<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-26649
------------------------
NEXTEL INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
WASHINGTON 91-167-1412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1191 SECOND AVENUE, SUITE 1600, SEATTLE, 98101
WA (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (206) 749-8000
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of issuer's classes of
common stock as of the latest practicable date:
<TABLE>
<CAPTION>
NUMBER OF SHARES OUTSTANDING
TITLE OF CLASS ON MAY 1, 1999
-------------- --------------
<S> <C>
Common Stock, no par value 36,568,993
</TABLE>
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<PAGE> 2
NEXTEL INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I -- FINANCIAL INFORMATION.
Item 1. Financial Statements -- Unaudited................. 3
Condensed Consolidated Balance Sheets -- As of March
31, 1999 and December 31, 1998........................ 3
Condensed Consolidated Statements of Operations and
Comprehensive Loss -- For the Three Months Ended March
31, 1999 and 1998..................................... 4
Condensed Consolidated Statement of Stockholders'
(Deficit) Equity -- For the Three Months Ended March
31, 1999.............................................. 5
Condensed Consolidated Statements of Cash Flows -- For
the Three Months Ended March 31, 1999 and 1998........ 6
Notes to Condensed Consolidated Financial Statements... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................ 24
PART II -- OTHER INFORMATION.
Item 1. Legal Proceedings................................. 25
Item 6. Exhibits and Reports on Form 8-K.................. 25
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS -- UNAUDITED.
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (of which $41,000 and $17,000
is restricted)........................................ $ 109,029 $ 121,116
Accounts receivable, less allowance for doubtful
accounts of $13,128 and $6,391........................ 31,716 35,247
Subscriber equipment and accessory inventory........... 21,324 31,914
Prepaid and other...................................... 16,367 23,902
---------- ----------
Total current assets.............................. 178,436 212,179
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $39,155 and $25,773....................... 459,205 530,571
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES, at cost less
equity in net losses of $22,281 and $17,867............... 139,534 134,691
INTANGIBLE ASSETS, net of accumulated amortization of
$39,082 and $42,483....................................... 448,090 552,419
INVESTMENTS AND OTHER ASSETS................................ 217,862 171,276
---------- ----------
$1,443,127 $1,601,136
========== ==========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 116,342 $ 130,585
Notes payable and current portion of long-term debt.... 95 2,061
---------- ----------
Total current liabilities......................... 116,437 132,646
LONG-TERM DEBT.............................................. 1,396,602 1,254,882
DEFERRED INCOME TAXES....................................... 78,515 90,194
---------- ----------
Total liabilities...................................... 1,591,554 1,477,722
---------- ----------
MINORITY INTEREST........................................... 19,824 27,516
STOCKHOLDERS' (DEFICIT) EQUITY:
Series A exchangeable redeemable preferred stock,
accreted liquidation preference of $114,261 (1,250
shares authorized, $10.00 par value, 988.86 shares
issued and outstanding)............................... 98,886 98,886
Series B redeemable preferred stock (2,500 shares
authorized, $10.00 par value, no shares issued and
outstanding).......................................... -- --
Common stock (73,000,000 shares authorized, no par
value, 36,533,553 and 36,523,679 shares issued and
outstanding, respectively)............................ 396,673 396,574
Accumulated deficit.................................... (505,106) (339,824)
Accumulated other comprehensive loss................... (158,704) (59,738)
---------- ----------
Total stockholders' (deficit) equity.............. (168,251) 95,898
---------- ----------
$1,443,127 $1,601,136
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Service revenue........................................ $ 18,347 $ 6,138
Analog equipment sales and maintenance................. 1,514 2,420
----------- -----------
19,861 8,558
----------- -----------
OPERATING EXPENSES
Cost of service revenue................................ 7,892 2,499
Cost of equipment sales and maintenance................ 1,074 1,053
Selling, general and administrative.................... 56,885 15,227
Depreciation and amortization.......................... 23,414 9,192
----------- -----------
89,265 27,971
----------- -----------
OPERATING LOSS.............................................. (69,404) (19,413)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income........................................ 1,538 4,324
Interest expense....................................... (38,694) (18,968)
Loss from equity method investments.................... (4,651) (1,314)
Foreign currency transaction loss and other, net....... (65,833) 1,198
Minority interest...................................... 12,041 1,230
----------- -----------
(95,599) (13,530)
----------- -----------
LOSS BEFORE INCOME TAX (PROVISION) BENEFIT.................. (165,003) (32,943)
INCOME TAX (PROVISION) BENEFIT.............................. (279) 4,374
----------- -----------
NET LOSS.................................................... (165,282) (28,569)
----------- -----------
OTHER COMPREHENSIVE (LOSS) INCOME:
Unrealized (loss) gain on available-for-sale
securities, net of tax............................... 40,131 6,511
Foreign currency translation adjustment................ (139,097) (3,470)
----------- -----------
COMPREHENSIVE LOSS.......................................... $ (264,248) $ (25,528)
=========== ===========
NET LOSS PER COMMON SHARE, BASIC AND DILUTED................ $ (4.53) $ (0.78)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING........ 36,523,790 36,500,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------- --------------- --------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT
------ ------- ------ ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1999... 988.86 $98,886 -- $-- 36,523,679 $396,574 $(339,824)
Issuance of common
stock upon exercise
of stock options.... -- -- -- -- 9,874 99 --
Unrealized gain on
investments......... -- -- -- -- -- -- --
Cumulative translation
adjustment.......... -- -- -- -- -- -- --
Net loss.............. -- -- -- -- -- -- (165,282)
------ ------- -- -- ---------- -------- ---------
BALANCE, March 31, 1999.... 988.86 $98,886 -- $-- 36,533,553 $396,673 $(505,106)
====== ======= == == ========== ======== =========
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE (LOSS) INCOME
-----------------------------
UNREALIZED CUMULATIVE
GAIN (LOSS) ON TRANSLATION
INVESTMENTS ADJUSTMENT TOTAL
-------------- ----------- ---------
<S> <C> <C> <C>
BALANCE, January 1, 1999... $(35,688) $ (24,050) $ 95,898
Issuance of common
stock upon exercise
of stock options.... 99
Unrealized gain on
investments......... 40,131 -- 40,131
Cumulative translation
adjustment.......... -- (139,097) (139,097)
Net loss.............. -- -- (165,282)
-------- --------- ---------
BALANCE, March 31, 1999.... $ 4,443 $(163,147) $(168,251)
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(165,282) $(28,569)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... 23,414 9,192
Foreign currency transaction loss, net............ 63,615 849
Interest accretion on long-term debt, net of
capitalization.................................. 32,978 17,256
Provision for losses on accounts receivable....... 7,411 1,100
Loss from equity method investments............... 4,651 1,314
Deferred income taxes............................. -- (8,549)
Minority interest................................. (12,041) (1,230)
Change in current assets and liabilities:
Accounts receivable.......................... (3,880) (1,947)
Subscriber equipment inventory............... 10,590 (7,895)
Prepaid and other............................ 7,535 (13,784)
Accounts payable, accrued expenses and
other...................................... (25,547) 8,894
Other........................................ (3,935) (3,431)
--------- --------
Net cash used in operating activities.................. (60,491) (26,800)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................... (45,401) (87,296)
Purchase of marketable securities...................... -- (3,994)
Proceeds from sale of marketable securities............ -- 126,018
Business acquisitions, net of cash acquired............ -- (66,625)
Investments in unconsolidated subsidiaries............. (10,944) (37,774)
--------- --------
Net cash used in investing activities.................. (56,345) (69,671)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to parent, net.............................. -- (8,254)
Capital contributions from minority stockholders....... 4,448 4,016
Proceeds from issuance of preferred stock.............. -- 8,254
Net proceeds from issuance of long-term debt........... 107,924 396,772
Repayment of long-term debt............................ (7,623) (727)
--------- --------
Net cash provided by financing activities.............. 104,749 400,061
--------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (12,087) 303,590
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 121,116 159,790
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 109,029 $463,380
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ 1,789 $ 1,008
========= ========
Cash paid for income taxes............................. $ -- $ 1,685
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE> 7
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 -- BASIS OF PRESENTATION
The condensed consolidated financial statements of Nextel International,
Inc. and subsidiaries ("Nextel International" or the "Company"), an indirect,
substantially wholly owned subsidiary of Nextel Communications, Inc. ("Nextel
Communications"), included herein have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission") and reflect all adjustments that are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods. All adjustments made were normal recurring accruals.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998. Operating results for the interim periods are not necessarily
indicative of results for an entire year.
The accounts of the Company's consolidated foreign subsidiaries and foreign
subsidiaries accounted for under the equity method are presented utilizing
accounts as of a date one month earlier than the accounts of the Company and its
U.S. subsidiaries to ensure timely reporting of consolidated results.
RECLASSIFICATIONS: Certain amounts in prior periods have been reclassified
to conform with the current presentation.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. As of March 31, 1999, approximately $41.0 million of cash and cash
equivalents was restricted for investment in the equity of subsidiaries under
certain of the Company's financing agreements.
ESMR NETWORK EQUIPMENT AND ACCESSORY SALES AND RELATED COSTS: For the
quarter ended March 31, 1999, the loss generated from the sale of subscriber
units used in the Company's digital enhanced specialized mobile radio ("ESMR")
network primarily results from the Company's subsidy of digital subscriber units
and represents a marketing cost. Equipment sales revenue and related cost of
sales of digital subscriber units and related accessories, including current
period order fulfillment and installation related expenses, are classified
within selling, general and administrative expenses as follows (dollars in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1999
--------------
<S> <C>
Equipment sales............................................. $ 6,159
Cost of equipment sales..................................... 12,308
-------
$(6,149)
=======
</TABLE>
There were no sales of digital subscriber units for the three months ended
March 31, 1998.
A substantial portion of the Company's digital subscriber units issued to
customers are sold or leased with terms requiring up to 24 monthly payments. The
Company has recorded such transactions as equipment sales at the time of
delivery and recorded an allowance for estimated sales returns. As of March 31,
1999, accounts receivable and investments and other assets include $23.2 million
related to such sales, which are expected to be billed and collected over the
next 24 months.
SUPPLEMENTAL CASH FLOW INFORMATION: For the three months ended March 31,
1999, the Company purchased $6.5 million of infrastructure equipment financed
through its vendor credit facilities.
