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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 2, 1998
------------------------
NEXTEL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
WASHINGTON 333-26649 91-167-1412
(State of other jurisdiction of (Commission File (I.R.S. Employer
incorporation) Number) 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
(Former name or former address, if changed since last report)
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Nextel International, Inc. (the "Company" or "Nextel International") is a
leading international wireless communications services company based on the
number of people and the number of specialized mobile radio ("SMR") channels in
its licensed service area. The Company owns majority controlling interests in
wireless communications services companies in Brazil, Mexico, Argentina and Peru
and owns an equity interest and actively participates in the management of a
wireless communications services company in the Philippines. In addition, upon
consummation of the Private Placement (as defined below), the Company will own a
19.4% equity interest in Clearnet Communications Inc. ("Clearnet"), a Canadian
wireless communications services company, 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's interest in the Shanghai GSM System is held through its 30% equity
interest in a Chinese joint venture ("Shanghai CCT McCaw"). The Company
currently plans to launch enhanced specialized mobile radio ("ESMR") commercial
service in Sao Paulo during the first half of 1998, Buenos Aires and Rio de
Janeiro during the second quarter of 1998 and Mexico City and Manila during the
third quarter of 1998. 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. The Company's 1997 audited financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations are set
forth below under Sections G and F, respectively.
FORWARD-LOOKING STATEMENTS
A number of the matters and subject areas discussed herein 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, including, but not limited to, general
economic conditions in Latin America and Asia, as a result of the recent Asian
economic crisis, the market segments that the Company is targeting for SMR and
ESMR commercial services, 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 and deployment and
marketing plans and customer demand, access to sufficient debt and equity
financing to meet the Company's operating and financial needs, the successful
deployment of the iDEN digital technology, the ability to achieve market
penetration and average subscriber revenue level sufficient to provide financial
viability to the Company's wireless communications business, the Company's
ability to timely and successfully accomplish required scale-up of its billing,
customer care and similar back-room operations 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, 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 other reports filed with the Securities and
Exchange Commission.
ITEM 5. OTHER EVENTS.
The Company reports the following:
A. RECENT INVESTMENTS
Brazil. On September 26, 1997, Nextel S.A. (formerly Airlink S.A.), a
subsidiary of McCaw International (Brazil), Ltd. ("Nextel Brazil") and the
holder of the SMR channels and related operating assets in Brazil acquired (i)
49% of the capital stock of MCS Telefonia, Ltda. ("MCS"), an indirect wholly
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owned subsidiary of Motorola, Inc. ("Motorola"); (ii) an option to purchase the
remaining 51% of the capital stock of MCS; and (iii) certain assets of MCS
(collectively the "MCS Transaction"). The MCS option is exercisable for $3.2
million upon receipt of certain necessary approvals from Brazilian regulatory
authorities. In connection with the MCS Transaction, Motorola acquired 5% of the
outstanding common stock of Nextel S.A. which effectively diluted the Company's
ownership in its Brazilian operations to 77%.
Argentina. The Company acquired the remaining 50% equity interest in
Nextel Argentina S.R.L. ("Nextel Argentina," formerly McCaw Argentina S.A.) for
$46 million on January 30, 1998 (the "Argentina Acquisition"). Nextel Argentina
is the largest SMR channel holder in Argentina and has licenses to conduct a
nationwide paging business. In December 1997, Nextel Argentina acquired an
additional 60 SMR channels in Buenos Aires for $12 million in a government
auction, increasing its SMR spectrum holdings in Buenos Aires to 12 MHz.
Mexico. Since January 1, 1997, through a series of transactions, the
Company has increased its equity interest in Comunicaciones Nextel de Mexico
S.A. de C.V. ("Nextel Mexico," formerly Corporacion Mobilcom S.A. de C.V.) from
30.1% to 100% for consideration equal to approximately $132.2 million.
Peru. On January 29, 1998, the Company purchased 70.1% of the common
equity of Valorcom S.A., a Peruvian company ("Nextel Peru") for $27.9 million,
$23.8 million of which will represent new capital to be contributed to Nextel
Peru to finance the expansion, upgrade and operation of its wireless services
business. To date, the Company has paid $7.0 million to Nextel Peru, and the
remaining $20.9 million will be paid in the form of capital contributions which
the Company expects will be made prior to July 30, 1998. Nextel Peru, through
its subsidiaries, currently offers analog SMR services in the greater Lima area,
and holds licenses covering 138 SMR channels. Nextel Peru currently plans to
upgrade to ESMR service in 1999.
Philippines. The Company has reached an agreement in principle with the
three groups of local shareholders (the "Philippines Shareholders") of Infocom
Communications Network, Inc. ("Nextel Philippines"), including the Gotesco group
(the "Gotesco Group") which owns a 20% interest in Nextel Philippines, and is in
the process of finalizing definitive documentation (the "Philippines Partner
Agreement") that would (i) restructure the existing corporate governance
arrangements to give the Company increased minority shareholder rights; (ii)
provide for the purchase by the Company of existing shareholder loans of the
Philippines Shareholders totaling approximately $19.6 million ($2.0 million of
which the Company has already purchased), which loans, upon purchase by the
Company, bear interest at 18% per annum and will be convertible into equity of
Nextel Philippines; (iii) provide for the funding by the Company of Nextel
Philippines' future capital needs, currently estimated to be $50 million for
1998, pursuant to loans which could, at the option of the Company, be converted
into equity of Nextel Philippines; (iv) provide the Gotesco Group with the right
to put its 20% interest to the Company for approximately $9.4 million, beginning
on the date which is nine months after the closing of the Philippines Partner
Agreement; and (v) allow the Company to call the Gotesco Group's 20% interest
for approximately $11.6 million, if the Gotesco Group does not exercise its put
right. 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.
B. PENDING OR POTENTIAL INVESTMENTS
Indonesia. On August 15, 1997, the Company entered into a preliminary
agreement with PT Gunung Sewu Kencana ("GSK"), a large diversified Indonesian
company, which gives the Company the right, upon receipt of required regulatory
approval, to purchase a 37.5% interest in PT Mitra Kencana Telekomunindo
("MKT"), an Indonesian corporation owned by GSK. MKT holds a provisional license
for 80 SMR channels in Indonesia that can be converted into an operating license
upon satisfaction of certain regulatory approvals. Although the Company believes
that MKT presents it with significant opportunities to expand its SMR network in
Asia, the Company does not intend to make any substantial investment in MKT
until the economic and political conditions in Indonesia, and the economic
conditions in Asia generally, have stabilized. To date, the Company has advanced
$1.5 million to MKT in the form of a loan that is guaranteed by GSK.
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Japan. The Company is currently negotiating to purchase a minority equity
interest in a digital wireless services provider in Japan that holds licenses in
the 1.5 GHz frequency band. These licenses cover more than 125 million POPs.
There can be no assurance that the Company will consummate a transaction with
this provider.
C. FINANCING PLAN
The Company intends to issue senior discount notes due 2008 (the "Notes")
for net proceeds of approximately $290 million pursuant to an exemption from
registration under the Securities Act of 1933, as amended (the "Private
Placement"). The Notes will initially not be registered under the Securities Act
of 1933, as amended and may not be offered or sold in the United States absent
registration or an applicable exemption from such registration requirements. The
Private Placement is part of the Company's financing plan designed to meet
expected funding requirements that are estimated to total approximately $709
million during 1998 (the "1998 Plan"). Nextel International's expected funding
sources and uses with respect to its 1998 Plan are described in the table below:
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SOURCES USES(1)
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(IN MILLIONS)
<S> <C> <C> <C>
Gross proceeds from the Private System and related capital
Placement............................ $300 expenditures........................... $449
Available cash, cash equivalents and Cash used by operating activities,
marketable securities at December 31, financing fees and other corporate
1997................................. 259(2) purposes............................... 102(3)
Operating Company vendor and bank Pending or potential acquisitions of
financings........................... 150(4) licenses and investments............. 81(5)
Completed acquisitions and
investments............................ 68(6)
Contingent liabilities................. 9(7)
Total.................................. $709 Total.................................. $709
</TABLE>
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(1) Reflects the Company's anticipated share of capital expenses and other
funding uses.
(2) Excludes cash held at the Operating Company level and includes $69 million
of cash held by the Company which is restricted for use as equity
investments under the Company's financing agreements and equipment purchases
under certain infrastructure purchase contracts.
(3) Includes interest expense related to vendor and bank financings.
(4) Includes approximately $80 million assumed to be drawn during 1998 under the
Argentina Credit Facility (as defined below) and the remaining $75 million
(of which the Company's allocated share is approximately $70 million)
assumed to be incurred by Nextel Brazil pursuant to its vendor financing
agreement with Motorola.
(5) Represents amounts budgeted for pending or potential SMR license purchases
and investments in new markets. Also includes $19.6 million expected to be
used to purchase Philippines Shareholders' loans.
(6) Includes $46 million for the acquisition of the remaining 50% equity
interest in Nextel Argentina on January 30, 1998 and $22 million
representing the final payment for the remaining equity interest in Nextel
Mexico.
(7) Reflects the $9 million contingent liability for the put right relating to
Nextel Philippines, which is assumed to be exercisable during 1998.
The Company believes that the sources described above will provide funds
that in the aggregate are expected to be sufficient to implement the 1998 Plan
including all currently anticipated cash needs of its business activities
through 1998; however there can be no assurance that such funds will be
sufficient. If, among other things, Nextel International's plans change, its
assumptions regarding its funding needs associated with the further build-out,
expansion and enhancement of the ESMR networks 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 consummates
acquisitions or investments in addition to those currently contemplated or at
prices higher than currently contemplated, it increases its equity ownership
interests in certain of the Operating Companies beyond those currently
contemplated, it experiences growth in its business or subscriber base greater
than that which was anticipated in developing the 1998 Plan, it experiences
unanticipated costs or competitive pressures, the relevant Operating Companies
are unable to access funds under their existing financing agreements, or the net
proceeds from the Private Placement, together with any other funds available to
the Company and the Operating Companies or any other borrowings otherwise prove
to be insufficient to meet such cash needs through 1998, the Company may be
required to seek additional capital sooner than anticipated. The availability of
borrowings under the Company's existing financing agreements are subject to the
satisfaction or waiver of certain conditions. The Company will also require
significant additional capital in years subsequent to 1998 to fund the further
build-out, expansion and
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enhancement of its ESMR networks, to fund operating losses and for other
purposes. To the extent the Company's then existing financing sources are
insufficient to meet such needs, the Company may seek to raise such additional
capital from public or private equity or debt sources. There can be no assurance
that the Company will be able to raise such capital on satisfactory terms, if at
all.
D. NEXTEL BRAZIL
The Company has executed an interconnect agreement with Telecomunicacoes de
Sao Paulo S.A. and Telecomunicacoes Brasileiras S.A. for the provision of
interconnect services on its planned ESMR network. The Company is planning to
launch commercial ESMR service in Sao Paulo during the first half of 1998. The
Company's planned launch schedule for ESMR commercial service in Sao Paulo is
based on a number of important factors, the most significant of which are the
receipt prior to launch of: (i) use and operations licenses (the "Operations
Licenses") for the sites located in the greater Sao Paulo area; (ii) project
installation approval from Anatel for 25 remaining cell sites (approval for 125
cell sites has already been obtained) and (iii) post-installation operating
approval from Agencia Nacional de Telecomunicacoes ("Anatel"). Applications for
Operations Licenses are filed with the city government and require the approval
of four separate departments, three of which are municipal departments
(secretary of housing; planning bureau and secretary of construction and safety)
and the fourth of which (fire department) is a state government department.
Although the Company believes it will be able to obtain Operations Licenses for
all of the sites necessary for commercial operation of digital ESMR services in
Sao Paulo before the end of the first half of 1998, no assurance can be given
that it will be able to do so. Any delay in obtaining Operations Licenses for
the sites necessary for commercial operation of digital ESMR services in Sao
Paulo or Anatel project or post-installation approval would delay the launch of
commercial ESMR service in Sao Paulo.
The Company's planned launch of ESMR commercial service in Rio de Janeiro
during the second quarter of 1998 is also subject to the receipt prior to such
launch of Anatel project and post installation approval as well as Operations
Licenses for sites located in the greater Rio de Janeiro area. Any delay in
obtaining such Operations Licenses or Anatel project or post installation
approval would delay the launch of commercial ESMR service in Rio de Janeiro to
after the second quarter of 1998.
E. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated balance sheet as of December 31, 1997
gives effect to (i) the Argentina Acquisition; (ii) the issuance of 82.54 shares
of the Company's Series A Redeemable Exchangeable Preferred Stock, par value
$10.00 per share (the "Series A Preferred Stock"), to Nextel Communications Inc.
