with respect to the Shanghai GSM
System. Further, Unicom advised the parties that it intended to finance Phase IV
and any possible future expansions of the Shanghai GSM System on its own using
financing derived independently of Shanghai CCT McCaw.
To date, the Company is not aware of any new rules or regulations that have
been published or announced by the Chinese government with respect to the new
policy cited by Unicom or with respect to the treatment of existing contracts
such as those in existence between Shanghai CCT McCaw and Unicom under such new
policy. Pursuant to various discussions between and among representatives of
Shanghai CCT McCaw, the Company and Unicom, the Company believes that under the
new, unpublished restrictions imposed by the Chinese government (a) no agreement
with respect to Phase IV or subsequent phases will be entered into with Shanghai
CCT McCaw or any other investor that derives funds directly or indirectly from
foreign parties and (b) Shanghai CCT McCaw's existing contract with Unicom will
remain in effect and enforceable. However, it is unclear what effect the new
policy will have on the respective rights of Unicom and Shanghai CCT McCaw with
respect to the Shanghai GSM System. The restrictions to be imposed on the
Company pursuant to the new, unpublished regulations may have a material adverse
effect on Shanghai CCT McCaw's interest in the Shanghai GSM System and the value
of the Company's investment in Shanghai CCT McCaw. The Company's investment in
Shanghai CCT McCaw is carried on the Company's books at cost, which was
approximately $16.0 million as of September 30, 1998.
12
<PAGE> 13
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SIGNIFICANT TRANSACTIONS; PRO FORMA INFORMATION -- (CONTINUED)
PRO FORMA INFORMATION: The following summarized pro forma (unaudited)
information assumes the Nextel Brazil, MCS, Nextel Mexico and Nextel Argentina
transactions had occurred on January 1, 1997 (dollars in thousands, except for
share data).
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1997
------------- -------------
<S> <C> <C>
Revenues.................................................... $ 5,770 $ 18,087
========== ==========
Net loss.................................................... $ (24,561) $ (60,443)
========== ==========
Net loss per share.......................................... $ (0.67) $ (1.66)
========== ==========
Weighted average shares outstanding......................... 36,500,000 36,500,000
========== ==========
</TABLE>
The above amounts consolidate the historical results of Nextel Brazil, MCS,
Nextel Mexico and Nextel Argentina prior to the acquisitions and reflect
adjustments for the recognition of the minority ownership interests and the
amortization of licenses and goodwill. Pro forma information for the three and
nine months ended September 30, 1998 does not differ materially from historical
results. The pro forma information is not necessarily indicative of the results
that would actually have occurred had the transactions been consummated on the
date indicated, nor is it necessarily indicative of future operating results of
the Company.
NOTE 3 -- FINANCING ARRANGEMENTS
MARCH 1998 OFFERING: On March 12, 1998, the Company completed a private
placement offering (the "March 1998 Offering") of its 12 1/8% Senior Discount
Notes due 2008 (the "March 1998 Notes"). The March 1998 Offering generated
aggregate net proceeds to the Company of approximately $387 million. The March
1998 Notes are noncallable for five years and require no cash interest payments
for the first five years. On September 10, 1998, the Company completed an
exchange offer for the March 1998 Notes pursuant to a registration statement
declared effective by the Commission on August 4, 1998.
ISSUANCE OF PREFERRED STOCK: On March 12, 1998, in connection with the
March 1998 Offering, a wholly owned subsidiary of Nextel Communications
transferred to the Company 6,777,778 Class D Shares of Clearnet in exchange for
906.32 shares of the Company's Series A Preferred Stock. As a result of such
transaction (the "Clearnet Transaction"), the Company currently owns 583,104
Class A Shares and 7,790,741 Class D Shares of Clearnet (each Class D Share is
convertible at the option of the holder into one Class A Share). Additionally,
the Company issued 82.54 shares of Series A Preferred Stock to a wholly owned
subsidiary of Nextel Communications for consideration of $8,254,000.
The Series A Preferred Stock was issued at an original liquidation
preference of $100,000 per share and thereafter the liquidation preference on
the Series A Preferred Stock accretes at an annual rate equal to 13.625%. At
September 30, 1998, the accreted liquidation preference on the Series A
Preferred Stock totaled approximately $106,697,000. Except as required by law,
the holders of the Series A Preferred Stock are not entitled to receive
dividends or other distributions. The Company has the right at any time to
redeem the Series A Preferred Stock in full (or with the consent of the holder
of the affected shares of Series A Preferred Stock, in part) at a redemption
price equal to 100% of the accreted liquidation preference thereof on the
redemption date and under certain circumstances, the holders of the Series A
Preferred Stock have the right to exchange the Series A Preferred Stock for
shares of the Company's Series B Redeemable Preferred Stock, par value $10.00
per share (the "Series B Preferred Stock"), having a liquidation preference
equal to the accreted liquidation preference of the Series A Preferred Stock so
exchanged.
The Series B Preferred Stock to be issued in exchange for shares of Series
A Preferred Stock will have an initial annual dividend rate equal to 13.625%,
increasing to 18.00% as of March 13, 2010. The Series B
13
<PAGE> 14
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- FINANCING ARRANGEMENTS -- (CONTINUED)
Preferred Stock will have terms substantially similar to those of the Series A
Preferred Stock, except for the right to elect one director to the Company's
Board of Directors and the accrual of cumulative dividends payable quarterly in
cash. In addition, the Company may not issue shares of Series B Preferred Stock,
except in exchange for shares of Series A Preferred Stock, without the consent
of the holders of a majority of the outstanding shares of Series A Preferred
Stock and Series B Preferred Stock, voting together as a class.
ARGENTINA CREDIT FACILITY: As of February 27, 1998, Nextel Argentina
entered into an $83 million senior secured credit facility (the "Argentina
Credit Facility") with The Chase Manhattan Bank, which facility, as amended on
May 8, 1998 and September 30, 1998, was increased to $100.0 million. Borrowings
under the Argentina Credit Facility are subject to the satisfaction or waiver of
certain conditions. Loans under the Argentina Credit Facility will bear interest
at a rate equal to either (i) the ABR plus 2.75% (ABR is the highest of the
prime rate, the base CD rate plus 1% or the federal funds rate plus 0.5%) or
(ii) the Eurodollar rate plus 3.75% (the Eurodollar rate is the LIBO rate
multiplied by the statutory reserve rate). The loans under the Argentina Credit
Facility will be repaid in quarterly installments beginning September 30, 2000
and ending March 31, 2003. The first nine installments will be equal to 1/18 of
the then-outstanding balance and the final installment will be in an amount
equal to the then-outstanding balance. As of September 30, 1998, borrowings
under the Argentina Credit Facility totaled $52.0 million and bore interest at
approximately 9.5%.
PHILIPPINES MOTOROLA BRIDGE FINANCING: On August 27, 1998, Nextel
International and Motorola Credit Corporation ("Motorola Credit") entered into a
financing agreement (the "Motorola Bridge Financing Agreement"), pursuant to
which Motorola Credit agreed to provide up to $12 million in term loans to the
Company to (i) finance the cost of iDEN (integrated Digital Enhanced Network)
equipment and related services (including ancillary products and services)
purchased from Motorola by Nextel Philippines and (ii) to reimburse the Company
for payments made by the Company to Motorola for the purchase of iDEN equipment
and related services for the benefit of Nextel Philippines (the "Philippines
Motorola Bridge Financing"). Loans under the Philippines Motorola Bridge
Financing are unsecured, bear interest at rates based upon the U.S. prime rate
plus 2.5% and are repayable, together with accrued and unpaid interest, in one
installment on December 31, 1998. As of September 30, 1998, borrowings under the
Philippines Motorola Bridge Financing totaled $0.3 million.
NOTE 4 -- SUBSEQUENT EVENTS
INTERNATIONAL MOTOROLA FINANCING: On November 11, 1998, Nextel
International and Motorola Credit entered into a commitment letter and term
sheet (the "Motorola Financing Commitment") regarding the terms and conditions
under which Motorola Credit will provide equipment financing to the Company and
certain Operating Companies (the "International Motorola Financing"). The
Motorola Financing Commitment was entered into pursuant to, and to implement,
the memorandum of understanding entered into in November 1996 by and among the
Company, Nextel Communications and Motorola.
Under the Motorola Financing Commitment, Motorola Credit agreed to provide
up to $275 million in term loans to the Company consisting of (i) up to $100
million in loans to reimburse the Company for payments made to Motorola by the
Company and certain operating subsidiaries of the Company after January 1, 1997
for the purchase of iDEN equipment and related services by or for the benefit of
such operating subsidiaries, other than payments made to Motorola using funds
obtained under the equipment financing facility between Nextel Philippines and
Motorola Credit (the "Philippines Motorola Financing"), the Philippines Motorola
Bridge Financing or the equipment financing facility between Nextel Brazil and
Motorola Credit (the "Brazil Motorola Financing") (the "Reimbursement Loans"),
(ii) up to $225 million in loans (less the amount of Reimbursement Loans
advanced) to (A) finance the cost of iDEN equipment and related services
(including ancillary products and services) purchased by or for the benefit of
the Borrowing Affiliates (as defined below) and (B) repay the principal amounts
outstanding under the
14
<PAGE> 15
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- SUBSEQUENT EVENTS -- (CONTINUED)
Philippines Motorola Financing and the Philippines Motorola Bridge Financing;
and (iii) up to $50 million in loans by Motorola Credit to Nextel Argentina as
incremental loans under the Argentina Credit Facility. The "Borrowing
Affiliates," for purposes of the Motorola Financing Commitment, include Nextel
Mexico, Nextel Peru, Nextel Philippines and J-Com and such other entities in
which the Company holds an equity interest and which have been so designated by
agreement between the Company and Motorola Credit. The maximum aggregate amount
the Company may borrow for the benefit of any one Borrowing Affiliate is $125
million.
Loans under the International Motorola Financing will be repaid in eight
equal semi-annual installments beginning June 30, 2001 and will mature December
31, 2004. Loans under the International Motorola Financing will bear interest at
variable rates based upon either the U.S. prime rate or LIBOR and will be
secured by, among other things, a pledge of the shares of stock of the Borrowing
Affiliates held by the Company, a pledge of the shares of stock of certain other
direct and indirect subsidiaries of the Company and a pledge of the shares of
stock of the Borrowing Affiliates held by certain third party shareholders.
The availability of the loans under the International Motorola Financing is
subject to a number of conditions, including the negotiation, execution and
delivery of definitive agreements and the completion by Motorola Credit of its
due diligence review of the Company and the Borrowing Affiliates. The parties
contemplate negotiating and entering into definitive agreements implementing the
terms of the Motorola Financing Commitment during the fourth quarter of 1998.
See "-- Forward-Looking Statements."
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion of the condensed consolidated financial condition
and results of operations of Nextel International, Inc. ("Nextel International"
or the "Company"), an indirect, substantially wholly owned subsidiary of Nextel
Communications, Inc. ("Nextel Communications"), for the three-month and
nine-month periods ended September 30, 1998 and 1997 should be read in
conjunction with the Company's condensed consolidated financial statements and
notes thereto appearing elsewhere in Part I of this report and the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 ("1997
Form 10-K").
Nextel International, through its operating subsidiaries and affiliates,
provides wireless communications services in five of the largest cities in Latin
America and three of the largest cities in Asia. The Company's markets cover
approximately 373 million people, approximately 131 million of which are in
Latin America. Nextel International is the largest specialized mobile radio
("SMR") service provider in Brazil and Mexico, and holds the largest SMR channel
position in Argentina.
The Company's strategy is focused on using its leading analog dispatch or
SMR channel positions in its principal markets, together with Nextel
Communications' experience and supplier relationships, to upgrade its services
from analog dispatch to digital enhanced specialized mobile radio ("ESMR")
services. The Company intends to use "iDEN(TM)" (integrated Digital Enhanced
Network) technology developed by Motorola, Inc. ("Motorola") to provide its ESMR
services. The Company, through its operating subsidiaries or affiliates,
launched commercial ESMR service under the brand name "Nextel(TM)" in Sao Paulo
and Buenos Aires during the second quarter of 1998 and Rio de Janeiro, Manila
and Mexico City during the third quarter of 1998. Additionally, the Company's
Japanese affiliate, J-Com Co., Ltd. ("J-Com"), introduced a multi-functional
commercial ESMR service under the brand name "NEXNET(TM)" in the Kanto region of
Japan (which includes Tokyo) in the second quarter of 1998. The Company
currently plans to launch commercial ESMR service in the greater Lima area in
the first quarter of 1999. The timing of the Company's currently planned launch
schedule depends on a number of factors, some of which are beyond the Company's
control. See 1997 Form 10-K, Part I, Item 1, "The Company's Operations and
Investments."
The Company owns majority controlling interests in wireless communications
services companies in Brazil, Mexico, Argentina and Peru and owns equity
interests and actively participates in the management of wireless communications
services companies in the Philippines and Japan. In addition, the Company owns
an approximately 15% equity interest in Clearnet Communications Inc., a Canadian
wireless communications services company ("Clearnet"), and has a contractual
right through its Chinese joint venture to receive 12.1% of the profits
generated by a Global System for Mobile communications ("GSM") network in
Shanghai, China (the "Shanghai GSM System"). The wireless communications
services companies that the Company owns or has interests in and the right to
receive profits in the Shanghai GSM System are referred to herein as the
"Operating Companies." The Company does not actively participate in the
management or in the formulation of the business plans or policies of Clearnet
or the Shanghai GSM System and considers them passive investments.
As of September 30, 1998, Nextel's proportionate share of international
digital subscriber units in service, based on its ownership interests in the
Operating Companies, is estimated to be approximately 118,000, which includes
total digital subscriber units (comprised of ESMR, personal communications
services and GSM units) on networks currently in operation in Argentina, Brazil,
Canada, Japan, Mexico and Shanghai, China. As of September 30, 1998, total
international digital subscriber units in service for the Operating Companies is
estimated to be approximately 472,000.