7
<PAGE> 8
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- BASIS OF PRESENTATION -- (CONTINUED)
In March 1998, a wholly owned subsidiary of Nextel Communications
transferred to the Company 6,777,778 Class D Shares of Clearnet Communications
Inc. ("Clearnet") with a fair value of $90.6 million in exchange for 906.32
shares of the Company's Series A Exchangeable Redeemable Preferred Stock, $10
par value per share ("Series A Preferred Stock").
NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which establishes accounting and reporting
standards for derivative instruments and for hedging activities by requiring
that all derivatives be recognized in the balance sheet and measured at fair
value. SFAS 133 is effective for fiscal years beginning after June 15, 1999.
This statement is not expected to have a significant effect on the Company's
financial position and results of operations.
NOTE 2 -- SIGNIFICANT EVENTS AND TRANSACTIONS
BRAZIL CURRENCY DEVALUATION: During the quarter ended March 31, 1999,
there was a significant fluctuation in the value of the Brazilian real relative
to the U.S. dollar due to the real's recent devaluation. As a result of such
devaluation, the Company recorded a pre-tax charge (net of minority interests)
of approximately $45.1 million on its consolidated statement of operations for
the quarter ended March 31, 1999 related to foreign currency transaction losses.
This amount was calculated based on the outstanding amount of U.S.
dollar-denominated debt of the Company's Brazilian subsidiaries, the average
exchange rate of the Brazilian real during the first quarter of 1999 and the
Company's percentage ownership interest in its Brazilian subsidiaries at the end
of such period. Additionally, the Company recorded a negative cumulative
translation adjustment on its balance sheet (determined in a manner consistent
with prior periods) of approximately $136.1 million based on the exchange rate
as of the end of the first quarter of 1999, which is reflected as an adjustment
to the cumulative translation adjustment account within stockholders' deficit.
INTERNATIONAL MOTOROLA FINANCING FACILITY: Effective February 4, 1999, the
Company and Motorola Credit Corporation ("Motorola Credit") entered into
definitive agreements that establish the terms and conditions under which
Motorola Credit will provide equipment financing to the Company and certain
Operating Companies (the "International Motorola Financing Facility").
Under the International Motorola Financing Facility, Motorola Credit agreed
to provide up to $225.0 million in term loans to the Company consisting of (i)
up to $100.0 million in loans to reimburse the Company for payments made to
Motorola, Inc. ("Motorola") by the Company and certain of the Company's
operating subsidiaries and affiliates after January 1, 1997 for the purchase of
iDEN(R) equipment and related services by or for the benefit of such
subsidiaries and affiliates (the "Reimbursement Loans") and (ii) up to $225.0
million in loans (less the amount of Reimbursement Loans advanced) to (A)
finance the cost of qualifying future purchases of iDEN(R) equipment and related
services (including ancillary products and services) purchased by or for the
benefit of the Borrowing Affiliates (as defined below) and (B) repay the
principal amounts outstanding under the existing financing facilities between
Motorola Credit and Infocom Communications Network, Inc. ("Nextel Philippines")
and the bridge financing facility between Motorola Credit and the Company for
the benefit of Nextel Philippines (the "Philippines Motorola Bridge Financing").
The "Borrowing Affiliates," for purposes of the International Motorola Financing
Facility, include Comunicaciones Nextel de Mexico, S.A. de C.V. ("Nextel
Mexico"), Nextel del Peru, S.A. ("Nextel Peru"), Nextel Philippines and Nexnet
Co., Ltd. ("Nexnet," formerly J-Com Co., Ltd.) and such other entities in which
the Company holds an equity interest and which have been so designated by
agreement between the Company and Motorola Credit.
8
<PAGE> 9
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SIGNIFICANT EVENTS AND TRANSACTIONS -- (CONTINUED)
Loans under the International Motorola Financing Facility will be repaid in
eight equal semi-annual installments beginning June 30, 2001 and will mature
December 31, 2004. Loans under the International Motorola Financing Facility
will bear interest at variable rates based upon either the U.S. prime rate or
LIBOR and will be secured by, among other things, a pledge of the shares of
stock of the Borrowing Affiliates held by the Company, a pledge of the shares of
stock of certain other direct and indirect subsidiaries of the Company and a
pledge of the shares of stock of the Borrowing Affiliates held by certain third
party shareholders.
The availability of borrowings under the International Motorola Financing
Facility are subject to the satisfaction or waiver of certain applicable
borrowing conditions. As of March 31, 1999, approximately $104.8 million had
been borrowed under the International Motorola Financing Facility, including the
entire $100.0 million of Reimbursement Loans, and $120.2 million remained
available for borrowing. In February 1999, a portion of the proceeds of the
International Motorola Financing Facility was used to repay the entire $8.6
million outstanding under the Philippines Motorola Bridge Financing.
ARGENTINA CREDIT FACILITY: In March 1999, Nextel Argentina S.R.L. ("Nextel
Argentina") notified the Administrative Agent under its $100 million secured
credit facility (the "Argentina Credit Facility") of its anticipated
noncompliance with certain financial covenants under such facility applicable in
the first quarter of 1999. Nextel Argentina received a waiver from the lenders
under such facility with regard to such covenants for the first quarter of 1999.
On May 12, 1999, Nextel Argentina and the lenders under the Argentina Credit
Facility agreed to certain amendments to the Argentina Credit Facility modifying
the covenants in question for future quarters (the "Argentina Amendments"). The
effectiveness of the Argentina Amendments is subject to customary conditions,
which are expected to be satisfied prior to May 28, 1999. The lenders have
extended their waiver of Nextel Argentina's compliance with such covenants until
the earlier of May 28, 1999 or the date the Argentina Amendments become
effective.
As a result of the Argentina Amendments, the Company has entered into a new
capital subscription agreement that will require additional equity to be
contributed to Nextel Argentina. Concurrently with the execution of the
Argentina Amendments, Motorola Credit agreed to provide up to $50 million in
loans to Nextel Argentina as incremental loans under the Argentina Credit
Facility for purchases of qualifying iDEN(R) equipment and related services.
NOTE 3 -- SEGMENT INFORMATION
Nextel International has three reportable operating segments: 1) McCaw
International (Brazil), Ltd. ("Nextel Brazil"), 2) Nextel Argentina and 3)
Nextel Mexico. The operations of all other businesses that fall below the
reporting thresholds are included in the "Corporate and Other" segment below,
and includes Nextel Peru and all corporate entities, which also hold equity
investments in Nextel Philippines and Nexnet.
The Company's reportable segments reflect the Company's geographic focus
and are defined as operating segments immediately subsequent to the Company
obtaining a controlling interest in the entity. Management evaluates performance
of these segments based on segment losses, which is calculated as earnings
before interest, taxes, depreciation and amortization and other non-recurring
charges. The accounting policies are the same as those described in the summary
of significant accounting policies. Intercompany eliminations have been included
in Corporate and Other.
9
<PAGE> 10
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
NEXTEL NEXTEL NEXTEL CORPORATE
BRAZIL ARGENTINA MEXICO AND OTHER CONSOLIDATED
-------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Service revenue............................ $ 8,320 $ 6,595 $ 3,047 $ 385 $ 18,347
Analog equipment sales and maintenance..... 232 415 794 73 1,514
-------- -------- -------- -------- ----------
8,552 7,010 3,841 458 19,861
Cost of service revenue.................... 2,951 2,852 1,827 262 7,892
Cost of equipment sales and maintenance.... 247 112 688 27 1,074
Selling, general and administrative........ 26,418 14,263 9,764 6,440 56,885
-------- -------- -------- -------- ----------
29,616 17,227 12,279 6,729 65,851
Segment loss............................... (21,064) (10,217) (8,438) (6,271) (45,990)
Depreciation and amortization.............. 23,414
----------
Operating loss............................. $ (69,404)
==========
Capital expenditures....................... $ 15,226 $ 17,760 $ 12,303 $ 5,413 $ 50,702
======== ======== ======== ======== ==========
AS OF MARCH 31, 1999
Long-lived assets.......................... $320,881 $181,518 $347,127 $ 57,769 $ 907,295
======== ======== ======== ======== ==========
Total assets............................... $344,910 $258,101 $371,381 $468,735 $1,443,127
======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
NEXTEL NEXTEL NEXTEL CORPORATE
BRAZIL ARGENTINA MEXICO AND OTHER CONSOLIDATED
-------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Service revenue............................ $ 2,765 $ 1,083 $ 2,138 $ 152 $ 6,138
Analog equipment sales and maintenance..... 770 350 1,010 290 2,420
-------- -------- -------- -------- ----------
3,535 1,433 3,148 442 8,558
Cost of service revenue.................... 1,993 185 267 54 2,499
Cost of equipment sales and maintenance.... 261 17 681 94 1,053
Selling, general and administrative........ 7,320 3,340 2,045 2,522 15,227
-------- -------- -------- -------- ----------
9,574 3,542 2,993 2,670 18,779
Segment loss............................... (6,039) (2,109) 155 (2,228) (10,221)
Depreciation and amortization.............. 9,192
----------
Operating loss............................. $ (19,413)
==========
Capital expenditures....................... $ 50,198 $ 15,624 $ 24,928 $ 181 $ 90,931
======== ======== ======== ======== ==========
AS OF MARCH 31, 1998
Long-lived assets.......................... $417,169 $119,651 $299,052 $ 23,279 $ 859,151
======== ======== ======== ======== ==========
Total assets............................... $457,408 $157,777 $327,709 $683,864 $1,626,758
======== ======== ======== ======== ==========
</TABLE>
10
<PAGE> 11
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- SUBSEQUENT EVENTS
ISSUANCE OF PREFERRED STOCK: On May 13, 1999, the Company issued 1,000
shares of its Series A Preferred Stock to a wholly owned subsidiary of Nextel
Communications. The Company received $100 million in proceeds from the issuance
of such shares of Series A Preferred Stock.
MOTOROLA INCREMENTAL FACILITY COMMITMENT: On May 3, 1999, Nextel
Communications, Nextel International and Motorola Credit entered into a
memorandum of understanding and term sheet (the "Motorola Incremental Facility
Commitment") regarding the terms and conditions under which Motorola Credit will
provide a $56.65 million secured credit facility to the Company (the
"International Motorola Incremental Facility").
Under the Motorola Incremental Facility Commitment, Motorola Credit agreed
to provide up to $56.65 million in incremental term loans to the Company for
working capital purposes, provided that the Company's unrestricted cash (which
will be defined by the parties in the definitive agreements), after giving
effect to the any requested loans under such International Motorola Incremental
Facility, does not exceed $15 million. Loans under the International Motorola
Incremental Facility will mature December 31, 2001 and will bear interest at
variable rates based upon either the U.S. prime rate or LIBOR. Loans under the
International Motorola Incremental Facility will be secured by a pledge of all
of the Company's shares of Clearnet.