("Nextel Communications") in consideration of $8.3 million owed by the Company
to Nextel Communications; and (iii) the transfer to the Company by Nextel
Communications of securities representing a 15.7% equity interest in Clearnet,
in exchange for shares of Series A Preferred Stock, which will occur immediately
prior to the consummation of the Private Placement (the "Clearnet Transaction")
as if they had occurred at December 31, 1997. The unaudited pro forma
consolidated statement of operations for the year ended December 31, 1997 gives
effect to: (i) Nextel Communications' acquisition of an 81% interest in Nextel
Brazil for $186.3 million in market value of Nextel Communications Class A
Common Stock and the simultaneous contribution of such interest to the Company;
(ii) the MCS Transaction; (iii) the increase in the Company's ownership interest
in Nextel Mexico through a series of transactions, from 30.1% to 100%; (iv) the
Argentina Acquisition; (v) the offering (the "Existing Notes Offering") on March
6, 1997 by the Company of its 13% Senior Discount Notes due 2007 (the "Existing
Notes"); (vi) the Clearnet Transaction and (vii) other issuances of the Series A
Preferred Stock. The pro forma data do not give effect to the acquisition of a
70.1% equity interest in Nextel Peru. The following pro forma consolidated
financial statements have been derived from, and should be read in conjunction
with, the consolidated historical financial statements of the Company, including
the notes thereto. The pro forma adjustments are described in the notes to the
pro forma consolidated financial statements. The pro forma consolidated
financial statements are not necessarily indicative of the operating results or
financial position that would have been achieved by the Company, nor are they
intended to be indicative of the Company's future operating results or financial
position.
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PRO FORMA CONSOLIDATED BALANCE SHEET(1)
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
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<CAPTION>
THE NEXTEL NEXTEL CLEARNET AND
COMPANY ARGENTINA ARGENTINA OTHER
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(2) ADJUSTMENTS PRO FORMA
------------ ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Total current assets............................ $ 309,821 $ 12,410 $ (46,000) $ $ 276,231
Property, plant and
equipment, net................................ 136,210 39,193 175,403
Investment in unconsolidated subsidiaries....... 106,489 (62,758) 43,731
Intangible assets, net.......................... 526,000 29,016 30,607
9,000 594,623
Other noncurrent assets......................... 44,518 5,674 77,097(3) 127,289
--------- ------- -------- ------- ----------
Total assets.................................... $1,123,038 $ 86,293 $ (69,151) $ 77,097 $1,217,277
========= ======= ======== ======= ==========
Total current liabilities....................... $ 86,513 $ 57,739 $ (49,597) $ (8,254)(4) $ 86,401
Deferred income taxes........................... 120,777 9,000 7,392(3) 137,169
Long-term debt.................................. 597,809 -- 597,809
--------- ------- -------- ------- ----------
Total liabilities............................... 805,099 57,739 (40,597) (862) 821,379
Minority interest............................... 21,910 21,910
Stockholders' equity............................ 296,029 28,554 (28,554) 69,705(3)
8,254(4) 373,988
--------- ------- -------- ------- ----------
Total liabilities and
stockholders' equity.......................... $1,123,038 $ 86,293 $ (69,151) $ 77,097 $1,217,277
========= ======= ======== ======= ==========
</TABLE>
(footnotes on next page)
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PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(1)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NEXTEL NEXTEL NEXTEL
THE BRAZIL MEXICO MCS ARGENTINA
COMPANY (HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL)
(HISTORICAL) (5) (6) (7) (8)
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<S> <C> <C> <C> <C> <C>
Revenues............................................. $ 13,015 $1,137 $ 4,781 $3,686 $ 3,693
Costs and expenses related to revenues............... 7,424 200 1,356 721 1,386
Selling, general and administrative.................. 26,768 1,130 3,072 2,289 11,551
Depreciation and amortization........................ 18,381 453 1,824 514 3,150
-------- ------ ------ ------ --------
Operating loss....................................... (39,558) (646) (1,471) 162 (12,394)
Interest income...................................... 19,666 26 396
Interest expense..................................... (56,583) (237) (1,492)
Loss from equity method investments.................. (11,401)
Other, net........................................... 5,561 49 355 (181)
Minority interest.................................... 2,085
-------- ------ ------ ------ --------
Income (loss) before income tax benefit
(provision)........................................ (80,230) (808) (2,212) 162 (12,575)
Income tax benefit (provision)....................... 6,282 115 (1)
-------- ------ ------ ------ --------
Net income (loss).................................... $(73,948) $ (693) $ (2,213) $ 162 $(12,575)
======== ====== ====== ====== ========
Net loss per share, basic and diluted................ $ (2.03)
Weighted average shares outstanding.................. 36,500
<CAPTION>
ADJUSTMENTS PRO FORMA
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<S> <C> <C>
Revenues............................................. $ $ 26,312
Costs and expenses related to revenues............... 11,087
Selling, general and administrative.................. 44,810
Depreciation and amortization........................ 8,597(9)
2,301(10) 35,220
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Operating loss....................................... (10,898) (64,805)
Interest income...................................... 20,088
Interest expense..................................... (10,489)(11) (68,801)
Loss from equity method investments.................. 3,255(12)
4,486(13) (3,660)
Other, net........................................... 5,784
Minority interest.................................... 652(14) 2,737
-------- ---------
Income (loss) before income tax benefit
(provision)........................................ (12,994) (108,657)
Income tax benefit (provision)....................... 2,082(15) 8,478
-------- ---------
Net income (loss).................................... $ (10,912) $(100,179)
======== =========
Net loss per share, basic and diluted................ $ (2.74)
Weighted average shares outstanding.................. 36,500
</TABLE>
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(1) For purposes of conforming the presentation of the pro forma consolidated
financial statements, certain historical amounts have been summarized.
(2) Adjustments, on a preliminary basis, to record the acquisition of the
remaining 50% of Nextel Argentina including: (i) the payment of $46.0
million of cash and the elimination of $62.8 million from investment in
unconsolidated subsidiaries to effect the consolidation of Nextel
Argentina's assets and liabilities; (ii) the allocation of $30.6 million of
the purchase price to licenses; (iii) the recognition of goodwill and
deferred taxes of $9.0 million related to the difference between the tax
basis and book basis of the licenses; (iv) the reclassification and
elimination of approximately $49.6 million of shareholder advances to
Nextel Argentina; and (v) the elimination of the historical equity of
Nextel Argentina totaling $28.6 million.
(3) Gives effect to the Clearnet Transaction and assumes issuance of Series A
Preferred Stock with an initial liquidation value of $69.7 million in
exchange for the receipt of securities representing an approximate 15.7%
equity interest in Clearnet (based on the Clearnet closing stock price of
$11 3/8 per share on December 31, 1997). As part of the Clearnet Transaction
the Company will record a deferred tax liability ($7.4 million based on the
same closing stock price).
(4) Reflects issuance of Series A Preferred Stock in consideration of the
extinguishment of $8.3 million of obligations owed by the Company to Nextel
Communications, including $1.7 million of such obligations owed under the
Tax Sharing Agreement (as defined herein).
(5) Represents historical results of Nextel Brazil prior to the acquisition on
January 30, 1997.
(6) Represents historical results of Nextel Mexico prior to its consolidation
with the Company's financial statements effective September 1, 1997.
(7) Represents historical results of MCS prior to the acquisition on September
26, 1997.
(8) Represents the historical results of the subsidiaries of Nextel Argentina
to the extent their results are not included in the Company's historical
Consolidated Statement of Operations.
(9) Gives effect to the amortization of licenses totaling approximately $377.0
million recognized in the Nextel Brazil, Nextel Mexico, MCS and Nextel
Argentina transactions over 20 years.
(10) Gives effect to the amortization of goodwill totaling approximately $113.7
million recognized in the Nextel Brazil, Nextel Mexico and Nextel Argentina
transactions over 20 years.
(11) Gives effect to the interest expense and amortization of debt issue costs
related to the Existing Notes Offering as if it had occurred on January 1,
1997. No adjustment has been made to include interest income earned on the
net proceeds from the Existing Notes Offering prior to their actual
issuance on March 6, 1997.
(12) Gives effect to the reversal of the equity in net loss of Nextel Mexico
previously recognized by the Company.
(13) Gives effect to the reversal of equity in net loss of Nextel Argentina
previously recognized by the Company.
(14) Gives effect to the additional 4% minority interest in Nextel Brazil
recognized as a result of the MCS Transaction.
(15) Gives effect to the tax benefit derived from the amortization of the
licenses obtained in the Nextel Brazil and Nextel Mexico transactions.
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F. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
GENERAL
Nextel International is a leading international wireless communications
services company based on the number of people and the number of SMR channels in
its licensed service areas. The Company provides wireless communications
services in five of the largest cities in Latin America and two of the largest
cities in Asia. The Company's markets cover approximately 248 million people
("POPs"), approximately 131 million of which are in Latin America. Nextel
International is the largest 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 ESMR
services, using Motorola's iDEN technology. The Company currently plans to
launch ESMR commercial service in Sao Paulo during the first half of 1998,
Buenos Aires and Rio de Janeiro during the second quarter of 1998 and Mexico
City and Manila during the third quarter of 1998. 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. The Company's upgrade to digital networks will
allow it to increase capacity significantly and to offer in a single digital
subscriber unit, additional services and advanced features, such as direct
connect (group calling and instant conferencing), telephone interconnect and
text messaging services.
As of December 31, 1997, the Company directly or indirectly owned 100% of
Nextel Mexico; 50% of Nextel Argentina, accounted for using the equity method;
30% of Nextel Philippines, accounted for using the equity method; 3.7% of
Clearnet, accounted for as an investment available-for-sale and reflected at
fair market value and a contractual right to receive 12.1% of the profits of the
Shanghai GSM System, accounted for as a cost method investment. Additionally,
the Company, through an 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.
Accordingly, the Company's consolidated financial statements include the
accounts of Nextel Brazil and Nextel Mexico commencing January 30, 1997 and
September 1, 1997, respectively, which are the dates when the Company acquired a
controlling interest in the respective companies. Prior to September 1, 1997,
Nextel Mexico was accounted for using the equity method. The Company's
consolidated financial statements include the accounts of Nextel Argentina prior
to May 6, 1997, when it was contributed to a joint venture (the "Argentina Joint
Venture") in which the Company then owned 50% of the outstanding equity. The
Company's initial acquisition of an 81% interest in Nextel Brazil on January 30,
1997, the MCS Transaction and the Company's increase in its equity interest in
Nextel Mexico (through a series of transactions) from 30.1% to 100% were
accounted for under the purchase method and the excess of the purchase price
over book value was allocated to licenses and goodwill based on their
preliminary estimated fair values and will be amortized over 20 years.
On January 1, 1997 and March 3, 1997, respectively, Nextel International
(Services), Ltd. ("Nextel Services") (formerly McCaw International (Services),
Ltd.) and Nextel International (CANMEX), Ltd. ("Nextel Canmex"), both wholly
owned subsidiaries of Nextel Communications, were merged into the Company. As
these mergers represented transfers between companies under common control, they
have been accounted for in a manner similar to poolings of interest;
accordingly, the historical financial statements reflect the combined financial
position and results of operations of the Company, Nextel Services and Nextel
Canmex for all periods presented.
On January 29, 1998, the Company acquired 70.1% of the common equity of
Nextel Peru for $27.9 million, $23.8 million of which will represent new capital
to be contributed to Nextel Peru to finance the expansion, upgrade and operation
of its wireless services business. To date the Company has paid $7.0 million to
Nextel Peru and the remaining $20.9 million will be paid in the form of capital
contributions, which the Company expects will be made prior to July 30, 1998. On
January 30, 1998, the Company acquired an additional 50% equity interest in
Nextel Argentina through the Argentina Acquisition. Accordingly, the Company's
historical financial statements for 1998 will consolidate the accounts of Nextel
Peru and Nextel Argentina. The acquisition of Nextel Peru and the Argentina
Acquisition were accounted for under the purchase method and the excess of the
purchase price over book value was allocated to licenses and goodwill based on
their preliminary estimated fair value and will be amortized over 20 years. In
addition, the Company
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has negotiated the right to acquire a 37.5% interest in MKT, an Indonesian joint
venture, which holds a provisional license for 80 SMR channels. The Company's
further participation in MKT through the acquisition of such 37.5% interest is
subject to receipt of certain Indonesian regulatory approvals. To date the
Company has advanced approximately $1.5 million as loans to MKT (which are
guaranteed by the holder of the principal ownership interest in MKT). The
Company does not intend to make any substantial investment in the joint venture
until the economic and political conditions in Indonesia, and the economic
conditions in Asia generally, have stabilized. To the extent the Company does
acquire a 37.5% interest in MKT, under U.S. GAAP as in existence on the date
hereof, such investment would be accounted for under the equity method. Upon
consummation of the Clearnet Transaction, the Company intends to continue to
account for its 19.4% interest in Clearnet as an investment in marketable
securities reflected at fair market value.
The accounts of the Company's consolidated foreign subsidiaries and those
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 United States subsidiaries to ensure timely reporting of
consolidated results.
REVENUES
The Company derives its revenues primarily from (i) activation fees, which
are the initial charges paid by a new subscriber for service; (ii) monthly fixed
access charges, which vary depending on the plan chosen by the subscriber; (iii)
airtime charges, which are billed based on usage; (iv) monthly rental charges,
which are derived from the leasing of wireless equipment; (v) the sale of
handsets to subscribers; and (vi) in certain markets, various local taxes and
fees which are passed on to customers. Each Operating Company sets the pricing
of the different components of its services in accordance with its marketing
plan in each of the markets in which it operates, taking into account, among
other things, competitive factors. Usage revenues are accrued for during the
month incurred and billed at the end of the monthly billing cycle. Rental fee
revenues and monthly fixed access charges are billed in advance and recognized
in the period service was delivered. Equipment sales are recognized at the time
of sale.