FISCAL QUARTER TRANSACTIONS AND DEVELOPMENTS
PHILIPPINES. As reported in the Company's prior Quarterly Reports on Form
10-Q for the quarterly periods ended March 31, 1998 and June 30, 1998, in
February 1998, the Company reached an agreement in principle with the three
groups of local shareholders of Infocom Communications Network, Inc. ("Nextel
16
<PAGE> 17
Philippines"), including the Gotesco group (the "Gotesco Group"), which until
recently owned a 20% interest in Nextel Philippines, and finalized such
agreements in April 1998 (the "Philippines Partner Agreements"). Pursuant to the
Philippines Partner Agreements, among other things, the Gotesco Group obtained
the right to put its 20% interest to the Company for approximately $9.4 million,
beginning in January 1999 (the "Gotesco Put") and the Company had the right to
call the Gotesco Group's 20% interest for approximately $11.6 million, if the
Gotesco Group did not exercise the Gotesco Put. On June 26, 1998, the Company
and the Gotesco Group entered into an Agreement to Accelerate Put Rights (the
"Gotesco Put Acceleration Agreement") pursuant to which the exercise date of the
Gotesco Put was accelerated from January 1999 to August 21, 1998. Pursuant to
the Gotesco Put Acceleration Agreement, the Company agreed to pay the Gotesco
Group $9,000,000 for the shares covered by the Gotesco Put in three
installments: (i) $500,000 upon the delivery of irrevocable proxies covering the
voting rights on the shares of Nextel Philippines owned by the Gotesco Group;
(ii) $500,000 to the Gotesco Group upon the conclusion of the Nextel Philippines
annual shareholder meeting, provided that the Gotesco Group's shares of Nextel
Philippines were voted in favor of the corporate governance provisions of the
Philippines Partner Agreements at such annual meeting; and (iii) $8,000,000 upon
the transfer of the shares covered by the Gotesco Put to a qualified third-party
purchaser in accordance with Philippines law. The first two installments were
paid on June 26, 1998 and July 13, 1998, respectively. On August 21, 1998,
Gamboa Holdings, Inc. ("Gamboa Holdings"), which is 60% owned by ACCRA
Investments Corporation, a corporation organized under the laws of the
Philippines and owned by Philippine nationals ("ACCRAIN"), and 40% owned by an
indirect subsidiary of the Company, delivered the final installment of
$8,000,000 to the Gotesco Group and the Gotesco Group delivered the shares
covered by the Gotesco Put to Gamboa Holdings.
Funds used by Gamboa Holdings to consummate the acquisition of the Gotesco
Group's shares of Nextel Philippines were derived from (a) equity contributions
by shareholders of Gamboa Holdings and (b) proceeds of loans made by a lending
institution to Gamboa Holdings and to ACCRAIN. The loans to Gamboa Holdings and
to ACCRAIN are secured by cash collateral deposits of the Company in the amount
of the loans and a pledge of Gamboa Holdings's shares of Nextel Philippines. As
a result of Gamboa Holdings's acquisition of the Gotesco Group's shares of
Nextel Philippines, the Company's aggregate equity interest in Nextel
Philippines, which includes its direct and indirect holdings, increased from 30%
to 38%.
ACCRAIN is a Philippine holding company with investments in a number of
Philippines companies. Pursuant to an agreement, dated as of August 21, 1998
between an indirect wholly owned subsidiary of the Company and ACCRAIN (the
"ACCRAIN Agreement"), ACCRAIN granted the Company a call right on ACCRAIN's
shares in Gamboa Holdings, exercisable at anytime provided that the actual
purchaser of the shares is the Company or a qualified purchaser in accordance
with applicable Philippines foreign corporate ownership rules. Upon expiration
of the ACCRAIN Agreement, ACCRAIN may put to the Company or its qualified
designee ACCRAIN's shares in Gamboa Holdings (the "ACCRAIN Put"). The Company
believes, and has been advised by Philippine counsel, that the above-described
transactions with Gamboa Holdings comply with Philippines law, including
applicable Philippines foreign corporate ownership rules. However, there can be
no assurance that the above-described transactions will not be subject to legal
challenge. In addition, the ability of the Company to call ACCRAIN's interest in
Gamboa Holdings or to satisfy the ACCRAIN Put is subject to applicable
Philippines foreign ownership rules. See also Part V, Item 1, "Legal
Proceedings."
PHILIPPINES MOTOROLA BRIDGE FINANCING. On August 27, 1998, Nextel
International and Motorola Credit Corporation ("Motorola Credit") entered into a
financing agreement (the "Motorola Bridge Financing Agreement"), pursuant to
which Motorola Credit agreed to provide up to $12 million in term loans to the
Company to (i) finance the cost of iDEN equipment and related services
(including ancillary products and services) purchased from Motorola by Nextel
Philippines and (ii) to reimburse the Company for payments made by the Company
to Motorola for the purchase of iDEN equipment and related services for the
benefit of Nextel Philippines (the "Philippines Motorola Bridge Financing").
Loans under the Philippines Motorola Bridge Financing are unsecured, bear
interest at rates based upon the U.S. prime rate plus 2.5% and are repayable,
together with accrued and unpaid interest, in one installment on December 31,
1998. As of September 30, 1998, borrowings under the Philippines Motorola Bridge
Financing totaled $0.3 million.
17
<PAGE> 18
SHANGHAI. Prior to September 1998, China United Telecommunications, Ltd.
("Unicom") had requested that Shanghai CCT-McCaw Telecommunications Systems Co.,
Ltd. ("Shanghai CCT McCaw) participate in financing the expansion of the
Shanghai GSM System ("Phase IV"). While the Company had previously advised its
partners in Shanghai CCT McCaw that it was not willing to provide funding for
Phase IV of the Shanghai GSM System, such partners advised the Company that each
intended to participate in the funding of Phase IV. Accordingly, the Company and
its partners in Shanghai CCT McCaw have engaged in discussions among themselves
and with Unicom with respect to Shanghai CCT McCaw's possible participation in
Phase IV.
In September 1998, Unicom advised the parties that pursuant to a new policy
of the Chinese government, Unicom was no longer permitted to enter into any new
contracts for its projects wherein financing was derived through investment
structures involving indirect investment by foreign investors, including the
structure utilized by Shanghai CCT McCaw with respect to the Shanghai GSM
System. Further, Unicom advised the parties that it intended to finance Phase IV
and any possible future expansions of the Shanghai GSM System on its own using
financing derived independently of Shanghai CCT McCaw.
To date, the Company is not aware of any new rules or regulations that have
been published or announced by the Chinese government with respect to the new
policy cited by Unicom or with respect to the treatment of existing contracts
such as those in existence between Shanghai CCT McCaw and Unicom under such new
policy. Pursuant to various discussions between and among representatives of
Shanghai CCT McCaw, the Company and Unicom, the Company believes that under the
new, unpublished restrictions imposed by the Chinese government (a) no agreement
with respect to Phase IV or subsequent phases will be entered into with Shanghai
CCT McCaw or any other investor that derives funds directly or indirectly from
foreign parties and (b) Shanghai CCT McCaw's existing contract with Unicom will
remain in effect and enforceable. However, it is unclear what effect the new
policy will have on the respective rights of Unicom and Shanghai CCT McCaw with
respect to the Shanghai GSM System. The restrictions to be imposed on the
Company pursuant to the new, unpublished regulations may have a material adverse
effect on Shanghai CCT McCaw's interest in the Shanghai GSM System and the value
of the Company's investment in Shanghai CCT McCaw. The Company's investment in
Shanghai CCT McCaw is carried on the Company's book at cost, which was
approximately $16.0 million as of September 30, 1998.
POST FISCAL QUARTER-END TRANSACTIONS AND DEVELOPMENTS
PERU. In August 1998, the Company gave notice to Motorola International
Development Corporation ("Motorola International"), an indirect wholly owned
subsidiary of Motorola and the holder of a minority equity interest in
Comunicaciones Nextel del Peru S.A. de C.V. ("Nextel Peru"), of the Company's
exercise of its option to sell a portion of the Company's shares of Nextel Peru
to Motorola International (the "Nextel Peru Put Transaction"). Pursuant to the
agreement between the Company and Motorola International, the Company had the
right to sell to Motorola International shares representing approximately 10% of
the outstanding shares of Nextel Peru for a purchase price of approximately $6.0
million. The Nextel Peru Put Transaction was consummated on October 30, 1998.
Additionally, as a result of the decision of the other minority shareholder of
Nextel Peru not to contribute his pro rata share of capital contributions to
Nextel Peru during the third quarter of 1998, such shareholder's equity interest
in Nextel Peru has been diluted and the Company's and Motorola International's
equity interest in Nextel Peru have increased. Immediately following the closing
of the Nextel Peru Put Transaction, and giving effect to the dilution of the
other minority shareholder during the third quarter of 1998, the Company and
Motorola International held approximately 62.1% and 30.9%, respectively, of the
outstanding shares of Nextel Peru.
INTERNATIONAL MOTOROLA FINANCING. On November 11, 1998, Nextel
International and Motorola Credit entered into a commitment letter and term
sheet (the "Motorola Financing Commitment") regarding the terms and conditions
under which Motorola Credit will provide equipment financing to the Company and
certain Operating Companies (the "International Motorola Financing"). The
Motorola Financing Commitment was entered into pursuant to, and to implement,
the memorandum of understanding entered into in November 1996 by and among the
Company, Nextel Communications and Motorola.
18
<PAGE> 19
Under the Motorola Financing Commitment, Motorola Credit agreed to provide
up to $275 million in term loans to the Company consisting of (i) up to $100
million in loans to reimburse the Company for payments made to Motorola by the
Company and certain Operating Companies after January 1, 1997 for the purchase
of iDEN equipment and related services by or for the benefit of such Operating
Companies, other than payments made to Motorola using funds obtained under the
Philippines Motorola Financing (as defined below), the Philippines Motorola
Bridge Financing or the Brazil Motorola Financing (as defined below) (the
"Reimbursement Loans"), (ii) up to $225 million in loans (less the amount of
Reimbursement Loans advanced) to (A) finance the cost of iDEN equipment and
related services (including ancillary products and services) purchased by or for
the benefit of the Borrowing Affiliates (as defined below) and (B) repay the
principal amounts outstanding under the Philippines Motorola Financing and the
Philippines Motorola Bridge Financing; and (iii) up to $50 million in loans by
Motorola Credit to Nextel Argentina S.R.L. ("Nextel Argentina") as incremental
loans under the Argentina Credit Facility (as defined below). The "Borrowing
Affiliates," for purposes of the Motorola Financing Commitment, include
Comunicaciones Nextel de Mexico, S.A. de C.V. ("Nextel Mexico"), Nextel Peru,
Nextel Philippines and J-Com and such other entities in which the Company holds
an equity interest and which have been so designated by agreement between the
Company and Motorola Credit. The maximum aggregate amount the Company may borrow
for the benefit of any one Borrowing Affiliate is $125 million.
Loans under the International Motorola Financing will be repaid in eight
equal semi-annual installments beginning June 30, 2001 and will mature December
31, 2004. Loans under the International Motorola Financing will bear interest at
variable rates based upon either the U.S. prime rate or LIBOR and will be
secured by, among other things, a pledge of the shares of stock of the Borrowing
Affiliates held by the Company, a pledge of the shares of stock of certain other
direct and indirect subsidiaries of the Company and a pledge of the shares of
stock of the Borrowing Affiliates held by certain third party shareholders.
The availability of the loans under the International Motorola Financing is
subject to a number of conditions, including the negotiation, execution and
delivery of definitive agreements and the completion by Motorola Credit of its
due diligence review of the Company and the Borrowing Affiliates. The parties
contemplate negotiating and entering into definitive agreements implementing the
terms of the Motorola Financing Commitment during the fourth quarter of 1998.
See "-- Forward-Looking Statements."
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 vs. Nine Months Ended September 30, 1997
Revenues increased $19.6 million to $26.6 million for the nine months ended
September 30, 1998 from $7.0 million for the nine months ended September 30,
1997. Costs and expenses related to revenues increased $10.8 million to $13.0
million for the nine months ended September 30, 1998, compared to $2.2 million
for the nine months ended September 30, 1997. The increases were attributable
primarily to the acquisition of controlling interests in Nextel Mexico, MCS
Radio Telefonia Ltd. ("MCS") and Nextel Argentina in August 1997, September 1997
and January 1998, respectively (collectively, the "Purchase Transactions"). For
the periods presented subsequent to the Purchase Transactions, the results of
Nextel Mexico, MCS and Nextel Argentina are included in the Company's
consolidated financial statements. See Part I, Item 1, "Notes to Condensed
Consolidated Interim Financial Statements --Note 2." For the nine months ended
September 30, 1997, substantially all of the revenues and costs and expenses
related to revenues result from the eight months of Nextel Brazil's SMR
operations and one month of Nextel Mexico's SMR operations included in the
Company's consolidated financial statements.
Revenues and costs and expenses related to revenues are expected to
continue to increase because the Company launched commercial ESMR services in
Sao Paulo and Buenos Aires in the second quarter of 1998 and Rio de Janeiro and
Mexico City in the third quarter of 1998. The commercial ESMR launches in Manila
and the Kanto region of Japan in the third quarter of 1998 will not affect
revenues or costs and expenses related to revenues because Nextel Philippines
and J-Com are accounted for under the equity method.
Selling, general and administrative expenses increased $72.0 million to
$89.6 million for the nine months ended September 30, 1998, compared to $17.6
million for the nine months ended September 30, 1997. The
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increase is attributable primarily to the effect of the Purchase Transactions as
well as increased costs in the consolidated Operating Companies necessary to
support their respective launches of commercial ESMR service, including sales,
marketing and administrative support costs.
Selling, general and administrative expenses are expected to continue to
increase above the amounts recorded in the third quarter of 1998, primarily due
to increased selling and marketing expenses associated with the launch of
commercial ESMR service in Mexico City in September 1998 and expected increases
in sales volumes in those markets where the Company has previously launched
commercial ESMR service. The Company includes the loss resulting from the sale
of digital subscriber units in selling, general and administrative expenses, as
the loss represents a marketing cost. The Company expects to continue to offer
partial subsidies and discounts on its sale and installation of digital
subscriber units in programs designed to stimulate both new subscriber growth
and the migration of subscribers from the Company's existing analog SMR systems
to its ESMR networks. On a per subscriber basis and as a percentage of revenue,
the Company expects selling and marketing costs associated with its ESMR
networks business to decrease over time as it realizes the benefit of its
initial marketing campaigns and improves the efficiency of its sales force.