The availability of the loans under the International Motorola Incremental
Facility is subject to a number of conditions, including the negotiation,
execution and delivery of definitive agreements and the completion by Motorola
Credit of its due diligence review of the Company. The parties contemplate
negotiating and entering into definitive agreements implementing the terms of
the Motorola Incremental Facility Commitment during the second quarter of 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion of the condensed consolidated financial condition
and results of operations of Nextel International, Inc. ("Nextel International"
or the "Company"), an indirect, substantially wholly owned subsidiary of Nextel
Communications, Inc. ("Nextel Communications"), for the three-month periods
ended March 31, 1999 and 1998 should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto appearing
elsewhere in Part I of this report and the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 ("1998 Form 10-K").
Nextel International, through its operating subsidiaries and affiliates,
provides wireless communications services in five of the largest cities in Latin
America and three of the largest cities in Asia. As of March 31, 1999, the
Company's markets covered approximately 373 million people, approximately 131
million of which were in Latin America. On a proportionate basis, based on the
Company's ownership interests as of March 31, 1999, the Company's markets
covered approximately 175 million people, approximately 115 million of which
were in Latin America. Nextel International is the largest specialized mobile
radio ("SMR") service provider in Brazil and Mexico, and holds the largest SMR
channel position in Argentina.
The Company's strategy is focused on using its 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 and to continue to build out its ESMR
networks in its principal markets. The Company intends to use "iDEN(R)"
(integrated Digital Enhanced Network) technology developed by Motorola, Inc.
("Motorola") to provide its ESMR services. During 1998, the Company, through its
operating subsidiaries or affiliates, launched commercial ESMR service under the
brand name "Nextel(TM)" in Sao Paulo and Buenos Aires in the second quarter of
1998, Rio de Janeiro, Manila and Mexico City in the third quarter of 1998 and
Rosario, Argentina in the fourth quarter of 1998. Additionally, the Company's
Japanese affiliate, Nexnet Co., Ltd. ("Nexnet," formerly J-Com Co., Ltd.),
introduced a multi-functional commercial ESMR service under the brand name
"NEXNET(TM)" in the Kanto region of Japan (which includes Tokyo) in the second
half of 1998. The Company plans to launch commercial ESMR service in the greater
Lima area during the second half of 1999. The timing of the Company's currently
planned launch schedule depends on a number of factors, some of which are beyond
the Company's control. See 1998 Form 10-K, Part I, Item 1, "The Company's
Operations and Investments."
The Company owns majority controlling interests in wireless communications
services companies in Brazil, Mexico, Argentina and Peru and owns equity
interests and actively participates in the management of wireless communications
services companies in the Philippines and Japan. In addition, the Company owns
an approximately 15% equity interest in Clearnet Communications Inc., a Canadian
wireless communications services company ("Clearnet"), and has a contractual
right through its Chinese joint venture to receive 12.1% of the profits
generated by a Global System for Mobile communications ("GSM") network in
Shanghai, China (the "Shanghai GSM System"). The wireless communications
services companies that the Company owns or has interests in and the right to
receive profits in the Shanghai GSM System are referred to herein as the
"Operating Companies." The Company does not actively participate in the
day-to-day management or in the formulation of the business plans or policies of
Clearnet or the Shanghai GSM System and considers them passive investments.
As of March 31, 1999, Nextel's proportionate share of international digital
subscriber units in service, based on its ownership interests in the Operating
Companies, was estimated to be approximately 206,600, which includes total
digital subscriber units (comprised of ESMR, personal communications services
("PCS") and GSM units) on networks currently in operation in Argentina, Brazil,
Canada, Japan, Mexico, the Philippines and Shanghai, China. As of March 31,
1999, total international digital subscriber units in service for the Operating
Companies was estimated to be approximately 727,500.
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FISCAL QUARTER TRANSACTIONS AND DEVELOPMENTS
MANAGEMENT AND ORGANIZATIONAL CHANGES. On January 29, 1999, the Company
named Byron R. Siliezar as its Vice President and Chief Financial Officer and
Barry West as its Vice President and Chief Technology Officer. Mr. Siliezar is
continuing in his role as Controller while the Company conducts a search for a
new Controller. Mr. West also serves as Vice President and Chief Technology
Officer of Nextel Communications.
On March 17, 1999, the Company named Steven P. Dussek as President and
Chief Operating Officer. Immediately prior to this appointment, Mr. Dussek
served as Vice President of Operations of Nextel Communications. Keith
Grinstein, formerly President and Chief Executive Officer of the Company, will
continue to serve as Chief Executive Officer and as a director of the Company.
The Company also announced the relocation of its principal executive and
administrative offices from Seattle, Washington to Reston, Virginia. The Company
plans to complete the relocation to its new offices by the end of the third
quarter of 1999.
INTERNATIONAL MOTOROLA FINANCING FACILITY. The Company and Motorola Credit
Corporation ("Motorola Credit") entered into an equipment financing agreement
dated as of February 4, 1999 (the "International Motorola Financing Facility"),
which provides for up to $225 million in incremental term loans to the Company
consisting of (i) up to $100 million in loans to reimburse the Company for
payments made to Motorola by the Company and certain Operating Companies after
January 1, 1997 for the purchase of iDEN(R) equipment and related services by or
for the benefit of such Operating Companies (the "Reimbursement Loans") and (ii)
up to $225 million in loans (less the amount of Reimbursement Loans advanced) to
(A) finance the cost of qualifying future purchases of iDEN(R) equipment and
related services (including ancillary products and services) purchased by or for
the benefit of the Borrowing Affiliates (as defined below) and (B) repay the
principal amounts outstanding under the existing financing facility between
Motorola Credit and Infocom Communications Network, Inc. ("Nextel Philippines")
(the "Philippines Motorola Financing") and the bridge financing facility between
Motorola Credit and the Company for the benefit of Nextel Philippines (the
"Philippines Motorola Bridge Financing"). The "Borrowing Affiliates," for
purposes of the International Motorola Financing Facility, include
Comunicaciones Nextel de Mexico, S.A. de C.V. ("Nextel Mexico"), Nextel del Peru
S.A. ("Nextel Peru"), Nextel Philippines and Nexnet and such other entities in
which the Company holds an equity interest and which have been so designated by
agreement between the Company and Motorola Credit. The availability of
borrowings under the International Motorola Financing Facility are subject to
the satisfaction or waiver of certain applicable borrowing conditions. See
"-- Nextel International's forward-looking statements are subject to a variety
of factors that could cause actual results to differ materially from current
beliefs." In February 1999, the Company repaid the entire $8.6 million
outstanding under the Philippines Motorola Bridge Financing with a portion of
the proceeds of a loan under the International Motorola Financing Facility.
BRAZIL CURRENCY DEVALUATION. During the quarter ended March 31, 1999,
there was a significant fluctuation in the value of the Brazilian real relative
to the U.S. dollar due to the real's recent devaluation. As a result of such
devaluation, the Company recorded a pre-tax charge (net of minority interests)
of approximately $45.1 million on its consolidated statement of operations for
the quarter ended March 31, 1999 related to foreign currency transaction losses.
This amount was calculated based on the outstanding amount of U.S.
dollar-denominated debt of the Company's Brazilian subsidiaries, the average
exchange rate of the Brazilian real during the first quarter of 1999 and the
Company's percentage ownership interest in its Brazilian subsidiaries at the end
of such period. Additionally, the Company recorded a negative cumulative
translation adjustment on its balance sheet as of March 31, 1999 (determined in
a manner consistent with prior periods) of approximately $136.1 million based on
the exchange rate as of the end of the first quarter of 1999, which is reflected
as an adjustment to the cumulative translation adjustment account within
stockholders' deficit.
Although the Company cannot predict what other effects the volatility of
the Brazilian real will have on its results of operation and the value of its
investments in Brazil, any further devaluation could have significant adverse
effect on the Company's results of operations due to, among other things, (i)
the additional amount in Brazilian reais that the Company's Brazilian
subsidiaries will have to pay for U.S. dollar-denominated
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<PAGE> 14
purchases of certain equipment and services; (ii) the Company's reduced U.S.
dollar-converted revenue stream from its Brazilian subsidiaries; and (iii) the
impact of the devaluation on the Brazilian economy, and on the economies of the
other Latin American countries in which the Operating Companies conduct
business. See "-- Nextel International's forward-looking statements are subject
to a variety of factors that could cause actual results to differ materially
from current beliefs" and 1998 Form 10-K, Item 1, "Business -- Risk
Factors -- Nextel is subject to fluctuations in currency rates."
ARGENTINA CREDIT FACILITY. In March 1999, Nextel Argentina S.R.L. ("Nextel
Argentina") notified the Administrative Agent under its $100 million secured
credit facility (the "Argentina Credit Facility") of its anticipated
noncompliance with certain financial covenants under such facility applicable in
the first quarter of 1999. Nextel Argentina received a waiver from the lenders
under such facility with regard to such covenants for the first quarter of 1999.
On May 12, 1999, Nextel Argentina and the lenders under the Argentina Credit
Facility agreed to certain amendments to the Argentina Credit Facility modifying
the covenants in question for future quarters (the "Argentina Amendments"). The
effectiveness of the Argentina Amendments is subject to customary conditions,
which are expected to be satisfied prior to May 28, 1999. The lenders have
extended their waiver of Nextel Argentina's compliance with such covenants until
the earlier of May 28, 1999 or the date the Argentina Amendments become
effective.
As a result of the Argentina Amendments, the Company has entered into a new
capital subscription agreement that will require additional equity to be
contributed to Nextel Argentina. Concurrently with the execution of the
Argentina Amendments, Motorola Credit agreed to provide up to $50 million in
loans to Nextel Argentina as incremental loans under the Argentina Credit
Facility for purchases of qualifying iDEN(R) equipment and related services.
POST FISCAL-QUARTER TRANSACTIONS AND DEVELOPMENTS
ISSUANCE OF PREFERRED STOCK. On May 13, 1999, the Company issued 1,000
shares of its Series A Exchangeable Redeemable Preferred Stock, par value $10.00
per share (the "Series A Preferred Stock"), to a wholly owned subsidiary of
Nextel Communications (the "Preferred Stock Issuance"). The Company received
$100 million in proceeds from the issuance of such shares of Series A Preferred
Stock.