In general, revenue per subscriber is higher in the Company's markets than
in the United States. In 1996 the average monthly analog SMR revenue per
subscriber in the United States was approximately $16 compared to $50 in the
Company's Latin American markets. In 1996, the average monthly cellular revenue
per subscriber in the United States was approximately $48 compared to $88 in the
Company's principal markets ($88 represents the combined average monthly
cellular bill for Argentina, Brazil, Mexico, Peru and the Philippines). In part,
this is due to the poor quality of landline service and unsatisfied demand for
telephony services generally found in emerging markets. In many emerging
markets, including most of those in which the Operating Companies conduct
business, wireless service is often used as a substitute for landline service,
which increases the relative usage per subscriber and the revenue per
subscriber. As the Company upgrades its existing analog SMR networks to ESMR
networks and begins to offer enhanced services and features, it expects
increased revenue per subscriber. Over time, the Company expects such increases
will be partially offset by a decline in rates resulting from increased
competition and lower average usage per subscriber.
By principally targeting business customers, the Company believes it
experiences lower customer turnover, lower acquisition costs per subscriber and
a generally more stable customer base than if it targeted customers in the
general population. In addition, customers using the Company's ESMR systems will
be required to have ESMR handsets which are not compatible with or adaptable for
use on a cellular or PCS system. The Company believes that the cost incurred by
a customer switching to a competing cellular or PCS service may also result in
lower turnover.
Historically, the Company has experienced relatively high rates of churn
and bad debt expenses. However, the Company has taken a number of steps to
reduce these levels including tightening the credit screening process,
instituting the requirement of longer term contracts and formulating more
aggressive collection processes.
The Company expects the revenues of the Operating Companies to increase
significantly over the next few years due to the planned launch of ESMR
commercial service in Sao Paulo in the first half of 1998 and in
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Buenos Aires and Rio de Janeiro during the second quarter of 1998 and Mexico
City and Manila during the third quarter of 1998. In addition, as the Company
upgrades its existing analog SMR networks to ESMR networks, it anticipates its
revenues will increase substantially due to the large increase in subscriber
capacity that results from ESMR system design and operation and the expected
increase in average revenue per subscriber that is expected to result from the
Company's ability to offer enhanced services and features for which it can
charge higher fees.
The Company is subject to the laws and regulations governing
telecommunication services in effect in each of the countries in which the
Operating Companies conduct business. These laws and regulations cover, among
other things, the number of licenses that can be used in any one service area by
affiliated companies, the construction and loading requirements necessary to
retain a license, the number of telephone numbers that can be assigned to an
individual licensee and the type of customer to whom service can be provided and
the rights of a licensee to interconnect with a public telecommunications
network. Each of these factors can have a significant influence on the Company's
ability to generate revenues and are subject to change by the governmental
agency responsible for determining the laws and regulations in the respective
countries. The Company cannot predict what future laws and regulations might be
passed that could have a material effect on the Company's results of operations.
The Company assesses the impact of significant changes in laws and regulations
on a regular basis.
COSTS AND EXPENSES RELATED TO REVENUES
Costs and expenses related to revenues include both the cost of radio
service revenue and the cost of equipment sales and maintenance. Cost of radio
service revenue represents the cost of maintaining networks, interconnection
charges, site lease costs, technical expenses and utilities. The Company
anticipates the cost of radio service revenue will increase with the expansion
of its wireless networks. However, as a percentage of revenue, the Company
anticipates that cost of radio service revenue will decrease over time as a
result of economies of scale in operations and efficiencies achieved through
digital technology. Cost of equipment sales and maintenance represents the cost
of equipment sold or leased. As the Company expands, the cost of equipment sales
and maintenance as a percentage of related revenue is expected to decrease over
time as a result of the expected decrease in the cost of handsets and other
wireless communications equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
At the corporate level, selling, general and administrative expenses
consist primarily of compensation expenses and to a lesser extent include
expenses such as rent, professional fees and other general corporate expenses.
At the Operating Company level, selling, general and administrative expenses
consist primarily of customer acquisition costs, advertising and to a lesser
degree, salaries and office expenses. Prior to 1997, substantially all of
selling, general and administrative expenses were incurred at the Nextel
International level. As the consolidated Operating Companies continue to expand
their wireless communications networks and add subscribers, the Company expects
a larger portion of selling, general and administrative expenses to be incurred
at the Operating Company level. The Company expects selling, general and
administrative expenses to increase over time as it continues to expand its
operations. As a percentage of revenues, however, the Company expects these
expenses will decrease as a result of anticipated revenue growth as the number
of subscribers increases.
The Company is billed directly on a monthly basis by landline telephone
companies for interconnect services and by various governments for taxes. The
Company bills its subscribers for these charges and taxes and is responsible for
collecting the charges and taxes from them. Many of the countries in which the
Company operates do not have established credit bureaus, thereby making it more
difficult for the Company to ascertain the creditworthiness of potential
customers. Accordingly, the Company experiences a relatively high level of bad
debt expense in most of its markets. In particular, the Company's bad debt
expense as a percentage of revenue and customer turnover in Brazil and Argentina
have been significantly higher than that in the Company's other markets.
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DEPRECIATION AND AMORTIZATION
Historically, the Company's depreciation and amortization expense has been
primarily attributable to the depreciation of property, plant and equipment at
its corporate headquarters. As a result of the acquisition of Nextel Brazil in
January 1997, Nextel Mexico in August 1997, Nextel Argentina and Nextel Peru in
January 1998 and possible future acquisitions, the Company expects depreciation
and amortization to increase significantly.
INTEREST INCOME
Interest income represents income earned on notes receivable, cash and cash
equivalents and marketable securities. Interest income is expected to increase
temporarily as the net proceeds of the Private Placement are invested pending
their application as set forth under "Financing Plan."
INTEREST EXPENSE
Historically, interest expense has consisted of amounts payable on the
Existing Notes and to a lesser extent outstanding borrowings under the Brazil
Motorola Financing (as defined below). Interest expense is expected to increase
in future periods as a result of the Private Placement and additional
indebtedness including the Brazil Motorola Financing and the Argentina Credit
Facility (as defined below).
LOSS FROM EQUITY METHOD INVESTMENTS
Loss from equity method investments represents the Company's proportionate
share of net income or loss from its investments in companies of which it owns
between 20% and 50%. For the year ended, December 31, 1997, loss from equity
method investments consisted of the Company's proportionate share of net losses
from its interest in Nextel Mexico prior to obtaining a majority interest in
August 1997, 30% interest in Nextel Philippines and 50% interest in Nextel
Argentina after May 6, 1997. Loss from equity method investments also includes
amortization of the excess purchase price over net assets acquired in its
investments in entities accounted for under the equity method.
OTHER, NET
Other, net consists primarily of foreign currency transaction gains and
losses. In addition, it also includes fees received for management services
provided to Shanghai CCT McCaw and Nextel Philippines.
MINORITY INTEREST
Minority interest represents the 19% interest in Nextel Brazil (or
approximately 23% interest in Nextel S.A. subsequent to the MCS Transaction) not
owned by the Company and the 23% minority interest in Nextel Mexico not owned by
the Company prior to acquiring 100% of Nextel Mexico.
INCOME TAX BENEFIT (PROVISION)
The Company is subject to income taxes in the United States and in each of
the jurisdictions in which the Operating Companies conduct business. In the
United States, the Company is included in the consolidated tax return of Nextel
Communications; however, the tax accounts are stated as if the Company filed a
separate return pursuant to the terms of a Tax Sharing Agreement between the
Company and Nextel Communications dated as of March 6, 1997 (the "Tax Sharing
Agreement").
In the periods prior to the Company's merger with Nextel Canmex, the
Company was precluded from recognizing income tax benefits associated with its
U.S. net operating losses because it was not reasonably certain that the Company
would generate taxable income. Historically on a stand-alone basis, Nextel
Canmex generated taxable income from the interest earned on its investments of
cash and cash equivalents. As accounting rules related to the pooling of
interest method of accounting preclude the offsetting of the Company's
historical net operating losses against Nextel Canmex's historical taxable
income, the Company has recognized only the Nextel Canmex income tax expense in
the combined financial statements presented
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prior to the merger date. Subsequent to the merger, which occurred in the first
quarter of 1997, the Company combined the tax attributes of the merged
companies. The Company is obligated to pay to Nextel Communications, pursuant to
the Tax Sharing Agreement, amounts for taxes paid by Nextel Communications
because net operating losses at the Operating Company level cannot be used for
United States income tax purposes and interest expense on the Existing Notes is
not, and interest expense on the Notes is not expected to be, deductible for
United States income tax purposes.
Subsequent to the acquisitions of Nextel Brazil and Nextel Mexico, the
Company recognized income tax benefit related to its operations in Brazil and
Mexico. Certain of the Brazilian and Mexican subsidiaries have taxable temporary
differences allowing for the recognition of the tax benefits derived from net
operating losses. The Company expects that the tax benefits from net operating
losses in these Brazilian and Mexican subsidiaries will continue to be
recognized in its financial statements throughout 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred historical net losses of approximately $104.5
million from January 1, 1995 through December 31, 1997. These losses resulted
from expenditures required for the development of the Company's wireless
communications networks, other start-up costs and the fact that as of December
31, 1997 only $13.0 million of consolidated revenues had been recorded. 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. Through December 31, 1997, funds necessary to finance
the Company's activities have been provided to the Company primarily by its
parent, Nextel Communications, in the form of equity contributions and from the
net proceeds of the Existing Notes Offering, and to a lesser extent from vendor
financing, including the existing vendor financings made available by Motorola
(the "Motorola Financing"). Nextel Communications is not obligated to provide
any additional funding to the Company.
Net cash provided by (used in) operating activities for 1995, 1996 and 1997
approximated $6.1 million, $(2.9) million and $(16.5) million, respectively. In
1995 and 1996, cash from operating activities consisted mainly of interest
income generated from cash held by Nextel Canmex offset by selling, general and
administrative expenses of the Company. During 1997, cash used in operations
consisted primarily of selling, general and administrative expenses related to
the development and management of wireless communication networks in Brazil and
Mexico offset by interest income earned on the proceeds of the Existing Notes.
Net cash used in investing activities approximated $47.9 million, $72.3
million and $389.2 million, for 1995, 1996, and 1997, respectively. In 1995,
investing activities consisted of the purchase of SMR licenses and investments
in Nextel Mexico. During 1996, the Company's investments consisted primarily of
the purchase of analog infrastructure equipment and equity interests in Nextel
Mexico and Nextel Philippines. During 1997, cash used in investing activities
consisted of the purchase of ESMR infrastructure equipment, additional ownership
interests in Nextel Mexico and investments in marketable securities.
Net cash provided by financing activities approximated $1.6 million, $43.0
million and $512.4 million, for 1995, 1996, and 1997, respectively. In both 1995
and 1996, financing activities consisted mainly of capital contributions from
Nextel Communications, which were partially offset by repayment of amounts due
to Nextel Communications. During 1997, cash provided by the Company's financing
activities consisted mainly of proceeds from the issuance of the Existing Notes,
offset by repayment of other long-term debt and amounts due to Nextel
Communications.
The Company currently estimates its funding requirements for 1998 to be
approximately $709 million. These amounts consist primarily of the purchase of
switches and other equipment, the acquisition of cell sites, the cost of
constructing the network, loading subscribers, the acquisition of licenses and
investments and funding of operating losses. The Company currently estimates
that approximately $227 million of such requirements 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 "Financing Plan."
A group of shareholders of Nextel Brazil, has the right between October 31,
2001 and November 1, 2003, to require Nextel Brazil to redeem its 19% interest
in Nextel Brazil (or approximately 18% interest in
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Nextel S.A.) at fair market value as determined pursuant to an appraisal
procedure (the "Nextel Brazil Put"). Motorola has the right to cause Nextel Peru
to acquire all shares of Nextel Peru held by Motorola and its affiliates (the
"Nextel Peru Put") at the appraised fair market value of such shares if Motorola
owns at least 19% of the outstanding shares of Nextel Peru and Nextel Peru does
not purchase ESMR infrastructure equipment from Motorola, provided that such
ESMR infrastructure equipment is technologically competitive and is offered to
Nextel Peru on competitive commercial terms. Upon execution of the Philippine
Partner Agreement, the Gotesco Group, one of the Philippine Shareholders, will
have the right (the "Gotesco Put Right" and collectively with the Nextel Brazil
Put and the Nextel Peru Put the "Operating Company Puts"), exercisable nine
months after the execution of the Philippine Partner Agreement, to put its 20%
interest in Nextel Philippines to the Company at a purchase price of
approximately $9.4 million. The Company anticipates that it would seek any
required funding to meet any obligation under its Operating Company Puts through
the issuance of additional debt and equity securities at the Company and such
Operating Company's level, future equity investments in such Operating Company
by new local partners and capital contributions from Nextel Communications in
the form of cash or common stock of Nextel Communications. Nextel Communications
has no obligation to provide any such financing in any form and there can be no
assurance that the Company or any of the Operating Companies will be successful
in obtaining all of the amounts required to fund the Operating Company Put
obligations. The failure to fund any Operating Company Put may have a material
adverse effect on the Company. In addition to the Operating Company Puts, the
Company and certain Operating Companies have certain deferred payment
obligations that will mature during and after 1998. Pursuant to a services
agreement entered into between Nextel Mexico and certain shareholders of Grupo
San Luis, in connection with the Company's purchase of Grupo San Luis' equity
interest in Nextel Mexico, Nextel Mexico has agreed to pay such shareholders
aggregate consulting fees of approximately $6.6 million in January 1999 as
consideration for regulatory advice and consulting services rendered to Nextel
Mexico. The Company is obligated to pay to Nextel Peru the remaining purchase
price of $20.9 for its equity interest in Nextel Peru. Additionally, in
connection with the Argentina Credit Facility, the Company will agree to
contribute at least $50 million of additional capital in the form of cash or new
equipment to Nextel Argentina by December 31, 1999.