Additionally, the Company has instituted a number of cost-cutting initiatives
that are expected to offset the increased cost of activities, including customer
care and collections, necessary to support the expected higher sales volumes.
See "-- Forward-Looking Statements."
Depreciation and amortization expense increased $22.4 million to $33.7
million for the nine months ended September 30, 1998, compared to $11.3 million
for the nine months ended September 30, 1997. The increase is attributable
primarily to the effect of the Purchase Transactions and the commencement of
commercial ESMR service in the Company's markets launched in 1998. The Company
expects depreciation and amortization expense to increase significantly in
future periods due to depreciation on fixed assets placed in service upon
commencement of commercial ESMR service in each of its markets.
Interest income decreased $0.8 million to $14.2 million for the nine months
ended September 30, 1998, compared to $15.0 million for the nine months ended
September 30, 1997. The decrease was attributable primarily to lower average
outstanding cash, cash equivalent and marketable securities balances pending
their application into the Company's capital expenditure program.
Interest expense increased $35.4 million to $74.5 million for the nine
months ended September 30, 1998, compared to $39.1 million for the nine months
ended September 30, 1997. The increase is attributable primarily to interest
expense associated with the Company's senior discount notes due 2007 (the "March
1997 Notes"), issued pursuant to the Company's offering and sale in March 1997
of units consisting of such notes and detachable warrants to purchase up to 1%
of the Company's outstanding common stock (the "March 1997 Offering"), and the
Company's senior discount notes due 2008 (the "March 1998 Notes"), issued
pursuant to the Company's offering and sale in March 1998 of such notes (the
"March 1998 Offering").
Loss from equity method investments increased $0.1 million to $6.4 million
for the nine months ended September 30, 1998, compared to $6.3 million for the
nine months ended September 30, 1997. The increase was attributable primarily to
the effect of the Company's proportionate share of losses at J-Com and the
increasing losses at Nextel Philippines more than offsetting the effect of the
Purchase Transactions. As of September 30, 1998, the only Operating Companies
being accounted for under the equity method were Nextel Philippines and J-Com.
Other income totaling $3.3 million for the nine months ended September 30,
1998 consists primarily of $12.4 million of foreign currency transaction gains
recognized in Nextel Mexico resulting from the decrease in value of the Mexico
peso relative to the U.S. dollar. Such gains were partially offset by foreign
currency transaction losses in Nextel Brazil and from the Company's Japanese
yen-denominated loan to J-Com.
Minority interest increased $6.1 million to $8.3 million for the nine
months ended September 30, 1998, compared to $2.2 million for the nine months
ended September 30, 1997. The increase is attributable primarily to increase in
both the net loss and minority ownership interest of Nextel Brazil.
Income tax benefit increased $17.2 million to $20.6 million for the nine
months ended September 30, 1998, compared to $3.4 million for the nine months
ended September 30, 1997. The increase is attributable
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primarily to the effect of the Purchase Transactions and, to a lesser extent,
increased tax net operating losses in Brazil.
Three Months Ended September 30, 1998 vs. Three Months Ended September 30, 1997
Revenues increased $5.8 million to $8.9 million for the three months ended
September 30, 1998 from $3.1 million for the three months ended September 30,
1997. Costs and expenses related to revenues increased $5.2 million to $6.0
million for the three months ended September 30, 1998, compared to $0.8 million
for the three months ended September 30, 1997. The increases were attributable
primarily to the Purchase Transactions. For the three months ended September 30,
1997, substantially all of the revenues and costs and expenses related to
revenues result from the three months of Nextel Brazil's SMR operations and one
month of Nextel Mexico's SMR operations included in the Company's consolidated
financial statements.
Selling, general and administrative expenses increased $42.2 million to
$49.6 million for the three months ended September 30, 1998, compared to $7.4
million for the three months ended September 30, 1997. The increase is
attributable primarily to the effect of the Purchase Transactions as well as
increased costs in the consolidated Operating Companies necessary to support
their respective launches of commercial ESMR service, including sales, marketing
and administrative support costs.
Selling, general and administrative expenses are expected to continue to
increase above the amounts recorded in the third quarter of 1998, primarily due
to increased selling and marketing expenses associated with the launch of
commercial ESMR service in Mexico City in September 1998 and expected increases
in sales volumes in those markets where the Company has previously launched
commercial ESMR service. The Company includes the loss resulting from the sale
of digital subscriber units in selling, general and administrative expenses, as
the loss represents a marketing cost. The Company expects to continue to offer
partial subsidies and discounts on its sale and installation of digital
subscriber units in programs designed to stimulate both new subscriber growth
and the migration of subscribers from the Company's existing analog SMR systems
to its ESMR networks. On a per subscriber basis and as a percentage of revenue,
the Company expects selling and marketing costs associated with its ESMR
networks business to decrease over time as it realizes the benefit of its
initial marketing campaigns and improves the efficiency of its sales force.
Additionally, the Company has instituted a number of cost-cutting initiatives
that are expected to offset the increased cost of activities, including customer
care and collections, necessary to support the expected higher sales volumes.
See "-- Forward-Looking Statements."
Depreciation and amortization expense increased $9.0 million to $13.7
million for the three months ended September 30, 1998, compared to $4.7 million
for the three months ended September 30, 1997. The increase is attributable
primarily to the effect of the Purchase Transactions and the commencement of
commercial ESMR service in the Company's markets launched in 1998. The Company
expects depreciation and amortization expense to increase significantly in
future periods due to depreciation on fixed assets placed in service upon
commencement of commercial ESMR service in its markets.
Interest income decreased $1.3 million to $4.8 million for the three months
ended September 30, 1998, compared to $6.1 million for the three months ended
September 30, 1997. The decrease was attributable primarily to lower average
outstanding cash, cash equivalent and marketable securities balances pending
their application into the Company's capital expenditure program.
Interest expense increased $13.4 million to $30.2 million for the three
months ended September 30, 1998, compared to $16.8 million for the three months
ended September 30, 1997. The increase is attributable primarily to interest
expense associated with the March 1998 Notes.
Loss from equity method investments increased $1.8 million to $4.2 million
for the three months ended September 30, 1998, compared to $2.4 million for the
three months ended September 30, 1997. The increase was attributable primarily
to the effect of the Company's proportionate share of losses at J-Com and the
increasing losses at Nextel Philippines more than offsetting the effect of the
Purchase Transactions. As of September 30, 1998, the only Operating Companies
being accounted for under the equity method were Nextel Philippines and J-Com.
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Other income totaling $5.5 million for the three months ended September 30,
1998 consists primarily of $7.9 million of foreign currency transaction gains
recognized in Nextel Mexico resulting from the decrease in value of the Mexico
peso relative to the U.S. dollar. Such gains were partially offset by foreign
currency transaction losses in Nextel Brazil.
Minority interest increased $3.8 million to $4.7 million for the three
months ended September 30, 1998, compared to $0.9 million for the three months
ended September 30, 1997. The increase is attributable primarily to the increase
in both the net loss and minority ownership interest of Nextel Brazil.
Income tax benefit increased $8.7 million to $10.0 million for the three
months ended September 30, 1998, compared to $1.3 million for the three months
ended September 30, 1997. The increase is attributable primarily to the effect
of the Purchase Transactions and, to a lesser extent, increased tax net
operating losses in Brazil.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred net losses of approximately $246.9 million from
inception through September 30, 1998. These losses resulted from operating
expenses required to support the development of the Company's wireless
communications networks, other start-up costs and the fact that through
September 30, 1998 only $39.6 million of consolidated revenues had been
recognized. The Company expects to continue to incur increasing losses and
negative operating cash flows as it continues to build out and upgrade its
existing wireless communications networks.
Prior to March 1997, funds necessary to finance the Company's activities
were provided to the Company by its parent, which is an unrestricted subsidiary
of Nextel Communications, in the form of equity contributions. Since March 1997
and through September 30, 1998, the Company's activities have been financed
primarily with the net proceeds of the March 1997 Offering and the March 1998
Offering and, to a lesser extent, from vendor financing, including the existing
equipment financing facilities obtained from Motorola, and the Argentina Credit
Facility (as defined below). Nextel Communications is not obligated to provide
any additional funding to the Company.
Net cash used in operating activities for the nine months ended September
30, 1998 was approximately $122.1 million. Net cash used in investing activities
for the nine months ended September 30, 1998 was approximately $360.9 million.
Net cash provided by financing activities for the nine months ended September
30, 1998 was approximately $496.9 million. Working capital as of September 30,
1998 decreased to $183.1 million compared to $223.3 million at December 31,
1997. The cash used in operating activities during the nine months ended
September 30, 1998 primarily represents cash used to fund operating losses and
pay value-added taxes on the purchase of switches and other infrastructure
equipment. The cash used in investing activities during the nine months ended
September 30, 1998 primarily represented investments in the Operating Companies
to fund the build-out of the Company's ESMR networks, to fund the Company's
initial investment in Nextel Peru and J-Com and to acquire the remaining 50%
interest in Nextel Argentina. The cash provided by financing activities during
the nine months ended September 30, 1998 is primarily a result of the Company
receiving approximately $387 million of net proceeds from the March 1998
Offering and borrowings by the Company under the Brazil Motorola Financing and
the Argentina Credit Facility (each as defined below) of approximately $48.2
million and $52.0 million, respectively. As a result of the above activities,
cash and cash equivalents increased approximately $14.0 million to approximately
$173.8 million during the nine months ended September 30, 1998, compared to
$159.8 million at December 31, 1997.
As described in the 1997 Form 10-K, the Company has estimated that its
funding requirements for fiscal year 1998 will be approximately $810 million
(the "1998 Plan"). These amounts consist primarily of the costs of building the
Company's ESMR networks, including the purchase of switches and other equipment,
the acquisition of cell sites, the costs of constructing the networks and
loading subscribers, the acquisition of licenses and investments and funding of
operating losses. The Company has estimated that approximately $227 million of
such requirements in fiscal year 1998 will be related to expenditures in Brazil,
$161 million in Argentina, $152 million in Mexico, $29 million in Peru and $74
million in the Philippines. See 1997 Form 10-K, Part I, Item 1,
"Business -- 1998 Plan."
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Through September 30, 1998, the Company's total cash expenditures for its
business activities described in the 1998 Plan were approximately $574 million.
Such expenditures were consistent with the levels estimated by the Company in
the 1998 Plan. The Company's total cash expenditures for the remainder of fiscal
year 1998, however, may be subject to the effect of certain risks and
uncertainties, as identified or referred to in the 1997 Form 10-K. See also
"-- Foward-Looking Statements."
In June 1997 and October 1997, Motorola Credit entered into definitive
agreements with each of Nextel Philippines and Nextel Brazil for financing the
purchase of up to $14.7 million and $125 million of equipment and related
services by Nextel Philippines (the "Philippines Motorola Financing") and Nextel
Brazil (the "Brazil Motorola Financing"), respectively. In February 1998, Nextel
Argentina entered into an $83 million senior secured credit facility, which
facility, as amended on May 8, 1998 and September 30, 1998, was increased to
$100 million (the "Argentina Credit Facility"). The terms and conditions of the
Philippines Motorola Financing, the Brazil Motorola Financing and the Argentina
Credit Facility are described in the 1997 Form 10-K. On August 27, 1998, Nextel
International and Motorola Credit entered into the Motorola Bridge Financing
Agreement, pursuant to which Motorola Credit agreed to provide up to $12 million
in vendor financing to the Company for the purchase of equipment and related
services by Nextel Philippines. See "--Fiscal Quarter Transactions and
Developments."
On November 11, 1998, Nextel International and Motorola Credit entered into
the Motorola Financing Commitment, pursuant to which Motorola Credit agreed to
provide up to $275 million in vendor financing to the Company and certain
Operating Companies. The Motorola Financing Commitment was entered into pursuant
to and to implement the memorandum of understanding entered into in November
1996 between the Company, Nextel Communications and Motorola. The availability
of the loans under the International Motorola Financing is subject to a number
of conditions including, the negotiation, execution and delivery of definitive
agreements and the completion by Motorola Credit of its due diligence review of
the Company and the Borrowing Affiliates. The parties contemplate negotiating
and entering into definitive agreements implementing the terms of the Motorola
Financing Commitment during the fourth quarter of 1998. See "--Post Fiscal
Quarter-End Transactions and Developments." See also "-- Forward-Looking
Statements."
As of September 30, 1998, all of the $14.7 million available under the
Philippine Motorola Financing had been borrowed, approximately $98.4 million had
been borrowed under the Brazil Motorola Financing, with the remaining $26.6
million available for future borrowings and $0.3 million had been borrowed under
the Philippines Motorola Bridge Financing, with the remaining $11.7 available
for future borrowings. As of September 30, 1998, $52.0 million had been borrowed
under Argentina Credit Facility, with the remaining $48.0 million available for
future borrowings.
The Company has not yet completed its business plan for 1999, and is still
considering and assessing the potential alternative approaches to conducting
business during 1999 that could be implemented by certain of the Operating
Companies. Specifically, the Company currently anticipates that those Operating
Companies that are controlled by the Company (or that rely substantially on the
Company for further funding) will tailor their ESMR network related operations
to be more responsive to the economic conditions prevailing in their respective
market areas, and to the general availability of capital. However, based on its
estimate of the funding required for the fourth quarter of 1998 and its
preliminary assessment of the business activity and related cash needs of the
Operating Companies that would arise if such Operating Companies implement a
more conservative business plan for 1999 than that pursued during the first
three quarters of 1998, the Company believes that it will have adequate funding
to continue its operations into the latter half of 1999. Such assessment is
based on the Company's assumed utilization of the remaining net proceeds from
the March 1998 Offering, together with available cash, cash equivalents and
marketable securities, and borrowings of amounts expected to be available under
the Brazil Motorola Financing, the Argentina Credit Facility and the
International Motorola Financing, to meet its assumed cash needs (including
reasonably foreseeable capital expenditures, funding of operating losses and
debt service obligations) during such period; however, there can be no assurance
that such funds will be sufficient. Access to additional funding would allow the
Company to pursue more aggressive growth strategies. See "-- Forward Looking
Statements."