MOTOROLA INCREMENTAL FACILITY COMMITMENT. On May 3, 1999, Nextel
Communications, Nextel International and Motorola Credit entered into a
memorandum of understanding and term sheet (the "Motorola Incremental Facility
Commitment") regarding the terms and conditions under which Motorola Credit will
provide a $56.65 million secured credit facility to the Company (the
"International Motorola Incremental Facility").
Under the Motorola Incremental Facility Commitment, Motorola Credit agreed
to provide up to $56.65 million in incremental term loans to the Company for
working capital purposes, provided that the Company's unrestricted cash (which
will be defined by the parties in the definitive agreements), after giving
effect to the any requested loans under such International Motorola Incremental
Facility, does not exceed $15 million. Loans under the International Motorola
Incremental Facility will mature December 31, 2001 and will bear interest at
variable rates based upon either the U.S. prime rate or LIBOR. Loans under the
International Motorola Incremental Facility will be secured a pledge of all of
the Company's shares of Clearnet.
The availability of the loans under the International Motorola Incremental
Facility is subject to a number of conditions, including the negotiation,
execution and delivery of definitive agreements and the completion by Motorola
Credit of its due diligence review of the Company. The parties contemplate
negotiating and entering into definitive agreements implementing the terms of
the Motorola Incremental Facility Commitment during the second quarter of 1999.
See "-- Nextel International's forward-looking statements are subject to a
variety of factors that could cause actual results to differ materially from
current beliefs."
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 vs. Three Months Ended March 31, 1998
The Company's consolidated financial statements for the three months ended
March 31, 1999 include the accounts of McCaw International (Brazil), Ltd.
("Nextel Brazil"), Nextel Mexico, Nextel Argentina and
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<PAGE> 15
Nextel Peru. For the three months ended March 31, 1998, the consolidated
financial statements include the accounts of Nextel Brazil and Nextel Mexico for
the three months ended March 31, 1998 and Nextel Argentina and Nextel Peru for
the two months ended March 31, 1998.
Revenues increased $11.4 million to $19.9 million for the three months
ended March 31, 1999, compared to $8.5 million for the three months ended March
31, 1998. The increase in revenues is primarily attributable to revenues
generated from the Company's commercial launch of ESMR services subsequent to
the three months ended March 31, 1998. Of the $11.4 million increase in revenue,
$5.0 million was related to Nextel Brazil, $5.6 million to Nextel Argentina and
$0.6 million to Nextel Mexico. During the three months ended March 31, 1998,
substantially all of the Company's revenues were generated from analog SMR
services in Brazil, Argentina and Mexico.
Costs and expenses related to revenues increased $5.4 million to $9.0
million for the three months ended March 31, 1999, compared to $3.6 million for
the three months ended March 31, 1998. The increase of $1.0 million related to
Nextel Brazil, $2.8 million to Nextel Argentina and $1.6 to Nextel Mexico is
attributable primarily to the increase in cell site operations and maintenance
incurred due to the Company's commercial launch of ESMR services subsequent to
the first quarter of 1998. Prior to the Company's commercial launch of ESMR
services, cost and expenses related to revenues were incurred principally in
conjunction with the Company's analog SMR service.
Selling, general and administrative expenses increased $41.7 million to
$56.9 million for the three months ended March 31, 1999, compared to $15.2
million for the three months ended March 31, 1998. The increase is attributable
to a $19.3 million increase in general and administrative expenses and a $22.4
million increase in sales and marketing expenses. General and administrative
expenses were $32.7 million for the three months ended March 31, 1999, compared
to $13.4 million for the three months ended March 31, 1998. The increase of
$10.4 million related to Nextel Brazil, $4.8 million to Nextel Argentina and
$2.2 million to Nextel Mexico is primarily attributable to market growth,
commercial launch of the Company's ESMR services and an increase in staffing and
other costs, including customer assistance, collections and billing, required to
launch and support the Company's ESMR businesses.
The Company recognized an aggregate of approximately $7.4 million in bad
debt expense for the three months ended March 31, 1999, compared to $1.1 million
for the three months ended March 31, 1998. Nextel Brazil, Nextel Argentina and
Nextel Mexico recognized $4.1 million, $2.7 million and $0.5 million in bad debt
expense, respectively, for the three months ended March 31, 1999. The amount of
bad debt expense recognized by the Company during the three months ended March
31, 1999 was a result of a number of factors, including principally difficulty
in ascertaining the creditworthiness of customers, the lack of established
credit bureaus in many of the Company's markets, deficiencies in the Company's
billing and collection processes and the economic environment in the markets
that the Company operates. The Company believes that it is pursuing appropriate
activities and has taken a number of measures that it expects to result in the
gradual improvement of its billing and accounts receivable collection
effectiveness by the latter half of 1999. The Company has implemented a strict
credit policy in its markets and in cases where creditworthiness is not
ascertainable, the Company has implemented certain procedures intended to
minimize credit risk, such as requiring deposits, requesting banking statements
and/or requesting current credit references from prospective customers.
Additionally, the Company is actively suspending and/or deactivating non-paying
customers in a timely manner. The Company anticipates that the dollar amount of
bad debt expense and the percentage of bad debt expense as compared to total
revenues will each increase during the first half of 1999 as the Company's
implementation of these policies continues. Accordingly, the amount of bad debt
expense recognized by the Company during the three months ended March 31, 1999
should not be viewed as indicative of either the amount or level of bad debt
expense that the Company may recognize in the future. See "-- Nextel
International's forward-looking statements are subject to a variety of factors
that could cause actual results to differ materially from current beliefs."
Sales and marketing expenses increased $22.4 million to $24.2 million for
the three months ended March 31, 1999, compared to $1.8 million during the three
months ended March 31, 1998. The increase of $8.7 million related to Nextel
Brazil, $6.1 million to Nextel Argentina and $5.6 to Nextel Mexico is due
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<PAGE> 16
primarily to the increase in sales personnel and related salaries and
commissions, an increase in equipment subsidies on ESMR subscriber equipment and
advertising and marketing costs incurred related to the commercial launch of
ESMR service by the Company during 1998.
Depreciation and amortization costs increased $14.2 million to $23.4
million for the three months ended March 31, 1999, compared to $9.2 million for
the three months ended March 31, 1998. The increase is due primarily to an
increase in depreciation expense related to the build-out and commercial launch
of the Company's ESMR businesses in Brazil, Argentina and Mexico.
Interest income decreased $2.8 million to $1.5 million for the three months
ended March 31, 1999, compared to $4.3 million for the three months ended March
31, 1998. The decrease is attributable primarily to lower average outstanding
cash, cash equivalents and marketable securities balances pending their
application in the Company's capital expenditure program.
Interest expense increased $19.7 million to $38.7 million for the three
months ended March 31, 1999, compared to $19.0 million for the three months
ended March 31, 1998. The increase is attributable primarily to interest
accretion recorded on the Company's senior discount notes due 2008 (the "1998
Notes") and interest expense related to increases in borrowings on bank and
vendor credit facilities incurred by the Company.
Loss from equity method investments increased $3.4 million to $4.7 million
for the three months ended March 31, 1999, compared to $1.3 million for the
three months ended March 31, 1998. The increase is attributable to increased
ownership interest in and increased operating losses incurred by Nextel
Philippines subsequent to the commercial launch of ESMR service in Manila and
the operating losses associated with the Company's investment in Nexnet.
Foreign currency transaction loss and other, net decreased $67.0 million to
$(65.8) million for the three months ended March 31, 1999, compared to $1.2
million for the three months ended March 31, 1998. The decrease was attributable
primarily to the foreign currency transaction losses of $63.6 million related to
the devaluation of the Brazilian real during the first quarter of 1999. See
"-- Fiscal Quarter Transactions and Developments -- Brazil Currency
Devaluation."
Minority interest increased $10.8 million to $12.0 million for the three
months ended March 31, 1999, compared to $1.2 million for the three months ended
March 31, 1998. The increase is attributable primarily to the minority
shareholders' share of increasing operating losses recorded in Nextel Brazil and
Nextel Peru.
Income tax benefit (provision) decreased $4.7 million to $(0.3) million for
the three months ended March 31, 1999, compared to $4.4 million for the three
months ended March 31, 1998. The provision is primarily attributable to changes
in statutory tax rates in Argentina and Mexico and alternative minimum taxes,
including taxes on assets, incurred in the Operating Companies.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred cumulative net losses of approximately $506.9
million from January 1, 1995 through March 31, 1999. These losses resulted from
expenditures required for the development of the Company's wireless
communications networks and other start-up costs incurred by the Operating
Companies. Prior to March 1997, funds necessary to finance the Company's
activities were provided to the Company primarily by its parent, which is an
unrestricted subsidiary of Nextel Communications, in the form of equity
contributions. Since March 1997 and through March 31, 1999, the Company's
activities have been financed primarily with the net proceeds of the Company's
securities offerings in 1997 and 1998, and to a lesser extent from vendor and
bank financing, including the existing financing facilities obtained from
Motorola and the Argentina Credit Facility. Although Nextel Communications
elected to make an additional equity investment of $100 million in the Company
in May 1999, it is not obligated to provide any additional funding to the
Company.
Net cash used in operating activities for the three months ended March 31,
1999 was approximately $60.5 million. Net cash used in investing activities for
the three months ended March 31, 1999 was approximately
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$56.3 million. Net cash provided by financing activities for the three months
ended March 31, 1999 was approximately $104.7 million. Working capital as of
March 31, 1999 decreased to $62.0 million compared to $79.6 million at December
31, 1998. The cash used in operating activities during the three months ended
March 31, 1999 represents primarily cash used to fund operating losses and pay
value-added taxes on the purchase of infrastructure equipment. The cash used in
investing activities during the three months ended March 31, 1999 primarily
represented purchases of infrastructure to build out of the Company's ESMR
networks in Brazil, Argentina, Mexico and Peru and, to a lesser extent, to fund
the Company's investment in Nextel Philippines. The cash provided by financing
activities during the three months ended March 31, 1999 is primarily a result of
net borrowings by the Company under the International Motorola Financing
Facility and the Argentina Credit Facility of approximately $91.4 million and
$16.5 million, respectively. As a result of the above activities, cash and cash
equivalents decreased approximately $12.1 million to approximately $109.0
million during the three months ended March 31, 1999, compared to $121.1 million
at December 31, 1998.