In November 1996, Nextel Communications, Nextel International and Motorola
entered into the Motorola MOU. Under the Motorola MOU, Motorola agreed to
provide an aggregate of up to $400 million in vendor financing to Nextel
Communications and Nextel International for the worldwide purchase of iDEN
equipment and services and ancillary products (such as switches). In March 1997,
Motorola and Nextel Communications entered into a term sheet increasing the
maximum worldwide vendor financing available to Nextel Communications and Nextel
International to $650 million, with a maximum non-U.S. amount outstanding of
$400 million, subject to certain per country limits as agreed in the Motorola
MOU. The Motorola MOU sets a limit of $125 million per country (other than the
United States and Canada) on the amount that may be borrowed under the Motorola
Financings. In June 1997 and October 1997, the Company and Motorola entered into
definitive agreements for financing the purchase of up to $14.7 million and $125
million of equipment by Nextel Philippines (the "Philippines Motorola
Financing") and Nextel Brazil (the "Brazil Motorola Financing"), respectively.
Commitments provided by Motorola to provide financing to any Operating
Company (other than Clearnet) including Nextel Brazil and Nextel Philippines,
count 100% against Motorola's $650 million aggregate commitment. Currently,
Motorola has not committed any financing to any Operating Company other than the
Motorola Financings described below. The Motorola MOU contemplates that the
loans under the Motorola Financings will bear interest at a rate of 2% to 4%
over prime rate, depending on the Operating Company placing the order and the
country in which such company is installing the iDEN equipment, and that such
loans could have a maturity of up to six years. Borrowings by an Operating
Company may be secured by all the assets of such Operating Company and it is
expected that the Company will guarantee such borrowings on a pro rata basis
based on the equity interest of the Company in the Operating Company incurring
such borrowings.
Any amounts available to be borrowed by the Operating Companies under the
Motorola Financing will be reduced by any amounts borrowed by Nextel
Communications and its subsidiaries other than the Company
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and the Operating Companies. Nextel Communications has committed to the Company
that at least $95 million of the financing contemplated to be provided by
Motorola pursuant to the Motorola MOU will be available to the Company. On
February 2, 1998, Nextel Communications announced its intention to enter into a
new and increased bank credit facility with respect to its United States
operations, and that upon consummation of such new facility, it intended to
repay in full all amounts owing under its United States vendor financing
arrangements with, among other lenders, Motorola and to terminate all related
agreements and lines of credit with Motorola that relate to the United States.
Although Nextel Communications has indicated no present intention to borrow any
additional amounts from Motorola pursuant to the Motorola MOU, Motorola and
Nextel Communications are not precluded in the future from entering into
agreements to make such financing available to Nextel Communications and its
U.S. subsidiaries. Accordingly, there can be no assurance that more than $95
million under the Motorola Financing will be available to fund the Operating
Companies' equipment purchases. In addition, to the extent total amounts
outstanding from Motorola to Nextel Communications and its subsidiaries,
including the Company and the Operating Companies (other than Clearnet), plus
requests for additional financing from Motorola by Nextel Communications and its
subsidiaries (other than the Company and the Operating Companies) would exceed
$650 million, the Company is required to repay or cause to be repaid sufficient
borrowings such that after giving effect to such repayment, the total amount of
loans outstanding from Motorola to Nextel Communications and its subsidiaries,
including the Company and the Operating Companies (other than Clearnet), will
not exceed $650 million. Nextel Communications has agreed with the Company not
to borrow more than $400 million under the Motorola MOU.
In June 1997, Nextel Philippines and Motorola entered into the Philippines
Motorola Financing which provides vendor financing of up to $14.7 million. As of
December 31, 1997, all of the $14.7 million had been borrowed. The Philippines
Motorola Financing matures in June 1999, and provides for an annual interest
rate of LIBOR plus 505.5 basis points.
In October 1997, Nextel Brazil and Motorola Credit entered into the Brazil
Motorola Financing. The Brazil Motorola Financing is repayable in semiannual
installments over a period of 42 months commencing June 30, 2000 and bears
interest at an annual rate periodically determined by the Company at either
LIBOR plus 4.63% or the prime rate plus 2.5%. As of December 31, 1997 $50.3
million had been drawn, and the remaining $74.7 million was available for future
borrowings.
On March 6, 1997, the Company received net proceeds of approximately $482
million from the Existing Notes Offering, $223 million of which has been used
through December 31, 1997 to fund acquisitions, capital expenditures and
operating losses.
On December 19, 1997, Nextel Argentina entered into a binding commitment
letter with The Chase Manhattan Bank for a $100 million senior secured facility
(the "Argentina Credit Facility"). The Argentina Credit Facility is subject to
the execution of definitive loan and security documentation and the commitment
letter expires on March 27, 1998. 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% and 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
Argentine Credit Facility will be repaid in quarterly installments beginning
September 30, 2000 and ending March 31, 2003.
The Company believes that the net proceeds from the Private Placement,
together with available cash, cash equivalents and marketable securities and
borrowings expected to be available under the existing Motorola Financings and
the Argentina Credit Facility, will be sufficient to fund the Company's current
operations, including the planned expansion of its existing operations, during
1998; however, there can be no assurance that such funds will be sufficient. If,
among other things, the Company's plans change, its assumptions regarding its
funding needs associated with the 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 consummates acquisitions or investments in
addition to those currently contemplated or at higher prices than currently
contemplated, it increases its existing equity ownership interests in certain of
the Operating Companies beyond currently
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contemplated increases, it experiences growth in its business or subscriber base
greater than that which was anticipated in developing the 1998 Plan, it
experiences unanticipated costs and/or competitive pressures, the Operating
Companies are unable to access funds under the existing Motorola Financings and
or the Argentina Credit Facility, or the net proceeds from the Private Placement
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 through 1998, the Company may be required to seek additional capital
sooner than currently anticipated. The availability of borrowings under the
existing Motorola Financings and under the Argentina Credit Facility are subject
to the satisfaction or waiver of certain conditions. The Company will also
require significant additional capital in years subsequent to 1998 to fund the
further build-out, expansion and enhancement of its ESMR networks, to fund
operating losses and for other purposes. To the extent the Company's then
existing financing sources are insufficient to meet such needs, the Company may
seek to raise such additional capital from public or private equity or debt
sources. There can be no assurance that the Company will be able to raise such
capital on satisfactory terms, if at all.
In the future, the Company may consider obtaining financing from various
sources, including vendor financing provided by equipment suppliers (including
the Motorola Financings), project financing from commercial banks and
international agencies such as International Finance Corporation and Overseas
Private Investment Corporation, bank lines of credit and sales of equity and
debt issued by the Operating Companies and/or the Company. To the extent the
Company issues debt, its leverage and debt service obligations will increase.
There can be no assurance that the Company will be able to raise such capital on
satisfactory terms, if at all.
Nextel International intends to structure its future capital contributions
to the Operating Companies as equity contributions and/or loans and thereafter
to rely on the payment of dividends and/or interest and principal payments as a
means of obtaining cash from the Operating Companies. The Company will evaluate
on an on-going basis which means of contributing cash to the Operating Companies
is most effective.
The Company owns 100% of Nextel Mexico and Nextel Argentina, 81% of Nextel
Brazil (or approximately 77% of Nextel S.A.) and 70.1% of Nextel Peru. The
Company's other assets consist of minority ownership interests in Nextel
Philippines and passive minority investment stakes in the Shanghai GSM System
and Clearnet and as of February 13, 1998, cash and cash equivalents of
approximately $117.6 million consisting primarily of $97.6 million of net cash
proceeds remaining from the Existing Notes Offering. Even though the Company
participates in the management of the Operating Companies (except in China and
Canada) 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 or prohibit 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 Motorola Financings
prohibit and the Argentina Credit Facility is expected to prohibit 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 prohibiting the payment of dividends. To the extent
indebtedness that prohibits the payment of dividends by the Operating Companies
is outstanding in 2002 and 2003, when cash interest payments on the Existing
Notes and the Notes, respectively, are required to be made, the Company would
need to obtain funds for such interest payments from other sources. The Company
does not have a revolving credit or other facility providing for funding of the
Company. In addition, to the extent the Company contributes capital to the
Operating Companies in the form of loans, interest payments to the Company may
be subject to withholding taxes.
INFLATION AND FOREIGN CURRENCY EXCHANGE
The net monetary assets of the Company's subsidiaries are subject to
foreign currency exchange risks since they are maintained in local currency.
Certain of the Operating Companies conduct business in countries in which the
rate of inflation is significantly higher than that of the United States. The
Company will attempt
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to protect its earnings from inflation and possible currency devaluation by
trying to periodically adjust the relevant Operating Companies' prices in local
currencies and in some cases setting such prices in direct relation to the U.S.
dollar. However, there can be no assurance that any significant devaluation
against the U.S. dollar could be offset, in whole or in part, by a corresponding
price increase. While the Company routinely assesses its foreign currency
exposure, the Company has not entered into any hedging transactions.
The countries in which the Operating Companies now conduct business
generally do not restrict the repatriation or conversion of local or foreign
currency. There can be no assurance, however, that this will be the case in each
market that the Company may enter in the future or that this situation will
continue in the Company's existing markets. The Operating Companies are all
directly affected by their respective countries' governmental, economic, fiscal
and monetary policies and other political factors.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1997, there were the following net operating losses
("NOLs") at the Operating Company level: (i) $13.7 million in Brazil; (ii) $20.0
million in Argentina and (iii) $67.8 million in Mexico. Such NOLs are only
available to be utilized as a potential future reduction of taxes at the
Operating Company level and their use in any one year may be limited by the
Operating Companies' ability to generate sufficient taxable income.
IMPACT OF YEAR 2000 ISSUE
The Company and Nextel Communications are evaluating the Company's computer
systems and software to determine whether they will function properly with
respect to dates in the year 2000 and thereafter. Management believes that most
of the Company's computer systems and software are year 2000 compliant. However,
the Company cannot assess the impact of the Year 2000 on operators of public
switched telecommunications networks ("PSTNs") or other (such as electric and
utility) service providers in the countries in which the Company operates.
Because the Company's systems will be interconnected with those of PSTN and will
be dependent upon the systems of other service providers, any disruption of
operations in the computer programs of such service providers would likely have
an impact on the Company's systems in such countries and there can be no
assurance that such impact will not have a material adverse effect on the
Company's operations in such countries.