The Company has taken and may continue to take various measures designed to
conserve its available cash for use in funding its existing core ESMR network
business activities, such as slowing expansion of its
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ESMR networks into new market areas and minimizing or eliminating certain
discretionary expenditures. However, if (among other things) the Company's plans
change, its assumptions regarding its funding needs associated with any further
build-out, expansion and enhancement of its ESMR network at the Operating
Company level prove to be inaccurate, the other shareholders in certain of the
Operating Companies do not fund their expected capital requirements, it
increases its existing equity ownership interests in certain of the Operating
Companies beyond those currently contemplated, it experiences growth in its
business or subscriber base greater than or less than that which is currently
anticipated, it experiences unanticipated costs or competitive pressures, the
Operating Companies are unable to access funds under the Brazil Motorola
Financing, the Argentina Credit Facility and/or the International Motorola
Financing, or the remaining net proceeds from the March 1998 Offering, together
with any other funds available to the Company and the Operating Companies or any
other borrowings, otherwise prove to be insufficient to meet cash needs, the
Company may be required to seek additional capital sooner than currently
anticipated. The availability of borrowings under the Brazil Motorola Financing,
the Argentina Credit Facility and the International Motorola Financing are
subject to the satisfaction or waiver of certain conditions.
The Company will also require significant additional capital to fund the
build-out of new ESMR networks in the Company's licensed markets, any
significant further expansion and enhancement of its existing ESMR networks, the
acquisitions of additional licenses and investments in new markets and will need
to rely on external sources of financing to fund its operating losses and for
other general corporate purposes until its operations begin to generate positive
cash flows. The Company is currently assessing its capital needs and exploring
potential financing sources to meet such needs. The Company anticipates that it
will be required to seek to raise additional capital from public or private
equity or debt markets to fund such future capital needs. The Company may seek
to obtain financing from various sources, including vendor financing provided by
equipment suppliers (including the International Motorola Financing), project
financing from commercial banks and international agencies such as International
Finance Corporation and Overseas Private Investment Corporation and bank lines
of credit. To the extent the Company issues debt, its leverage and debt service
obligations will increase. Additionally, the Company and certain of the
Operating Companies may incur indebtedness only in compliance with the terms of
covenants contained in the indentures governing the March 1997 Notes and the
March 1998 Notes. There can be no assurance that the Company will be able to
raise any such capital on satisfactory terms, if at all. If the Company is
unable to obtain such additional capital, or to obtain it on acceptable terms
and in a timely manner, the Company would be required to curtail its operations
significantly and to reduce the scope of its presently anticipated build-out,
expansion and enhancement of its ESMR networks. Any such actions would have a
material adverse effect on the Company's financial condition and results of
operation, including its ability to meet its debt service and working capital
requirements. See "-- Forward-Looking Statements."
As of September 30, 1998, the Company owned 100% of Nextel Mexico and
Nextel Argentina, 81% of Nextel Brazil (or approximately 77% of Nextel S.A.) and
70.1% of Nextel Peru (which decreased to 62.1% as of October 30, 1998). The
Company's other non-cash assets consist primarily of minority ownership
interests in Nextel Philippines and J-Com, passive minority investment stakes in
the Shanghai GSM System and Clearnet. Even though the Company participates in
the management of the Operating Companies (except for Clearnet and the Shanghai
GSM System) and has certain contractual rights designed to protect its interests
as a minority shareholder, it cannot control the outcome of matters submitted to
the shareholders of the Operating Companies in which it has less than a majority
interest. In addition, the Company may be unable to access the cash flow of its
affiliated companies because (i) it does not have the requisite control to cause
such entities to pay dividends and (ii) substantially all of such entities are
parties to or expected to become parties to vendor financing or other borrowing
agreements that severely restrict the payment of dividends, and such entities
are likely to continue to be subject to such restrictions and prohibitions for
the foreseeable future. The existing Brazil Motorola Financing, the Philippines
Motorola Financing and the Argentina Credit Facility restrict the payment of
dividends to the Company by the Operating Companies that have debt outstanding
thereunder. Any future vendor or bank financings are likely to include similar
covenants restricting the payment of dividends. See 1997 Form 10-K, Part I, Item
1, "Business -- Risk Factors -- Substantial Indebtedness; Ability to Service
Debt; Refinancing Risks."
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YEAR 2000 COMPLIANCE
GENERAL. The "Year 2000 issue" arises as a result of the potential
inability of some computer software to interpret correctly any date after
December 31, 1999 in entries in which the year is represented by two digits
rather than four. Any such failure could result in data processing errors or
miscalculations, and consequently, interruption in services, operations,
customer billing and other date-sensitive processes.
Many of the Company's administrative and accounting services are performed
for the Company by Nextel Communications. Additionally, many of the Company's
third party vendors are also vendors to Nextel Communications. Accordingly, in
these instances the Company has coordinated its assessment of its status toward
compliance with the Year 2000 issue with Nextel Communications, and any
reference in this section to the Company's initiatives and plans in such
instances should be read and understood to include those of Nextel
Communications.
STATE OF READINESS. The Company has taken or is scheduled to take actions
that are designed to assure that it addresses any Year 2000 issues by the end of
the third quarter of 1999. The Company's ability to reach its Year 2000 issue
compliance goal, however, is and will continue to be dependent on the parallel
efforts of Nextel Communications and certain third party vendors, suppliers,
subcontractors to and business partners of Nextel Communications and the
Company. Certain of these third party vendors, suppliers, subcontractors and
business partners are not yet Year 2000 issue compliant and some of them also
have not yet provided Nextel Communications and the Company with detailed action
plans and timetables for achieving compliance with all Year 2000 issues by the
Company's timetable. The Company is in the process of contacting and obtaining
from such third parties relevant details and schedules concerning their
contemplated development of applications that comply with the Year 2000 issue
for use in its operations and systems. In particular, the Company relies on
services and products offered by the following third parties: Motorola for
system infrastructure and subscriber handsets; MiBAS, an affiliate of Motorola,
for software for front-end order entry and provisioning systems; LHS Group Inc.
for certain Operating Companies' billing systems; The Vantive Corp. for order
entry systems; Oracle Corp., which provides information systems, development
tools and database management used to support Nextel Communications' human
resources functions performed for the Company and the Company's financial
systems; and Hewlett-Packard, Inc., for computer hardware and UNIX operating
systems.
Nextel Communication has identified five phases to assist it and the
Company in defining the status of their progress toward Year 2000 issue
compliance. The five phases are (i) awareness -- locating, listing and
prioritizing specific Information Technology ("IT") that is potentially subject
to Year 2000 issues; (ii) assessment -- determining the level of risk of Year
2000 issues that exist on the Company's systems through inquiry, research and
testing; (iii) renovation -- determining and resolving Year 2000 issues that
were identified in previous phases through replacement, upgrade or repair and
planning for the scheduled implementation of the selected Year 2000 compliant
resolution; (iv) validation -- testing, monitoring, certification and
verification of the correct manipulation of dates and date-related data on
non-IT and IT systems, including those of material third parties; and (v)
implementation -- installing and integrating the application of Year 2000 issue
compliant resolutions by replacement, upgrade or repair of non-IT and IT
systems, including those of material third parties.
As of September 30, 1998, the Company was for the most part in the
assessment phase with respect to its non-IT devices and/or systems containing
embedded circuitry and in various phases ranging from awareness through
implementation for its IT systems and issues relating to third parties with
which the Company maintains a material relationship.
Representatives of the Company participate as members, with respect to Year
2000 issues of the Operating Companies, on the Year 2000 issues committee
established by Nextel Communications. Nextel Communications's Year 2000
committee consists of employees across the functional and divisional departments
within Nextel Communications and its subsidiaries, including the Company, and
who are responsible for assisting in identification, assessment and remediation
of Year 2000 issues. In addition, the committee includes representatives from
certain of the material third parties identified above and outside consultants
Nextel Communications has retained to advise and support the committee in tasks
related to its and the
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Company's Year 2000 issues. Members of the Year 2000 committee provide weekly
status reports regarding the progress of ongoing activities and performances
against plan by the relevant functions and divisions.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. Based on information
developed to date as a result of the Company's assessment efforts, the Company
believes that the costs of upgrading or replacing its systems and equipment or
modification of certain software applications will not have a material effect on
the Company's liquidity, financial condition or results of operation. To date,
the Company has not deferred any specific projects, goals or objectives relating
to its operations as a result of implementing the Company's Year 2000 issue
compliance efforts.
The analog SMR networks and related systems of the Operating Companies,
however, have not yet been thoroughly assessed for potential Year 2000 issues,
nor has the Company formulated any estimate of the types or magnitude of the
remediation measures that might be required with respect to such analog SMR
operations. Moreover, the historical business records of the Operating Companies
(and their predecessors in interest), in particular those relating to such
analog SMR operations and related network infrastructure and subscriber
equipment and systems, are not believed to be complete, and it also may be
difficult or impossible to verify their accuracy, with respect to periods prior
to their acquisition by the Company. Accordingly, the measures that might be
required to assess potential Year 2000 issues affecting the analog SMR
businesses conducted by the Operating Companies (such as actual visits to
antenna sites to physically inventory and inspect individual items of
transmission and reception equipment) and to effect any required remediation of
Year 2000 issues discovered may make it uneconomic for the Company to pursue
such activities. The Company may instead elect alternative courses of action,
such as (i) terminating the provision of analog SMR services in certain market
areas, (ii) addressing and resolving particular Year 2000 issues affecting the
provision of analog SMR service subsequent to their identification, or (iii)
limiting or curtailing analog SMR services to the extent required to accommodate
unresolved Year 2000 issues. These "legacy system" matters relate exclusively to
operations other than the Company's ESMR network operations, all of which have
been launched within the past several years and, therefore, do not present
comparable problems associated with any incompleteness or inaccuracy of
historical records and information compiled or maintained by prior owners. Given
the steadily decreasing importance of the Operating Companies' analog SMR
businesses to the Company's overall operations, the Company does not believe
that the effect of any Year 2000 issues on the Operating Companies' analog SMR
businesses would be likely to result in a material adverse effect on the
Company's liquidity, financial condition or results of operations.
THE RISKS OF THE COMPANY'S YEAR 2000 ISSUES. Subject to the foregoing, the
Company does not anticipate delays and postponements in finalizing and
implementing Year 2000 issue resolutions by the end of the third quarter of
1999. Until the Company's renovation and validation phases are substantially
complete, however, the Company cannot fully and accurately estimate the
uncertainty of its Year 2000 issues. Moreover, any failure by Nextel
Communications or by third parties that have a material relationship with the
Company to achieve full compliance with their respective Year 2000 issues may be
a potential risk if such failure adversely impacts the ability of such parties
to provide any products or services that are critical to the Company's
operations. Finally, where the Company is not in a position to validate or
certify that technology provided by third parties is Year 2000 compliant, the
Company is seeking to obtain assurances from such third parties that their
systems are or will be Year 2000 issues compliant no later than the end of the
third quarter of 1999. If these third parties fail to address Year 2000 issues
appropriately, there could be a materially adverse effect on the Company's
financial condition and results of operations. Such risks include, but are not
limited to: (i) inability of subscribers to make or receive phone calls; (ii)
inability of sites, switches and other interfaces to accurately record call
details of subscriber phone calls; and (iii) inability of billing systems to
report and bill subscribers accurately for phone usage. Other risks associated
with the failure of the Company or material third parties to develop and deploy
Year 2000 issues solutions in a timely and successful manner involve or result
in conditions that could preclude the Company from (a) obtaining equity or debt
financing; (b) deploying an alternative technology that is Year 2000 compliant;
(c) commencing commercial service in new markets, expanding service in existing
markets or introducing new services in existing markets; (d) pursuing additional
business opportunities.
The Company cannot independently assess the impact of Year 2000 risks,
issues and compliance activities and programs involving operators of public
switched telecommunications networks ("PSTNs") or
26
<PAGE> 27
other service providers (such as electric utilities). The Company, therefore,
must rely on the respective PSTN's and utility providers' estimates of its own
Year 2000 issues and the status of such PSTN's related compliance activities and
programs in the Company's own Year 2000 issue assessment process. The Company
has considered that certain of its customers, suppliers and operations located
in foreign countries may not be at the same advanced level of awareness or
assessment of the Year 2000 issues as their U.S. counterparts, consequently
resulting in delays and lag in remediation efforts. Because the Operating
Companies' systems will be interconnected with PSTNs in their respective
countries and will be dependent upon the systems of other service providers, any
disruption of operations in the computer programs of such PSTNs or service
providers will have an impact on the Company's network. Moreover, to the extent
that such PSTNs or other service providers fail to address their respective Year
2000 issues in a timely manner, any resulting disruption in the Company's
service could have a materially adverse effect on the Company's operations.
THE COMPANY'S CONTINGENCY PLANS. The Company has not completed all systems
and software testing in its critical systems nor has it been advised of the
completion of such activities by Nextel Communications or all third party
vendors of critical products and services. As a result, the Company has not
fully assessed its exposure from potential Year 2000 issues noncompliance. The
Company has not yet determined whether it will require, and thus has not
developed Year 2000 issues contingency plans. Following testing of the Company's
critical systems, the Company will evaluate alternative plans designed to
address various potential business interruptions that may occur as a result of
noncompliance. Additionally, because contingency plans may also be provided by
third parties, resulting from any anticipated failure on their part to be Year
2000 issues compliant, the Company will have to assess development of
appropriate alternative solutions advanced by any such third party to determine
its effectiveness and likely impact on the Company.
FORWARD-LOOKING STATEMENTS
"SAFE HARBOR" STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. A number of the matters and subject areas discussed in the foregoing
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that are not historical or current facts deal with potential future
circumstances and developments. The discussion of such matters and subject areas
is qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may differ materially from the Company's actual
future experience involving any one or more of such matters and subject areas.