The Company currently estimates its funding requirements for fiscal year
1999 to be approximately $363 million. This amount consists of capital
expenditures for the construction and enhancement of its ESMR networks, equity
contributions to Nextel Argentina in accordance with Argentina Credit Facility
and the Argentina Amendments, funding of operating losses and other general
corporate expenditures. In estimating its funding requirements for 1999, the
Company has anticipated that those Operating Companies that are controlled by
the Company or that rely substantially on the Company for further funding will
tailor their ESMR network related operations to be more responsive to the
economic conditions prevailing in their respective market areas and to the
general availability of capital. See 1998 Form 10-K, Part III, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Future Capital Needs and Resources."
As of March 31, 1999, the Company and certain of its Operating Companies
had entered into the following financing facilities: (i) the International
Motorola Financing Facility, which provides for up to $225 million in
incremental term loans to the Company to finance the purchase of equipment and
related services by the Borrowing Affiliates and the refinancing of certain
indebtedness to Motorola Credit (including the Philippines Motorola Financing);
(ii) the Philippines Motorola Financing, which provides for up to $14.7 million
in term loans to Nextel Philippines to finance the purchase of equipment and
related services; (iii) the vendor financing agreement between Nextel Brazil and
Motorola Credit (the "Brazil Motorola Financing"), which provides for up to $125
million in term loans to Nextel Brazil to finance the purchase of equipment and
related services; and (iv) the Argentina Credit Facility, which provides for up
to $100 million in term loans to Nextel Argentina to finance the cost of capital
goods, capital expenditures related to the development, expansion and upgrade of
Nextel Argentina's network, permitted spectrum acquisitions and general working
capital needs. The terms and conditions of the International Motorola Financing
Facility, the Philippines Motorola Financing, the Brazil Motorola Financing and
the Argentina Credit Facility are described in the 1998 Form 10-K, Part III,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources -- Motorola Financings and
Argentina Credit Facility."
As of March 31, 1999, approximately $104.8 million had been borrowed under
the International Motorola Financing Facility (including all $100 million of
Reimbursement Loans) and approximately $120.2 million remained available for
future borrowings under such facility. Additionally, as of March 31, 1999, all
of the $14.7 million available under the Philippine Motorola Financing had been
borrowed, approximately $103.8 million had been borrowed under the Brazil
Motorola Financing, with the remaining $21.2 million available for future
borrowings, and all of the $100 million available under the Argentina Credit
Facility had been borrowed. The Company plans to refinance the amounts owed by
Nextel Philippines under the Philippines Motorola Financing with proceeds of
loans under the International Motorola Financing Facility in the second quarter
of 1999. The availability of borrowings under each of the International Motorola
Financing Facility, the Brazil Motorola Financing and the Argentina Incremental
Facility Loans is subject to the satisfaction or waiver of certain applicable
borrowing conditions under each facility. See "-- Nextel International's
forward-looking statements are subject to a variety of factors that could cause
actual results to differ materially from current beliefs."
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In May 1999, the Company completed the Preferred Stock Issuance, pursuant
to which the Company received proceeds of $100 million. Under the terms of the
Argentina Amendments, Motorola Credit agreed to provide up to $50 million in
loans to Nextel Argentina as incremental loans under the Argentina Credit
Facility for qualifying purchases of iDEN(R) equipment and related services (the
"Argentina Incremental Facility Loans"), the availability of which is subject to
the satisfaction or waiver of certain conditions. Additionally, in May 1999, the
Company entered into the Motorola Incremental Facility Commitment, pursuant to
which Motorola Credit agreed to provide up to $56.65 in incremental term loans
to the Company under the International Motorola Incremental Facility for working
capital purposes. The Company contemplates negotiating and entering into
definitive agreements with Motorola Credit implementing the terms of the
Motorola Incremental Facility Commitment during the second quarter of 1999. See
"-- Nextel International's forward-looking statements are subject to a variety
of factors that could cause actual results to differ materially from current
beliefs."
The Company has taken and expects to continue to take various measures
designed to conserve its available cash for use in funding its existing core
ESMR network business activities, such as slowing expansion of its ESMR networks
and minimizing or eliminating certain discretionary expenditures. In particular,
the Company has prioritized and expects to continue to prioritize its
expenditures to focus on its key markets in Latin America and anticipates that
it will not provide any significant funding to Nexnet or the Shanghai GSM System
in 1999. The Company historically has not provided and does not expect to
provide any funding to Clearnet.
Based on the Company's current estimate of its funding requirement for
1999, the Company believes that it will have adequate funding to continue its
operations through the end of 1999. Such assessment is based on the Company's
assumed utilization of its current available cash and cash equivalents
(including the proceeds of the Preferred Stock Issuance) and the assumed
availability of funds under the International Motorola Financing Facility, the
International Motorola Incremental Facility, the Brazil Motorola Financing and
the Argentina Incremental Facility Loans to meet its projected cash needs
(including reasonably foreseeable capital expenditures, funding of operating
losses and any debt service obligations) during such period. There can be no
assurance that such resources will be sufficient to fund the Company's
obligations through the end of 1999. Additionally, if the Company's plans
change, its assumptions regarding its funding needs associated with any further
build-out, expansion and enhancement of its ESMR network at the Operating
Company level prove to be inaccurate, the other shareholders in certain of the
Operating Companies do not fund their expected capital requirements, the Company
increases its existing equity ownership interests in certain of the Operating
Companies, it experiences growth in its business or subscriber base greater than
or less than that which is currently anticipated, it experiences unanticipated
costs or competitive pressures, the Company and/or the Operating Companies are
unable to access funds under the International Motorola Financing Facility, the
International Motorola Incremental Facility, the Brazil Motorola Financing
and/or the Argentina Incremental Facility Loans, or any other funds available to
the Company and the Operating Companies or any other borrowings otherwise prove
to be insufficient to meet cash needs, the Company may be required to seek
additional capital or curtail its operations significantly. See "-- Nextel
International's forward-looking statements are subject to a variety of factors
that could cause actual results to differ materially from current beliefs."
Subsequent to fiscal year 1999, the Company will require significant
additional capital to fund the build-out of new ESMR networks in the Company's
licensed markets and any significant further expansion and enhancement of its
existing ESMR networks, and will need to rely on external sources of financing
to fund its operating losses and for other general corporate purposes until its
operations begin to generate positive cash flows. The Company is currently
assessing its capital needs and exploring potential financing sources to meet
such needs. The Company anticipates that it will be required to seek to raise
additional capital from public or private equity or debt markets to fund such
future capital needs. The Company may seek to obtain financing from various
sources, including vendor financing provided by equipment suppliers, project
financing from commercial banks and other sources. To the extent the Company
issues debt, its leverage and debt service obligations will increase.
Additionally, the Company and certain of the Operating Companies may incur
indebtedness only in compliance with the terms of covenants contained in the
indentures governing the
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Company's senior discount notes due 2007 and the 1998 Notes and the covenants
contained in the existing financing arrangements. There can be no assurance that
the Company will be able to raise any such capital on satisfactory terms, if at
all. If the Company is unable to obtain such additional capital, or to obtain it
on acceptable terms and in a timely manner, the Company would be required to
curtail its operations significantly and to reduce the scope of its expansion
and enhancement of its ESMR networks. Any such actions would have a material
adverse effect on the Company's financial condition and results of operation,
including its ability to meet its debt service and working capital requirements.
See "-- Nextel International's forward-looking statements are subject to a
variety of factors that could cause actual results to differ materially from
current beliefs."
As of March 31, 1999, the Company owned 100% of each of Nextel Mexico and
Nextel Argentina, 81% of Nextel Brazil (or approximately 77% of Nextel S.A.) and
62.1% of Nextel Peru. The Company's other non-cash assets consist primarily of
minority ownership interests in Nextel Philippines and Nexnet and passive
minority investment stakes in the Shanghai GSM System and Clearnet. Even though
the Company participates in the day-to-day management of the Operating Companies
(except for Clearnet and the Shanghai GSM System) and has certain contractual
rights designed to protect its interests as a minority shareholder, it cannot
control the outcome of matters submitted to the shareholders of the Operating
Companies in which it has less than a majority interest. In addition, the
Company may be unable to access the cash flow of its affiliated companies
because (i) it does not have the requisite control to cause such entities to pay
dividends and (ii) substantially all of such entities are parties to or expected
to become parties to vendor financing or other borrowing agreements that
severely restrict the payment of dividends, and such entities are likely to
continue to be subject to such restrictions and prohibitions for the foreseeable
future. The existing Brazil Motorola Financing, the Philippines Motorola
Financing and the Argentina Credit Facility restrict the payment of dividends to
the Company by the Operating Companies that have debt outstanding thereunder.
Any future vendor or bank financings are likely to include similar covenants
restricting the payment of dividends. See 1998 Form 10-K, Part I, Item 1,
"Business -- Risk Factors -- 2. Nextel International will need substantial
amounts of financing over the next several years."
YEAR 2000 READINESS
GENERAL. As is the case with most other businesses using computers in
their operations, Nextel International is in the process of evaluating and
addressing the Year 2000 readiness of its computer systems. Such Year 2000
readiness efforts are designed to identify, address and resolve issues that may
be created by computer programs being written using two digits rather than four
to define the applicable year. Any of Nextel International's computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations that result in disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
Many of the Company's administrative and accounting services are performed
for the Company by Nextel Communications. Additionally, many of the Company's
third party vendors are also vendors to Nextel Communications. Accordingly, in
these instances the Company has coordinated its assessment of its Year 2000
readiness with Nextel Communications.
STATE OF READINESS. Nextel International and Nextel have had a program in
place since February 1998 to address Year 2000 readiness in their critical
business areas related to products, networks, information management systems,
non-information systems with embedded technology, suppliers and customers. The
Company has taken and will continue to take actions that are designed to advance
its progress toward becoming Year 2000 ready by the end of the third quarter of
1999. The Company's Year 2000 readiness goal focuses on the ability of the
Company to perform its business functions and to process information in an
unambiguous manner under various date conditions. The Company's ability to reach
its Year 2000 readiness goal, however, depends and will continue to depend on
the parallel efforts of Nextel Communications and significant third party
vendors, suppliers, subcontractors to and business partners of Nextel
Communications and the Company. Some of these significant third parties are not
yet Year 2000 ready, many of which have provided the Company with detailed
action plans and timetables for achieving Year 2000 readiness. The
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<PAGE> 20
Company monitors the progress of these third parties towards Year 2000 readiness
on a regular basis. The Company also regularly contacts and attempts to obtain
from these third parties relevant details and schedules concerning their
contemplated development of Year 2000 ready applications for the Company's
utilization in the operations and systems of the Operating Companies.