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G. NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES, AUDITED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Nextel International, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Nextel
International, Inc. and subsidiaries (the Company) as of December 31, 1996 and
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1996 and 1997,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Seattle, Washington
February 19, 1998
17
<PAGE> 18
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (of which $68,992 is restricted as of
December 31, 1997)............................................. $ 53,029 $ 159,790
Marketable securities........................................... -- 128,560
Accounts receivable, less allowance for doubtful accounts of $0
and $1,003..................................................... 540 3,838
Radios and accessories.......................................... 830 1,749
Prepaid and other............................................... 183 15,884
Notes receivable................................................ 5,704 --
-------- ----------
Total current assets....................................... 60,286 309,821
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $74
and $1,992......................................................... 8,703 136,210
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES, at cost less equity in net
losses of $5,991 and $7,526........................................ 98,982 106,489
INTANGIBLE ASSETS, net of accumulated amortization of $0 and
$14,664............................................................ 10,878 526,000
INVESTMENTS AND OTHER ASSETS......................................... 20,518 44,518
-------- ----------
$199,367 $1,123,038
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................ $ 1,306 $ 24,456
Accrued expenses and other...................................... 4,513 51,592
Due to parent................................................... 152,783 8,254
Current portion of long-term debt............................... -- 2,211
-------- ----------
Total current liabilities.................................. 158,602 86,513
LONG-TERM DEBT....................................................... -- 597,809
DEFERRED INCOME TAXES................................................ 1,562 120,777
-------- ----------
Total liabilities............................................... 160,164 805,099
MINORITY INTEREST.................................................... -- 21,910
COMMITMENTS AND CONTINGENCIES (NOTES 2, 8 AND 11)
STOCKHOLDERS' EQUITY:
Common stock (73,000,000 shares authorized, no par value,
36,500,000 shares issued and outstanding)...................... 65,043 395,428
Accumulated deficit............................................. (28,741) (102,689)
Unrealized gain on investments, net of tax...................... 2,901 3,290
-------- ----------
Total stockholders' equity................................. 39,203 296,029
-------- ----------
$199,367 $1,123,038
======== =========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
REVENUES
Radio service revenue....................... $ -- $ -- $ 10,589
Equipment sales and maintenance............. -- -- 2,426
------------ ------------ -----------
-- -- 13,015
------------ ------------ -----------
OPERATING EXPENSES
Cost of radio service revenue............... -- -- 6,189
Cost of equipment sales and maintenance..... -- -- 1,235
Selling, general and administrative......... 277 9,318 26,768
Depreciation and amortization............... 19 168 18,381
------------ ------------ -----------
296 9,486 52,573
------------ ------------ -----------
OPERATING LOSS................................... (296) (9,486) (39,558)
------------ ------------ -----------
OTHER INCOME (EXPENSE)
Interest income............................. 6,233 4,300 19,666
Interest expense............................ -- (323) (56,583)
Loss from equity method investments......... (6,853) (5,991) (11,401)
Other, net.................................. (15,002) 379 5,561
Minority interest........................... -- -- 2,085
------------ ------------ -----------
(15,622) (1,635) (40,672)
------------ ------------ -----------
LOSS BEFORE INCOME TAX BENEFIT (PROVISION)....... (15,918) (11,121) (80,230)
INCOME TAX BENEFIT (PROVISION)................... (2,119) (1,355) 6,282
------------ ------------ -----------
NET LOSS......................................... $ (18,037) $ (12,476) $ (73,948)
------------ ------------ -----------
NET LOSS PER COMMON SHARE, BASIC AND DILUTED..... $ (0.49) $ (0.34) $ (2.03)
=========== =========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING.................................... 36,500,000 36,500,000 36,500,000
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS UNREALIZED
---------------------- (ACCUMULATED GAIN (LOSS)
SHARES AMOUNT DEFICIT) ON INVESTMENTS TOTAL
---------- -------- ------------ -------------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995............ -- $ -- $ 1,772 $ -- $ 1,772
Common stock issued............ 36,500,000 -- -- -- --
Capital contributions from
parent....................... -- 20,181 -- -- 20,181
Net loss....................... -- -- (18,037) -- (18,037)
Unrealized gain on investments,
net of tax................... -- -- -- 8,023 8,023
---------- -------- -------- ------ --------
BALANCE, December 31, 1995.......... 36,500,000 20,181 (16,265) 8,023 11,939
Capital contributions from
parent....................... -- 44,862 -- -- 44,862
Net loss....................... -- -- (12,476) -- (12,476)
Unrealized loss on investments,
net of tax................... -- -- -- (5,122) (5,122)
---------- -------- -------- ------ --------
BALANCE, December 31, 1996.......... 36,500,000 65,043 (28,741) 2,901 39,203
Capital contributions from
parent....................... -- 315,585 -- -- 315,585
Issuance of warrants in
connection with private
placement.................... -- 14,800 -- -- 14,800
Net loss....................... -- -- (73,948) -- (73,948)
Unrealized gain on investments,
net of tax................... -- -- -- 389 389
---------- -------- -------- ------ --------
BALANCE, December 31, 1997.......... 36,500,000 $395,428 $ (102,689) $ 3,290 $296,029
========== ======== ======== ====== ========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(18,037) $(12,476) $(73,948)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 19 168 18,381
Interest accretion on long-term debt, net of
capitalization................................ -- -- 53,681
Loss from equity method investments............. 6,853 5,991 11,401
Deferred income taxes........................... -- -- (14,292)
Minority interest............................... -- -- (2,085)
Investment impairment........................... 15,000 -- --
Change in current assets and liabilities:
Accounts receivable........................ -- (540) 1,374
Radios and accessories..................... -- (830) 586
Prepaid and other.......................... (11) (172) (13,167)
Accounts payable, accrued expenses and
other.................................... 2,239 7,052 8,052
Other...................................... -- (2,176) (6,447)
-------- -------
Net cash provided by (used in) operating
activities.................................... 6,063 (2,983) (16,464)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (36) (8,818) (101,892)
Purchase of marketable securities............... -- -- (227,957)
Proceeds from sale of marketable securities..... -- -- 100,729
Purchase of licenses............................ (10,135) (743) --
Issuance of notes receivable.................... -- (5,703) --
Acquisition of additional equity interests in
consolidated subsidiaries..................... -- -- (35,131)
Investments in unconsolidated subsidiaries...... (36,962) (57,022) (120,976)
Other........................................... (762) -- (3,926)
-------- -------
Net cash used in investing activities........... (47,895) (72,286) (389,153)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to parent, net....................... (18,589) (1,866) (23,556)
Capital contributions from parent............... 20,181 44,862 6,366
Capital contributions from minority
stockholders.................................. -- -- 1,387
Proceeds from issuance of warrants.............. -- -- 14,800
Net proceeds from issuance of long-term debt.... -- -- 517,828
Repayment of long-term debt..................... -- -- (4,447)
-------- -------
Net cash provided by financing activities....... 1,592 42,996 512,378
-------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (40,240) (32,273) 106,761
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 125,542 85,302 53,029
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 85,302 $ 53,029 $159,790
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.......... $ -- $ -- $ 1,993
======== =======
Cash paid during the year for income taxes...... $ -- $ -- $ --
======== =======
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE NOTED)
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BUSINESS ORGANIZATION: Nextel International, Inc.
(the "Company") is an indirect, wholly owned subsidiary of Nextel
Communications, Inc. (Nextel Communications, Inc. and its wholly owned
subsidiaries are referred to herein as "Nextel Communications"). The Company
currently provides wireless communications services in five of the largest
cities in Latin America and two of the largest cities in Asia, primarily
utilizing specialized mobile radio ("SMR") channels in its licensed service
areas. The Company is the largest 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's upgrade to digital networks will allow it to increase
capacity significantly and offer in a single digital subscriber unit, additional
services and advanced features such as direct connect (group calling and instant
conferencing), telephone interconnect and text messaging services. The Company
is upgrading its analog SMR networks to digital ESMR networks using the
integrated Digital Enhanced Network ("iDEN") technology developed by Motorola,
Inc. ("Motorola") and deployed by Nextel Communications in certain of its
markets. The Company also continues to assess opportunities to enter into new
markets, particularly in Latin America and Asia.
PRINCIPLES OF CONSOLIDATION: As of December 31, 1997, the Company directly
or indirectly owned 100% of Comunicaciones Nextel de Mexico S.A. de C.V.
("Nextel Mexico") (formerly Corporacion Mobilcom S.A. de C.V.); 50% of McCaw
Argentina S.R.L. ("Nextel Argentina") (formerly McCaw Argentina S.A.), accounted
for using the equity method; 30% of Infocom Communications Network, Inc.
("Nextel Philippines"), a Philippine company, accounted for using the equity
method; 3.7% of Clearnet Communications, Inc. ("Clearnet"), accounted for as an
investment available-for-sale and reflected at fair market value; and a
contractual right to receive 12.1% of the profits of the Shanghai GSM System
(See Note 2), accounted for as a cost method investment. Additionally, the
Company through an 81% equity interest in McCaw International (Brazil), Ltd.
("Nextel Brazil") (formerly Wireless Ventures of Brazil ("WVB")) and Nextel
Brazil's 95% equity interest in Nextel S.A. (formerly Airlink S.A.), held a 77%
equity interest in Nextel S.A., a Brazilian company. Accordingly, the Company's
consolidated financial statements include the accounts of Nextel Brazil and
Nextel Mexico commencing January 30, 1997 and September 1, 1997, respectively,
which are the dates when the Company acquired a controlling interest in the
companies (See Note 2). Prior to September 1, 1997, Nextel Mexico was accounted
for using the equity method. The Company's consolidated financial statements
also include the accounts of Nextel Argentina prior to May 6, 1997, at which
time it was contributed to Nextel International (Argentina), Ltd., (the
"Argentina Joint Venture") a joint venture in which the Company owns 50% (See
Note 2). Subsequent to May 6, 1997, the Argentina Joint Venture is accounted for
using the equity method.
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.
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany transactions
and balances have been eliminated.
22
<PAGE> 23
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
CONCENTRATIONS OF RISK: For the year ended December 31, 1997, $3,348 and
$9,605 of the Company's revenues were generated in Mexico and Brazil,
respectively. As of December 31, 1997, $288,695 and $420,242 of the Company's
assets were located in Mexico and Brazil, respectively (See Note 15).
Additionally, the Company's assets include $106,489 related to its investments
in unconsolidated subsidiaries located in Argentina, China and the Philippines
(See Note 4).
The Company is party to certain equipment purchase agreements with Motorola
(See Notes 11 and 14). For the foreseeable future the Company expects that it
will need to rely on Motorola for the manufacture of a substantial portion of
the equipment necessary to construct its digital ESMR networks.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company is subject to the laws and regulations governing
telecommunication services in effect in each of the countries in which it
operates. These laws and regulations can have a significant influence on the
Company's results of operations and are subject to change by the responsible
governmental agencies. The financial statements as presented reflect certain
assumptions based on laws and regulations currently in effect in each of the
various countries. The Company cannot predict what future laws and regulations
might be passed that could have a material effect on the Company's results of
operations. The Company assesses the impact of significant changes in laws and
regulations on a regular basis and updates the assumptions used to prepare its
financial statements accordingly.
CASH AND EQUIVALENTS: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES: Marketable securities, consisting primarily of
short-term investments in certificates of deposit and commercial paper, are
classified as "available for sale" and are recorded at fair value based on
quoted market prices.
RADIOS AND ACCESSORIES: Radios and accessories are held for sale to
customers. Radios and accessories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is provided using the straight line method over estimated
useful lives as follows:
<TABLE>
<S> <C>
Equipment.............................................................. 3-10 years
Computer equipment and software........................................ 3-5 years
Furniture and fixtures................................................. 3 years
Leasehold improvements................................................. Life of lease
</TABLE>
Construction in progress includes labor, material, transmission and related
equipment, engineering, site development, capitalized interest, and other costs
relating to the construction and development of wireless networks. The Company
will begin depreciating the cost of the wireless networks over a ten year period
upon commencement of commercial operations in each market.
Expenditures which increase value or extend useful lives are capitalized,
while maintenance and repairs are charged to operations as incurred.
INTANGIBLE ASSETS: Intangible assets consist of SMR licenses, goodwill and
trademarks which are recorded at cost. SMR licenses in the countries in which
the Company operates are issued conditionally for various periods of time. The
SMR licenses are generally renewable providing the licensee has complied with
applicable rules and policies. In most instances, the Company believes it has
complied and intends to comply
23
<PAGE> 24
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
with these standards and is amortizing the related costs using the straight line
method over their estimated useful life of 20 years. In some cases, the Company
currently is not in compliance with applicable requirements and, where
appropriate, has filed requests for extensions with the appropriate government
agency. The Company expects that such extension requests will be granted and the
risk of having these or any other licenses revoked is remote. The Company begins
amortizing the cost of SMR licenses upon commencement of commercial operations
in each market. The excess of the purchase price paid over the fair value of net
assets acquired is recorded as goodwill and amortized using the straight-line
method over its estimated useful life of 20 years. Trademarks are amortized over
their respective useful lives.
INVESTMENTS: The Company's investment in Clearnet is included in
investments and other assets and classified as available-for-sale as of the
balance sheet date. Accordingly, it is reported at fair value, with unrealized
gains and losses, net of tax, recorded in stockholders' equity.
Investments where the Company has the ability to exercise significant
influence over operating and financial policies and possesses a voting interest
of 50% or less are accounted for using the equity method. The excess of the cost
of the Company's investments over the net assets acquired is being amortized
over 20 years. Amortization of this excess of $2,361, $3,677 and $3,137 for the
years ended December 31, 1995, 1996 and 1997, respectively, is reflected in the
accompanying consolidated statements of operations in loss from equity method
investments.
LONG-LIVED ASSETS: Long-lived assets and identifiable intangibles to be
held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Impairment is measured by comparing the carrying value of the long-lived asset
to the estimated undiscounted future cash flows expected to result from use of
the assets and their eventual disposition. The Company determined that as of
December 31, 1997, there had been no impairment in the carrying value of
long-lived assets.
REVENUE RECOGNITION: Radio service revenues are recorded when earned.
Equipment sales and maintenance revenues are recorded when the related goods and
services are delivered. Monthly access charges are billed in advance and
recognized as revenue when the services are provided. Rental fee revenue and
monthly fixed access charges are recognized in the period service was provided.
FOREIGN EXCHANGE: Results of the Company's international operations are
translated from the designated functional currency to the U.S. dollar using
average exchange rates during the period, while assets and liabilities are
translated from the designated functional currency to the U.S. dollar using
end-of-period rates. The resulting translation gains or losses, if any, are
accumulated in the "cumulative translation adjustment" account, a component of
stockholders' equity. No translation gains or losses were recorded during the
three year period ended December 31, 1997.
All gains or losses resulting from foreign currency transactions are
included in other income or expense in the Company's consolidated statements of
operations. During the year ended December 31, 1997, the Company recognized
$6,000 of foreign currency transaction gains. There were no foreign currency
transactions gains or losses for the years ended December 31, 1995 and 1996.
During 1997, Nextel Mexico and Nextel Brazil were considered to be
operating in "highly inflationary" economies, as defined in Statement of
Financial Accounting Standards No. 52, Foreign Currency Translation.
Accordingly, Nextel Mexico and Nextel Brazil used the U.S. dollar as their
functional currency. Effective January 1, 1998, Nextel Brazil will no longer be
considered to be operating in a "highly inflationary" economy and will begin
using the Brazilian real as its functional currency. Nextel Mexico will continue
to use the U.S. dollar as its functional currency in 1998.