The Company has attempted to identify, in context, certain of the factors that
it currently believes may cause actual future experience and results to differ
from the Company's current expectations regarding the relevant matter or subject
area. The operations and results of the Company's business also may be subject
to the effect of other risks and uncertainties in addition to the relevant
qualifying factors identified in the 1997 Form 10-K, Part I, Item 1,
"Business -- Risk Factors," including, but not limited to, general economic
conditions in Latin America and Asia as a result of the recent Asian economic
crisis and in the market segments that the Company is targeting for SMR and ESMR
commercial services, the substantive terms of or associated with any
international financial aid package that may be made available to any country in
which the Operating Companies operate (including Brazil), future legislation or
regulation by governmental entities in the markets in which the Operating
Companies conduct their business, the availability of adequate quantities of
system infrastructure and subscriber equipment and components to meet the
Company's service deployment and marketing plans and customer demand, the
volatility and uncertain availability of equity and debt financing in domestic
and international capital markets and the Company's access to sufficient debt
and equity financing to meet the Company's operating and financial needs, the
successful deployment and performance of the iDEN technology, the ability to
achieve market penetration and average subscriber revenue levels sufficient to
provide financial viability to the Company's wireless communications business,
the Company's ability to accomplish required scale-up of its billing, customer
care and similar administrative support timely and successfully to keep pace
with anticipated customer growth and increased system usage, the quality and
price of similar or comparable wireless communications services offered or to be
offered by the Company's competitors in each market, including providers of
cellular and personal communications services, other wireless communications
services or telecommunications generally and other risks and uncertainties
described from time to time in the Company's reports filed with the Securities
and Exchange Commission (the "Commission").
27
<PAGE> 28
PART II
ITEM 1. LEGAL PROCEEDINGS.
On October 30, 1998, pursuant to the dispute resolution provisions of the
Philippines Partner Agreements, the Company commenced arbitration proceedings in
Hong Kong against Jetcom, Inc. ("Jetcom") and Foodcamp Industries and Marketing,
Inc. ("Foodcamp"), two of the local shareholders of Nextel Philippines, in which
the Company asserts that such shareholders have failed to perform their
respective obligations under the Philippines Partner Agreements. The Company
served Jetcom with a Notice of Demand for Arbitration and is currently in the
process of serving Foodcamp with a notice. The Company seeks equitable and legal
relief, including, but not limited to, compensatory damages and injunctive
relief.
Pursuant to the Nextel Philippines' application for an extension of its
provisional authority to operate its wireless communications network using its
licensed frequencies in the Philippines ("PA"), the National Telecommunications
Commission of the Philippines Department of Transportation and Communications
(the "NTC") issued on March 18, 1998 an order extending the Nextel Philippines'
PA an additional year to January 20, 1999 (the "Extension Order"). The language
of the Extension Order contained a reference to Nextel Philippines' "Integrated
Dispatch Enhanced Network (IDEN) [sic]. . . . which can function as a trunk
radio system and can work also as a cellular system (full-duplex transmission)"
(emphasis added). In June and July of 1998, a number of the Philippine cellular
mobile telephone companies filed proceedings (which have since been consolidated
into one proceeding) with the NTC asserting that (a) the Extension Order
improperly expanded Nextel Philippines' authority to provide cellular mobile
telephone services ("CMTS") and (b) if Nextel Philippines was indeed authorized
to operate CMTS, then Nextel Philippines should be required to meet the other
obligations applicable to CMTS operators, including certain obligations to build
out local exchange lines. Nextel Philippines has responded by asserting that (a)
its PA does not authorize Nextel Philippines to provide CMTS services, (b) by
operating trunk radio services using the iDEN technology it is not providing
CMTS services and (c) the Extension Order does not expand its PA by authorizing
it to provide CMTS services. Although the Company cannot predict the outcome of
this proceeding, the Company believes that the claims against Nextel Philippines
are without merit and Nextel Philippines intends to vigorously defend against
them.
The Company is also involved in certain legal proceedings, as described in
the Company's Quarterly Report on Form 10-Q for the quarterly period ended June
30, 1998. During the three months ended September 30, 1998, there were no
material changes in the status or developments regarding such legal proceedings.
Other than the proceedings described above, neither the Company nor the
Company's subsidiaries are party to any material litigation.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following matters were submitted to a vote and approved by the
Company's then-sole shareholder during the quarter ended September 30, 1998:
(a) On July 10, 1998, by written consent in lieu of a special meeting
of shareholders, the Company's then-sole shareholder approved (i) the
amendment of the Company's 1997 Stock Option Plan to (A) change the name of
the plan to "Nextel International, Inc. 1997 Stock Option Plan," (B)
increase the number of shares of common stock authorized for issuance under
the plan from 1,825,000 to 1,975,000, and (C) add provisions relating to
stock option grants to residents of California; and (ii) the amendment of
the Company's articles of incorporation to (A) amend certain terms of the
Company's Series A Redeemable Exchangeable Preferred Stock and the
Company's Series B Redeemable Preferred Stock and (B) provide that as long
as the Company is not a public company, any action required or permitted to
be taken at a shareholders meeting may be taken by a written consent of the
shareholders of the Company holding in the aggregate the minimum number of
shares required to take such action at a meeting in which all shares
entitled to vote on the action were present and voted, each such amendment
to the Company's articles of incorporation as previously disclosed and
described in the Company's
28
<PAGE> 29
Registration Statement of Form S-4 (No. 333-55877), as amended, originally
filed with the Commission on June 3, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<C> <S>
10.1 Amendment No. 2, dated September 30, 1998, among Nextel
Argentina S.R.L., the Lenders named therein and the Chase
Manhattan Bank as Administrative Agent.
10.2 Agreement, dated as of August 21, 1998, by and between ACCRA
Investments Corporation and Top Mega Enterprises, Ltd.
10.3 Master Equipment Financing Commitment Letter and Term Sheet
dated November 11, 1998 between Motorola Credit Corporation
and Nextel International, Inc.
*27 Financial Data Schedule.
</TABLE>
- ---------------
* Submitted only with the electronic filing of this document with the Commission
pursuant to Regulation S-T under the Securities Act.
(b) Reports on Form 8-K.
None
29
<PAGE> 30
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
NEXTEL INTERNATIONAL, INC.
BY: /s/ BYRON R. SILIEZAR
------------------------------------
Byron R. Siliezar
Vice President and Controller
(Principal Accounting Officer)
November 16, 1998
30
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<C> <S>
10.1 Amendment No. 2, dated September 30, 1998, among Nextel
Argentina S.R.L., the Lenders named therein and the Chase
Manhattan Bank as Administrative Agent.
10.2 Agreement, dated as of August 21, 1998, by and between ACCRA
Investments Corporation and Top Mega Enterprises Ltd.
10.3 Master Equipment Financing Commitment Letter and Term Sheet
dated November 11, 1998 between Motorola Credit Corporation
and Nextel International, Inc.
*27 Financial Data Schedule.
</TABLE>
- ---------------
* Submitted only with the electronic filing of this document with the Commission
pursuant to Regulation S-T under the Securities Act of 1933, as amended.
31
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 2
AMENDMENT NO. 2 dated as of September 30, 1998 between Nextel Argentina
S.R.L. (the "Borrower"); each of the Subsidiary Guarantors party to the Credit
Agreement referred to below (the "Subsidiary Guarantors"); the undersigned
lenders (the "Lenders"); and THE CHASE MANHATTAN BANK, as Administrative Agent
(the "Administrative Agent").
The Borrower, the Subsidiary Guarantors, the Lenders and the
Administrative Agent are parties to a Credit Agreement dated as of February 27,
1998 (as amended by Amendment No. 1 and Waiver dated as of May 8, 1998 and as
further modified, supplemented and in effect from time to time, the "Credit
Agreement") and wish to amend certain provisions of the Credit Agreement.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. Definitions. Except as otherwise defined in this Amendment No.
2, terms defined in the Credit Agreement are used herein as defined therein.
Section 2. Amendments. Subject to the satisfaction of the conditions
precedent specified in Section 4 hereof, the Lenders hereby agree that the
Credit Agreement shall be amended as follows:
A. References in the Credit Agreement (including references to the Credit
Agreement as amended hereby) to "this Agreement" (and indirect references such
as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be a
reference to the Credit Agreement as amended hereby.
B. Clauses (a), (b) and (d) of Section 7.08 of the Credit Agreement shall
be amended to read in their entirety as follows:
"(a) Leverage Ratio. The Borrower will not permit the Leverage Ratio to
exceed the following respective ratios at any time during the following
respective periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From June 30, 1999 8.20 to 1
through September 29, 1999
From September 30, 1999 5.00 to 1
through December 30, 1999
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
From December 31, 1999 4.00 to 1
through March 30, 2000
From March 31, 2000 3.50 to 1
and at all times thereafter
</TABLE>
(b) Interest Coverage Ratio. The Borrower will not permit the Interest
Coverage Ratio to be less than the following respective ratios at any time
during the following respective periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From June 30, 1999 0.90 to 1
through September 29, 1999
From September 30, 1999 1.50 to 1
through December 30, 1999
From December 31, 1999 1.90 to 1
through March 30, 2000
From March 31, 2000 2.40 to 1
through June 29, 2000
From June 30, 2000 2.75 to 1
through September 29, 2000
From September 30, 2000 3.00 to 1
and at all times thereafter
</TABLE>
(d) Minimum Subscribers. Unless and until at any time after June 30, 1999
the Leverage Ratio shall have been less than 9.00 to 1 for a period of at
least two consecutive quarters, the Borrower will not permit the aggregate
number of Subscribers to be less than the following respective numbers for
the following respective periods:
<TABLE>
<CAPTION>
Period Subscribers
------ -----------
<S> <C>
From September 30, 1998 15,000
through December 30, 1998
From December 31, 1998 27,500
through March 30, 1999
From March 31, 1999 39,000
through June 29, 1999
From June 30, 1999 49,000
through September 29, 1999
From September 30, 1999 60,080
through December 30, 1999
From December 31, 1999 72,000
through March 30, 2000
From March 31, 2000 82,000
through June 29, 2000
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
From June 30, 2000 97,000
through September 29, 2000
From September 30, 2000 112,000
through December 30, 2000
From December 31, 2000 128,000
through March 30, 2001
From March 31, 2001 160,000"
and at all times thereafter
</TABLE>
Section 3. Conditions Precedent. The amendments to the Credit Agreement
set forth in Section 2 hereof shall become effective upon the execution (i) of
this Amendment No. 2 by each of the Borrower and Lenders constituting the
Required Lenders and (ii) of the Consent and Agreement set forth below by each
of the Relevant Parties.
Section 4. Miscellaneous. Except as herein provided, the Credit Agreement
shall remain unchanged and in full force and effect. This Amendment No. 2 may be
executed in counterparts which, taken together, shall constitute a single
document and any of the parties hereto may execute this Amendment No. 2 by
signing any such counterpart. Terms defined in the Credit Agreement are used
herein as defined therein. This Amendment No. 2 shall be governed by and
construed in accordance with the law of the State of New York.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
be duly executed as of the date and year first above written.
NEXTEL ARGENTINA S.R.L.
By /s/: MARCELO De ELIA
-----------------------
Title: Treasury Manager
THE CHASE MANHATTAN BANK
By /s/: TRACEY NAVIN EWING
-----------------------
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT
By
------------------------
Title:
By
------------------------
Title:
CREDIT SUISSE FIRST BOSTON
By /s/: TODD C. MORGAN
-----------------------
Title: Director
By /s/: JUDITH E. SMITH
-----------------------
Title: Director
SOCIETE GENERALE
By
------------------------
Title:
<PAGE> 5
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By /s/: JEFFREY W. MAHLET
------------------------
Title: Senior Vice President
& Director
KZH IV LLC
By /s/: VIRGINIA CONWAY
------------------------
Title: Authorized Agent
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/: TRACEY NAVIN EWING
-----------------------
Title: Vice President
CONSENT AND AGREEMENT
Each of the undersigned hereby (1) consents to the amendments provided for in
this Amendment 2, (2) agrees that each reference to the Credit Agreement in
each Loan Document (as defined in the Credit Agreement) to which it is a party
shall be a reference to the Credit Agreement as amended by this Amendment No. 2
and (3) confirms its obligations under each Loan Document to which it is a
party after giving effect to the amendments set forth in this Amendment No. 2.
NEXTEL INTERNATIONAL, INC.
By /s/: HENG-PIN KIANG
-----------------------------------
Title: Vice President
NEXTEL INTERNATIONAL (ARGENTINA) LTD.
By /s/: HENG-PIN KIANG
-----------------------------------
Title: Vice President
NEXTEL INTERNATIONAL (HOLDINGS) LTD.
By /s/: HENG-PIN KIANG
-----------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10.2
AGREEMENT
This Agreement is executed as of August 21, 1998, by and between ACCRA
INVESTMENTS CORPORATION, a corporation duly organized and existing under and by
virtue of Philippine laws with offices at the 7th Floor, ACCRA Building, 122
Gamboa Street, Legaspi Village, Makati, Metro Manila, Philippines, represented
herein by its duly authorized Chairman, Manuel G. Abello (hereinafter referred
to as "ACCRAIN"); and TOP MEGA ENTERPRISES LIMITED, a corporation duly organized
and existing under and by virtue of the laws of Hong Kong, with offices at c/o
Nextel International, Inc., 1191 Second Avenue Suite 1600, Seattle, WA 98101
(represented herein by its duly authorized Director, Brian A. Vincent
(hereinafter referred to as "TOP MEGA"),
WITNESSETH That -
WHEREAS, ACCRAIN is the owner of approximately sixty percent (60%) of the
shares of the capital stock of Gamboa Holdings, Inc. ("GHI");
WHEREAS, the parties agree that, subject to the terms and conditions
specified herein:
(a) ACCRAIN shall sell all its entire interest in GHI, including its
original shares as well as subsequent shares acquired by conversion of its U.S.
dollar loan to GHI (hereinafter collectively referred to as the "Shares") to TOP
MEGA or its qualified assignee at the expiration or termination of this
Agreement;
(b) ACCRAIN shall not, during the term of this Agreement, sell the Shares
to any third person or party without first offering the same to TOP MEGA or its
qualified assignee;
(c) In the event ACCRAIN is dissolved or its charter expires by its own
limitation or is annulled by forfeiture or otherwise or its corporate existence
for other purposes is terminated in any other manner during the term of this
Agreement, all of the Shares belonging to ACCRAIN shall be immediately sold to
TOP MEGA or its qualified assignee; and
1
<PAGE> 2
(d) TOP MEGA may, at its option, require ACCRAIN to sell all of the Shares
to TOP MEGA or its qualified assignee during the term of this Agreement.