Specifically, the Company relies on services and products offered by the
following significant third parties:
- Motorola for system infrastructure and subscriber handsets;
- Motorola Communications Israel Ltd. ("MCIL"), an affiliate of Motorola,
for software for front-end order entry and provisioning systems;
- LHS Communications, Inc. ("LHS") for certain customer care support and
billing systems;
- The Vantive Corporation ("Vantive") for trouble tracking and sales order
tracking;
- Oracle Corporation ("Oracle"), which provides various information
systems, development and database management tools used to support Nextel
Communications' human resources functions performed for the Company, the
Company's financial systems and the Company's order support systems; and
- Hewlett-Packard, Inc., for computer hardware and UNIX operating systems.
Nextel Communications has identified five phases that assist it and the
Company in defining the status of progress toward Year 2000 readiness. The five
phases are:
- Awareness -- locating, listing and prioritizing specific technology used
in Nextel Communications's or the Company's operations that is
potentially subject to Year 2000 readiness related challenges;
- Assessment -- determining the level of risk of Year 2000 readiness
challenges that exist on Nextel Communications's or the Company's systems
through inquiry, research and testing;
- Renovation -- determining and resolving Year 2000 related challenges
identified in previous phases through replacement, upgrade or repair and
planning for the scheduled implementation of the selected Year 2000 ready
resolution;
- Validation -- testing, monitoring, certification and verification of the
correct manipulation of dates and date related data on Information
Technology ("IT") and non-IT systems, including those of material third
parties; and
- Implementation -- installing and integrating the application of Year 2000
ready resolutions by replacement, upgrade or repair of non-IT and IT
systems, including those of material third parties.
As of April 15, 1999, with respect to its non-IT devices and/or systems
containing embedded circuitry, the Company is, for the most part, in the
assessment phase. Additionally, with respect to its IT systems and issues
relating to material third parties, the Company is in various phases noted as
follows:
- Motorola informed Nextel Communications that the subscriber unit models
i390 and i1000 are Year 2000 ready, and all others subscriber units are
Year 2000 ready except for the short message service feature on all other
subscriber units, which is not expected to cause a material disruption in
the Operating Companies' service offerings. With regard to the ESMR
network equipment and other network components obtained through Motorola,
Motorola has indicated that the following are Year 2000 ready:
1) critical call and data processing systems applicable to a significant
portion of the ESMR network have passed Year 2000 readiness testing;
2) Nortel switches and CISCO routers have passed Year 2000 readiness
testing appropriate for use by the Operating Companies; and
3) voice mail system components have passed Year 2000 readiness testing.
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<PAGE> 21
- Oracle has advised Nextel Communications that the software that supports
Nextel Communications's human resources function and financial systems is
Year 2000 ready in conjunction with recommended upgrades. Nextel
Communications has informed the Company that it is in the process of
establishing the environment to test and apply these upgrades.
- Vantive provided information to Nextel Communications that it has tested
and certified the Year 2000 readiness of the software that will be used
to develop Year 2000 ready customer care systems for the Operating
Companies' operations.
- LHS informed the Company that the software currently in use in certain of
the Operating Companies' systems that supports the billing processes is
Year 2000 ready in conjunction with recommended upgrades. The Company is
currently conducting in-house Year 2000 readiness testing and its
implementation plans include making the appropriate upgrades recommended
by LHS.
- MCIL certified to the Company that their software is Year 2000 ready.
To ensure the continued progress and success for managing all Year 2000
readiness requirements for Nextel Communications and its subsidiaries, a special
steering committee that includes members of senior management responsible for
Nextel Communications's and the Company's IT and network systems was formed to
oversee this effort. Participants in this Year 2000 readiness project include
employees across functional and divisional departments of Nextel Communications
and its subsidiaries, including the Company, and outside contractors. In
addition, representatives from certain of the material third parties identified
above participate in this project.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 READINESS CHALLENGES. Based
on information developed to date as a result of the Company's assessment
efforts, the Company believes that the costs of upgrading or replacing its
systems and equipment or modification of certain software applications will not
have a material effect on the Company's liquidity, financial condition or
results of operation. The Company currently estimates expenditures in connection
with these efforts during 1999 will not exceed $5 million. This cost estimate
does not include parallel Year 2000 issues readiness expenses incurred by Nextel
Communications relating to common or shared systems or components, for which the
Company may be required to provide appropriate reimbursement to Nextel
Communications. To date, the Company has not deferred any specific projects,
goals or objectives relating to its operations as a result of implementing the
Company's Year 2000 readiness efforts.
The analog SMR networks and related systems of the Operating Companies,
however, have not yet been thoroughly assessed for potential Year 2000 readiness
issues, nor has the Company formulated any estimate of the types or magnitude of
the remediation measures that might be required with respect to such analog SMR
operations. Moreover, the historical business records of the Operating Companies
(and their predecessors in interest), in particular those relating to such
analog SMR operations and related network infrastructure and subscriber
equipment and systems, are not believed to be complete. Accordingly, the
measures that might be required to assess potential Year 2000 readiness issues
affecting the analog SMR businesses conducted by the Operating Companies (such
as actual visits to antenna sites to perform a physical inventory and inspect
individual items of transmission and reception equipment) and to effect any
required remediation of Year 2000 readiness issues discovered may make it
uneconomic for the Company to pursue such activities. The Company may instead
elect alternative courses of action, such as:
- terminating the provision of analog SMR services in certain market areas;
- addressing and resolving particular Year 2000 readiness issues affecting
the provision of analog SMR service subsequent to their identification;
or
- limiting or curtailing analog SMR services to the extent required to
accommodate unresolved Year 2000 readiness issues.
These "legacy system" matters relate exclusively to operations other than
the Company's ESMR network operations, all of which have been launched within
the past several years and, therefore, do not present comparable problems
associated with any incompleteness or inaccuracy of historical records and
information compiled or maintained by prior owners. Given the steadily
decreasing importance of the Operating
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<PAGE> 22
Companies' analog SMR businesses to the Company's overall operations, the
Company does not believe that the effect of any Year 2000 readiness issues on
the Operating Companies' analog SMR businesses would be likely to result in a
material adverse effect on the Company's liquidity, financial condition or
results of operations.
THE RISKS OF THE COMPANY'S YEAR 2000 READINESS CHALLENGES. In light of the
progress made to date, the Company does not anticipate delays and postponements
in finalizing and implementing Year 2000 readiness resolutions by the end of the
third quarter of 1999. Until the Company's renovation and validation phases are
substantially complete, however, the Company cannot fully and accurately
estimate the uncertainty in resolving timely its Year 2000 readiness challenges
or in finalizing and implementing related Year 2000 readiness resolutions.
Moreover, any failure by Nextel Communications or by third parties that have a
material relationship with the Company to achieve full Year 2000 readiness may
be a potential risk if such failure adversely impacts the ability of such
parties to provide any products or services that are critical to the Company's
operations. Finally, where the Company cannot validate or certify that
technology provided by third parties is fully Year 2000 ready, the Company is
seeking to obtain assurances from such third parties that their systems are or
will be Year 2000 ready no later than the end of the third quarter of 1999. If
these third parties fail to address Year 2000 readiness issues appropriately,
there could be a materially adverse effect on the Company's financial condition
and results of operations. These risks include, but are not limited to:
- inability of subscribers to make or receive phone calls;
- inability of sites, switches and other interfaces to accurately record
call details of subscriber phone calls; and
- inability of billing systems to report and bill subscribers accurately
for phone usage.
Other risks associated with the failure of the Company or material third
parties to develop and deploy Year 2000 readiness solutions in a timely and
successful manner may involve or result in conditions that could preclude the
Company from:
- obtaining equity or debt financing;
- deploying an alternative technology that is Year 2000 ready;
- commencing commercial service in new markets, expanding service in
existing markets or introducing new services in existing markets; and
- pursuing additional business opportunities.
Significantly, the Company cannot independently assess the impact of Year
2000 readiness risks, and compliance activities and programs involving operators
of public switched telecommunications networks ("PSTNs") or other service
providers (such as electric utilities). The Company, therefore, must rely on the
respective PSTN's and utility provider's estimates of its own Year 2000
readiness and the status of such PSTN's related Year 2000 readiness activities
and programs in the Company's own Year 2000 readiness assessment process. The
Company has considered that certain of its customers, suppliers and operations
located in foreign countries may not be at the same advanced level of awareness
or assessment of Year 2000 readiness as their U.S. counterparts, consequently
resulting in delays and lag in remediation efforts. Because the Operating
Companies' systems are or will be interconnected with PSTNs in their respective
countries and are or will be dependent upon the systems of other service
providers, any disruption of operations in the computer programs of such PSTNs
or service providers would likely have an impact on the Company's network.
Moreover, there can be no assurance that that such impact will not have a
materially adverse effect on the Company's operations.
THE COMPANY'S CONTINGENCY PLANS. The Company has not completed all systems
and software testing in its critical systems nor has it been advised of the
completion of such activities by Nextel Communications or all third party
vendors of critical products and services. As a result, the Company has not
fully assessed its exposure from potential from failure to be Year 2000 ready.
Nextel Communications and the Company are preparing guidelines for addressing
Year 2000 readiness contingency plans for external and internal systems
22
<PAGE> 23
should it be determined that contingency plans are necessary. Following testing
of the Company's critical systems, the Company will evaluate and possibly create
alternative plans designed to address various potential business interruptions
that may occur as a result of failure to be Year 2000 ready. Additionally,
because contingency plans may also be provided by third parties, the Company
will have to assess the development of appropriate alternative solutions
presented by any relevant third party to determine its effectiveness and likely
impact on the Company's Year 2000 readiness risk profile.