INCOME TAXES: The Company accounts for U.S. federal income taxes under the
asset and liability method. Under this method, deferred income taxes are
recorded for the temporary differences between the
24
<PAGE> 25
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
financial reporting basis and tax basis of the Company's assets and liabilities.
These deferred taxes are measured by the provisions of currently enacted tax
laws. The Company is included in the consolidated tax return of Nextel
Communications; however, the income tax accounts of Nextel International are
stated as if the Company filed a separate return, which is consistent with the
tax sharing agreement between the Company and Nextel Communications.
Each of the Company's Brazilian and Mexican subsidiaries file a separate
tax return.
NET LOSS PER SHARE: Net loss per share is computed based on the weighted
average number of common shares outstanding during the period.
NEW ACCOUNTING STANDARDS: During 1997, the Company adopted Statements of
Financial Accounting Standards No. 128, Earnings per Share, and No. 129,
Disclosure of Information about Capital Structure. The adoption of these
standards did not have a significant effect on the Company's current or prior
year financial statements or disclosures.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform with the current presentation.
2. BUSINESS COMBINATIONS AND INVESTMENTS
NEXTEL SERVICES AND NEXTEL CANMEX: On January 1, 1997, Nextel Services, a
wholly owned subsidiary of Nextel Communications, was merged into the Company.
Nextel Services includes all amounts associated with the Company's expatriate
employees. Subsequent to the merger, all intercompany liabilities were converted
to contributed capital.
On March 3, 1997, Nextel Canmex, a wholly owned subsidiary of Nextel
Communications, was merged into the Company. Nextel Canmex is primarily an
investment and asset holding company.
Immediately prior to the merger, all of Nextel Canmex's assets were
transferred to Nextel Communications with the exception of an investment in 38%
of the outstanding common stock of Nextel Mexico and related assets and 3.7% of
the outstanding common stock of Clearnet. The remaining intercompany liability
was converted to contributed capital subsequent to the merger.
As the mergers described above represent transfers of companies under
common control, they have been accounted for in a manner similar to poolings of
interests. The pooling-of-interests method of accounting is intended to present
as a single interest two or more common shareholders' interests which were
previously independent; accordingly, the historical financial statements for the
periods presented prior to the mergers are restated as though the companies had
been combined.
NEXTEL ARGENTINA: On August 6, 1996, Nextel Communications contributed its
investment in Nextel Argentina to the Company. Nextel Argentina has licenses to
provide SMR services in the Argentine cities of Buenos Aires, Cordoba, Rosario,
and Mendoza.
As the contribution of Nextel Argentina to the Company represented a
transfer of companies under common control, it was accounted for in a manner
similar to a pooling of interests. Accordingly, the historical financial
statements of the Company for the periods presented prior to the contribution
were restated as though Nextel Argentina had been combined.
On May 6, 1997, the Company contributed its 100% ownership interest in
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
25
<PAGE> 26
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS AND INVESTMENTS -- (CONTINUED)
Argentina" subsequent to the formation of the Argentina Joint Venture). The
Company has a 50% voting interest and shares equally in the profits and losses
of the Argentina Joint Venture. Capital contributions are made equally unless
otherwise agreed to by both the Company and WVA. Commencing on May 6, 1997, the
Company 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%, and will consolidate the accounts of
Nextel Argentina commencing February 1, 1998 under the purchase method of
accounting. The carrying value of the Company's investment in Nextel Argentina
as of January 30, 1998 approximates $63.0 million and will be allocated to the
net assets acquired based on their estimated fair values, including licenses and
goodwill, which will be amortized over their estimated useful lives of 20 years.
NEXTEL PHILIPPINES: On June 14, 1996, the Company acquired a 30% interest
in Nextel Philippines, a Philippine wireless telecommunications company, for $16
million in cash. Nextel Philippines provides paging services to subscribers in
the Philippines through a nationwide license granted by the Philippine
government. In addition, Nextel Philippines has a nationwide license to provide
digital ESMR services. The Company's investment in Nextel Philippines is
accounted for using the equity method. The excess purchase price over the net
assets acquired totaled $16.2 million and is being amortized over 20 years.
The Company has reached an agreement in principle with three groups of
local shareholders of Nextel Philippines (the "Philippines Shareholders") and is
in the process of finalizing definitive documentation (the "Philippine Partner
Agreement") that would: (i) restructure the existing corporate governance
arrangements to give the Company increased minority shareholder rights; (ii)
provide for the purchase by the Company of existing shareholder loans of the
Philippines Shareholders totaling approximately $19.6 million ($2.0 million of
which the Company had purchased as of February 19, 1998) which loans, upon
purchase by the Company, bear interest at 18% per annum and will be convertible
into equity of Nextel Philippines; (iii) provide for the funding by the Company
of Nextel Philippines' future capital needs pursuant to loans which could, at
the option of the Company, be converted into equity of Nextel Philippines; (iv)
provide one Philippine Shareholder group with the right to put its 20% interest
in Nextel Philippines to the Company for approximately $9.4 million, beginning
on the date which is nine months after closing of the Philippines Partner
Agreement; and (v) provide the Company with the right to purchase such
shareholder's interest in Nextel Philippines for approximately $11.6 million if
the Philippine Shareholder's put right is not exercised. The ability of the
Company to convert shareholder loans into equity or to satisfy the Nextel
Philippines shareholder put or call rights are subject to applicable Philippine
foreign ownership rules. The Company expects to continue to account for its
investment in Nextel Philippines using the equity method subsequent to
consummating the Philippine Partner Agreement.
SHANGHAI CCT MCCAW: As of December 31, 1997, the Company maintained a 30%
ownership interest in Shanghai CCT-McCaw Telecommunications Systems Co., Ltd.
("Shanghai CCT McCaw"), a Chinese equity joint venture. Shanghai CCT McCaw
currently participates in a Global System for Mobile communications network in
Shanghai, China (the "Shanghai GSM System") through a profit sharing arrangement
(the "Unicom Agreement") with China United Communications, Ltd., the owner of
the Shanghai GSM system. Foreign entities or individuals are not permitted to
directly own or operate telecommunications systems in China under current law.
The Company does not have the right to influence the operations of the Shanghai
GSM System and therefore accounts for its investment in Shanghai CCT McCaw under
the cost method.
Under the Unicom Agreement as amended, Shanghai CCT McCaw has the right to
receive 40.2% of the profits, as defined, of the Shanghai GSM System. The
Company, through its 30% interest in Shanghai CCT McCaw and Shanghai CCT McCaw's
right to receive 40.2% of the profits of the Shanghai GSM System, has
26
<PAGE> 27
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS AND INVESTMENTS -- (CONTINUED)
the right to receive approximately 12.1% of the profits of the Shanghai GSM
System. Cash payments are made to the Company from Shanghai CCT McCaw in the
form of distributions, which are made at the discretion of Shanghai CCT McCaw's
board of directors. Through December 31, 1997, the Company has received
distributions totaling $1,218 which have been remitted to Shanghai CCT McCaw in
the form of a loan (See Note 11).
NEXTEL MEXICO: Through a series of investments from March 1995 to December
1996, Nextel Canmex acquired approximately 30.1% of the outstanding shares of
Nextel Mexico, a Mexican company with licenses to provide SMR services in
various cities in Mexico, including Mexico City, Guadalajara, Monterey, and
Tijuana. Upon acquiring a 30.1% ownership interest in Nextel Mexico, the Company
commenced accounting for Nextel Mexico using the equity method of accounting.
In January 1997, Nextel Communications purchased additional common shares
of Nextel Mexico at a cost of $16.6 million, in exchange for shares of Nextel
Communications Common Stock. Such interest was simultaneously contributed to the
Company. In February 1997, Nextel Mexico shareholders approved a $27.0 million
capital call (the "Nextel Mexico Capital Call"), and the Company funded its pro
rata share (approximately $10.3 million) with a cash contribution. On April 16,
1997, the Company purchased additional shares of Nextel Mexico by funding the
unsubscribed portion of the Nextel Mexico Capital Call (approximately $11.1
million), thereby increasing the Company's ownership interest to approximately
46.3%.
Through a series of transactions from June 30, 1997 to December 12, 1997,
the Company acquired substantially all of the remaining shares of Nextel Mexico
at an aggregate cost of $104.5 million, thereby increasing the Company's equity
interest in Nextel Mexico to approximately 100%. Approximately $22.1 million of
the purchase price was paid in January 1998 and is included in accrued expenses
and other as of December 31, 1997.
Upon obtaining greater than 50% of the outstanding common stock and
obtaining control of Nextel Mexico, on September 1, 1997 the Company commenced
consolidating the accounts of Nextel Mexico under the purchase method of
accounting. The total purchase price of the Company's investment in Nextel
Mexico was approximately $199.7 million and was allocated to the net assets
acquired based on their estimated fair values, including licenses and goodwill,
which are being amortized over their estimated useful lives of 20 years.
During the year ended December 31, 1995, the Company recorded a $15.0
million charge to operations representing an other than temporary decline in the
fair value of this investment as a result of the decline in the Mexican peso.
CLEARNET: The Company owns 1,596,067 shares of common stock representing
3.7% of Clearnet. Clearnet provides analog SMR and ESMR services in Canada and
holds a nationwide license to provide PCS services in Canada. The Company's
investment in Clearnet is accounted for at fair market value. The market value
of Clearnet common stock at December 31, 1997 was $11 3/8 per share.
As a condition of the high-yield offering (See Note 17), Nextel
Communications agreed to transfer securities representing 6,777,778 shares of
common stock of Clearnet (or an approximately 15.7% equity interest in Clearnet)
to the Company in exchange for Series A Redeemable Exchangeable Preferred Stock
of the Company with a value to be determined at the date of the exchange based
on the current fair value of the contributed Clearnet shares, net of tax.
NEXTEL BRAZIL: On January 30, 1997, Nextel Communications purchased 81% of
the issued and outstanding capital stock of Nextel Brazil from Telcom Ventures,
Inc. and affiliates (collectively "Telcom Ventures") in exchange for $186.3
million in Nextel Communications Class A Common Stock ("Nextel Common Stock").
Nextel Communications' investment in Nextel Brazil was simultaneously
contributed to the Company. Nextel Brazil and its subsidiaries hold or have
options to acquire licenses to provide SMR services in 23 cities in Brazil
including Sao Paulo, Rio de Janeiro, Belo Horizonte, Curitiba, and Brasilia.
27
<PAGE> 28
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS AND INVESTMENTS -- (CONTINUED)
Telcom Ventures has the right between October 31, 2001 and November 1, 2003, to
require the Company to redeem their 19% interest in Nextel Brazil at fair market
value as determined pursuant to an appraisal procedure. The Company is currently
required to fund 100% of Nextel Brazil's capital requirements until April 30,
1999 when Telcom Ventures must either: (i) contribute its pro rata share plus
accrued interest or (ii) dilute its ownership interest. Dividends may be
declared at the discretion of Nextel Brazil's board of directors and are
allocated based on the ownership percentages in effect at the date of
declaration. No dividends have been declared to date.
The total cost of the acquisition, which was accounted for as a purchase,
was $187.2 million and was allocated to the net assets acquired based on their
estimated fair values, including licenses and goodwill, which are being
amortized over their estimated useful lives of 20 years.
MCS: On September 26, 1997, Nextel S.A. acquired 49% of the capital stock
of MCS Radio Telefonia, Ltda. ("MCS"), an indirect wholly owned subsidiary of
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 from Brazilian regulatory
authorities, the option for the remaining 51% will be exercisable for
approximately $3.2 million. In connection with the transaction, Motorola,
through a wholly owned subsidiary, acquired 5% of the outstanding capital stock
of Nextel S.A. MCS owns SMR licenses in 13 of the largest Brazilian cities,
including Sao Paulo, Rio de Janeiro and Belo Horizonte. 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.
The total cost of the acquisition, which was accounted for as a purchase,
was $19.3 million and was allocated to the net assets acquired based on their
estimated fair values, including licenses and goodwill, which are being
amortized over their estimated useful lives of 20 years.
INDONESIA: On August 15, 1997, the Company entered into a preliminary
agreement with PT Gunung Sewu Kencana ("GSK"), a large diversified Indonesian
company, which gives the Company the right, upon receipt of required regulatory
approval, to purchase a 37.5% interest in PT Mitra Kencana Telekomunindo
("MKT"), an Indonesian corporation owned by GSK. MKT holds a provisional license
for 80 SMR channels in Indonesia that can be converted into an operating license
upon satisfaction of certain regulatory approvals. Although the Company believes
that MKT presents it with significant opportunities to expand its SMR network in
Asia, the Company does not intend to make any substantial investment in MKT
until the economic and political conditions in Indonesia, and the economic
conditions in Asia generally, have stabilized. To date, the Company has advanced
$1.5 million to MKT in the form of a loan that is guaranteed by GSK.
NEXTEL PERU: On January 29, 1998, the Company acquired a 70.1% interest in
Valorcom S.A. ("Nextel Peru"), a Peruvian wireless telecommunications company,
for $27.9 million, of which $7.0 million was paid at the acquisition date. The
remaining balance of $20.9 million is to be paid in the form of capital
contributions over approximately six months. Nextel Peru, holds through its
subsidiaries, licenses to operate 138 SMR channels in the greater Lima area.