NOW, THEREFORE, for and in consideration of the foregoing premises, the
parties hereby agree as follows:
Section 1. ACCRAIN shall sell, transfer, and assign to TOP MEGA or its
qualified assignee all the Shares and all its rights, title and interests
therein at the expiration of termination of this Agreement for a purchase price
to be paid by TOP MEGA or its qualified assignee equivalent to the aggregate
U.S. dollar price paid for by ACCRAIN for the Shares plus three percent (3%) of
such price plus any Philippine taxes payable on such transfer.
Section 2. During the term of this Agreement, ACCRAIN shall not sell,
assign, transfer, or in any manner dispose of any of the Shares to any third
person or party without offering the same for purchase by TOP MEGA or its
qualified assignee at the purchase price specified in Section 1 hereof.
Section 3. In the event ACCRAIN is dissolved or its charter expires by
its own limitation or is annulled by forfeiture or otherwise or its corporate
existence for other purposes is terminated in any manner during the term of this
Agreement, all of the Shares belonging to ACCRAIN shall be immediately sold to
TOP MEGA or its qualified assignee at the purchase price specified in Section 1
hereof.
Section 4. For and in consideration of One Peso (P1.00), receipt of
which is hereby acknowledged and admitted by ACCRAIN, TOP MEGA may, at its
option, require ACCRAIN to sell all of the Shares to TOP MEGA or its qualified
assignee at any time during the term of this Agreement at the purchase price
specified in Section 1 hereof.
Section 5. ACCRAIN shall not pledge, mortgage, or in any manner encumber
any of the Shares during the term of this Agreement, without the consent of TOP
MEGA.
Section 6. ACCRAIN shall, until such date as the Shares are sold to or
purchased by TOP MEGA as provided herein, exercise all rights as owner over the
Shares, including the right to vote the same and the right to receive dividends
declared and paid thereon.
2
<PAGE> 3
Section 7. This Agreement shall not be amended except upon the mutual
written agreement of the parties and shall be binding on the parties' successors
and assigns.
Section 8. The initial term of this Agreement shall be for one (1) year
from the date first stated above.
[SIGNATURE PAGE FOLLOWS]
Section 9. TOP MEGA may assign, transfer or otherwise dispose of any or
all of its rights under this Agreement.
IN WITNESS WHEREOF, the parties by their duly authorized representatives
have executed this Agreement as of the date first stated above at the places
indicated below.
ACCRA INVESTMENTS TOP MEGA ENTERPRISES LIMITED
CORPORATION
By: /s/ MANUEL G. ABELLO By: /s/ BRIAN A. VINCENT
------------------------------ -----------------------------
MANUEL G. ABELLO BRIAN A. VINCENT
Chairman Director
(Makati City, Philippines) (Seattle, Washington)
3
<PAGE> 1
EXHIBIT 10.3
MOTOROLA CREDIT CORPORATION
November 11, 1998
NEXTEL INTERNATIONAL, INC.
Master Equipment Financing
Commitment Letter
Nextel International, Inc.
1191 Second Avenue, Suite 1600
Seattle, WA 98101
Attention: David Rostov
Chief Financial officer
Ladies and Gentlemen:
You have advised Motorola Credit Corporation ("Motorola") that you
(the "Borrower"), a Washington corporation and a wholly-owned subsidiary of
Nextel Communications, Inc. ("NCI"), require senior secured credit facilities
in an aggregate principal amount of up to $275,000,000, of which $50,000,000
would be provided as incremental facility loans (the "Incremental Facilities")
under an existing credit facility between Nextel Argentina, S.R.L. ("Nextel
Argentina"), The Chase Manhattan Bank and the other parties thereto and the
remainder of which would be provided under a separate agreement (the "Direct
Facilities", and, together with the Incremental Facilities, the "Facilities").
Certain indirect subsidiaries of the Borrower identified in the Term Sheet
referred to below will be eligible to be "Borrowing Affiliates" for purposes of
the Direct Facilities, which will be used (i) to finance the purchase of iDEN
infrastructure and related equipment and related transportation costs purchased
by or for the benefit of the Borrowing Affiliates, (ii) to reimburse Borrower
for prior purchases of such equipment by Borrower, the Borrowing Affiliates,
Nextel Argentina or Nextel Brazil, and (iii) to refinance existing indebtedness
of the Borrower and certain Borrowing Affiliates to Motorola, all as more fully
described on the Term Sheet referred to below. In that connection, you have
requested that Motorola agree to structure and arrange the Facilities, and that
Motorola commit to provide the Facilities.
Motorola is pleased to advise you of its commitment to provide up to
$275,000,000 of the Facilities, upon the terms and subject to the conditions
set forth or referred to in this commitment letter (the "Commitment Letter"),
in the Summary of Terms and Conditions attached hereto as Exhibit A (the "Term
Sheet") and in the Fee Letter referred to below. Motorola is also pleased to
advise you of its reaffirmation of its $125,000,000 commitment to McCaw
International (Brazil), Ltd. ("Nextel Brazil") as provided in the Term Sheet.
- 1 -
<PAGE> 2
Motorola agrees to maintain the confidentiality of all non-public
information that has or will be supplied to Motorola in connection with the
Facilities except that such information may be disclosed (a) to Motorola's
affiliates, directors, officers, employees and agents, including accountants
and legal advisors (it being understood that the persons to whom such
disclosure is made will be informed of the confidential nature of such
information and will be instructed to keep them confidential), (b) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Commitment Letter or the enforcement of rights
hereunder, (c) with the consent of the Borrower, (d) to the extent required by
applicable laws or regulations or by subpoena or similar legal process, (e) to
the extent requested by any regulatory authority, provided, Motorola will
provide prompt notice of the events in clauses (d) and (e) and will cooperate
with Borrower and NCI to obtain protective orders or other assurances that such
non-public information is not disclosed or (f) to The Chase Manhattan Bank and
a syndicate of lenders arranged by The Chase Manhattan Bank in connection with
the syndication of the Direct Facilities.
As consideration for the commitment hereunder of Motorola and the
agreement of Motorola to perform the services described herein, you agree to
pay to each of Motorola and the other parties described therein the
nonrefundable fees set forth in the Fee Letter dated the date hereof and
delivered herewith to which Motorola and such other parties are party (the "Fee
Letter") in accordance with its terms.
The commitment hereunder of Motorola and the agreement of Motorola to
perform the services described herein are subject to (a) there not occurring or
becoming known to Motorola any material adverse condition or material adverse
change in or affecting the business, operations, property, or condition
(financial or otherwise) of the Borrower and its subsidiaries, taken as a
whole, or the Borrowing Affiliates taken as a whole, (b) Motorola not becoming
aware after the date hereof of any information or other matter affecting the
Borrower or the Borrowing Affiliates or the transactions contemplated hereby
which is inconsistent in a material and adverse manner with any such
information or other matter disclosed to Motorola prior to the date hereof, (c)
the other conditions set forth or referred to in the Term Sheet, (d) the
payment when due of the fees and other compensation provided for by the Fee
Letter and (e) the satisfaction of all of the conditions to Motorola's
obligations set forth herein or in the Term Sheet.
This Commitment Letter will not be assignable by you without the prior
written consent of Motorola (and any purported assignment without such consent
will be null and void), is intended to be solely for the benefit of the parties
hereto and is not intended to confer any benefits upon, or create any rights in
favor of, any person other than the parties hereto. This Commitment Letter,
including the Term Sheet, may not be amended or waived except by an instrument
in writing signed by you and Motorola. This Commitment Letter may be executed
in any number of counterparts, each of which will be an original, and all of
which, when taken together, will constitute one agreement. Delivery of an
executed signature page of this Commitment Letter by facsimile transmission
will be effective as delivery of a manually executed counterpart hereof. This
Commitment Letter and the Fee Letter are the only agreements that have been
entered into among us with respect to the Facilities and set forth the entire
understanding of the parties with respect thereto. Nothing in this Commitment
Letter will be deemed to constitute an amendment or modification of the terms
of any existing credit
- 2 -
<PAGE> 3
facilities between the Borrower, any Borrowing Affiliate and Motorola. This
Commitment Letter will be governed by, and construed in accordance with, the
laws of the State of Illinois.
This Commitment Letter is delivered to you on the understanding that
none of this Commitment Letter, the Term Sheet or the Fee Letter nor any of
their terms or substances will be disclosed, directly or indirectly, to any
other person except (a) to your officers, agents and advisors who are directly
involved in the consideration or this mater or (b) as may be compelled in a
judicial or administrative proceeding or as otherwise required by law (in which
case you agree to inform Motorola promptly thereof and cooperate with Motorola
to obtain protective orders or other assurances such that any of the foregoing
is not disclosed), provided, that the foregoing restrictions will cease to
apply (except in respect of the Fee Letter and its terms and substance) after
this Commitment Letter has been accepted by you, and Motorola hereby consents
to NCI's or the Borrower's public announcement of the existence of this
Commitment Letter in, and the inclusion of a copy of this Commitment Letter and
of the related Term Sheet as an exhibit to, reports that NCI or the Borrower is
required to file with the Securities and Exchange Commission.
The compensation, reimbursement, indemnification and confidentiality
provisions contained or referred to herein and in the Fee Letter will remain in
full force and effect regardless of whether definitive financing documentation
is executed and delivered and notwithstanding the termination of this
Commitment Letter or the commitment hereunder of Motorola , except, in the case
of such compensation and reimbursement provisions only, if such termination is
made by Motorola in violation of the provisions of this Commitment Letter.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to us executed counterparts hereof and of the Fee Letter, not later
than 5:00 p.m., New York City time, on November 13, 1998. The commitment of
Motorola herein will expire at such time in the event that Motorola has not
received such executed counterparts in accordance with the immediately
preceding sentence.
Motorola is pleased to have been given the opportunity to assist you
in connection with this important financing.
Motorola agrees with you to make reasonable efforts to close the
Direct Facilities on or prior to December 7, 1998. If, however, the Credit
Documentation (as defined in the Term Sheet) is not executed and delivered as
provided in the Term Sheet before January 31, 1999, the Commitments hereunder
will expire.
Very truly yours,
MOTOROLA CREDIT CORPORATION
By: /S/ GARY TATJE
-----------------------------
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<PAGE> 4
Name: Gary Tatje
Title: Vice President
NEXTEL INTERNATIONAL, INC.
By: /S/ DAVID ROSTOV
----------------------------
Name: David Rostov
Title:Vice President and CFO
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<PAGE> 5
NEXTEL INTERNATIONAL, INC.
$400,000,000 SENIOR SECURED CREDIT FACILITIES
Summary of Terms and Conditions
I. Parties
BORROWER: Nextel International, Inc. (the "Borrower");
LENDERS: Motorola Credit Corporation ("Motorola"),
and/or one or more lenders designated by
Motorola (Motorola and/or such lenders
collectively, the "Lenders").
PURPOSES: $400,000,000 of new and reaffirmed lending
commitments consisting of (A) up to
$100,000,000 in loans by the Lenders to the
Borrower for Reimbursement Advances (defined
below), (B) up to $225,000,000 (less the
amount of the Reimbursement Advances made) in
loans by the Lenders to the Borrower for
re-lending to specified Borrowing Affiliates
(defined below), (C) up to $50,000,000 of
loans by Motorola to Nextel Argentina S.R.L.
("Nextel Argentina") as incremental loans
("Incremental Argentina Loans") under Nextel
Argentina's existing bank credit facility and
(D) a reaffirmation by Motorola of its
$125,000,000 commitment to McCaw
International (Brazil), Ltd. (Parts (A) and
(B) are referred to as the "Direct Facility"
and are more fully described below.)
BORROWING
AFFILIATES: Each of the following entities shall be
eligible to be a "Borrowing Affiliate" (and
collectively, the "Borrowing Affiliates") for
purposes of the Facility:
(i) Communicaciones Nextel del Peru,
S.A. ("Nextel Peru");
(ii) Communicaciones Nextel de Mexico
S.A. de C.V. ("Nextel Mexico");
(iii) Infocom Communications Network, Inc.
("Infocom");
(iv) J-Com Co., Ltd. ("J-Com"); and
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<PAGE> 6
(v) Other entities designated by
Borrower in which Borrower holds an
equity interest that operate iDEN
systems and are approved by the
Required Lenders (as defined below).
Although the amount of borrowings available
to Borrower will be based upon (i) the
Invoices produced in respect of Reimbursement
Advances and (ii) the Attributable Borrowings
(defined below) of the Borrowing Affiliates,
all Loans under the Direct Facility will be
made directly to Borrower.
GUARANTORS: To the maximum extent permissible under
applicable law and the terms of agreements as
in effect on October 1, 1998 (as such
agreements relate to Infocom), each company,
entity, or person which is a direct or
indirect wholly-owned subsidiary of the
Borrower having a direct or indirect equity
interest in a Borrowing Affiliate (each an
"Affiliated Parent Guarantor", and
collectively, "Affiliated Parent Guarantors")
shall guarantee an aggregate amount equal to
the principal amount of, and interest on, the
Direct Facility. In addition, each Borrowing
Affiliate shall guarantee an aggregate amount
equal to the amount from time to time
outstanding as principal of and interest on
such Borrowing Affiliate's Attributable
Borrowings. Finally, the entities identified
below as a "Third Party Guarantor" shall
guarantee the specified percentage of the
related Borrowing Affiliate's Attributable
Borrowings outstanding from time to time (the
Third Party Guarantors and the Affiliated
Parent Guarantors are individually referred
to as a "Parent Guarantor" and collectively
as the "Parent Guarantors").
J-Com
Nichimen - 25% (Third Party Guarantor)
ORIX Leasing - 5% (Third Party Guarantor)
Motorola, Inc. - 24.6% (Third Party Guarantor)
Infocom
Gamboa Holdings, Inc. (Philippines)
("Gamboa") - over 20% (Third Party Guarantor)
The Borrower, Borrowing Affiliates, and
Affiliated Parent Guarantors, collectively,
are the "Affiliated Credit Parties." The
Affiliated Credit Parties and the Third Party
Guarantors, collectively, are the "Credit
Parties."