NEXTEL INTERNATIONAL'S FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A VARIETY OF
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM CURRENT
BELIEFS
"SAFE HARBOR" STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. A number of the statements made in the foregoing "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
not historical or current facts, but deal with potential future circumstances
and developments. Those statements are qualified by the inherent risks and
uncertainties surrounding expectations generally, and also may differ materially
from the Company's actual experience involving any one or more of these matters
and subject areas. The Company has attempted to identify, in context, some of
the factors that it currently believes may cause actual experience and results
to differ from current expectations regarding the relevant matter or subject
area. The operation and results of the Company's wireless communications
business also may be subject to the effect of other risks and uncertainties in
addition to the relevant qualifying factors identified in the 1998 Form 10-K,
Part I, Item 1, "Business -- Risk Factors," including, but not limited to:
- general economic conditions in Latin America and Asia and in the market
segments that the Company is targeting for its services;
- the effect of the Brazilian currency devaluation on the economies of the
other Latin American economies in which the Company operates;
- the accuracy of the Company's estimates of the impact of the weakening of
currencies in Brazil and the rest of Latin America in general as compared
to the U.S. dollar;
- substantive terms of any international financial aid package that may be
made available to any country in which the Operating Companies conduct
business, including Brazil;
- future legislation or regulation by governmental entities in the markets
in which the Operating Companies conduct their business;
- the availability of adequate quantities of system network and subscriber
equipment and components to meet the Company's business plans and
anticipated customer demand;
- the impact of the economic conditions in Latin America and Asia and other
market conditions on the volatility and availability of equity and debt
financing in domestic and international capital markets and the Company's
access to sufficient debt and equity financing to meet its operating and
financial needs;
- the successful deployment and performance of Motorola's iDEN(R)
technology in the Company's wireless communications networks;
- 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 accomplish required scale-up of its billing,
customer care and similar administrative support systems timely and
successfully to keep pace with anticipated customer growth and increased
system usage;
- the quality and price of similar or comparable wireless communications
services offered or to be offered by the Company's competitors, including
providers of cellular, PCS, other wireless communications services or
telecommunications generally;
- satisfactory identification and completion of Year 2000 software and
hardware revisions by the Company and by the entities with which the
Company does business; and
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<PAGE> 24
- other risks and uncertainties described from time to time in the
Company's reports filed with the Securities and Exchange Commission (the
"Commission").
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A significant portion of Nextel International's operations are financed
through senior discount notes and bank and vendor credit facilities that are
payable in U.S. dollars. These financial instruments expose the Company to
certain market risks, including interest rate risk and foreign currency exchange
risk as described below. Because the Company's debt does not require any
significant principal payments in the near term, the Company has not enter into
any hedging activities to protect itself from foreign currency exchange or
interest rate risks.
To the extent that these financial instruments provide for variable rates
of interest, the Company is exposed to interest rate risk, primarily related to
potential fluctuations in the U.S. prime rate and LIBOR. These rates are used to
determine the interest rates that are applicable to borrowings under the
Company's bank and vendor credit facilities.
The Company's debt is denominated in U.S. dollars, while the Company's
revenues are denominated in foreign currencies. Fluctuations in exchange rates
relative to the U.S. dollar, primarily that related to the Brazilian real,
expose the Company to foreign exchange risk. In order to manage such risks, the
Company attempts to protect its revenues and earnings from foreign currency
exchange risks by periodically adjusting prices in local currencies and, in some
cases, setting such prices in direct relation to the US dollar.
The Company also holds an available-for-sale investment in the common
shares of Clearnet, a publicly traded company, which had a fair value of $110.6
million at March 31, 1999. The investment in common shares of Clearnet is
reported at its market value in the Company's financial statements. Negative
fluctuations in the stock price of Clearnet exposes the Company to equity price
risks. A 10% decline in the stock price would result in a $11.1 million decrease
in the fair value of the Company's investment in Clearnet.
The table below summarizes the Company's sensitivity to market risks
associated with fluctuations in foreign currency exchange and interest rates.
The table presents principal cash flows by year of maturity for the Company's
fixed and variable rate debt obligations. Fair values are determined based on
quoted market prices for senior discount notes and carrying value for the bank
and vendor credit facilities at March 31, 1999.
<TABLE>
<CAPTION>
YEAR OF MATURITY
-----------------------------------------------------------------------------------------
TOTAL DUE AT
2000 2001 2002 2003 2004 THEREAFTER MATURITY FAIR VALUE
------- ------- ------- -------- ------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate................ $1,681,463 $1,681,463 $928,578
Average interest rate..... 12.6% 12.6%
Variable rate............. $30,751 $66,956 $77,332 $107,332 $26,205 $ -- $ 308,576 $308,576
Average interest rate..... 9.4% 9.7% 9.7% 9.4% 10.3% 9.6%
</TABLE>
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<PAGE> 25
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company and/or the Operating Companies are involved in certain legal
proceedings as described in the Company's 1998 Form 10-K. During the three
months ended March 31, 1999, there were no material changes in the status of or
developments regarding such legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<C> <S>
10.1 Memorandum of Understanding and Senior Secured Facility Term
Sheet dated May 3, 1999.
*27 Financial Data Schedule.
</TABLE>
- ---------------
* Submitted only with the electronic filing of this document with the Commission
pursuant to Regulation S-T under the Securities Act.
(b) Reports on Form 8-K.
The Company filed the following Current Reports on Form 8-K during the
quarter ended March 31, 1999:
(i) Current Report on Form 8-K, dated and filed with the Commission on
January 19, 1999, reporting certain management changes.
(ii) Current Report on Form 8-K, dated and filed with the Commission on
February 19, 1999, reporting (a) the execution of the International
Motorola Financing Facility and (b) the anticipated impact of the
devaluation of the Brazilian real on the Company.
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<PAGE> 26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEXTEL INTERNATIONAL, INC.
BY: /s/ BYRON R. SILIEZAR
------------------------------------
Byron R. Siliezar
Vice President and Chief Financial
Officer
May 14, 1999
26
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<C> <S>
10.1 Memorandum of Understanding and Senior Secured Facility Term
Sheet dated May 3, 1999.
*27 Financial Data Schedule.
</TABLE>
- ---------------
* Submitted only with the electronic filing of this document with the Commission
pursuant to Regulation S-T under the Securities Act of 1933, as amended.
27
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
MOTOROLA, INC./NEXTEL COMMUNICATIONS, INC./NEXTEL INTERNATIONAL, INC.
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU") establishes certain joint
commitments and agreements between Motorola, Inc.("Motorola"), Nextel
International, Inc. ("NII"), and Nextel Communications, Inc. ("Nextel"),
regarding certain funding obligations of Nextel to NII, certain obligations of
Motorola to exercise certain warrants for common stock of Nextel and to provide
financing to NII, and certain other matters as set forth herein.
SECTION I. IN CONSIDERATION OF THE COMMITMENTS AND AGREEMENTS SET FORTH HEREIN,
MOTOROLA AGREES AS FOLLOWS:
A. Motorola currently holds Warrants for Common Stock (Class A, $0.001
par value) previously received from Nextel which entitle Motorola to
purchase a total of 2,890,000 shares of Class A Common Stock of
Nextel (the "Warrants"). Each Warrant has an exercise price of
$15.00 per share. Such Warrants have expiration dates which range
from October 1, 1999 to June 30, 2002. Motorola hereby agrees to
exercise all such outstanding Warrants not later than May 7, 1999.
B. Subject to NII's receipt of the working capital to be made available
to it by Nextel as provided in Sections II.A, and II.B. of this MOU,
Motorola agrees that it shall provide to NII senior secured
financing, on terms and conditions as provided in the NII $56.65
Million Incremental Senior Secured Facility termsheet attached
hereto, in an amount not to exceed $56.65 million.
SECTION II. IN CONSIDERATION OF THE COMMITMENTS AND AGREEMENTS SET FORTH HEREIN,
NEXTEL AGREES AS FOLLOWS:
A. Upon Motorola's exercise of the Warrants as set forth above, Nextel
agrees that it shall immediately transfer the entire proceeds
realized from such sale of Class A Common Shares resulting from such
Warrant exercise ($43.35 Million) to the account of NII as equity
for use by NII as working capital and for other corporate purposes.
B. Not later than May 7, 1999, Nextel shall transfer a minimum of
$50 Million to the account of NII as equity for use by NII as
working capital and for other corporate purposes.
C. In the event NII is unable to raise at least $50 million in equity
funding from sources other than Nextel and Motorola on or prior to
September 30, 1999, Nextel shall, subject to its receipt of
qualifying equity proceeds that are permitted to be transferred to
NII
<PAGE> 2
pursuant to Nextel's public note indentures, transfer an additional
$50 million to the account of NII as equity for use by NII as
working capital and for other corporate purposes. The parties hereby
agree that, other than as expressly provided in Sections I.A. and
I.B. above, nothing contained in this MOU is intended to commit
Motorola to extend any financing or to invest in any manner in
Nextel or any subsidiary or affiliate of Nextel.
SECTION III. IN CONSIDERATION OF THE COMMITMENTS AND AGREEMENTS SET FORTH
HEREIN, NII AGREES AS FOLLOWS:
A. From and after the date of this MOU, Motorola (or Motorola's
designee) shall be granted NII Board of Directors Observation
Rights, which shall permit Motorola (or Motorola's designee) to
appoint one person who shall have the following rights with respect
to NII Board of Directors' Meetings to: (i) receive notice of the
time and place of, and an agenda for, all meetings of the Board of
Directors concurrently with the dissemination of such information to
the Directors, and in any event not less than five (5) business days
in advance of meetings and forty-eight (48) hours in advance of
telephonic or video conferences, (ii) receive all materials
distributed to the Directors concurrently with the distribution to
the Directors; provided that Motorola's representative shall not be
entitled to (x) vote as a Board member, or (y) receive compensation
from NII for its attendance at meetings.
B. From and after the date of this MOU, Motorola (or Motorola's
designee) shall have the right to participate in NII's quarterly
business review of all of its operating subsidiaries/ JVs.
Page 2 of 3 Motorola Confidential Proprietary
<PAGE> 3
IN WITNESS WHEREOF, the parties have entered into this MOU on the
last date and year set forth below.
MOTOROLA, INC., NEXTEL INTERNATIONAL, INC.,
a Delaware corporation a Washington corporation,
/s/ JOHN OWINGS /s/ BYRON SILIEZAR
- -------------------------- -------------------------------------
John Owings Byron Siliezar
Senior Vice President Chief Financial Officer
Date: May 3, 1999 Date: May 3, 1999
--------------------- --------------------------------
NEXTEL COMMUNICATIONS, INC.,
a Delaware corporation,
/s/ STEVE SHINDLER
------------------------------------------
Steve Shindler
Vice President and Chief Financial Officer
Date: May 3, 1999
-------------------------------------
Page 3 of 3 Motorola Confidential Proprietary
<PAGE> 4
EXECUTION COPY
NEXTEL INTERNATIONAL, INC.