Motorola, through an indirect subsidiary, holds a 19.9% interest in Nextel Peru.
The Company's investment in Nextel Peru is expected to be accounted for as a
purchase. Nextel Peru's historical operations are insignificant relative to the
results of the Company.
28
<PAGE> 29
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS AND INVESTMENTS -- (CONTINUED)
PRO FORMA INFORMATION: The following summarized pro forma (unaudited)
information is for the years ended December 31, 1996 and 1997 and assumes the
Nextel Argentina, Nextel Mexico, Nextel Brazil and MCS transactions had occurred
on January 1, 1996.
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revenues................................................... $ 24,697 $ 26,312
========== ==========
Net loss................................................... $ (55,245) $ (89,717)
========== ==========
Net loss per share, basic and diluted...................... $ (1.51) $ (2.46)
========== ==========
Weighted average shares outstanding........................ 36,500,000 36,500,000
========== ==========
</TABLE>
The above amounts consolidate the historical results of Nextel Argentina,
the WVA Entities, Nextel Mexico, Nextel Brazil and MCS prior to the acquisitions
and reflect adjustments for the recognition of the minority ownership interests
and the amortization of licenses and goodwill. 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 are they necessarily
indicative of future operating results of the Company.
3. NOTES RECEIVABLE
At December 31, 1996, notes receivable consisted of the following:
<TABLE>
<S> <C>
Due from affiliated companies............................................... $5,378
Due from officer of Nextel Communications................................... 250
Interest receivable......................................................... 76
------
$5,704
======
</TABLE>
All of the balances outstanding as of December 31, 1996 plus accrued
interest were transferred to Nextel Communications prior to the merger of Nextel
Canmex and the Company.
4. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
Balances at December 31, 1996 consist of the Company's 30% interest in
Nextel Philippines and its results of operations from June 14, 1996 (date of
acquisition) to December 31, 1996, 30.1% of Nextel Mexico and its results of
operations for the year ended December 31, 1996 and the Company's investment in
Shanghai CCT McCaw, accounted for under the cost method. At December 31, 1997,
investments in unconsolidated subsidiaries consists of the Company's 30%
interest in Nextel Philippines and its results of operations for the year ended
December 31, 1997, the Company's 50% interest in the Argentina Joint Venture and
its results of operations from May 6, 1997 (date of inception) to December 31,
1997, and the Company's investment in Shanghai CCT McCaw, accounted for under
the cost method.
Summarized financial information for the Company's investments in
unconsolidated subsidiaries accounted for on the equity method as of and for the
year ended December 31, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Assets........................................................... $57,605 $133,315
Liabilities...................................................... 38,453 111,997
Operating loss................................................... 6,123 12,167
</TABLE>
29
<PAGE> 30
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1997
------ --------
<S> <C> <C>
Land.............................................................. $ -- $ 85
Leasehold improvements............................................ 16 1,442
Equipment......................................................... 245 59,836
Furniture and fixtures............................................ 124 990
Construction in progress.......................................... 8,392 75,849
------ --------
8,777 138,202
Less accumulated depreciation and amortization.................... (74) (1,992)
------ --------
$8,703 $136,210
====== ========
</TABLE>
For the year ended December 31, 1997, the Company capitalized $2,511 of
interest related to expenditures for construction of significant additions to
property, plant and equipment. No interest expense was capitalized during the
years ended December 31, 1995 and 1996.
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Licenses......................................................... $10,878 $429,258
Goodwill......................................................... -- 109,894
Trademarks and other............................................. -- 1,512
------- --------
10,878 540,664
Less accumulated amortization.................................... -- (14,664)
------- --------
$10,878 $526,000
======= ========
</TABLE>
7. DUE TO PARENT
At December 31, 1996, due to parent represents amounts paid by Nextel
Communications on behalf of the Company since the Company's inception to fund
its operations and investments. In February 1997, the remaining amount due to
parent was converted to capital in connection with the merger of Nextel Canmex
and Nextel Services into the Company. (See Note 2.)
At December 31, 1997, due to parent represents amounts owed to Nextel
Communications as consideration for certain assets transferred to the Company as
well as amounts due under the terms of the tax sharing agreement between the
Company and Nextel Communications. These liabilities are to be extinguished as a
condition of the high-yield offering (See Note 17) through the issuance of
Series A Redeemable Exchangeable Preferred Stock of the Company with a value to
be determined based on the fair value of the extinguished liability.
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997
--------
<S> <C>
13% Senior discount notes due 2007, net of unamortized discount of
$411,571................................................................ $539,892
Nextel Brazil equipment financing, at 2.5% over prime rate
(11% at December 31, 1997).............................................. 50,250
Nextel Mexico equipment financing, at rates varying from 9.7% to 14.7%.... 9,878
--------
600,020
Less current portion...................................................... (2,211)
--------
$597,809
========
</TABLE>
30
<PAGE> 31
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT -- (CONTINUED)
SENIOR DISCOUNT NOTES: In March 1997, the Company issued through a private
placement 951,463 units generating approximately $482.0 million in net proceeds.
Each unit is comprised of a 10-year senior discount note (the "Notes") (with a
principal amount due at maturity of $1,000) and one warrant to purchase .38748
shares of Company's common stock (the Warrant) (See Note 12). The Notes have a
13% yield to maturity, are noncallable until April 15, 2002, and require no
interest payments for the first five years. Interest on the Notes is payable in
cash on each April 15 and October 15, commencing October 15, 2002. The Company
is restricted from paying dividends under the terms of the Notes, and the Notes
contain covenants restricting certain transactions.
NEXTEL BRAZIL EQUIPMENT FINANCING: In October, 1997, Nextel Brazil and
Motorola Credit Corp. a subsidiary of Motorola ("Motorola Credit"), entered into
an equipment financing agreement whereby Motorola Credit agreed to provide up to
$125 million in revolving loans (the "Brazil Motorola Financing") to Nextel
Brazil to be used to acquire infrastructure equipment and related services from
Motorola. The Brazil Motorola Financing is repayable in semi-annual installments
over 42 months commencing June 30, 2000 and bears interest at an annual rate
periodically determined by the Company of either the LIBOR rate plus 463 basis
points or the prime rate plus 250 basis points. Currently, the Brazil Motorola
Financing bears an interest rate of prime rate plus 250 basis points (11% at
December 31, 1997). Pursuant to the Brazil Motorola Financing, the revolving
loans are secured by a first priority lien on substantially all of Nextel
Brazil's assets, a pledge of all of the stock of Nextel Brazil and its
subsidiaries, including Nextel S.A., and guarantees by the Company and Motorola
International Development Corporation (which indirectly holds a 5% equity
interest in Nextel S.A.) of 93.9% and 6.1%, respectively, of Nextel Brazil's
obligations under such financing. The Brazil Motorola Financing prohibits the
payment of dividends by Nextel S.A. until the existing loan balance is paid in
full and contains covenants restricting certain transactions and requiring the
maintenance of certain financial ratios. As of December 31, 1997, approximately
$35.5 million of the Company's cash, cash equivalents and marketable securities
have been restricted for use as future equity investments in Nextel Brazil and
its subsidiaries.
NEXTEL MEXICO EQUIPMENT FINANCING: Nextel Mexico holds several secured
financing agreements, with various payment terms and maturities through 2007 and
interest rates ranging from 9.7% to 14.7%. The term loans are secured by a first
priority lien on substantially all of Nextel Mexico's assets. Additionally, the
shares of one of Nextel Mexico's subsidiaries are pledged as collateral for the
loan denominated in Mexican pesos. At December 31, 1997 loans made in Mexican
pesos total approximately $176. All remaining notes are payable in U.S. dollars.
For the years subsequent to December 31, 1997, annual maturities of
long-term obligations are as follows:
<TABLE>
<CAPTION>
PAYABLE IN PAYABLE IN
MEXICAN PESOS U.S. DOLLARS TOTAL
------------- ------------ ----------
<S> <C> <C> <C>
1998.................................................... $ 176 $ 2,035 $ 2,211
1999.................................................... -- 2,105 2,105
2000.................................................... -- 11,823 11,823
2001.................................................... -- 10,989 10,989
2002.................................................... -- 15,593 15,593
Thereafter.............................................. -- 968,870 968,870
---- ---------- ----------
176 1,011,415 1,011,591
Less unamortized discount............................... -- 411,571 411,571
---- ---------- ----------
$ 176 $ 599,844 $ 600,020
==== ========== ==========
</TABLE>
31
<PAGE> 32
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company, using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1996 and 1997 are as follows:
CURRENT ASSETS AND CURRENT LIABILITIES: The carrying amounts of these
items are a reasonable estimate of their fair value.
SHANGHAI CCT MCCAW: Included in investments in unconsolidated subsidiaries
is the Company's investment in Shanghai CCT McCaw, accounted for under the cost
method. As there is no active market for this investment, it is impracticable to
estimate its fair value.
INVESTMENTS AND OTHER ASSETS: Included in investments and others assets is
the Company's investment in Clearnet, which approximates its fair value of
$17,607 and $18,155 based on its current stock price of $11 and $11 3/8 per
share as of December 31, 1996 and 1997, respectively.
LONG-TERM DEBT: At December 31, 1997, the fair value of the Notes is
estimated based on quoted market prices and exceeds their carrying value by
$11,957. Fair value of the Company's equipment financing agreements is estimated
based on the Company's current borrowing rates and approximates carrying value
at December 31, 1997 (See Note 8).
INVESTMENT PURCHASE AND SALES OPTIONS: The Company maintains or has
granted certain stock purchase and sale rights in connection with its
investments in Nextel Brazil and Nextel Philippines (See Note 2). The Company
believes that a reasonable estimate of the fair value of these instruments is
not practicable to determine as of December 31, 1997, as there is no active
market for such instruments.
10. INCOME TAXES
The components of income tax benefit (provision) for each of the three
years ended December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................ $(2,119) $(1,355) $(1,745)
Deferred:
Foreign................................................ -- -- 8,027
------- ------- -------
Total income tax benefit (provision)..................... $(2,119) $(1,355) $ 6,282
======= ======= =======
</TABLE>
The reconciliation of income taxes computed at the statutory rate to the
income tax benefit for each of the three years ended December 31 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Income tax provision (benefit) at statutory rate........ $(5,412) $(3,781) $(27,095)
Nonconsolidated subsidiary adjustments.................. 7,430 2,209 2,559
Other................................................... 6 330 1,470
Increase in valuation allowance......................... 95 2,597 16,784
------- ------- --------
Tax provision (benefit)................................. $ 2,119 $ 1,355 $ (6,282)
======= ======= ========
</TABLE>
32
<PAGE> 33
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES -- (CONTINUED)
Deferred taxes as of December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards..................................... $ 2,692 $ 29,088
Deferred interest................................................ -- 17,019
Other............................................................ -- 1,714
------- --------
2,692 47,821
Valuation allowance.............................................. (2,692) (40,654)
------- --------
-- 7,167
------- --------
Deferred tax liabilities:
Intangibles...................................................... -- 126,172
Unrealized gain on investment.................................... 1,562 1,772
------- --------
1,562 127,944
------- --------
Net deferred tax liability....................................... $ 1,562 $120,777
======= ========
</TABLE>
At December 31, 1997, the Company had approximately $67.8 million of net
operating loss carryforwards for Mexican income tax purposes which expire
through 2007. Additionally, the Company had approximately $13.7 million of net
operating loss carryforwards for Brazilian income tax purposes which have no
expiration date and can only be utilized up to the limit of 30% of taxable
income for the year. The Company may be limited in its ability to use tax net
operating losses in any one year depending on its ability to generate sufficient
taxable income.
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS: The Company leases various cell sites and
office facilities under operating leases with terms of one to five years. Total
rent expense under operating leases for the years ended December 31, 1995, 1996
and 1997 totaled $50, $161 and $3,325, respectively.
Future minimum lease payments for years ending after December 31, 1997
under operating leases that have initial noncancelable lease terms exceeding one
year are as follows:
<TABLE>
<S> <C>
1998....................................................................... $ 7,912
1999....................................................................... 8,048
2000....................................................................... 7,601
2001....................................................................... 6,813
2002....................................................................... 5,843
Thereafter................................................................. 16,136
-------
$52,354
=======
</TABLE>
PURCHASE COMMITMENTS: Motorola is the principal supplier of the Company's
ESMR infrastructure equipment and handsets. During the year ended December 31,
1997, the Company acquired approximately $87,300 in infrastructure equipment and
related services from Motorola and has committed to purchase $140,000 of
additional infrastructure equipment and related services. As of December 31,
1997 the Company's consolidated balance sheets include amounts payable to
Motorola related to such purchases of $11,905 in accounts payable and $50,250 in
long-term debt (See Note 8). As of February 19, 1998, cash and cash equivalents
contractually restricted for future purchases, representing primarily Motorola
equipment, is $59,928, of which $33,525 was restricted as of December 31, 1997.
33
<PAGE> 34
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
FINANCING COMMITMENTS: Since March 1996, the Company has advanced Shanghai
CCT McCaw $12,483, of a total maximum commitment of $13,200, to fund the
buildout of the Shanghai GSM System. The amount outstanding as of December 31,
1997 totals $11,253, bears interest at 7% per annum and requires payments of
principal and interest in four annual installments, commencing December 31,
1997. Due to the lack of significant control over the Company's investment in
Shanghai CCT McCaw, the note is recorded as an addition to the Company's
investment in Shanghai CCT McCaw.