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<PAGE> 7
II. The Facilities
TYPES AND AMOUNTS
OF FACILITIES: Under the Direct Facility: six-year
multiple-draw term loan facility in the
aggregate not to exceed U.S. $225,000,000
(the loans thereunder, the "Loans") provided,
that (a) the aggregate amount of the
Attributable Borrowings shall not exceed the
aggregate sales price and related costs of
the iDEN Equipment and Services (as defined
below) purchased by or for the benefit of the
Borrowing Affiliates, (b) the total
Attributable Borrowings of each Borrowing
Affiliate shall not exceed the limits
specified herein, (c) the aggregate amount of
Loans constituting Reimbursement Advances
shall not exceed $100,000,000 and (d) the
aggregate amount of Loans constituting
Attributable Borrowings shall not exceed
$225,000,000 less the amount of Reimbursement
Advances; provided, that the amounts
outstanding from time to time under the 1997
Infocom Facility (defined below) and the
Infocom Bridge Facility (defined below) shall
be deemed to constitute Attributable
Borrowings of Infocom for purposes of
determining the commitment available for
borrowing.
$50,000,000 incremental lending commitment by
Motorola to be undertaken under Nextel
Argentina's existing bank facility (including
any amendments thereto as requested by the
Lender) in accordance with the terms of, and
on a pari passu basis with, the lenders under
such facility; it being understood that for
each borrowing thereunder, the Borrower
and/or Nextel Argentina shall provide a
combination of (a) invoices demonstrating
that the Borrower, the Borrowing Affiliates,
Nextel Brazil (defined below) and Nextel
Argentina have purchased iDEN Equipment and
Services (defined below) during the
Availability Period (defined below) (other
than purchases financed with Attributable
Borrowings, Reimbursement Advances or the
Nextel Brazil Facility (defined below))
and/or (b) a non-cancelable commitment to
purchase iDEN Equipment and Services in an
aggregate amount equal to such borrowing.
Affirmation of Lender's $125,000,000
commitment under its existing credit facility
with McCaw International (Brazil), Ltd.
("Nextel Brazil") (the "Nextel Brazil
Facility").
AVAILABILITY
PERIOD: The Loans shall be made in multiple drawings,
during the period commencing on the initial
closing date of the Direct Facility (the
"Closing Date") and ending on December 31,
2000 (the "Commitment Termination Date").
The "Availability Period" shall
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<PAGE> 8
be the period from November 1, 1998 through
and including the Commitment Termination Date.
AMORTIZATION: The Loans shall be repayable in eight equal
consecutive semi-annual installments on each
June 30 and December 31 commencing June 30,
2001, each of the first 7 of such
installments shall be in an amount equal to
1/8 of the amount of the Loans outstanding on
the Commitment Termination Date (or, if less,
the amount of the Loans outstanding on such
semi-annual installment payment date) and the
final installment shall be in an amount equal
to the then-outstanding balance including,
without limitation, accrued and unpaid
interest.
USE OF PROCEEDS; REIMBURSEMENT
ADVANCES; ATTRIBUTABLE
BORROWINGS: The proceeds (not including any proceeds of
Incremental Facility Loans) of the Direct
Facility are to be used only for the
following purposes:
(i) to make Loans to finance the
purchase price of Motorola, Inc.
supplied iDEN infrastructure
equipment and related services
(including ancillary products and
services such as switches which have
been ordered from and provided by
Motorola, Inc.) and related
transportation and shipping costs,
excluding import taxes, duties and
other like costs ("iDEN Equipment
and Services") purchased by or for
the direct benefit of the Borrowing
Affiliates pursuant to purchase
orders submitted and equipment
delivered during the Availability
Period;
(ii) to make Loans ("Reimbursement
Advances") to reimburse the Borrower
in an amount up to $100,000,000 (the
"Reimbursed Amount") for payments
made by Borrower or a Borrowing
Affiliate or Nextel Argentina or
Nextel Brazil to Motorola, Inc.
(other than payments made to
Motorola, Inc. using funds obtained
(a) under the 1997 Infocom Facility
or the Infocom Bridge Facility (each
as defined below), (b) under the
Nextel Brazil Facility, (c) with
Attributable Borrowings or (d) with
Reimbursement Advances) after
January 1, 1997 (the "Reimbursement
Period") related to the purchase of
iDEN Equipment and Services by or
for the direct benefit of the
Borrowing Affiliates or Nextel
Argentina or Nextel Brazil;
provided, that Reimbursement
Advances shall not be made to the
extent attributable to purchases
previously utilized to borrow
Incremental Argentina Loans;
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<PAGE> 9
(ii) solely in the case of Infocom, to
make Loans to repay (whether or not
then due) principal amounts
outstanding under the Credit
Agreement dated June 18, 1997, as
amended, by and between Infocom and
Motorola, Inc. (the "1997 Infocom
Facility"), and under the Financing
Agreement dated August 27, 1998 by
and between Borrower and Motorola
(the "Infocom Bridge Facility").
The Loans to or for the benefit of a
Borrowing Affiliate described in clauses (i)
and (iii) above are called its "Attributable
Borrowings."
The aggregate amount of each Borrowing
Affiliate's Attributable Borrowings will be
evidenced by one or more notes and such other
documentation reasonably requested by Lenders
in favor of Borrower (the "Borrowing
Affiliate Notes") that will be executed and
delivered concurrent with the corresponding
borrowing under the Direct Facility. The
Borrowing Affiliate Notes of Infocom may
consist of (i) a Borrowing Affiliate Note
containing the provisions described in the
following paragraph, (ii) the intercompany
notes evidencing the Borrower's loans to
Infocom under its existing intercompany loan
agreement in an aggregate amount not to
exceed $50,000,000 (which shall not be
subject to the provisions of the following
paragraph and are herein referred to as the
"Existing Infocom Notes") or (iii) a
combination of the foregoing.
The amortization of payments due to Borrower
under the Borrowing Affiliate Notes (other
than the Existing Infocom Notes) shall mirror
the payments due to Lender under the Direct
Facility. The Borrowing Affiliate Notes
(other than the Existing Infocom Notes) shall
include mandatory prepayment terms that
require the relevant Borrowing Affiliate to
prepay principal equal to 50% of such
Borrowing Affiliate's Excess Cash Flow
commencing with the fiscal year ended
December 31, 2000. For purposes of the
Direct Facility with respect to each
Borrowing Affiliate (other than Infocom),
"Excess Cash Flow" for any fiscal year shall
mean the amount (if any) by which (a)
consolidated operating cash flow of the
Borrowing Affiliate for such fiscal year
exceeds (b) the sum of (i) consolidated debt
service (which shall include all principal
and cash interest expense) of the Borrowing
Affiliate for such fiscal year plus (ii) the
aggregate amount of actual capital
expenditures made by the Borrowing Affiliate
during such fiscal year plus (iii) cash
income taxes paid for such fiscal year, plus
(iv) $5,000,000. To the extent any Borrowing
Affiliate is precluded by contract,
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<PAGE> 10
operation of law or otherwise, from
dividending or distributing Excess Cash Flow
to the extent required under any Borrowing
Affiliate Note, such Borrowing Affiliate
shall deposit the amount of any required
payment into an escrow account established by
such Borrowing Affiliate for the benefit of
the Lender. The amounts deposited in such
escrow account shall be disbursed to the
Lender (or an equivalent amount will be paid
by Borrower) on (a) the earlier of (i) one
(1) year from deposit and (ii) the date the
applicable restriction (if legal rather than
contractual in nature) no longer applies and
(b) the date any such contractual restriction
no longer applies.
ATTRIBUTABLE
BORROWING
LIMITS: The aggregate amount of any Borrowing
Affiliate's Attributable Borrowings shall not
exceed $125,000,000.
III. Incremental Facility
The Direct Facility will permit the Borrower,
with the consent of the Required Lenders, to
activate an incremental facility providing
for loans (either as an incremental increase
of the Direct Facility or in addition
thereto) of up to $100,000,000 (the
"Incremental Facility Loans"). The
Incremental Facility Loans may be revolving
credit loans or term loans. The Incremental
Facility Loans will be governed (to the
extent consisting of an incremental increase
in the Direct Facility) by the Credit
Documentation (as defined below), will be
secured on a pari passu basis with the Loans,
will have a weighted average life that is no
shorter than the average life of the Loans
and will be used for general corporate and
working capital purposes by the Borrower, the
Borrowing Affiliates and Nextel Argentina;
provided that, Incremental Facility Loans
won't be subject to the Attributable
Borrowing limits described above.
Borrower and Lender hereby acknowledge that
Lenders have not committed in any manner to
finance, to provide any credit support for,
or to participate in any manner in the
Incremental Facility Loans.
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<PAGE> 11
IV. Certain Payment Provisions
INTEREST RATES: The interest rate under the Direct Facility
shall be established with respect to each
Loan at the time of drawdown, conversion or
continuation at the Borrower's option, from
among the following alternatives:
(i) U.S. Prime Rate plus 250 basis
points calculated on the basis of
365/366-day year and actual number
of days elapsed, or
(ii) one, two, three or six-month LIBOR
plus 500 basis points calculated on
the basis of 360-day year and actual
number of days elapsed,
payable at the end of the applicable interest
period (for LIBOR rate Loans) and
semi-annually (for Prime Rate Loans) in
arrears on each June 30 and December 31 (each
an "Interest Payment Date") on the principal
amount outstanding.
At any time when the Borrower is in default
in the payment of any amount of principal due
under the Direct Facility (but excluding
defaults by Borrowing Affiliates in principal
payments under their Borrowing Affiliate
Notes or the Infocom Note, as applicable),
such amount shall bear interest at 2% above
the rate otherwise applicable thereto.
COMMITMENT FEE: A Commitment Fee of 0.50% shall begin
accruing as of January 1, 2000 and shall be
payable semi-annually in arrears on each
Interest Payment Date commencing June 30,
2000 on the unused commitments under the
Direct Facility (excluding any commitments in
respect of Incremental Facility Loans) in
excess of $100,000,000.
OPTIONAL PREPAYMENTS
AND COMMITMENT
REDUCTIONS: Loans may be prepaid (without penalty or
premium) and commitments may be permanently
reduced by the Borrower in minimum amounts to
be agreed upon; provided that Loans based on
LIBOR may only be repaid at the end of the
applicable Interest Period unless Borrower
pays a breakage fee. Optional prepayments of
the Loans shall be applied pro rata to reduce
each subsequent principal payment.
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<PAGE> 12
MANDATORY
PREPAYMENTS: The Borrower shall prepay the Loans (without
penalty or premium) in an amount equal to 50%
of the Borrower's consolidated Excess Cash
Flow for each fiscal year of the Borrower
commencing with the fiscal year ending
December 31, 2000. Such prepayments shall be
applied pro rata to reduce each subsequent
principal payment, and may not be reborrowed.
To the extent Borrower is unable to fund such
mandatory prepayment obligations due to
currency export or other similar governmental
restrictions that prohibit payments from a
Borrowing Affiliate to Borrower, such
prepayment obligation shall be suspended for
a cure period not to exceed one year to allow
Borrower to obtain relief from such
restrictions, provided however, such
prepayment amounts are deposited by the
relevant Borrowing Affiliate in a restricted
escrow account pledged to Lender. For
purposes of the Direct Facility with respect
to the Borrower, "Excess Cash Flow" for any
fiscal year shall mean the amount (if any) by
which (a) consolidated operating cash flow of
the Borrower for such fiscal year exceeds (b)
the sum of (i) consolidated debt service
(which shall include all scheduled principal
and cash interest expense) of the Borrower
for such fiscal year plus (ii) the aggregate
amount of actual capital expenditures made by
the Borrower during such fiscal year plus
(iii) cash income taxes paid for such fiscal
year, plus (iv) $10,000,000 plus (v)
consolidated operating cash flow of any
subsidiary of the Borrower to the extent such
subsidiary is precluded by contract from
making dividends or distributions of its cash
flow to the Borrower.
V. Ranking and Collateral
The indebtedness under the Direct Facility
shall rank at least pari passu with
Borrower's other senior indebtedness
(including Borrower's public high yield
notes) and the obligations of each Credit
Party described below shall be secured by a
perfected first priority security interest in
the following assets whether now existing or
hereafter arising:
(i) a pledge of all outstanding shares
of stock of the Borrowing Affiliates
held by the Credit Parties;
(ii) a pledge of all warrants, rights to
payments under shareholder and
intercompany loans (including,
without limitation, the Borrowing
Affiliate Notes and the Infocom
Note), and such other rights and
interests held by Borrower and/or
Parent Guarantors with respect to
the Borrowing Affiliates;
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<PAGE> 13
(iii) a pledge of all outstanding shares
of stock of the Parent Guarantors
held by the Borrower and/or its
direct and indirect wholly-owned
subsidiaries; and
(iv) a negative pledge of the assets of
the Borrowing Affiliates and the
Affiliated Parent Guarantors.
The pledges by the Borrower and the
Affiliated Parent Guarantors shall secure all
obligations of the Borrower under the Direct
Facility (and the guarantees thereof by the
Affiliated Parent Guarantors). The pledges
by Third Party Guarantors shall secure their
guarantee obligations with respect to the
obligations of the Borrowing Affiliates in
which they hold, directly or indirectly,
equity interests.
Neither the Borrowing Affiliates nor the
Affiliated Parent Guarantors will issue
equity interests after the Closing Date
without the Required Lenders' consent unless
all of the equity interests so issued are
pledged as security for the Loans pursuant to
pledge arrangements reasonably satisfactory
to the Required Lenders.
VI. Certain Conditions
INITIAL CONDITIONS: The availability of the Direct Facility shall
be conditioned upon satisfaction of, among
other things, the following conditions
precedent:
(i) Borrower and each other Credit Party
shall have executed and delivered
satisfactory definitive financing
and security documentation with
respect to the Direct Facility (the
"Credit Documentation").
Notwithstanding the forgoing, the
failure of any Borrowing Affiliate
or any Third Party Parent Guarantor
to enter into such Credit
Documentation shall not preclude
Borrower from borrowing pursuant to
the Direct Facility; provided that
no Loans shall be made to the extent
they would be required to be treated
as Attributable Borrowings of (a)
such a Borrowing Affiliate or (b) a
Borrowing Affiliate the equity of
which is held by such a Parent
Guarantor; further provided, that
the Borrower's ability to borrow
Reimbursement Advances shall not be
subject to execution of Credit
Documentation by Third Party
Guarantors.