$56.65 MILLION
INCREMENTAL SENIOR SECURED FACILITY
Summary of Terms and Conditions
<TABLE>
<S> <C>
I. Parties
-------
BORROWER: Nextel International, Inc. ("NII" or the "Borrower")
LENDERS: Motorola Credit Corporation ("MCC"), and/or one or more lenders designated by MCC
(MCC and/or such lenders collectively, the "Lenders").
II. The Facility
------------
TYPE AND AMOUNT
OF FACILITY: Multiple-draw, non-revolving, term loan facility (the "Facility") in the
aggregate amount not to exceed U.S. $56.65 million (the "Loans"). Funds
may be drawn under the Facility if after giving effect to any requested
drawdown, NII has a combined Unrestricted Cash (to be determined by the
parties) and cash equivalents balance that does not exceed $15 million.
Each drawdown shall be in increments of $5 million.
The Facility shall be an incremental financing as permitted under clause
(e) of the definition of "Permitted Indebtedness" of the Master Equipment
Financing Agreement dated as of February 4, 1999 (as the same may have been or
subsequently my be amended, modified, or supplemented) by and between Motorola
Credit Corporation, as Administrative Agent and as Collateral Agent (in such
respective capacities, the "Agent"), the lenders party thereto and Nextel
International, Inc. (the "MEFA").
AVAILABILITY
PERIOD: The "Availability Period" shall be the period from the initial closing date of
the Facility (the "Closing Date") through and including December 31, 2001 (the
"Commitment Termination Date").
AMORTIZATION: The principal amount of the Loans shall, subject to the mandatory prepayments
provisions below, be repayable in a single payment on December 31, 2001 (the
"Maturity Date").
</TABLE>
- 1 -
<PAGE> 5
EXECUTION COPY
<TABLE>
<S> <C>
USE OF PROCEEDS: The proceeds of the Loans shall be used for working capital and other corporate
purposes.
III. Certain Payment Provisions
--------------------------
INTEREST RATES: The interest rate under the Facility shall be established with respect to each Loan
at the time of drawdown, at NII's option, from among the following alternatives:
(i) U.S. Prime Rate plus 250 basis points, calculated
on the basis of 365/366-day year and actual number of
days elapsed, or
(ii) three-month LIBOR plus 500 basis points, calculated
on the basis of 360-day year and actual number of
days elapsed. If drawdown occurs on any date other than
an Interest Payment Date (as defined below) then the draw
will be made as a Prime Rate Loan and converted to a LIBOR
Loan on the next Interest Payment Date.
Interest on the principal amount outstanding under the Loans shall be payable
quarterly in arrears on each March 31, June 30, September 30, and December
31 (each an "Interest Payment Date").
At any time when NII is in default in the payment of any amount due under the
Facility, such amount shall bear interest at 2% above the rate of interest
otherwise applicable thereto.
ARRANGEMENT FEE: An Arrangement Fee of 1% of the maximum Facility Amount shall be payable on the
Closing Date
COMMITMENT FEE: A Commitment Fee of 0.50% per annum shall be payable quarterly in arrears on
each consecutive Interest Payment Date on the average daily available undrawn
commitments for the then ending quarter under the Facility.
OPTIONAL PREPAYMENTS
AND COMMITMENT
REDUCTIONS: Loans may be prepaid (without penalty or premium) and commitments may be
permanently reduced by NII in minimum amounts to be agreed upon; provided that NII
shall pay any funding breakage costs due to prepayment/cancellation. Any
amounts prepaid or otherwise canceled cannot be reborrowed by NII.
</TABLE>
- 2 -
<PAGE> 6
EXECUTION COPY
<TABLE>
<S> <C>
IV. Ranking and Collateral
----------------------
The indebtedness under the Facility shall rank at least pari passu with all of the
Borrower's other senior indebtedness and shall be secured by a first priority
security interest in the following assets whether now existing or hereafter arising:
(i) a pledge to Lenders of all of the shares of capital stock of
Clearnet Communications, Inc. (the "Clearnet Stock") held/owned
by NII.
The Lenders agree to release their lien on the Clearnet Stock if, and only if,
simultaneously with the release of the lien NII provides substitute collateral in
the form of $56.6 million in unencumbered cash held in an escrow account in a
financial institution acceptable to the Lenders and pledged to the Lenders.
V. Certain Conditions
------------------
INITIAL CONDITIONS: The availability of the Facility shall be conditioned upon satisfaction of, among
other things, the following conditions precedent:
(i) NII shall have executed and delivered satisfactory and definitive
financing and security documentation with respect to the Facility (the
"Credit Documentation").
(ii) The Lenders shall have received all fees required to be paid, and
all expenses for which invoices have been presented.
(iii) The Lenders shall have received a first priority perfected
security interest in all of the Clearnet Stock (including the
delivery of stock certificates and stock transfer documents required
to effectuate such first priority perfected security interest), free
and clear of any and all other liens. In addition, the Lenders shall
have completed its due diligence with respect to NII's ability to pledge
the Clearnet Stock to the Lenders and related registration rights, and
completed its review of Canadian regulatory, ownership and enforcement
issues, and the Lenders shall be satisfied (in its sole discretion)
with the results of all of such due diligence.
(iv) The Lenders shall have completed to its satisfaction all due diligence
reviews (including the reviews described
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above and all other legal, regulatory and financial reviews) of NII and its
subsidiaries as it deems appropriate in its sole discretion.
(v) There shall be no breach of any covenant, representation, warranty,
or other Event of Default or an event which, with the giving of notice,
lapse of time, determination of materiality or fulfillment of any other
applicable condition (or any combination thereof) would constitute an
Event of Default under the MEFA.
(vi) Nextel shall have contributed as equity in NII the sum of (a) all
proceeds received from Motorola's exercise of certain warrants pursuant
to the Memorandum of Understanding dated April [___], 1999 by and
between Nextel and Motorola, Inc. (the "April 1999 MOU"), and (b) $50
million.
(vii) The Lenders shall have received opinions of outside counsel
(including, without limitation, foreign counsel) to NII (such counsel to
be reasonably acceptable to the Lenders) covering such matters as may
be reasonably requested by the Lenders.
(viii) NII shall have received all necessary consents and approvals
(regulatory or otherwise) to be obtained in connection with the
Facility, including, without limitation, any required consents under
the public note indentures of NII.
ON-GOING
CONDITIONS: The making of each extension of credit shall be conditioned upon (a) the accuracy of all
representations and warranties in the Credit Documentation (including, without limitation,
the material adverse change and litigation representations described below), and (b) there
being no default or event of default in existence at the time of such extension of credit
under either the Facility or the MEFA. As used herein and in the Credit Documentation a
"MATERIAL ADVERSE CHANGE" shall mean any event, development or circumstance that has had
or could reasonably be expected to have a material adverse effect on (a) the business,
assets, property, condition (financial or otherwise), or prospects of the Borrower taken
as a whole, (b) the legality, validity or enforceability of any of the Credit
Documentation or the rights and remedies of the MCC thereunder or (c) the economic,
political or regulatory environment in any jurisdiction that would reasonably be expected
to adversely affect
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the business, operations, properties or prospects of the Borrower taken as a whole.
VI. Certain Documentation Matters
-----------------------------
The Credit Documentation shall contain the representations and warranties,
covenants, events of default and all other terms and conditions contained in the
MEFA(to the extent not modified herein), plus such additional ones as agreed upon
by the parties.
ASSIGNMENTS AND
PARTICIPATIONS: The Lenders shall be permitted to assign all or any portion of the Loans, and/or to
sell participations in their Loans and commitments.
PAYMENTS: All payments of principal, interest and fees shall be made in U.S. dollars free of
all present and future taxes, levies, duties, withholdings and other deductions of
any nature.
EXPENSES AND
INDEMNIFICATION: NII shall pay (a) all reasonable out-of-pocket expenses of Lender associated with
the preparation, negotiation, documentation, execution, and delivery and
administration of the Credit Documentation including, without limitation, any
amendment or waiver with respect thereto (it being understood that, the portion of
such fees, disbursements and other charges of counsel, counsel fees and ordinary
expenses to be reimbursed by NII in connection with the preparation, execution and
delivery of the Credit Documentation shall be limited to U.S. $50,000 and (b) all
out-of-pocket expenses of the Lenders in connection with the enforcement of the
Lenders' rights against NII. In the event that Lenders determines that the Facility
will not be closed, such amounts shall become immediately due and payable by NII.
The Lenders (and their respective affiliates and officers, directors, employees,
advisors and agents) will have no liability for, and will be indemnified and held
harmless against, any loss, liability, cost or expense incurred in respect of the
financing contemplated hereby or the use or the proposed use of proceeds thereof
(except to the extent resulting from the gross negligence or willful misconduct
of the indemnified party).
GOVERNING LAW
AND FORUM: State of Illinois; NII and its subsidiaries will submit to the non-exclusive
jurisdiction of the courts of the State of Illinois.
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This Summary of Terms and Conditions is not meant to be, nor should it be
construed as, an attempt to define all of the terms and conditions of the
transactions contemplated hereby, nor is it intended to reflect specific
document phrasing that will exist in the Credit Documentation. It is intended
only to outline the basic points of business understanding around which binding
legal documentation will be structured.
MCC agrees with you to make reasonable efforts to close the Facility on or prior
to June 31, 1999. If, however, the Credit Documentation is not executed and
delivered as provided herein before August 31, 1999 the commitments hereunder
shall expire.
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1999 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 109,029
<SECURITIES> 0
<RECEIVABLES> 44,844
<ALLOWANCES> 13,128
<INVENTORY> 21,324
<CURRENT-ASSETS> 178,436
<PP&E> 498,360
<DEPRECIATION> 39,155
<TOTAL-ASSETS> 1,443,127
<CURRENT-LIABILITIES> 116,437
<BONDS> 1,396,602
0
98,886
<COMMON> 396,673
<OTHER-SE> (663,810)
<TOTAL-LIABILITY-AND-EQUITY> 1,443,127
<SALES> 0
<TOTAL-REVENUES> 19,861
<CGS> 0
<TOTAL-COSTS> 8,966
<OTHER-EXPENSES> 23,414
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,694
<INCOME-PRETAX> (165,003)
<INCOME-TAX> 279
<INCOME-CONTINUING> (165,282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (165,282)
<EPS-PRIMARY> (4.53)
<EPS-DILUTED> (4.53)
</TABLE>