FINANCING GUARANTEES: In June 1997, Nextel Philippines and Motorola
entered into an equipment financing agreement (the "Philippines Motorola
Financing"), pursuant to which Motorola agreed to provide up to $14.7 million in
term loans, denominated in U.S. dollars, to Nextel Philippines to finance the
acquisition of infrastructure equipment and related services from Motorola. The
terms of the Philippines Motorola Financing provides for a maturity of two years
and an annual interest rate of LIBOR plus 506 basis points. Pursuant to the
Philippines Motorola Financing, the term loans are secured by a first priority
lien on substantially all of Nextel Philippines' assets and guarantee of such
financing by the Company. As of December 31, 1997, Nextel Philippines has
borrowed the maximum amount available under the Philippines Motorola Financing.
12. COMMON STOCK WARRANTS
In March 1997, the Company issued through a private placement, 951,463
units consisting of one 10-year senior discount note (See Note 8), and one
warrant to purchase .38748 shares of the Company's common stock (the "Warrant").
The Warrants are exercisable at a price of $9.99 per share any time after March
6, 1998 and prior to March 6, 2007. The Warrants entitle the holders to
purchase, in the aggregate, approximately 368,673 shares of the Company's common
stock which approximates 1% of the current outstanding shares on a fully diluted
basis as of December 31, 1997.
13. EMPLOYEE BENEFIT PLANS
Nextel Communications Incentive Equity Plan:
Certain of the Company's employees participate in Nextel Communications'
Incentive Equity Plan (the "Nextel Plan"). Generally, options outstanding under
the Nextel Plan (i) are granted at prices equal to or exceeding the market value
of Nextel Communications' stock on the grant date; (ii) vest ratably over either
a four or five year service period; and (iii) expire ten years subsequent to
award.
A summary of the Nextel Plan activity related to the Company's employees is
as follows:
<TABLE>
<CAPTION>
OPTION WEIGHTED AVERAGE
SHARES PRICE RANGE EXERCISE PRICE
------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Outstanding, December 31, 1995....................... 81,500 $14.87 - $18.37 $15.63
Granted......................................... 59,700 15.12 15.12
Canceled........................................ (5,100) 14.87 - 15.12 14.88
------- ------- ------- -------
Outstanding, December 31, 1996....................... 136,100 15.12 - 18.37 15.44
Granted......................................... 175,550 15.12 - 23.81 15.52
------- ------- ------- -------
Outstanding, December 31, 1997....................... 311,650 $15.12 - $23.81 $15.11
======= ====== ====== =============
Exercisable, December 31, 1997....................... 55,420 $14.87 - $18.37 $15.37
======= ====== ====== =============
</TABLE>
Nextel International Employee Stock Option Plan:
On June 23, 1997, the board of directors adopted the 1997 Nextel
International Employee Stock Option Plan (the "Company Plan"), under which
certain of the Company's employees participate. Generally, options outstanding
under the Company Plan (i) are granted at fair value, based on periodic
valuations of the
34
<PAGE> 35
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
Company using standard industry valuation techniques; (ii) vest ratably over a
four year service period; and (iii) expire ten years subsequent to award.
A summary of Company Plan activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTION AVERAGE
PRICE EXERCISE
SHARES RANGE PRICE
---------- ------- -------
<S> <C> <C> <C>
Outstanding, December 31, 1996................................... -- $ -- $ --
Granted........................................................ 1,621,000 10.00 10.00
Canceled....................................................... 30,000 10.00 10.00
------- -------
- -
---------
Outstanding, December 31, 1997................................... 1,591,000 $ 10.00 $ 10.00
========= ======== ========
Exercisable, December 31, 1997................................... -- $ -- $ --
========= ======== ========
</TABLE>
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. If the Company had
elected to recognize compensation expense based on the fair value of the awards
granted in 1997 consistent with the provisions of SFAS 123, Accounting for Stock
Based Compensation, the Company's net loss and net loss per common share for the
year ended December 31 would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Net loss:
As reported..................................................................... $(73,948)
========
Pro forma....................................................................... $(76,024)
========
Loss per common share, basic and diluted:
As reported..................................................................... $ (2.03)
========
Pro forma....................................................................... $ (2.08)
========
Weighted average fair value of options granted.................................... $ 6.59
========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
<TABLE>
<S> <C>
Expected stock price volatility.................................................... 53%
Risk-free interest rate............................................................ 6.6%
Expected life of options........................................................... 8 years
Expected dividend yield............................................................ 0.00%
</TABLE>
The Company's stock options are not transferable, and the actual value of
the stock options that an employee may realize, if any, will depend on the
excess of the market price on the date of exercise over the exercise price. The
Company has based its assumption for stock price volatility on the historical
variance of weekly closing prices of Nextel Communications' stock. The risk-free
rate of return used equals the yield on eight year zero-coupon U.S. Treasury
issues on the grant date. No discount was applied to the value of the grants for
non-transferability or risk of forfeiture.
35
<PAGE> 36
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
Stock Appreciation Rights:
On November 1, 1996, the Company adopted a Stock Appreciation Rights Plan
(the "SAR Plan"), which was effective as of November 1, 1995, whereby selected
employees and agents of the Company may be granted rights to share in the future
appreciation in the value of the Company. Such rights do not represent an equity
interest in the Company, only a right to compensation under the terms of the
plan.
The Company retroactively granted 1,140,000 rights under the plan, at an
exercise price of $10.00 per right, on dates ranging from October 1, 1995 to
December 31, 1996, with vesting periods of four years. Under the provisions of
the plan, the number of shares used in calculating the fair value per share is
adjusted periodically to reflect capital contributed to the Company by its
parent. This adjustment is generally only for purposes of valuing the SAR's. It
does not necessarily reflect the actual issuance of additional shares of common
stock. Rights under the plan may not be exercised until 50% of the employee's
grant has vested. As of December 31, 1996 and 1997, there were 1,240,000 and
25,000 rights outstanding, respectively. None of the rights are exercisable
under the terms of the plan.
In conjunction with the adoption of the 1997 Stock Option Plan, the board
of directors also approved a plan to terminate the SAR Plan. Each holder of SARs
granted previously has been given the option to exchange the SARs for stock
options to be granted at fair value under the 1997 Stock Option Plan. As of
December 31, 1997, 1,070,000 rights have been exchanged for options under the
1997 Stock Option Plan and 25,000 SARs remain outstanding. With respect to SAR
holders who elected not to exchange their SARs for stock options, the Company
will continue to be obligated by the terms and conditions of the SAR agreements
previously entered into with such holders.
Employee Benefit Plan:
Certain officers and employees of the Company are eligible to participate
in Nextel Communications' defined contribution plans pursuant to Section 401(k)
of the Internal Revenue Code. The Company provides a matching contribution of
$.50 for every $1.00 contributed by the employee up to 4% of each employee's
salary. Such contributions were approximately $0, $10, and $29 for the years
ended December 31, 1995, 1996 and 1997, respectively. At December 31, 1997, the
Company had no other pension or post employment benefit plans.
14. RELATED PARTIES
Nextel Communications performs certain administrative functions for the
Company, consisting of accounting, legal and other services, totaling $504 and
$318 for the years ended December 31, 1996 and 1997, respectively. No amounts
were incurred for the year ended December 31, 1995 due to the limited operations
of the Company.
At December 31, 1997, Motorola owned approximately 19.9% and 100% of Nextel
Communications' outstanding Class A and Class B common stock, respectively. The
Company maintains various business relationships with Motorola, including
purchases of infrastructure equipment and handsets, equipment financing
agreements, and joint venture partnerships (See Notes 2, 8 and 11).
36
<PAGE> 37
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GEOGRAPHICAL SEGMENT INFORMATION
The Company's operations are principally located in three geographic areas:
Brazil, Argentina and Mexico. The following is a summary of data by geographic
area for the three years ended December 31, 1995, 1996 and 1997 and as of
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
----- -------- ----------
<S> <C> <C> <C>
Net sales to unaffiliated customers
Brazil.................................................... $ -- $ -- $ 9,605
Argentina................................................. -- -- 60
Mexico.................................................... -- -- 3,348
Corporate and other....................................... -- -- 2
----- -------- ----------
$ -- $ -- $ 13,015
===== ======== =========
Net operating loss
Brazil.................................................... $ -- $ -- $ (28,436)
Argentina................................................. (24) (2,738) (1,257)
Mexico.................................................... -- -- (3,718)
Corporate and other....................................... (272) (6,748) (6,147)
----- -------- ----------
$(296) $ (9,486) $ (39,558)
===== ======== =========
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C> <C>
Total assets
Brazil.................................................... $ -- $ 420,242
Argentina................................................. 22,362 --
Mexico.................................................... -- 288,695
Corporate and other....................................... 177,005 414,101
-------- ----------
$199,367 $1,123,038
======== =========
</TABLE>
The Company's investment in Nextel Mexico was accounted for under the
equity method prior to September 1, 1997. Nextel Brazil was purchased effective
January 30, 1997. Accordingly, no segmented information is reflected as of
December 31, 1996 and for the years ended December 31, 1995 and 1996 for Nextel
Brazil and Nextel Mexico.
In May 1997, the Company reduced its effective ownership interest in Nextel
Argentina to 50%; therefore, the accompanying table only includes the net sales,
operating losses and assets of Nextel Argentina prior to May 6, 1997. As the
Company's investment in Nextel Argentina is accounted for under the equity
method of accounting, as of December 31, 1997, the related asset is reflected in
Corporate and other.
Corporate and other includes operating losses relating to the selling,
general and administrative expenses of the Company's corporate offices for the
years ended December 31, 1995, 1996 and 1997. Total assets consist mainly of
cash and cash equivalents, marketable securities and investments in
unconsolidated subsidiaries at December 31, 1996 and 1997.
37
<PAGE> 38
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997
Revenues............................................. $ 1,460 $ 2,504 $ 3,085 $ 5,966
Operating loss....................................... (5,930) (8,571) (9,674) (15,383)
Net loss............................................. (9,811) (18,338) (20,621) (25,178)
Net loss per common share, basic and diluted......... (0.27) (0.50) (0.56) (0.69)
1996
Revenues............................................. $ -- $ -- $ -- $ --
Operating loss....................................... (829) (2,043) (3,475) (3,139)
Net loss............................................. (1,348) (2,451) (4,347) (4,330)
Net loss per common share, basic and diluted......... (0.04) (0.07) (0.12) (0.12)
</TABLE>
17. PENDING DEBT TRANSACTIONS
HIGH-YIELD OFFERING: The Company is planning to issue $300 million of
senior discount notes due 2008 (the "Notes") in March 1998. The Notes are
expected to be unsecured obligations of the Company and are expected to carry a
market interest rate. The Notes are being privately placed. The indenture
governing the Notes is expected to contain substantial covenants and
restrictions.
NEXTEL ARGENTINA FINANCING: Nextel Argentina entered into a binding
commitment letter with The Chase Manhattan Bank for a $100 million Senior
Secured credit facility (the "Argentina Financing"), primarily to fund
infrastructure equipment expenditures, development, expansion and upgrade of
network systems, and spectrum acquisitions. The Argentina Financing is subject
to the execution of definitive loan and security documentation and the
commitment letter expires on March 27, 1998. The Argentina Financing will be
repayable in quarterly installments commencing 30 months after the closing date
of the loan, with a 50% balloon payment due at the end of five years. The
Argentina Financing will bear interest at an annual rate periodically determined
by the Company of either (a) the ABR plus 2.75% (ABR is the highest of the prime
rate, the base CD rate plus 1% and the federal funds rate plus 0.5%) or (b) the
Eurodollar rate plus 3.75% (Eurodollar rate is the LIBO rate multiplied by the
statutory reserve rate). The Argentina Financing is subject to certain capital
requirements and covenants and will be secured by first priority liens on
substantially all of Nextel Argentina's assets. As of February 19, 1998, there
are no amounts outstanding on the Argentina Financing.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Not Applicable
(b) Pro Forma Financial Statements
Not Applicable
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- ------------------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
38
<PAGE> 39
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 hereunto duly authorized.
NEXTEL INTERNATIONAL, INC.
Date: March 2, 1998 By: /s/ DAVID E. ROSTOV
------------------------------------
David E. Rostov
Vice President and Chief Financial
Officer
39
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 159790
<SECURITIES> 128560
<RECEIVABLES> 4841
<ALLOWANCES> 1003
<INVENTORY> 1749
<CURRENT-ASSETS> 309821
<PP&E> 138202
<DEPRECIATION> 1992
<TOTAL-ASSETS> 1123038
<CURRENT-LIABILITIES> 86513
<BONDS> 597809
0
0
<COMMON> 395428
<OTHER-SE> (102,689)
<TOTAL-LIABILITY-AND-EQUITY> 1123038
<SALES> 2426
<TOTAL-REVENUES> 13015
<CGS> 1235
<TOTAL-COSTS> 7424
<OTHER-EXPENSES> 18381
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56583
<INCOME-PRETAX> (80,230)
<INCOME-TAX> (6282)
<INCOME-CONTINUING> (73948)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73948)
<EPS-PRIMARY> (2.03)
<EPS-DILUTED> (2.03)
</TABLE>