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<PAGE> 14
(ii) The Lenders shall have received all
fees required to be paid, and all
expenses for which invoices have
been presented.
(iii) All governmental and third party
approvals necessary in connection
with the financing contemplated in
the Direct Facility shall have been
obtained and be in full force and
effect. Notwithstanding the
foregoing, the failure of any
Borrowing Affiliate or any Third
Party Parent Guarantor to obtain any
such approvals shall not preclude
Borrower from borrowing pursuant to
the Direct Facility; provided that
no Loans shall be made to the extent
they would be required to be treated
as Attributable Borrowings of (a)
such a Borrowing Affiliate or (b) a
Borrowing Affiliate the equity of
which is held by such a Parent
Guarantor; further provided, the
failure of a Third Party Guarantor
to obtain such consents and
approvals shall not affect the
Borrower's ability to obtain
Reimbursement Advances.
(iv) The Lenders shall have received
satisfactory audited consolidated
financial statements of the Borrower
and its consolidated subsidiaries
and for each Borrowing Affiliate for
the most recent fiscal year and
unaudited consolidated financial
statements of the Borrower and its
consolidated subsidiaries for any
subsequent quarterly fiscal periods
for which such financial statements
are available.
(v) The Lenders shall have received a
business plan of Borrower, each
Borrowing Affiliate and the
Borrowing Affiliates taken as a
whole in form and substance
reasonably satisfactory to the
Lenders.
(vi) The Lenders shall have completed all
due diligence reviews (including
legal, regulatory and financial
reviews) of Borrower and the
Borrowing Affiliates as they deem
appropriate in their sole
discretion.
(vii) For the funding of any initial
Attributable Borrowings to Nextel
Peru or Infocom, the Borrower shall
have procured an insurance binder
satisfactory to Lender for third
party political risk insurance in
form and substance satisfactory to
Lender in its reasonable discretion.
ON-GOING
CONDITIONS: The making of each extension of credit shall
be conditioned upon (a) the accuracy of all
representations and warranties in the Credit
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<PAGE> 15
Documentation (including, without limitation,
the material adverse change and litigation
representations), (b) there being no default
or event of default in existence at the time
of such extension of credit, (c) the Borrower
having delivered evidence to the Lenders that
the use of proceeds requirements have been
satisfied and the Attributable Borrowing
Limit has not been exceeded, (d) with respect
to all Loans based on Attributable Borrowings
of each Borrowing Affiliate, the pledge to
Lenders of Borrowing Affiliate Notes or, in
the case of Infocom, the Infocom Note, in an
aggregate principal amount equal to the then
aggregate principal amount of the outstanding
Loans of each such Borrowing Affiliate. As
used herein and in the Credit Documentation a
"MATERIAL ADVERSE CHANGE" shall mean any
event, development or circumstance that has
had or could reasonably be expected to have a
material adverse effect on (a) the business,
assets, property, condition (financial or
otherwise) or prospects of the Borrower taken
as a whole or the Borrowing Affiliates taken
as a whole or (b) the legality, validity or
enforceability of any of the Credit
Documentation or the rights and remedies of
the Lenders thereunder or (c) the economic,
political or regulatory environment in any
jurisdiction that would reasonably be
expected to adversely affect the business,
operations, properties or prospects of the
Borrower taken as a whole or the Borrowing
Affiliates taken as a whole or (d) the value
of, or security interest granted to the
Lenders on, the collateral security by the
Borrower or the Credit Parties (excluding the
Borrower) taken as a whole. A material
adverse change with respect to a single
Borrowing Affiliate shall only affect such
Borrowing Affiliate's ability to obtain
Attributable Borrowings.
VII. Certain Documentation Matters
The Credit Documentation shall contain the
following representations and warranties,
covenants, events of default, and others
agreed upon:
REPRESENTATIONS
AND WARRANTIES: Financial statements; absence of material
undisclosed liabilities; no material adverse
change (as described above); corporate
existence; compliance with law; corporate
power and authority; enforceability of Credit
Documentation; no conflict with law or
contractual obligations (other than
contractual obligations with respect to
vendor agreements with Motorola, Inc. or any
others agreed upon by the Lenders); absence
of material litigation (other than disclosed
matters); no default; ownership of property;
liens; no burdensome restrictions; taxes;
subsidiaries; environmental
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<PAGE> 16
matters; ERISA matters; material contracts;
insurance; creation and perfection of
security interests; governmental approvals;
and necessary licenses.
AFFIRMATIVE
COVENANTS: As to the Borrower and the Borrowing
Affiliates: delivery of financial
statements, reports, accountants' letters,
officers' certificates and other information
reasonably requested by the Lenders.
As to the Affiliated Credit Parties: payment
of other obligations; continuation of
business and maintenance of existence and
material rights and privileges; compliance
with laws and material contractual
obligations; maintenance of property and
insurance; maintenance of books and records;
right of the Lenders to inspect property and
books and records; notices of defaults,
litigation and other material events;
compliance with laws; business plans; if
requested, delivery within 90 days after the
closing of the Direct Facility of copies of
licenses, applications, etc., and further
assurances (including, without limitation,
with respect to security interest in
after-acquired property). Notwithstanding
the foregoing, Borrowing Affiliates shall
only be required to deliver to the Lenders
those financial statements of such Borrowing
Affiliate as are required by applicable law
or statute and audited annual financial
statements of such Borrowing Affiliate, but
only so long as such Borrowing Affiliate has
Attributable Borrowings. Within 90 days of
the closing of the Direct Facility, the
Borrower shall have established a combined
debt service and excess cash flow escrow
account with a financial institution
acceptable to Lender into which it shall
deposit monthly (i) one-sixth of the
reasonable estimated semi-annual debt service
to be payable at the end of the relevant
semi-annual period and (ii) any required
excess cash flow payments.
NEGATIVE
COVENANTS: Limitations (on each Affiliated Credit Party)
on: indebtedness that are consistent with
the restrictions contained in the indentures
relating to Borrower's most recent issue of
public notes (provided that such limitations
will not restrict the incurrence of debt
under the Direct Facility (including the
Incremental Facility Loans), the refinancing
by Borrower or any other Credit Party of any
existing indebtedness (including indebtedness
under the public notes) or additional
indebtedness described below); guarantee
obligations; mergers, consolidations,
liquidations and dissolutions; sales or other
transfer of assets; leases; dividends and
other payments in respect of capital stock of
Borrower; investments; optional
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<PAGE> 17
payments and modifications of subordinated
debt instruments; transactions with
affiliates; changes in fiscal year; negative
pledge clauses; removal of equipment from
service; amendment of debt documents
(including without limitation intercompany
documents). All Credit Parties shall be
subject to negative covenants with respect to
liens on collateral pledged by them to secure
their obligations.
ADDITIONAL
INDEBTEDNESS: Borrower may incur up to $100,000,000 in
additional unsecured indebtedness. In
addition, the Affiliated Credit Parties may
incur an unlimited amount of subordinated
debt, so long as the terms and conditions of
such subordinated debt (including
amortization, interest rate, covenants,
defaults and mandatory prepayments
provisions) and the subordination provisions
governing such subordinated debt are as
provided in the definitive documentation
relating to the Direct Facility.
The incurrence of all additional indebtedness
will be subject to the absence of any default
under the Direct Facility at the time of such
incurrence and after giving effect thereto.
FINANCIAL
COVENANTS: On and after the Closing Date the financial
covenants for Borrower shall include the
following (all ratios shall, as agreed by the
parties, be applied on a consolidated,
combined or other basis): (i) minimum
recurring revenues; (ii) minimum subscribers;
(iii) minimum EBITDA; (iv) maximum debt to
EBITDA ratio, and (v) fixed charge coverage
ratio.
The compliance standards of such financial
covenants shall be set at levels reflecting
an agreed upon adjustment to Borrower's and
the Borrowing Affiliate's business plans
delivered to Motorola hereunder (which
business plans shall be acceptable to
Lenders), and the relevant components used in
computing such financial covenants and the
definitions therefor shall be agreed upon in
the definitive agreements consistent with the
methodology used in preparing such business
plans.
Upon the request of the Lenders, the
Borrower's Chief Financial Officer (or such
other representative of Borrower acceptable
to Lender), along with such other
representatives of each Borrowing Affiliate
as reasonably requested by Lender, shall meet
with a representative of Lender to discuss
the financial performance of Borrower and
each of the Borrowing Affiliates.
- 13 -
<PAGE> 18
EVENTS OF DEFAULT: Nonpayment (subject to a grace period of 5
days in the case of interest and other
amounts not representing principal of the
Loans); material inaccuracy of
representations and warranties; violation of
covenants (subject, in the case of certain
affirmative covenants, to a grace period to
be agreed upon); cross-default against other
material indebtedness of the Credit Parties;
bankruptcy and similar insolvency events;
material judgments; actual or asserted (by
any Credit Party) invalidity of any guarantee
or security document or security interest;
ERISA events; event having (or potentially
having) a Material Adverse Change in the
Borrower, taken as a whole, or the Borrowing
Affiliates, taken as a whole. Notwithstanding
the foregoing, an event of default under any
Borrowing Affiliate Note or the Infocom Note
shall not constitute an Event of Default under
the Direct Facility unless such event of
default causes an independent Event of Default
under the Facility. Events of Default under
the Direct Facility will be defaults or will
cause early maturity under the Borrowing
Affiliate Notes.
VOTING: Amendments and waivers with respect to the
Credit Documentation shall require the
approval of Lenders (the "Required Lenders")
holding not less than 51% of the aggregate
amount of the Loans and unused commitments
under the Direct Facility, except that (a)
the consent of each Lender affected thereby
shall be required with respect to (i)
reductions in the amount or extensions of the
scheduled date of amortization of any Loan,
(ii) reductions in the rate of interest or
any fee or extensions of any due date
thereof, (iii) increases in the amount or
extensions of the expiry date of any Lender's
commitment, (iv) modifications to the pro
rata provisions of the Credit Documentation,
(v) release of collateral except to the
extent otherwise permitted.
ASSIGNMENTS AND
PARTICIPATIONS: The Lenders shall be permitted to assign all
or any portion of the Loans with the consent
of Borrower (which consent shall not be
unreasonably withheld or delayed and shall be
unnecessary if there is a continuing default
or an Event of Default), and the Lenders
shall be permitted to sell participations in
their Loans and commitments without any
requirement of notice to or consent of
Borrower, any Borrowing Affiliate, any Parent
Guarantor, or any other person. In the case
of partial assignments (other than to another
Lender or to an affiliate of a Lender), the
minimum assignment amount shall be U.S.
$2,500,000, unless otherwise agreed by the
Borrower. Voting rights of participants
shall be limited to those matters with
respect to which the affirmative vote of the
Lender from which it purchased its
participation would be required as described
under "Voting" above. Pledges of Loans in
- 14 -
<PAGE> 19
accordance with applicable law shall be
permitted without restriction.
PAYMENTS: All payments of principal, interest and fees
shall be made in U.S. dollars free of all
present and future taxes, levies, duties,
withholdings and other deductions of any
nature.
EXPENSES AND
INDEMNIFICATION: The Borrower shall pay (a) all reasonable
out-of-pocket expenses of Lender associated
with the preparation, negotiation,
documentation, execution, and delivery and
administration of the Credit Documentation
including, without limitation, any Borrower
Affiliate documentation required with respect
to any drawdown to the extent such
documentation is not already in place at
Closing, and any amendment or waiver with
respect thereto (it being understood that,
the portion of such fees, disbursements and
other charges of counsel (including local
(foreign) counsel fees and ordinary expenses)
to be reimbursed by the Borrower shall be
limited to U.S. $325,000 and (b) all
out-of-pocket expenses of the Lenders in
connection with the enforcement of the
Lender's rights against Borrower, any
Borrowing Affiliate or any Parent Guarantor
or any other party under the Credit
Documentation. In the event that Lender
determines that the Direct Facility will not
be closed, such amounts shall become
immediately due and payable by Borrower.
The Lenders (and their affiliates and their
respective officers, directors, employees,
advisors and agents) will have no liability
for, and will be indemnified and held
harmless against, any loss, liability, cost
or expense incurred in respect of the
financing contemplated hereby or the use or
the proposed use of proceeds thereof (except
to the extent resulting from the gross
negligence or willful misconduct of the
indemnified party).
GOVERNING LAW
AND FORUM: State of Illinois; the Lenders and each
Credit Party will submit to the non-exclusive
jurisdiction of the courts of the State of
Illinois.
ADDITIONAL
UNDERTAKINGS: Borrower, Motorola and McCaw International
(Brazil), Ltd. shall endeavor to negotiate in
good faith to determine the appropriateness
of amendments to the Nextel Brazil Facility
(i) to alleviate non-value-added reporting
covenant burdens, (ii) to conform the
amortization schedule thereunder with the
scheduled principal payments under the Direct
Facility, and (iii) to permit an incremental
facility in respect thereof of up to
$125,000,000
- 15 -
<PAGE> 20
(which Motorola would have no commitment,
express or implied, to provide, participate
in or provide credit support for.)
This Summary of Terms and Conditions is not meant to be, nor should it be
construed as, an attempt to define all of the terms and conditions of the
transactions contemplated hereby, nor is it intended to reflect specific
document phrasing that will exist in the Credit Documentation. It is intended
only to outline the basic points of business understanding around which binding
legal documentation will be structured.
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 173,818
<SECURITIES> 49,093
<RECEIVABLES> 19,530
<ALLOWANCES> 4,238
<INVENTORY> 29,479
<CURRENT-ASSETS> 291,902
<PP&E> 481,288
<DEPRECIATION> 13,294
<TOTAL-ASSETS> 1,601,361
<CURRENT-LIABILITIES> 108,770
<BONDS> 1,178,376
0
98,886
<COMMON> 395,455
<OTHER-SE> (301,122)
<TOTAL-LIABILITY-AND-EQUITY> 1,601,361
<SALES> 6,205
<TOTAL-REVENUES> 26,597
<CGS> 4,440
<TOTAL-COSTS> 12,959
<OTHER-EXPENSES> 33,657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,548
<INCOME-PRETAX> (164,798)
<INCOME-TAX> (20,555)
<INCOME-CONTINUING> (144,243)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (144,243)
<EPS-PRIMARY> (3.95)
<EPS-DILUTED> (3.95)
</TABLE>
